Medifast, Inc. Announces Second Quarter 2010 Financial Results

OWINGS MILLS, Md., Aug. 5 /PRNewswire-FirstCall/ -- Medifast, Inc. (NYSE: MED), a leading provider of clinically proven portion-controlled weight-loss programs, today reported financial results for the second quarter ended June 30, 2010.

Second Quarter 2010 Highlights Include:

• Net revenue increased 60% year-over-year to $66.7 million, compared to $41.7 million in 2009;
• Take Shape for Life revenue increased 71% year-over-year to $42 million;
• Active health coaches increased 72% to 8,000 coaches compared to 4,650 last year;
• Medifast Weight Control Center comparable store sales increased 25% year-over-year;
• Operating profit margin increased 240 basis points to 13.9% compared to the prior year;
• Diluted earnings per share increased 90% to $0.38, compared to $0.20 last year.

For the second quarter ended June 30, 2010, Medifast reported net revenue increased 60% to $66.7 million from net revenue of $41.7 million in the second 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 revenue increase.

This growth was driven by strong increases in the number of active health coaches and  increased revenue generated per health coach, which is the result of increased client product sales. Revenues in the direct sales channel, Take Shape for Life, increased 71% to $42 million in the second quarter of 2010 compared to $24.6 million in the same period last year. The number of active health coaches increased 72% to approximately 8,000 compared to 4,650 in the second quarter of 2009. In addition, at the beginning of the third quarter of 2010, Medifast, Inc. hosted its Annual Take Shape for Life Annual Convention with a 62% increase in attendance to 2,100 compared to 1,300 last year.

The Company's direct response channel revenue increased 43% to $17.3 million, compared to $12.1 million in second quarter of 2009. Regarding the Company's increase in marketing and advertising expenses by approximately 38% to $6.2 million, the direct response channel generated a 2.8-to-1 revenue-to-spend ratio or return-on-advertising during the second quarter of 2010 compared to a 2.7-to-1 ratio in 2009.

In the second quarter, Medifast Weight Control Center channel revenue increased 60% to $6.7 million, primarily due to strong organic growth, improved marketing and advertising effectiveness, and an increased number of clients seeking additional support and accountability in their weight-loss and weight maintenance compared to the second quarter of 2009.  Comparable store sales increased 25% for the second quarter of 2010 for clinics open greater than one year.  The company ended the second quarter with 29 corporate and 20 franchise clinics.

"We are extremely pleased with Medifast's strong second quarter revenue and earnings performance.  Our multi-platform distribution channels continue to provide a complementary source of support for Medifast  direct response, weight loss clinics and  health coaches to connect with clients in ways they prefer and share Medifast's clinically proven weight-loss programs," said Michael S. McDevitt, Medifast's Chief Executive Officer. "We started the second half of the year with a 62% increase in attendance at the Take Shape for Life Annual Convention; and we believe this combined with the addition of at least 11 new Medifast Weight Control Centers, and a strong, efficient investment in Direct Response advertising provides strong momentum for the second half of 2010."  

Mr. McDevitt continued, "Going forward, we are confident that our vertically integrated operations and increased capacity will allow us to continually improve the long-term leverage of our business model by expanding our margins and future long-term profitable growth."  

Gross profit for the second quarter of 2010 increased 61% to $49.5 million, compared to $30.8 million in the second quarter of the prior year. The Company's gross profit margin increased 30 basis points to 74.2% in the second quarter versus 73.9% in the second 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, partially offset by short-term increased costs in April associated with shipments of product to clients, as a result of the need to expedite shipments due to a delay in outbound shipping verifications.   By the end of April 2010 all shipping verifications were restored and costs resumed a normalized level for the remainder of the second quarter of 2010.

Operating income for the second quarter of 2010 increased 93% to $9.3 million compared to $4.8 million in the same period a year ago. The Company's operating margin expanded 240 basis points to 13.9% from 11.5% for the same period last year.  This improvement was due to strong net revenue growth that helped drive 210 basis points of selling, general, and administrative expense leverage as well as the continued overall strength of the Company's proven business model.

Net income for the second quarter of 2010 was $5.6 million, or $0.38 per diluted share, compared to net income of $3.0 million or $0.20 per share for the comparable period last year.

Net increase in cash and cash equivalents for the first six months of 2010 was $13.6 million or 10.7% of sales compared to $9.3 million in the same period last year

Colonel Brad MacDonald, (Ret.), Executive Chairman of the Board of Directors of Medifast, Inc. commented, "The Board of Directors is extremely pleased with the fact that each of Medifast's primary distribution channels delivered strong, profitable growth in the second quarter.  Medifast continues to be a leader in the medical weight-loss marketplace and we believe our multi-platform program will provide consistent, long-term growth."

In July, the Company announced the grand opening of a 50,000 square foot distribution center in Dallas, Texas. The facility includes 5,100 square feet of office and conference space, with both distribution and contact center capabilities. Medifast's Texas Distribution Center is expected to reduce transit times considerably for West Coast clients.

Balance Sheet

The Company's balance sheet remains strong with stockholders' equity of $61.9 million and working capital of $38.2 million as of June 30, 2010.  For the first six months of 2010, cash, cash equivalents, and investment securities increased 91% or $14.8 million to $31.2 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 anticipates the full year 2010 advertising spend to increase by 25 to 30% with a revenue-to-spend ratio of 2.8-to-1.

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.

In the second half of 2010, the Company plans to open an additional 11 to 13 new Medifast Weight Control Centers with the proven model of providing one-on-one support through a personal counselor and personalized program.  The Company opened three centers in the first half of 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 at 9:00 a.m. EDT on August 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 August 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 12:00 p.m. EDT, August 5, 2010, through August 19, 2010. Participants can dial (877) 660-6853 to hear the playback. The account number is 3055 and the passcode is 354580.

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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.

SOURCE Medifast, Inc.