MEDIFAST INC

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of Medifast, Inc. and its wholly-owned subsidiaries (“Medifast,” 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 notes 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, 2025 has been derived from the 2025 audited consolidated financial statements at that date included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (“2025 Form 10-K”).

The results of operations for the three and nine months ended September 30, 2026 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2026. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, which are included in the 2025 Form 10-K.

Presentation of Financial Statements - The unaudited condensed consolidated financial statements included herein include the accounts of the Company. 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.

The Company is, from time to time, subject to a variety of litigation and similar proceedings that 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.

Advertising Expense -The costs of advertising efforts are expensed as incurred. They are recorded in selling, general, and administrative expense in the accompanying Condensed Consolidated Statements of Operations (Unaudited). Advertising expense, excluding agency fees, for the three months ended September 30, 2026 and 2025 amounted to $0.1 million and $0.7 million, respectively. Advertising expense, excluding agency fees, for the nine months ended September 30, 2026 and 2025 amounted to $0.5 million and $6.8 million, respectively.

Assets Held for Sale - During the year ended December 31, 2024, the Company completed a supply chain optimization initiative with the goal of aligning the Company’s distribution footprint with current demand levels. On June 28, 2024, the Company closed its Maryland Distribution Center located in Ridgely, Maryland. The Company listed the Maryland Distribution Center building and land for sale, and categorized those assets as held for sale. The net book value of the building and land was $1.4 million. The assets were recorded within prepaid expenses and other current assets on the consolidated balance sheets included in the 2025 Form 10-K. The Company closed on the sale of the land and building in February 2026, receiving $3.6 million in proceeds, net of costs to sell, and recognizing a gain on sale of $2.2 million presented within selling, general, and administrative on the Condensed Consolidated Statements of Operations (Unaudited).

Provision for Income Taxes - The Company computes its income tax provision for interim periods in accordance with Accounting Standards Codification 740. For interim periods during the year ended December 31, 2025, the Company calculated an annual effective tax rate and applied that rate to year-to-date ordinary income or loss to calculate its quarterly income tax provision (“AETR Approach”). Due to the existence of a full valuation allowance against its deferred tax assets recorded as of December 31, 2025, the Company did not apply the AETR Approach for the period ending September 30, 2026 or for the quarters within that period. Instead, the Company calculated income tax expense for the interim period based on actual results for the quarter. As a result, the Company’s income tax provision for the three months ending September 30, 2026, reflects discrete items, primarily a $0.4 million change in unrecognized tax benefits due to finalization of a state tax examination, partially offset by $0.1 million of state income taxes. The Company calculates income tax expense for interim periods based on actual results for the quarter. Income tax benefit for the three months ended September 30, 2026 was $0.3 million, an effective tax rate of 1.8%, as compared to $0.4 million for the three months ended September 30, 2025, an effective tax rate of 14.9%. The decrease in the effective tax rate was primarily driven by the increased loss incurred during the three months ended September 30, 2026 and the valuation allowance on the net deferred tax assets. Income tax benefit for the nine months ended September 30, 2026 was less than $0.1 million, an effective tax rate of 0.2%, as compared to income tax expense of $1.3 million for the nine months ended September 30, 2025, an effective tax rate of 174.4%. The decrease in the effective tax rate was primarily driven by the increased loss incurred during the nine months ended September 30, 2026 and the valuation allowance on the net deferred tax assets, as well as various items in 2025 that were magnified by the near break-even pre-tax position. The Company will continue to assess the realizability of its deferred tax assets and the need for a valuation allowance on a quarterly basis. Should the valuation allowance be released in whole or in part, the Company expects to return to applying an estimated annual effective tax rate in future interim periods.

Accounting Pronouncements - Adopted in 2026

The Company has not adopted any new accounting standards during the nine months ended September 30, 2026.

Recently Issued Accounting Pronouncements - Pending Adoption

In November 2024, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2024-03—Disaggregation of Income Statement Expenses (“ASU 2024-03”) to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2024-03 on its consolidated financial statements.

In September 2025, the FASB issued Accounting Standards Update 2025-06— Internal-Use Software (Subtopic 250-40): Targeted Improvements to the Accounting for Internal-Use Software (“ASU 2025-06”) to increase the operability of the recognition guidance considering different methods of software development. ASU 2025-06 is effective for public business entities for annual periods beginning after December 15, 2027. The amendments can be adopted on a prospective, modified, or retrospective basis. Entities are permitted to early adopt the standard. The Company did not early adopt prior to or during the current reporting period. The Company is currently evaluating the impact of adopting the ASU 2025-06 on its consolidated financial statements.

2. INVENTORIES, NET

Inventories consist principally of raw materials, packaging, non-food finished goods and packaged meal replacements, protein powder, and supplements held in the Company’s warehouses and outsourced distribution centers. Inventories are 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 inventories for unsalable or obsolete inventories.

Inventories consisted of the following (in thousands):

3. EARNINGS PER SHARE

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.

The following table sets forth the computation of basic and diluted EPS (in thousands, except per share data):

The Company was in a loss position for the three and nine months ended September 30, 2026, and as such, all equity awards were antidilutive for those periods. If the Company were not in a loss position, the calculation of diluted EPS would have included the effect of dilutive common stock equivalents of 380 thousand and 282 thousand, and would have excluded 70 thousand and 105 thousand antidilutive restricted stock awards for three and nine months ended September 30, 2026, respectively. For the three and nine months ended September 30, 2025, if the Company were not in a loss position, the calculation of diluted EPS would have included the effect of dilutive common stock equivalents of 176 thousand and 102 thousand, and would have excluded 308 thousand and 329 thousand antidilutive restricted stock awards, respectively. EPS is computed independently for each of the periods presented above, and accordingly, the sum of the quarterly earnings per share may not equal the year-to-date total computed.

4. SHARE-BASED COMPENSATION

Stock Options

The Company has granted non-qualified and incentive stock options to employees under the Amended and Restated 2012 Share Incentive Plan (the “2012 Plan”). The fair values of these options were estimated on the grant dates using the Black-Scholes option pricing model, which required 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 September 30, 2026, generally vested over a period of 3 years and expire 10 years from the date of grant. The exercise price of these options is $66.68. Due to the Company’s lack of option exercise history on the date of grant, the expected term was 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 was based on the U.S. Treasury yield curve in effect on the date of grant that most closely corresponded to the expected term of the option. The expected volatility was based on the historical volatility of the Company’s common stock over the period of time equivalent to the expected term for each award. The dividend yield was computed as the annualized dividend rate at the grant date divided by the strike price of the stock option. For the nine months ended September 30, 2026 and 2025, the Company didnot grant stock options.

The following table is a summary of our stock option activity (in thousands, except per share data):

As of September 30, 2026, the weighted-average remaining contractual life for both the outstanding stock options and exercisable stock options was 1.4 years with an aggregate intrinsic value of $0. There wasno unrecognized compensation on the awards for the periods ended September 30, 2026 and 2025. There wereno stock options exercised for the nine months ended September 30, 2026 and 2025. For the nine months ended September 30, 2026 and 2025, the Company receivedno cash proceeds from the exercise of stock options.

Restricted Stock

The Company has granted restricted stock under the 2012 Plan to employees and non-employee directors generally with vesting terms up to 3 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 (in thousands, except per share data):

The Company withheld approximately 77 thousand shares and 27 thousand shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the vesting of shares of restricted stock for the nine months ended September 30, 2026 and 2025, respectively. The total fair value of restricted stock awards vested during the nine months ended September 30, 2026 and 2025 was $2.6 million and $1.1 million, respectively.

Market and Performance-based Share Awards

The Company has granted market and performance-based share awards in 2023, and 2025, and performance-based share awards in 2024 and 2026 under the 2012 Plan to certain key executives who were granted deferred shares and may earn between 0% and 210% of the target number depending upon both the Company’s total stockholder return (“TSR”), for those with market conditions, and the Company’s performance against predetermined performance goals over athree-year performance period after the date of grant. Market and performance-based share awards that are tied to the Company’s TSR are valued using the Monte Carlo method and are recognized ratably as expense over the award’s performance period. The fair value of the performance-based share awards is equal to the market price of the Company’s common stock on the date of grant adjusted by the expected level of achievement over the performance period. Expense for performance-based share awards is amortized ratably over the performance period. In the event that management determines that the Company will not reach the lower threshold of the predetermined performance goals established in the grant agreement, any previously recognized expense is reversed in the period in which such a determination is made.

The total fair value of market and performance-based share awards issued during the nine months ended September 30, 2026 was $0.2 million. The Company withheld approximately 8 thousand shares for the nine months ended September 30, 2026 to cover minimum tax liability withholding obligations upon the issuance of shares of market and performance-based share awards. No market and performance-based share awards were issued during the nine months ended September 30, 2025, as a result of the market and performance-based share awards granted in March of 2022 not reaching the lower threshold of the predetermined performance goals.

Share-based compensation expense is recorded in selling, general, and administrative expense in the accompanying Condensed Consolidated Statements of Operations (Unaudited). The total expense during the three months ended September 30, 2026 and 2025 was as follows (in thousands):

The total expense during the nine months ended September 30, 2026 and 2025 was as follows (in thousands):

The total income tax benefit recognized in the accompanying Condensed Consolidated Statements of Operations (Unaudited) for restricted stock awards was $0.6 million and $0.2 million for the three months ended September 30, 2026 and 2025, respectively, and income tax expense of $0.1 million and of $0.1 million for the nine months ended September 30, 2026 and 2025, respectively.

There was $6.3 million of total unrecognized compensation expense related to restricted stock awards as of September 30, 2026, which is expected to be recognized over a weighted-average period of 1.7 years. There was $3.3 million of unrecognized compensation expense related to the 275 thousand market and performance-based shares and 208 thousand performance-based shares presented in the table above as of September 30, 2026, which is expected to be recognized over a weighted-average period of 1.6 years.

5. LEASES

Operating 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 for the nine months ended September 30, 2026 and 2025.

Our leases relating to office and warehouse space have lease terms of 87 months to 125 months. Our leases relating to equipment have lease terms of 36 months, with certain of them having automatic renewal clauses.

The Company’s lease agreements also contain non-lease components, 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 are recognized as expenses when they are incurred.

The operating lease expense was $1.3 million and $1.2 million for the three months ended September 30, 2026 and 2025, and $4.1 million and $3.7 million for the nine months ended September 30, 2026 and 2025.

Supplemental cash flow information related to the Company’s operating leases was as follows (in thousands):

As of September 30, 2026, the weighted average remaining lease term was 5 years, 11 months and the weighted average discount rate was 5.30%.

The following table presents the maturity of the Company’s operating lease liabilities as of September 30, 2026 (in thousands):

During the first quarter of 2026, the Company’s lease commenced for a new headquarters office space in 1501 South Clinton Street, Baltimore, Maryland 21224, with a lease term of 8 years and 7 months. The Company recorded an initial right-of-use asset and corresponding lease liability of $6.8 million during the period ended March 31, 2026. The future minimum lease commitments related to this lease are included in the table above. The Company did not renew its office space lease in 100 International Drive, Baltimore, Maryland 21202 which expired in February 2026.

During the second quarter of 2026, the Company executed an amendment to extend the lease and reduce the square footage for our distribution facility located at 2000 Rock Glenn Boulevard, Havre de Grace, Maryland 21078 with a term of 5 years (the “HdG Lease”). The amendment to the HdG Lease commenced in June 2026, at which time the Company remeasured its right-of-use asset and corresponding lease liability by $12.5 million and $12.7 million, respectively. The future minimum lease commitments related to the HdG Lease are included in the table above.

During the third quarter of 2026, the Company terminated the leases for properties located at 4251 Northern Cross Boulevard, Haltom City, Texas 76117 (the “FTW Lease”) and 11515 Cronridge Drive, Owings Mills, Maryland 21117 (the “OMIC Lease”) before their contractual expiration dates. In connection with these terminations, the Company derecognized right-of-use assets totaling $3.6 million and corresponding lease liabilities totaling $5.8 million during the three months ended September 30, 2026. No future minimum lease commitments related to the FTW Lease or the OMIC Lease are included in the table above. See Footnote 9 “Restructuring and related activities” for further information.

6. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table sets forth the components of accumulated other comprehensive income, net of tax where applicable (in thousands):

7. INVESTMENTS

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.

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 present the Company’s cash and financial assets that are measured at fair value on a recurring basis for each of the hierarchy levels (in thousands):

The Company had $12 thousand and $0 thousand realized gains for the three months ended September 30, 2026 and 2025, respectively. The Company had $27 thousand and $3.3 million realized gains for the nine months ended September 30, 2026 and 2025, respectively.

During the fourth quarter of 2023, the Company entered into an agreement with LifeMD, Inc, (Nasdaq: LFMD), a leading provider of virtual primary care, to purchase shares of common stock of LifeMD for $10 million. The 180-day lock-up period expired on June 8, 2024, and the registration process was completed, effective July 18, 2024. During the second quarter of 2025, the Company sold all of its holdings in LifeMD common stock. The net gains recognized during the nine months ended September 30, 2025 were $3.2 million. Prior to the sale, the fair value of the investment was recorded within an equity securities caption in the table above. The net proceeds received from the sale were recorded within cash and cash equivalents of the Condensed Consolidated Balance Sheets.

8. SEGMENT REPORTING

The Company hasone reportable segment: Trilivy. The segment derives revenues from clients through the sale of products which are shipped directly to clients. Our independent coaches help clients adopt healthy habits and learn the benefits of our products. The accounting policies of the Company's single segment are the same as those described in the Company's Significant Accounting Policies.

The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer. The CODM assesses performance for the segment and decides how to allocate resources based on net income (loss) that also is reported on the accompanying Unaudited Condensed Consolidated Statements of Operations as net income (loss). The measure of segment assets is reported on the Consolidated Balance Sheets as total assets. The CODM uses net income (loss) to evaluate the income (loss) generated from segment assets in deciding whether to reinvest profits into the segment or into other parts of the entity, such as for share buybacks. Net income (loss) is used to monitor budget versus actual results. The CODM also uses net income (loss) in competitive analysis by benchmarking to the Company’s competitors. The competitive analysis along with the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation. The Company does not have significant intra-entity sales or transfers.

The Trilivy segment recognizes revenue when control of the products is transferred to the client. The segment pays commissions on the sale of products to coaches. The Company derives all of its revenue from sales within the United States and manages the business activities on a consolidated basis.

The following table presents the Trilivy segment's revenue, significant segment expenses, and segment net loss for the three months ended September 30, 2026 and 2025, respectively:

(1) Other income included within Segment net loss includes interest income.

(2) Restructuring expenses (income) as described in Footnote 9 are included within the following captions: $1.6 million Cost of sales, $7.2 million Distribution, $3.7 million Technology, $2.9 million Administrative and corporate support functions, and $(0.1) million Equity compensation.

Segment depreciation expense of property, plant, and equipment for the three months ended September 30, 2026 and 2025 was$3.7 million and$2.5 million, respectively. Segment additions of property, plant, and equipment for the three months ended September 30, 2026, and 2025 were$0.4 million and$1.4 million, respectively.

The following table presents the Trilivy segment's revenue, significant segment expenses, and segment net income for the nine months ended September 30, 2026 and 2025, respectively:

(1) Other income included within Segment net loss includes interest income and gains and losses on LifeMD common stock.

(2) Restructuring expenses (income) as described in Footnote 9 are included within the following captions: $1.6 million Cost of sales, $7.2 million Distribution, $3.7 million Technology, $2.9 million Administrative and corporate support functions, and $(0.1) million Equity compensation.

Segment depreciation expense of property, plant, and equipment for the nine months ended September 30, 2026 and 2025 was$8.9 million and$7.9 million, respectively. Segment additions of property, plant, and equipment for the nine months ended September 30, 2026 and 2025 were$2.5 million and$4.3 million, respectively.

9. RESTRUCTURING AND RELATED ACTIVITIES

During the second quarter of 2026, the Company launched a cost savings project (“Catalyst”) with the majority of its execution taking place this quarter. One of the key initiatives under Catalyst was a restructuring action (“Catalyst Restructuring”) intended to simplify the business and reduce costs by reducing the size and reassessing the geographic locations of the Company’s distribution network, streamlining the Company’s internal use software, and aligning organization resources with current revenue levels. The Catalyst Restructuring included facility closures, sunsetting of internal use software, workforce reductions, and other related restructuring activities. The Catalyst Restructuring was completed as of September 30, 2026, and we do not anticipate material Catalyst Restructuring related charges in future periods. Broader non-restructuring Catalyst initiatives, such as AI-related efficiencies, will continue. The Company hadno significant restructuring charges during the three and nine months ended September 30, 2025.

Restructuring and Related Charges

The following table summarizes restructuring and related charges recognized during the three and nine months ended September 30, 2026 (in thousands):

The Company recorded restructuring and related charges of $15.4 million during three and nine months ended September 30, 2026, consisting primarily of:

Loss on disposal of fixed asset charges of $8.9 million, related to property, plant and equipment, other long-lived assets, and right-of-use asset impairments net of the relief of lease liabilities associated with the closure of our distribution center in Fort Worth, Texas, our office space in Lehi, Utah, and our product innovation center in Owings Mills, Maryland. These charges also include internal-use software costs for our coach and client mobile applications that were sunset as part of the Catalyst Restructuring. These charges are net of any salvage value.

Fixed asset abandonment charges of $1.9 million, related to equipment abandoned in connection with reducing the leased footprint of our Havre de Grace, Maryland distribution center.

Stock compensation expense reversals of $0.1 million related to stock-based compensation expense previously recognized for employees who were separated under the Catalyst Restructuring.

Facility closure and other exit costs of $1.2 million, related to lease termination costs, real estate broker fees, decommissioning, and site restoration costs. The Company’s liability for facility closure and other exit costs was $0.8 million as of September 30, 2026, included within the accounts payable and accrued expenses caption on the Condensed Consolidated Balance Sheets.

Employee termination benefits of $1.0 million, related to severance, continuation of benefits, and other employee-related costs. The Company’s liability for employee termination benefits was $0.7 million as of September 30, 2026, included within the accounts payable and accrued expenses caption on the Condensed Consolidated Balance Sheets.

Other restructuring-related costs of $2.4 million, primarily consisting of cost to disassemble and move equipment at our distribution center in Havre de Grace, Maryland as a result of reducing our lease footprint at the location, costs to move inventory from our exited distribution center in Fort Worth, Texas to our distribution center in Havre de Grace, Maryland, warehouse management system license costs associated with our exited distribution center in Fort Worth, Texas, and contract termination costs. The Company’s liability for other restructuring-related costs was $2.4 million as of September 30, 2026, included within the accounts payable and accrued expenses caption on the Condensed Consolidated Balance Sheets.

Restructuring and related charges recognized during the three and nine months ended September 30, 2026, were recorded in the Company’s Condensed Consolidated Statements of Operations as follows:

Cost of sales is comprised of loss on disposal of certain fixed assets, costs to move inventory from our exited distribution center in Fort Worth, Texas to our distribution center in Havre de Grace, Maryland, and contract termination costs. These costs are consistent with historical transactions classified within cost of sales.