Medifast, Inc. Announces Third Quarter 2010 Financial Results

OWINGS MILLS, Md., Nov. 4, 2010 /PRNewswire-FirstCall/ -- 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, 2010.

Third Quarter 2010 Highlights Include:

• Net revenue increased 46% year-over-year to $67.3 million, compared to $46.1 million in 2009;
• Take Shape for Life revenue increased 53% year-over-year to $43.7 million;
• Active health coaches increased 55% to 9,000 coaches compared to 5,800 last year;
• Operating profit margin increased 130 basis points to 13.4% compared to the prior year;
• Diluted earnings per share increased 70% to $0.39, compared to $0.23 last year.

For the third quarter ended September 30, 2010, Medifast reported net revenue increased 46% to $67.3 million from net revenue of $46.1 million in the third quarter of the prior year.  Each of the Company's three primary distribution channels, Take Shape for Life, Direct Response, and Medifast Weight Control Centers, contributed to this strong year-over-year revenue increase.

Revenues in the direct sales channel, Take Shape for Life, increased 53% to $43.7 million in the third quarter of 2010 compared to $28.6 million in the same period last year. Growth in revenues for Take Shape for Life was driven by increased customer product sales as a result of an increase in active health coaches.  The number of active health coaches increased 55% to approximately 9,000 compared to 5,800 in the third quarter of 2009.

The Company's direct response channel revenue increased 30% to $16.1 million, compared to $12.4 million in third quarter of 2009. Marketing and advertising expenses increased approximately 28% to $5.8 million in the third quarter of 2010 compared to the same period last year.  Medifast maintained a 2.8-to-1 revenue-to-spend ratio or return-on-advertising during the third quarter of 2010 compared to a 2.7-to-1 ratio in 2009. The Company continues to experience a more effective advertising message through more targeted advertising based on extensive analytical research and improved call center closing rates.

In the third quarter, Medifast Weight Control Center channel revenue increased 46% to $6.7 million, primarily due to strong organic growth and improved marketing & advertising effectiveness.  Comparable store sales increased approximately 20% for the third quarter of 2010 for clinics open greater than one year.  The company opened three new centers in the third quarter and ended the quarter with a total of 32 corporate and 20 franchise clinics.

"Our positive sales results were broad-based with each of our distribution channels growing at a rate of at least 30%.  Increasingly, the Take Shape for Life, Direct Response, and Medifast Weight Control Center sales channels provide a complimentary source of personalized support for clients to connect and share Medifast's clinically proven weight-loss programs," said Michael S. McDevitt, Medifast's Chief Executive Officer. "We are extremely pleased with our financial performance to date.  Going forward, we are confident that our vertically integrated operations, combined with our recent investments in infrastructure and personnel will allow us to continually improve the leverage of our business model as we increase sales and expand margins for long-term profitable growth."

Gross profit for the third quarter of 2010 increased 47.5% to $50.5 million, compared to $34.1 million in the third quarter of the prior year. The Company's gross profit margin increased 100 basis points to 75% in the third quarter versus 74% in the third quarter of 2009. In the third quarter of 2010, the Company opened a second distribution center in Dallas, TX.  The Company anticipated a slight short term drag or expense increase as the distribution center reached capacity and now believes that the distribution center will greatly improve service levels to customers located west of the Mississippi River and will positively impact margins in fiscal 2011.

Operating income for the third quarter of 2010 increased 63% to $9.1 million compared to $5.6 million in the same period a year ago. The Company's operating margin expanded 130 basis points to 13.4% from 12.1% for the same period last year.  

Net income for the third quarter of 2010 was $5.8 million, or $0.39 per diluted share, compared to net income of $3.4 million or $0.23 per share for the comparable period last year.

"The Board of Directors is very pleased Medifast continues to successfully increase net sales and leverage their fixed costs and corporate expenses," commented Colonel Brad MacDonald, (Ret.), Executive Chairman of the Board of Directors of Medifast, Inc.  "We believe Medifast is well positioned for future growth through our business model of providing new and existing clients the opportunity to select the best support channel with the highest quality, clinically proven products for their weight loss and weight maintenance needs to achieve long-term optimal health."

Balance Sheet

The Company's balance sheet remains strong with stockholders' equity of $69 million and working capital of $44.2 million as of September 30, 2010.  For the first nine months of 2010, cash, cash equivalents, and investment securities increased 125% or $20.3 million to $36.6 million, as a result of improved operating cash flow.  

Outlook

The Company continues to expect gross profit margin improvement in the range of 50 to 100 basis points in 2010 as compared to the prior year, due to a decrease in the cost of each unit sold and continued manufacturing efficiencies. The Company anticipates the full year 2010 advertising spend to increase by 25 to 30% with a revenue-to-spend ratio of 2.8-to-1.

The full year tax rate is expected to be approximately 39 to 40% and full year diluted shares outstanding of approximately 14.8 to 15.0 million.

In the fourth quarter of 2010, the Company plans to open an additional six to eight new Medifast Weight Control Centers in existing markets with the proven model of providing one-on-one support through a personal counselor and personalized program.  The Company opened six corporate and two franchise clinics in the first nine months of the year.

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 at 4:30 p.m. ET on November 4, 2010. 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 18, 2010. In addition, listeners may dial (877) 407-4018 in North America, and international listeners may dial (201) 689-8471. 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 7:30 p.m. ET, November 4, 2010, through November 18, 2010. Participants can dial (877) 870-5176 to hear the playback and enter passcode 359364.

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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.

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.