Medifast, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless otherwise noted. Medifast operates the OPTA VIA health and wellness business, selling meal-replacement products primarily through a network of independent coaches. Product sales represented about 98% of revenue. Unless stated otherwise, dollar amounts below are in millions.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $417.6 | $340.7 | +22.6% |
| Gross profit / margin | $302.3 / 72.4% | $248.5 / 73.0% | Profit +21.6%; margin -0.6 percentage points |
| SG&A / revenue | $247.2 / 59.2% | $195.7 / 57.5% | Expense +26.3% |
| Operating income / margin | $55.1 / 13.2% | $52.8 / 15.5% | Income +4.3%; margin -2.3 percentage points |
| Net income | $41.8 | $41.1 | +1.7% |
| Diluted EPS | $3.59 | $3.46 | +3.8% |
| Operating cash flow | $43.7 | $65.3 | Down $21.6 |
Cash and cash equivalents were $118.0 at March 31, 2022, and cash plus investment securities totaled $122.1. Working capital was $143.2. The company had no revolver borrowings; its senior secured revolving facility provides up to $125.0, with a potential additional $100.0 subject to conditions. Total liabilities were $205.4, including lease obligations; the filing reports no outstanding credit-facility debt. The company reported compliance with its debt covenants.
Material changes and management commentary
- Revenue growth was attributed to more active earning OPTA VIA Coaches and higher productivity per coach. Active earning coaches increased 21.7% to 63,900; average quarterly revenue per active earning coach rose to $6,536 from $6,454.
- Gross margin fell amid customer-acquisition activity and higher ingredient, freight and labor costs. Increased use of co-manufacturers also raised product costs as demand accelerated.
- SG&A rose faster than revenue, reflecting higher coach compensation, employee costs, investments in technology and distribution infrastructure, and credit-card fees. Coach compensation increased 25.2% to $183.0.
- Operating cash flow declined, primarily reflecting changes in accounts payable and accrued expenses and other working-capital items. Cash increased by $13.8 during the quarter after operating, investing and financing activity.
- Financing cash outflows included $16.7 of dividends paid and $10.0 of stock repurchases. A $1.64-per-share quarterly dividend was declared in March for payment in Q2; dividends declared during the quarter totaled $19.1.
Outlook, risks and other matters
The filing provides no specific numerical revenue or earnings guidance. Management described its coach-based model, OPTA VIA community and international expansion as elements of its growth strategy, and said it expected the model to support future growth. It cautioned that forward-looking expectations are subject to risks and uncertainties.
- Inflation in raw materials, freight and labor, reliance on co-manufacturers, supply-chain disruption and changes in customer demand could pressure costs or operations.
- COVID-19 and potential variants could affect the company, suppliers or vendors; management said it had not experienced meaningful worldwide supply-chain disruption to date.
- The company intends to continue its dividend program but gave no assurance that dividends will continue. Repurchase timing and amounts may vary with market conditions and other factors.
- Ordinary-course litigation was not believed by management to have a material adverse effect, but outcomes cannot be predicted with certainty. The filing reported no material changes to the risk factors in the 2021 Form 10-K.
- Management concluded disclosure controls were effective as of March 31, 2022, and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether coach growth and productivity can sustain revenue growth, and whether the active-coach trend continues.
- Whether inflation, shipping, labor and customer-acquisition costs continue to reduce gross and operating margins.
- Whether working-capital movements and lower operating cash flow persist, particularly as inventories and business investment change.
- Whether dividends and share repurchases remain supportable alongside investment needs and covenant requirements.
- Whether supply-chain, co-manufacturer, COVID-19 and ordinary-course litigation risks develop materially.