Corey Augenstein
MLM Insider
Editor-In-Chief

Medifast beats by $0.11, beats on revenue
Published: Aug 09, 2017

Medifast, Inc. Announces Second Quarter 2017 Financial Results

Tue August 8, 2017 4:05 PM|PR Newswire|About: MED

Q2: 08-05-17 Earnings Summary

EPS of $0.63 beats by $0.11

 

Revenue of $75.73M (+ 6.5% Y/Y) beats by $3.77M

PR Newswire

OWINGS MILLS, Md., Aug. 8, 2017 /PRNewswire/ -- Medifast, Inc. (MED) (NYSE: MED), a leading provider of clinically studied healthy living products and programs, today reported financial results for the second quarter ended June 30, 2017.

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"Our second quarter financial results reflect the successful execution of our strategic growth initiatives as our efforts have continued to position our business for an accelerated rate of growth.  We are very pleased to generate revenues and profitability above our expectations for the quarter," said Daniel R. Chard, Medifast's Chief Executive Officer.  "We have positive business momentum with our recently rebranded OPTAVIA coach community, and when combined with our scalable infrastructure and strong balance sheet, we believe we are well positioned for future growth and to create value for our shareholders."

Second Quarter 2017 Results

Net income in the second quarter of 2017 was $7.6 million, or $0.63 per diluted share, based on approximately 12.1 million shares outstanding. Second quarter 2016 net income was $3.4 million, or $0.29 per diluted share based on approximately 11.9 million shares outstanding.  Adjusted net income in the second quarter of 2016 was $7.5 million, or $0.63 per diluted share, excluding impairment costs.

For the second quarter of 2017, Medifast revenue increased 6.4% to $75.7 million from revenue of $71.1 million in the second quarter of 2016.

Revenue in OPTAVIA™, formerly known as Take Shape For Life®, was up 10.6% to $63.5 million in the second quarter of 2017, compared to $57.4 million in the second quarter of the prior year. This is the seventh consecutive quarter of growth. The total number of active earning OPTAVIA™ Coaches in the second quarter of 2017 increased to 13,500, compared to 12,800 in the second quarter of 2016. The average revenue per active earning OPTAVIA™ Coach for the second quarter of 2017 was $4,713 as compared to $4,479 in second quarter of 2016.

Medifast Direct revenue decreased to $8.6 million in the second quarter of 2017, compared to $9.3 million in the second quarter of 2016. Second quarter advertising spend increased to $1.9 million from $1.6 million in the second quarter of 2016.

Revenue in the Franchise Medifast Weight Control Centers decreased to $3.4 million from $4.1 million in the second quarter of last year. The decrease in revenue was primarily driven by fewer franchise centers in operation during the period combined with a decline in activity within the centers and a decrease in resellers. The Company ended the quarter with 36 franchise centers and 2 reseller locations in operation compared to 57 franchise centers at the end of the same period last year. 

Second quarter 2017 Wholesale revenue decreased to $0.2 million compared to the prior year period at $0.3 million.

Gross profit for the second quarter of 2017 increased to $57.6 million compared $53.2 million in the second quarter of 2016. The Company's gross profit as a percentage of revenue increased 130 basis points to 76.1% from 74.8% in the second quarter of 2016.  The increase as a percentage of revenue was primarily driven by a change in product mix with higher prices and efficiencies realized within the Company's supply chain.

Selling, general and administrative expenses ("SG&A") decreased $1.9 million to $46.3 million compared to $48.2 million in the second quarter of 2016. SG&A as a percentage of revenue decreased to 61.1% compared to 67.8% in the second quarter of 2016. The decrease in SG&A was primarily a result of the $6.1 million asset impairment costs incurred during the second quarter of 2016, partially offset by increased commission expenses and increased personnel costs. Excluding the impairment costs, SG&A increased $4.2 million to $46.3 million in the second quarter of 2017 compared to $42.1 million in the second quarter of 2016.  Adjusted SG&A as a percentage of revenue were 61.1% and 59.2% for the second quarter of 2017 and 2016, respectively.

Sales and marketing expense increased $0.4 million in the second quarter of 2017 compared to the second quarter of 2016. 

The second quarter 2017 effective tax rate was 33.8%, compared to 33.3% in the second quarter of 2016.   

Balance Sheet 

The Company's balance sheet remains strong with stockholders' equity of $104.2 million and working capital of approximately $85.6 million as of June 30, 2017.  Cash, cash equivalents, and investment securities increased $11.8 million to $88.6 million as of June 30, 2017 compared to $76.8 million at December 31, 2016. The Company remains free of interest bearing debt.

The Company declared a quarterly cash dividend of $4.1 million, or $0.32 per share, during the second quarter of 2017.  The Company did not repurchase any shares during the first quarter of 2017, and has approximately 850,000 shares remaining on its repurchase authorization as of June 30, 2017. 

Outlook

The Company expects third quarter revenue from continuing operations to be in the range of $72.0 million to $75.0 million and earnings per diluted share from continuing operations to be in the range of $0.48 to $0.51 per diluted share.  The Company reiterated its guidance for full year 2017 revenue of $290.0 million to $300.0 million and raised its full year 2017 earnings per diluted share of $2.05 to $2.15.  The fiscal year 2017 guidance assumes a 33% to 34% effective tax rate.

Non-GAAP Financial Measures

Our Non-GAAP financial measures include adjusted selling, general and administrative expenses, adjusted net income, and adjusted earnings per diluted share.  The Company believes these non-GAAP financial measures are useful to investors because it provides for a more direct comparison of the results for these periods. The non-GAAP financial information is provided in addition to, and not as an alternative to, the Company's reported results prepared in accordance with GAAP. Please refer to the tables in today's press release for a reconciliation of all non-GAAP financial measures.

Conference Call Information

The conference call is scheduled to begin at 4:30 p.m. ET on August 8, 2017. The call will be broadcast live over the Internet (HHH) hosted at the Investor Relations section of Medifast's website at www.MedifastNow.com, and will be archived online through August 22, 2017. In addition, listeners may dial (855) 560-2579.

A telephonic playback will be available from 6:30 p.m. ET, August 8, 2017, through August 15, 2017. Participants can dial (877) 344-7529 to hear the playback and enter passcode 10110807.

About Medifast®:

Medifast (NYSE: MED) is a leading provider of clinically studied healthy living products and programs. It partners with OPTAVIA™ Coaches to help its clients achieve Optimal Health™ and Wellbeing through a comprehensive approach to Lifelong Transformation, One Healthy Habit at a Time™, with personal support and scientifically proven plans and Fuelings.  Medifast was founded in 1980 in Owings Mills, Maryland and is the brand recommended by more than 20,000 Doctors since 1980.  The company was named to Forbes' 100 Most Trustworthy Companies in America List in 2017 and 2016. For more information, visit 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 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 BALANCE SHEETS (UNAUDITED)

(in thousands, except par value)

 
         

June 30,

   

December 31,

         

2017

   

2016

                 

ASSETS

Current Assets

               

Cash and cash equivalents

     

$

63,532

 

$

52,436

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

               

 of $456 and $449 at June 30, 2017 and December 31, 2016, respectively

       

914

   

1,387

Inventory

       

18,048

   

18,311

Investment securities

       

25,020

   

24,412

Income taxes, prepaid

       

-

   

1,249

Prepaid expenses and other current assets

       

3,210

   

3,502

Total current assets

       

110,724

   

101,297

                 

Property, plant and equipment - net

       

18,505

   

19,753

Other assets

       

286

   

162

Long-term assets of discontinued operations

       

-

   

4

                 

TOTAL ASSETS

     

$

129,515

 

$

121,216

                 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

               

Accounts payable and accrued expenses

     

$

25,144

 

$

24,300

Current liabilities of discontinued operations

       

-

   

121

Total current liabilities

       

25,144

   

24,421

                 

Deferred tax liabilities

       

196

   

779

Total liabilities

       

25,340

   

25,200

                 

Stockholders' Equity

               

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

               

12,124 and 12,027 issued and 11,930 and 11,871 outstanding

               

at June 30, 2017 and December 31, 2016, respectively

       

12

   

12

Additional paid-in capital

       

4,630

   

2,672

Accumulated other comprehensive income (loss)

       

14

   

(165)

Retained earnings 

       

99,519

   

93,497

Total stockholders' equity

       

104,175

   

96,016

                 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

     

$

129,515

 

$

121,216

                 

 

 

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,

 
   

2017

 

2016

 

2017

 

2016

 
                           

Revenue

 

$

75,729

 

$

71,144

 

$

146,351

 

$

143,489

 

Cost of sales

   

18,118

   

17,919

   

35,848

   

37,070

 

Gross profit

   

57,611

   

53,225

   

110,503

   

106,419

 
                           

Selling, general, and administrative

   

46,301

   

48,201

   

90,584

   

95,127

 
                           

Income from operations

   

11,310

   

5,024

   

19,919

   

11,292

 
                           

Other income (expense)

                         

Interest and dividend income, net

   

141

   

65

   

204

   

180

 

Other income (expense)

   

(3)

   

3

   

36

   

(21)

 
     

138

   

68

   

240

   

159

 
                           

Income from operations before income taxes

   

11,448

   

5,092

   

20,159

   

11,451

 
                           

Provision for income taxes

   

3,864

   

1,695

   

6,430

   

3,794

 
                           

Net income

 

$

7,584

 

$

3,397

 

$

13,729

 

$

7,657

 
                           

Earnings per share - basic

 

$

0.64

 

$

0.29

 

$

1.15

 

$

0.65

 
                           

Earnings per share - diluted

 

$

0.63

 

$

0.29

 

$

1.14

 

$

0.64

 
                           

Weighted average shares outstanding -

                         

     Basic

   

11,929

   

11,811

   

11,915

   

11,817

 

     Diluted

   

12,056

   

11,884

   

12,044

   

11,891

 
                           

Cash dividends declared per share

 

$

0.32

 

$

0.25

 

$

0.64

 

$

0.50

 
                           

 

 

                           

MEDIFAST, INC. AND SUBSIDIARIES

NON-GAAP FINANCIAL MEASURES (UNAUDITED)

(in thousands, except per share amounts)

   
                           
                           
                           
   

Three months ended June 30,

 

Six months ended June 30,

 
   

2017

 

2016

 

2017

 

2016

 
                           

Selling, general, and administrative

 

$

46,301

 

$

48,201

 

$

90,584

 

$

95,127

 

Adjustments

                         

Impairment of assets

   

-

   

6,083

   

-

   

6,083

 

Restructuring charges

   

-

   

-

   

-

   

1,166

 

Adjusted selling, general, and administrative

 

$

46,301

 

$

42,118

 

$

90,584

 

$

87,878

 
                           
                           
   

Three months ended June 30,

 

Six months ended June 30,

 
   

2017

 

2016

 

2016

 

2015

 
                           

Net income

 

$

7,584

 

$

3,397

 

$

13,729

 

$

7,657

 

Adjustments

                         

Impairment of assets

   

-

   

4,058

   

-

   

4,067

 

Restructuring charges

   

-

   

-

   

-

   

780

 

Adjusted net income

 

$

7,584

 

$

7,455

 

$

13,729

 

$

12,504

 
                           

Diluted earnings per share (1)

 

$

0.63

 

$

0.29

 

$

1.14

 

$

0.64

 

Impact for adjustments (1)

   

-

   

0.34

   

-

   

0.41

 

Adjusted diluted earnings per share (1)

 

$

0.63

 

$

0.63

 

$

1.14

 

$

1.05

 
                           

(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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SOURCE Medifast, Inc.