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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-31573

Medifast, Inc.

(Exact name of registrant as specified in its charter)

Delaware

    

13-3714405

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

100 International Drive

Baltimore, Maryland 21202

Telephone Number: (410) 581-8042

(Address of Principal Executive Offices, Zip Code and Telephone Number, Including Area Code)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, par value $0.001 per share

MED

New York Stock Exchange

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of the registrant’s common stock outstanding at October 28, 2021 was 11,616,233.

Medifast, Inc. and subsidiaries

Index

Part 1 – Financial Information

    

Item 1 – Financial Statements

Condensed Consolidated Statements of Income (unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020

2

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020

3

Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2021 and December 31, 2020

4

Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2021 and 2020

5

Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, 2021 and 2020

6

Notes to Condensed Consolidated Financial Statements (unaudited)

8

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

21

Item 4 – Controls and Procedures

22

Part II – Other Information

Item 1 – Legal Proceedings

22

Item 1A – Risk Factors

22

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

23

Item 6 – Exhibits

24

1

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(U.S. dollars in thousands, except per share amounts & dividend data)

Three months ended September 30,

Nine months ended September 30,

2021

2020

2021

2020

Revenue

$

413,395

$

271,470

$

1,148,253

$

669,930

Cost of sales

106,338

67,434

298,942

171,354

Gross profit

307,057

204,036

849,311

498,576

Selling, general, and administrative

251,886

159,477

679,907

402,385

Income from operations

55,171

44,559

169,404

96,191

Other income (expense)

Interest (expense) income

(94)

44

(138)

212

Other income

115

30

112

12

21

74

(26)

224

Income from operations before income taxes

55,192

44,633

169,378

96,415

Provision for income taxes

13,210

10,180

39,370

21,550

Net income

$

41,982

$

34,453

$

130,008

$

74,865

Earnings per share - basic

$

3.59

$

2.93

$

11.07

$

6.36

Earnings per share - diluted

$

3.56

$

2.91

$

10.98

$

6.32

Weighted average shares outstanding

Basic

11,692

11,766

11,739

11,772

Diluted

11,785

11,857

11,840

11,840

Cash dividends declared per share

$

1.42

$

1.13

$

4.26

$

3.39

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(U.S. dollars in thousands)

Three months ended September 30,

Nine months ended September 30,

2021

2020

2021

2020

Net income

$

41,982

$

34,453

$

130,008

$

74,865

Other comprehensive income (loss), net of tax:

Foreign currency translation

63

(1)

130

(3)

Unrealized (losses) gains on investment securities

(16)

(1)

(49)

75

Other comprehensive income (loss)

47

(2)

81

72

Comprehensive income

$

42,029

$

34,451

$

130,089

$

74,937

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(U.S. dollars in thousands, except par value)

September 30,

December 31,

2021

2020

ASSETS

Current Assets

Cash and cash equivalents

$

154,516

$

163,723

Inventories

129,614

53,392

Investment securities

5,379

10,752

Prepaid expenses and other current assets

11,541

6,447

Total current assets

301,050

234,314

Property, plant and equipment - net of accumulated depreciation

46,451

27,633

Right-of-use assets

16,736

10,508

Other assets

6,439

2,937

Deferred tax assets

692

692

TOTAL ASSETS

$

371,368

$

276,084

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable and accrued expenses

$

155,506

$

107,677

Current lease obligations

5,402

3,673

Total current liabilities

160,908

111,350

Lease obligations, net of current lease obligations

14,221

7,488

Total liabilities

175,129

118,838

Stockholders' Equity

Common stock, par value $.001 per share: 20,000 shares authorized;

11,618 and 11,822 issued and 11,616 and 11,772 outstanding

at September 30, 2021 and December 31, 2020, respectively

12

12

Additional paid-in capital

12,950

7,842

Accumulated other comprehensive income

122

41

Retained earnings

183,155

154,351

Less: treasury stock at cost, 0 and 46 shares at September 30, 2021 and December 31, 2020, respectively

-

(5,000)

Total stockholders' equity

196,239

157,246

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

371,368

$

276,084

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(U.S. dollar in thousands)

Nine months ended September 30,

2021

2020

Operating Activities

Net income

$

130,008

$

74,865

Adjustments to reconcile net income to cash provided by operating activities

Depreciation and amortization

7,275

5,259

Share-based compensation

6,613

4,243

Loss on sale of disposal of property, plant and equipment

-

28

Amortization of premium on investment securities

70

263

Deferred income taxes

-

(735)

Change in operating assets and liabilities:

Inventories

(76,222)

7,035

Income taxes, prepaid

-

5,169

Prepaid expenses and other current assets

(5,094)

1,728

Other assets

(3,393)

(2,566)

Accounts payable and accrued expenses

42,747

30,078

Net cash flow provided by operating activities

102,004

125,367

Investing Activities

Sale and maturities of investment securities

5,145

2,000

Purchase of property and equipment

(22,585)

(3,852)

Net cash flow used in investing activities

(17,440)

(1,852)

Financing Activities

Options exercised by executives and directors

811

1,424

Net shares repurchased for employee taxes

(1,867)

(532)

Cash dividends paid to stockholders

(46,845)

(39,892)

Stock repurchases

(46,000)

(5,000)

Net cash flow used in financing activities

(93,901)

(44,000)

Foreign currency impact

130

(3)

(Decrease) Increase in cash and cash equivalents

(9,207)

79,512

Cash and cash equivalents - beginning of the period

163,723

76,974

Cash and cash equivalents - end of period

$

154,516

$

156,486

Supplemental disclosure of cash flow information:

Income taxes paid

$

41,302

$

14,135

Dividends declared included in accounts payable

$

17,351

$

13,715

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(U.S. dollars in thousands)

Three and Nine months ended September 30, 2021

Number of Shares Issued

Common Stock

Additional Paid-In Capital

Accumulated Other Comprehensive Income

Retained Earnings

Treasury Stock

Total

Balance, December 31, 2020

11,822

$

12

$

7,842

$

41

$

154,351

$

(5,000)

$

157,246

Net income

-

-

-

-

41,063

-

41,063

Share-based compensation

13

-

2,198

-

-

-

2,198

Options exercised by executives and directors

11

-

481

-

-

-

481

Net shares repurchased for employee taxes

(7)

-

(1,807)

-

-

-

(1,807)

Treasury stock from stock repurchases

-

-

-

-

-

(7,500)

(7,500)

Other comprehensive income

-

-

-

62

-

-

62

Cash dividends declared to stockholders

-

-

-

-

(16,852)

-

(16,852)

Balance, March 31, 2021

11,839

12

8,714

103

178,562

(12,500)

174,891

Net income

-

-

-

-

46,963

-

46,963

Share-based compensation

10

-

1,697

-

142

-

1,839

Options exercised by executives and directors

3

-

221

-

-

-

221

Net shares repurchased for employee taxes

-

-

(26)

-

-

-

(26)

Other comprehensive loss

-

-

-

(28)

-

-

(28)

Treasury stock from stock repurchases

-

-

-

-

-

(12,230)

(12,230)

Treasury stock retired from stock repurchases

(114)

-

-

-

(23,383)

23,383

-

Cash dividends declared to stockholders

-

-

-

-

(16,941)

-

(16,941)

Balance, June 30, 2021

11,738

12

10,606

75

185,343

(1,347)

194,689

Net income

-

-

-

-

41,982

-

41,982

Share-based compensation

1

-

2,269

-

-

-

2,269

Options exercised by executives and directors

3

-

109

-

-

-

109

Net shares repurchased for employee taxes

(1)

-

(34)

-

-

-

(34)

Other comprehensive Income

-

-

-

47

-

-

47

Treasury stock from stock repurchases

-

-

-

-

-

(26,270)

(26,270)

Treasury stock retired from stock repurchases

(123)

-

-

-

(27,617)

27,617

-

Cash dividends declared to stockholders

-

-

-

-

(16,553)

-

(16,553)

Balance, September 30, 2021

11,618

$

12

$

12,950

$

122

$

183,155

$

-

$

196,239

(Continued on page 7)

6

Three and Nine months ended September 30, 2020

Number of Shares Issued

Common Stock

Additional Paid-In Capital

Accumulated Other Comprehensive Income

Retained Earnings

Treasury Stock

Total

Balance, December 31, 2019

12,272

$

12

$

-

$

25

$

168,788

$

(63,993)

$

104,832

Net income

-

-

-

-

18,477

-

18,477

Share-based compensation

7

-

981

-

-

-

981

Net shares repurchased for employee taxes

(5)

-

(487)

-

-

-

(487)

Treasury stock retired from stock repurchases

(489)

-

-

-

(63,993)

63,993

-

Other comprehensive income

-

-

-

45

-

-

45

Cash dividends declared to stockholders

-

-

-

-

(13,099)

-

(13,099)

Balance, March 31, 2020

11,785

12

494

70

110,173

-

110,749

Net income

-

-

-

-

21,935

-

21,935

Share-based compensation

-

-

1,136

-

-

-

1,136

Options exercised by executives and directors

21

-

1,250

-

-

-

1,250

Net shares repurchased for employee taxes

-

-

(9)

-

-

-

(9)

Other comprehensive income

-

-

-

29

-

-

29

Treasury stock from stock repurchases

-

-

-

-

-

(5,000)

(5,000)

Cash dividends declared to stockholders

-

-

-

-

(13,354)

-

(13,354)

Balance, June 30, 2020

11,806

12

2,871

99

118,754

(5,000)

116,736

Net income

-

-

-

-

34,453

-

34,453

Share-based compensation

9

-

2,126

-

-

-

2,126

Options exercised by executives and directors

2

-

174

-

-

-

174

Net shares repurchased for employee taxes

-

-

(36)

-

-

-

(36)

Other comprehensive loss

-

-

-

(2)

-

-

(2)

Cash dividends declared to stockholders

-

-

-

-

(13,437)

-

(13,437)

Balance, September 30, 2020

11,817

$

12

$

5,135

$

97

$

139,770

$

(5,000)

$

140,014

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

MEDIFAST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of Medifast, Inc. and its wholly-owned subsidiaries (“Medifast,” the “Company,” “we,” “us,” or “our”) included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and notes that are normally required by GAAP have been condensed or omitted. 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 condensed consolidated balance sheet at December 31, 2020 has been derived from the audited consolidated financial statements at that date included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“2020 Form 10-K”).

The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2021. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the 2020 audited consolidated financial statements and notes thereto, which are included in the 2020 Form 10-K.

Presentation of Financial Statements - The unaudited condensed consolidated financial statements included herein include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated.

Reclassification - Certain amounts reported for prior periods have been reclassified to be consistent with the current period presentation. No reclassification in the condensed consolidated financial statements had a material impact on the presentation.

Use of Estimates - 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 and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

Accounting Pronouncements Adopted in 2021

On January 1, 2021, the beginning of the Company’s fiscal year, the Company adopted Accounting Standard Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is designed to simplify the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740. There was no material impact on the Company’s condensed consolidated financial statements upon adoption of this ASU. 

Recently Issued Accounting Pronouncements – Pending Adoption

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying accounting principles under GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met and to other derivative instruments if there is a change to the interest rates used for discounting, margining or contract price alignment. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We are currently evaluating our contracts and the optional expedients provided by the new standard as it pertains to the credit agreement disclosed in Note 8.

8

2. INVENTORIES

Inventories consist principally of raw materials, non-food finished goods and packaged meal replacements held in the Company’s warehouses and outsourced distribution centers. Inventories are stated at the lower of cost or net realizable value, 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 inventories for unsalable or obsolete inventories.

Inventories consisted of the following (in thousands):

September 30, 2021

December 31, 2020

Raw materials

$

13,840

$

13,428

Packaging

3,395

4,071

Non-food finished goods

15,407

8,078

Finished goods

100,688

29,858

Reserve for obsolete inventory

(3,716)

(2,043)

Total

$

129,614

$

53,392

3. EARNINGS PER SHARE

Basic earnings per share (“EPS”) computations are calculated utilizing the weighted average number of shares of the Company’s common stock outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of shares of the Company’s common stock outstanding adjusted for the effect of dilutive common stock equivalents.

The following table sets forth the computation of basic and diluted EPS (in thousands, except per share data):

Three months ended September 30,

Nine months ended September 30,

2021

2020

2021

2020

Numerator:

Net income

$

41,982

$

34,453

$

130,008

$

74,865

Denominator:

Weighted average shares of common stock outstanding

11,692

11,766

11,739

11,772

Effect of dilutive common stock equivalents

93

91

101

68

Weighted average shares of common stock outstanding

11,785

11,857

11,840

11,840

Earnings per share - basic

$

3.59

$

2.93

$

11.07

$

6.36

Earnings per share - diluted

$

3.56

$

2.91

$

10.98

$

6.32

The calculation of diluted EPS excluded 0 and 88 antidilutive options outstanding for the three months ended September 30, 2021 and 2020, respectively, and 0 and 545 antidilutive options outstanding for the nine months ended September 30, 2021 and 2020, respectively.  The calculation of diluted EPS also excluded 218 and 0 antidilutive restricted stock awards for the three months ended September 30, 2021 and 2020, respectively, and 306 and 3,620 antidilutive restricted stock awards for the nine months ended September 30, 2021 and 2020, respectively. EPS is computed independently for each of the periods presented above, and accordingly, the sum of the quarterly earnings per common share may not equal the year-to-date total computed.

9

4. SHARE-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 risk-free interest rate, the expected volatility of the price of the Company’s common stock, and dividend yield. Options outstanding as of September 30, 2021 generally vest over a period of three years and expire ten years from the date of grant. The exercise price of these options ranges from $26.52 to $66.68. Due to the Company’s lack of option exercise history on the date of grant, the expected term is calculated using the simplified method defined as the midpoint between the vesting period and the contractual term of each option. The risk free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant that most closely corresponds to the expected term of the option. 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. The dividend yield is computed as the annualized dividend rate at the grant date divided by the strike price of the stock option. For the nine months ended September 30, 2021 and 2020, the Company did not grant stock options.

The following table is a summary of our stock option activity:

Nine months ended September 30,

2021

2020

Awards

Weighted-Average Exercise Price

Awards

Weighted-Average Exercise Price

(awards in thousands)

Outstanding at beginning of period

61

$

48.19

97

$

52.53

Exercised

(16)

49.69

(24)

58.80

Forfeited

-

-

(6)

68.84

Outstanding at end of the period

45

$

47.66

67

$

48.71

Exercisable at end of the period

35

$

42.00

48

$

40.83

As of September 30, 2021, the weighted-average remaining contractual life for outstanding stock options was 5.0 years with an aggregate intrinsic value of $6.7 million and the weighted-average remaining contractual life for exercisable stock options was 4.6 years with an aggregate intrinsic value of $5.3 million. The unrecognized compensation expense calculated under the fair value method for stock options expected to vest as of September 30, 2021 was $0.1 million and is expected to be recognized over a weighted average period of 1.4 years. For the nine months ended September 30, 2021, the Company received $0.8 million in cash proceeds from the exercise of stock options. The total intrinsic value for stock options exercised during the nine months ended September 30, 2021 was $3.3 million. For the nine months ended September 30, 2020, the Company received $1.4 million in cash proceeds from the exercise of stock options. The total intrinsic value for stock options exercised during the nine months ended September 30, 2020 was $1.1 million. 

10

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 of the restricted stock 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 our restricted stock activity:

Nine months ended September 30,

2021

2020

Shares

Weighted-Average Grant Date Fair Value

Shares

Weighted-Average Grant Date Fair Value

(shares in thousands)

Outstanding at beginning of period

50

$

116.06

46

$

98.28

Granted

21

266.99

43

113.68

Vested

(26)

116.62

(30)

86.79

Forfeited

(3)

166.02

(7)

108.81

Outstanding at end of the period

42

$

183.04

52

$

116.29

The Company withheld 7,226 and 5,432 shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the vesting of shares of restricted stock for the nine months ended September 30, 2021 and 2020, respectively. The total fair value of restricted stock awards vested during the nine months ended September 30, 2021 and 2020 was $6.9 million and $3.4 million, respectively.

The total share-based compensation charged against income was $2.3 million and $2.1 million during the three months ended September 30, 2021 and 2020, respectively, and $6.6 million and $4.2 million during the nine months ended September 30, 2021 and 2020, respectively. The total costs of the options and restricted stock awards charged against income was $1.1 million and $1.0 million during the three months ended September 30, 2021 and 2020, respectively, and $3.2 million and $2.5 million during the nine months ended September 30, 2021 and 2020. Included for the three and nine months ended September 30, 2021 was $0.4 million and $1.4 million, respectively, for 15,834 performance-based contingent shares and for the three and nine months ended September 30, 2020 was $0.5 million and $0.8 million, respectively, for 16,637 performance-based contingent shares for certain key executives granted in 2019. Also included for the three and nine months ended September 30, 2021 was $0.5 million and $1.3 million, respectively, for 25,999 performance-based contingent shares and for the three and nine months ended September 30, 2020 was $0.6 million and $0.9 million, respectively, for 27,525 performance-based contingent shares for certain key executives granted in 2020. Additionally, included for the three and nine months ended September 30, 2021 was $0.3 million and $0.7 million, respectively, for 13,512 performance-based contingent shares for certain key executives granted in 2021.

The total income tax benefit recognized in the Condensed Consolidated Statements of Income for restricted stock awards was $0.1 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively, and was $2.3 million and $0.9 million for the nine months ended September 30, 2021 and 2020, respectively.

There was $5.8 million of total unrecognized compensation cost related to restricted stock awards as of September 30, 2021, which is expected to be recognized over a weighted-average period of 1.8 years. There was $5.6 million of unrecognized compensation cost related to the 55,345 performance-based contingent shares discussed above as of September 30, 2021, which is expected to be recognized over 1.7 years.

5. LEASES

Operating Leases

The Company has operating leases for office and warehouse space and certain equipment. In certain of the Company’s lease agreements, the rental payments are adjusted periodically based on defined terms within the lease. The Company did not have any finance leases as of September 30, 2021 and 2020, respectively, or for the nine-month periods then ended, respectively.

11

Our leases relating to office and warehouse space have lease terms of 19 to 122 months. Our leases relating to equipment have lease terms of 24 to 203 months, with certain leases having clauses relating to automatic renewal.  

The Company’s warehouse agreements also contain non-lease components, in the form of payments towards variable logistics services and labor charges, which the Company is obligated to pay based on the services consumed by it. Such amounts are not included in the measurement of the lease liability but will be recognized as expense when they are incurred.

The operating lease expense was $1.4 million and $0.9 million for the three months ended September 30, 2021 and 2020, respectively, and was $3.8 million and $2.6 million for the nine months ended September 30, 2021 and 2020, respectively.

Supplemental cash flow information related to the Company’s operating leases was as follows (in thousands):

Nine months ended September 30,

2021

2020

Cash paid for amounts included in the measurements of lease liabilities

Operating cash flow used in operating leases

$

3,175

$

2,778

Right-of-use assets obtained in exchange for lease obligations

Operating leases

$

9,745

$

887

As of September 30, 2021, the weighted average remaining lease term was 4.3 years and the weighted average discount rate was 2.3%.

The following table presents the maturity of the Company’s operating lease liabilities as of September 30, 2021 (in thousands):

2021 (excluding the nine months ended September 30, 2021)

$

1,482

2022

5,540

2023

4,080

2024

3,515

2025

3,591

Thereafter

2,324

Total lease payments

$

20,532

Less: imputed interest

(909)

Total

$

19,623

6. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table sets forth the components of accumulated other comprehensive income, net of tax where applicable (in thousands):

September 30, 2021

December 31, 2020

Foreign currency translation

$

108

$

(22)

Unrealized gains on investment securities

14

63

Accumulated other comprehensive income

$

122

$

41

7. FINANCIAL INSTRUMENTS

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:

12

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 tables present the Company’s cash and financial assets that are measured at fair value on a recurring basis for each of the hierarchy levels (in thousands):