Press Releases

OWINGS MILLS, Md., Nov. 3, 2011 /PRNewswire/ -- Medifast, Inc. (NYSE: MED), a leading provider of clinically proven portion-controlled weight-loss programs, today reported financial results for the third quarter ended September 30, 2011.

Third Quarter 2011 Results

For the third quarter ended September 30, 2011, Medifast reported net revenue increased 13% to $76.1 million from net revenue of $67.3 million in the third quarter of the prior year.  Each of the Company's three primary distribution channels, Take Shape for Life, Direct Response Marketing, Medifast Weight Control Centers and Wholesale Physicians, contributed to this year-over-year revenue increase.

Revenue in the direct sales channel, Take Shape for Life, increased 6% to $46.4 million in the third quarter of 2011 compared to $43.7 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 Company ended the quarter with approximately 10,300 active health coaches an increase of 14% compared to 9,000 in the third quarter of 2010, and flat sequentially from the second quarter of 2011. 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 for the third quarter was $1,560 compared to $1,670 in third quarter of 2010.  

In the world of direct selling, it is very important to ensure both the new and the experienced coaches have the proper training on the Medifast products and programs, as well as the proven steps to grow their businesses.  This is especially true with the recent growing size of the Take Shape for Life field organization.  To accomplish this, the Company continues to focus on continuous enhancements to its overall health coach training platform.  At the Take Shape for Life Annual conference in late July, the Company released the "official" Trilogy Training website.   Previously, training to the health coach field was done primarily through utilizing print materials.  The Company is currently working on additional content for the training website and simplifying existing printed materials to maximize the effectiveness of the health coaches to take Health Coaches through the three competencies including health coach, business coach and business leader.  In addition, the Company is focusing on regional events throughout the country to ensure participating health coaches receive actionable and relevant content to enhance and grow their businesses long-term.

In October, Medifast also enhanced the Take Shape for Life executive team with the addition of a talented industry veteran, Michelle Jones, as our new Senior Vice President of Take Shape for Life.  Michelle joins the team with over 15 years of experience in the Avon organization, where she focused on national training and sales development.  In Take Shape for Life, she will oversee the areas of marketing, training and field operations.  We believe her direct selling experience will help to implement industry best practices within TSFL, while also aligning with the complete Medifast executive team to improve growth in new health coach acquisition and retention.

The Company's direct response marketing channel revenue increased 18% to $19.0 million, compared to $16.1 million in third quarter of 2010. Marketing and advertising expenses increased approximately 17% to $6.7 million in the third 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 third 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, increased targeted advertising content, and in turn, improved call center and web conversion rates.

In the third quarter, the Medifast Weight Control Centers and Wholesale Physicians channel revenue increased 44% to $10.6 million, primarily due to strong organic growth with the opening of new corporate and franchise locations and a year-over-year improvement in comparable store sales of 13% for centers open greater than one year. The Company had 32 Medifast Weight Control Centers in the comparable store base at September 30, 2011. The Company opened 14 new centers in the third quarter for a total of 60 corporate and 26 franchise centers.  As a reminder, while a new center is being built, until it is at a breakeven point, the Company experiences an estimated $100,000 in non-capital expenses. These expenses, which are largely in-store personnel, advertising and rent, begin two months prior to the opening, and diminish over the three to five months post opening, until the store reaches a breakeven point.  The Company realized a pre-tax earnings drag of $1.9 million compared to the second quarter of 2011 associated with the opening of 6 centers in the second quarter, 14 centers in the third quarter and expenses associated with the opening of 10 to 12 centers in the fourth quarter of 2011.  

Gross profit for the third quarter of 2011 increased 12% to $56.4 million, compared to $50.5 million in the third quarter of the prior year. The Company's gross profit margin decreased 80 basis points to 74.2% in the third quarter versus 75% in the third quarter of 2010. The decreased gross profit margin is primarily due to increased third party manufacturer costs, raw material costs, shipping costs to customers associated with increased fuel prices, and transportation costs between distribution centers and from vendors associated with the $3.7 million increase in the inventory on hand during the quarter.  

Selling, general and administrative expenses increased $8.4 million or 20% to $49.8 million in the third quarter of 2011. As a percent of net sales, selling, general and administrative expenses increased 390 basis points to 65.4% compared to 61.5% in the third quarter of 2010. The largest increases in selling, general and administrative expenses were primarily related to increased Take Shape for Life commission expense, which is completely variable based upon product sales.  In addition, the aggressive expansion of the Medifast Weight Control Center model with 14 corporate centers opening in the third quarter as well as 10 to 12 new centers opening in the fourth quarter of 2011 led to additional expenses with minimal sales during the new centers ramp up phase.  Also, in late 2010 and throughout 2011, the Company has invested in key executive hires in the areas of Supply Chain, IT, HR, Finance and Marketing in order to support current and future growth.

Operating income for the third quarter of 2011 decreased 26% to $6.7 million compared to $9 million in the same period a year ago. The operating margin decreased 460 basis points to 8.8% compared to 13.4% last year.  The decrease in operating income is due to the increased selling, general and administrative expenses as well as the decrease in gross margin previously outlined which as a result led to a sequential decrease of $3 million in operating income from the Medifast Weight Control Center and Wholesale Physicians sales channel due to the $5.4 million increase in the segment's selling, general and administrative expenses related to the addition of 14 new center openings in the third quarter of 2011 and expenses associated with 10 to 12 new centers opening in the fourth quarter of 2011. For the first nine months of 2011 the Company has opened 21 Medifast Weight Control Centers.

Net income for the third quarter of 2011 was $5.1 million or $0.36 per diluted share, compared to net income of $5.8 million or $0.39 per diluted share for the comparable period last year.

"In the third quarter of 2011, we continued to make the necessary infrastructure investments to have the right team, systems, tools and training in place to improve our ability to attract new clients, help ensure their program success and in turn, further accelerate Medifast's long-term expansion, as was most evident in the continued expansion of our Medifast Weight Control Center footprint," stated Michael S. McDevitt, Medifast's Chief Executive Officer. "In what appears to be an uncertain economic environment, one environment is certain, the worsening health and wellness of our nation. Medifast's 30-year clinical heritage continues to help consumers in search of improving their health through weight management. The support option of an online community, personal health coach or a weekly visit to a Weight Control Center meets the growing needs of today's consumers, all with tremendous weight loss and maintenance results."

McDevitt continued, "Going forward, with the new executive talent across the organization, the successful launch of our health coach Trilogy Training website and overall training simplification, the increased Medifast Weight Control Center unit and same store sales growth, as well as the continued focus on increasing our Direct Response ad spend while maintaining its effectiveness Medifast will be well positioned for the all important diet season beginning in January 2012."

Balance Sheet

The Company's balance sheet remains strong with stockholders' equity of $71.6 million and working capital of $42.7 million as of September 30, 2011.  Cash, cash equivalents, and investment securities were $37.0 million for the first nine months of 2011.

Colonel Brad MacDonald, (Ret.), Executive Chairman of the Board of Directors of Medifast, Inc. commented, "The third quarter of 2011 marks Medifast's 48th consecutive quarter of profitability.  Over the last few years the Company has developed a strong, unleveraged financial position which leaves Medifast well-positioned for long-term future growth across each of its three primary sales channels."

Outlook

The Company estimates the full year advertising spend to increase by 15 to 20%, as compared to 2010, while pursuing  a revenue-to-spend ratio of 2.8-to-1.

Gross profit margin is expected to improve 40 to 50 basis points in fiscal 2011 as compared to the prior year.

The Company anticipates a tax rate of 34.0 to 35.0% in fiscal 2011.

In the fourth quarter of 2011, the Company plans to open 10 to 12 new Medifast Weight Control Centers in new and existing markets with expectations to open 30 to 35 new corporate centers by year end. The Company will continue to review their annual store growth rate, based on their view of internal and external opportunities and challenges in the marketplace.

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 November 17, 2011. In addition, listeners may dial (877) 705-6003 in North America, and international listeners may dial (201) 493-6725. 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, November 3, 2011, through November 17, 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 381770.

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.

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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.