Medifast, Inc. (NYSE: MED), a leading manufacturer and distributor of clinically proven programs and healthy living products, today reported results for the third quarter ended September 30, 2019.
Third Quarter 2019 Highlights Compared to Prior-Year Period
- Record revenue up 36.5% to $190.1 million
- 42.5% growth in active earning OPTAVIA Coaches to 32,200
- Net income increased 15.4% to $15.9 million
- Earnings per diluted share (“EPS”) of $1.32, an increase of 15.8%
- Repurchased approximately 225,000 shares during the quarter and declared a quarterly cash dividend of $8.8 million, or $0.75 per share payable on November 7, 2019
- Cash, cash equivalents, and investment securities of $96.9 million and the Company remains free of interest-bearing debt as of as of September 30, 2019
“Our focus on long-term, sustainable growth at Medifast continued during the third quarter as we achieved record revenues, rapid year over year growth in the number of active earning coaches and solid growth in gross profits and net income,”
said Dan Chard, Chief Executive Officer of Medifast.
“Our mission to deliver lifelong transformation one healthy habit at a time is resonating with consumers, and we are well on our course to deliver $1 billion in revenue with operating margins greater than 15% by 2021 as we’ve projected.”
Chard continued, “Growth at the rapid pace we’ve been achieving can present some short-term challenges that are reflected in our third quarter results and fourth quarter guidance. Spending on technological improvements to support our ambitions, upgrades in our supply chain and unexpected high levels of credit card related bad debt expense all combined to create short-term headwinds that held back margins for the period. What remains clear is that the fundamentals of our business are strong, and we’ve created a solid foundation that enables significant growth for the long term.”
Third Quarter 2019 Results
Third quarter revenue increased 36.5% to $190.1 million from revenue of $139.2 million for the third quarter of 2018. OPTAVIA-branded products represented 78% of consumable units sold for the third quarter compared to 70% for the same period a year ago.
The total number of active earning OPTAVIA Coaches increased to 32,200, compared to 22,600 for the third quarter of 2018. The average revenue per active earning OPTAVIA Coach decreased 1.1% to $5,715 compared to $5,781 for the third quarter last year.
Gross profit increased 33.3% to $142.9 million from $107.2 million for the third quarter of 2018. The Company’s gross profit as a percentage of revenue decreased 180 basis points year-over-year to 75.2% from 77.0% primarily a result of higher shipping expenses and higher product returns related to disruptions to normal business operations.
Selling, general and administrative expenses (“SG&A”) increased $33.0 million to $122.7 millioncompared to $89.7 million for the third quarter of 2018, primarily as a result of higher variable costs such as OPTAVIA commission expense and credit card processing fees along with higher cost for the Company’s annual convention held in July and increased consulting costs related to information technology projects.
Lastly, SG&A for the third quarter of 2019 included approximately $3.2 million of cost related to a highly organized automated scheme using stolen identities and credit cards from outside the Company’s systems, to transact business on the Company’s e-commerce sites. Each of these transactions was pre-approved, prior to shipment, by the payment processor and subsequently reported to Medifast as utilizing a stolen card.
These expenses were approximately $2.8 million, or $0.18EPS, higher than the prior year period and were primarily comprised of higher bad debt and credit card fees. The Company believes it has successfully addressed the situation, and has brought bad debt down to levels consistent with historic performance. We do not anticipate any material impact on expenses related to this matter going forward. SG&A as a percentage of revenue increased 10 basis points to 64.5% of revenue compared to the year-ago period.
Operating income increased $2.8 million to $20.3 million from $17.5 million in the prior-year period as a result of increased gross profit, partially offset by increased SG&A expenses. Operating income as a percentage of revenue was 10.7% for the quarter, a decrease of 180 basis points from the year-ago period.
The effective tax rate for the quarter was 22.7% for the third quarter of 2019 and 2018. The effective tax rate was negatively impacted by the tax effects of foreign operating results offset by favorable effects of state income taxes.
Third quarter net income was $15.9 million, or $1.32 per diluted share, based on approximately 12.1 million shares outstanding. Third quarter 2018 net income was $13.8 million, or $1.14 per diluted share, based on approximately 12.1 million shares outstanding.
Medifast (NYSE: MED) is a leading manufacturer and distributor of clinically proven, healthy living products and programs. The brand has been recommended by more than 20,000 doctors since its founding.
Its integrated coach model leverages nearly 40 years of experience from medical, franchise, e-commerce, and direct selling channels. Medifast and its community of independent OPTAVIA Coaches embrace the future of wellness with a shared vision to offer the world lifelong transformation, one healthy habit at a time®.
OPTAVIA® is represented by a community of OPTAVIA Coaches who teach Clients healthy habits, while offering support and guidance on their transformation journey. In 2018, Medifast announced it will expand into the Asia-Pacific markets of Hong Kong and Singapore in 2019 with its integrated coach model.
Medifast is traded on the New York Stock Exchange and was named to Forbes’ 100 Most Trustworthy Companies in America List in 2016 and 2017. For more information, visit www.MedifastInc.com or www.OPTAVIA.com.
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