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Medifast, Inc. Announces First Quarter 2020 Financial Results

Seeking Alpha
Medifast, Inc. Announces First Quarter 2020 Financial Results

|PR Newswire|About: MED

Q1: 05-05-20 Earnings Summary

EPS of $1.93 beats by $0.61
 
Revenue of $178.46M (7.59% Y/Y) beats by $12.66M

BALTIMORE, May 5, 2020 /PRNewswire/ -- Medifast (MED), the company behind one of the fastest-growing health and wellness communities, OPTAVIA®, today reported results for the first quarter ended March 31, 2020.

https://mma.prnewswire.com/media/686712/MED_MED_IDN_03_Medifast_Logo_CMYK.jpg

First Quarter 2020 Highlights Compared to Prior-Year Period

  • Revenue increased 7.6% to $178.5 million

  • 19.9% growth in active earning OPTAVIA Coaches to 32,600

  • Net income decreased 11.0% to $18.5 million

  • Non-GAAP adjusted net income increased 10.2% to $22.9 million

  • Earnings per diluted share ("EPS") of $1.56, a decrease of 8.2%

  • Non-GAAP adjusted earnings per diluted share of $1.93, a 13.5% increase

  • Declared a quarterly cash dividend of $13.4 million, or $1.13 per share payable on May 6, 2020, an increase of over 50% compared to the prior-year period

  • Strong financial position with $105.3 million of cash, cash equivalents and investment securities with no debt.

"We had a strong start to the year, with revenue and EPS exceeding guidance driven by a record number of active earning OPTAVIA coaches. Our performance demonstrates the compelling fundamentals of our business, and the resonance of our products and services with Coaches and Clients in the United States and increasingly around the world. We have a highly attractive financial model and a strong balance sheet that positions the Company for long-term growth, and we are seeing encouraging trends as our community of independent OPTAVIA Coaches adapts to new ways of working and interacting with their clients. Our organization has reacted well to the challenges of the global COVID-19 pandemic and we've made adjustments to our planned programs to reflect the new operating environment. While the full impact of the pandemic is unpredictable and difficult to forecast, we feel highly confident in our ability to drive demand and deliver effectively for our OPTAVIA Coaches and their clients," said Dan Chard, Chief Executive Officer of Medifast.

First Quarter 2020 Results

First quarter revenue increased 7.6% to $178.5 million from revenue of $165.9 million for the first quarter of 2019. OPTAVIA-branded products represented 79% of consumable units sold for the first quarter compared to 73% for the same period a year ago.

The total number of active earning OPTAVIA Coaches increased 19.9% to 32,600, compared to 27,200 for the first quarter of 2019. The average revenue per active earning OPTAVIA Coach decreased 8.3% to $5,333 compared to $5,817 for the first quarter last year.

Gross profit increased 8.1% to $135.2 million from $125.1 million for the first quarter of 2019. The Company's gross profit as a percentage of revenue increased 40 basis points year-over-year to 75.8% from 75.4%, which was the result of our price increase taken mid-year 2019 coupled with a reduction of sales discounts realized during the first quarter of 2020 as compared to a year ago.  

Selling, general and administrative expenses ("SG&A") increased $11.3 million to $111.7 million compared to $100.4 million for the first quarter of 2019, primarily due to higher OPTAVIA commission expense, incremental professional service costs in connection with the Schedule 13D filing, increased salaries and benefits and severance. SG&A as a percentage of revenue increased 210 basis points year-over-year to 62.6% of revenue. Non-GAAP adjusted SG&A increased $5.7 million to $106.1 million and Non-GAAP adjusted SG&A as a percentage of revenue decreased 100 basis points year-over-year to 59.5%.  Non-GAAP adjusted SG&A excludes expenses in connection with the Schedule 13D filing of $4.6 million and severance costs of $1.0 million resulting from organizational change with the Company's CFO.

Income from operations decreased $1.2 million to $23.5 million from $24.7 million in the prior-year period as increased gross profit was offset by increased SG&A. Income from operations as a percentage of revenue was 13.2% for the quarter, a decrease of 170 basis points from the year-ago period. Non-GAAP adjusted income from operations increased $4.4 million to $29.1 million. Non-GAAP adjusted income from operations as a percentage of revenue was 16.3%, an increase of 140 basis points from the year-ago period.

The effective tax rate was 21.8% for the first quarter of 2020 compared to a 17.1% expense in the year-ago period.  The increase in the first quarter effective tax rate primarily reflects the impact of an increase in the state tax rate and a decrease in tax benefit of stock compensation.

First quarter net income was $18.5 million, or $1.56 per diluted share, based on approximately 11.8 million shares outstanding. Non-GAAP adjusted net income was $22.9 million, or $1.93 per diluted share. First quarter 2019 net income was $20.8 million, or $1.70 per diluted share, based on approximately 12.2 million shares outstanding.   

Balance Sheet

The Company's balance sheet remains strong with cash, cash equivalents, and investment securities of $105.3 million as of March 31, 2020 compared to $92.7 million at December 31, 2019. The Company remains free of interest-bearing debt.

The Company declared a quarterly cash dividend of $13.4 million, or $1.13 per share that is payable on May 6, 2020. The Company did not repurchase any shares during the first quarter of 2020.  There are approximately 2,369,000 shares of common stock remaining under the Company's share repurchase program. Medifast expects to maintain a program of paying dividends on a quarterly basis.

Outlook

The Company cannot reasonably estimate the extent and duration of the business and macroeconomic impacts, and related financial impacts to the Company, from the COVID-19 pandemic. The Company intends to update its guidance for full year 2020 when it can reasonably estimate the impact.

Conference Call Information

The conference call is scheduled for today, Tuesday, May 5, 2020 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.MedifastInc.com, and will be archived online through May 19, 2020. In addition, listeners may dial (855) 560-2579.

A telephonic playback will be available from 6:30 p.m. ET, May 5, 2020, through May 12, 2020. Participants can dial (877) 344-7529 to hear the playback and enter passcode 10143084.

About Medifast®:

Medifast is the company behind one of the fastest-growing health and wellness communities, OPTAVIA®, which offers Lifelong Transformation, One Healthy Habit at a Time®. Based on nearly 40 years of experience, Medifast has redefined direct selling by combining the best aspects of the model. Its community of thousands of independent OPTAVIA Coaches teach Clients to develop holistic healthy habits through products and clinically proven plans, the Habits of Health® Transformational System and comprehensive support from a community of like-minded people. In 2019, Medifast expanded the OPTAVIA movement globally, beginning with the Asia-Pacific region.  Medifast is traded on the New York Stock Exchange and was named to Fortune's 100 Fastest-Growing Companies list in 2019 and Forbes' 100 Most Trustworthy Companies in America List in 2016 and 2017. For more information, visit www.MedifastInc.com or www.OPTAVIA.com.

MED-F

Financial Disclaimer

OPTAVIA makes no guarantee of financial success. Success with OPTAVIA results from successful sales efforts, which require hard work, diligence, skill, persistence, competence, and leadership. Please see the OPTAVIA Income Disclosure Statement (bit.ly/idsOPTAVIA) for statistics on actual earnings of Coaches.

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," "anticipate," "expects" 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, the impact of the COVID-19 pandemic on Medifast's results, Medifast's inability to attract and retain independent OPTAVIA Coaches and clients, Medifast's inability to prevent the use of stolen identities and credit cards outside of the Company's systems to transact business on the Company's e-commerce sites, increases in competition, litigation, regulatory changes, the severity, length and ultimate impact of COVID-19 on people and economies, and Medifast's 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.

 

 

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts & dividend data)

 

 

 

Three months ended March 31,

 

 

2020

 

2019

 

 

 

 

 

 

 

Revenue

 

$

178,461

 

$

165,876

Cost of sales

 

 

43,221

 

 

40,729

Gross profit

 

 

135,240

 

 

125,147

 

 

 

 

 

 

 

Selling, general, and administrative

 

 

111,707

 

 

100,432

 

 

 

 

 

 

 

Income from operations

 

 

23,533

 

 

24,715

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

Interest income, net

 

 

110

 

 

312

Other expense

 

 

(19)

 

 

(6)

 

 

 

91

 

 

306

 

 

 

 

 

 

 

Income from operations before income taxes

 

 

23,624

 

 

25,021

 

 

 

 

 

 

 

Provision for income taxes

 

 

5,147

 

 

4,271

 

 

 

 

 

 

 

Net income

 

$

18,477

 

$

20,750

 

 

 

 

 

 

 

Earnings per share - basic

 

$

1.57

 

$

1.75

 

 

 

 

 

 

 

Earnings per share - diluted

 

$

1.56

 

$

1.70

 

 

 

 

 

 

 

Weighted average shares outstanding -

 

 

 

 

 

 

Basic

 

 

11,772

 

 

11,880

Diluted

 

 

11,824

 

 

12,240

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

1.13

 

$

0.75

 

 

 

 

 

 

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except par value)

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

ASSETS

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

90,670

 

$

76,974

Accounts receivable-net of doubtful accounts of $112 and $235 at 

 

 

 

 

 

 

 

March 31, 2020 and December 31, 2019, respectively

 

 

 

390

 

 

1,437

Inventories

 

 

 

47,883

 

 

48,771

Investment securities

 

 

 

14,593

 

 

15,704

Income taxes, prepaid

 

 

 

193

 

 

5,169

Prepaid expenses and other current assets

 

 

 

7,493

 

 

6,096

Total current assets

 

 

 

161,222

 

 

154,151

 

 

 

 

 

 

 

 

Property, plant and equipment - net of accumulated depreciation

 

 

 

25,324

 

 

26,039

Right-of-use assets

 

 

 

12,146

 

 

12,803

Other assets

 

 

 

2,181

 

 

353

Deferred tax assets

 

 

 

1,270

 

 

1,307

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

 

$

202,143

 

$

194,653

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

$

78,586

 

$

76,220

Current lease obligations

 

 

 

3,233

 

 

3,168

Total current liabilities

 

 

 

81,819

 

 

79,388

 

 

 

 

 

 

 

 

Lease obligations, less current lease obligations

 

 

 

9,575

 

 

10,433

Total liabilities

 

 

 

91,394

 

 

89,821

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

11,785 and 12,272 issued and 11,781 and 11,764 outstanding

 

 

 

 

 

 

 

at March 31, 2020 and December 31, 2019, respectively

 

 

 

12

 

 

12

Additional paid-in capital

 

 

 

494

 

 

-

Accumulated other comprehensive income

 

 

 

70

 

 

25

Retained earnings 

 

 

 

110,173

 

 

168,788

Less: Treasury (TSRMF) stock at cost, 0 and 489 shares at March 31, 2020
and December 31, 2019, respectively

 

 

 

-

 

 

(63,993)

Total stockholders' equity

 

 

 

110,749

 

 

104,832

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

$

202,143

 

$

194,653

 

 

 

Non-GAAP Financial Measures

In an effort to provide investors with additional information regarding our results as determined by US GAAP ("GAAP"), we disclose various non-GAAP financial measures in our quarterly earnings press release and other public disclosures. The following GAAP financial measures have been presented on an as adjusted basis: SG&A, income from operations, net income and diluted earnings per share. Each of these as adjusted financial measures excludes the impact of certain amounts as further identified below and have not been calculated in accordance with GAAP. A reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure is included below. These non-GAAP financial measures are not intended to replace GAAP financial measures.

We use these non-GAAP financial measures internally to evaluate and manage the Company's operations because we believe they provide useful supplemental information regarding the Company's on-going economic performance. We have chosen to provide this information to investors to enable them to perform more meaningful comparisons of operating results and as a means to emphasize the results of on-going operations.

The following tables reconcile the non-GAAP financial measures included in this report (in thousands):

MEDIFAST, INC. AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

 

2020

 

2019

 

 

 

 

 

 

 

Selling, general, and administrative

 

$

111,707

 

$

100,432

Adjustments

 

 

 

 

 

 

Professional services for 13D Filing

 

 

4,608

 

 

-

Incremental severance costs

 

 

998

 

 

-

Adjusted selling, general, and administrative

 

$

106,101

 

$

100,432

 

 

 

 

 

 

 

Income from operations

 

$

23,533

 

$

24,715

Adjustments

 

 

 

 

 

 

Professional services for 13D Filing

 

 

4,608

 

 

-

Incremental severance costs

 

 

998

 

 

-

Adjusted income from operations 

 

$

29,139

 

$

24,715

 

 

 

 

 

 

 

Net income

 

$

18,477

 

$

20,750

Adjustments, net of tax

 

 

 

 

 

 

Professional services for 13D Filing

 

 

3,604

 

 

-

Incremental severance costs

 

 

781

 

 

-

Adjusted net income

 

$

22,862

 

$

20,750

 

 

 

 

 

 

 

Diluted earnings per share(1)

 

$

1.56

 

$

1.70

Impact for adjustments(1)

 

 

0.37

 

 

-

Adjusted diluted earnings per share(1)

 

$

1.93

 

$

1.70

 

 

 

 

 

 

 

(1) The weighted-average diluted shares outstanding used in the calculation of these non-GAAP financial measures are the same as the weighted-average shares outstanding used in the calculation of the reported per share amounts.

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