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| 8-K - CURRENT REPORT - MEDIFAST INC | v417083_8k.htm |
Exhibit 99.1
Medifast, Inc. Announces Second Quarter 2015 Financial Results
Company Reports Second Quarter Earnings from Continuing Operations of $0.48 per Diluted Share
OWINGS MILLS, Md., August 5, 2015 – Medifast, Inc. (NYSE: MED), a leading United States manufacturer and provider of clinically proven weight-loss and healthy living products and programs, today reported financial results for the second quarter ended June 30, 2015.
“We are pleased with our solid results in the second quarter which were in-line with our revenue and earnings expectations,” said Michael C. MacDonald, Medifast Chairman and Chief Executive Officer. “We continued to make progress on our strategic initiatives within each of our key areas of focus, while also maintaining a strong financial discipline across our business. We believe that these efforts will help grow and improve Take Shape for Life, optimize Medifast Direct, and further our product and program innovation to position Medifast for success in 2015 and beyond.”
Second Quarter 2015 Results
Results from Continuing Operations
Income from continuing operations was $5.8 million, or $0.48 per diluted share, compared to $6.6 million, or $0.50 per diluted share, for the second quarter of 2014. Income from continuing operations excluding extraordinary legal and advisory expenses resulting from recent 13D filings would have been $6.0 million, or $0.50 per diluted share.
For the second quarter, Medifast net revenue from continuing operations decreased 3% to $72.2 million from net revenue of $74.7 million in the second quarter of 2014.
Revenue in the direct sales channel, Take Shape for Life, decreased 3% to $52.3 million in the second quarter of 2015 compared to $54.0 million in the same period last year, a sequential improvement in the quarterly rate of decline compared to the same period last year. The total number of active earning Health Coaches in the second quarter was 11,800 as compared to 12,400 in the second quarter of 2014. The average revenue per active earning Health Coach for the quarter was $4,423 as compared to $4,347 in second quarter of 2014.
The Company's Medifast Direct channel revenue decreased 10% to $13.7 million, compared to $15.2 million in the second quarter of 2014. This marks the fourth consecutive quarterly improvement in the rate of decline and results were in-line with the Company’s expectations as it continued to focus on efficiently managing marketing investments.
Revenue in the Franchise Medifast Weight Control Centers channel increased 22% to $4.7 million from $3.8 million in the second quarter of last year. The increase in revenue was driven by the conversion of corporate centers to franchise centers, partially offset by franchise center closures as well as a decrease in sales of franchise centers open greater than one year. There were 62 franchise centers in operation at the end of second quarter 2015 compared to 73 centers at the end of the same period last year.
In the second quarter, the Wholesale channel revenue decreased to $1.5 million, compared to $1.7 million in the same period last year. This decrease was fueled by the loss of a few large accounts resulting from Medifast enforcement of business partner compliance requirements.
Gross profit for the second quarter of 2015 was $53.2 million, compared to $55.6 million in the second quarter of 2014. The Company's gross profit as a percentage of net revenue decreased to 73.7% from 74.4% in the second quarter of 2014. The decrease from the prior year period was primarily the result of an increase in certain raw ingredient costs, higher manufacturing variances due to reduced volumes and an increase in obsolescence for a single product due to expiration dates. These cost increases were partially offset by price increases initiated at the end of the first quarter.
Selling, general and administrative expenses (“SG&A”) decreased $1.2 million to $44.5 million compared to $45.7 million in the second quarter of 2014. As a percentage of net revenue, SG&A expense was 61.7% versus 61.2% in the second quarter of 2014. SG&A expenses as a percent of net revenue, excluding the aforementioned items related to the 13D filings in the second quarter of 2015, was 61.3%.
Sales and marketing expense decreased $0.8 million in the second quarter of 2015 compared to the second quarter of 2014, primarily driven by a reduced advertising spend, partially offset by a new Take Shape For Life convention incentive earned in the quarter. The Company continues to focus on efficiency improvements and balancing sales and marketing expense in an effort to drive profitability.
The second quarter 2015 effective tax rate was 33.8% compared to 34.4% in the second quarter of 2014. This decrease was due to an increase in permanent differences, primarily driven by higher tax exempt interest income which was partially offset by an increase in state income taxes.
Discontinued Operations
As previously disclosed, the Company exited the Medifast Weight Control Center corporate model by selling 41 centers to existing franchise partners (24 centers were sold in June 2014 and the remaining 17 centers were sold in December 2014) and closing the remaining 34 corporate centers. For the second quarter of 2015, corporate-owned Medifast Weight Control Centers had income from discontinued operations, net of tax, of $0.4 million.
Balance Sheet
The Company's balance sheet remains strong with stockholders' equity of $88.2 million and working capital of approximately $63.3 million as of June 30, 2015. Cash, cash equivalents, and investment securities increased $12.4 million to $65.0 million compared to $52.6 million at December 31, 2014. The Company remains free of interest bearing debt.
The Company has authorization to repurchase a total of 1.1 million shares.
Outlook
The Company expects third quarter 2015 net revenue from continuing operations to be in the range of approximately $65.0 to $68.0 million and earnings per diluted share from continuing operations in the range of $0.40 - $0.43 per diluted share.
For fiscal year 2015, the Company updated guidance of revenue from continuing operations to be in the range of $270.0 - $280.0 million and earnings per diluted share from continuing operations in the range of $1.70 to $1.80 per diluted share. The fiscal year 2015 guidance assumes a 34% to 35% effective tax rate.
Fiscal year guidance excludes expenses resulting from 13D filings.
Conference Call Information
The conference call is scheduled to begin at 4:30 p.m. ET on August 5, 2015. The call will be broadcast live over the Internet hosted at the Investor Relations section of Medifast's website at www.MedifastNow.com, and will be archived online through August 19, 2015. In addition, listeners may dial (877) 870-4263.
A telephonic playback will be available from 7:30 p.m. ET, August 5, 2015, through August 19, 2015. Participants can dial (877) 344-7529 to hear the playback and enter passcode 10069924.
About Medifast
Medifast (NYSE: MED) is the leading easy-to-use, clinically proven weight-loss program. 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) Medifast Weight Control Centers, and 4) a national network of physicians. Medifast was founded in 1980 and is located in Owings Mills, Maryland. For more information, log onto 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 Health 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.
Investor Contact:
ICR, Inc.
Katie Turner
(646) 277-1228
| MEDIFAST, INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
| (Unaudited) | (Audited) | |||||||
| June 30, 2015 | December 31, 2014 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 37,145,000 | $ | 24,459,000 | ||||
| Accounts receivable-net of allowance for sales returns and doubtful accounts | ||||||||
| of $426,000 and $354,000 | 1,991,000 | 1,650,000 | ||||||
| Inventory | 12,424,000 | 15,735,000 | ||||||
| Investment securities | 27,894,000 | 28,185,000 | ||||||
| Income taxes, prepaid | 1,030,000 | 5,099,000 | ||||||
| Prepaid expenses and other current assets | 3,087,000 | 2,875,000 | ||||||
| Deferred tax assets | 2,556,000 | 3,727,000 | ||||||
| Current assets of discontinued operations | 7,000 | 184,000 | ||||||
| Total current assets | 86,134,000 | 81,914,000 | ||||||
| Property, plant and equipment - net | 31,068,000 | 33,477,000 | ||||||
| Other assets | 162,000 | 497,000 | ||||||
| Long-term assets of discontinued operations | 19,000 | 22,000 | ||||||
| TOTAL ASSETS | $ | 117,383,000 | $ | 115,910,000 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 21,258,000 | $ | 21,854,000 | ||||
| Current maturities of capital leases | 237,000 | 232,000 | ||||||
| Current liabilities of discontinued operations | 1,318,000 | 4,858,000 | ||||||
| Total current liabilities | 22,813,000 | 26,944,000 | ||||||
| Other liabilities: | ||||||||
| Capital leases, net of current portion | 122,000 | 242,000 | ||||||
| Deferred tax liabilities | 5,261,000 | 5,492,000 | ||||||
| Long-term liabilities of discontinued operations | 989,000 | 2,756,000 | ||||||
| Total liabilities | 29,185,000 | 35,434,000 | ||||||
| Stockholders' Equity: | ||||||||
| Common stock; par value $.001 per share; 20,000,000 shares authorized; | ||||||||
| 12,393,318 and 12,365,690 issued | ||||||||
| 12,023,235 and 12,075,764 issued and outstanding | 12,000 | 12,000 | ||||||
| Additional paid-in capital | 1,571,000 | 1,132,000 | ||||||
| Accumulated other comprehensive income | 347,000 | 435,000 | ||||||
| Retained earnings | 89,589,000 | 78,897,000 | ||||||
| Less: cost of 103,130 and 0 shares of common stock in treasury | (3,321,000 | ) | - | |||||
| Total stockholders' equity | 88,198,000 | 80,476,000 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 117,383,000 | $ | 115,910,000 | ||||
| MEDIFAST, INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME |
| (Unaudited) |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Revenue | $ | 72,161,000 | $ | 74,732,000 | $ | 145,525,000 | $ | 153,965,000 | ||||||||
| Cost of sales | 18,994,000 | 19,158,000 | 38,588,000 | 40,467,000 | ||||||||||||
| Gross Profit | 53,167,000 | 55,574,000 | 106,937,000 | 113,498,000 | ||||||||||||
| Selling, general, and administrative | 44,504,000 | 45,713,000 | 91,762,000 | 94,026,000 | ||||||||||||
| Income from operations | 8,663,000 | 9,861,000 | 15,175,000 | 19,472,000 | ||||||||||||
| Other income | ||||||||||||||||
| Interest and dividend income, net | 164,000 | 170,000 | 296,000 | 305,000 | ||||||||||||
| Other income | 1,000 | 63,000 | 149,000 | 247,000 | ||||||||||||
| 165,000 | 233,000 | 445,000 | 552,000 | |||||||||||||
| Income from continuing operations before income taxes | 8,828,000 | 10,094,000 | 15,620,000 | 20,024,000 | ||||||||||||
| Provision for income taxes | 2,981,000 | 3,475,000 | 5,357,000 | 6,860,000 | ||||||||||||
| Income from continuing operations | 5,847,000 | 6,619,000 | 10,263,000 | 13,164,000 | ||||||||||||
| Income (loss) from discontinued operations, net of tax | 401,000 | (899,000 | ) | 429,000 | (1,477,000 | ) | ||||||||||
| Net income | $ | 6,248,000 | $ | 5,720,000 | $ | 10,692,000 | $ | 11,687,000 | ||||||||
| Basic earnings per share | ||||||||||||||||
| Earnings per share from continuing operations | $ | 0.48 | $ | 0.50 | $ | 0.85 | $ | 0.99 | ||||||||
| Earnings (Loss) per share from discontinued operations | $ | 0.03 | $ | (0.06 | ) | $ | 0.03 | $ | (0.10 | ) | ||||||
| Earnings per share | $ | 0.51 | $ | 0.44 | $ | 0.88 | $ | 0.89 | ||||||||
| Diluted earnings per share | ||||||||||||||||
| Earnings per share from continuing operations | $ | 0.48 | $ | 0.50 | $ | 0.84 | $ | 1.00 | ||||||||
| Earnings (Loss) per share from discontinued operations | $ | 0.03 | $ | (0.06 | ) | $ | 0.04 | $ | (0.11 | ) | ||||||
| Earnings per share | $ | 0.51 | $ | 0.44 | $ | 0.88 | $ | 0.89 | ||||||||
| Weighted average shares outstanding - | ||||||||||||||||
| Basic | 12,069,150 | 13,050,346 | 12,085,221 | 13,111,348 | ||||||||||||
| Diluted | 12,159,286 | 13,149,414 | 12,175,985 | 13,200,207 | ||||||||||||