Medifast(MED) - 2024 Q1 - Quarterly Results

Executive Summary & Strategic Highlights Medifast is strategically transforming its OPTAVIA offer to integrate GLP-1 medical weight loss solutions, positioning 2024 as a foundational investment year for future growth CEO Commentary & Strategic Vision Medifast's CEO, Dan Chard, announced a strategic transformation of the OPTAVIA offer to integrate comprehensive support for GLP-1 medical weight loss solutions, targeting a market projected to exceed $50 billion by 2030. The company is investing in a new holistic, Coach-guided model with national marketing to drive future growth, positioning 2024 as a foundational year for these initiatives - Medifast is transforming its OPTAVIA offer to include comprehensive support for consumers using GLP-1 medical weight loss solutions, targeting a market estimated to grow to $50 billion or more by 2030[3] - The new model features a highly differentiated, holistic approach with habit-based and Coach-guided solutions, nutrition products, and community support, backed by a new company-led national marketing campaign[4] - 2024 is designated as a year of investment for future growth, aiming to create a platform for sustained company growth in the years ahead[4] First Quarter 2024 Financial Performance Medifast's first quarter 2024 financial performance saw significant declines across revenue, net income, and key operational metrics Key Financial Highlights Medifast experienced a significant decline in its first quarter 2024 financial performance, with revenue decreasing by nearly half and net income falling sharply. Key metrics like active coaches and average revenue per coach also saw substantial reductions Key Financial Metrics | Metric | Q1 2024 | Q1 2023 | Change (%) | | :---------------------------------------- | :---------- | :---------- | :--------- | | Revenue | $174.7M | $349.0M | -49.9% | | Active Earning OPTAVIA Coaches | 37,800 | 58,700 | -35.6% | | Average Revenue per Active Earning Coach | $4,623 | $5,945 | -22.3% | | Net Income | $8.3M | $40.0M | -79.2% | | Diluted EPS | $0.76 | $3.67 | -79.3% | | Cash, Cash Equivalents, and Investment Securities | $156.4M | N/A | N/A | | Interest-Bearing Debt | $0 | $0 | No Change | Revenue Analysis First quarter 2024 revenue decreased by 49.9% year-over-year, primarily due to a significant reduction in active earning OPTAVIA Coaches and lower Coach productivity, compounded by a timing difference from sales order terms changes in the prior year Revenue Performance | Metric | Q1 2024 | Q1 2023 | Change | | :------- | :---------- | :---------- | :------- | | Revenue | $174.7M | $349.0M | -49.9% | - The decrease was primarily driven by a 35.6% reduction in active earning OPTAVIA Coaches (37,800 compared to 58,700 in Q1 2023) and lower Coach productivity[5] - Average revenue per active earning OPTAVIA Coach decreased to $4,623 from $5,945, mainly due to continued pressure on customer acquisition[5] Gross Profit Analysis Gross profit decreased by 48.3% in line with lower revenue, but the gross profit margin improved to 72.8% from 70.6% due to efficiencies in inventory management and cost savings from 'Fuel for the Future' initiatives, partially offset by increased shipping costs Gross Profit and Margin | Metric | Q1 2024 | Q1 2023 | Change | | :------------------ | :---------- | :---------- | :------- | | Gross Profit | $127.3M | $246.4M | -48.3% | | Gross Profit Margin | 72.8% | 70.6% | +2.2 pp | - Gross profit margin improvement was primarily due to efficiencies in inventory management and cost savings from Fuel for the Future initiatives[6] Selling, General, and Administrative Expenses (SG&A) SG&A expenses decreased by 38.1% to $119.4 million, mainly due to lower Coach compensation. However, as a percentage of revenue, SG&A significantly increased by 1,300 basis points to 68.3%, driven by investments in medically supported weight loss activities, company-led acquisition initiatives, and loss of leverage on fixed costs due to lower sales volumes SG&A Expenses | Metric | Q1 2024 | Q1 2023 | Change | | :---------------------------------------- | :---------- | :---------- | :------- | | SG&A Expenses | $119.4M | $192.9M | -38.1% | | SG&A as % of Revenue | 68.3% | 55.3% | +13.0 pp | | Non-GAAP Adjusted SG&A | $118.0M | $192.9M | -38.8% | | Non-GAAP Adjusted SG&A as % of Revenue | 67.5% | 55.3% | +12.2 pp | - The decrease in SG&A was primarily due to lower OPTAVIA Coach compensation expense resulting from lower volumes and fewer active earning Coaches[7] - The increase in SG&A as a percentage of revenue was primarily due to market research and investment costs related to medically supported weight loss activities, loss of leverage on fixed costs due to lower sales volumes, and costs for company-led acquisition initiatives[8] Income from Operations Income from operations decreased substantially by 85.2% to $7.9 million, with the operating margin falling to 4.5% from 15.3% in the prior-year period. Non-GAAP adjusted income from operations also saw a significant decline Income from Operations and Margin | Metric | Q1 2024 | Q1 2023 | Change | | :---------------------------------------- | :---------- | :---------- | :------- | | Income from Operations | $7.9M | $53.5M | -85.2% | | Income from Operations as % of Revenue | 4.5% | 15.3% | -10.8 pp | | Non-GAAP Adjusted Income from Operations | $9.3M | $53.5M | -82.7% | | Non-GAAP Adjusted Income from Operations as % of Revenue | 5.3% | 15.3% | -10.0 pp | Effective Tax Rate The effective tax rate increased to 28.2% in Q1 2024 from 25.1% in Q1 2023, primarily driven by an increase in the tax shortfall for stock compensation and the rate impact of research and development tax credits Effective Tax Rate | Metric | Q1 2024 | Q1 2023 | Change | | :------------------------ | :-------- | :-------- | :------- | | Effective Tax Rate | 28.2% | 25.1% | +3.1 pp | | Non-GAAP Effective Tax Rate | 28.7% | 25.1% | +3.6 pp | - The increase in the effective tax rate was primarily driven by an increase in the tax shortfall for stock compensation and the rate impact of research and development tax credits[10] Net Income and EPS Net income for Q1 2024 was $8.3 million, or $0.76 per diluted share, a substantial decrease from $40.0 million, or $3.67 per diluted share, in the prior year. Non-GAAP adjusted net income and EPS also reflected similar declines Net Income and Diluted EPS | Metric | Q1 2024 | Q1 2023 | Change | | :---------------------------- | :---------- | :---------- | :------- | | Net Income | $8.3M | $40.0M | -79.2% | | Diluted EPS | $0.76 | $3.67 | -79.3% | | Non-GAAP Adjusted Net Income | $7.2M | $39.9M | -82.0% | | Non-GAAP Adjusted Diluted EPS | $0.66 | $3.67 | -82.0% | Financial Position & Outlook Medifast maintains a strong balance sheet with no debt and provides its financial outlook for the second quarter of 2024 Capital Allocation and Balance Sheet Medifast maintains a strong balance sheet, reporting $156.4 million in cash, cash equivalents, and investment securities as of March 31, 2024, an increase from the previous quarter, with no interest-bearing debt Balance Sheet Highlights | Metric | March 31, 2024 | Dec 31, 2023 | Change | | :---------------------------------------- | :--------------- | :------------- | :------- | | Cash, Cash Equivalents, & Investment Securities | $156.4M | $150.0M | +$6.4M | | Interest-Bearing Debt | $0 | $0 | No Change | Second Quarter 2024 Outlook For the second quarter of 2024, Medifast anticipates revenue to be in the range of $150 million to $170 million, with diluted EPS projected between $0.05 and $0.40, excluding specific collaboration and investment-related costs Q2 2024 Financial Outlook | Metric | Q2 2024 Forecast | | :---------- | :----------------- | | Revenue | $150M - $170M | | Diluted EPS | $0.05 - $0.40 | - The diluted EPS range excludes costs related to the initiation of the LifeMD collaboration and any gains or losses from changes in the market price of the company's LifeMD common stock investment[13] Company Information & Disclosures This section provides an overview of Medifast, details conference call information, and outlines important forward-looking statements and risk factors About Medifast Medifast, through its OPTAVIA® brand, offers a habit-based and coach-guided lifestyle solution for optimal health, backed by clinically proven benefits and scientifically developed products. As a physician-founded company with over 40 years of history, Medifast is a leader in U.S. weight management and has partnered with LifeMD to provide customers access to board-certified clinicians and GLP-1 medications - Medifast (NYSE: MED) is a health and wellness company known for its habit-based and coach-guided lifestyle solution, OPTAVIA®, which provides a comprehensive approach to achieving lasting optimal health[16] - OPTAVIA's lifestyle plans offer clinically proven health benefits, evidence-based tools, scientifically developed products, and a framework for habit creation supported by independent Coaches and Community[16] - Through a collaboration with LifeMD, OPTAVIA customers have access to board-certified affiliated clinicians and medications, such as GLP-1s, that support treatment plans for obesity and other health conditions[16] Conference Call Information Medifast hosted a conference call on April 29, 2024, to discuss its first quarter results. The call was broadcast live online and is available for archive, with a telephonic playback option also provided for a limited period - The conference call was scheduled for Monday, April 29, 2024, at 4:30 p.m. ET[14] - The call was broadcast live over the Internet on Medifast's Investor Relations section and will be archived online and available through July 29, 2024[14] - A telephonic playback was available from April 29 through May 6, 2024, using passcode 13745406[15] Forward-Looking Statements This release contains forward-looking statements that are subject to various risks and uncertainties, including those related to maintaining the OPTAVIA Coach network, industry competition (especially from new weight loss products like GLP-1s), product development, marketing effectiveness, supply chain disruptions, and regulatory impacts. Readers are advised to review the comprehensive risk factors detailed in the company's SEC filings - The release contains "forward-looking statements" identifiable by phrases like "intend," "anticipate," or "expect," which describe Medifast's objectives, strategies, plans, goals, outlook, or targets[17] - These statements are subject to certain events, risks, uncertainties, and other factors, including Medifast's inability to maintain and grow its independent OPTAVIA Coaches network and industry competition, particularly from new weight loss products like medications[17] - Readers are cautioned to consider all risk factors and cautionary statements in evaluating forward-looking statements, as detailed in the company's Annual Report on Form 10-K and other SEC filings[17][18] Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including statements of income and balance sheets, for the specified periods Condensed Consolidated Statements of Income (Unaudited) This section presents the unaudited condensed consolidated statements of income for the three months ended March 31, 2024, and 2023, providing a detailed breakdown of revenue, expenses, and profitability metrics Condensed Consolidated Statements of Income (Unaudited) | Metric (U.S. dollars in thousands, except per share amounts) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $174,739 | $348,980 | | Cost of sales | 47,447 | 102,593 | | Gross profit | 127,292 | 246,390 | | Selling, general, and administrative | 119,352 | 192,879 | | Income from operations | 7,940 | 53,511 | | Interest income (expense) | 1,223 | (181) | | Other income (expense) | 2,422 | (1) | | Income from operations before income taxes | 11,585 | 53,329 | | Provision for income taxes | 3,269 | 13,361 | | Net income | $8,316 | $39,968 | | Earnings per share - basic | $0.76 | $3.68 | | Earnings per share - diluted | $0.76 | $3.67 | | Weighted average shares outstanding - basic | 10,909 | 10,864 | | Weighted average shares outstanding - diluted | 10,958 | 10,899 | | Cash dividends declared per share | $0 | $1.65 | Condensed Consolidated Balance Sheets (Unaudited) This section provides the unaudited condensed consolidated balance sheets as of March 31, 2024, and December 31, 2023, detailing the company's assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets (Unaudited) | Metric (U.S. dollars in thousands) | March 31, 2024 | December 31, 2023 | | :---------------------------------------- | :--------------- | :---------------- | | ASSETS | | | | Current Assets | | | | Cash and cash equivalents | $97,471 | $94,440 | | Inventories | 46,273 | 54,591 | | Investments | 58,957 | 55,601 | | Income taxes, prepaid | 5,471 | 8,727 | | Prepaid expenses and other current assets | 11,412 | 10,670 | | Total current assets | 219,584 | 224,029 | | Property, plant and equipment - net | 50,986 | 51,467 | | Right-of-use assets | 14,536 | 15,645 | | Other assets | 13,648 | 14,650 | | Deferred tax assets | 4,005 | 4,117 | | TOTAL ASSETS | $302,759 | $309,908 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Current Liabilities | | | | Accounts payable and accrued expenses | $71,229 | $86,415 | | Current lease obligations | 5,958 | 5,885 | | Total current liabilities | 77,187 | 92,300 | | Lease obligations, net of current | 14,611 | 16,127 | | Total liabilities | 91,798 | 108,427 | | Stockholders' Equity | | | | Common stock | 11 | 11 | | Additional paid-in capital | 27,963 | 26,573 | | Accumulated other comprehensive income | 22 | 248 | | Retained earnings | 182,965 | 174,649 | | Total stockholders' equity | 210,961 | 201,481 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $302,759 | $309,908 | Non-GAAP Financial Measures This section provides and reconciles non-GAAP financial measures to offer additional insights into Medifast's ongoing economic performance Non-GAAP Reconciliation Medifast provides non-GAAP financial measures to offer investors additional insights into the company's ongoing economic performance, excluding specific impacts from the LifeMD collaboration and unrealized gains on LifeMD common stock investment. A detailed reconciliation to the most comparable GAAP financial measures is included - Non-GAAP financial measures are disclosed to provide investors with additional information regarding the company's results and to enable more meaningful comparisons of operating results[22][23] - These non-GAAP measures exclude the impact of certain amounts to initiate and operationalize the LifeMD collaboration and unrealized gains on investment in LifeMD common stock[22] Non-GAAP Reconciliation Table | Metric (U.S. dollars in thousands, except per share amounts) | GAAP | Unrealized Gain on Investment in LifeMD Common Stock | LifeMD Prepaid Services Amortization | Non-GAAP | | :--------------------------------------------------------- | :----- | :------------------------------------------------- | :----------------------------------- | :------- | | Selling, general, and administrative | $119,352 | — | $(1,327) | $118,025 | | Income from operations | $7,940 | — | $1,327 | $9,267 | | Other income (expense) | $3,645 | $(2,841) | — | $804 | | Provision for income taxes | $3,269 | $(710) | $332 | $2,891 | | Net income | $8,316 | $(2,130) | $995 | $7,181 | | Diluted earnings per share | $0.76 | $(0.19) | $0.09 | $0.66 |