Press Releases

OWINGS MILLS, Md., Aug. 4, 2011 /PRNewswire/ -- 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, 2011.

Second Quarter 2011 Highlights Include:

• Net revenue increased 17% year-over-year to $78.3 million, compared to $66.7 million in 2010;
• Take Shape for Life active health coaches increased 29% year-over-year to 10,300 coaches;
• Medifast Weight Control Center and Medifast Wholesale Physicians revenue increased 28% year-over-year to $9.7 million;
• Gross profit margin increased 120 basis points to 75.4% compared to the prior year;
• Diluted earnings per share increased 8% year-over-year to $0.41, compared to $0.38 last year.

Second Quarter 2011 Results

For the second quarter ended June 30, 2011, Medifast reported net revenue increased 17% to $78.3 million from net revenue of $66.7 million in the second quarter of the prior year.  Each of the Company's three primary distribution channels, Take Shape for Life, Direct Response Marketing, and Medifast Weight Control Centers as well as Medifast Wholesale Physicians, contributed to this year-over-year revenue increase.

Revenue in the direct sales channel, Take Shape for Life, increased 17% to $49.3 million in the second quarter of 2011 compared to $42.0 million in the same period last year. Growth in revenue for Take Shape for Life was driven by increased customer product sales as a result of an increase in the number of active health coaches. The number of active health coaches increased 29% to approximately 10,300 compared to 8,000 in the second 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 increased sequentially to $1,615 from $1,600 in first quarter of 2011.  

The Company launched an "official" training website at the Take Shape for Life Annual Conference in late July.  The new site format that allows all health coaches access to best practice training and the web platform allows for consistent distant learning which promotes more health coach interaction. The training website will be an additional function of the new e-commerce platform that was launched in March of 2011. The new e-commerce platform provides health coaches and their clients with a simple approach to research the Medifast program, understand individual health coaches' personal success stories and purchase product. Annual Take Shape for Life Conference health coach attendance increased 19% to 2,500 compared to 2,100 last year.

The Company's direct response marketing channel revenue increased 13% to $19.6 million, compared to $17.3 million in second quarter of 2010. Marketing and advertising expenses increased approximately 13% to $7.0 million in the second quarter of 2011 compared to the same period last year.  The Company maintained a 2.8-to-1 revenue-to-spend ratio or return-on-advertising during the second quarter of 2011 compared to the same period last year. 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 second quarter, Medifast Weight Control Centers and Medifast Wholesale Physicians channel revenue increased 28% to $9.7 million, primarily due to strong organic growth due to the opening of new corporate and franchise locations and a year-over-year improvement in comparable store sales of 5% for centers open greater than one year. The Company opened six new centers in the second quarter for a total of 46 corporate and 24 franchise centers.  The addition of 23 to 28 new center openings in the second half of 2011 will enable the Company to capture greater market share and increase Medifast's brand awareness in new and existing markets with over 70 corporately-owned Medifast Weight Control Centers in operation for the all important 2012 diet season.  

Gross profit for the second quarter of 2011 increased 19% to $59.0 million, compared to $49.5 million in the second quarter of the prior year. The Company's gross profit margin increased 120 basis points to 75.4% in the second quarter versus 74.2% in the second quarter of 2010.  The increased gross profit margin is primarily due to decreased shipping costs associated with the second distribution center opened in the third quarter of 2010 in Dallas, TX and improved labor and overhead absorption partially offset by increased raw materials costs.

Selling, general and administrative expenses increased $9.8 million or 24% to $50.1 million in the second quarter of 2011. As a percent of net sales, selling, general and administrative expenses increased 370 basis points to 64.0% compared to 60.3% in the second quarter of 2010. The largest increases in selling, general and administrative expense in the second quarter include a $3.0 million increase in Take Shape for Life Commission expense which is completely variable based on product sales.  The Company also had an increase of $2.7 million in salaries and benefits. This increase was due to the expansion of executive expertise in areas such as supply chain, information technology, marketing, human resources and accounting. To support the growth of 30 to 35 new corporate center openings in 2011, and prepare for future growth, the Company expanded the employee infrastructure of its Medifast Weight Control Center field team with the addition of regional trainers, district and area managers and nutrition expertise.  The Company had an increase of $1.7 million in sales and marketing expense due to the expansion and success of its direct marketing campaign as well as increased sales and marketing expense associated with the new Medifast Weight Control Center openings.  The second quarter of 2011 also included $0.5 million in non-recurring expense related primarily to accounting and legal fees as well as the consulting expense related to the new website launched in mid-March.

Operating income for the second quarter of 2011 decreased 3.0% to $9.0 million compared to $9.3 million in the same period a year ago. The operating margin decreased 240 basis points to 11.5% compared to 13.9% last year.  The decrease in operating income is due to the increased selling, general and administrative expenses previously outlined which as a result led to a sequential decrease of $0.7 million in operating income from the Medifast Weight Control Center sales channel due to the $1.7 million or 35% increase in the segment's selling, general and administrative expenses related to the addition of six new center openings in the second quarter of 2011 and expenses associated with 17 to 19 new center openings planned in the third quarter of 2011. Excluding the $0.5 million in non-recurring selling, general and administrative expense, second quarter operating income increased 6% to $9.5 million.

In the second quarter of 2011, the Company recorded $3.2 million in income tax expense, which represents an effective rate of 35.0% compared to income tax expense of $3.7 million or an effective tax rate of 39.8% in the same period last year.  The decline in the Company's effective tax rate is due to general tax planning which generated a state tax savings in the quarter and will result in a lower effective tax rate moving forward. The Company anticipates a tax rate of approximately 36% to 37% in 2011.  

Net income for the second quarter of 2011 was $5.9 million or $0.41 per diluted share, compared to net income of $5.5 million or $0.38 per diluted share for the comparable period last year.

"We are pleased with our ability to generate increased sales and earnings growth in the quarter as we continued to make the necessary infrastructure investments to further our scalability across the Medifast Weight Control Centers, in our web platforms for Take Shape for Life and Medifast Direct, as well as adding the necessary resources in both personnel and operations to support Medifast's future long-term expansion," stated Michael S. McDevitt, Medifast's Chief Executive Officer. "Our vertically integrated operations will allow us to continually improve the customer experience across our sales channels and enable us to leverage our operating costs for increased margin expansion and long-term profitable growth."

Mr. McDevitt continued, "Going forward, with a 19% increase in health coach attendance at our Annual Take Shape for Life Convention, the successful launch of our official health coach training site and the opportunity to accelerate our Medifast Weight Control Center unit growth to 30 to 35 new centers this year, we believe Medifast has solid momentum for a strong end to fiscal 2011. We are confident that each of our sales channels is better positioned than ever before with the right team, systems, tools and training in place to improve our ability to attract new clients and help ensure their success and in turn further accelerate long-term growth."

Balance Sheet

The Company's balance sheet remains strong with stockholders' equity of $74.0 million and working capital of $44.4 million as of June 30, 2011.  Cash, cash equivalents, and investment securities increased 37% or $12.6 million to $47.1 million compared to December 31, 2010 as a result of improved operating cash flow.  

On July 21, 2011 the Medifast, Inc. Board of Directors increased the total number of shares authorized for repurchase to one million shares from 500,000 shares previously approved. On June 16 and 17, 2011, the Company purchased 225,000 shares at an average price of $22.00. There are now 775,000 shares remaining under the authorization which may be purchased through July 21, 2012.

"The Board of Directors is committed to increasing long-term shareholder value and we're pleased to authorize an increased share repurchase plan," commented Colonel Brad MacDonald, (Ret.), Executive Chairman of the Board of Directors of Medifast, Inc. "Medifast's strong financial position and consistent ability to increase profitability and cash flow generation over the last 47 quarters illustrates the strength of the Company's clinically tested, physician-recommended products for those individuals looking to achieve weight-loss and weight maintenance."

Outlook

The Company estimates the full year advertising spend to increase by 15 to 20%, 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.

The Company anticipates a tax rate of 36.0 to 37.0% in fiscal 2011.

In the third quarter of 2011, the Company plans to open 17 to 19 new Medifast Weight Control Centers in new and existing markets with expectations to open 30 to 35 new corporate centers throughout the year an increase from the Company's prior guidance of 25 to 30 corporate centers.  

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 August 18, 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, August 4, 2011, through August 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 376382.

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-G

SOURCE Medifast, Inc.