Medifast, Inc. Announces Record First Quarter 2010 Financial Results

OWINGS MILLS, Md., May 5 /PRNewswire-FirstCall/ -- Medifast, Inc. (NYSE: MED), a leading provider of clinically proven portion-controlled weight-loss programs, today reported financial results for the first quarter ended March 31, 2010.

First Quarter 2010 Highlights Include:

• Net revenue increased 75% year-over-year to $60.6 million, compared to $34.6 million in 2009;
• Take Shape for Life revenue increased 94% year-over-year to $37.6 million;
• Active health coaches increased 78% to 7,100 coaches compared to 4,000 last year;
• Medifast Weight Control Center comparable store sales increased 30% year-over-year;
• Gross profit margin increased 140 basis points to 75.5% compared to the prior year;
• Diluted earnings per share increased 94% to $0.33, compared to $0.17 last year.

For the first quarter ended March 31, 2010, Medifast reported net revenue increased 75% to $60.6 million from net revenue of $34.6 million in the first quarter of the prior year. Each of the Company's three primary distribution channels; Take Shape for Life, Direct Response, and Medifast Weight Control Centers, contributed to this strong year-over-year increase by generating record first quarter results.

Revenues in the direct sales channel, Take Shape for Life, increased 94% to $37.6 million in the first quarter of 2010 compared to $19.4 million in the same period last year. This growth was driven by increased client product sales and increased revenue generated per health coach as result of a record increase in the number of active health coaches. The number of active health coaches increased 78% to approximately 7,100 compared to 4,000 in the first quarter of 2009.

The Company's direct response channel revenue increased 43% to $16.4 million, compared to $11.4 million in first quarter of 2009. On the Company's planned increase in marketing and advertising expenses by approximately 34% or $5.8 million, the direct response channel generated a 2.8 to 1 revenue-to-spend ratio during the first quarter of 2010 compared to a 2.6 to 1 ratio in 2009.

In the first quarter, Medifast Weight Control Center channel revenue increased 75% to $6.6 million, primarily due to record organic growth, improved marketing and advertising effectiveness, and increased revenue per customer, compared to the first quarter of 2009. Comparable store sales increased 30% for the first quarter of 2010 for clinics open greater than one year. The company ended the first quarter with 27 corporate and 18 franchise clinics.

"We continue to experience very strong growth in each of our multi-platform distribution channels. Increasingly the Take Shape for Life, Direct Response, and Medifast Weight Control Center channels are providing a complimentary source of support for health coaches and clients to connect and share Medifast's clinically proven weight-loss programs," said Michael S. McDevitt, Medifast's chief executive officer. "We will expand our platform by strategically investing in our infrastructure and enhancing our message to reach more consumers in both new and existing markets in the future."

Mr. McDevitt continued, "We believe our vertically integrated operations and increased capacity allow us to continually improve the long-term leverage of our business model by expanding our margins and long-term profitable growth. We look forward to building upon the record achievements during the first quarter in 2010."

Gross profit for the first quarter of 2010 increased 78.6% to $45.8 million, compared to $25.6 million in the first quarter of the prior year. The Company's gross profit margin increased 140 basis points to 75.5% in the first quarter versus 74.1% in the first quarter of 2009. Overall, the gross profit margin improvement was primarily due to improved pricing on raw materials and packaging, as well as increased manufacturing efficiencies. In addition, due to the growth of the business, shipping revenue has increased and is now recognized in the Company's consolidated revenue. Previously, shipping revenue was netted against shipping expense in the Company's cost of sales.

Operating income for the first quarter of 2010 was $8.2 million compared to $4.0 million in the same period a year ago. The Company's operating margin expanded 190 basis points to 13.5% from 11.6% for the same period last year. This improvement was due to strong net revenue growth that helped drive improved gross margin, increased leverage of sales and marketing expenses, and the overall strength of the Company's proven business model.

Net income for the first quarter of 2010 was $4.9 million, or $0.33 per diluted share, compared to net income of $2.5 million or $0.17 per share for the comparable period last year.

Operating cash flow increased to $14.2 million for the first quarter of 2010 compared to $5.3 million in the same period last year.

Colonel Brad MacDonald, (Ret.), Chairman of the Board of Directors of Medifast, Inc. commented, "The Board of Directors is extremely pleased with the fact that our recent first quarter of 2010 results mark Medifast's 42nd consecutive quarter of profitable growth. With over 30 years of clinically proven results and products recommended by over 20,000 physicians, Medifast is a differentiated leader in the medical weight loss marketplace and we believe this continues to be a key factor of our current and future success."

Balance Sheet

The Company's balance sheet remains strong with stockholders' equity of $55.3 million and working capital of $33.1 million as of March 31, 2010. Cash, cash equivalents, and investment securities increased 72% or $11.7 million to $28 million, as a result of improved operating cash flow.

Outlook

The Company continues to expect gross profit margin improvement in the range of 50 to 100 basis points in 2010 as compared to the prior year, due to a decrease in the cost of each unit sold and continued manufacturing efficiencies. The Company also continues to anticipate the full year 2010 advertising spend to increase by 15 to 20% compared to last year.

The full year tax rate is expected to be in the range of 39% to 40% and full year diluted shares outstanding of approximately 14.8 to 15.0 million compared to 2009.

In 2010 the Company plans to open 13 to 15 new Medifast Weight Control Centers with the proven model of providing one-on-one support through a personal counselor and personalized program.

Conference Call Information

The Company will host a conference call to discuss these results with additional comments and details. Participants from the Company will be Michael S. McDevitt, Chief Executive Officer, and Brendan Connors, Vice President of Finance.

The conference call is scheduled to begin at 4:30 p.m. EDT on May 5, 2010. 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 May 19, 2010. In addition, listeners may dial (877) 407-4018 in North America, and international listeners may dial (201) 689-8471.

A telephonic playback will be available from 7:30 p.m. EDT, May 5, 2010, through May 19, 2010. Participants can dial (877) 660-6853 to hear the playback. The account number is 3055 and the passcode is 349602.

About Medifast

Medifast, Inc. (NYSE: MED) is a leading provider of clinically proven, portion-controlled weight-loss programs. Medifast 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 major universities. 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 physicians. 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.

SOURCE Medifast, Inc.