MEDIFAST, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
(In thousands,
except par value)
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
58,610
|
|
|
$
|
42,037
|
|
Accounts receivable-net of allowance for sales returns
and doubtful accounts of $514 and $417
|
|
|
1,627
|
|
|
|
1,633
|
|
Inventory
|
|
|
11,364
|
|
|
|
13,335
|
|
Investment securities
|
|
|
20,975
|
|
|
|
25,072
|
|
Income taxes, prepaid
|
|
|
-
|
|
|
|
1,549
|
|
Prepaid expenses and other current assets
|
|
|
3,473
|
|
|
|
2,886
|
|
Deferred tax assets
|
|
|
1,703
|
|
|
|
1,208
|
|
Current assets of discontinued
operations
|
|
|
-
|
|
|
|
353
|
|
Total current
assets
|
|
|
97,752
|
|
|
|
88,073
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment - net
|
|
|
20,136
|
|
|
|
29,029
|
|
Other assets
|
|
|
165
|
|
|
|
205
|
|
Long-term assets of discontinued
operations
|
|
|
19
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
118,072
|
|
|
$
|
117,326
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
22,361
|
|
|
$
|
22,504
|
|
Income taxes payable
|
|
|
1,356
|
|
|
|
-
|
|
Current maturities of capital leases
|
|
|
111
|
|
|
|
219
|
|
Current liabilities of discontinued
operations
|
|
|
482
|
|
|
|
841
|
|
Total current liabilities
|
|
|
24,310
|
|
|
|
23,564
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
2,475
|
|
|
|
4,890
|
|
Long-term liabilities of discontinued
operations
|
|
|
22
|
|
|
|
288
|
|
Total liabilities
|
|
|
26,807
|
|
|
|
28,742
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Common stock; par value $.001 per share; 20,000 shares authorized; 12,024
and 12,014 issued at June 30, 2016 and December 31, 2015, respectively 11,848 and 11,797 outstanding June 30, 2016 and December
31, 2015, respectively
|
|
|
12
|
|
|
|
12
|
|
Additional paid-in capital
|
|
|
910
|
|
|
|
-
|
|
Accumulated other comprehensive income/(loss)
|
|
|
124
|
|
|
|
(62
|
)
|
Retained earnings
|
|
|
90,219
|
|
|
|
88,634
|
|
Total stockholders'
equity
|
|
|
91,265
|
|
|
|
88,584
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
$
|
118,072
|
|
|
$
|
117,326
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
MEDIFAST, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(In thousands,
except per share & dividend data)
(Unaudited)
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
71,144
|
|
|
$
|
72,161
|
|
|
$
|
143,489
|
|
|
$
|
145,525
|
|
Cost of sales
|
|
|
17,919
|
|
|
|
18,994
|
|
|
|
37,070
|
|
|
|
38,588
|
|
Gross Profit
|
|
|
53,225
|
|
|
|
53,167
|
|
|
|
106,419
|
|
|
|
106,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
|
48,201
|
|
|
|
44,504
|
|
|
|
95,127
|
|
|
|
91,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
|
|
5,024
|
|
|
|
8,663
|
|
|
|
11,292
|
|
|
|
15,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income, net
|
|
|
65
|
|
|
|
164
|
|
|
|
180
|
|
|
|
296
|
|
Other income (expense)
|
|
|
3
|
|
|
|
1
|
|
|
|
(21
|
)
|
|
|
149
|
|
|
|
|
68
|
|
|
|
165
|
|
|
|
159
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
|
5,092
|
|
|
|
8,828
|
|
|
|
11,451
|
|
|
|
15,620
|
|
Provision for income taxes
|
|
|
1,695
|
|
|
|
2,981
|
|
|
|
3,794
|
|
|
|
5,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
3,397
|
|
|
|
5,847
|
|
|
|
7,657
|
|
|
|
10,263
|
|
Income from discontinued operations,
net of tax
|
|
|
-
|
|
|
|
401
|
|
|
|
-
|
|
|
|
429
|
|
Net income
|
|
$
|
3,397
|
|
|
$
|
6,248
|
|
|
$
|
7,657
|
|
|
$
|
10,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing
operations
|
|
$
|
0.29
|
|
|
$
|
0.48
|
|
|
$
|
0.65
|
|
|
$
|
0.85
|
|
Earnings per share from discontinued
operations
|
|
$
|
-
|
|
|
$
|
0.03
|
|
|
$
|
-
|
|
|
$
|
0.03
|
|
Earnings per share
|
|
$
|
0.29
|
|
|
$
|
0.51
|
|
|
$
|
0.65
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing
operations
|
|
$
|
0.29
|
|
|
$
|
0.48
|
|
|
$
|
0.64
|
|
|
$
|
0.84
|
|
Earnings per share from discontinued
operations
|
|
$
|
-
|
|
|
$
|
0.03
|
|
|
$
|
-
|
|
|
$
|
0.04
|
|
Earnings per share
|
|
$
|
0.29
|
|
|
$
|
0.51
|
|
|
$
|
0.64
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,811
|
|
|
|
12,069
|
|
|
|
11,817
|
|
|
|
12,085
|
|
Diluted
|
|
|
11,884
|
|
|
|
12,159
|
|
|
|
11,891
|
|
|
|
12,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
|
$
|
0.25
|
|
|
$
|
-
|
|
|
$
|
0.50
|
|
|
$
|
-
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
MEDIFAST, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,397
|
|
|
$
|
6,248
|
|
|
$
|
7,657
|
|
|
$
|
10,692
|
|
Other comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation, net of tax
|
|
|
2
|
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
Change in unrealized gains/losses on marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of marketable securities, net
of tax
|
|
|
36
|
|
|
|
(162
|
)
|
|
|
107
|
|
|
|
13
|
|
Adjustment for net (gains)/losses
realized and included in net income, net of tax
|
|
|
56
|
|
|
|
(14
|
)
|
|
|
65
|
|
|
|
(101
|
)
|
Total change in unrealized losses
on marketable securities, net of tax
|
|
|
92
|
|
|
|
(176
|
)
|
|
|
172
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
94
|
|
|
|
(176
|
)
|
|
|
186
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
3,491
|
|
|
$
|
6,072
|
|
|
$
|
7,843
|
|
|
$
|
10,604
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
MEDIFAST, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended
June 30, 2016
(In thousands,
except par value)
(Unaudited)
|
|
Number of
Shares
Issued
|
|
|
Par Value
$0.001
Amount
|
|
|
Additional Paid-
In Capital
|
|
|
Retained Earnings
|
|
|
Accumulated
other
comprehensive
income
|
|
|
Total
|
|
Balance, December 31, 2015
|
|
|
12,014
|
|
|
|
12
|
|
|
|
-
|
|
|
|
88,634
|
|
|
|
(62
|
)
|
|
|
88,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised by executives and directors
|
|
|
12
|
|
|
|
-
|
|
|
|
299
|
|
|
|
-
|
|
|
|
-
|
|
|
|
299
|
|
Share-based compensation
|
|
|
23
|
|
|
|
-
|
|
|
|
1,192
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,192
|
|
Net shares repurchased for employee taxes
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
(686
|
)
|
|
|
(57
|
)
|
|
|
-
|
|
|
|
(743
|
)
|
Share-based compensation tax benefit
|
|
|
-
|
|
|
|
-
|
|
|
|
105
|
|
|
|
-
|
|
|
|
-
|
|
|
|
105
|
|
Cash dividends declared to stockholders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,015
|
)
|
|
|
-
|
|
|
|
(6,015
|
)
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,657
|
|
|
|
-
|
|
|
|
7,657
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
186
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
|
12,024
|
|
|
|
12
|
|
|
|
910
|
|
|
|
90,219
|
|
|
|
124
|
|
|
$
|
91,265
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
MEDIFAST, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
7,657
|
|
|
$
|
10,692
|
|
Income from discontinued operations, net of tax
|
|
|
-
|
|
|
|
429
|
|
Income from continuing operations
|
|
|
7,657
|
|
|
|
10,263
|
|
Adjustments to reconcile net income to net cash provided by operating
|
|
|
|
|
|
|
|
|
activities from continuing operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,996
|
|
|
|
3,685
|
|
Realized (gain)/loss on investment securities, net
|
|
|
77
|
|
|
|
(134
|
)
|
Share-based compensation
|
|
|
1,192
|
|
|
|
1,105
|
|
Deferred income taxes
|
|
|
(3,027
|
)
|
|
|
(505
|
)
|
Impairment of fixed assets
|
|
|
6,083
|
|
|
|
-
|
|
(Gain)/loss on disposal of fixed assets
|
|
|
(88
|
)
|
|
|
26
|
|
Changes in assets and liabilities which provided (used) cash:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
6
|
|
|
|
(341
|
)
|
Inventory
|
|
|
1,971
|
|
|
|
3,311
|
|
Prepaid expenses and other current assets
|
|
|
(587
|
)
|
|
|
(257
|
)
|
Other assets
|
|
|
40
|
|
|
|
335
|
|
Accounts payable and accrued expenses
|
|
|
(229
|
)
|
|
|
(596
|
)
|
Income taxes
|
|
|
2,905
|
|
|
|
4,069
|
|
Net cash provided by operating activities- continuing
operations
|
|
|
18,996
|
|
|
|
20,961
|
|
Net cash used in operating activities-
discontinued operations
|
|
|
(272
|
)
|
|
|
(3,123
|
)
|
Net cash provided by operating
activities
|
|
|
18,724
|
|
|
|
17,838
|
|
Cash Flow from Investing Activities:
|
|
|
|
|
|
|
|
|
Sale of investment securities
|
|
|
26,741
|
|
|
|
4,450
|
|
Purchase of investment securities
|
|
|
(22,432
|
)
|
|
|
(4,172
|
)
|
Sale of property and equipment
|
|
|
655
|
|
|
|
-
|
|
Purchase of property and equipment
|
|
|
(753
|
)
|
|
|
(1,373
|
)
|
Net cash provided by (used in) investing activities-
continuing operations
|
|
|
4,211
|
|
|
|
(1,095
|
)
|
Net cash provided by investing
activities- discontinued operations
|
|
|
-
|
|
|
|
-
|
|
Net cash provided by (used in)
investing activities
|
|
|
4,211
|
|
|
|
(1,095
|
)
|
Cash Flow from Financing Activities:
|
|
|
|
|
|
|
|
|
Repayment of capital leases
|
|
|
(108
|
)
|
|
|
(115
|
)
|
Decrease in note receivable
|
|
|
-
|
|
|
|
45
|
|
Net shares repurchased for employee taxes
|
|
|
(743
|
)
|
|
|
(875
|
)
|
Options exercised by executives and directors
|
|
|
299
|
|
|
|
44
|
|
Excess tax benefits from share-based compensation
|
|
|
105
|
|
|
|
165
|
|
Purchase of treasury stock
|
|
|
-
|
|
|
|
(3,321
|
)
|
Cash dividends paid to stockholders
|
|
|
(5,929
|
)
|
|
|
-
|
|
Net cash used in financing activities- continuing operations
|
|
|
(6,376
|
)
|
|
|
(4,057
|
)
|
Net cash used in financing activities-
discontinued operations
|
|
|
-
|
|
|
|
-
|
|
Net cash used in financing activities
|
|
|
(6,376
|
)
|
|
|
(4,057
|
)
|
|
|
|
|
|
|
|
|
|
Foreign currency impact
|
|
|
14
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
16,573
|
|
|
|
12,686
|
|
Cash and cash equivalents - beginning of the period
|
|
|
42,037
|
|
|
|
24,459
|
|
Cash and cash equivalents - end of period
|
|
$
|
58,610
|
|
|
$
|
37,145
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
5
|
|
|
$
|
14
|
|
Income taxes paid
|
|
$
|
3,661
|
|
|
$
|
305
|
|
Dividends declared included in accounts payable
|
|
$
|
3,100
|
|
|
$
|
-
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
Medifast, Inc.
and subsidiaries
Notes to Unaudited
Condensed Consolidated Financial Statements
(Tabular in thousands,
except per share data)
General
The condensed unaudited interim
consolidated financial statements included herein have been prepared in accordance with generally accepted accounting principles
in the United States of America (“GAAP”), for interim information and pursuant to the rules and regulations of the
Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, they do not include all of
the information and footnotes required by GAAP for annual fiscal reporting periods. 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 results of operations for
the three and six months ended June 30, 2016 are not necessarily indicative of results that may be expected for the year ending
December 31, 2016. The accompanying condensed unaudited interim consolidated financial statements should be read in conjunction
with the 2015 audited financial statements and notes thereto, which are included in the Company’s Annual Report on Form
10-K filed for the year ended December 31, 2015 (“2015 Form 10-K”).
|
2.
|
Presentation of Financial Statements
|
The condensed unaudited interim
consolidated financial statements included herein include the accounts of Medifast, Inc. (the “Company”) and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated.
|
3.
|
Recent Accounting Pronouncements
|
We have considered all new
accounting pronouncements and have concluded that there are no new pronouncements that may have a material impact on our results
of operations, financial condition, or cash flows, based on current information, except for:
ASU 2016-09,
Compensation-
Stock Compensation (Topic 718): Improvements to Employee Share-Based Payable Accounting
allows for the simplification of accounting
for stock compensation in relation to income taxes, classification of awards as equity or liabilities and classification on the
statement of cash flows. The pronouncement is effective for fiscal years beginning after December 15, 2016. Management is currently
evaluating the effect that the provisions of ASU 2016-09 will have on the Company’s financial statements.
ASU 2016-02,
Leases (Topic
842)
requires the rights and obligations of all leased assets with a term greater than 12 months to be presented on the balance
sheet. The pronouncement is effective for fiscal years beginning after December 15, 2018. Management is currently evaluating the
effect that the provisions of ASU 2016-02 will have on the Company’s financial statements.
ASU 2016-01,
Financial Instruments-
Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
, most notably requires
the changes in fair value of equity investments to be recognized in net income. The pronouncement also requires the use of the
exit price notion, the separate presentation of financial assets and liabilities by measurement category and form of asset, and
the separate presentation in other comprehensive income of changes in fair value resulting from a change in the instrument-specific
credit risk. The pronouncement is effective for fiscal years beginning after December 15, 2017. Based on the risk level of the
Company’s investment portfolio, Management does not expect the provision to have a material impact on the Company’s
financial statements.
ASU 2015-17,
Income Taxes
(Topic 740): Balance Sheet Classification of Deferred Taxes
requires the Company to classify all deferred tax assets and deferred
tax liabilities as noncurrent. The pronouncement is effective for fiscal years beginning after December 15, 2016. The provision
will result in a reclassification on the condensed consolidated balance sheet but is not expected to have any other material impacts
on the Company’s financial statements.
ASU 2015-11,
Inventory (Topic
330): Simplifying the Measurement of Inventory
, requires the Company to recognize inventory at the lower of cost and net realizable
value. Net realizable value is defined as the estimated selling price in the ordinary course of business less costs of completion,
disposal, and transportation. The pronouncement is effective for fiscal years beginning after December 31, 2016. The provision
is not expected to have a material impact on the Company’s financial statements.
ASU 2015-09,
Revenue from
Contracts with Customers (Topic 606)
, requires the Company to recognize revenue for the transfer of goods or services to customers
for the amount the Company expects to be entitled to in exchange for those goods or services. The Company will be required to
identify the contract, identify the relevant performance obligations, determine the transaction price, allocate the transaction
price to the performance obligations in the contract, and recognize the revenue when the entity satisfies a performance obligation.
The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2017. Management is still
evaluating the effect that the provisions of ASU 2015-09 will have on the Company’s financial statements but does not expect
it to have a material impact.
Revenue is recognized net of
discounts, rebates, promotional adjustments, price adjustments, and estimated returns and upon transfer of title and risk to the
customer which primarily occurs at shipping (F.O.B. terms). Upon shipment, the Company has no further performance obligations
and collection is reasonably assured as the majority of sales are paid for prior to shipping. Revenue from our Franchise Medifast
Weight Control Centers is primarily generated from product sales.
Inventories consist principally
of packaged meal replacements held in the Company’s warehouses. Inventory is stated at the lower of cost or market, 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 inventory for unsalable or obsolete
inventory.
Inventories consisted of the following as of:
|
|
June 30, 2016
|
|
|
December 31, 2015
|
|
Raw Materials
|
|
$
|
3,370
|
|
|
$
|
3,666
|
|
Packaging
|
|
|
836
|
|
|
|
788
|
|
Non-food Finished Goods
|
|
|
561
|
|
|
|
635
|
|
Finished Goods
|
|
|
7,003
|
|
|
|
8,545
|
|
Reserve for Obsolete Inventory
|
|
|
(406
|
)
|
|
|
(299
|
)
|
|
|
$
|
11,364
|
|
|
$
|
13,335
|
|
Basic earnings per share (“EPS”)
computations are calculated utilizing the weighted average number of shares of common stock outstanding during the periods presented.
Diluted EPS is calculated utilizing the weighted average number of shares of common stock outstanding adjusted for the effect
of dilutive common stock equivalents.
The following table sets forth
the computation of basic and diluted EPS:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
3,397
|
|
|
$
|
5,847
|
|
|
$
|
7,657
|
|
|
$
|
10,263
|
|
Income from discontinued operations
|
|
|
-
|
|
|
|
401
|
|
|
|
-
|
|
|
|
429
|
|
Net income
|
|
$
|
3,397
|
|
|
$
|
6,248
|
|
|
$
|
7,657
|
|
|
$
|
10,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
11,811
|
|
|
|
12,069
|
|
|
|
11,817
|
|
|
|
12,085
|
|
Effect of dilutive common stock equivalents
|
|
|
73
|
|
|
|
90
|
|
|
|
74
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding
|
|
|
11,884
|
|
|
|
12,159
|
|
|
|
11,891
|
|
|
|
12,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations
|
|
$
|
0.29
|
|
|
$
|
0.48
|
|
|
$
|
0.65
|
|
|
$
|
0.85
|
|
Earnings per share from discontinued operations
|
|
$
|
-
|
|
|
$
|
0.03
|
|
|
$
|
-
|
|
|
$
|
0.03
|
|
Earnings per share
|
|
$
|
0.29
|
|
|
$
|
0.51
|
|
|
$
|
0.65
|
|
|
$
|
0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations
|
|
$
|
0.29
|
|
|
$
|
0.48
|
|
|
$
|
0.64
|
|
|
$
|
0.84
|
|
Earnings per share from discontinued operations
|
|
$
|
-
|
|
|
$
|
0.03
|
|
|
$
|
-
|
|
|
$
|
0.04
|
|
Earnings per share
|
|
$
|
0.29
|
|
|
$
|
0.51
|
|
|
$
|
0.64
|
|
|
$
|
0.88
|
|
The calculation of diluted
earnings per share excluded 87,986 and 54,375 antidilutive options outstanding for the three months ended June 30, 2016 and 2015,
respectively, and 98,000 and 54,375 antidilutive options outstanding for the six months ended June 30, 2016 and 2015, respectively.
EPS is computed independently for each of the quarters presented; accordingly, the sum of the quarterly earnings per common share
may not equal the year-to-date total computed.
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, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts
of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
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 table represents
cash and the available-for-sale securities adjusted cost, gross unrealized gains, gross unrealized losses and fair value by significant
investment category recorded as cash and cash equivalents or investment securities as of:
|
|
June 30, 2016
|
|
|
|
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Accrued
Interest
|
|
|
Estimated
Fair Value
|
|
|
Cash & Cash
Equivalents
|
|
|
Investment
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
54,388
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
54,388
|
|
|
$
|
54,388
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Accounts
|
|
|
4,222
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,222
|
|
|
|
4,222
|
|
|
|
-
|
|
Government & Agency Securities
|
|
|
1,242
|
|
|
|
6
|
|
|
|
-
|
|
|
|
9
|
|
|
|
1,257
|
|
|
|
-
|
|
|
|
1,257
|
|
|
|
|
5,464
|
|
|
|
6
|
|
|
|
-
|
|
|
|
9
|
|
|
|
5,479
|
|
|
|
4,222
|
|
|
|
1,257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Bonds
|
|
|
19,478
|
|
|
|
72
|
|
|
|
-
|
|
|
|
168
|
|
|
|
19,718
|
|
|
|
-
|
|
|
|
19,718
|
|
|
|
|
19,478
|
|
|
|
72
|
|
|
|
-
|
|
|
|
168
|
|
|
|
19,718
|
|
|
|
-
|
|
|
|
19,718
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
79,330
|
|
|
$
|
78
|
|
|
$
|
-
|
|
|
$
|
177
|
|
|
$
|
79,585
|
|
|
$
|
58,610
|
|
|
$
|
20,975
|
|
|
|
December 31, 2015
|
|
|
|
Cost
|
|
|
Unrealized
Gains
|
|
|
Unrealized
Losses
|
|
|
Accrued
Interest
|
|
|
Estimated
Fair Value
|
|
|
Cash & Cash
Equivalents
|
|
|
Investment
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
38,276
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
38,276
|
|
|
$
|
38,276
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Accounts
|
|
|
3,761
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,761
|
|
|
|
3,761
|
|
|
|
-
|
|
Mutual Funds
|
|
|
9,654
|
|
|
|
37
|
|
|
|
(444
|
)
|
|
|
-
|
|
|
|
9,247
|
|
|
|
-
|
|
|
|
9,247
|
|
Corporate Equity Securities
|
|
|
1,332
|
|
|
|
246
|
|
|
|
(76
|
)
|
|
|
-
|
|
|
|
1,502
|
|
|
|
-
|
|
|
|
1,502
|
|
Government & Agency Securities
|
|
|
5,425
|
|
|
|
25
|
|
|
|
(19
|
)
|
|
|
17
|
|
|
|
5,448
|
|
|
|
-
|
|
|
|
5,448
|
|
|
|
|
20,172
|
|
|
|
308
|
|
|
|
(539
|
)
|
|
|
17
|
|
|
|
19,958
|
|
|
|
3,761
|
|
|
|
16,197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Bonds
|
|
|
2,735
|
|
|
|
42
|
|
|
|
(3
|
)
|
|
|
20
|
|
|
|
2,794
|
|
|
|
-
|
|
|
|
2,794
|
|
Corporate Bonds
|
|
|
6,054
|
|
|
|
22
|
|
|
|
(41
|
)
|
|
|
46
|
|
|
|
6,081
|
|
|
|
-
|
|
|
|
6,081
|
|
|
|
|
8,789
|
|
|
|
64
|
|
|
|
(44
|
)
|
|
|
66
|
|
|
|
8,875
|
|
|
|
-
|
|
|
|
8,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
67,237
|
|
|
$
|
372
|
|
|
$
|
(583
|
)
|
|
$
|
83
|
|
|
$
|
67,109
|
|
|
$
|
42,037
|
|
|
$
|
25,072
|
|
The Company had a realized
loss of $33 thousand and a realized gain of $16 thousand for the three months ended June 30, 2016 and 2015, respectively, and
a realized loss of $77 thousand and a realized gain of $134 thousand for the six months ended June 30, 2016 and 2015, respectively.
As of June 30, 2016 and 2015, gross unrealized losses related to individual securities that had been in a continuous loss position
for 12 months or longer were not significant. The maturities of the Company’s investment securities generally range up to
5 years for municipal bonds and for government and agency securities.
|
9.
|
Shared-based Compensation
|
Stock Options:
The Company has issued non-qualified
and incentive stock options to employees and nonemployee directors. The fair value of these options are estimated on the date
of grant using the Black-Scholes option pricing model, which requires estimates of the expected term of the option, the expected
volatility of the price of the Company’s common stock, dividend yield and the risk-free interest rate. Options outstanding
as of June 30, 2016 generally vest over a period of three years with an expiration term of ten years. The exercise price of these
options ranges from $24.26 to $31.55. The expected volatility is based on the historical volatility of the Company’s common
stock over the period of time equivalent to the expected term for each award. Due to the Company’s lack of option exercise
history, the expected term is calculated using the simplified method defined as the midpoint between the vesting period and the
contractual term of each award. The risk free interest rate is based on the U.S. Treasury yield curve in effect on the date of
grant which most closely corresponds to the expected term of the option. The Company declared its first dividend in December 2015;
and therefore, a dividend yield was not utilized in the Black-Scholes calculation for options granted prior to December 2015.
The weighted average input assumptions used and resulting fair values were as follows:
|
|
2016
|
|
Expected life (in years)
|
|
|
6
|
|
Risk-free interest rate
|
|
|
1.11
|
%
|
Expected volatility
|
|
|
42.22
|
%
|
Dividend yield
|
|
|
3.56
|
%
|
The following table summarizes the stock option
activity:
|
|
Shares
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average
Remaining Contractual
Life (Yrs)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at December 31, 2015
|
|
|
98
|
|
|
$
|
28.17
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
50
|
|
|
|
27.99
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(12
|
)
|
|
|
25.64
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(6
|
)
|
|
|
29.87
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2016
|
|
|
130
|
|
|
$
|
28.22
|
|
|
|
8.70
|
|
|
$
|
654
|
|
Exerciseable at June 30, 2016
|
|
|
49
|
|
|
$
|
27.45
|
|
|
|
7.82
|
|
|
$
|
283
|
|
The weighted-average grant
date fair value of options granted was $7.91. The unrecognized compensation expense calculated under the fair value method for
shares expected to vest as of June 30, 2016 was approximately $0.7 million and is expected to be recognized over a weighted average
period of 2.0 years. The Company received $0.3 million in cash proceeds from the exercise of stock options during the three and
six months ended June 30, 2016, and $44 thousand in cash proceeds from the exercise of stock options during the three and six
months ended June 30, 2015.
Restricted Stock:
The Company has issued restricted
stock to employees and nonemployee directors generally with vesting terms up to five years after the date of grant. The fair value
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 the restricted stock activity:
|
|
Shares
|
|
|
Weighted-Average
Grant Date Fair Value
|
|
Unvested at December 31, 2015
|
|
|
264
|
|
|
$
|
26.38
|
|
Granted
|
|
|
15
|
|
|
|
27.68
|
|
Vested
|
|
|
(65
|
)
|
|
|
25.14
|
|
Forfeited
|
|
|
(39
|
)
|
|
|
26.43
|
|
Unvested at June 30, 2016
|
|
|
175
|
|
|
$
|
26.95
|
|
The total costs of the options
and restricted stock awards charged against income during the three months ended June 30, 2016 and 2015 was $668 thousand and
$575 thousand, respectively, and $1.2 million and $1.1 million for the six months ended June 30, 2016 and 2015, respectively.
The Company accrued an additional $137 thousand and $129 thousand for performance-based restricted stock awards for the three
months ended June 30, 2016 and 2015, respectively, and $365 thousand and $478 thousand for the six months ended June 30, 2016
and 2015, respectively. The cost of the 2016 performance awards will depend on management’s achievement of pre-determined
performance targets and the Company’s fiscal 2016 performance and will be finalized and approved at the first Board of Directors
meeting in 2017. The cost recognized during the quarter is based on the performance that management expects the Company will achieve
as of June 30, 2016. The total income tax benefit recognized in the consolidated statements of income for these restricted stock
awards was approximately $225 thousand and $203 thousand for the three months ended June 30, 2016 and 2015, respectively and $395
thousand and $390 thousand for the six months ended June 30, 2016 and 2015. The total tax benefit recognized in additional paid-in
capital upon vesting of restricted stock awards and exercise of stock options for the three months ended June 30, 2016 and 2015
was $9 thousand and $165 thousand, respectively, and $105 thousand and $165 thousand for the six months ended June 30, 2016 and
2015, respectively. There was approximately $3.0 million of total unrecognized compensation cost related to restricted stock awards
as of June 30, 2016. The cost is expected to be recognized over a weighted-average period of approximately 1.8 years.
Operating segments are components
of an enterprise about which separate financial information is available that is regularly reviewed by the chief operating decision
maker about how to allocate resources and in assessing performance. The consolidated operating profit of the Company is reviewed
by the chief operating decision maker as a single segment and sales are reviewed at the business unit level.
The following table presents
sales by business unit for the:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Take Shape For Life
|
|
$
|
57,411
|
|
|
$
|
52,258
|
|
|
$
|
114,085
|
|
|
$
|
104,360
|
|
Medifast Direct
|
|
|
9,324
|
|
|
|
13,675
|
|
|
|
20,251
|
|
|
|
28,117
|
|
MWCC- Franchise
|
|
|
4,109
|
|
|
|
4,672
|
|
|
|
8,355
|
|
|
|
9,337
|
|
Medifast Wholesale
|
|
|
300
|
|
|
|
1,556
|
|
|
|
798
|
|
|
|
3,711
|
|
Net Revenue
|
|
$
|
71,144
|
|
|
$
|
72,161
|
|
|
$
|
143,489
|
|
|
$
|
145,525
|
|
|
11.
|
Discontinued Operations, Exit Activities, and Clinic
Obligations
|
In 2014, the Company exited the corporate Medifast
Weight Control center model by selling 41 company owned centers to existing franchise partners (24 centers were sold in June 2014
and the remaining 17 centers were sold in December 2014) and closing the remaining 34 corporate centers. In accordance with ASU
2014-08,
Presentation of Financial Statements (Topic 205) and Property Plant, and Equipment (Topic 360): Reporting Discontinued
Operations and Disclosures of Disposals of Components of an Entity
the assets, liabilities, operating results, and cash flows
of the corporate Medifast Weight Control Center business unit have been presented separately as discontinued operations in the
Consolidated Financial Statements for all periods presented.
The following is a summary of the Company’s
operating results for discontinued operations for the:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes from discontinued operations
|
|
$
|
-
|
|
|
$
|
649
|
|
|
$
|
-
|
|
|
$
|
694
|
|
Income tax provision
|
|
|
-
|
|
|
|
248
|
|
|
|
-
|
|
|
|
265
|
|
Income from discontinued operations, net of tax
|
|
$
|
-
|
|
|
$
|
401
|
|
|
$
|
-
|
|
|
$
|
429
|
|
The following table presents the aggregate carrying
amounts of the major classes of assets and liabilities included in discontinued operations as of:
|
|
June 30, 2016
|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Other assets
|
|
$
|
19
|
|
|
|
|
|
|
Total assets
|
|
$
|
19
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
482
|
|
Total current liabilities
|
|
|
482
|
|
|
|
|
|
|
Long-term lease obligations
|
|
|
22
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
504
|
|
The following table summarizes
the exit obligations, primarily for lease obligations related to closed corporate Medifast Weight Control Centers, severance accruals,
and customer refunds incurred as of June 30, 2016:
Ending accrued balance as of December 31, 2015
|
|
$
|
1,129
|
|
Adjustments recorded during the period (1)
|
|
|
213
|
|
Payments during the period
|
|
|
(838
|
)
|
Ending accrued balance as of June 30, 2016
|
|
$
|
504
|
|
(1)- The adjustments to the accrual recorded in 2016 relate
primarily to agreements reached with franchisees related to lease obligations for previously owned MWCC Corporate Centers.
These charges were recorded in the balance sheet as of June
30, 2016 as follows:
Total current liabilities of discontinued operations
|
|
$
|
482
|
|
Total long-term liabilities of discontinued operations
|
|
|
22
|
|
Ending accrued balance as of June 30, 2016
|
|
$
|
504
|
|
During the first quarter of
2016, the Company announced the departure of three Executive Vice Presidents in an effort to re-align the senior leadership team
to reflect the changing needs of the business and to provide greater emphasis on the Company’s key areas of focus, and also
the resignation of the Company’s President and Chief Operating Officer. The Company incurred $1.2 million in net restructuring
costs in selling, general, and administrative expense associated with the departure of these four executives. This includes a
$0.2 million reversal of costs accrued in 2015 for shares of restricted stock that were granted in connection with the 2015 bonus
plan and were forfeited as a result of their departure.
The following table summarizes
the severance accruals incurred as of June 30, 2016, excluding the reversal of prior year stock accrual:
Ending accrued balance as of December 31, 2015
|
|
$
|
-
|
|
Charges incurred during the period
|
|
|
1,343
|
|
Payments during the period
|
|
|
(356
|
)
|
Ending accrued balance as of June 30, 2016
|
|
$
|
987
|
|
During the second quarter of
2016, the Company incurred a $6.1 million impairment charge in connection with the abandonment of software under development for
the Take Shape For Life® business unit. The decision to abandon the software, which was determined in the final stages of
the quarterly close process, was the result of an in depth analysis of proven alternatives available today in the market which
are a better fit for our business going forward and the cost of these alternatives when compared to the ongoing development and
maintenance of the abandoned software. The impairment charge was recorded for the full value of the asset and has been included
as part of selling, general, and administrative expense on the condensed consolidated statements of income.
Item
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD LOOKING STATEMENTS
|
Special Note Regarding Forward-Looking Statements
This report contains information that
may constitute “forward-looking statements.” Generally, the words “believe,” “expect,” “intend,”
“estimate,” “anticipate,” “project,” “will,” and similar expressions identify
forward-looking statements, which generally are not historical in nature. However, the absence of these words or similar expressions
does not mean that a statement is not forward-looking. All statements that address operating performance, events or developments
that we expect or anticipate will occur in the future – including statements relating to future operating results- are forward-looking
statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should
be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date
when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations
or projections. These risks and uncertainties include, but are not limited to, those in our Annual Report on Form 10-K for the
year ended December 31, 2015 (the “Form 10-K”), and those described from time to time in our future reports filed
with the Securities and Exchange Commission.
The following discussion should be read
in conjunction with the unaudited condensed consolidated financial statements and related notes appearing elsewhere herein.
Overview
Medifast, Inc. (“Medifast,”
the “Company,” “we,” “us,” “our,” the “Company” or “Medifast”)
is engaged in the production, distribution, and sale of weight loss, weight management, and healthy living products and other
consumable health and diet products. The Company’s product lines include weight loss, weight management, and healthy living
meal replacements, snacks, hydration products, sports nutrition products, and vitamins. The Company’s business units are
Take Shape For Life®, Medifast Direct, Franchise Medifast Weight Control Centers (“MWCC”) and Medifast Wholesale.
Product sales accounted for 97% of our revenues for the six months ended June 30, 2016 and 2015; which consists primarily of meal
replacement food sales. In the three months ended June 30, 2016, total revenue decreased to $71.1 million compared to $72.2 million
in the three months ended June 30, 2015, a decrease of $1.1 million or 1.5%. In the six months ended June 30, 2016, total revenue
decreased to $143.5 million compared to $145.5 million in the six months ended June 30, 2015, a decrease of $2.0 million or 1.4%.
The decline for the periods was driven by reduced revenues in the Medifast Direct, Medifast Wholesale, and MWCC business units,
partially offset by a revenue increase in the Take Shape For Life® business unit and a price increase for the Take Shape For
Life, Medifast Direct, and Medifast Wholesale business units that took effect in April 2016. These revenue changes are further
described in the “Overview of Results of Operations” section.
For the six months ended June 30, 2016,
the percentage of total revenue made up by each business unit was as follows:
Take Shape For Life ®
|
|
|
79.5
|
%
|
Medifast Direct
|
|
|
14.1
|
%
|
MWCC
|
|
|
5.8
|
%
|
Medifast Wholesale
|
|
|
0.6
|
%
|
See Note 10, “Business Segments”
of the notes to the financial statements for a detailed breakout of revenues of the Company’s business segments.
We review and analyze a number of key
operating and financial metrics to manage our business, including revenue to advertising spend, number of active Health Coaches,
which are Health Coaches earning income from a product sale during the quarter, and average monthly revenue generated per Health
Coach in the Take Shape For Life® business unit.
In 2014, the Company exited the MWCC corporate
center model with the sale of 41 centers to existing franchise partners and the closure of the remaining 34 corporate centers.
The assets, liabilities, operating results, and cash flows of the MWCC corporate center business unit have been presented separately
as discontinued operations in the Consolidated Financial Statements for all periods presented.
Distribution Business Units
Take
Shape For Life®
– Take Shape For Life is the personal coaching division of Medifast. This coaching network consists
of independent contractor health coaches (“Health Coaches”), who are trained to provide coaching and support to help
clients effectively reach and sustain a healthy weight, and adopt habits for a lifetime of health utilizing the Take Shape For
Life® platform. Within our Trilogy of Optimal Health, the Company offers individuals an opportunity to create sustainable
health in all areas of their lives – building a healthy body, developing a healthy mind, and generating healthy finances.
In addition to the encouragement and support of a Health Coach, clients of Take Shape For Life® are offered product and program
information on our website, weekly support calls, and access to our registered dietitians. Customers of our Health Coaches order
our products through either the Company’s website,
www.tsfl.com
,
or our in-house call center. In addition to the full line of products and programs currently offered, Take Shape For Life also
introduced an exclusive product line under the lifestyle brand OPTAVIA
TM
in July 2016. Take Shape For Life® is
a member of the Direct Selling Association (the “DSA”), a national trade association representing over 200 direct
selling companies doing business in the United States, and a DSA Code of Ethics participant.
Medifast Direct –
In the
direct-to-consumer business unit (“Medifast Direct”), customers order Medifast products directly through the Company’s
website, www.medifastnow.com, or our in-house call center. This business is driven by a multi-faceted customer acquisition and
retention strategy that includes television, digital advertising, direct mail, email, public relations, word of mouth referrals,
social media initiatives, and other means as deemed appropriate. The Medifast Direct division provides support through its social
communities, in-house call center, and nutrition support team of registered dietitians to better serve its customers.
Franchise Medifast Weight Control Centers
– MWCC offers structured programs, Medifast products, and a team of professionals to help customers achieve weight-loss
and weight-management success. Counselors at each location work with members to provide nutritional and behavioral support based
on the member’s personal needs. As of June 30, 2016, 57 MWCC franchise centers were in operation in Arizona, California,
Louisiana, Minnesota, Maryland, Pennsylvania, Texas, and Wisconsin.
Medifast Wholesale
– Medifast
medical provider practices carry an inventory of wholesale products and resell them to patients while providing appropriate support
to help ensure healthy weight loss and weight management. These medical providers have access to our nutrition support team, marketing
assets and training modules to help grow their program and enable patients to achieve their weight loss and associated health
goals. Medifast’s nutrition support team includes registered dietitians and a behavioral specialist who provide program
support and advice via phone and email.
In 2012, the Company entered into a 3-year
strategic partnership with Medix, a leader in pharmaceutical obesity products in Mexico. The agreement granted Medix an exclusive
license for the distribution of Medifast products and programs through physicians and weight control centers in Mexico under the
Medifast brand. In January 2013, the Company and Medix, amended their agreement to provide an exclusive 5-year licensing agreement
to increase distribution of Medifast meal replacement products and programs beyond Mexico and into Argentina, Bolivia, Chile,
Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Paraguay, Peru, Venezuela,
and Uruguay.
Critical Accounting Policies and Estimates
Our consolidated financial statements
are prepared in accordance with GAAP. Our significant accounting policies are described in Note 2 of the consolidated financial
statements included in the Form 10-K.
The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Management develops, and changes periodically, these estimates and assumptions based on historical
experience and on various other factors that it believes to be reasonable under the circumstances. Actual results may differ from
these estimates under different assumptions or conditions. The accounting estimates we consider critical include revenue recognition,
impairment of fixed assets and intangible assets, income taxes, reserves for returns, operating leases and clinic closure costs.
During the six months ended June 30, 2016,
we did not make any material changes to our critical accounting policies.
Overview of Results of Operations (tabular
in thousands)
|
|
Three Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
71,144
|
|
|
$
|
72,161
|
|
|
$
|
(1,017
|
)
|
|
|
-1
|
%
|
Cost of sales
|
|
|
17,919
|
|
|
|
18,994
|
|
|
|
(1,075
|
)
|
|
|
-6
|
%
|
Gross Profit
|
|
|
53,225
|
|
|
|
53,167
|
|
|
|
58
|
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative costs
|
|
|
48,201
|
|
|
|
44,504
|
|
|
|
3,697
|
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
5,024
|
|
|
|
8,663
|
|
|
|
(3,639
|
)
|
|
|
-42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
65
|
|
|
|
164
|
|
|
|
(99
|
)
|
|
|
-60
|
%
|
Other income
|
|
|
3
|
|
|
|
1
|
|
|
|
2
|
|
|
|
200
|
%
|
|
|
|
68
|
|
|
|
165
|
|
|
|
(97
|
)
|
|
|
-59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
5,092
|
|
|
|
8,828
|
|
|
|
(3,736
|
)
|
|
|
-42
|
%
|
Provision for income tax expense
|
|
|
1,695
|
|
|
|
2,981
|
|
|
|
(1,286
|
)
|
|
|
-43
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
3,397
|
|
|
|
5,847
|
|
|
|
(2,450
|
)
|
|
|
-42
|
%
|
Income (Loss) from discontinued operations, net of tax
|
|
|
-
|
|
|
|
401
|
|
|
|
(401
|
)
|
|
|
-100
|
%
|
Net income
|
|
$
|
3,397
|
|
|
$
|
6,248
|
|
|
$
|
(2,851
|
)
|
|
|
-46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
74.8
|
%
|
|
|
73.7
|
%
|
|
|
|
|
|
|
|
|
Selling, general, and administrative costs
|
|
|
67.8
|
%
|
|
|
61.7
|
%
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
7.1
|
%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
143,489
|
|
|
$
|
145,525
|
|
|
$
|
(2,036
|
)
|
|
|
-1
|
%
|
Cost of sales
|
|
|
37,070
|
|
|
|
38,588
|
|
|
|
(1,518
|
)
|
|
|
-4
|
%
|
Gross Profit
|
|
|
106,419
|
|
|
|
106,937
|
|
|
|
(518
|
)
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative costs
|
|
|
95,127
|
|
|
|
91,762
|
|
|
|
3,365
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
11,292
|
|
|
|
15,175
|
|
|
|
(3,883
|
)
|
|
|
-26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income, net
|
|
|
180
|
|
|
|
296
|
|
|
|
(116
|
)
|
|
|
-39
|
%
|
Other income
|
|
|
(21
|
)
|
|
|
149
|
|
|
|
(170
|
)
|
|
|
-114
|
%
|
|
|
|
159
|
|
|
|
445
|
|
|
|
(286
|
)
|
|
|
-64
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
11,451
|
|
|
|
15,620
|
|
|
|
(4,169
|
)
|
|
|
-27
|
%
|
Provision for income tax expense
|
|
|
3,794
|
|
|
|
5,357
|
|
|
|
(1,563
|
)
|
|
|
-29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
7,657
|
|
|
|
10,263
|
|
|
|
(2,606
|
)
|
|
|
-25
|
%
|
Income (Loss) from discontinued operations, net of tax
|
|
|
-
|
|
|
|
429
|
|
|
|
(429
|
)
|
|
|
-100
|
%
|
Net income
|
|
$
|
7,657
|
|
|
$
|
10,692
|
|
|
$
|
(3,035
|
)
|
|
|
-28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
74.2
|
%
|
|
|
73.5
|
%
|
|
|
|
|
|
|
|
|
Selling, general, and administrative costs
|
|
|
66.3
|
%
|
|
|
63.1
|
%
|
|
|
|
|
|
|
|
|
Income from Operations
|
|
|
7.9
|
%
|
|
|
10.4
|
%
|
|
|
|
|
|
|
|
|
Revenue: Revenue decreased approximately
1.5% to approximately $71.1 million for the three months ended June 30, 2016 as compared to approximately $72.2 million for the
three months ended June 30, 2015. The revenue to total advertising spend for the three months ended June 30, 2016 was 43.9-to-1
compared to 15.6-to-1 for 2015. Revenue decreased approximately 1.4% to approximately $143.5 million for the six months ended
June 30, 2016 as compared to approximately $145.5 million for the six months ended June 30, 2015. The revenue to total advertising
spend for the six months ended June 30, 2016 was 25.0-to-1 compared to 14.4-to-1 for 2015.
For the three months ended June 30, 2016,
Take Shape For Life® revenue increased to $57.4 million compared to $52.3 million in the same period in 2015. This is the
third consecutive quarter of year-over-year revenue growth for the business unit. For the six months ended June 30, 2016, Take
Shape For Life® revenue increased to $114.1 million compared to $104.4 million in the same period in 2015. The increase in
revenue for Take Shape For Life® was driven by an increase in the number of active Health Coaches and revenue per Health Coach,
as well as the pass-through of the price increase put in place in April of 2016. The number of active Health Coaches for the three
months ended June 30, 2016 increased to 12,800 compared with 11,800 during the same period for 2015, an increase of 8%. The quarterly
revenue per Health Coach increased 1% to $4,479 for the three months ended June 30, 2016 compared to $4,423 for the three months
ended June 30, 2015.
Medifast Direct revenue decreased 32%
to $9.3 million for the three months ended June 30, 2016 compared to $13.7 million for the three months ended June 30, 2015 and
decreased 28% to $20.2 million for the six months ended June 30, 2016 compared to $28.1 million for the six months ended June
30, 2015. Revenues in this business unit are driven primarily by targeted customer marketing and advertising as well as the direct
response initiatives in place. Sales for the period were down in comparison to the same period for 2015 as new customer acquisition
continued to be challenging, partially offset by a price increase effective April 2016. Medifast Direct advertising during the
three months ended June 30, 2016 was down 61% to $1.6 million compared to $4.1 million for the three months ended June 30, 2015.
Medifast Direct advertising during the six months ended June 30, 2016 was $5.7 million compared to $9.5 million for the six months
ended June 30, 2015. The Company reduced advertising spending and only invested in initiatives that met distinct criteria in an
effort to focus on determining the ideal media mix to optimize profitability.
MWCC revenue decreased 13%, with revenue
of $4.1 million for the three months ended June 30, 2016 compared to $4.7 million for the same period of 2015 and decreased 10%
with revenue of $8.4 million for the six months ended June 30, 2016 compared to $9.3 million for the same period of 2015. Fifty-seven
franchise centers were in operation as of June 30, 2016 compared to 62 franchise centers as of June 30, 2015. The decrease in
franchise centers over the 12 month period was the result of four centers closing. The decrease in revenue for the three and six
months ended June 30, 2016 in comparison to the three and six months ended June 30, 2015 was primarily driven by fewer franchise
centers in operation during the period partially offset by an increase in sales per center.
Medifast Wholesale revenue decreased $1.2
million to $0.3 million for the three months ended June 30, 2016 compared to $1.5 million for the three months ended June 30,
2015 and decreased $2.9 million to $0.8 million for the six months ended June 30, 2016 compared to $3.7 million for the six months
ended June 30, 2015. The decrease for the period was due to the loss of certain accounts resulting from Medifast’s enforcement
of business partner compliance distribution requirements.
Costs of Sales: Cost of sales decreased
$1.1 million to $17.9 million for the three months ended June 30, 2016 compared to the same period in 2015 and decreased $1.5
million to $37.1 million for the six months ended June 30, 2016 compared to the same period in 2015. The decrease in cost of sales
for the periods was primarily due to decreased sales volumes and reduced shipping costs. As a percentage of sales, gross margin
increased to 74.8% from 73.7% in the three months ended June 30, 2016 compared to the three months ended June 30, 2015, and increased
to 74.2% from 73.5% in the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The gross margin improvements
for the quarter-to-date and year-to-date were primarily driven by the price increases implemented in March 2015 and April 2016.
Selling, General and Administrative Expenses:
Selling, general and administrative expenses were $48.2 million for the three months ended June 30, 2016, and increase of $3.7
million, compared to $44.5 million in the same period of 2015. As a percentage of sales, selling, general and administrative expenses
increased to 67.8% for the three months ended June 30, 2016 versus 61.7% for the same period of 2015. The Company incurred a $6.1
million impairment charge in connection with the abandonment of software under development for the Take Shape For Life® business
unit in the three months ended June 30, 2016 and $0.3 million in extraordinary legal and advisory expenses related to 13D filings
in the three months ended June 30, 2015. The decision to abandon the software, which was determined in the final stages of the
quarterly close process, was the result of an in depth analysis of proven alternatives available today in the market which are
a better fit for our business going forward and the cost of these alternatives when compared to the ongoing development and maintenance
of the abandoned software. Excluding those expenses, selling, general, and administrative costs would have been $42.1 million,
or 59.2% as a percentage of sales, and $44.2 million, or 61.3% as a percentage of sales, for the three months ended June 30, 2016
and 2015, respectively. Take Shape For Life® commission expense, which is variable based upon product sales, increased by
approximately $2.1 million for the three months ended June 30, 2016 as compared to the same period of 2015, which is in line with
the sales growth of 10% Take Shape For Life® experienced compared to the same period of the prior year.
Selling, general and administrative expenses
were $95.1 million for the six months ended June 30, 2016 compared to $91.8 million in the same period of 2015. As a percentage
of sales, selling, general and administrative expenses increased to 66.3% versus 63.1% in the same period of 2015. The Company
incurred $6.1 million in asset impairment costs and $1.2 million in restructuring costs in the six months ended June 30, 2016
and $2.1 million in extraordinary legal and advisory expenses related to 13D filings in the six months ended June 30, 2015. Excluding
those expenses, selling, general, and administrative costs would have been $87.8 million, or 61.2%, and $89.7 million, or 61.6%,
for the six months ended June 30, 2016 and 2015, respectively. Take Shape For Life® commission expense, which is variable
based upon product sales, increased by approximately $4.2 million for the six months ended June 30, 2016 as compared to the same
period of 2015, which is in line with the sales growth of 9% Take Shape For Life® experienced compared to the prior year.
Salaries and benefits decreased by approximately
$0.7 million and $0.2 million for the three and six months ended June 30, 2016, respectively, compared to the same periods in
2015. The decrease in expenses for the three months ended June 30, 2016, was primarily driven by savings recognized as a result
of the restructuring that took place during the first quarter of 2016. The Company announced the departure of three Executive
Vice Presidents in an effort to re-align the Senior Leadership Team to reflect the changing needs of the business and to provide
greater emphasis on the Company’s key areas of focus, and also the resignation of the President and Chief Operating Officer.
The Company incurred $1.2 million in net restructuring costs in Selling, general, and administrative expense associated with the
separation agreements for these four executives. This includes a $0.2 million reversal of costs accrued in 2015 for deferred shares
that were granted in connection with the 2015 bonus plan and were forfeited as a result of their departure. All expenses are expected
to be paid within 12 months and the Company estimates that it will recognize $2.2 million in future annual savings as a result
of the restructuring.
The following
table summarizes the severance accruals incurred as of June 30, 2016, excluding the reversal of prior year stock accrual:
Ending accrued balance as of December 31, 2015
|
|
$
|
-
|
|
Charges incurred during the period
|
|
|
1,343
|
|
Payments during the period
|
|
|
(356
|
)
|
Ending accrued balance as of June 30, 2016
|
|
$
|
987
|
|
Sales and marketing expense decreased
by $2.9 million and $4.0 million in the three and six months ended June 30, 2016, respectively, compared to the same periods in
2015. The $2.9 million decrease for the three months ended June 30, 2016 compared to 2015 was primarily driven by reduced advertising
spend, particularly for Medifast Direct. It was also impacted by increases in research and development costs and reduced spending
in Take Shape For Life® based on a key event occurring earlier in the year in 2016 than in 2015. The $4.0 million decrease
for the six months ended June 30, 2016 compared to 2015 was primarily driven by reduced advertising spending, reduced production
costs associated with the Company’s 2016 television commercial as compared to 2015 production costs, and was partially offset
by increases in research and development costs.
General expenses decreased $0.4 million
and $2.1 for the three and six months ended June 30, 2016, respectively, in comparison to the same periods in 2015. The decrease
in expense was primarily driven by $0.3 million and $2.1 in extraordinary expenses resulting from 13D filings incurred during
the three and six months ended June 30, 2015, respectively. The Company reached a settlement agreement with Engaged Capital, LLC.,
a stockholder of the Company, during the first quarter of 2015 and additional expenses have not been incurred. The significant
decrease in legal fees was partially offset by an increase in consulting expenses. Other expenses increased by $5.6 million and
$5.5 million for the three and six months ended June 30, 2016, respectively. The significant increase for both periods was driven
by the $6.1 million impairment for the abandonment of the Take Shape For Life® software that was under development. This was
partially offset by a decrease in depreciation expense for the periods.
Income taxes
:
In the three months ended June 30, 2016,
the Company recorded $1.7 million in income tax expense, an effective rate of 33.3%, compared to $3.0 million in income tax expense,
an effective rate of 33.8%, in the three months ended June 30, 2015. In the six months ended June 30, 2016, the Company recorded
$3.8 million in income tax expense, an effective rate of 33.1%, compared to $5.4 million in income tax expense, an effective rate
of 34.3%, in the six months ended June 30, 2015. The decrease in the effective tax rate for the three and six months ended June
30, 2016 in comparison to the three and six months ended June 30, 2015 was due to the increase in the domestic manufacturing deduction
and a change in the tax law making certain research and development credits permanent. The Company anticipates a full year tax
rate of approximately 33-34% in 2016.
Income from continuing operations: Income
from continuing operations was $3.4 million for the three months ended June 30, 2016 compared to $5.8 million for the three months
ended June 30, 2015, a decrease of $2.4 million. Pre-tax profit as a percent of sales decreased to 7.2% in the three months ended
June 30, 2016 compared to 12.2% in the three months ended June 30, 2015. Excluding the asset impairment and extraordinary legal
expenses, income from continuing operations for the three months ended June 30, 2016 and 2015 would have been $7.5 million, or
$0.63 per diluted share, and $6.0 million, or $0.50 per diluted share, respectively. Income from continuing operations was $7.7
million for the six months ended June 30, 2016 compared to $10.3 million for the six months ended June 30, 2015, a decrease of
$2.6 million. Pre-tax profit as a percent of sales decreased to 8.0% in the six months ended June 30, 2016 compared to 10.7% in
the six months ended June 30, 2015. Excluding the asset impairment, restructuring charges, and extraordinary legal expenses, income
from continuing operations for the six months ended June 30, 2016 and 2015 would have been, $12.5 million, or $1.05 per diluted
share, and $11.6 million, or $0.96 per diluted share, respectively.
Income from discontinued operations: In
2014, the Company exited the MWCC corporate center model with the sale of 41 centers to existing franchise partners and the closure
of the remaining 34 corporate centers. The Company had negligible income from discontinued operations for the three and six months
ended June 30, 2016 and 2015.
Net income: Net income was $3.4 million
and $7.7 million for the three and six months ended June 30, 2016 compared to $6.2 million and $10.7 million for the three and
six months ended June 30, 2015. The year-over-year changes were driven by the factors described above in the explanations from
continuing operations and income from discontinued operations.
Non-GAAP Financial Measures
In addition to providing results that
are determined in accordance with GAAP, the Company provides certain non-GAAP financial measures. For the three months ended June
30, 2016 and 2015, the Company’s non-GAAP financial measures of adjusted net income and adjusted diluted earnings per share
exclude the impairment of the fixed asset incurred in the three months ended June 30, 2016 and the extraordinary legal and advisory
expenses incurred in the three months ended June 30, 2015 in connection with the Schedule 13D filings. For the six months ended
June 30, 2016 and 2015, the Company’s non-GAAP financial measures of adjusted net income and adjusted diluted earnings per
share also exclude the restructuring charges the Company incurred in the first quarter of 2016. These non-GAAP measures are being
provided as pro-forma statements to provide information regarding expected future performance. The departed executives included
in the restructuring were employed in 2015; and therefore, the 2016 results excluding these charges are not comparative to the
2015 results.
The reconciliations of these non-GAAP financial measures are
as follows:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and administrative
|
|
$
|
48,201
|
|
|
$
|
44,504
|
|
|
$
|
95,127
|
|
|
$
|
91,762
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
|
6,083
|
|
|
|
-
|
|
|
|
6,083
|
|
|
|
-
|
|
Restructuring charges
|
|
|
-
|
|
|
|
-
|
|
|
|
1,166
|
|
|
|
-
|
|
Legal expenses- 13D
|
|
|
-
|
|
|
|
266
|
|
|
|
-
|
|
|
|
2,110
|
|
Adjusted selling, general, and administrative
|
|
$
|
42,118
|
|
|
$
|
44,238
|
|
|
$
|
87,878
|
|
|
$
|
89,652
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
$
|
5,024
|
|
|
$
|
8,663
|
|
|
$
|
11,292
|
|
|
$
|
15,175
|
|
Adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
|
6,083
|
|
|
|
-
|
|
|
|
6,083
|
|
|
|
-
|
|
Restructuring charges
|
|
|
-
|
|
|
|
-
|
|
|
|
1,166
|
|
|
|
-
|
|
Legal expenses- 13D
|
|
|
-
|
|
|
|
266
|
|
|
|
-
|
|
|
|
2,110
|
|
Adjusted income from operations
|
|
$
|
11,107
|
|
|
$
|
8,929
|
|
|
$
|
18,541
|
|
|
$
|
17,285
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
3,397
|
|
|
$
|
5,847
|
|
|
$
|
7,657
|
|
|
$
|
10,263
|
|
Adjustments (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
|
4,058
|
|
|
|
-
|
|
|
|
4,067
|
|
|
|
-
|
|
Restructuring charges
|
|
|
-
|
|
|
|
-
|
|
|
|
780
|
|
|
|
-
|
|
Legal expenses- 13D
|
|
|
-
|
|
|
|
176
|
|
|
|
-
|
|
|
|
1,386
|
|
Adjusted income from continuing operations
|
|
$
|
7,455
|
|
|
$
|
6,023
|
|
|
$
|
12,504
|
|
|
$
|
11,649
|
|
Loss on discontinued operations, net of tax
|
|
|
-
|
|
|
|
401
|
|
|
|
-
|
|
|
|
429
|
|
Adjusted net income
|
|
$
|
7,455
|
|
|
$
|
6,424
|
|
|
$
|
12,504
|
|
|
$
|
12,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations (2)
|
|
$
|
0.29
|
|
|
$
|
0.48
|
|
|
$
|
0.64
|
|
|
$
|
0.84
|
|
Impact for adjustments (2)
|
|
|
0.34
|
|
|
|
0.02
|
|
|
|
0.41
|
|
|
|
0.12
|
|
Adjusted diluted earnings per share from continuing operations (2)
|
|
$
|
0.63
|
|
|
$
|
0.50
|
|
|
|
1.05
|
|
|
$
|
0.96
|
|
Diluted loss per share from discontinued operations (2)
|
|
$
|
-
|
|
|
$
|
0.03
|
|
|
$
|
-
|
|
|
$
|
0.04
|
|
Adjusted diluted earnings per share (2)
|
|
$
|
0.63
|
|
|
$
|
0.53
|
|
|
$
|
1.05
|
|
|
$
|
1.00
|
|
(1) The tax effected impact of adjustments
is calculated utilizing the effective tax rate for the period presented, which may differ for quarterly and year-to-date periods.
(2) 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.
Excluding the impact of the $6.1 million
impairment charge, adjusted selling, general, and administrative expenses was $42.1 million for the three months ended June 30,
2016. Excluding the impact of the $0.3 million extraordinary legal expenses incurred in connection with the Schedule 13D filings,
adjusted selling, general, and administrative expenses was $44.2 million for the three months ended June 30, 2015. Excluding the
impact of the $6.1 million impairment charge and $1.2 million restructuring charges, adjusted selling, general, and administrative
expenses was $87.9 million for the six months ended June 30, 2016. Excluding the impact of the $2.1 million extraordinary legal
expenses incurred in connection with the Schedule 13D filings, adjusted selling, general, and administrative expenses was $89.7
million for the six months ended June 30, 2015. Adjusted income from operations was $11.1 million and $8.9 million for the three
months ended June 30, 2016 and 2015, respectively. Adjusted income from operations was $18.5 million and $17.3 million for the
six months ended June 30, 2016 and 2015, respectively. Adjusted income from continuing operations for the three and six months
ended June 30, 2016 was $7.5 million, or $0.63 per share, and $12.5 million, or $1.05 per share, respectively, compared to $6.0
million, or $0.50 per share, and $11.6 million, or $0.96 per share, for the three and six months ended June 30, 2015, respectively.
Liquidity and Capital Resources
The Company had stockholders’ equity
of $91.3 million and working capital of $73.4 million at June 30, 2016 compared with $88.6 million and $64.5 million at December
31, 2015, respectively. The $2.7 million net increase in stockholder’s equity reflects $7.7 million in 2016 net income offset
by $6.0 million used to declare dividends to stockholders as well as other equity transactions as outlined in the “Condensed
Consolidated Statement of Changes in Stockholders’ Equity” included in our consolidated financial statements. The
dividend of $0.25 per share to the Company’s common stockholders was declared on June 15, 2016 and will be paid in the third
quarter of 2016. While we intend to continue the dividend program and believe we will have sufficient liquidity to do so, we can
provide no assurance we will be able to continue the declaration and payment of dividends. The Company’s cash and cash equivalents
position increased from $42.0 million at December 31, 2015 to $58.6 million at June 30, 2016.
In the six months ended June 30, 2016
the Company generated cash flow of $19.0 million from continuing operations, partially attributable to $7.7 million in income
from continuing operations. Cash provided by operating activities of $15.3 million primarily includes asset impairment of $6.1
million, depreciation and amortization of $3.0 million, a $2.9 million decrease in prepaid income taxes, a $2.0 million decrease
in inventory, and share-based compensation of $1.2 million. This was offset by cash used by operating activities of deferred income
taxes of $3.0 million, a $0.6 million increase in prepaid expenses and other current assets, and a $0.2 million decrease in accounts
payable and accrued expenses.
Net cash used in operating activities
from discontinued operations was $0.3 million including a $0.6 million decrease in accounts payable and accrued expenses and $0.4
million decrease in accounts receivable.
In the six months ended June 30, 2016,
net cash provided by investing activities from continuing operations was $4.2 million, driven by $26.7 million of cash generated
by the sale of investment securities and $0.7 million proceeds from the sale of property and equipment. This was offset by $23.2
million in cash used by investing activities, consisting of $22.4 million for the purchase of investment securities and $0.8 million
for the purchase of property and equipment.
In the six months ended June 30, 2016,
financing activities from continuing operations used $6.4 million in cash. The Company used $5.9 for cash dividends paid to stockholders,
$0.7 million to repurchase shares of the Company’s common stock to cover employee taxes, and $0.1 million to repay capital
leases. Options exercised by executives and directors provided $0.3 million in cash and the Company realized a $0.1 million cash
benefit for excess tax benefits from share-based compensation. As of June 30, 2016, there are 847,567 shares of the Company’s
common stock eligible for repurchase under the repurchase authorization dated September 16, 2014.
In pursuing its business strategy, the
Company may require additional cash for operating and investing activities. The Company expects future cash requirements, if any,
to be funded from operating cash flow and financing activities.
The Company evaluates acquisitions from time to time as presented.