Medifast, Inc. Announces Fourth Quarter and Full Year 2018 Financial Results

|PR Newswire|About: MED

Net Income Increased 114% in the Fourth Quarter and 101% for the Full Year

Company Introduces First Quarter and Fiscal Year 2019 Outlook

PR Newswire

BALTIMORE, Feb. 26, 2019 /PRNewswire/ -- Medifast, Inc. (MED), a leading manufacturer and distributor of clinically proven, healthy living products and programs, today reported financial results for the fourth quarter and full year ended December 31, 2018.

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Fourth Quarter 2018 Highlights:

  • Revenue of $145.8 million, an increase of 87.0% year-over-year
  • Active earning Coaches of 24,100, an increase of 60.7% year-over-year
  • Net income of $15.7 million, an increase of 114.2% year-over-year
  • Earnings per diluted share ("EPS") of $1.30, an increase of 116.7% year-over-year

Full Year 2018 Highlights:

  • Revenue of $501.0 million, an increase of 66.1% year-over-year
  • Net income of $55.8 million, an increase of 101.3% year-over-year
  • EPS of $4.62, an increase of 101.7% year-over-year
  • Cash, cash equivalents, and investment securities of $101.0 million and debt-free
  • Returned $23.2 million to stockholders through payment of quarterly cash dividend
  • Repurchased $30 million of the Company's common stock

"We are very pleased with our strong finish to 2018," commented Dan Chard, Medifast's Chief Executive Officer. "We reached a significant corporate milestone generating over $500 million in annual revenue and profitability exceeded our expectations. Importantly, we achieved these results while accelerating the level of strategic investment to support our long-term growth plans to build our brand platform and operations as we continue to improve the scalability of our business. As we move forward with our strategic initiatives, both domestically and internationally, we believe we remain well positioned to deliver long-term sustainable growth and value for our shareholders as well as meaningful improvements to the lives of OPTAVIA clients across the country as they learn new healthy habits that make their lives better."

Fourth Quarter 2018 Results

For the fourth quarter of 2018, revenue increased 87.0% to $145.8 million from revenue of $78.0 million for the fourth quarter last year. OPTAVIA-branded products represented 72% of consumable units sold for the fourth quarter of 2018 compared to 51% for the fourth quarter of last year. The total number of active earning OPTAVIA Coaches for the fourth quarter of 2018 increased to 24,100, compared to 15,000 for the fourth quarter of 2017. The average revenue per active earning OPTAVIA Coach for the fourth quarter of 2018 increased 26.2% to $5,756 compared to $4,562 for the fourth quarter last year.

Gross profit for the fourth quarter of 2018 increased to $109.1 million from $59.1 million for the fourth quarter of 2017. The Company's gross profit as a percentage of revenue decreased 100 basis points to 74.8% from 75.8% for the fourth quarter last year.  The decrease in gross margin percentage was driven by increased inventory reserves for a select group of products as well as higher freight costs to support year end customer demands.

Selling, general and administrative expenses ("SG&A") for the fourth quarter of 2018 increased $39.7 million to $89.3 million compared to $49.6 million for the fourth quarter of 2017, primarily as a result of higher OPTAVIA commissions expense, consulting costs related to information technology projects, and investments the Company is making in an upcoming International Leadership Advancement Trip ("ILAT") which is designed to reward qualifying business leaders with exclusive training and development opportunities. As previously disclosed, the ILAT expense was recorded in the third and fourth quarters of 2018 and is expected to drive strong growth in 2019.  SG&A as a percentage of sales decreased 240 basis points to 61.2% of total revenue compared to 63.6% in the fourth quarter of 2017.

Operating income increased $10.3 million to $19.8 million from $9.5 million for the fourth quarter of 2018 primarily as a result of increased gross profit, partially offset by increased SG&A expenses.  Operating income as a percentage of revenue increased 140 basis points to 13.6% compared to 12.2% in the fourth quarter of 2017.

The fourth quarter 2018 effective tax rate was 22.4%, compared to 25.4% for the fourth quarter of 2017.  This decrease was primarily a result of the decrease in the Federal statutory rate pursuant to the Tax Cuts & Jobs Act rate of 14.0% offset by 2.1% due to the elimination of the Domestic Manufacturer Deduction, 5.0% due to a decrease in the windfall related to stock compensation and 3.0% due to a change in temporary differences resulting from the Tax Cuts & Jobs Act.

Net income for the fourth quarter of 2018 was $15.7 million, or $1.30 per diluted share, based on approximately 12.0 million shares outstanding. Fourth quarter 2017 net income was $7.3 million, or $0.60 per diluted share based on approximately 12.1 million shares outstanding. 

Fiscal 2018 Results

For the fiscal year ended December 31, 2018, revenue increased 66.1% to $501.0 million compared to revenue of $301.6 million in 2017.  

Net income for 2018 was $55.8 million, or $4.62 per diluted share based on approximately 12.1 million shares, compared to $27.7 million, or $2.29 per diluted share for the comparable period last year based on approximately 12.1 million shares outstanding.

Balance Sheet

The Company's balance sheet remains strong with stockholders' equity of $109.1 million and working capital of $85.2 million as of December 31, 2018.  Cash, cash equivalents, and investment securities increased $2.2 million to $101.0 million as of December 31, 2018 compared to $98.8 million at December 31, 2017. The Company remains free of interest bearing debt.  Inventory increased $19.6 million to $38.9 million as of December 31, 2018 compared to $19.3 million as the Company increased inventory levels to meet current and future customer demand.

The Company declared a quarterly cash dividend of $9.1 million, or $0.75 per share, during the fourth quarter of 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 ended December 31, 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 December 31, 2018 from the implementation of ASC 606.  For the quarter ended December 31, 2018, revenue increased $3.1 million, or 2.2%, which resulted in increased gross profit of $2.4 million, or 2.2%.  Gross profit as a percentage of revenue increased 10 basis points to 74.8% for quarter ended December 31, 2018. Income from operations increased $1.0 million, or 5.5%, resulting in increased net income and diluted earnings per share of $0.8 million, or $0.07 per share, respectively.

As of December 31, 2018, working capital decreased $2.3 million and stockholders' equity decreased $1.8 million as a result of the impact ASC 606.

Outlook

The Company expects first quarter revenue to be in the range of $150 million to $155 million and EPS to be in the range of $1.50 to $1.55.  For the full year 2019, the Company expects revenue of $700 million to $720 million and EPS of $6.45 to $6.65. The full year 2019 earnings guidance assumes a 22.5% to 23.5% effective tax rate.  The Company expects the 2019 cadence of spending to be similar to 2018 with its annual convention spend occurring in the third quarter of the year and the cost of a 2020 Leadership Advancement event to be incurred in the third and fourth quarters of the year. Based on capital investments in the Company's future growth, it expects capital expenditures in 2019 to be approximately $15.0 million or 2.0% of revenues. 

Conference Call Information

The conference call is scheduled for today, Tuesday, February 26, 2019 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 March 12, 2019. In addition, listeners may dial (855) 560-2579.

A telephonic playback will be available from 6:30 p.m. ET, February 26, 2019, through March 5, 2019. Participants can dial (877) 344-7529 to hear the playback and enter passcode 10128715.

About Medifast®:

Medifast 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 leverages 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 time™. OPTAVIA® is represented by a community of 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

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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




Three months ended December 31,


Year ended December 31,



2018


2017


2018


2017














Revenue


$

145,844


$

78,007


$

501,003


$

301,563

Cost of sales



36,753



18,881



121,104



73,751

Gross profit



109,091



59,126



379,899



227,812














Selling, general, and administrative



89,288



49,640



310,836



188,180














Income from operations



19,803



9,486



69,063



39,632














Other income (expense)













Interest income, net



366



206



1,306



558

Other income (expense)



1



104



179



136




367



310



1,485



694














Income from operations before income taxes



20,170



9,796



70,548



40,326














Provision for income taxes



4,517



2,490



14,759



12,605














Net income


$

15,653


$

7,306


$

55,789


$

27,721














Earnings per share - basic


$

1.32


$

0.61


$

4.67


$

2.32














Earnings per share - diluted


$

1.30


$

0.60


$

4.62


$

2.29














Weighted average shares outstanding -













Basic



11,894



11,941



11,947



11,924

Diluted



12,014



12,148



12,079



12,088














Cash dividends declared per share


$

0.75


$

0.48


$

2.19


$

1.44

 

 

MEDIFAST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except par value)





















December 31, 2018



December 31, 2017









ASSETS

Current Assets








Cash and cash equivalents



$

81,364


$

75,077

Accounts receivable-net of doubtful accounts of $394 and $40 at 








December 31, 2018 and 2017, respectively.




1,011



576

Inventory




38,888



19,328

Investment securities




19,670



23,757

Income taxes, prepaid




-



2,272

Prepaid expenses and other current assets




4,586



4,188

Total current assets




145,519



125,198









Property, plant and equipment - net




19,747



18,611

Other assets




1,183



2,120

Deferred tax assets




2,980



-

















TOTAL ASSETS



$

169,429


$

145,929









LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities








Accounts payable and accrued expenses



$

60,323


$

37,140

Total current liabilities




60,323



37,140









Deferred tax liabilities




-



208

Total liabilities




60,323



37,348









Stockholders' Equity








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








12,117 and 12,103 issued and 11,868 and 11,971 outstanding








at December 31, 2018 and December 31, 2017, respectively




12



12

Additional paid-in capital




8,802



4,967

Accumulated other comprehensive loss




(173)



(160)

Retained earnings 




131,344



103,762

Less: Treasury (TSRMF) stock at cost, 193 shares at December 31, 2018




(30,879)



-

Total stockholders' equity




109,106



108,581









TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY



$

169,429


$

145,929









 

 

The impact of the adoption of the new revenue standard on the Company's Consolidated Statements of Income and Consolidated Balance Sheets was as follows (in thousands):






















Three months ended December 31, 2018


Year ended December 31, 2018



As Reported


Balances without
adoption of ASC 606


Effect of Change


As Reported


Balances without
adoption of ASC 606


Effect of Change




















Revenue


$

145,844


$

142,753


$

3,091


$

501,003


$

499,195


$

1,808

Cost of sales



36,753



36,046



(707)



121,104



120,590



(514)

Gross profit



109,091



106,707



2,384



379,899



378,605



1,294




















Selling, general, and administrative



89,288



87,943



(1,345)



310,836



309,851



(985)




















Income from operations



19,803



18,764



1,039



69,063



68,754



309




















Other income (expense)



















Interest income, net



366



366



-



1,306



1,306



-

Other income (expense)



1



1



-



179



179



-




367



367



-



1,485



1,485



-




















Income from operations before income taxes



20,170



19,131



1,039



70,548



70,239



309




















Provision for income taxes



4,517



4,300



(217)



14,759



14,696



(63)




















Net income


$

15,653


$

14,831


$

822


$

55,789


$

55,543


$

246




















Earnings per share - basic


$

1.32


$

1.25


$

0.07


$

4.67


$

4.65


$

0.02




















Earnings per share - diluted


$

1.30


$

1.23


$

0.07


$

4.62


$

4.60


$

0.02




















Weighted average shares outstanding -



















Basic



11,894



11,894






11,947



11,947




Diluted



12,014



12,014






12,079



12,079





































































































December 31, 2018












As Reported


Balances without
adoption of ASC 606


Effect of Change





























ASSETS



















Accounts receivable, net


$

1,011


$

81


$

930










Inventory



38,888



38,421



467










Prepaid expenses and other current assets



4,586



4,509



77










Deferred tax assets



2,980



2,498



482





























LIABILITIES



















Accounts payable and accrued expenses



60,323



56,595



3,728





























STOCKHOLDERS' EQUITY



















Retained earnings 



131,344



133,116



(1,772)










 

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SOURCE Medifast, Inc.