Medifast, Inc. Announces Record First Quarter 2011 Financial Results

OWINGS MILLS, Md., May 9, 2011 /PRNewswire/ -- 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, 2011.

First Quarter 2011 Highlights Include:

• Net revenue increased 23% year-over-year to $74.3 million, compared to $60.6 million in 2010;
• Take Shape for Life revenue increased 25% year-over-year to $46.8 million;
• Gross profit margin increased 80 basis points to 76.3% compared to the prior year;
• Diluted earnings per share increased 33% year-over-year to $0.44, compared to $0.33 last year.

First Quarter 2011 Results

For the first quarter ended March 31, 2011, Medifast reported net revenue increased 23% to $74.3 million from net revenue of $60.6 million in the first quarter of the prior year.  Each of the Company's three primary distribution channels, Take Shape for Life, Direct Response Marketing, and Medifast Weight Control Centers, contributed to this strong year-over-year revenue increase.

Revenue in the direct sales channel, Take Shape for Life, increased 25% to $46.8 million in the first quarter of 2011 compared to $37.6 million in the same period last year. Growth in revenues for Take Shape for Life was driven by increased customer product sales as a result of an increase in active health coaches. The number of active health coaches increased 41% to approximately 10,000 compared to 7,100 in the first quarter of 2010. As a reminder, the number of active health coaches represents the number of health coaches receiving income from a product sale in the last month of the quarter.  The average revenue per health coach per month decreased 10% to $1,600 from $1,775 in first quarter of 2010.  The Company believes the slight decrease is due to the health coaches' anticipation of the new e-commerce platform, which was successfully launched late in the first quarter in mid March 2011. Prior to a major infrastructure update, it can be common for system end users to take their time becoming comfortable and confident on learning the new system. Since the launch of the new platform, The Company continues to receive tremendous feedback from both coaches and clients on the simplification of the user interface. The Company is confident the release of the new e-commerce platform will simplify the ordering process for the client, leading to improvement in the revenue per health coach statistic.  

The Company's direct response marketing channel revenue increased 18% to $19.3 million, compared to $16.4 million in first quarter of 2010. Marketing and advertising expenses increased approximately 18% to $6.8 million in the first quarter of 2011 compared to the same period last year.  Even with the increased advertising spend versus the prior year; the Company maintained a 2.8-to-1 revenue-to-spend ratio or return-on-advertising during the first quarter of 2011. The Company continues to experience a more effective advertising message through more targeted advertising based on extensive analytical research and improved call center closing rates.

In the first quarter, Medifast Weight Control Center and Medifast Wholesale Physician channel revenue increased 22% to $8.2 million, primarily due to strong organic growth and improved marketing and advertising effectiveness.  Comparable store sales increased approximately 7% for clinics open greater than one year. During the quarter, The Company successfully launched its new in store operating system, which is now being rolled out to all current and new locations. The system acts as a point of sale system, a training tool for personnel to better support their clients and a data base for clients' weight loss and maintenance statistics. The Company believes this scalable system will allow the centers to control and improve their ability to support clients on their weight loss goals. The Company opened one new center in the first quarter for a total of 40 corporate and 22 franchise clinics.

Gross profit for the first quarter of 2011 increased 24% to $56.7 million, compared to $45.8 million in the first quarter of the prior year. The Company's gross profit margin increased 80 basis points to 76.3% in the first quarter versus 75.5% in the first quarter of 2010.  The increased gross profit margin is primarily due to decreased shipping costs on products manufactured in-house as well as improved labor and overhead absorption associated with the second distribution opened in the second quarter of 2010 in Dallas, TX.

Selling, general and administrative expenses increased $9.1 million or 24% to $46.6 million in the first quarter of 2011. As a percent of net sales, selling, general and administrative expenses increased 80 basis points to 62.8% compared to 62% in the first quarter of 2010. The largest increases in selling, general and administrative expense were related to higher variable expenses, such as the addition of more personnel in the Medifast Weight Control Center sales channel to support the increased unit growth of 25 to 30 new centers in fiscal 2011, Take Shape for Life commission expense that's directly related to product sales and additional personnel hired to support the 25% increase in sales.

Operating income for the first quarter of 2011 increased 23% to $10.1 million compared to $8.2 million in the same period a year ago. The operating margin of 13.5% was consistent as compared to last year.

Net income for the first quarter of 2011 was $6.4 million, or $0.44 per diluted share, compared to net income of $4.9 million or $0.33 per share for the comparable period last year.

"We are very pleased with our increased sales momentum and gross margin expansion in the first quarter as our vertically integrated operations and increased capacity allowed us to improve the leverage of our business model and report strong earnings," stated Michael S. McDevitt, Medifast's Chief Executive Officer. "Our continued growth and improved financial results validates the consistent, growing awareness for Medifast's clinically tested physician-recommended products with consumers that are looking to achieve weight-loss and weight maintenance."

Mr. McDevitt continued, "We intend to remain focused on the investment and advancement of our corporate infrastructure and personnel to increase our consumer reach in new and existing markets utilizing innovative support, communication and marketing strategies, as well as the introduction of new products through added production and manufacturing capacity to support our future growth."  

Balance Sheet

The Company's balance sheet remains strong with stockholders' equity of $79.5 million and working capital of $51.2 million as of March 31, 2011.  Cash, cash equivalents, and investment securities increased 47% or $16 million to $50.4 million, as a result of improved operating cash flow.  

"The Board of Directors is pleased with the consistent broad-based growth across each of Medifast's three primary distribution channels, including Take Shape for Life, Direct Response, and the Medifast Weight Control Centers," commented Colonel Brad MacDonald, (Ret.), Executive Chairman of the Board of Directors of Medifast, Inc. "Medifast's three primary distribution channels continue to provide a complementary source of personalized support for clients to connect and share Medifast's clinically proven weight-loss programs."

Outlook

The Company estimates the full year advertising spend to increase by 20 to 25%, as compared to 2010, while successfully maintaining a revenue-to-spend ratio of 2.8-to-1.

Gross profit margin is expected to improve 50 basis points in fiscal 2011 as compared to the prior year, due to reduced shipping costs and continued manufacturing efficiencies with full year expectations.

In the second quarter of 2011, the Company plans to open six new Medifast Weight Control Centers in new and existing markets with expectations to open 25 to 30 new corporate centers throughout the 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 May 23, 2011. In addition, listeners may dial (877) 407-0784 in North America, and international listeners may dial (201) 689-8560. Participants from the Company will be Michael S. McDevitt, Chief Executive Officer, and Brendan Connors, Chief Financial Officer.

A telephonic playback will be available from 8:30 p.m. ET, May 9, 2011, through May 23, 2011. Participants can dial (877) 870-5176 in North America, and international participants can dial (858) 384-5517 to hear the playback and enter passcode 371823.

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 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

SOURCE Medifast, Inc.