Medifast Reports Q3 Results – Stock Gets Crushed

Nov. 7, 2018 --

3rd Quarter 2018 Highlights:

  • Revenue of $139.2 million, an increase of 80.3% year-over-year
  • Active earning Coaches of 22,600, an increase of 59.2% year-over-year
  • Net income of $13.8 million, an increase of 106.1% year-over-year
  • Earnings per diluted share ("EPS") of $1.14, an increase of 107.3% year-over-year

Dan Chard, Medifast's CEO, said: ..."We are very pleased with our record third quarter revenue and profitability which reflects an accelerated rate of growth in our total active earnings OPTAVIA coaches and coach productivity. "We continued to successfully align our corporate and field leader activities behind a repeatable business rhythm focused on our long-term purpose and mission to offer the world lifelong transformation, one healthy habit at a time.  We believe we are well positioned to deliver long-term sustainable growth and value for our shareholders."

Third Quarter 2018 Results

For the third quarter of 2018, revenue increased 80.3% to $139.2 million from revenue of $77.2 million for the third quarter last year. OPTAVIA-branded products represented 70% of consumable units sold for the third quarter of 2018 compared to 43% for the third quarter of last year. The total number of active earning OPTAVIA Coaches for the third quarter of 2018 increased to 22,600, compared to 14,200 for the third quarter of 2017. The average revenue per active earning Coach for the third quarter of 2018 increased 23.2% to $5,781 compared to $4,693 for the third quarter last year.

Gross profit for the third quarter of 2018 increased to $107.2 million from $58.2 million for the third quarter of 2017. The company's gross profit as a percentage of revenue increased 160 basis points to 77.0% from 75.4% for the third quarter last year.

Cash, cash equivalents, and investment securities increased $4.4 million to $103.2 million as of September 30, 2018 compared to $98.8 million at December 31, 2017.

The company expects fourth quarter revenue to be in the range of $137.3 million to $142.3 million and earnings per diluted share to be in the range of $1.15 to $1.20.  The company is raising its guidance for the full year 2018, expecting revenue of $492.5 million to $497.5 million and earnings per diluted share of $4.45 to $4.50.

The complete Press Release and financial tables can be found here:

https://seekingalpha.com/pr/17324640-medifast-inc-announces-third-quarter-2018-financial-results

Marketdata Commentary

MED stock was getting crushed this morning, down as much as 25%, even though it reported strong sales results. This seems to be a typical over-reaction by analysts, toward weight loss stocks. Gross profit margin rose to 77%, the company has no debt, and has cash on hand of $103 million. And, the firm is expecting record sales for 2018, with 59% more coaches working for the company than last year. Isn't that good enough? Apparently not.

Investors appear to be reacting to a lower-than-expected EPS impact from the sales increase. Specifically, sales were $14.2M (11.4%) above the upper range of guidance ($125M) while EPS was only 3.6% above upper guidance of $1.10. In the conference call CFO Tim Robinson said that convention expenses and the ILAT trip investment were larger than planned.

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