Medifast, Inc. Announces Second Quarter 2015 Financial Results

Company Reports Second Quarter Earnings from Continuing Operations of $0.48 per Diluted Share

OWINGS MILLS, Md. - Aug. 5, 2015 /PRNewswire - Medifast, Inc. (NYSE: MED), a leading United States manufacturer and provider of clinically proven weight-loss and healthy living products and programs, today reported financial results for the second quarter ended June 30, 2015.

"We are pleased with our solid results in the second quarter which were in-line with our revenue and earnings expectations," said Michael C. MacDonald, Medifast Chairman and Chief Executive Officer. "We continued to make progress on our strategic initiatives within each of our key areas of focus, while also maintaining a strong financial discipline across our business. We believe that these efforts will help grow and improve Take Shape for Life, optimize Medifast Direct, and further our product and program innovation to position Medifast for success in 2015 and beyond."

Second Quarter 2015 Results

Results from Continuing Operations

Income from continuing operations was $5.8 million, or $0.48 per diluted share, compared to $6.6 million, or $0.50 per diluted share, for the second quarter of 2014. Income from continuing operations excluding extraordinary legal and advisory expenses resulting from recent 13D filings would have been $6.0 million, or $0.50 per diluted share.

For the second quarter, Medifast net revenue from continuing operations decreased 3% to $72.2 million from net revenue of $74.7 million in the second quarter of 2014.

Revenue in the direct sales channel, Take Shape for Life, decreased 3% to $52.3 million in the second quarter of 2015 compared to $54.0 million in the same period last year, a sequential improvement in the quarterly rate of decline compared to the same period last year. The total number of active earning Health Coaches in the second quarter was 11,800 as compared to 12,400 in the second quarter of 2014. The average revenue per active earning Health Coach for the quarter was $4,423 as compared to $4,347 in second quarter of 2014.

The Company's Medifast Direct channel revenue decreased 10% to $13.7 million, compared to $15.2 million in the second quarter of 2014. This marks the fourth consecutive quarterly improvement in the rate of decline and results were in-line with the Company's expectations as it continued to focus on efficiently managing marketing investments.

Revenue in the Franchise Medifast Weight Control Centers channel increased 22% to $4.7 million from $3.8 million in the second quarter of last year. The increase in revenue was driven by the conversion of corporate centers to franchise centers, partially offset by franchise center closures as well as a decrease in sales of franchise centers open greater than one year. There were 62 franchise centers in operation at the end of second quarter 2015 compared to 73 centers at the end of the same period last year.

In the second quarter, the Wholesale channel revenue decreased to $1.5 million, compared to $1.7 million in the same period last year. This decrease was fueled by the loss of a few large accounts resulting from Medifast enforcement of business partner compliance requirements.

Gross profit for the second quarter of 2015 was $53.2 million, compared to $55.6 million in the second quarter of 2014. The Company's gross profit as a percentage of net revenue decreased to 73.7% from 74.4% in the second quarter of 2014. The decrease from the prior year period was primarily the result of an increase in certain raw ingredient costs, higher manufacturing variances due to reduced volumes and an increase in obsolescence for a single product due to expiration dates. These cost increases were partially offset by price increases initiated at the end of the first quarter.

Selling, general and administrative expenses ("SG&A") decreased $1.2 million to $44.5 million compared to $45.7 million in the second quarter of 2014. As a percentage of net revenue, SG&A expense was 61.7% versus 61.2% in the second quarter of 2014. SG&A expenses as a percent of net revenue, excluding the aforementioned items related to the 13D filings in the second quarter of 2015, was 61.3%.

Sales and marketing expense decreased $0.8 million in the second quarter of 2015 compared to the second quarter of 2014, primarily driven by a reduced advertising spend, partially offset by a new Take Shape For Life convention incentive earned in the quarter. The Company continues to focus on efficiency improvements and balancing sales and marketing expense in an effort to drive profitability.

The second quarter 2015 effective tax rate was 33.8% compared to 34.4% in the second quarter of 2014. This decrease was due to an increase in permanent differences, primarily driven by higher tax exempt interest income which was partially offset by an increase in state income taxes.

Discontinued Operations

As previously disclosed, the Company exited the Medifast Weight Control Center corporate model by selling 41 centers to existing franchise partners (24 centers were sold in June 2014 and the remaining 17 centers were sold in December 2014) and closing the remaining 34 corporate centers. For the second quarter of 2015, corporate-owned Medifast Weight Control Centers had income from discontinued operations, net of tax, of $0.4 million.

Balance Sheet

The Company's balance sheet remains strong with stockholders' equity of $88.2 million and working capital of approximately $63.3 million as of June 30, 2015. Cash, cash equivalents, and investment securities increased $12.4 million to $65.0 million compared to $52.6 million at December 31, 2014. The Company remains free of interest bearing debt.

The Company has authorization to repurchase a total of 1.1 million shares.

Outlook

The Company expects third quarter 2015 net revenue from continuing operations to be in the range of approximately $65.0 to $68.0 million and earnings per diluted share from continuing operations in the range of $0.40 - $0.43 per diluted share.

For fiscal year 2015, the Company updated guidance of revenue from continuing operations to be in the range of $270.0 to $280.0 million and earnings per diluted share from continuing operations in the range of $1.70 to $1.80 per diluted share. The fiscal year 2015 guidance assumes a 34% to 35% effective tax rate.

Fiscal year guidance excludes expenses resulting from 13D filings.

Conference Call Information

The conference call is scheduled to begin at 4:30 p.m. ET on August 5, 2015. The call will be broadcast live over the Internet hosted at the Investor Relations section of Medifast's website at www.MedifastNow.com, and will be archived online through August 19, 2015. In addition, listeners may dial (877) 870-4263.

A telephonic playback will be available from 7:30 p.m. ET, August 5, 2015, through August 19, 2015. Participants can dial (877) 344-7529 to hear the playback and enter passcode 10069924.

About Medifast

Medifast (NYSE: MED) is the leading easy-to-use, clinically proven weight-loss program. 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) 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, log onto www.MedifastNow.com.

MED-F

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 Health Coaches 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.

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 
       

(Unaudited)

 

(Audited)

       

June 30, 2015

 

December 31, 2014

                

ASSETS

           

Current assets:

         

Cash and cash equivalents

 

$              37,145,000

 

$             24,459,000

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

     

      of $426,000 and $354,000

 

1,991,000

 

1,650,000

Inventory

     

12,424,000

 

15,735,000

Investment securities

   

27,894,000

 

28,185,000

Income taxes, prepaid

   

1,030,000

 

5,099,000

Prepaid expenses and other current assets

3,087,000

 

2,875,000

Deferred tax assets

   

2,556,000

 

3,727,000

Current assets of discontinued operations

7,000

 

184,000

     Total current assets

   

86,134,000

 

81,914,000

             

Property, plant and equipment - net

 

31,068,000

 

33,477,000

Other assets

   

162,000

 

497,000

Long-term assets of discontinued operations

19,000

 

22,000

             

 

     TOTAL ASSETS

$            117,383,000

 

$           115,910,000

             

LIABILITIES AND STOCKHOLDERS' EQUITY

     

Current liabilities:

         

Accounts payable and accrued expenses

$              21,258,000

 

$             21,854,000

Current maturities of capital leases

 

237,000

 

232,000

Current liabilities of discontinued operations

1,318,000

 

4,858,000

     Total current liabilities

 

22,813,000

 

26,944,000

             

Other liabilities:

         

Capital leases, net of current portion

 

122,000

 

242,000

Deferred tax liabilities

   

5,261,000

 

5,492,000

Long-term liabilities of discontinued operations

989,000

 

2,756,000

     Total liabilities

   

29,185,000

 

35,434,000

             

Stockholders' Equity:

         

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

     

      12,393,318 and 12,365,690 issued

       

      12,023,235 and 12,075,764 issued and outstanding

12,000

 

12,000

Additional paid-in capital

   

1,571,000

 

1,132,000

Accumulated other comprehensive income

347,000

 

435,000

Retained earnings

   

89,589,000

 

78,897,000

Less: cost of 103,130 and 0 shares of common stock in treasury

(3,321,000)

 

-

Total stockholders' equity

 

88,198,000

 

80,476,000

             

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$            117,383,000

 

$           115,910,000

 

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

               
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2015

   

2014

   

2015

   

2014

               

Revenue

$        72,161,000

 

$        74,732,000

 

$      145,525,000

 

$      153,965,000

Cost of sales

18,994,000

 

19,158,000

 

38,588,000

 

40,467,000

Gross Profit

53,167,000

 

55,574,000

 

106,937,000

 

113,498,000

               

Selling, general, and administrative

44,504,000

 

45,713,000

 

91,762,000

 

94,026,000

               

Income from operations

8,663,000

 

9,861,000

 

15,175,000

 

19,472,000

               

Other income

             

Interest and dividend income, net

164,000

 

170,000

 

296,000

 

305,000

Other income

1,000

 

63,000

 

149,000

 

247,000

 

165,000

 

233,000

 

445,000

 

552,000

               

Income from continuing operations before income taxes

8,828,000

 

10,094,000

 

15,620,000

 

20,024,000

Provision for income taxes

2,981,000

 

3,475,000

 

5,357,000

 

6,860,000

               

Income from continuing operations

5,847,000

 

6,619,000

 

10,263,000

 

13,164,000

Income (loss) from discontinued operations, net of tax

401,000

 

(899,000)

 

429,000

 

(1,477,000)

Net income

$          6,248,000

 

$          5,720,000

 

$        10,692,000

 

$        11,687,000

               

Basic earnings per share

             

Earnings per share from continuing operations

$                   0.48

 

$                   0.50

 

$                   0.85

 

$                   0.99

Earnings (Loss) per share from discontinued operations

$                   0.03

 

$                 (0.06)

 

$                   0.03

 

$                 (0.10)

Earnings per share

$                   0.51

 

$                   0.44

 

$                   0.88

 

$                   0.89

               

Diluted earnings per share

             

Earnings per share from continuing operations

$                   0.48

 

$                   0.50

 

$                   0.84

 

$                   1.00

Earnings (Loss) per share from discontinued operations

$                   0.03

 

$                 (0.06)

 

$                   0.04

 

$                 (0.11)

Earnings per share

$                   0.51

 

$                   0.44

 

$                   0.88

 

$                   0.89

               

Weighted average shares outstanding -

             

     Basic

12,069,150

 

13,050,346

 

12,085,221

 

13,111,348

     Diluted

12,159,286

 

13,149,414

 

12,175,985

 

13,200,207

SOURCE Medifast, Inc.

Contact:

Katie Turner
ICR, Inc.
(646) 277-1228

###

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