UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20182019
OR
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to_______to .
Commission File Number: 001-31573
Medifast, Inc.
(Exact name of registrant as specified in its charter)
| | |
Delaware | 13-3714405 | |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
100 International Drive
Baltimore, Maryland21202
Telephone Number: (410) (410) 581-8042
(Address of Principal Executive Offices, Zip Code and Telephone Number, Including Area Code)
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesx⌧ No ¨◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yesx⌧ No ¨◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | |
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company |
Emerging growth company | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨☐
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨☐ No x⌧
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: | Trading Symbol | Name of each exchange on which registered: | ||
Common Stock, par value $0.001 per share | | MED | | NYSE |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The number of shares of the registrant’s common stock outstanding at October 31, 2018July 26, 2019 was 11,964,966.11,836,334.
Medifast, Inc. and subsidiaries
Index
Part 1 – Financial Information:
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Part 1 – Financial Information: | | |
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Item 1 – Financial Statements | | |
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| 2 | |
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| 3 | |
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| 4 | |
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| 5 | |
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| 6 | |
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Notes to Condensed Consolidated Financial Statements (unaudited) | | 7 |
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Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 14 |
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Item 3 – Quantitative and Qualitative Disclosures about Market Risk | | 20 |
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| 20 | |
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| 20 | |
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| 21 | |
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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds | | 21 |
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| 21 |
1
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, | | ||||||||
| | 2019 | | 2018 | | 2019 | | 2018 | | ||||
| | | | | | | | | | | | | |
Revenue | | $ | 187,103 | | $ | 117,324 | | $ | 352,979 | | $ | 215,920 | |
Cost of sales | | | 46,393 | | | 28,525 | | | 87,122 | | | 52,313 | |
Gross profit | | | 140,710 | | | 88,799 | | | 265,857 | | | 163,607 | |
| | | | | | | | | | | | | |
Selling, general, and administrative | | | 113,355 | | | 71,689 | | | 213,787 | | | 131,814 | |
| | | | | | | | | | | | | |
Income from operations | | | 27,355 | | | 17,110 | | | 52,070 | | | 31,793 | |
| | | | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | | | |
Interest income, net | | | 425 | | | 330 | | | 737 | | | 579 | |
Other income (expense) | | | (2) | | | 179 | | | (8) | | | 178 | |
| | | 423 | | | 509 | | | 729 | | | 757 | |
| | | | | | | | | | | | | |
Income from operations before income taxes | | | 27,778 | | | 17,619 | | | 52,799 | | | 32,550 | |
| | | | | | | | | | | | | |
Provision for income taxes | | | 6,395 | | | 3,486 | | | 10,666 | | | 6,195 | |
| | | | | | | | | | | | | |
Net income | | $ | 21,383 | | $ | 14,133 | | $ | 42,133 | | $ | 26,355 | |
| | | | | | | | | | | | | |
Earnings per share - basic | | $ | 1.80 | | $ | 1.17 | | $ | 3.55 | | $ | 2.19 | |
| | | | | | | | | | | | | |
Earnings per share - diluted | | $ | 1.75 | | $ | 1.16 | | $ | 3.45 | | $ | 2.17 | |
| | | | | | | | | | | | | |
Weighted average shares outstanding - | | | | | | | | | | | | | |
Basic | | | 11,861 | | | 12,037 | | | 11,870 | | | 12,032 | |
Diluted | | | 12,218 | | | 12,174 | | | 12,229 | | | 12,129 | |
| | | | | | | | | | | | | |
Cash dividends declared per share | | $ | 0.75 | | $ | 0.48 | | $ | 1.50 | | $ | 0.96 | |
| | | | | | | | | | | | | |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue | $ | 139,239 | $ | 77,205 | $ | 355,159 | $ | 223,556 | ||||||||
Cost of sales | 32,038 | 19,022 | 84,351 | 54,870 | ||||||||||||
Gross profit | 107,201 | 58,183 | 270,808 | 168,686 | ||||||||||||
Selling, general, and administrative | 89,734 | 47,956 | 221,548 | 138,540 | ||||||||||||
Income from operations | 17,467 | 10,227 | 49,260 | 30,146 | ||||||||||||
Other income (expense) | ||||||||||||||||
Interest income, net | 361 | 148 | 940 | 352 | ||||||||||||
Other income (expense) | - | (4 | ) | 178 | 32 | |||||||||||
361 | 144 | 1,118 | 384 | |||||||||||||
Income from operations before income taxes | 17,828 | 10,371 | 50,378 | 30,530 | ||||||||||||
Provision for income taxes | 4,047 | 3,685 | 10,242 | 10,115 | ||||||||||||
Net income | $ | 13,781 | $ | 6,686 | $ | 40,136 | $ | 20,415 | ||||||||
Earnings per share - basic | $ | 1.15 | $ | 0.56 | $ | 3.34 | $ | 1.71 | ||||||||
Earnings per share - diluted | $ | 1.14 | $ | 0.55 | $ | 3.31 | $ | 1.69 | ||||||||
Weighted average shares outstanding - | ||||||||||||||||
Basic | 11,954 | 11,930 | 12,006 | 11,920 | ||||||||||||
Diluted | 12,097 | 12,095 | 12,112 | 12,063 | ||||||||||||
Cash dividends declared per share | $ | 0.48 | $ | 0.32 | $ | 1.44 | $ | 0.96 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
| | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | | ||||||||
| | 2019 | | 2018 | | 2019 | | 2018 | | ||||
| | | | | | | | | | | | | |
Net income | | $ | 21,383 | | $ | 14,133 | | $ | 42,133 | | $ | 26,355 | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | |
Foreign currency translation | | | - | | | - | | | 1 | | | - | |
Unrealized gains (losses) on marketable securities | | | 102 | | | 25 | | | 228 | | | (59) | |
| | | | | | | | | | | | | |
Other comprehensive income (loss) | | | 102 | | | 25 | | | 229 | | | (59) | |
| | | | | | | | | | | | | |
Comprehensive income | | $ | 21,485 | | $ | 14,158 | | $ | 42,362 | | $ | 26,296 | |
| | | | | | | | | | | | | |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Net income | $ | 13,781 | $ | 6,686 | $ | 40,136 | $ | 20,415 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Foreign currency translation | (2 | ) | 7 | (2 | ) | 13 | ||||||||||
Unrealized gains (losses) on marketable securities: | ||||||||||||||||
Change in fair value of marketable securities | (45 | ) | 26 | (104 | ) | 189 | ||||||||||
Adjustment for net losses realized and included in net income | - | - | - | 10 | ||||||||||||
Total change in unrealized gains (losses) on marketable securities | (45 | ) | 26 | (104 | ) | 199 | ||||||||||
Other comprehensive income (loss) | (47 | ) | 33 | (106 | ) | 212 | ||||||||||
Comprehensive income | $ | 13,734 | $ | 6,719 | $ | 40,030 | $ | 20,627 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except par value)
| | | | | | | |
| | | | June 30, | | | December 31, |
| | | | 2019 | | | 2018 |
| | | | | | | |
ASSETS | |||||||
Current Assets | | | | | | | |
Cash and cash equivalents | | | $ | 96,311 | | $ | 81,364 |
Accounts receivable-net of doubtful accounts of $931 and $394 at | | | | | | | |
June 30, 2019 and December 31, 2018, respectively | | | | 978 | | | 1,011 |
Inventory | | | | 48,473 | | | 38,888 |
Investment securities | | | | 17,211 | | | 19,670 |
Income taxes, prepaid | | | | 1,365 | | | - |
Prepaid expenses and other current assets | | | | 7,638 | | | 4,586 |
Total current assets | | | | 171,976 | | | 145,519 |
| | | | | | | |
Property, plant and equipment - net | | | | 24,984 | | | 19,747 |
Right-of-use asset | | | | 12,296 | | | - |
Other assets | | | | 710 | | | 1,183 |
Deferred tax assets | | | | 2,605 | | | 2,980 |
| | | | | | | |
| | | | | | | |
TOTAL ASSETS | | | $ | 212,571 | | $ | 169,429 |
| | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
Current Liabilities | | | | | | | |
Accounts payable and accrued expenses | | | $ | 73,570 | | $ | 60,323 |
Current lease obligation | | | | 2,474 | | | - |
Total current liabilities | | | | 76,044 | | | 60,323 |
| | | | | | | |
Lease obligation, less current lease obligation | | | | 10,504 | | | - |
Total liabilities | | | | 86,548 | | | 60,323 |
| | | | | | | |
Stockholders' Equity | | | | | | | |
Common stock, par value $.001 per share: 20,000 shares authorized; | | | | | | | |
12,126 and 12,117 issued and 11,827 and 11,868 outstanding | | | | | | | |
at June 30, 2019 and December 31, 2018, respectively | | | | 12 | | | 12 |
Additional paid-in capital | | | | 11,070 | | | 8,802 |
Accumulated other comprehensive income (loss) | | | | 56 | | | (173) |
Retained earnings | | | | 155,762 | | | 131,344 |
Less: Treasury stock at cost, 264 and 193 shares at June 30, 2019 and December 31, 2018, respectively | | | | (40,877) | | | (30,879) |
Total stockholders' equity | | | | 126,023 | | | 109,106 |
| | | | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | | | $ | 212,571 | | $ | 169,429 |
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 82,307 | $ | 75,077 | ||||
Accounts receivable-net of doubtful accounts of $405 at September 30, 2018 and allowance for sales returns and doubtful accounts of $597 at December 31, 2017 | 1,017 | 576 | ||||||
Inventory | 43,845 | 19,328 | ||||||
Investment securities | 20,912 | 23,757 | ||||||
Income taxes, prepaid | - | 2,272 | ||||||
Prepaid expenses and other current assets | 3,851 | 4,188 | ||||||
Total current assets | 151,932 | 125,198 | ||||||
Property, plant and equipment - net | 18,760 | 18,611 | ||||||
Other assets | 1,400 | 2,120 | ||||||
Deferred tax assets | 2,355 | - | ||||||
TOTAL ASSETS | $ | 174,447 | $ | 145,929 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 62,806 | $ | 37,140 | ||||
Total current liabilities | 62,806 | 37,140 | ||||||
Deferred tax liabilities | - | 208 | ||||||
Total liabilities | 62,806 | 37,348 | ||||||
Stockholders' Equity | ||||||||
Common stock, par value $.001 per share: 20,000 shares authorized; | ||||||||
12,145 and 12,103 issued and 11,956 and 11,971 outstanding at September 30, 2018 and December 31, 2017, respectively | 12 | 12 | ||||||
Additional paid-in capital | 8,040 | 4,967 | ||||||
Accumulated other comprehensive loss | (266 | ) | (160 | ) | ||||
Retained earnings | 124,601 | 103,762 | ||||||
Less: Treasury stock at cost, 128 shares at September 30, 2018 | (20,746 | ) | - | |||||
Total stockholders' equity | 111,641 | 108,581 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 174,447 | $ | 145,929 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
| | | | | | | |
| | Six months ended June 30, | | ||||
| | 2019 | | 2018 | | ||
| | | | | | | |
Operating Activities | | | | | | | |
Net income | | $ | 42,133 | | $ | 26,355 | |
Adjustments to reconcile net income to cash provided by operating activities | | | | | | | |
Depreciation and amortization | | | 2,156 | | | 2,689 | |
Share-based compensation | | | 2,245 | | | 1,635 | |
Loss on sale of disposal of property, plant and equipment | | | 17 | | | 50 | |
Realized loss (gain) on investment securities, net | | | 8 | | | (21) | |
Amortization of premium on investment securities | | | 249 | | | 298 | |
Deferred income taxes | | | 375 | | | (1,036) | |
Change in operating assets and liabilities: | | | | | | | |
Accounts receivable | | | 33 | | | 199 | |
Inventory | | | (9,585) | | | (6,670) | |
Income taxes, prepaid | | | (1,365) | | | 2,673 | |
Prepaid expenses and other current assets | | | (3,052) | | | 368 | |
Other assets | | | 35 | | | 33 | |
Accounts payable and accrued expenses | | | 13,963 | | | 11,958 | |
Net cash flow provided by operating activities | | | 47,212 | | | 38,531 | |
| | | | | | | |
Investing Activities | | | | | | | |
Sale and maturities of investment securities | | | 2,430 | | | 1,200 | |
Sale of property and equipment | | | - | | | 184 | |
Purchase of property and equipment | | | (6,972) | | | (2,094) | |
Net cash flow used in investing activities | | | (4,542) | | | (710) | |
| | | | | | | |
Financing Activities | | | | | | | |
Options exercised by executives and directors | | | 279 | | | 62 | |
Net shares repurchased for employee taxes | | | (256) | | | (215) | |
Cash dividends paid to stockholders | | | (17,749) | | | (11,673) | |
Stock repurchases | | | (9,998) | | | (19,996) | |
Net cash flow used in financing activities | | | (27,724) | | | (31,822) | |
| | | | | | | |
Foreign currency impact | | | 1 | | | - | |
| | | | | | | |
Increase in cash and cash equivalents | | | 14,947 | | | 5,999 | |
Cash and cash equivalents - beginning of the period | | | 81,364 | | | 75,077 | |
Cash and cash equivalents - end of period | | $ | 96,311 | | $ | 81,076 | |
| | | | | | | |
Supplemental disclosure of cash flow information: | | | | | | | |
Income taxes paid | | $ | 11,338 | | $ | 4,380 | |
Dividends declared included in accounts payable | | $ | 9,102 | | $ | 5,914 | |
| | | | | | | |
Nine months ended September 30, | ||||||||
2018 | 2017 | |||||||
Operating Activities | ||||||||
Net income | $ | 40,136 | $ | 20,415 | ||||
Adjustments to reconcile net income to cash provided by operating activities | ||||||||
Depreciation and amortization | 3,519 | 3,204 | ||||||
Share-based compensation | 2,352 | 3,418 | ||||||
Loss on sale of disposal of property, plant and equipment | 50 | 93 | ||||||
Realized loss on investment securities, net | 70 | 73 | ||||||
Amortization of premium on investment securities | 434 | 547 | ||||||
Deferred income taxes | (2,028 | ) | (991 | ) | ||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | 116 | 683 | ||||||
Inventory | (23,615 | ) | 2,287 | |||||
Income taxes, prepaid | 2,272 | 807 | ||||||
Prepaid expenses and other current assets | 453 | 1,098 | ||||||
Other assets | 64 | (137 | ) | |||||
Accounts payable and accrued expenses | 21,655 | 1,757 | ||||||
Net cash flow provided by operating activities | 45,478 | 33,254 | ||||||
Investing Activities | ||||||||
Sale of investment securities | 2,245 | 3,039 | ||||||
Purchase of investment securities | - | (4,093 | ) | |||||
Sale of property and equipment | 184 | 59 | ||||||
Purchase of property and equipment | (3,246 | ) | (2,379 | ) | ||||
Net cash flow used in investing activities | (817 | ) | (3,374 | ) | ||||
Financing Activities | ||||||||
Options exercised by executives and directors | 220 | 568 | ||||||
Net shares repurchased for employee taxes | (249 | ) | (833 | ) | ||||
Cash dividends paid to stockholders | (17,404 | ) | (11,511 | ) | ||||
Stock repurchases | (19,996 | ) | - | |||||
Net cash flow used in financing activities | (37,429 | ) | (11,776 | ) | ||||
Foreign currency impact | (2 | ) | 13 | |||||
Increase in cash and cash equivalents | 7,230 | 18,117 | ||||||
Cash and cash equivalents - beginning of the period | 75,077 | 52,436 | ||||||
Cash and cash equivalents - end of period | $ | 82,307 | $ | 70,553 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Income taxes paid | $ | 9,540 | $ | 10,083 | ||||
Dividends declared included in accounts payable | $ | 5,981 | $ | 4,114 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2019 | ||||||||||||||||||
| | Number of Shares Issued | | | Common Stock | | | Additional Paid-In Capital | | | Accumulated Other Comprehensive Income (Loss) | | | Retained Earnings | | | Treasury Stock | | | Total |
| | | | | | | | | | | | | | | | | | | | |
Balance, December 31, 2018 | | 12,117 | | $ | 12 | | $ | 8,802 | | $ | (173) | | $ | 131,344 | | $ | (30,879) | | $ | 109,106 |
Net income | | - | | | - | | | - | | | - | | | 20,750 | | | - | | | 20,750 |
Share-based compensation | | - | | | - | | | 990 | | | - | | | - | | | - | | | 990 |
Options exercised by executives and directors | | 10 | | | - | | | 269 | | | - | | | - | | | - | | | 269 |
Net shares repurchased for employee taxes | | (1) | | | - | | | (256) | | | - | | | - | | | - | | | (256) |
Other comprehensive income | | - | | | - | | | - | | | 127 | | | - | | | - | | | 127 |
Cash dividends declared to stockholders | | - | | | - | | | - | | | - | | | (8,918) | | | - | | | (8,918) |
| | | | | | | | | | | | | | | | | | | | |
Balance, March 31, 2019 | | 12,126 | | | 12 | | | 9,805 | | | (46) | | | 143,176 | | | (30,879) | | | 122,068 |
Net income | | - | | | - | | | - | | | - | | | 21,383 | | | - | | | 21,383 |
Share-based compensation | | - | | | - | | | 1,255 | | | - | | | - | | | - | | | 1,255 |
Options exercised by executives and directors | | - | | | - | | | 10 | | | - | | | - | | | - | | | 10 |
Other comprehensive income | | - | | | - | | | - | | | 102 | | | - | | | - | | | 102 |
Treasury stock from stock repurchases | | - | | | - | | | - | | | - | | | - | | | (9,998) | | | (9,998) |
Cash dividends declared to stockholders | | - | | | - | | | - | | | - | | | (8,797) | | | - | | | (8,797) |
| | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2019 | | 12,126 | | $ | 12 | | $ | 11,070 | | $ | 56 | | $ | 155,762 | | $ | (40,877) | | $ | 126,023 |
| | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30, 2018 | ||||||||||||||||||
| | Number of Shares Issued | | | Common Stock | | | Additional Paid-In Capital | | | Accumulated Other Comprehensive Loss | | | Retained Earnings | | | Treasury Stock | | | Total |
| | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2018, as reported | | 12,103 | | $ | 12 | | $ | 4,967 | | $ | (160) | | $ | 103,762 | | $ | - | | $ | 108,581 |
Cumulative effect adjustments from changes | | | | | | | | | | | | | | | | | | | | |
in accounting standards | | - | | | - | | | - | | | - | | | (2,018) | | | - | | | (2,018) |
Balance January 1, 2018, as adjusted | | 12,103 | | | 12 | | | 4,967 | | | (160) | | | 101,744 | | | - | | | 106,563 |
Net income | | - | | | - | | | - | | | - | | | 12,222 | | | - | | | 12,222 |
Share-based compensation | | 16 | | | - | | | 805 | | | - | | | - | | | - | | | 805 |
Options exercised by executives and directors | | 14 | | | - | | | 62 | | | - | | | - | | | - | | | 62 |
Net shares repurchased for employee taxes | | (3) | | | - | | | (215) | | | - | | | - | | | - | | | (215) |
Treasury stock from cashless options | | 9 | | | - | | | 750 | | | - | | | - | | | (750) | | | - |
Other comprehensive loss | | - | | | - | | | - | | | (84) | | | - | | | - | | | (84) |
Cash dividends declared to stockholders | | - | | | - | | | - | | | - | | | (5,723) | | | - | | | (5,723) |
| | | | | | | | | | | | | | | | | | | | |
Balance, March 31, 2018 | | 12,139 | | | 12 | | | 6,369 | | | (244) | | | 108,243 | | | (750) | | $ | 113,630 |
Net income | | - | | | - | | | - | | | - | | | 14,133 | | | - | | | 14,133 |
Share-based compensation | | - | | | - | | | 830 | | | - | | | - | | | - | | | 830 |
Options exercised by executives and directors | | 2 | | | - | | | - | | | - | | | - | | | - | | | - |
Treasury stock from stock repurchases | | - | | | - | | | - | | | - | | | - | | | (19,996) | | | (19,996) |
Other comprehensive income | | - | | | - | | | - | | | 25 | | | - | | | - | | | 25 |
Cash dividends declared to stockholders | | - | | | - | | | - | | | - | | | (5,759) | | | - | | | (5,759) |
| | | | | | | | | | | | | | | | | | | | |
Balance, June 30, 2018 | | 12,141 | | $ | 12 | | $ | 7,199 | | $ | (219) | | $ | 116,617 | | $ | (20,746) | | $ | 102,863 |
| | | | | | | | | | | | | | | | | | | | |
Nine months ended September 30, 2018 | ||||||||||||||||||||||||||||
Number of Shares Issued | Common Stock | Additional Paid-In Capital | Accumulated other comprehensive loss | Retained Earnings | Treasury Stock | Total | ||||||||||||||||||||||
Balance, January 1, 2018, as reported | 12,103 | $ | 12 | $ | 4,967 | $ | (160 | ) | $ | 103,762 | $ | - | $ | 108,581 | ||||||||||||||
Cumulative effect of adjustments from changes in accounting standards (Notes 1 and 2) | - | - | - | - | (2,018 | ) | - | (2,018 | ) | |||||||||||||||||||
Balance January 1, 2018, as adjusted | 12,103 | 12 | 4,967 | (160 | ) | 101,744 | - | 106,563 | ||||||||||||||||||||
Net income | - | - | - | - | 40,136 | - | 40,136 | |||||||||||||||||||||
Share-based compensation | 16 | - | 2,352 | - | - | - | 2,352 | |||||||||||||||||||||
Options exercised by executives and directors | 20 | - | 220 | - | - | - | 220 | |||||||||||||||||||||
Net shares repurchased for employee taxes | (3 | ) | - | (249 | ) | - | - | - | (249 | ) | ||||||||||||||||||
Treasury stock from cashless options | 9 | - | 750 | - | - | (750 | ) | - | ||||||||||||||||||||
Treasury stock from stock repurchases | - | - | - | - | - | (19,996 | ) | (19,996 | ) | |||||||||||||||||||
Other comprehensive loss | - | - | - | (106 | ) | - | - | (106 | ) | |||||||||||||||||||
Cash dividends declared to stockholders | - | - | - | - | (17,279 | ) | - | (17,279 | ) | |||||||||||||||||||
Balance, September 30, 2018 | 12,145 | $ | 12 | $ | 8,040 | $ | (266 | ) | $ | 124,601 | $ | (20,746 | ) | $ | 111,641 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
MEDIFAST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of Medifast, Inc. and its wholly-owned subsidiaries (the “Company,” “we,” “us,” or “our”) included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”), for interim reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and footnotesnotes that are normally required by GAAP have been condensed or omitted. However, in the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair presentation of the financial position and results of operations have been included and management believes the disclosures that are made are adequate to make the information presented not misleading. The condensed consolidated balance sheet at December 31, 20172018 has been derived from the audited consolidated financial statements at that date.
The results of operations for the three and ninesix months ended SeptemberJune 30, 20182019 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2018.2019. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the 20172018 audited consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 (“20172018 Form 10-K”).
Presentation of Financial Statements - The unaudited condensed consolidated financial statements included herein include the accounts of the Medifast, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.
Accounting Pronouncements Adopted in 2018 2019 –
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The new revenue recognition standard requires the Company to recognize revenue for the transfer of goods or services to customers for the amount the Company expects to be entitled to receive in exchange for those goods or services. The Company is required to identify the contract, identify the relevant performance obligations, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize the revenue when the entity satisfies a performance obligation. Companies have the option of using either a full retrospective or a modified retrospective approach to adopt the guidance. On January 1,February 2018, the Company adopted the new revenue standard on a modified retrospective basis and recorded an after-tax transition adjustment to reduce retained earnings as of January 1, 2018 by $2.0 million. This is comprised of $5.6 million of revenue offset by $3.6 million of inventory costs, deferred shipping expense, credit card fees and income taxes. The results ofASC 606 primarily impact the Company’s timing of revenue recognition for product shipments, as product revenue is recognized upon customer receipt instead of at the time of shipment. The new standard requires more extensive revenue-related disclosures.
As required by ASC 606, the impact of the adoption of the new revenue standard on our Condensed Consolidated Statements of Income and Condensed Consolidated Balance Sheets was as follows (in thousands):
Three months ended September 30, 2018 | Nine months ended September 30, 2018 | |||||||||||||||||||||||
As Reported | Balances without adoption of ASC 606 | Effect of Change | As Reported | Balances without adoption of ASC 606 | Effect of Change | |||||||||||||||||||
Revenue | $ | 139,239 | $ | 139,582 | $ | (343 | ) | $ | 355,159 | $ | 356,442 | $ | (1,283 | ) | ||||||||||
Cost of sales | 32,038 | 32,071 | 33 | 84,351 | 84,544 | 193 | ||||||||||||||||||
Gross profit | 107,201 | 107,511 | (310 | ) | 270,808 | 271,898 | (1,090 | ) | ||||||||||||||||
Selling, general, and administrative | 89,734 | 89,831 | 97 | 221,548 | 221,908 | 360 | ||||||||||||||||||
Income from operations | 17,467 | 17,680 | (213 | ) | 49,260 | 49,990 | (730 | ) | ||||||||||||||||
Other income (expense) | ||||||||||||||||||||||||
Interest income, net | 361 | 361 | - | 940 | 940 | - | ||||||||||||||||||
Other income (expense) | - | - | - | 178 | 178 | - | ||||||||||||||||||
361 | 361 | - | 1,118 | 1,118 | - | |||||||||||||||||||
Income from operations before income taxes | 17,828 | 18,041 | (213 | ) | 50,378 | 51,108 | (730 | ) | ||||||||||||||||
Provision for income taxes | 4,047 | 4,092 | 45 | 10,242 | 10,396 | 154 | ||||||||||||||||||
Net income | $ | 13,781 | $ | 13,949 | $ | (168 | ) | $ | 40,136 | $ | 40,712 | $ | (576 | ) | ||||||||||
Earnings per share - basic | $ | 1.15 | $ | 1.17 | $ | (0.02 | ) | $ | 3.34 | $ | 3.39 | $ | (0.05 | ) | ||||||||||
Earnings per share - diluted | $ | 1.14 | $ | 1.15 | $ | (0.01 | ) | $ | 3.31 | $ | 3.36 | $ | (0.05 | ) | ||||||||||
Weighted average shares outstanding - | ||||||||||||||||||||||||
Basic | 11,954 | 11,954 | 12,006 | 12,006 | ||||||||||||||||||||
Diluted | 12,097 | 12,097 | 12,112 | 12,112 |
September 30, 2018 | ||||||||||||
As Reported | Balances without adoption of ASC 606 | Effect of Change | ||||||||||
ASSETS | ||||||||||||
Accounts receivable, net | $ | 1,017 | $ | 118 | $ | 899 | ||||||
Inventory | 43,845 | 42,793 | 1,052 | |||||||||
Prepaid expenses and other current assets | 3,851 | 3,711 | 140 | |||||||||
Deferred tax assets | 2,355 | 1,656 | 699 | |||||||||
LIABILITIES | ||||||||||||
Accounts payable and accrued expenses | 62,806 | 57,422 | 5,384 | |||||||||
STOCKHOLDERS' EQUITY | ||||||||||||
Retained earnings | 124,601 | 127,195 | (2,594 | ) |
The cumulative effect of the changes made to our January 1, 2018 Condensed Consolidated Balance Sheet from the modified retrospective adoption of ASC 606 was as follows (in thousands):
Balance at December 31, 2017 | Adjustments due to ASC 606 | Balance at January 1, 2018 | ||||||||||
ASSETS | ||||||||||||
Accounts receivable, net | $ | 576 | $ | 557 | $ | 1,133 | ||||||
Inventory | 19,328 | 902 | 20,230 | |||||||||
Prepaid expenses and other current assets | 4,188 | 116 | 4,304 | |||||||||
Deferred tax assets | - | 336 | 336 | |||||||||
LIABILITIES | ||||||||||||
Accounts payable and accrued expenses | 37,140 | 4,137 | 41,277 | |||||||||
Deferred tax liabilities | 208 | (208 | ) | - | ||||||||
STOCKHOLDERS' EQUITY | ||||||||||||
Retained earnings | 103,762 | (2,018 | ) | 101,744 |
RecentFinancial Accounting Pronouncements –
We have considered all new accounting pronouncements and have concluded that there are no new pronouncements that may have a material impact on our results of operations, financial condition, or cash flows, based on current information, except for:
ASU 2016-02,Leases (Topic 842) requires the rights and obligations of all leased assets with a term greater than 12 months to be presented on the balance sheet. The new guidance also changes the definition of a lease and requires expanded quantitative and qualitative disclosures for both lessees and lessors. The pronouncement is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We plan to adopt ASU 2016-02 on January 1, 2019. The Company currently expects that upon adoption of ASU 2016-02 right-to-use assets and lease liabilities will be recognized in the Company’s Consolidated Balance Sheet in amounts that will be material. Management is currently evaluating the effect that the provisions of ASU 2016-02 will have on the Company’s financial statements.
ASUStandards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-02,Income Statement - Reporting - Comprehensive Income (Topic 220) allows to address a specific consequence of the Tax Cuts and Jobs Act (“TCJA”) by allowing a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from tax effects resulting from the Tax Cuts and Jobs Act (TCJA) and will improve the usefulness of information reported to financial statement users. However, because the amendments only relate to the reclassificationTCJA’s reduction of the U.S. federal corporate income tax effects of the TCJA, the underlying guidance that requires that the effect of a change in tax laws or rates be included in income from continuing operationsrate. This ASU is not affected. The amendments in this pronouncement are effective for all entities for fiscal yearsannual periods beginning after December 15, 2018, with early adoption permitted, and interim periods within those fiscal years. We plan to adopt ASU 2018-02 on January 1, 2019. Management is currently evaluating the effect that the provisions of ASU 2018-02 will have on the Company’s financial statements.
Revenue recognition
Our revenue is derived primarily from point of sale transactions executed over an e-commerce platform for weight loss, weight management, and other consumable health and nutritional products. Revenue is recognized upon receipt by customer and net of discounts, rebates, promotional adjustments, price adjustments, allocated consideration to loyalty programs and estimated returns.
Revenue is recognized when control of the promised products are transferred to our customers in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those products. When determining whether the customer has obtained control of the products, we consider any future performance obligations.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our contracts have performance obligations to fulfill and deliver products from the point of sale transaction along with the related customer reward programs.
Our performance obligations are satisfied at a point in time. Revenue from products transferred to customers at a point in time accounted for substantially all of our revenue for the three and nine month periods ended September 30, 2018 and 2017, respectively. Revenue on these contracts is recognized when obligations under the terms of the contract with our customers are satisfied. Generally, this occurs with the transfer of control upon receipt of products by our customers. Any consideration received prior to the fulfillment of the Company performance obligation is deferred and recognized as a liability.
Sales returns
Our return policy allows for customer returns within 30 days of purchase and upon our authorization. We adjust revenues based on our estimated expected returns and a liability is recognized for expected refunds to customers. We estimate expected returns based on historical levels and project this experience into the future.
Customer reward programs and sales incentives
Our sales contracts may give customers the option to purchase additional products priced at a discount. Options to purchase additional products at a discount come in a variety of forms, such as customer reward programs and incentive offerings including pricing arrangements and promotions.
We reduce the transaction price for certain customer reward programs and incentive offerings including pricing arrangements, promotions, incentives that represent variable consideration and separate performance obligations. The Company accounts for sales rewards as a separate performance obligation of the transactions, and therefore allocates consideration between the initial sale of products and the customer reward program and incentive offering.
Shipping and handling costs
Amounts billed to customers for shipping and handling activities are treated as a promised service performance obligation and recorded in revenueapplied either in the accompanying Condensed Consolidated Statementsperiod of Income upon fulfillment of the performance obligation. Shipping and handling costs incurred by the Company for the delivery of productsadoption or retrospectively to customers are considered a cost to fulfill the contract and are included in cost of sales in the accompanying Condensed Consolidated Statements of Income.
Contract costs
We expense sales commissions and credit card fees during theeach period in which the corresponding revenue is earned. These costs are deferred along witheffect of the revenues for goods that are in transit and not received by customers by period end. These costs are recorded in selling, general and administrative expensechange in the Condensed Consolidated StatementsU.S. federal corporate income tax rate in the TCJA is recognized. The Company adopted this ASU in the first quarter of Income.2019. There was no material impact on the Company's condensed consolidated results of operations or cash flows. The Company's policy for releasing disproportionate income tax effects from accumulated other comprehensive income utilizes the portfolio approach.
In February 2016, the FASB issued ASU 2016-02, Disaggregated revenueLeases (Topic 842), which requires an entity to recognize a right-of-use (“ROU”) asset and entity-wide revenuea lease liability on the balance sheet for all leases, including operating leases, and also requires disclosures
The nature, about the amount, timing and uncertainty of revenuecash flows arising from leases. Subsequent to the issuance of Topic 842, the FASB clarified the guidance through several ASUs; hereinafter the collection of lease guidance is referred to as “ASC 842”.
7
On January 1, 2019, the Company adopted ASC 842 using the modified retrospective method for all lease arrangements at the beginning of the period of adoption. Results for reporting periods beginning January 1, 2019 are presented under ASC 842, while prior period amounts were not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840, Leases. The standard had a material impact on the Company’s Consolidated Condensed Balance Sheets, but did not have a significant impact on the Company’s consolidated net earnings and cash flows from our revenues amongst contracts, product offeringsflows. The most significant impact was the recognition of ROU assets and customerslease liabilities for operating leases. For leases that commenced before the effective date of ASC 842, the Company elected the permitted practical expedients that do not differentiaterequire the Company to reassess: (i) whether any expired or existing contracts contain leases; (ii) the lease classification for any expired or existing leases; and are(iii) initial direct costs for any existing leases. The Company also elected to exclude leases with a term of 12 months or less in the recognized consistently based on the policies discussed above. In addition, effective January 1, 2018, we changed how we internallyROU assets and externally report our revenues to simplify and better align with changes in how we manage our business, review operating performance and allocate resources aslease liabilities.
As a result of the shift in our primary focus tocumulative impact of adopting ASC 842, theOPTAVIA business Company recorded ROU assets of $11.9 million, net of $686 thousand of accrued rent, and the significance this business represents to the overall resultslease liabilities of the Company. We considered the following factors in making this decision: the nature of business activities overlapping amongst previous defined sales channels, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, and information presented to the Board of Directors and investors. We previously disclosed entity-wide disclosures for sales by channel:OPTAVIA, Medifast Direct, Franchise Medifast Weight Control Centers and Medifast Wholesale. Due to the interchangeable nature of these customers amongst sale channels, sales migration toOPTAVIA, and realignment of internal operations as discussed, our disclosures$12.6 million as of January 1, 20182019, primarily related to office and warehouse space and certain equipment, based on the present value of the future lease payments on the date of adoption.
The Company determines if an arrangement is a lease at inception. The ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The ROU asset also consists of any prepaid lease payments and lease incentives received. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will not include revenues by sales channel.exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense. See Note 5 “LEASES” for additional information about this adoption.
2. INVENTORIES |
Inventories consist principally of packaged meal replacements held in the Company’s warehouses. Inventory is stated at the lower of cost or net realizable value, utilizing the first-in, first-out method. The cost of finished goods includes the cost of raw materials, packaging supplies, direct and indirect labor and other indirect manufacturing costs. On a quarterly basis, management reviews inventory for unsalable or obsolete inventory.
Inventories consisted of the following (in thousands):
| | | | | | |
| | June 30, 2019 | | December 31, 2018 | ||
| | | | | | |
Raw materials | | $ | 11,204 | | $ | 11,156 |
Packaging | | | 2,264 | | | 1,563 |
Non-food finished goods | | | 5,186 | | | 2,391 |
Finished goods | | | 32,474 | | | 25,509 |
Reserve for obsolete inventory | | | (2,655) | | | (1,731) |
Total | | $ | 48,473 | | $ | 38,888 |
September 30, 2018 | December 31, 2017 | |||||||
Raw materials | $ | 13,273 | $ | 4,348 | ||||
Packaging | 1,762 | 1,185 | ||||||
Non-food finished goods | 2,028 | 920 | ||||||
Finished goods | 27,480 | 13,407 | ||||||
Reserve for obsolete inventory | (698 | ) | (532 | ) | ||||
Total | $ | 43,845 | $ | 19,328 |
Basic earnings per share (“EPS”) computations are calculated utilizing the weighted average number of shares of the Company’s common stock outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of shares of the Company’s common stock outstanding adjusted for the effect of dilutive common stock equivalents.
8
The following table sets forth the computation of basic and diluted EPS (in thousands, except per share data):
| | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | | ||||||||
| | 2019 | | 2018 | | 2019 | | 2018 | | ||||
| | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | | |
Net income | | $ | 21,383 | | $ | 14,133 | | $ | 42,133 | | $ | 26,355 | |
| | | | | | | | | | | | | |
Denominator: | | | | | | | | | | | | | |
Weighted average shares of common stock outstanding | | | 11,861 | | | 12,037 | | | 11,870 | | | 12,032 | |
Effect of dilutive common stock equivalents | | | 357 | | | 137 | | | 359 | | | 97 | |
Weighted average shares of common stock outstanding | | | 12,218 | | | 12,174 | | | 12,229 | | | 12,129 | |
| | | | | | | | | | | | | |
Earnings per share - basic | | $ | 1.80 | | $ | 1.17 | | $ | 3.55 | | $ | 2.19 | |
| | | | | | | | | | | | | |
Earnings per share - diluted | | $ | 1.75 | | $ | 1.16 | | $ | 3.45 | | $ | 2.17 | |
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 13,781 | $ | 6,686 | $ | 40,136 | $ | 20,415 | ||||||||
Denominator: | ||||||||||||||||
Weighted average shares of common stock outstanding | 11,954 | 11,930 | 12,006 | 11,920 | ||||||||||||
Effect of dilutive common stock equivalents | 143 | 165 | 106 | 143 | ||||||||||||
Weighted average shares of common stock outstanding | 12,097 | 12,095 | 12,112 | 12,063 | ||||||||||||
Earnings per share - basic | $ | 1.15 | $ | 0.56 | $ | 3.34 | $ | 1.71 | ||||||||
Earnings per share - diluted | $ | 1.14 | $ | 0.55 | $ | 3.31 | $ | 1.69 |
The calculation of diluted EPS excluded 0611 and 3,81356 antidilutive options outstanding for the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and 214752 and 6,7806,220 antidilutive options outstanding for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The calculation forof diluted EPS also excluded 350 and 0 antidilutive restricted stock awards for the three and nine months ended SeptemberJune 30, 2019 and 2018, also excluded 43respectively, and 297705 and 0 antidilutive restricted stock awards for the six months ended June 30, 2019 and 2018, respectively. EPS is computed independently for each of the quarters presented;periods presented above, and accordingly, the sum of the quarterly earnings per common share may not equal the year-to-date total computed.
4. SHARE-BASED COMPENSATION |
Stock Options:
The Company has issued non-qualified and incentive stock options to employees and nonemployee directors. The fair value of these options are estimated on the date of grant using the Black-Scholes option pricing model, which requires estimates of the expected term of the option, the risk-free interest rate, the expected volatility of the price of the Company’s common stock, and dividend yield. Options outstanding as of SeptemberJune 30, 20182019 generally vest over a period of three years and expire ten years from the date of grant. The exercise price of these options ranges from $26.52 to $157.30.$171.68. Due to the Company’s lack of option exercise history, the expected term is calculated using the simplified method defined as the midpoint between the vesting period and the contractual term of each option. The risk free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant that most closely corresponds to the expected term of the option. The expected volatility is based on the historical volatility of the Company’s common stock over the period of time equivalent to the expected term for each award. TheFor the six months ended June 30, 2019, the Company did not grant stock options. For the six months ended June 30, 2018, the weighted average input assumptions used were as follows:
Nine months ended September 30, | ||||||||
2018 | 2017 | |||||||
Expected term (in years) | 6.4 | 6.0 | ||||||
Risk-free interest rate | 2.64 | % | 2.05 | % | ||||
Expected volatility | 33.30 | % | 38.33 | % | ||||
Dividend yield | 2.87 | % | 2.40 | % |
| |
| 2018 |
Expected term (in years) | 6.4 |
Risk-free interest rate | 2.62% |
Expected volatility | 33.30% |
Dividend yield | 2.87% |
9
The following table is a summary of our stock option activity:
Nine months ended September 30, | ||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||
Shares | Weighted-Average | Shares | Weighted-Average | |||||||||||||||||||||||
| | | | | | | | | | |||||||||||||||||
| Six months ended June 30, | | ||||||||||||||||||||||||
| 2019 | | 2018 | | ||||||||||||||||||||||
| Shares | | Weighted-Average Exercise Price | | Shares | | Weighted-Average Exercise Price | | ||||||||||||||||||
(shares in thousands) | | | | | | | | | | |||||||||||||||||
Outstanding at beginning of period | 106 | $ | 31.18 | 129 | $ | 28.22 | 107 | | $ | 49.26 | | 106 | | $ | 31.18 | | ||||||||||
Granted | 51 | 67.50 | 38 | 44.73 | - | | | - | | 51 | | 67.50 | | |||||||||||||
Exercised | (23 | ) | 28.87 | (21 | ) | 27.38 | (10) | | | 28.21 | | (21) | | | 28.87 | | ||||||||||
Forfeited | (8 | ) | 31.09 | (17 | ) | 37.09 | ||||||||||||||||||||
Expired | - | - | (1 | ) | 28.59 | |||||||||||||||||||||
Outstanding at end of the period | 126 | $ | 46.51 | 128 | $ | 32.00 | 97 | | $ | 52.53 | | 136 | | $ | 45.17 | | ||||||||||
Exercisable at end of the period | 54 | $ | 30.21 | 62 | $ | 28.14 | 52 | | $ | 40.96 | | 60 | | $ | 29.94 | | ||||||||||
| | | | | | | | | | |||||||||||||||||
| | | | | | | | | |
As of SeptemberJune 30, 2018,2019, the weighted-average remaining contractual life for outstanding stock options was 8.077.61 years with an aggregate intrinsic value of $22.1$7.5 million for outstanding stock options and the weighted-average remaining contractual life for exercisable stock options was 6.916.85 years with an aggregate intrinsic value of $10.4 million for exercisable$4.6 million. For the six months ended June 30, 2019, the Company did not grant stock options. The weighted-average grant date fair value of options granted during the ninesix months ended SeptemberJune 30, 2018 and 2017 was $18.08 and $13.73, respectively.$18.08. The unrecognized compensation expense calculated under the fair value method for sharesstock options expected to vest as of SeptemberJune 30, 20182019 was $0.9$0.7 million and is expected to be recognized over a weighted average period of 3.462.92 years. The Company received $220$279 thousand and $568$62 thousand in cash proceeds from the exercise of stock options during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Upon exercising of stock options, the Company withheld shares of the Company’s common stock for employee taxes of 31 thousand and 193 thousand for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The total intrinsic value for stock options exercised during the ninesix months ended SeptemberJune 30, 2019 and 2018 was $1.0 million and 2017 was $1.4 million, and $325 thousand, respectively.
Restricted Stock:
The Company has issued restricted stock to employees and nonemployee directors generally with vesting terms up to five years after the date of grant. The fair value of the restricted stock is equal to the market price of the Company’s common stock on the date of grant. Expense for restricted stock is amortized ratably over the vesting period. The following table summarizes our restricted stock activity:
| | | | | | | | | |
| Six months ended June 30, | ||||||||
| 2019 | | 2018 | ||||||
| Shares | | Weighted-Average Grant Date Fair Value | | Shares | | Weighted-Average Grant Date Fair Value | ||
(shares in thousands) | | | | | | | | | |
Outstanding at beginning of period | 57 | | $ | 50.55 | | 129 | | $ | 32.15 |
Granted | 28 | | | 130.89 | | 17 | | | 70.67 |
Vested | (31) | | | 45.30 | | (85) | | | 31.59 |
Forfeited | (2) | | | 167.48 | | - | | | - |
Outstanding at end of the period | 52 | | $ | 92.36 | | 61 | | $ | 43.71 |
Nine months ended September 30, | ||||||||||||||||
2018 | 2017 | |||||||||||||||
Shares | Weighted-Average Fair Value | Shares | Weighted-Average Fair Value | |||||||||||||
(shares in thousands) | ||||||||||||||||
Outstanding at beginning of period | 129 | $ | 32.15 | 215 | $ | 27.69 | ||||||||||
Granted | 18 | 79.80 | 44 | 44.73 | ||||||||||||
Vested | (86 | ) | 31.61 | (58 | ) | 26.09 | ||||||||||
Forfeited | - | - | (8 | ) | 36.37 | |||||||||||
Outstanding at end of the period | 61 | $ | 46.90 | 193 | $ | 31.65 |
The total fair value of restricted stock awards vested during the ninesix months ended SeptemberJune 30, 2019 and 2018 and 2017 was $7.5$4.0 million and $2.5$7.4 million, respectively.
10
The total share-based compensation charged against income was $717$1.3 million and $830 thousand and $1.2 million during the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and $2.4$2.2 million and $3.4$1.6 million during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. The total costs of the options and restricted stock awards charged against income was $488$791 thousand and $912$600 thousand during the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and $1.7$1.5 million and $2.6$1.2 million during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively. Also included for the three and ninesix months ended SeptemberJune 30, 20182019 was $77$75 thousand and $229$151 thousand, respectively, for 63,300 performance-based deferred shares and for the three and ninesix months ended SeptemberJune 30, 20172018 was $139$79 thousand and $357$152 thousand, respectively, for 113,39563,300 performance-based deferred shares in expense for certain key executives. Included for the three and ninesix months ended SeptemberJune 30, 2018 and 20172019 was $152$151 thousand and $455$303 thousand, respectively, in expense for 210,000 performance-based deferredcontingent shares granted to our CEO that will vest based on the achievement of certain Company performance targets.
For the three and six months ended June 30, 2018, costs charged against income was $151 thousand and $303 thousand, respectively. Included for the three months and six months ended June 30, 2019 was $202 thousand and $292 thousand, respectively, for 17,780 performance-based contingent shares for certain other key executives granted in 2019.
The total income tax benefit recognized in the condensed consolidated statementsCondensed Consolidated Statements of incomeIncome for restricted stock awards was $167$385 thousand and $451$546 thousand for the three months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, and $1.6was $1.2 million and $1.5 million for the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively.
There was $2.1$3.9 million of total unrecognized compensation cost related to restricted stock awards as of SeptemberJune 30, 2018,2019, which is expected to be recognized over a weighted-average period of 1.882.15 years. There was $1.1$2.5 million of unrecognized compensation cost related to the 273,300 performance based deferred291,080 performance-based contingent shares discussed above as of SeptemberJune 30, 2018,2019, which is expected to be recognized over a weighted-average period of 1.252.25 years.
5. LEASES
The Company has operating leases for office and warehouse space and certain equipment. In certain of the Company’s lease agreements, the rental payments are adjusted periodically based on defined terms within the lease. The Company did not have any finance leases as of June 30, 2019 and for the six-month period then ended.
Our leases relating to office and warehouse space have terms of 63 months to 122 months. Our leases relating to equipment have lease terms of 60 to 203 months, with some of them having clauses relating to automatic renewal.
The Company’s warehouse agreement also contains non-lease components, in the form of payments towards logistics services and labor charges which the Company is obligated to pay based on the services consumed by it. Such amounts are not included in the measurement of the lease liability but will be recognized as expense when they are incurred.
For the three and six months ended June 30, 2019, the operating lease expense was $726 thousand and $1.4 million, respectively.
Supplemental cash flow information related to the Company’s operating leases were as follows (in thousands):
| | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | ||
| | 2019 | | 2019 | ||
| | | | | | |
Cash paid for amounts included in the measurements of lease liabilities | | | | | | |
Operating cash flow from operating leases | | $ | 729 | | $ | 1,392 |
| | | | | | |
Right-of-use assets obtained in exchange for lease obligations | | | | | | |
Operating leases | | $ | - | | $ | 1,490 |
| | | | | | |
As of June 30, 2019, the weighted average remaining lease term was 5.2 years and the weighted average discount rate was 3.9%.
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The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2019 (in thousands):
| | | |
2019 (excluding the six months ended June 30, 2019) | | $ | 1,462 |
2020 | | | 2,951 |
2021 | | | 2,985 |
2022 | | | 2,641 |
2023 | | | 1,665 |
Thereafter | | | 2,685 |
Total lease payments | | $ | 14,389 |
Less: imputed interest | | | (1,411) |
Total | | $ | 12,978 |
| | | |
As previously disclosed in our 2018 Form 10-K and under the previous lease accounting standard, future minimum lease commitments under non-cancelable operating leases with terms in excess of one year would have been as follows (in thousands):
| | | |
| | | |
2019 | | $ | 1,496 |
2020 | | | 1,528 |
2021 | | | 1,562 |
2022 | | | 1,222 |
2023 | | | 1,155 |
Thereafter | | | 2,582 |
Total minimum lease payments | | $ | 9,545 |
6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table sets forth the components of accumulated other comprehensive income (loss), net of tax where applicable (in thousands):
| | | | | | |
| | June 30, 2019 | | December 31, 2018 | ||
| | | | | | |
Foreign currency translation | | $ | (1) | | $ | (2) |
Unrealized losses on marketable securities | | | 57 | | | (171) |
Accumulated other comprehensive income (loss) | | $ | 56 | | $ | (173) |
September 30, 2018 | December 31, 2017 | |||||||
Foreign currency translation | $ | (2 | ) | $ | - | |||
Unrealized losses on marketable securities | (264 | ) | (160 | ) | ||||
Accumulated other comprehensive loss | $ | (266 | ) | $ | (160 | ) |
7. FINANCIAL INSTRUMENTS |
Certain financial assets and liabilities are accounted for at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs used to measure fair value:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.
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Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant.
The following tables represent cash and the available-for-sale securities adjusted cost, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or investment securities (in thousands):
| | | | | | | | | | | | | | | | | | |
| | June 30, 2019 | ||||||||||||||||
| | | Cost | | | Unrealized Losses | | | Accrued Interest | | | Estimated Fair Value | | | Cash & Cash Equivalents | | | Investment Securities |
| | | | | | | | | | | | | | | | | | |
Cash | | $ | 32,632 | | $ | - | | $ | - | | $ | 32,632 | | $ | 32,632 | | $ | - |
| | | | | | | | | | | | | | | | | | |
Level 1: | | | | | | | | | | | | | | | | | | |
Certificate of deposit | | | 60,000 | | | - | | | - | | | 60,000 | | | 60,000 | | | - |
Money market accounts | | | 3,679 | | | - | | | - | | | 3,679 | | | 3,679 | | | - |
Government & agency securities | | | 2,833 | | | (9) | | | 23 | | | 2,847 | | | - | | | 2,847 |
| | | 66,512 | | | (9) | | | 23 | | | 66,526 | | | 63,679 | | | 2,847 |
| | | | | | | | | | | | | | | | | | |
Level 2: | | | | | | | | | | | | | | | | | | |
Municipal bonds | | | 14,118 | | | - | | | 246 | | | 14,364 | | | - | | | 14,364 |
| | | | | | | | | | | | | | | | | | |
Total | | $ | 113,262 | | $ | (9) | | $ | 269 | | $ | 113,522 | | $ | 96,311 | | $ | 17,211 |
| | | | | | | | | | | | | | | | | | |
September 30, 2018 | ||||||||||||||||||||||||
Cost | Unrealized Losses | Accrued Interest | Estimated Fair Value | Cash & Cash Equivalents | Investment Securities | |||||||||||||||||||
Cash | $ | 22,841 | $ | - | $ | - | $ | 22,841 | $ | 22,841 | $ | - | ||||||||||||
Level 1: | ||||||||||||||||||||||||
Certificate of deposit | 55,000 | - | - | 55,000 | 55,000 | - | ||||||||||||||||||
Money market accounts | 4,466 | - | - | 4,466 | 4,466 | - | ||||||||||||||||||
Government & agency securities | 4,135 | (116 | ) | 24 | 4,043 | - | 4,043 | |||||||||||||||||
63,601 | (116 | ) | 24 | 63,509 | 59,466 | 4,043 | ||||||||||||||||||
Level 2: | ||||||||||||||||||||||||
Municipal bonds | 16,932 | (248 | ) | 185 | 16,869 | - | 16,869 | |||||||||||||||||
Total | $ | 103,374 | $ | (364 | ) | $ | 209 | $ | 103,219 | $ | 82,307 | $ | 20,912 |
December 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||
Cost | Unrealized Losses | Accrued Interest | Estimated Fair Value | Cash & Cash Equivalents | Investment Securities | |||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
| | December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||
| | | Cost | | | Unrealized Losses | | | Accrued Interest | | | Estimated Fair Value | | | Cash & Cash Equivalents | | | Investment Securities | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Cash | $ | 28,630 | $ | - | $ | - | $ | 28,630 | $ | 28,630 | $ | - | | $ | 35,436 | | $ | - | | $ | - | | $ | 35,436 | | $ | 35,436 | | $ | - | ||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Level 1: | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Certificate of deposit | 45,000 | - | - | 45,000 | 45,000 | - | | | 40,000 | | | - | | | - | | | 40,000 | | | 40,000 | | | - | ||||||||||||||||||
Money market accounts | 1,447 | - | - | 1,447 | 1,447 | - | | | 5,928 | | | - | | | - | | | 5,928 | | | 5,928 | | | - | ||||||||||||||||||
Government & agency securities | 5,342 | (67 | ) | 13 | 5,288 | - | 5,288 | | | 2,835 | | | (72) | | | - | | | 2,763 | | | - | | | 2,763 | |||||||||||||||||
51,789 | (67 | ) | 13 | 51,735 | 46,447 | 5,288 | ||||||||||||||||||||||||||||||||||||
| | | 48,763 | | | (72) | | | - | | | 48,691 | | | 45,928 | | | 2,763 | ||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Level 2: | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Municipal bonds | 18,404 | (201 | ) | 266 | 18,469 | - | 18,469 | | | 16,791 | | | (164) | | | 280 | | | 16,907 | | | - | | | 16,907 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||
Total | $ | 98,823 | $ | (268 | ) | $ | 279 | $ | 98,834 | $ | 75,077 | $ | 23,757 | | $ | 100,990 | | $ | (236) | | $ | 280 | | $ | 101,034 | | $ | 81,364 | | $ | 19,670 | |||||||||||
| | | | | | | | | | | | | | | | | | |
The Company had ano realized loss of $91 and $16 thousandor gains for the three and six months ended SeptemberJune 30, 20182019 and 2017, respectively, and a realized loss of $70 and $73 thousand for the nine months ended September 30, 2018, and 2017, respectively. As of SeptemberJune 30, 20182019 and 2017,2018, gross unrealized losses related to individual securities that had been in a continuous loss position for 12 months or longer were not significant. The maturities of the Company’s investment securities generally range up to 5 years for municipal bonds and for government and agency securities.
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The Company recognized the income tax effects of the TCJA in the financial statements included in its 2017 Annual Report on Form 10-K in accordance with Staff Accounting Bulletin No. 118, which provides SEC staff guidance for the application of ASC 740, Income Taxes, in the reporting period in which the TCJA was signed into law. During the three months ended September 30, 2018, the Company finalized its accounting for the income tax effects of the TCJA. There were no material adjustments to the provisional amounts recorded in the Company’s financial statements included in its 2017 Annual Report on Form 10-K.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Note Regarding Forward-Looking Statements
This report contains information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” and similar expressions, which are not historical in nature, identify forward-looking statements. However, the absence of these words or expressions does not necessarily mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including statements relating to future operating results, are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in our Annual Report on2018 Form 10-K, for the fiscal year ended December 31, 2017 (the “2017 Annual Report”), and those described from time to time in our future reports filed with the SEC.
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes appearing elsewhere herein.
Overview
Medifast, Inc. (together with its consolidated subsidiaries, “we,” “us,” “our,” the “Company,” or “Medifast”) isWe are a leading manufacturerhealth and distributorwellness company that empowers people to transform their lives one healthy habit at a time. Through our rapidly growing community of clinically provenindependent wellness coaches, we seek to enrich the lives of our clients through programs that promote healthy living and through the manufacture and distribution of our proprietary health and wellness products. We believe we are building one of the most trusted, transparent and effective direct-sales health and wellness community in the world. Our operations are primarily conducted through our wholly owned subsidiaries, Jason Pharmaceuticals, Inc., OPTAVIA, LLC, Jason Enterprises, Inc., Jason Properties, LLC, Medifast Franchise Systems, Inc., Medifast Nutrition, Inc., Seven Crondall Associates, LLC, Corporate Events, Inc., OPTAVIA (Hong Kong) Limited and OPTAVIA (Singapore) PTE. LTD.
Since our founding, we have been an innovator in the development of nutritional weight-management products and programs. We produce, distribute and sell a variety of weight loss, weight management and otherhealthy living products all based on our proprietary formulas under the Medifast®, OPTAVIA®, Thrive by Medifast, Optimal Health byTake Shape for Life, Flavors of Home®, and Essential 1 brands. Our product line includes more than 145 consumable healthoptions, including, but not limited to, bars, bites, pretzels, puffs, cereal crunch, drinks, hearty choices, oatmeal, pancakes, pudding, soft serve, shakes, smoothies, soft bakes, and nutritional products.soups. The Company’s productThrive by Medifast and Optimal Health byTake Shape for Life lines include a variety of specially formulated bars, shakes, and smoothies for those who are maintaining their weight for long-term healthy living. We identify opportunities to expand our product line by regularly surveying our clients and studying industry and consumer trends. This allows us to introduce new, high quality products that meet consumer demand.
Our nutritional products are formulated with high-quality, low-calorie, and low-fat ingredients. Products include individually portioned, calorie- and carbohydrate-controlled meal replacements that share a similar nutritional footprint and provide a balance of protein and good carbohydrates. Our meal replacements are also fortified to contain vitamins and minerals, as well as other nutrients essential for good health. We offer our OPTAVIA clients exclusive OPTAVIA-branded nutritional products, or “Fuelings” and also offer a variety of other weight loss, weight management, and healthy living meal replacements, snacks, hydration products under other brands. OPTAVIA Fuelings come in a variety of flavors that appeal to a broad variety of tastes. Our products are nutrient-dense, portion controlled, nutritionally interchangeable and vitamins. Our product sales accounted for 98%simple to use. They are formulated with high-quality, low-calorie, and 97%low-fat ingredients.
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In March 2018, we announced a change in how our revenues forbusiness is managed, operating performance is reviewed and resources are allocated. As a result, beginning in the nine months ended September 30, 2018 and 2017, respectively.
The nature, amount, timing, and uncertaintyfirst quarter of revenue and cash flows from our revenues amongst contracts, product offerings and customers do not differentiate and are recognized consistently based on our policies. In addition, effective January 1, 2018, we changed how we internally and externally report our revenuesfinancial performance to simplify and better align with changes in howthe way we now manage ourthe business review operating performance and allocate resourcesnow operate and report as a result of the shift in our primary focus to thesingle sales segment,OPTAVIA business and the significance this business represents to the overall results of the Company. We considered the following factors in making this decision: the nature of business activities overlapping amongst previous defined sales channels, the management structure directly accountable to our chief operating decision maker for operating and administrative activities, and information presented to the Board of Directors and investors.VIA. We previously disclosed entity-wide disclosuresfinancial information for sales by channel:multiple segments (e.g.OPTAVIA, Medifast Direct, Franchise Medifast Weight Control Centers and Medifast Wholesale. DueWholesale). Although we have one reportable segment we continue to the interchangeable nature of these customers amongst sale channels, sales migration tomarket our products and programs through our Medifast Direct ecommerce platform and our Franchise Medifast Weight Control Center channels.
OPTAVIA encompasses our community of OPTAVIA Coaches, our OPTAVIA health and realignmentwellness programs, and our proprietary OPTAVIA-branded products. The OPTAVIA Integrated Coaching Model is centered around providing focused, individualized attention to our clients. Our OPTAVIA Coaches provide the support and encouragement for clients to successfully learn and adopt a more healthy lifestyle. This clinically-proven model translates into better client results when compared to programs that leave individuals to adopt and maintain healthy habits on their own. Our clients receive personalized attention from our OPTAVIA Coaches who share, educate, motivate and pass along their passion for healthy living. We believe this personal, direct-sales and service strategy is optimal for activating and supporting our clients.
Our OPTAVIA Coaches are independent contractors, not employees, who support our clients and market our products and services primarily through word of internalmouth, email, direct mail and via social media channels such as Facebook, Instagram, Twitter or Zoom. As direct-sales entrepreneurs, OPTAVIA Coaches market our products to friends, family and other acquaintances with whom they have established strong relationships.
The entrepreneurial success of our OPTAVIA Coaches is the key to our success. We are focused on scaling our OPTAVIA Integrated Coaching Model by offering economic incentives that are attractive to independent entrepreneurs and reflective of the new “gig economy”. Our successful clients frequently become enthusiastic health and wellness advocates themselves and choose to become OPTAVIA Coaches. This process of clients becoming OPTAVIA Coaches underpins our growth.
As we have previously disclosed, global expansion is an important component of our long-term growth strategy. In July 2019, we commenced our international operations, as discussed, our disclosure asentering into the Asia Pacific markets of January 1, 2018 will not include revenues by sales channel.Hong Kong and Singapore. Our decision to enter these markets was based on industry market research that reflects a dynamic shift in how health care is being prioritized and consumed in those countries.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (“GAAP”).principles. Our significant accounting policies are described in Note 1 and Note 2 to the condensed consolidated financial statements included in this report.
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Management develops, and changes periodically, these estimates and assumptions based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
15
Overview of Results of Operations
Our product sales accounted for 98% of our revenues for the six months ended June 30, 2019 and 2018, respectively.
The following tables reflect our income statements (in thousands, except percentages):
| | | | | | | | | | | |
| | Three months ended June 30, | | | | | | ||||
| | 2019 | | 2018 | | $ Change | | % Change | |||
| | | | | | | | | | | |
Revenue | | $ | 187,103 | | $ | 117,324 | | $ | 69,779 | | 59.5% |
Cost of sales | | | 46,393 | | | 28,525 | | | (17,868) | | -62.6% |
Gross profit | | | 140,710 | | | 88,799 | | | 51,911 | | 58.5% |
| | | | | | | | | | | |
Selling, general, and administrative | | | 113,355 | | | 71,689 | | | (41,666) | | -58.1% |
| | | | | | | | | | | |
Income from operations | | | 27,355 | | | 17,110 | | | 10,245 | | 59.9% |
| | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | |
Interest income, net | | | 425 | | | 330 | | | 95 | | 28.8% |
Other income (expense) | | | (2) | | | 179 | | | (181) | | -101.1% |
| | | 423 | | | 509 | | | (86) | | -16.9% |
| | | | | | | | | | | |
Income from operations before income taxes | | | 27,778 | | | 17,619 | | | 10,159 | | 57.7% |
| | | | | | | | | | | |
Provision for income tax | | | 6,395 | | | 3,486 | | | (2,909) | | -83.4% |
| | | | | | | | | | | |
Net income | | $ | 21,383 | | $ | 14,133 | | $ | 7,250 | | 51.3% |
| | | | | | | | | | | |
% of revenue | | | | | | | | | | | |
Gross profit | | | 75.2% | | | 75.7% | | | | | |
Selling, general, and administrative costs | | | 60.6% | | | 61.1% | | | | | |
Income from operations | | | 14.6% | | | 14.6% | | | | | |
Income from operations before income taxes | | | 14.8% | | | 15.0% | | | | | |
Three months ended September 30, | ||||||||||||||||
2018 | 2017 | $ Change | % Change | |||||||||||||
Revenue | $ | 139,239 | $ | 77,205 | $ | 62,034 | 80.3 | % | ||||||||
Cost of sales | 32,038 | 19,022 | (13,016 | ) | -68.4 | % | ||||||||||
Gross profit | 107,201 | 58,183 | 49,018 | 84.2 | % | |||||||||||
Selling, general, and administrative | 89,734 | 47,956 | (41,778 | ) | -87.1 | % | ||||||||||
Income from operations | 17,467 | 10,227 | 7,240 | 70.8 | % | |||||||||||
Other income (expense) | ||||||||||||||||
Interest income, net | 361 | 148 | 213 | 143.9 | % | |||||||||||
Other income (expense) | - | (4 | ) | 4 | -100.0 | % | ||||||||||
361 | 144 | 217 | 150.7 | % | ||||||||||||
Income from operations before income taxes | 17,828 | 10,371 | 7,457 | 71.9 | % | |||||||||||
Provision for income tax | 4,047 | 3,685 | (362 | ) | -9.8 | % | ||||||||||
Net income | $ | 13,781 | $ | 6,686 | $ | 7,095 | 106.1 | % | ||||||||
% of revenue | ||||||||||||||||
Gross profit | 77.0 | % | 75.4 | % | ||||||||||||
Selling, general, and administrative costs | 64.4 | % | 62.1 | % | ||||||||||||
Income from operations | 12.5 | % | 13.2 | % |
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Nine months ended September 30, | ||||||||||||||||
2018 | 2017 | $ Change | % Change | |||||||||||||
Revenue | $ | 355,159 | $ | 223,556 | $ | 131,603 | 58.9 | % | ||||||||
Cost of sales | 84,351 | 54,870 | (29,481 | ) | -53.7 | % | ||||||||||
Gross Profit | 270,808 | 168,686 | 102,122 | 60.5 | % | |||||||||||
Selling, general, and administrative | 221,548 | 138,540 | (83,008 | ) | -59.9 | % | ||||||||||
Income from operations | 49,260 | �� | 30,146 | 19,114 | 63.4 | % | ||||||||||
Other income (expense) | ||||||||||||||||
Interest income, net | 940 | 352 | 588 | 167.0 | % | |||||||||||
Other income (expense) | 178 | 32 | 146 | 456.3 | % | |||||||||||
1,118 | 384 | 734 | 191.1 | % | ||||||||||||
Income from operations before income taxes | 50,378 | 30,530 | 19,848 | 65.0 | % | |||||||||||
Provision for income tax expense | 10,242 | 10,115 | (127 | ) | -1.3 | % | ||||||||||
Net income | $ | 40,136 | $ | 20,415 | $ | 19,721 | 96.6 | % | ||||||||
% of revenue | ||||||||||||||||
Gross Profit | 76.2 | % | 75.5 | % | ||||||||||||
Selling, general, and administrative costs | 62.4 | % | 62.0 | % | ||||||||||||
Income from Operations | 13.9 | % | 13.5 | % |
| | | | | | | | | | | |
| | Six months ended June 30, | | | | | | ||||
| | 2019 | | 2018 | | $ Change | | % Change | |||
| | | | | | | | | | | |
Revenue | | $ | 352,979 | | $ | 215,920 | | $ | 137,059 | | 63.5% |
Cost of sales | | | 87,122 | | | 52,313 | | | (34,809) | | -66.5% |
Gross Profit | | | 265,857 | | | 163,607 | | | 102,250 | | 62.5% |
| | | | | | | | | | | |
Selling, general, and administrative | | | 213,787 | | | 131,814 | | | (81,973) | | -62.2% |
| | | | | | | | | | | |
Income from operations | | | 52,070 | | | 31,793 | | | 20,277 | | 63.8% |
| | | | | | | | | | | |
Other income (expense) | | | | | | | | | | | |
Interest income, net | | | 737 | | | 579 | | | 158 | | 27.3% |
Other income (expense) | | | (8) | | | 178 | | | (186) | | -104.5% |
| | | 729 | | | 757 | | | (28) | | -3.7% |
| | | | | | | | | | | |
Income from operations before income taxes | | | 52,799 | | | 32,550 | | | 20,249 | | 62.2% |
| | | | | | | | | | | |
Provision for income taxes | | | 10,666 | | | 6,195 | | | (4,471) | | -72.2% |
| | | | | | | | | | | |
Net income | | $ | 42,133 | | $ | 26,355 | | $ | 15,778 | | 59.9% |
| | | | | | | | | | | |
% of revenue | | | | | | | | | | | |
Gross Profit | | | 75.3% | | | 75.8% | | | | | |
Selling, general, and administrative costs | | | 60.6% | | | 61.0% | | | | | |
Income from Operations | | | 14.8% | | | 14.7% | | | | | |
Income from operations before income taxes | | | 15.0% | | | 15.1% | | | | | |
Revenue: Revenue increased $62.0$69.8 million, or 80.3%59.5%, to $139.2$187.1 million for the three months ended SeptemberJune 30, 20182019 from $77.2$117.3 million for the three months ended SeptemberJune 30, 2017.2018. This is the sixthninth consecutive quarter of year-over-year revenue growth and the seventhtenth consecutive quarter of sequential revenue improvement. The number of active earningOPTAVIA Coaches for the three months ended SeptemberJune 30, 20182019 increased to 22,60030,600 from 14,20019,700 for the corresponding period in 2017,2018, an increase of 59.2%55.3%. The quarterly revenue perOPTAVIA Coach increased 23.2%7.1% to $5,781$5,863 for the three months ended SeptemberJune 30, 20182019 from $4,693$5,474 for the three months ended SeptemberJune 30, 2017.2018. Revenue increased $137.1 million, or 63.5%, to $353.0 million for the six months ended June 30, 2019 from $215.9 million for the six months ended June 30, 2018. This growth in revenue for the quarter and six months ended June 30, 2019 resulted in part from business initiatives accelerating newOPTAVIA Coach conversions increasedOPTAVIA client acquisition rates and new clients starting our plans, aided by the ongoing transition of clients to higher pricedOPTAVIA branded products. Total advertising spend, inclusiveOPTAVIA-branded products represented 75% of broker fees, was $1.3consumable units sold for the three months ended June 30, 2019 compared to 64% for the corresponding period in 2018 and 74% of consumable units sold for the six months ended June 30, 2019 compared to 62% for the corresponding period in 2018.
Costs of sales: Cost of sales increased $17.9 million, or 62.6%, to $46.4 million for the three months ended SeptemberJune 30, 2018 as compared to $1.7 million for the corresponding period in 2017. Revenue increased $131.6 million, or 58.9%, to $355.2 million for the nine months ended September 30, 2018 from $223.6 million for the nine months ended September 30, 2017. Total advertising spend, inclusive of broker fees, was $4.9 million for the nine months ended September 30, 2018 as compared to $6.1 million for the corresponding period in 2017.
Costs of sales: Cost of sales increased $13.0 million, or 68.4%, to $32.0 million for the three months ended September 30, 20182019 from the corresponding period in 20172018 and increased $29.5$34.8 million, or 53.7%66.5%, to $84.4$87.1 million for the ninesix months ended SeptemberJune 30, 20182019 from the corresponding period in 2017.2018. The increase in cost of sales for the three months and ninesix months ended SeptemberJune 30, 20182019 was primarily driven by increased product sales.
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Gross profit: For the three months ended SeptemberJune 30, 2018,2019, gross profit increased $49.0$51.9 million, or 84.2%58.5%, to $107.2$140.7 million from the corresponding period in 2017.2018. As a percentage of sales, gross margin increased 160decreased 50 basis points to 77.0%75.2% for the three months ended SeptemberJune 30, 20182019 from 75.4%75.7% for the corresponding period in 2017.2018. For the ninesix months ended SeptemberJune 30, 2018,2019, gross profit increased $102.1$102.3 million, or 60.5%62.5%, to $270.8$265.9 million from the corresponding period in 2017.2018. As a percentage of sales, gross margin increased 70decreased 50 basis points to 76.2%75.3% for the ninesix months ended SeptemberJune 30, 20182019 from 75.5%75.8% for the corresponding period in 2017.2018. The increasedecrease in gross margin percentage for the quarter and year-to-date periods waswere primarily driven by higher production volumes yielding favorable manufacturing absorption asproduct costs, obsolescence costs associated with a specific slow-moving product and the Company increased inventory to meet expected consumer demand. The Company anticipates this absorption benefit to be temporary as inventory levels normalize. In addition, the increase in the gross margin percentage resulted from reduced inventory obsolescencecosts of complying with new U.S. Food and lower shipping expense.Drug Administration nutritional labeling requirements.
Selling, general and administrative:Selling, general and administrative (“SG&A”) expenses were $89.7$113.4 million for the three months ended SeptemberJune 30, 2018,2019, an increase of $41.7 million, or 87.1%58.1%, as compared to $48.0$71.7 million from the corresponding period in 2017.2018. As a percentage of sales, SG&A expenses were 64.4%60.6% as compared to 62.1%61.1% for the three months ended SeptemberJune 30, 2019 and 2018, respectively. SG&A expenses included research and 2017,development costs of $549 thousand and $561 thousand for the three months ended June 30, 2019 and 2018, respectively. ThisFor the six months ended June 30, 2019, SG&A expenses increased $82.0 million, or 62.2%, to $213.8 million from $131.8 million for the corresponding period in 2018. SG&A expenses included $1.2 million and $981 thousand in research and development costs for the six months ended June 30, 2019 and 2018, respectively. As a percentage of sales, SG&A expenses were 60.6% for the six months ended June 30, 2019 as compared to 61.0% for the corresponding period in 2018. The increase wasfor the quarter and year-to-date were primarily the result of higherincreased OPTAVIA commissions paidcommission expense as a result of higher sales. In addition, SG&A expenses increased as a result of increased consulting costs related to information technology projects, increased salaries and benefits and increased credit card fees resulting from higher sales.
OPTAVIA commission expense, which is variable based upon product sales.sales, increased $31.8 million, or 69.0%, for the three months ended June 30, 2019 from the corresponding period in 2018 and increased $63.0 million, or 75.5%, for the six months ended June 30, 2019 from the corresponding period in 2018. These increases were primarily the result of increased product sales and number of active earning OPTAVIA Coaches. AsOPTAVIA revenue increased as a portion of the Company’s total sales mix, the commission rate as a percentage of revenue increased 470240 basis points to 40.5%41.7% for the thirdsecond quarter of 20182019 compared to 35.8%39.3% for the thirdsecond quarter last year.year and increased 280 basis points to 41.5% for the six months ended June 30, 2019 compared to 38.7% for the corresponding period in 2018. This is an outcome of the success we are experiencing with ourOPTAVIA integratedIntegrated Coach Model. SG&A expenses included research and development costs of $621 thousand and $343 thousand for
Income from operations: For the three months ended SeptemberJune 30, 2018 and 2017, respectively.
For the nine months ended September 30, 2018, SG&A expenses2019, income from operations increased $83.0$10.3 million or 59.9%, to $221.5$27.4 million from $138.5$17.1 million for the corresponding period in 2017. As a percentage of sales, SG&A expenses was 62.4% for the nine months ended September 30, 2018 as compared to 62.0% for the corresponding period in 2017. SG&A expenses included $1.6 million and $1.1 million in research and development costs for the nine months ended September 30, 2018 and 2017, respectively.
OPTAVIA commission expense, which is variable based upon product sales, increased $28.8 million, or more than 100.0%, for the three months ended September 30, 2018 from the corresponding period in 2017 and increased $62.0 million, or 79.2%, for the nine months ended September 30, 2018 from the corresponding period in 2017.
Coach event and incentive program costs increased $6.0 million and $6.7 million during the three and nine months ended September 30, 2018, respectively, from the corresponding periods in 2017 due to higher annual convention costs as more coaches attended this event and increased incentive program costs related to coaches who qualified during 2018 for our 2019 International Leadership Advancement Trip, an event designed to recognize and provide training to rising leaders and those who mentor them.
General and administrative expenses increased $4.8 million and $11.1 million during the three and nine months ended September 30, 2018, respectively, from the corresponding periods in 2017 primarily as a result of startup costs associated with the move of our distribution center from Texas to Nevada, as well as consulting costs related to information technology projects, and increased credit card fees resulting from higher sales.
Salaries and benefits increased $2.3 million and $4.2 million during the three and nine months ended September 30, 2018, respectively, from the corresponding periods in 2017 primarily as a result of higher contract labor costs related to the winding down of our internal call center and increased compensation costs.
Income from operations:For the three months ended September 30, 2018, income from operations increased $7.3 million to $17.5 million from $10.2 million for the corresponding period in 2017 primarily as a result of increased gross profits partially offset by increased SG&A expenses. Income from operations as a percentage of sales was 14.6% for the three months ended June 30, 2019 and 2018, respectively. For the ninesix months ended SeptemberJune 30, 2018,2019, income from operations increased $19.2$20.3 million to $49.3$52.1 million from $30.1$31.8 million for the corresponding period in 20172018 primarily as a result of increased gross profits partially offset by increased SG&A expenses.
Income from operations as a percentage of sales was 14.8% and 14.7% for the six months ended June 30, 2019 and 2018, respectively.
Interest income, net:For the three and ninesix months ended SeptemberJune 30, 2018,2019, interest income was $361$425 thousand and $940$737 thousand, respectively and for the three and ninesix months ended SeptemberJune 30, 2017,2018, interest income was $148$330 thousand and $352$579 thousand, respectively.
Other income (expense):For the three months ended SeptemberJune 30, 20182019 and 2017,2018, other income (expense) was $0 and an expense of $4$2 thousand and income of $179 thousand, respectively. For the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, other income (expense) was an expense of $8 thousand and income of $178 thousand, and $32 thousand, respectively.
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Income from operations before income taxes: Income from operations before income taxes was $17.8$27.8 million for the three months ended SeptemberJune 30, 20182019 as compared to $10.4$17.6 million for the three months ended SeptemberJune 30, 2017,2018, an increase of $7.4$10.2 million. Pre-tax profitIncome from operations before income taxes as a percentage of sales decreased to 12.8%14.8% for the three months ended SeptemberJune 30, 20182019 from 13.4%15.0% for the three months ended SeptemberJune 30, 2017.2018. Income from operations before income taxes was $50.4$52.8 million for the ninesix months ended SeptemberJune 30, 20182019 as compared to $30.5$32.6 million for the ninesix months ended SeptemberJune 30, 2017,2018, an increase of $19.9$20.2 million. Pre-tax profitIncome from operations before income taxes as a percentage of sales increaseddecreased to 14.2%15.0% for the ninesix months ended SeptemberJune 30, 20182019 from 13.7%15.1% for the ninesix months ended SeptemberJune 30, 2017.
2018.
Provision for income tax:For the three months ended SeptemberJune 30, 2018,2019, the Company recorded $4.0$6.4 million in income tax expense, an effective rate of 22.7%23.0%, as compared to $3.7$3.5 million in income tax expense, an effective rate of 35.5%19.8%, for the three months ended SeptemberJune 30, 2017.2018. The decreaseincrease in the effective tax rate for the three month ended September 30, 2018 as compared to the three months ended September 30, 2017 was primarily driven by a 2.1% decrease in the Federal statutory rate of 14.0% pursuant to the TCJA, a decrease in the state rate of 1.7% and a rate reduction of 0.4% attributablerelating to the discrete accounting for taxes associated with share-based compensation. The total decrease in the effective tax rate was offsetcompensation and by a 2.1% increasedecrease of 1.2% benefit from the net operating loss due to our effective tax rate resulting from to the elimination of the Domestic Manufacturer Deduction and a 1.2% increase to our effective tax rate resulting from changes to the limitations imposed by Section 162(m) of the Internal Revenue Code pursuant to TCJA.state apportionment. For the ninesix months ended SeptemberJune 30, 2018,2019, the Company recorded $10.2$10.7 million in income tax expense, an effective rate of 20.3%20.2%, as compared to $10.1$6.2 million in income tax expense, an effective rate of 33.1%19.0%, for the ninesix months ended SeptemberJune 30, 2017.2018. The decreaseincrease in the effective tax rate for the ninesix month ended SeptemberJune 30, 20182019 as compared to the ninesix months ended SeptemberJune 30, 20172018 was primarily driven by a 1.8% decrease in the Federal statutory rate of 14.0% pursuant to the TCJA, a rate reduction of 1.1% attributable to the discrete accounting for taxes associated with share-based compensation and a decrease in the state rate of 0.4%. The total decrease in the effective tax rate waspartially offset by a 2.2% increase to our effective tax rateincreased 0.8% resulting from the eliminationbenefits of the Domestic Manufacturer Deduction and a 0.5% increasenet operating loss due to our effective tax rate primarily resulting from changes to the limitations imposed by Section 162(m) of the Internal Revenue Code pursuant to the TCJA.state apportionment. The Company anticipates a full year tax rate of 21%21.5% to 23%22.5% in 2018.2019, exclusive of any discrete tax benefits from share-based compensation awards vesting in the fourth quarter.
Net income: Net income was $13.8$21.4 million and $40.1$42.1 million, or $1.14$1.75 and $3.31$3.45 per diluted share, for the three and ninesix months ended SeptemberJune 30, 20182019 as compared to $6.7$14.1 million and $20.4$26.4 million, or $0.55$1.16 and $1.69$2.17 per diluted share, for the three months and ninesix months ended SeptemberJune 30, 2017.2018. The period-over-period changes were driven by the factors described above.
above in the explanations from operations.
Liquidity and Capital Resources
The Company had stockholders’ equity of $111.6$126.0 million and working capital of $89.1$95.9 million at SeptemberJune 30, 20182019 as compared with $108.6$109.1 million and $88.1$85.2 million at December 31, 2017,2018, respectively. The $3.0$16.9 million net increase in stockholder’s equity reflects $40.1$42.1 million in net income for the ninesix months ended SeptemberJune 30, 20182019 offset by $20.0$10.0 million spent on repurchases of common stock, and $17.3$17.7 million for declared dividends paid to ourholders of the Company’s common stock holders as well as the other equity transactions described in the “Condensed Consolidated Statements of Changes in Stockholders’ Equity” included in our condensed consolidated financial statements included in this report. The Company declared a dividend of $6.0$8.9 million, or $0.48$0.75 per share, to common stockholders as of September 21, 2018June 28, 2019 that will be paid in the fourththird quarter of 2018.2019. While we intend to continue the dividend program and believe we will have sufficient liquidity to do so, we can provide no assurance that we will be able to continue to declare and pay dividends. The Company’s cash, cash equivalents, and investment securities increased from $98.8$101.0 million at December 31, 20172018 to $103.2$113.5 million at SeptemberJune 30, 2018.
2019. The Company also repurchased approximately 71,000 shares during the second quarter of 2019.
Net cash provided by operating activities increased $12.2$8.7 million to $45.5$47.2 million for the ninesix months ended SeptemberJune 30, 20182019 from $33.3$38.5 million for the ninesix months ended SeptemberJune 30, 20172018 primarily as a result of increased net income partially offset by an increase in working capital.
Net cash used in investing activities was $817$4.5 million for the six months ended June 30, 2019 as compared to $710 thousand for the ninesix months ended SeptemberJune 30, 2018 as compared to $3.4 million for the nine months ended September 30, 2017.2018. This change resulted primarily from cash provided by net investment securities for the nine months ended September 30, 2018 as compared to cash used in net investment securities for the corresponding period in 2017. This was partially offset by an increase in cash used in capital expenditures for the ninesix months ended SeptemberJune 30, 20182019 from the corresponding period in 2017.
2018 partially offset by a $1.2 million increase in sale and maturities of investment securities.
Net cash used in financing activities increased $25.6decreased $4.1 million to $37.4$27.7 million for the ninesix months ended SeptemberJune 30, 20182019 from $11.8$31.8 million for the ninesix months ended SeptemberJune 30, 2017.2018. This increasedecrease was primarily due to a $10.0 million decrease in stock repurchases and anpartially offset by a $6.1 million increase in cash dividends paid to stockholders.
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In pursuing its business strategy, the Company may require additional cash for operating and investing activities. The Company expects future cash requirements, if any, to be funded from operating cash flow and financing activities.
The Company evaluates acquisitions from time to time as presented.
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and a decline in the stock market. The Company does not enter into derivatives, foreign exchange transactions or other financial instruments for trading or speculative purposes.
The Company is exposed to market risk related to changes in interest rates and market pricing impacting our investment portfolio. Its current investment policy is to maintain an investment portfolio consisting of municipal bonds, U.S. money market securities, and high-grade corporate securities, directly or through managed funds. Its cash is deposited in and invested through highly rated financial institutions in North America. Its marketable securities are subject to interest rate risk and market pricing risk and will fall in value if market interest rates increase or if market pricing decreases. If market interest rates were to increase and market pricing were to decrease immediately and uniformly by 10% from levels at SeptemberJune 30, 2018,2019, the Company estimates that the fair value of its investment portfolio would decline by an immaterial amount and therefore it would not expect its operating results or cash flows to be affected to any significant degree by the effect of a change in market conditions on our investments.
There have been no material changes to our market risk exposure since December 31, 2017.2018.
Item 4. Controls and Procedures |
Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of SeptemberJune 30, 2018.2019. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and on a timely basis. Based on this evaluation performed in accordance with the criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, our management concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting:
There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended SeptemberJune 30, 20182019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We implemented additional internal controls to ensure we properly assessed and accounted for the impact of the new accounting standard related to revenue recognitionleases on our financial statements which became effective on January 1, 2018.2019. There were no significant changes to our internal control over financial reporting related to the adoption of the new standard.
Item 1. Legal Proceedings |
The Company is, from time to time, subject to a variety of litigation and similar proceedings incidental tothat arise out of the ordinary course of its business. Based upon the Company’s experience, current information and applicable law, it does not believe that these proceedings and claims will have a material adverse effect on its results of operations, financial position or liquidity. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.
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There have been no material changes to the risk factors set forth in Part I, Item 1A of the 2017 Annual Report.2018 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
| | | | | | | | | |
2019 | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |
April 1 - April 30 | | - | | $ | - | | - | | 664,817 |
May 1 - May 31 | | 71,230 | | | 140.35 | | 71,230 | | 593,587 |
June 1 - June 30 | | - | | | - | | - | | 593,587 |
2018 | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares or Program | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | ||||||||||||
July 1 - July 31 | - | $ | - | - | 728,881 | |||||||||||
August 1 - August 31 | 200 | 169.47 | - | 728,881 | ||||||||||||
September 1 - September 30 | - | - | - | 728,881 |
The Company, in accordance with, and as part of, the repurchase program adopted in September 2014 (the “StockStock Repurchase Program”)Plan implemented a Rule 10b5-1 repurchase plan to facilitate repurchases of the Company’s common stock under the Stock Repurchase Program.Plan. As of SeptemberJune 30, 2018,2019, there were 728,881593,587 shares of the Company’s common stock eligible for repurchase under the Stock Repurchase Program.Plan. There iscan be no guaranteeassurances as to the exact numberamount, timing or prices of shares of the Company’s common stock, if any, that will be purchased under therepurchases, which may vary based on market conditions and other factors. The Stock Repurchase Plan.Plan does not have an expiration date and can be modified or terminated by the Board of Directors at any time.
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Exhibit Number | Description of Exhibit | |
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3.1 | | |
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3.2 | | |
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31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 | | |
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101 | | The following financial statements from Medifast, Inc.’s Quarterly Report on Form 10-Q for the quarter ended |
In accordance with SEC Release No. 33-8238, Exhibit 32.1 is being furnished and not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Medifast, Inc.
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