Medifast, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Medifast operates the OPTA VIA health and wellness business, selling products primarily through independent coaches. Financial figures below are in U.S. dollars; amounts are shown in millions unless noted.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $390.4 | $413.4 | $1,261.3 | $1,148.3 |
| Gross profit / margin | $282.8 / 72.5% | $307.1 / 74.3% | $906.8 / 71.9% | $849.3 / 74.0% |
| Operating income / margin | $48.2 / 12.3% | $55.2 / 13.3% | $152.2 / 12.1% | $169.4 / 14.8% |
| Net income | $36.2 | $42.0 | $117.1 | $130.0 |
| Diluted EPS | $3.27 | $3.56 | $10.30 | $10.98 |
| Operating cash flow | Not separately provided for quarter | $142.8 | $102.0 |
Q3 revenue declined 5.6% year over year, while nine-month revenue rose 9.8%. Q3 average revenue per active earning coach fell to $5,897 from $6,773; active earning coaches increased 8.5% to 66,200. Management attributed lower coach productivity to fewer customers supported per coach. Product sales generated approximately 98% of revenue in both periods.
Gross margin contracted in both comparison periods. Management cited higher ingredient, shipping and labor costs; the nine-month margin was also affected by a customer acquisition program conducted from late March to early May. Nine-month SG&A rose 11.0%, with higher coach compensation, Ukraine relief donations, technology and distribution investment, and credit card fees among the drivers. Q3 SG&A decreased 6.8%, mainly due to lower coach compensation.
Liquidity, debt and capital allocation
- At September 30, cash and cash equivalents were $69.7 million, versus $104.2 million at December 31, 2021; working capital was $75.3 million, versus $137.0 million. Cash, cash equivalents and investment securities were $69.7 million, down from $109.5 million.
- Operating cash flow was $142.8 million for the first nine months, supported in part by a $34.8 million inventory reduction. Investing cash outflow was $2.4 million; financing cash outflow was $175.3 million.
- No revolving-credit borrowings were outstanding at September 30, 2022. The amended senior secured revolver provides $225 million of capacity, with a possible additional $100 million subject to conditions, and matures in April 2026. The company reported compliance with its covenants.
- Nine-month cash dividends paid were $53.7 million and stock repurchases were $120.0 million, including the $100 million accelerated share repurchase program. A quarterly dividend of $1.64 per share was declared for payment in November; management said it intends to continue dividends but gave no assurance.
Outlook, risks and notable items
The filing provides no numerical revenue or earnings guidance. Management said it expects its model to support growth over time but noted that macroeconomic uncertainty makes performance difficult to estimate. Risks discussed include inflation and commodity costs, consumer spending pressure, labor-market constraints, supply-chain conditions, the continuing effects of COVID-19, and uncertainty from the war in Ukraine. The company reported no material business impact from the war to date and no meaningful pandemic-related supply-chain disruption.
Ukraine relief inventory donations increased SG&A by $1.1 million in Q3 and $10.5 million year to date. Management presented non-GAAP results excluding these donations; for nine months, adjusted net income was $122.8 million and adjusted diluted EPS was $10.81, compared with GAAP net income of $117.1 million and diluted EPS of $10.30. These non-GAAP measures are supplemental, not substitutes for GAAP results.
Ordinary-course legal proceedings were not expected by management to have a material adverse effect, although outcomes cannot be predicted. The company reported no material changes to previously disclosed risk factors, and management concluded disclosure controls were effective.
Key facts for investors to verify
- Whether coach productivity and customer counts stabilize, given Q3 revenue contraction despite growth in the coach base.
- Whether cost inflation and customer-acquisition activity continue to pressure gross and operating margins.
- The sustainability of cash generation and the dividend and repurchase pace relative to cash balances and working capital.
- The size and treatment of Ukraine-related donations, including the distinction between GAAP and adjusted results.