Medifast, Inc. Announces Second Quarter 2018 Financial Results

Published: Aug 02, 2018

 

Second Quarter Revenue Increased 55% and EPS Increased 84%
Record Financial Results Exceed Second Quarter Guidance
Raises Fiscal Year 2018 Outlook

BALTIMORE, Md., Aug. 2, 2018 /PRNewswire/ -- Medifast, Inc. (NYSE: MED), a leading manufacturer and distributor of clinically proven, healthy living products and programs, today reported financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Highlights:

  • Revenue of $117.3 million, an increase of 54.9% year-over-year
  • Active earning Coaches of 19,700, an increase of 45.9% year-over-year
  • Net income of $14.1 million, an increase of 86.4% year-over-year
  • Earnings per diluted share ("EPS") of $1.16, an increase of 84.1% year-over-year

"We are pleased to report a further acceleration in the business momentum we reported in the first quarter of the year, resulting in record revenues and profitability that exceeded our expectations," commented Dan Chard, Medifast's Chief Executive Officer. "The accelerating growth rate is an indication of the energy behind our integrated coach model tied to our powerful mission and a repeatable business rhythm capable of delivering long-term sustainable growth. We are confident that we are well positioned for future growth and, based on these strong operational and financial results as well as our positive outlook for the remainder of the year, we are pleased to be able to raise our annual guidance once again this year."

Second Quarter 2018 Results

For the second quarter of 2018, revenue increased 54.9% to $117.3 million from revenue of $75.7 million for the second quarter last year. OPTAVIA-branded products represented 64% of consumable units sold for the second quarter of 2018 compared to 30% for the second quarter of last year. The total number of active earning Coaches for the second quarter of 2018 increased to 19,700, compared to 13,500 for the second quarter of 2017. The average revenue per active earning Coach for the second quarter of 2018 increased 16.1% to $5,474 compared to $4,713 for the second quarter last year.

Gross profit for the second quarter of 2018 increased to $88.8 million from $57.6 million for the second quarter of 2017. The Company's gross profit as a percentage of revenue decreased 40 basis points to 75.7% from 76.1% for the second quarter last year. The decrease in gross margin percentage was a result of an acceleration in the number of new clients which increased the proportion of clients receiving a first-order discount.

Selling, general and administrative expenses ("SG&A") increased $25.4 million to $71.7 million compared to $46.3 million for the second quarter of 2017, primarily as a result of higher commission expense resulting from higher product sales. SG&A as a percentage of revenue was flat compared to the second quarter last year.

Operating income increased $5.8 million to $17.1 million from $11.3 million for the second quarter of 2017 primarily as a result of increased gross profit, partially offset by increased SG&A expenses. Operating income as a percentage of revenue decreased 30 basis points to 14.6% compared to 14.9% in the second quarter of 2017.

The second quarter 2018 effective tax rate was 19.8%, compared to 33.8% for the second quarter of 2017. This decrease was primarily a result of the decrease in the Federal statutory rate pursuant to the Tax Cuts & Jobs Act as well as the discrete accounting for taxes associated with share-based compensation. The decrease in the effective rate was partially offset by 1.9% due to the elimination of the Domestic Manufacturer Deduction. Excluding the discrete accounting for taxes associated with share-based compensation, the second quarter effective tax rate would have been 22.0%.

Net income for the second quarter of 2018 was $14.1 million, or $1.16 per diluted share, based on approximately 12.2 million shares outstanding. Second quarter 2017 net income was $7.6 million, or $0.63 per diluted share based on approximately 12.1 million shares outstanding.

Balance Sheet

The Company's balance sheet remains strong with stockholders' equity of $102.9 million and working capital of $81.6 million as of June 30, 2018. Cash, cash equivalents, and investment securities increased $4.5 million to $103.3 million as of June 30, 2018 compared to $98.8 million at December 31, 2017. The Company remains free of interest bearing debt.

The Company declared a quarterly cash dividend of $5.8 million, or $0.48 per share, during the second quarter of 2018. The Company spent $20.0 million on the repurchase of approximately 119,000 shares of common stock in the second quarter and has approximately 729,000 shares remaining on its repurchase authorization as of June 30, 2018.

Adoption of Accounting Standard Update 2014-09, Revenue from Contracts with Customers ("ASC 606")

As announced in the first quarter of 2018, the Company adopted ASC 606 on a modified retrospective basis. As a result, the Company did not restate financial information for the three months ending June 30, 2017. The results of ASU 606 primarily impact the Company's timing of revenue recognition for product shipments, as product revenue will be recognized upon customer receipt in lieu of at the time of shipment.

The following are the impacts to the financial results for the three months ended June 30, 2018 from the implementation of ASC 606. For the quarter ended June 30, 2018, revenue decreased $2.3 million, or 1.9%, which resulted in gross profit decreasing $1.9 million, or 2.0%. Reported gross profit as a percentage of revenue decreased 10 basis points to 75.7% from 75.8%. Income from operations was negatively impacted by $1.0 million, or 5.5%, resulting in decreased net income and diluted earnings per share of $0.8 million, or $0.06 per share, respectively.

As of June 30, 2018, working capital decreased $3.1 million and stockholders' equity decreased $2.4 million as a result of the impact ASC 606.

Outlook

The Company expects third quarter revenue to be in the range of $120.0 million to $125.0 million and earnings per diluted share to be in the range of $1.05 to $1.10. The Company is raising its guidance for the full year 2018, expecting revenue of $460 million to $470 million and earnings per diluted share of $4.35 to $4.45. This compares to the Company's previous annual guidance for revenue of $385 million to $395 million and earnings per diluted share of $3.55 to $3.65. The full year 2018 earnings guidance assumes a 21% to 23% effective tax rate.

Conference Call Information

The conference call is scheduled for today, Thursday, August 2, 2018 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 August 16, 2018. In addition, listeners may dial (855) 560-2579.

A telephonic playback will be available from 6:30 p.m. ET, August 2, 2018, through August 9, 2018. Participants can dial (877) 344-7529 to hear the playback and enter passcode 10122455.

About MedifastĀ®:

Medifast (NYSE: MED) is a leading manufacturer and distributor of clinically proven, healthy living products and programs. The brand has been recommended by more than 20,000 doctors since its founding. Its integrated coach model offers the world optimal health by leveraging nearly 40 years of experience from medical, franchise, e-commerce, and direct selling channels. Medifast and its community of independent OPTAVIA Coaches embrace the future of wellness with a shared vision to offer the world lifelong transformation, one healthy habit at a timeā„¢. OPTAVIA is represented by a community of more than 19,000 OPTAVIA Coaches who teach Clients healthy habits, while offering support and guidance on their transformation journey. In 2018, Medifast announced it will expand into the Asia-Pacific markets of Hong Kong and Singapore in 2019 with its integrated coach model. Medifast is traded on the New York Stock Exchange and was named to 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

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 OPTAVIA 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 STATEMENTS OF INCOME (UNAUDITED)

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


                                         Three months ended June 30,                        Six months ended June 30,
                                         ---------------------------                        -------------------------

                                                                2018                            2017                              2018 2017
                                                                ----                            ----                              ---- ----


    Revenue                                                                      $117,324                                     $75,729       $215,920 $146,351

    Cost of sales                                                                  28,525                                      18,118         52,313   35,848
                                                                                   ------                                      ------         ------   ------

    Gross profit                                                                   88,799                                      57,611        163,607  110,503


    Selling, general, and administrative                                           71,689                                      46,301        131,814   90,584
                                                                                   ------                                      ------        -------   ------


    Income from operations                                                         17,110                                      11,310         31,793   19,919


    Other income (expense)

    Interest income, net                                                              330                                         141            579      204

    Other income (expense)                                                            179                                         (3)           178       36
                                                                                      ---                                         ---            ---      ---

                                                                                      509                                         138            757      240
                                                                                      ---                                         ---            ---      ---


    Income from operations before income
     taxes                                                                         17,619                                      11,448         32,550   20,159


    Provision for income taxes                                                      3,486                                       3,864          6,195    6,430


    Net income                                                                    $14,133                                      $7,584        $26,355  $13,729
                                                                                  =======                                      ======        =======  =======


    Earnings per share - basic                                                      $1.17                                       $0.64          $2.19    $1.15
                                                                                    =====                                       =====          =====    =====


    Earnings per share - diluted                                                    $1.16                                       $0.63          $2.17    $1.14
                                                                                    =====                                       =====          =====    =====


    Weighted average shares outstanding
     -

    Basic                                                                          12,037                                      11,929         12,032   11,915
                                                                                   ======                                      ======         ======   ======

    Diluted                                                                        12,174                                      12,056         12,129   12,044
                                                                                   ======                                      ======         ======   ======


    Cash dividends declared per share                                               $0.48                                       $0.32          $0.96    $0.64
                                                                                    =====                                       =====          =====    =====

 

 

 

                                                      MEDIFAST, INC. AND SUBSIDIARIES

                                             CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

                                                     (in thousands, except par value)


                                                                              June 30,         December 31,

                                                                                          2018                  2017
                                                                                          ----                  ----


    ASSETS

    Current Assets

    Cash and cash equivalents                                                          $81,076               $75,077

    Accounts receivable-net of doubtful
     accounts of $162 at June 30, 2018 and

    allowance for sales returns and doubtful
     accounts of $597 at December 31, 2017                                                 934                   576

    Inventory                                                                           26,900                19,328

    Investment securities                                                               22,245                23,757

    Income taxes, prepaid                                                                    -                2,272

    Prepaid expenses and other current
     assets                                                                              3,936                 4,188

    Total current assets                                                               135,091               125,198


    Property, plant and equipment - net                                                 18,220                18,611

    Other assets                                                                         1,649                 2,120

    Deferred tax assets                                                                  1,347                     -
                                                                                         -----                   ---



    TOTAL ASSETS                                                                      $156,307              $145,929
                                                                                      ========              ========


    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current Liabilities

    Accounts payable and accrued expenses                                              $53,444               $37,140
                                                                                       -------               -------

    Total current liabilities                                                           53,444                37,140


    Deferred tax liabilities                                                                 -                  208
                                                                                           ---                  ---

    Total liabilities                                                                   53,444                37,348


    Stockholders' Equity

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

    12,141 and 12,103 issued and 11,951 and
     11,971 outstanding

    at June 30, 2018 and December 31, 2017,
     respectively                                                                           12                    12

    Additional paid-in capital                                                           7,199                 4,967

    Accumulated other comprehensive loss                                                 (219)                (160)

    Retained earnings                                                                  116,617               103,762

    Less: Treasury stock at cost, 128 shares
     at June 30, 2018                                                                 (20,746)                    -

    Total stockholders' equity                                                         102,863               108,581
                                                                                       -------               -------


    TOTAL LIABILITIES AND STOCKHOLDERS'
     EQUITY                                                                           $156,307              $145,929
                                                                                      ========              ========

 

 

 

    As required by ASC 606, the impact of the adoption of the new revenue standard on our Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheets was as follows (in thousands):


                                                                         Three months ended June 30, 2018                                 Six months ended June 30, 2018
                                                                         --------------------------------                                 ------------------------------

                                                                As Reported                                 Balances                         Effect of                    As Reported                              Balances  Effect of
                                                                                                            without                            Change                                                              without     Change
                                                                                                          adoption of                                                                                            adoption of
                                                                                                            ASC 606                                                                                                ASC 606
                                                                -----------                              ------------                              ----------             -----------                           ------------       ----------


    Revenue                                                                                   $117,324                                                $119,606                                         $(2,282)                        $215,920  $216,860   $(940)

    Cost of sales                                                                               28,525                                                  28,952                                              427                           52,313    52,473      160
                                                                                                ------                                                  ------                                              ---                           ------    ------      ---

    Gross profit                                                                                88,799                                                  90,654                                          (1,855)                         163,607   164,387    (780)


    Selling, general, and
     administrative                                                                             71,689                                                  72,554                                              865                          131,814   132,077      263
                                                                                                ------                                                  ------                                              ---                          -------   -------      ---


    Income from operations                                                                      17,110                                                  18,100                                            (990)                          31,793    32,310    (517)


    Other income (expense)

    Interest income, net                                                                           330                                                     330                                                -                             579       579        -

    Other income (expense)                                                                         179                                                     179                                                -                             178       178        -
                                                                                                   ---                                                     ---                                              ---                             ---       ---      ---

                                                                                                   509                                                     509                                                -                             757       757        -
                                                                                                   ---                                                     ---                                              ---                             ---       ---      ---


    Income from operations before
     income taxes                                                                               17,619                                                  18,609                                            (990)                          32,550    33,067    (517)


    Provision for income taxes                                                                   3,486                                                   3,696                                              210                            6,195     6,304      109


    Net income                                                                                 $14,133                                                 $14,913                                           $(780)                         $26,355   $26,763   $(408)
                                                                                               =======                                                 =======                                            =====                          =======   =======    =====


    Earnings per share - basic                                                                   $1.17                                                   $1.24                                          $(0.07)                           $2.19     $2.22  $(0.03)
                                                                                                 =====                                                   =====                                           ======                            =====     =====   ======


    Earnings per share - diluted                                                                 $1.16                                                   $1.22                                          $(0.06)                           $2.17     $2.21  $(0.04)
                                                                                                 =====                                                   =====                                           ======                            =====     =====   ======


    Weighted average shares
     outstanding -

    Basic                                                                                       12,037                                                  12,037                                                                           12,032    12,032
                                                                                                ======                                                  ======                                                                           ======    ======

    Diluted                                                                                     12,174                                                  12,174                                                                           12,129    12,129
                                                                                                ======                                                  ======                                                                           ======    ======



                                                                                  June 30, 2018
                                                                                  -------------

                                                                As Reported                                 Balances                         Effect of
                                                                                                            without                            Change
                                                                                                          adoption of
                                                                                                            ASC 606
                                                                -----------                              ------------                              ----------


    ASSETS

    Accounts receivable, net                                                                      $934                                                    $189                                             $745

    Inventory                                                                                   26,900                                                  25,865                                            1,035

    Prepaid expenses and other
     current assets                                                                              3,936                                                   3,805                                              131

    Deferred tax assets                                                                          1,347                                                     695                                              652


    LIABILITIES

    Accounts payable and accrued
     expenses                                                                                   53,444                                                  48,455                                            4,989


    STOCKHOLDERS' EQUITY

    Retained earnings                                                                          116,617                                                 119,043                                          (2,426)

 

View original content with multimedia:http://www.prnewswire.com/news-releases/medifast-inc-announces-second-quarter-2018-financial-results-300691298.html

SOURCE Medifast, Inc.

Company Codes: NYSE:MED

Back to news