2014

Medifast, Inc. Announces Second Quarter 2012 Financial Results Second Quarter Revenue Increased 20% to $93.6 Million

Earnings per Diluted Share of $0.47 Exceeds Company Guidance, Excluding Non-Recurring Item

Company Provides Third Quarter 2012 Net Revenue Outlook of $88 to $91 Million and EPS of $0.37 to $0.40

OWINGS MILLS, Md., July 26, 2012 /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 second quarter ended June 30, 2012.

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

"We are very pleased with our sales and earnings results in the second quarter as we continued to execute our strategy to reduce costs and drive operational efficiencies throughout Take Shape for Life, Medifast Direct, and the Medifast Weight Control Center and Wholesale Physicians sales channels," commented Michael C. MacDonald, Medifast's Executive Chairman and Chief Executive Officer. "These efforts enabled us to generate a profit in the Medifast Weight Control Center and Wholesale Physicians segment. Going forward, we plan to focus our weight control center growth through new and existing franchisees to reduce our corporate capital investment and create higher returns as we continue to increase profitability across each of our sales channels and maximize shareholder value long-term."

Second Quarter 2012 Results
For the second quarter ended June 30, 2012, Medifast net revenue increased 20% to $93.6 million from net revenue of $78.3 million in the second quarter of the prior year.  Each of the Company's three primary distribution channels, Take Shape for Life, Direct Response Marketing, 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 13% to $55.7 million in the second quarter of 2012 compared to $49.3 million in the same period last year. Growth in revenue for Take Shape for Life was driven by an increase in the number of active health coaches, clients and client product sales. The Company ended the second quarter with approximately 10,200 active health coaches and the average revenue per health coach per month for the quarter increased 4% to $1,683 compared to $1,615 in the second quarter of 2011. The Company recently hosted a successful Take Shape for Life Annual Convention with approximately 2,400 attendees.  New health coach tools and website enhancements were launched to increase a coaches' ability to attract new clients and retain them in an effort to help them further grow their businesses.

The Company's direct response marketing channel revenue increased 17% to $22.5 million, compared to $19.3 million in second quarter of 2011. Marketing and advertising expenses increased to $8.0 million in the second quarter of 2012.  The Company reported a 2.8-to-1 revenue to spend ratio during the second quarter of 2012 and 2011. The Company continues to achieve a more effective advertising message, more targeted advertising through extensive analytical analysis, and additional public relations success in large national publications.

In the second quarter, the Medifast Weight Control Centers and Wholesale Physicians channel revenue increased 59% to $15.4 million, primarily due to strong organic growth from the opening of new corporate and franchise locations and a year-over-year improvement in comparable store sales of 19% for centers open greater than one year. The Company had 46 Medifast Weight Control Centers in the comparable store base at June 30, 2012. The Company opened 13 new centers in the second quarter for a total of 88 corporate and 32 franchise centers.  

Gross profit for the second quarter of 2012 increased 19% to $70.1 million, compared to $59 million in the second quarter of the prior year. The Company's gross profit margin decreased 40 basis points to 75.0% in the second quarter versus 75.4% in the second quarter of 2011. The gross profit margin decrease was primarily the result of increased commodity and shipping costs, as well as promotional incentives and discounts during the period.

Selling, general and administrative expenses increased $15.6 million to $65.5 million in the second quarter of 2012 versus $50.0 million last year. As a percent of net revenue, selling, general and administrative expenses were 70% compared to 64% in the second quarter of 2011. The largest increase in selling, general and administrative expenses was related to a $3.7 million expense associated with a proposed agreement with the Federal Trade Commission ("FTC"), resolving the FTC's non-public investigation of certain statements in the Company's advertising for its weight-loss programs, which the Company also disclosed in a separate release today and does not reflect the ongoing operating activities of the Company.  Excluding this charge, second quarter of 2012 selling, general and administrative expenses would have been $61.8 million or 66.1% of net revenue. 

Sequentially, selling, general and administrative expenses improved from 68.2% in the first quarter of 2012 to 66.1% of net revenue, excluding the one-time charge. The major improvement in selling, general, and administrative expenses occurred in the Medifast Weight Control Centers and Wholesale Physicians channel that reported a profit of $0.7 million compared to a loss of $2.2 million in the first quarter of 2012 due to expense savings primarily in personnel and advertising.

Operating income for the second quarter of 2012 was $4.6 million compared to $9 million in the same period a year ago. The operating margin decreased to 4.9% compared to 11.6% last year.  The decrease in operating income is due to the previously described increase in selling, general and administrative expenses. Excluding the previously mentioned one-time expense, operating income for the second quarter of 2012 would have been $8.3 million or 8.9% of net revenue. Sequentially, operating income improved from 6.9% in the first quarter of 2012 to 8.9% of net revenue in the second quarter of 2012, excluding the one-time charge.

The Company had an effective tax rate of 48.9% compared to 35% in the second quarter of 2011. The increased effective tax rate is a result of the FTC related expense not being deductible for income tax purposes.    The Company anticipates a tax rate of approximately 38 to 39% in fiscal 2012.  This is an increase from the 36 to 37% effective tax rate previously expected as a result of the one-time FTC non-deductible expense.

During the second quarter of 2012, the Company recorded a one-time $0.8 million gain in other income associated with proceeds from a key man insurance policy for the Company's former Executive Chairman of the Board.  This was offset by accelerated compensation expense of $0.4 million owed to the former Executive Chairman.   This was included in the Company's second quarter earnings expectations.

Net income for the second quarter of 2012 was $2.8 million, or $0.20 per diluted share, compared to net income of $5.9 million, or $0.41 per diluted share, for the comparable period last year. Excluding the second quarter expense previously mentioned, net income would have been $6.5 million, or $0.47 per diluted share.

Balance Sheet
The Company's balance sheet remains strong with stockholders' equity of $79.4 million and working capital of $48.9 million as of June 30, 2012.  Cash, cash equivalents, and investment securities for the second quarter of 2012 increased $22.8 million to $56.6 million compared to $33.8 million at December 31, 2011.

Outlook
The Company expects third quarter 2012 net revenue to increase in the range of 16% to 20% or $88 to $91 million.

Earnings per diluted share are expected to be in the range of $0.37 to $0.40 based on an average weighted diluted share count of 13.8 to 13.9 million shares.  Third quarter 2012 earnings guidance includes a $950,000 expense for the annual Take Shape for Life Convention. 

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 at 4:30 p.m. ET on July 26, 2012. 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 August 9, 2012. In addition, listeners may dial (877) 705-6003.

A telephonic playback will be available from 7:30 p.m. ET, July 26, 2012, through August 9, 2012. Participants can dial (877) 870-5176 to hear the playback and enter passcode 397537.

About Medifast
Medifast, Inc. (NYSE: MED) is a leading United States manufacturer and provider of clinically proven, portion-controlled weight-loss products and programs.  The Medifast brand has been recommended by over 20,000 doctors and used by over one million clients since 1980. The Company is committed to enriching lives by providing innovative choices for lasting health. Medifast programs have been proven effective through studies by researchers from major university teaching hospitals. 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) medically supervised Medifast Weight Control Centers, and 4) a national network of wholesale physicians and medical practices. Medifast was founded in 1980 and is located in Owings Mills, Maryland. For more information, please visit http://www.choosemedifast.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 Associates 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


CONDENSED CONSOLIDATED BALANCE SHEETS








(Unaudited)


(Audited)






June 30, 2012


December 31, 2011










ASSETS








Current assets:







Cash and cash equivalents



$ 37,120,000


$ 14,262,000


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





of $628,000 and $504,000


2,395,000


1,477,000


Inventory




16,265,000


19,969,000


Investment securities



19,436,000


19,538,000


Income taxes, prepaid



442,000


5,434,000


Prepaid expenses and other current assets

3,094,000


2,251,000


Deferred tax assets



748,000


1,055,000


        Total current assets



79,500,000


63,986,000










Property, plant and equipment - net


39,621,000


38,852,000


Trademarks and intangibles - net


741,000


1,003,000


Other assets




1,096,000


1,824,000










TOTAL ASSETS



$ 120,958,000


$ 105,665,000










LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:







Accounts payable and accrued expenses


$ 30,087,000


$ 18,830,000


Current maturities of long-term debt and capital leases

552,000


1,426,000


        Total current liabilities


30,639,000


20,256,000










Other liabilities







Long-term debt, net of current portion


3,225,000


3,337,000


Capital leases, net of current portion


841,000


914,000


Deferred tax liabilities



6,856,000


7,756,000


        Total liabilities



41,561,000


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 and outstanding

16,000


16,000


Additional paid-in capital



37,995,000


36,076,000


Accumulated other comprehensive income

432,000


396,000


Retained earnings



67,462,000


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


79,397,000


73,402,000










TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$ 120,958,000


$ 105,665,000






 


MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)










Three Months Ended June 30,


Six  Months Ended June 30,


2012


2011


2012


2011









Revenue

$     93,571,000


$     78,255,000


$   182,496,000


$        152,550,000

Cost of sales

23,431,000


19,214,000


45,600,000


36,829,000

Gross Profit

70,140,000


59,041,000


136,896,000


115,721,000









Selling, general, and administration

65,542,000


49,984,000


126,160,000


96,562,000









Income from operations

4,598,000


9,057,000


10,736,000


19,159,000









Other income








     Interest income/ (expense), net

90,000


79,000


162,000


142,000

     Other

814,000


6,000


938,000


122,000


904,000


85,000


1,100,000


264,000









Income before income taxes

5,502,000


9,142,000


11,836,000


19,423,000

Provision for income taxes

(2,689,000)


(3,198,000)


(5,032,000)


(7,121,000)









Net income

$       2,813,000


$       5,944,000


$       6,804,000


$          12,302,000









Basic earnings per share

$                0.20


$                0.42


$                0.50


$                     0.87

Diluted earnings per share

$                0.20


$                0.41


$                0.49


$                     0.85









Weighted average shares outstanding -








     Basic

13,747,000


14,175,990


13,711,961


14,219,532

     Diluted

13,834,264


14,461,316


13,779,595


14,489,759


















 

SOURCE Medifast, Inc.



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