What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-18 compared with 2024-02-20 · 49 added, 56 removed, 138 unchanged (43% of the section changed)

12 unchanged sentences

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.

Revenue is recognized when control of the promised products is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those products.

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The Company accounts for sales rewards that provide the customer with a material right as a separate performance obligation of the transactions, and therefore allocates consideration between the initial sale of products and the customer reward program and incentive offering.

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.

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.

We expense OPTA VIA 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.

These costs are recorded in selling, general and administrative expense in our Consolidated Statements of Operations.

Long-lived Asset Impairment:

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the

If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.

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Our policy is to recognize interest and penalties accrued on uncertain tax positions as part of income tax expense.

Medifast is the health and wellness company known for its habit-based and coach-guided lifestyle solution OPTA VIA, which provides people with a simple, yet comprehensive approach to help them achieve lasting optimal health and wellbeing.

OPTA VIA'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, OPTA VIA 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.

Medifast is the 40+ year old health and wellness company known for its habit-based and coach-guided lifestyle solution OPTA VIA which provides people with a simple, yet comprehensive approach to address obesity and support a healthy life.

OPTA VIA 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.

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The number of active earning OPTA VIA 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 OPTA VIA coach was $4,391 for the quarter ended December 31, 2024.

Our OPTA VIA business unit accounted for approximately 100%, 100%, and 99.9% of our revenues in 2023, 2022 and 2021, respectively.

Our OPTA VIA 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, OPTA VIA, since 2018.

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CONSOLIDATED RESULTS OF OPERATIONS - 2024 COMPARED TO 2023

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

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

2024 2023 $ Change % Change

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Income from operations 2,878 126,402 (123,524) (97.7)%

Other income (expense)

Interest income (expense) 2,490 (701) 3,191 455.2 %

Other (expense) income (95) (46) (49) 106.5%

Interest income

4,804 2,490 2,314 92.9 %

Other expense (3,895) (95) (3,800) (4,000.0)%

909 2,395 (1,486) 62.0 %

Income before provision for income taxes 3,787 128,797 (125,010) (97.1)%

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Income from Operations 0.5% 11.8%

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 OPTA VIA Coaches and lower productivity per active earning OPTA VIA 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.

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 OPTA VIA 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 OPTA VIA 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 OPTA VIA 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.

Decrease in the revenue per active earning OPTA VIA Coach for the quarter was driven by continued pressure on customer acquisition rates through the fourth quarter.

The decrease in the revenue per active earning OPTA VIA coach for the quarter was driven by continued pressure on customer acquisition.

Costs of Sales:

Cost of sales decreased $138.4 million, or 46.7%, to $157.8 million in 2024 from $296.2 million in 2023.

This decrease in cost of sales was primarily driven by decreased volumes and the restructuring of certain external manufacturing agreements in 2022, partially offset by higher product costs resulting from inflationary pressures on raw ingredient costs, shipping costs, and labor costs.

The decrease in cost of sales was primarily driven by an approximately $123.9 million decrease due to lower sales volumes, $5.3 million decrease in inventory donations, and $4.7 million of efficiencies in inventory management.

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 of $12.2 million for 2022.

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.

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.

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.

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.

Non-GAAP adjusted gross profit was $775.9 million for 2023, a decrease of $376.8 million, or 32.7%, as compared to $1.153 billion for 2022.

Non-GAAP adjusted gross profit was $447.2 million for 2024, a decrease of $328.6 million, or 42.4%, as compared to $775.9 million for 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.

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.

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 OPTA VIA 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.

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 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.

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.

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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 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.

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.

Non-GAAP adjusted income from operations in 2024 decreased to $23.0 million from $134.0 million in 2023.

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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 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.

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.

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.

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.

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Non-GAAP Financial Measures

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.

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.

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Year Ended December 31, 2024

GAAP IT and Supply Chain Optimization

LifeMD Collaboration Costs (2)

GAAP Supply Chain Optimization and Restructuring of External Manufacturing Agreements

Unrealized Loss on Investment in LifeMD Common Stock LifeMD Collaboration Costs

Cost of sales $ 157,840 $ (2,579) $ — $ — $ 155,261

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Year Ended December 31, 2023

GAAP Donation

Adjustments Restructuring of External Manufacturing Agreements Non-GAAP

GAAP IT and Supply Chain Optimization

LifeMD Collaboration Costs

Cost of sales $ 296,204 $ — $ — $ 296,204

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Income from operations 126,402 2,555 5,000 133,957

Other expense (747) — — (747)

2,395 — — 2,395

Provision for income taxes 29,382 583 1,141 31,106

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(1) The weighted-average diluted shares outstanding used in the calculation of these non-GAAP financial measures are the same as the weighted-average shares outstanding used in the calculation of the reported per share amounts.

(2) We expect the remaining $5.0 million of LifeMD Collaboration Costs to be recorded in 2024.

Liquidity and Capital Resources

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 $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 $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.

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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 $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.

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.

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 $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.

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.

The Company is currently investing in new growth initiatives which have the potential to impact liquidity in future periods.

The Company’s current growth initiatives, which are primarily comprised of Company-led marketing activities, new product development and the Company’s Medically Supported Weight Loss collaboration with LifeMD, do not require any material contractual commitments or capital expenditures in future periods.

Since the future costs of these endeavors are variable in nature and will be scaled at the discretion of management, we do not believe there is any significant impact on our liquidity or capital resources

In pursuing its business strategy, the Company may require additional cash for operating and investing activities.

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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.

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.

Contractual Obligations and Commercial Commitments

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(a) The Company has operating leases in place for leased corporate offices, warehouses, and certain equipment.

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

During 2023, the Company's business experienced a certain amount of inflation impact on raw ingredient, freight and supply chain labor.

The Company previously increased sales prices for most of its products in November 2022 by an average of approximately 4.5%.

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

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis