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Medifast, Inc. Announces Fourth Quarter and Fiscal Year 2012 Financial Results

Fourth Quarter Net Revenue Increased 20% to $83.2 Million

Company Reports Fourth Quarter Earnings per Diluted Share of $0.28, Excluding a Non-Recurring $2.0 Million Sales Tax Accrual Net of Tax

Company Introduces Fiscal Year 2013 Revenue and Earnings Guidance

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OWINGS MILLS, Md., March 7, 2013 /PRNewswire/ -- Medifast, Inc. (NYSE: MED), a leading United States manufacturer and provider of clinically proven, portion-controlled weight-loss products and programs, today reported financial results for the fourth quarter and fiscal year ended December 31, 2012.

(Logo: http://photos.prnewswire.com/prnh/20120613/NE24271LOGO-b )

"We are pleased with our ability to execute on our strategic initiatives in 2012 as we focused on driving operating efficiencies to maximize profitability long-term. Our team continues to generate improvements throughout our business with double-digit sales increases and higher profitability in Take Shape for Life, Medifast Direct, and the Medifast Weight Control Center and Wholesale Physicians sales channels," commented Michael C. MacDonald, Medifast's Chairman and Chief Executive Officer. "In the fourth quarter we generated net revenue at the high-end of our expectations and earnings above our expectations, excluding a $2.0 million sales tax accrual net of tax."

Mr. MacDonald concluded, "We are optimistic about the full year of 2013 and our ability to drive revenue and earnings growth as we increase expansion into new markets, grow our brand awareness, and continue our ongoing focus to increase operational efficiencies."

Fourth Quarter 2012 Results    
For the fourth quarter ended December 31, 2012, Medifast net revenue increased 20% to $83.2 million from net revenue of $69.6 million in the fourth quarter of the prior year.  Each of the Company's three primary distribution channels, Take Shape for Life, Medifast Direct, Medifast Weight Control Centers and Wholesale Physicians, contributed to this year-over-year revenue increase.

Revenue in the direct sales channel, Take Shape for Life, increased 20% to $51.8 million in the fourth quarter of 2012 compared to $43.3 million in the same period last year. Growth in revenue for Take Shape for Life was driven by increased customer product sales as a result of an increase in the number of active health coaches and an increase in the monthly revenue per health coach. The Company ended the fourth quarter with approximately 10,200 active health coaches and the average revenue per health coach per month for the quarter increased 8% to $1,571 compared to $1,452 in the fourth quarter of 2011.

The Company's Medifast Direct channel revenue increased 17% to $18.2 million, compared to $15.6 million in the fourth quarter of 2011.  The Company reported a 3.2-to-1 revenue to spend ratio during the fourth quarter of 2012 compared to 2.8-to-1 in the same period last year. The Company continues to achieve a more effective advertising message.  Revenues in this channel were driven primarily by targeted customer advertising on-line, across local radio, and by highlighting customer successes in large national publications and on television.

In the fourth quarter, the Medifast Weight Control Centers and Wholesale Physicians channel revenue increased 24% to $13.3 million, due to organic growth from the opening of new corporate and franchise locations throughout the year and a year-over-year improvement in comparable store sales of 4% for centers open greater than one year. The Company had 68 Medifast Weight Control Centers in the comparable store base as of December 31, 2012. The Company ended the fourth quarter with a total of 87 corporate and 35 franchise centers.  Going forward, the Company expects to expand the number of franchise locations and continue to enhance the customer experience and profitability at corporate centers.

Gross profit for the fourth quarter of 2012 increased 20% to $62.8 million, compared to $52.3 million in the fourth quarter of the prior year. The Company's gross profit margin increased 30 basis points to 75.5% in the fourth quarter versus 75.2% in the fourth quarter of 2011. Gross margin improvement during the quarter was a result of the Company reducing discounts across all of the Company's sales channels and a slight improvement in overhead costs as a percentage of sales.

Selling, general and administrative expenses include a sales tax liability of approximately $3.3 million before income tax and $2.0 million after income tax. The focus of sales tax on internet based remote sellers has gained momentum in many states.  Because of this, combined with the desire of the Company to create symmetry among all sales channels, they have re-aligned their position to be more consistent with other major internet remote sellers and will now be collecting and remitting sales tax in all states that impose sales or use taxes.  In order to mitigate the financial impact on any prior year activity, the company is taking advantage of voluntary disclosure agreements with various states. Selling, general and administrative expenses excluding a non-recurring sales tax accrual of $2.0 million net after tax or $0.14 per diluted share, in the fourth quarter of 2012, increased $5.2 million to $56.0 million versus $50.8 million in the fourth quarter last year. As a percent of net revenue, selling, general and administrative expenses decreased to 67.2% from 73.0% in the fourth quarter of 2011. Reported selling, general and administrative expenses increased $8.4 million to $59.2 million in the fourth quarter of 2012 versus $50.8 million in the fourth quarter last year. As a percent of net revenue, selling, general and administrative expenses decreased to 71.1% from 73.0% in the fourth quarter of 2011.

Operating income, excluding the $2.0 million sales tax accrual net of tax described above was $6.9 million, or 8.2% as a percent of net revenue, compared to $1.5 million, or 2.2% as a percent of net revenue in the fourth quarter of 2011. Operating income as reported was $3.6 million for the fourth quarter of 2012.

The Company had an effective tax rate of 49.6% compared to 19.0% in the fourth quarter of 2011. The increase in the effective tax rate was the result of the recording of a sales tax accrual of $2.0 million net of tax recorded in the fourth quarter. The Company anticipates a tax rate of approximately 33% in the first quarter of 2013. 

Net income, excluding the sales tax accrual would have been $3.9 million, or $0.28 per diluted share based on approximately 13.8 million shares outstanding compared to net income of $1.2 million, or $0.08 per diluted share, for the comparable quarter last year.  Reported net income in the fourth quarter of 2012 was $1.9 million, or $0.13 per diluted share.

Fiscal Year 2012   
For the fiscal year ended December 31, 2012, Medifast reported a net revenue increase of approximately 20% to $356.7 million from net revenue of $298.2 million in 2011.  Each of the Company's three primary distribution channels, Take Shape for Life, Medifast Direct, and Medifast Weight Control Centers and Wholesale Physicians, contributed to this year-over-year revenue increase.

Net income for the fiscal year 2012 increased $3.1 million to $21.6 million, or $1.57 per diluted share, excluding two non-recurring items, including a FTC settlement recorded in the second quarter of $3.7 million, or $0.27 per diluted share, and a sales tax accrual of $2.0 million net of tax, or $0.14 per diluted share, in the fourth quarter of 2012.  This compares to net income of $18.5 million, or $1.31 per share for the comparable period last year. Reported net income for fiscal year 2012 was $15.9 million, or $1.16 per diluted share.

Balance Sheet   
The Company's balance sheet remains strong with stockholders' equity of $90.8 million and working capital of approximately $59.8 million as of December 31, 2012.  Cash, cash equivalents, and investment securities for the fourth quarter of 2012 increased $26.2 million to $60.0 million compared to $33.8 million at December 31, 2011.

Outlook   
The Company expects first quarter 2013 net revenue to be in the range of $93 to $95 million. Earnings per diluted share are expected to be in the range of $0.32 to $0.35.  Due to the Easter holiday, the last business day in the first quarter of 2013 is Thursday, March 28th as compared to Friday, March 30th in the first quarter of 2012.

For fiscal year 2013 the Company expects net revenue to be in the range of $385 to $400 million and earnings per diluted share are expected to be in the range of $1.70 to $1.80 as compared to the 2012 fiscal year. 

Conference Call Information   
The Company will host a conference call to discuss these results with additional comments and details. The conference call is scheduled to begin today, at 4:30 p.m. ET. The call will be broadcast live over the Internet hosted at the Investor Relations section of Medifast's website at www.choosemedifast.com, and will be archived online through March 21, 2013. In addition, listeners may dial (877) 705-6003.

A telephonic playback will be available from 7:30 p.m. ET, March 7, 2013, through March 21, 2013. Participants can dial (877) 870-5176 to hear the playback and enter passcode 408189.

About Medifast  

Medifast (NYSE: MED) is the leading easy-to-use, clinically proven, portion-controlled weight-loss program. The company sells its products and programs via four unique distribution channels: 1) the web and national call centers, 2) the Take Shape For Life personal coaching division, 3) Medifast Weight Control Centers, and 4) a national network of physicians. Medifast was founded in 1980 and is located in Owings Mills, Maryland. For more information, log onto www.MedifastNow.com.

Forward Looking Statements   

Please Note: This release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by use of phrases or terminology such as "intend" or other similar words or the negative of such terminology. Similarly, descriptions of Medifast's objectives, strategies, plans, goals or targets contained herein are also considered forward-looking statements. Medifast believes this release should be read in conjunction with all of its filings with the United States Securities and Exchange Commission and cautions its readers that these forward-looking statements are subject to certain events, risks, uncertainties, and other factors. Some of these factors include, among others, Medifast's inability to attract and retain independent Health Coaches and Members, stability in the pricing of print, TV and Direct Mail marketing initiatives affecting the cost to acquire customers, increases in competition, litigation, regulatory changes, and its planned growth into new domestic and international markets and new channels of distribution. Although Medifast believes that the expectations, statements, and assumptions reflected in these forward- looking statements are reasonable, it cautions readers to always consider all of the risk factors and any other cautionary statements carefully in evaluating each forward-looking statement in this release, as well as those set forth in its latest Annual Report on Form 10-K and Quarterly Report on Form 10-Q, and other filings filed with the United States Securities and Exchange Commission, including its current reports on Form 8-K. All of the forward-looking statements contained herein speak only as of the date of this release.

 MED-F

 


MEDIFAST, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


As of December 31, 2012 and 2011














2012


2011










ASSETS








Current assets:







Cash and cash equivalents


$              39,937,000


$             14,262,000


Accounts receivable-net of allowance for sales returns and doubtful accounts 





      of $542,000 and $504,000


2,148,000


1,477,000


Inventory




20,804,000


19,969,000


Investment securities



20,057,000


19,538,000


Income taxes, prepaid



873,000


5,434,000


Prepaid expenses and other current assets

3,296,000


2,251,000


Deferred tax assets



1,460,000


1,055,000


     Total current assets



88,575,000


63,986,000










Property, plant and equipment - net


40,109,000


38,852,000


Trademarks and intangibles - net


428,000


1,003,000


Other assets



1,139,000


1,824,000










                    TOTAL ASSETS



$            130,251,000


$           105,665,000










LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:







Accounts payable and accrued expenses

$              28,221,000


$             18,830,000


Current maturities of long-term debt and capital leases

528,000


1,426,000


     Total current liabilities


28,749,000


20,256,000










Other liabilities 







Long-term debt, net of current portion


3,113,000


3,337,000


Capital leases, net of current portion


696,000


914,000


Deferred tax liabilities



6,907,000


7,756,000


     Total liabilities



39,465,000


32,263,000










Stockholders' Equity:







Preferred stock, $.001 par value (1,500,000 authorized, no shares issued and outstanding)

-


-


Common stock; par value $.001 per share; 20,000,000 shares authorized;





      15,525,955 and 15,510,185 issued; 13,721,997 and 13,965,018 issued and outstanding

16,000


16,000


Additional paid-in capital



40,191,000


36,076,000


Accumulated other comprehensive income 

553,000


396,000


Retained earnings 



76,534,000


60,658,000


Less: cost of 1,608,908 and 1,458,908 shares of common stock in treasury

(26,508,000)


(23,744,000)


Total stockholders' equity


90,786,000


73,402,000










TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$            130,251,000


$           105,665,000

 

MEDIFAST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME




















Three Months Ended December 31,



Years Ended December 31,


2012


2011



2012


2011










Revenue

$     83,243,000


$     69,572,000



$   356,706,000


$   298,189,000

Cost of sales

20,439,000


17,239,000



88,671,000


73,693,000

Gross Profit

62,804,000


52,333,000



268,035,000


224,496,000










Selling, general, and administration

59,205,000


50,821,000



244,773,000


197,114,000










Income from operations

3,599,000


1,512,000



23,262,000


27,382,000










Other income









Interest and dividend income, net

74,000


78,000



301,000


319,000

Other income (expense)

(29,000)


(137,000)



895,000


(21,000)


45,000


(59,000)



1,196,000


298,000










Income before income taxes

3,644,000


1,453,000



24,458,000


27,680,000

Provision for income taxes

(1,779,000)


(284,000)



(8,582,000)


(9,139,000)










Net income

$       1,865,000


$       1,169,000



$     15,876,000


$     18,541,000










Basic earnings per share

$                0.14


$                0.08



$                1.16


$                1.33

Diluted earnings per share

$                0.13


$                0.08



$                1.16


$                1.31










Weighted average shares outstanding -









     Basic

13,759,381


13,965,018



13,721,997


13,965,018

     Diluted

13,831,940


14,198,495



13,739,824


14,198,495

 

Medifast, Inc and Subsidiaries

Supplemental Information - Reconciliation of Non-GAAP Financial Measures



Three Months Ended December 31, 



Years Ended December 31, 


2012


2011



2012


2011










Income from operations

$         3,599,000


$         1,512,000



$       23,262,000


$       27,382,000

Adjustments









Sales Tax Expense Accrual

3,256,000


-



3,256,000


-

FTC Settlement Expense

-


-



3,700,000


-

Adjusted Income from operations

$         6,855,000


$         1,512,000



$       30,218,000


$       27,382,000




















Three Months Ended December 31, 



Years Ended December 31, 


2012


2011



2012


2011










Net income

$         1,865,000


$         1,169,000



$       15,876,000


$       18,541,000

Adjustments









Sales Tax Expense Accrual

2,026,000


-



2,026,000


-

FTC Settlement Expense

-


-



3,700,000


-

Adjusted net income

$         3,891,000


$         1,169,000



$       21,602,000


$       18,541,000










Diluted earnings per share

$                  0.13


$                  0.08



$                  1.16


$                  1.31

Impact for adjustments

0.15


-



0.41


-

Adjusted diluted earnings per share

$                  0.28


$                  0.08



$                  1.57


$                  1.31










The weighted-average diluted shares outstanding used in the calculation of these non-recurring items are the same as the weighted-average
shares outstanding used in the calculation of the reported per share amounts.










Weighted average shares outstanding -









     Basic

13,759,381


13,965,018



13,721,997


13,965,018

     Diluted

13,831,940


14,198,495



13,739,824


14,198,495

 

 

SOURCE Medifast, Inc.



RELATED LINKS
http://www.MedifastNow.com

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