MEDIFAST INC

Previous wording

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 healthy living products. Prior to a change in our Customer Terms & Conditions (Customer T&Cs) in the first quarter of 2023, revenue was recognized upon receipt by the customer and net of discounts, rebates, promotional adjustments, price adjustments, allocated consideration to loyalty programs, and estimated returns. Upon the change of our Customer T&Cs, revenue is now recognized upon delivery to the shipping carrier and net of discounts, rebates, promotional adjustments, price adjustments, allocated consideration to loyalty programs, and estimated returns. The impact of this change to the quarter ended March 31, 2023 was an increase of approximately $9.1 million in revenue and $2.8 million of income from operations.

Current wording

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 healthy living products. Prior to a change in our Customer Terms & Conditions (Customer T&Cs) in the first quarter of 2023, revenue was recognized upon receipt by the customer and net of discounts, rebates, promotional adjustments, price adjustments, allocated consideration to loyalty programs, and estimated returns. Upon the change of our Customer T&Cs, revenue is now recognized upon delivery to the shipping carrier and net of discounts, rebates, promotional adjustments, price adjustments, allocated consideration to loyalty programs, and estimated returns.

Previous wording

Amounts billed to customers for shipping and handling activities are treated as a promised service performance obligation and are recorded as revenue in our Consolidated Statements of Income upon fulfillment of the performance obligation. Shipping and handling costs incurred by the Company for the delivery of products to customers are considered a cost to fulfill the contract and are included in cost of sales in our Consolidated Statements of Income.

Current wording

Amounts billed to customers for shipping and handling activities are treated as a promised service performance obligation and are recorded as revenue in our Consolidated Statements of Operations upon fulfillment of the performance obligation. Shipping and handling costs incurred by the Company for the delivery of products to customers are considered a cost to fulfill the contract and are included in cost of sales in our Consolidated Statements of Operations.

Previous wording

We expense OPTAVIA Coach compensation and credit card fees during the period in which the corresponding revenue is earned. These costs are recorded in selling, general and administrative expense in our Consolidated Statements of Income.

Current wording

We expense OPTAVIA coach compensation and credit card fees during the period in which the corresponding revenue is earned. These costs are recorded in selling, general and administrative expense in our Consolidated Statements of Operations.

Previous wording

Medifast is the health and wellness company known for its habit-based and coach-guided lifestyle solution OPTAVIA, which provides people with a simple, yet comprehensive approach to help them achieve lasting optimal health and wellbeing. OPTAVIA's lifestyle plans deliver clinically proven health benefits, and our program includes evidence-based tools, including scientifically developed products and a framework for habit creation reinforced by independent Coaches and Community support. As a physician-founded company with a 40+ year history, Medifast is a leader in the U.S. weight management industry. In early January 2024, through a collaboration with the national virtual primary care provider LifeMD, OPTAVIA customers will have access to board-certified affiliated clinicians and medications, such as GLP-1s, that support treatment plans for obesity and other health conditions. The Company is entering into the medically supported weight loss area and continues to innovate and build upon its scientific and clinical heritage to fulfill its mission of offering the world Lifelong Transformation, One Healthy Habit at a Time. Medifast was recognized in 2023 by Financial Times as one of The Americas' Fastest Growing Companies and in 2022 as one of America's Best Mid-Sized Companies by Forbes. Our product sales accounted for approximately 97.5%, 97.2% and 98.0% of our revenues in each of 2023, 2022, and 2021, respectively. We review and analyze a number of key operating and financial metrics to manage our business, including the number of active earning OPTAVIA Coaches and average quarterly revenue generated per active earning OPTAVIA Coach. The number of active earning OPTAVIA Coaches decreased by approximately 32.5% to 41,100 as of December 31, 2023 from December 31, 2022, and the average revenue per active earning OPTAVIA Coach was $4,648 for the quarter ended December 31, 2023.

Current wording

Medifast is the 40+ year old health and wellness company known for its habit-based and coach-guided lifestyle solution OPTAVIA which provides people with a simple, yet comprehensive approach to address obesity and support a healthy life. OPTAVIA provides unparalleled coaching support along with community, tailored nutrition and healthy habits and empowers people to master their weight loss journey through each stage of life. Through the company’s collaboration with national virtual primary care provider LifeMD® and its affiliated medical group, customers now have access to GLP-1 medications where clinically appropriate. The Company continues to innovate and build upon its scientific and clinical heritage to fulfill its mission of offering the world Lifelong Transformation, Making a Healthy Lifestyle Second Nature. Our product sales accounted for approximately 96.8%, 97.5% and 97.2% of our revenues in each of 2024, 2023, and 2022, respectively. We review and analyze a number of key operating and financial metrics to manage our business, including the number of active earning OPTAVIA coaches and average quarterly revenue generated per active earning OPTAVIA coach. The number of active earning OPTAVIA coaches decreased by approximately 34.1% to 27,100 as of December 31, 2024 from December 31, 2023, and the average revenue per active earning OPTAVIA coach was $4,391 for the quarter ended December 31, 2024.

Previous wording

Our OPTAVIA business unit accounted for approximately 100%, 100%, and 99.9% of our revenues in 2023, 2022 and 2021, respectively. We have operated and reported as a single sales segment, OPTAVIA, since 2018. By maintaining our commitment to building capabilities in the areas that matter most to our OPTAVIA Coaches and customers within the OPTAVIA channel, we believe our strong financial foundation, flexible model and variable cost structure coupled with disciplined growth initiatives position Medifast for the current environment and the future.

Current wording

Our OPTAVIA business unit accounted for all of our revenues for each the years ended 2024, 2023 and 2022. We have operated and reported as a single sales segment, OPTAVIA, since 2018. By maintaining our commitment to building capabilities in the areas that matter most to our OPTAVIA coaches and customers within the OPTAVIA channel, we believe our strong financial foundation, flexible model and variable cost structure coupled with disciplined growth initiatives position Medifast for the current environment and the future.

Previous wording

The following table reflects our consolidated statements of income for the years ended December 31, 2023 and 2022 (in thousands, except percentages):

Current wording

The following table reflects our Consolidated Statements of Operations for the years ended December 31, 2024 and 2023 (in thousands, except percentages):

Previous wording

Revenue: Revenue decreased $526.5 million, or 32.9%, to $1.072 billion in 2023 from $1.599 billion in 2022. The year-over-year decline in revenue was primarily driven by a decrease in the number of active earning OPTAVIA Coaches and lower productivity per active earning OPTAVIA Coach, partially offset by a pricing adjustment in the fourth quarter of 2022 and a $9.1 million impact from a timing difference related to changes in the Company’s sales order terms and conditions with its customers in the first quarter. The total number of active earning OPTAVIA Coaches for the three months ended December 31, 2023 decreased to 41,100 from 60,900 for the corresponding period in 2022, a decrease of 32.5%. The average revenue per active earning OPTAVIA Coach decreased 16.1% to $4,648 for the three months ended December 31, 2023 from $5,538 for the three months ended December 31, 2022. Decrease in the revenue per active earning OPTAVIA Coach for the quarter was driven by continued pressure on customer acquisition rates through the fourth quarter.

Current wording

Revenue: Revenue decreased $469.6 million, or 43.8%, to $602.5 million in 2024 from $1.1 billion in 2023. The year-over-year decline in revenue was primarily driven by a decrease in the number of active earning OPTAVIA coaches and lower coach productivity, and a $9.1 million impact from a timing difference related to changes in the Company’s sales order terms and conditions with its customers realized in the first quarter of 2023. The total number of active earning OPTAVIA coaches for the three months ended December 31, 2024 decreased to 27,100 from 41,100 for the corresponding period in 2023, a decrease of 34.1%. The average revenue per active earning OPTAVIA coach decreased 5.5% to $4,391 for the three months ended December 31, 2024 from $4,648 for the three months ended December 31, 2023. The decrease in the revenue per active earning OPTAVIA coach for the quarter was driven by continued pressure on customer acquisition.

Previous wording

Non-GAAP adjusted cost of sales were $296.2 million for 2023, a decrease of $149.8 million, or 33.6%, as compared to $446.0 million for 2022. Non-GAAP adjusted cost of sales excludes expenses in connection with the restructuring of certain external manufacturing agreements of $12.2 million for 2022. Refer to the section titled “Non-GAAP Financial Measures” below for a reconciliation of each of Non-GAAP financial measures to its most comparable GAAP financial measure.

Current wording

Non-GAAP adjusted cost of sales were $155.3 million for 2024, a decrease of $140.9 million, or 47.6%, as compared to $296.2 million for 2023. Non-GAAP adjusted cost of sales excludes expenses in connection with the restructuring of certain external manufacturing agreements. Refer to the section titled “Non-GAAP Financial Measures” below for a reconciliation of each of Non-GAAP financial measures to its most comparable GAAP financial measure.

Previous wording

Gross Profit: In 2023, gross profit decreased $364.6 million, or 32.0%, to $775.9 million from $1.140 billion in 2022. The decrease in gross profit was primarily attributable to lower revenue as well as cost inflation from raw ingredient costs, shipping costs, and labor costs, partially offset by restructuring costs of certain manufacturing agreements in 2022. As a percentage of sales, gross profit increased 110 basis points to 72.4% for 2023 from 71.3% for 2022. The increase in gross margin percentage was primarily due to cost savings from the Company's Fuel for the Future program and restructuring costs of certain manufacturing agreements 2022.

Current wording

Gross Profit: In 2024, gross profit decreased $331.2 million, or 42.7%, to $444.6 million from $775.9 million in 2023. The decrease in gross profit was primarily attributable to lower revenue. As a percentage of sales, gross profit increased 140 basis points to 73.8% for 2024 from 72.4% for 2023.

Previous wording

Selling, General and Administrative: Selling, general and administrative (“SG&A”) expenses were $649.4 million in 2023, a decrease of $306.2 million, or 32.0%, as compared to $955.6 million in 2022, primarily due to decreased Coach compensation on lower volumes and fewer active earning Coaches, progress on several cost reduction and optimization initiatives, and charitable donations in 2022, partially offset by market research and investment costs related to medically supported weight loss activities. As a percentage of sales, SG&A expenses were 60.6% for 2023 as compared to 59.8% for 2022, primarily due to the loss of leverage on fixed costs due to lower sales volumes when compared to 2022 and market research and investment costs related to medically supported weight loss activities, partially offset by progress on several cost reduction and optimization initiatives and charitable donations in 2022. SG&A expenses included research and development costs of $4.6 million and $4.5 million for 2023 and 2022, respectively, in connection with the development of new products and programs and clinical research activities.

Current wording

Selling, General and Administrative: Selling, general and administrative (“SG&A”) expenses were $441.7 million in 2024, a decrease of $207.7 million, or 32.0%, as compared to $649.4 million in 2023, primarily due to a $188.7 million decrease in OPTAVIA coach compensation due to lower sales volumes, a $13.8 million decrease in employee compensation, a $9.7 million decrease in credit card fees, and a $7.1 million decrease in costs for coach-related events. These decreases are partially offset by $22.9 million of customer led acquisition costs and $12.5 million of supply chain optimization costs. As a percentage of sales, SG&A expenses were 73.3% for 2024 as compared to 60.6% for 2023, primarily due to a 330 basis point increase for our company led acquisition efforts, a 330 basis point increase for loss of leverage on employee compensation, a 160 basis point increase due to loss of leverage on fixed costs, and a 200 basis point increase due to supply chain optimization efforts. SG&A expenses included research and development costs of $4.6 million and $4.6 million for 2024 and 2023, respectively, in connection with the development of new products and programs and clinical research activities.

Previous wording

Non-GAAP adjusted SG&A expenses were $641.9 million for 2023, a decrease of $294.7 million, or 31.5%, as compared to $936.6 million for 2022. Non-GAAP adjusted SG&A expenses for 2023 exclude expenses in connection with the Company's IT and supply chain optimization and costs for the Collaboration. Non-GAAP adjusted SG&A expenses for 2022 exclude expenses in connection with donations made to support to Ukrainian relief effort of $19.0 million for 2022. Refer to the section titled “Non-GAAP Financial Measures” below for a reconciliation of each of Non-GAAP financial measures to its most comparable GAAP financial measure.

Current wording

Non-GAAP adjusted SG&A expenses were $424.2 million for 2024, a decrease of $217.7 million, or 33.9%, as compared to $641.9 million for 2023. Non-GAAP adjusted SG&A expenses exclude expenses in connection with the Company's supply chain optimization and costs for the LifeMD Collaboration. Refer to the section titled “Non-GAAP Financial Measures” below for a reconciliation of each of Non-GAAP financial measures to its most comparable GAAP financial measure.

Previous wording

Income from operations: Income from operations in 2023 decreased $58.4 million to $126.4 million from $184.8 million in 2022 primarily as a result of decreased gross profit, partially offset by decreased SG&A expenses. Income from operations as a percentage of sales increased to 11.8% for 2023 as compared to 11.6% for 2022 due to the factors described above in the explanations from gross profit and SG&A expenses.

Current wording

Income from operations: Income from operations in 2024 decreased $123.5 million to $2.9 million from $126.4 million in 2023 primarily as a result of decreased gross profit, partially offset by decreased SG&A expenses. Income from operations as a percentage of sales decreased to 0.5% for 2024 as compared to 11.8% for 2023 due to the factors described above in the explanations for gross profit and SG&A expenses.

Previous wording

Non-GAAP adjusted income from operations in 2023 decreased to $134.0 million from $216.0 million in 2022. Refer to the section titled “Non-GAAP Financial Measures” below for a reconciliation of each of Non-GAAP financial measures to its most comparable GAAP financial measure.

Current wording

Non-GAAP adjusted income from operations in 2024 decreased to $23.0 million from $134.0 million in 2023. Refer to the section titled “Non-GAAP Financial Measures” below for a reconciliation of each of Non-GAAP financial measures to its most comparable GAAP financial measure.

Previous wording

Provision for income taxes: For 2023, the Company recorded $29.4 million in income tax expense, an effective tax rate of 22.8%, as compared to $40.5 million in income tax expense and an effective tax rate of 22.0%, for 2022. The increase in the effective tax rate for 2023 as compared to 2022 was primarily driven by a decrease in the charitable contribution benefit and an increase in the limitation for executive compensation, partially offset by an increase in the research and development benefit and a decrease in state taxes.

Current wording

Provision for income taxes: For 2024, the Company recorded $1.7 million in income tax expense, an effective tax rate of 44.8%, as compared to $29.4 million in income tax expense and an effective tax rate of 22.8%, for 2023. The increase in the effective tax rate for 2024 as compared to 2023 was primarily driven by the 18.3% impact of state taxes and the 23.3% impact of the tax shortfall for stock compensation, partially offset by the 17.9% reduction from the impact of research and development tax credits, all of which were magnified by the near break-even pre-tax income position in the current year.

Previous wording

Non-GAAP adjusted income tax provision was $31.1 million for 2023, an effective tax rate of 22.8%, compared to $51.8 million in 2022, an effective tax rate of 24.1%, primarily due to the decrease in state taxes and the impact of charitable donations. Refer to the section titled “Non-GAAP Financial Measures” below for a reconciliation of each of Non-GAAP financial measures to its most comparable GAAP financial measure.

Current wording

Non-GAAP adjusted income tax provision was $7.7 million for 2024, an effective tax rate of 27.7%, compared to $31.1 million in 2023, an effective tax rate of 22.8%. The increase in the effective tax rate for 2024 as compared to 2023 was primarily driven by the 4.6% impact of state taxes and the 3.1% impact of the tax shortfall for stock compensation, partially offset by a 1.7% reduction from the impact of research and development tax credits and 1.2% from the impact of from the limitation for executive compensation. Refer to the section titled “Non-GAAP Financial Measures” below for a reconciliation of each of Non-GAAP financial measures to its most comparable GAAP financial measure.

Previous wording

Net income: Net income was $99.4 million, or $9.10 per diluted share, in 2023 as compared to $143.6 million, or $12.73 per diluted share, in 2022. The period-over-period changes were driven by the factors described above in the explanations from operations.

Current wording

Net income: Net income was $2.1 million, or $0.19 per diluted share, in 2024 as compared to $99.4 million, or $9.10 per diluted share, in 2023. The period-over-period changes were driven by the factors described above in the explanations from operations.

Previous wording

Non-GAAP adjusted net income was $105.2 million or $9.64 per diluted share for 2023 as compared to $163.5 million or $14.50 per diluted share for 2022. The period-over-period changes were driven by the factors described above in the Non-GAAP explanations from operations. Refer to the section titled “Non-GAAP Financial Measures” below for a reconciliation of each of Non-GAAP financial measures to its most comparable GAAP financial measure.

Current wording

Non-GAAP adjusted net income was $20.2 million or $1.84 per diluted share for 2024 as compared to $105.2 million or $9.64 per diluted share for 2023. The period-over-period changes were driven by the factors described above in the Non-GAAP explanations from operations. Refer to the section titled “Non-GAAP Financial Measures” below for a reconciliation of each of Non-GAAP financial measures to its most comparable GAAP financial measure.

Previous wording

In an effort to provide investors with additional information regarding our results as determined by GAAP, we disclose various non-GAAP financial measures in our quarterly reports, our quarterly earnings press releases and other public disclosures. The following GAAP financial measures have been presented for 2023 on an as-adjusted basis: cost of sales, gross profit, SG&A expenses, income from operations, other income (expense), provision for income taxes, net income and diluted earnings per share. Each of these as-adjusted financial measures for 2023 excludes the impact of certain amounts related to the Company IT and supply chain optimization efforts and collaboration costs to stand up the LifeMD relationship, as further identified below and have not been calculated in accordance with GAAP. A reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure is included below. These non-GAAP financial measures are not intended to replace GAAP financial measures.

Current wording

In an effort to provide investors with additional information regarding our results as determined by GAAP, we disclose various non-GAAP financial measures in this annual report, our quarterly earnings press release, and other public disclosures. The following GAAP financial measures have been presented on an as-adjusted basis: cost of sales, gross profit, SG&A expenses, income from operations, other income, provision for income taxes, net income, and diluted earnings per share. Each of these as-adjusted financial measures excludes the impact of certain amounts related to supply chain optimization and restructuring of external manufacturing agreements, unrealized gains or losses on our investment in LifeMD common stock, and the LifeMD collaboration as further identified below and have not been calculated in accordance with GAAP. A reconciliation of each of these non-GAAP financial measures to its most comparable GAAP financial measure is included below. These non-GAAP financial measures are not intended to replace GAAP financial measures.

Previous wording

The Company had stockholders’ equity of $201.5 million and working capital of $131.7 million at December 31, 2023 compared with $155.0 million and $81.9 million at December 31, 2022. The $46.4 million net increase in stockholders’ equity reflects $99.4 million in net income for 2023 offset by $3.6 million spent on repurchases of common stock and $54.6 million for dividends paid to holders of the Company’s common stock as well as the other equity transactions described in the Consolidated Statements of Changes in Stockholders’ Equity included in our consolidated financial statements included in this report. The Company’s cash, cash equivalents and investment securities increased to $150.0 million at December 31, 2023 from $87.7 million at December 31, 2022. In December 2023, the Company’s board of directors determined to change the Company’s capital allocation priorities and discontinued the Company’s quarterly cash dividend to support investments in technology and future growth. The decision to declare and pay dividends in the future will depend on general business conditions, the effect of such payments on our financial condition and other factors the Company’s board of directors consider relevant.

Current wording

The Company had stockholders’ equity of $210.1 million and working capital of $150.2 million at December 31, 2024 compared with $201.5 million and $131.7 million at December 31, 2023. The $8.6 million net increase in stockholders’ equity reflects $2.1 million in net income for 2024 and $7.4 million for shared-based compensation offset by other equity transactions described in the Consolidated Statements of Changes in Stockholders’ Equity included in our consolidated financial statements included in this report. The Company’s cash, cash equivalents and investment securities increased to $162.3 million at December 31, 2024 from $150.0 million at December 31, 2023. In December 2023, the Company’s board of directors determined to change the Company’s capital allocation priorities and discontinued the Company’s quarterly cash dividend to support investments in technology and future growth. The decision to declare and pay dividends in the future will depend on general business conditions, the effect of such payments on our financial condition and other factors the Company’s board of directors consider relevant.

Previous wording

Net cash provided by operating activities decreased $46.9 million to $147.7 million for 2023 from $194.6 million for 2022 primarily as a result of a $44.2 million decrease in net income and adjustments to reconcile net income to cash provided by operating activities.

Current wording

Net cash provided by operating activities decreased $123.2 million to $24.5 million for 2024 from $147.7 million for 2023 primarily as a result of a $97.3 million decrease in net income and adjustments to reconcile net income to cash provided by operating activities.

Previous wording

Net cash used in investing activities was $61.0 million for 2023 as compared to $11.4 million for 2022. This year-over-year change resulted primarily from a $54.6 million increase in cash used in the purchase of investment securities for 2023 as compared to 2022. Cash used in capital expenditures for 2023 expanded our technology and supply chain capabilities to support our planned growth.

Current wording

Net cash used in investing activities was $26.5 million for 2024 as compared to $61.0 million for 2023. This year-over-year change resulted primarily from a $22.3 million increase in proceeds from sale and maturities of investment securities and a $13.2 million decrease in cash used in the purchase of investment securities for 2024 as compared to 2023.

Previous wording

Net cash used in financing activities decreased $119.8 million to $79.8 million for 2023 from $199.6 million for 2022. This decrease was primarily due to a $122.8 million decrease in stock repurchases, partially offset by a $1.8 million increase in net shares repurchased for employee taxes and a $1.4 million increase in cash dividends paid to stockholders.

Current wording

Net cash used in financing activities decreased $78.3 million to $1.5 million for 2024 from $79.8 million for 2023. This decrease was primarily due to a $72.3 million decrease in cash dividends paid to stockholders, a $3.6 million decrease in stock repurchases, and a $2.5 million decrease in net shares repurchased for employee taxes for 2024 as compared to 2023.

Previous wording

On April 13, 2021, the Company and certain of its subsidiaries (collectively, the “Guarantors”) entered into a credit agreement among the Company, the Guarantors, the lenders party thereto and Citibank, N.A., in its capacity as administrative agent. On May 31, 2022, the Credit Agreement was amended to increase the borrowing capacity and convert the interest rate to be based on SOFR, from LIBOR (the “Amended Credit Agreement”). The Amended Credit Agreement provides for a $225.0 million senior secured revolving credit facility with a $20.0 million letter of credit sublimit. The Amended Credit Agreement also provides for an uncommitted incremental facility that permits the Company, subject to certain conditions, to increase the senior secured revolving credit facility by up to $100.0 million. The Amended Credit Agreement contains affirmative and negative covenants customarily applicable to credit facilities. As of December 31, 2023, the Company had no borrowings under the credit facility and was in compliance with all of its debt covenants.

Current wording

On April 13, 2021, the Company and certain of its subsidiaries (collectively, the “Guarantors”) entered into a credit agreement among the Company, the Guarantors, the lenders party thereto and Citibank, N.A., in its capacity as administrative agent. On May 31, 2022, the Credit Agreement was amended to increase the borrowing capacity and convert the interest rate to be based on SOFR, from LIBOR (the “Amended Credit Agreement”). The Amended Credit Agreement provided for a $225.0 million senior secured revolving credit facility with a $20.0 million letter of credit sublimit. On October 30, 2024, the Company terminated its Amended Credit Agreement with Citibank, N.A. The Company had no borrowings under the Amended Credit Agreement, inclusive of the credit facility and letter of credit sublimit as of the termination date.

Previous wording

(b)The Company has unconditional purchase obligations primarily for inventories, outsourced information technology and Coach events.

Current wording

(b)The Company has unconditional purchase obligations primarily for inventories and outsourced information technology.