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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
OR
o 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)
Delaware13-3714405
(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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.001 per shareMEDNew York Stock Exchange
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 x No o
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 x No o
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. o
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
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 23, 2023 was 10,892,602.

Medifast, Inc. and Subsidiaries
Index
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,
2023202220232022
Revenue$235,869$390,398$881,039$1,261,332
Cost of sales58,492107,549246,558354,515
Gross profit177,377282,849634,481906,817
Selling, general, and administrative151,868234,693516,755754,610
Income from operations25,50948,156117,726152,207
Other income (expense)
Interest income (expense)1,033(261)1,314(519)
Other income (expense)
7(17)(45)(37)
1,040(278)1,269(556)
Income from operations before income taxes26,54947,878118,995151,651
Provision for income taxes3,41811,72325,61534,601
Net income$23,131$36,155$93,380$117,050
Earnings per share - basic$2.12$3.30$8.58$10.37
Earnings per share - diluted$2.12$3.27$8.55$10.30
Weighted average shares outstanding
Basic10,89210,96410,88111,290
Diluted10,93311,04210,92511,369
Cash dividends declared per share$1.65$1.64$4.95$4.92
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,
2023202220232022
Net income$23,131$36,155$93,380$117,050
Other comprehensive income, net of tax:
Foreign currency translation27 123125300 
Unrealized losses on investment securities(9)(9)(21)
18 123 116279
Comprehensive income$23,149$36,278$93,496$117,329
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,
2023
December 31,
2022
ASSETS
Current Assets
Cash and cash equivalents$112,751 $87,691 
Investment securities45,009  
Inventories
58,227 118,856 
Prepaid expenses and other current assets8,289 16,237 
Total current assets224,276 222,784 
Property, plant and equipment - net of accumulated depreciation53,484 57,185 
Right-of-use assets15,681 18,460 
Other assets15,753 12,456 
Deferred tax assets10,825 5,328 
TOTAL ASSETS$320,019 $316,213 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses$103,223 $134,690 
Income taxes payable
1,417 428 
Current lease obligations5,472 5,776 
Total current liabilities110,112 140,894 
Lease obligations, net of current lease obligations16,872 20,275 
Total liabilities126,984 161,169 
Stockholders' Equity
Common stock, par value $0.001 per share: 20,000 shares authorized;
10,892 and 10,928 issued and 10,892 and 10,873 outstanding
at September 30, 2023 and December 31, 2022, respectively
11 11 
Additional paid-in capital24,107 21,555 
Accumulated other comprehensive income141 24 
Retained earnings 168,776 139,852 
Less: treasury stock at cost, 0 and 54 shares at September 30, 2023 and December 31, 2022, respectively
 (6,398)
Total stockholders' equity193,035 155,044 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$320,019 $316,213 
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,
20232022
Operating Activities
Net income$93,380 $117,050 
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization 9,754 8,026 
Non-cash lease expense3,5324,740 
Share-based compensation5,7958,103 
Loss on sale or disposal of property, plant and equipment622
Amortization of premium on investment securities 14 
Deferred income taxes(5,497)(1,746)
Change in operating assets and liabilities:
Inventories60,629 34,764 
Prepaid expenses and other current assets7,948 1,889 
Other assets(4,674)(8,545)
Accounts payable and accrued expenses (35,343)(22,259)
Income taxes payable989795
Net cash flow provided by operating activities137,135 142,831 
Investing Activities
Sale and maturities of investment securities 5,267 
Purchase of investment securities
(44,779) 
Purchase of property and equipment(5,537)(7,617)
Net cash flow used in investing activities(50,316)(2,350)
Financing Activities
Options exercised by directors105  
Net shares repurchased for employee taxes(3,348)(1,504)
Cash dividends paid to stockholders(55,039)(53,698)
Stock repurchases
(3,602)(120,048)
Net cash flow used in financing activities(61,884)(175,250)
Foreign currency impact125 296 
Increase (Decrease) in cash and cash equivalents25,060 (34,473)
Cash and cash equivalents - beginning of the period87,691 104,183 
Cash and cash equivalents - end of period$112,751 $69,710 
Supplemental disclosure of cash flow information:
Income taxes paid$30,169 $33,906 
Dividends declared included in accounts payable$19,184 $19,395 
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)
Nine months ended September 30, 2023
Number of
Shares Issued
Common StockAdditional Paid-In
Capital
Accumulated Other
Comprehensive Income
Retained
Earnings
Treasury StockTotal
Balance, December 31, 202210,928$11$21,555$24$139,852$(6,398)$155,044
Net income39,96839,968
Share-based compensation69606606
Options exercised by directors4105105
Net shares repurchased for employee taxes(30)(3,236)(3,236)
Treasury stock from stock repurchases(3,602)(3,602)
Treasury stock retired from stock repurchases(84)(10,000)10,000  
Other comprehensive income99
Cash dividends declared to stockholders(17,994)(17,994)
Balance, March 31, 202310,887$11$19,030$33$151,826$ $170,900
Net income30,28030,280
Share-based compensation22,5142,514
Net shares repurchased for employee taxes(2)(2)
Other comprehensive income90— 90
Cash dividends declared to stockholders(18,221)(18,221)
Balance, June 30, 202310,889$11$21,542$123$163,885$ $185,561
Net income— — — 23,131— 23,131
Share-based compensation42,675— — — 2,675
Net shares repurchased for employee taxes(1)(110)— — — (110)
Other comprehensive income— 18 — — 18
Cash dividends declared to stockholders— — (18,240)— (18,240)
Balance, September 30, 202310,892$11$24,107$141$168,776$ $193,035
The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Nine months ended September 30, 2022
Number of
Shares Issued
Common StockAdditional Paid-In
Capital
Accumulated Other
Comprehensive Income
Retained
Earnings
Treasury StockTotal
Balance, December 31, 202111,594$12$12,018$111$190,333$ $202,474
Net income41,78141,781
Share-based compensation182,2752,275
Net shares repurchased for employee taxes(8)(1,459)(1,459)
Treasury stock from stock repurchases— (10,000)(10,000)
Treasury stock retired from stock repurchases(51)(10,000)10,000
Other comprehensive income1616
Cash dividends declared to stockholders(19,063)(19,063)
Balance, March 31, 202211,553$12$12,834$127$203,051$$216,024
Net income39,11339,113
Share-based compensation12,8652,865
Net shares repurchased for employee taxes(20)(20)
Treasury stock from stock repurchases(90,038)(90,038)
Treasury stock retired from stock repurchases(535)(1)— (90,038)90,038(1)
Stock Repurchases, not yet settled(15,679)(4,331)(20,010)
Other comprehensive income141— 141
Cash dividends declared to stockholders(18,598)(18,598)
Balance, June 30, 202211,019$11$$268$129,197$ $129,476
Net income36,15536,155
Share-based compensation12,9632,963
Net shares repurchased for employee taxes(25)(25)
Treasury stock from stock repurchases(20,010)(20,010)
Treasury stock retired from stock repurchases(91)— (20,010)20,010 
Settlement of accelerated share repurchase agreement15,6794,33120,010
Other comprehensive income123— 123
Cash dividends declared to stockholders(18,170)(18,170)
Balance, September 30, 202210,929$11$18,617$391$131,503$ $150,522
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, 2022 has been derived from the 2022 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, 2022 (“2022 Form 10-K”).
The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2023. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto, which are included in the 2022 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.
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.
Recently Issued Accounting Pronouncements - The Company has not adopted any new accounting standards during the nine months ended September 30, 2023. There are no recently issued accounting pronouncements that are expected to have a material effect on the Company’s financial position, results of operations, cash flows, or disclosures.
2. INVENTORIES
Inventories consist principally of raw materials, packaging, non-food finished goods and finished 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, 2023December 31, 2022
Raw materials$8,491$12,670
Packaging2,2693,611
Non-food finished goods4,4268,738
Finished goods49,55897,675
Reserve for obsolete inventory(6,517)(3,838)
Total$58,227$118,856
8

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,
2023202220232022
Numerator:
Net income$23,131$36,155$93,380$117,050
Denominator:
Weighted average shares of common stock outstanding10,89210,96410,88111,290
Effect of dilutive common stock equivalents41784479
Weighted average shares of common stock outstanding10,93311,04210,92511,369
Earnings per share - basic$2.12$3.30$8.58$10.37
Earnings per share - diluted$2.12$3.27$8.55$10.30
The calculation of diluted EPS excluded 13 thousand and 10 thousand antidilutive restricted stock awards for the three months ended September 30, 2023 and 2022, respectively, and 15 thousand and 3 thousand antidilutive restricted stock awards for the nine months ended September 30, 2023 and 2022, 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.
4. SHARE-BASED COMPENSATION
Stock Options
The Company has issued non-qualified and incentive stock options to employees and non-employee 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, 2023 generally vested over a period of 3 years and expire 10 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, 2023 and 2022, the Company did not grant stock options.
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The following table is a summary of our stock option activity (in thousands, except per share data):
Nine months ended September 30,
20232022
AwardsWeighted-Average Exercise PriceAwardsWeighted-Average Exercise Price
Outstanding at beginning of period33 $54.98 33 $54.98 
Exercised(4)27.18   
Outstanding at end of the period29 $58.65 33 $54.98 
Exercisable at end of the period29 $58.65 28 $52.76 
As of September 30, 2023, the weighted-average remaining contractual life for both the outstanding stock options and exercisable stock options was 3.8 years with an aggregate intrinsic value of $0.5 million. The compensation expense calculated under the fair value method for the nine months ended September 30, 2023 was less than $0.1 million and was fully recognized during the period. For the nine months ended September 30, 2023, the Company received $0.1 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, 2023 was $0.3 million.
Restricted Stock
The Company has issued restricted stock to employees and non-employee directors generally with vesting terms up to 5 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 (in thousands, except per share data):
Nine months ended September 30,
20232022
SharesWeighted-Average Grant Date Fair ValueSharesWeighted-Average Grant Date Fair Value
Outstanding at beginning of period60 $188.11 44 $183.51 
Granted86 97.96 38 176.60 
Vested(25)169.46 (19)156.16 
Forfeited(5)142.11 (1)186.53 
Outstanding at end of the period116 $127.57 62 $187.83 
The Company withheld approximately 10 thousand shares and 8 thousand 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, 2023 and 2022, respectively. The total fair value of restricted stock awards vested during the nine months ended September 30, 2023 and 2022 was $2.6 million and $3.4 million, respectively.
Market and Performance-based Share Awards
The Company has issued market and performance-based share awards to certain key executives who were granted deferred shares and may earn between 0% and 250% of the target number depending upon both the Company’s total stockholder return (“TSR”) and the Company’s performance against predetermined performance goals over a three-year performance period. Market and performance-based share awards that are tied to the Company’s TSR are valued using the Monte Carlo method and are recognized ratably as expense over the award’s performance period. The fair value of the performance-based share awards is equal to the market price of the Company’s common stock on the date of grant adjusted by expected level of achievement over the performance period. Expense for performance-based share awards is amortized ratably over the performance period. In the event that management determines that the Company will not reach the lower threshold of the predetermined performance goals established in the grant agreement, any previously recognized expense is reversed in the period in which such a determination is made. Management determined that the market and performance-based share awards granted in 2022 would
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not reach the lower threshold of the predetermined performance goal resulting in a $1.4 million decrease in the Company’s share-based compensation expense for the nine months ended September 30, 2023.
The Company withheld approximately 22 thousand shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the issuance of shares of market and performance-based share awards for the nine months ended September 30, 2023. No market and performance-based share awards vested and no shares were withheld to cover minimum tax liability withholding obligations for the nine months ended September 30, 2022. The total fair value of market and performance-based share awards issued during the nine months ended September 30, 2023 and 2022 was $5.7 million and $0, respectively.
Share-based compensation expense for all types of awards granted is recorded in selling, general, and administrative expense in the accompanying Condensed Consolidated Statements of Income. The total expense during the three months ended September 30, 2023 and 2022 as follows (in thousands):
Three months ended September 30,
20232022
SharesShare-Based Compensation ExpenseSharesShare-Based Compensation Expense
Options and restricted stock145 $1,558 90 $1,392 
Market and performance-based share awards granted in 202347 487   
Market and performance-based share awards granted in 202224  25 438 
Performance-based share awards granted in 202114 620 15 654 
Performance-based share awards granted in 202028 10 26 479 
Total share-based compensation258 $2,675 156 $2,963 
The total expense during the nine months ended September 30, 2023 and 2022 as follows (in thousands):
Nine months ended September 30,
20232022
SharesShare-Based Compensation ExpenseSharesShare-Based Compensation Expense
Options and restricted stock145 $4,426 90 $3,789 
Market and performance-based share awards granted in 202347 1,048   
Market and performance-based share awards granted in 202224 (1,388)25 950 
Performance-based share awards granted in 202114 1,600 15 1,941 
Performance-based share awards granted in 202028 109 26 1,423 
Total share-based compensation258 $5,795 156 $8,103 
The total income tax benefit recognized in the accompanying Condensed Consolidated Statements of Income for stock awards was $0.3 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively, and $0.4 million and $1.2 million for the nine months ended September 30, 2023 and 2022, respectively.

There was $9.3 million of total unrecognized compensation cost related to restricted stock awards as of September 30, 2023, which is expected to be recognized over a weighted-average period of 1.9 years. There was $5.1 million of unrecognized compensation costs related to the 113 thousand market and performance-based shares presented in the table above as of September 30, 2023, which is expected to be recognized over a weighted-average period of 1.8 years.

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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, 2023 and 2022, respectively, or during the nine-month periods then ended, respectively.
The Company’s leases relating to office and warehouse space have lease terms ranging from 19 months to 122 months. The Company’s leases relating to equipment have lease terms ranging from 24 months to 203 months, with certain of them having automatic renewal clauses.
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 are recognized as expenses when they are incurred.
The operating lease expense was $1.1 million and $1.7 million for the three months ended September 30, 2023 and 2022, respectively, and $3.9 million and $5.2 million for the nine months ended September 30, 2023 and 2022, respectively.

Supplemental cash flow information related to the Company’s operating leases was as follows (in thousands):
Nine months ended September 30,
20232022
Cash paid for amounts included in the measurements of lease liabilities
Operating cash flow used in operating leases$4,838 $5,413 
Right-of-use assets obtained in exchange for lease obligations
Operating leases$753 $103 
As of September 30, 2023, the weighted average remaining lease term was 4 years, 2 months and the weighted average discount rate was 2.00%.
The following table presents the maturity of the Company’s operating lease liabilities as of September 30, 2023 (in thousands):
2023 (excluding the nine months ended September 30, 2023)
$1,435 
20245,955 
20256,095 
20264,438 
20272,553 
Thereafter2,858 
Total lease payments$23,334 
Less: imputed interest(990)
Total $22,344 
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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, 2023December 31, 2022
Foreign currency translation$150$24 
Unrealized net losses on investment securities
(9)
Accumulated other comprehensive (loss)/income$141$24
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:
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):
September 30, 2023
Cost
Unrealized Gains (Losses)
Accrued InterestEstimated Fair
Value
Cash & Cash
Equivalents
Investment
Securities
Cash$107,656$$$107,656$107,656$
Level 1:
Money market accounts5,033625,0955,095
Government & agency securities15,200172815,24515,245
20,233179020,3405,09515,245
Level 2:
Corporate bonds
29,579(26)21129,76429,764
Total$157,468$(9)$301$157,760$112,751$45,009
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December 31, 2022
Cost
Unrealized Gains (Losses)
Accrued InterestEstimated Fair
Value
Cash & Cash
Equivalents
Investment
Securities
Cash$87,691$$$87,691$87,691$
Level 1:
Money market accounts
Government & agency securities
Total$87,691$$$87,691$87,691$
The Company had no realized gain or loss for the three and nine months ended September 30, 2023 and 2022.
8. DEBT
Credit Agreement
On April 13, 2021, the Company and certain of its subsidiaries (collectively, the “Guarantors”) entered into a credit agreement (the “Credit Agreement”) among the Company, the Guarantors, the lenders party thereto and Citibank, N.A., in its capacity as administrative agent. On May 31, 2022, the Credit Agreement was amended to increase the borrowing capacity and convert the interest rate to be based on Secured Overnight Financing Rate (“SOFR”), from London Inter-Bank Offered Rate (LIBOR) (the “Amended Credit Agreement”). The Amended Credit Agreement provides for a $225.0 million senior secured revolving credit facility with a $20.0 million letter of credit sublimit. The Amended Credit Agreement also provides for an uncommitted incremental facility that permits the Company, subject to certain conditions, to increase the senior secured revolving credit facility by up to $100.0 million. The Amended Credit Agreement matures on April 13, 2026.
The Company’s obligations under the Amended Credit Agreement are guaranteed by the Guarantors. The obligations of the Company and the Guarantors are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.
Under the Amended Credit Agreement, the Company will pay to the administrative agent for the account of each revolving lender a commitment fee on a quarterly basis based on amounts committed but unused under the revolving facility from 0.20% to 0.40% per annum depending on the Company’s Total Net Leverage Ratio (as defined in the Amended Credit Agreement). The Company is also obligated to pay the administrative agent customary fees for credit facilities of this size and type.
Revolving borrowings under the Amended Credit Agreement bear interest at a rate per annum equal to (i) the Term SOFR Rate for the interest period plus the Applicable Rate (as defined in the Amended Credit Agreement) based on the Company’s Total Net Leverage Ratio or (ii) the Alternate Base Rate (as defined in the Amended Credit Agreement) as in effect from time to time plus the Applicable Rate based on the Company’s Total Net Leverage Ratio. As of September 30, 2023, the Applicable Rate for Term SOFR Loans is 1.25% per annum and the Applicable Rate for ABR Loans is 0.25% per annum. SOFR based loans also include a Credit Spread Adjustment based on the duration of the borrowing.
The Amended Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments and change the nature of their businesses. The Amended Credit Agreement also contains customary events of default, subject to thresholds and grace periods, including, among others, payment default, covenant default, cross default to other material indebtedness and judgment default. In addition, the Amended Credit Agreement requires the Company to maintain a Total Net Leverage Ratio of no more than 2.75 to 1.00 and an Interest Coverage Ratio of at least 3.50 to 1.00.
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As of September 30, 2023 and December 31, 2022, the Company had no borrowings outstanding under the Amended Credit Agreement and was in compliance with all covenants.
9. ACCELERATED SHARE REPURCHASE (“ASR”) PROGRAM
In the second quarter of fiscal 2022, the Company entered into an ASR agreement with JPMorgan Chase, National Association ("JPMorgan Chase") to purchase shares of its common stock from JPMorgan Chase for an aggregate purchase price of $100.0 million. Pursuant to the ASR program, the Company received an initial delivery of approximately 480 thousand shares of common stock based on the closing price of the common stock on May 31, 2022. Approximately 91 thousand additional shares of the Company's common stock were delivered upon termination of the agreement on August 8, 2022. The final number of shares delivered to the Company under the ASR agreement was based on the average of the daily volume-weighted average trading prices of the Company’s common stock during the term of the ASR program, less a discount.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
Certain information in this report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Act”). These forward-looking statements generally can be identified by use of phrases or terminology such as “intend,” “anticipate,” “expect” or other similar words or the negative of such terminology. Similarly, descriptions of Medifast's objectives, strategies, plans, goals or targets contained herein are also considered forward-looking statements. These statements are based on the current expectations of our management and are subject to certain events, risks, uncertainties and other factors. These risks and uncertainties include, but are not limited to, those described in our 2022 Form 10-K and those described from time to time in our future reports filed with the SEC. Although Medifast believes that the expectations, statements and assumptions reflected in these forward-looking statements are reasonable, it cautions readers to always consider all of the risk factors and any other cautionary statements carefully in evaluating each forward-looking statement in this report. All of the forward-looking statements contained herein speak only as of the date of this report.
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes appearing elsewhere herein.
Overview
Medifast is the health and wellness company known for its habit-based and Coach-guided lifestyle solution OPTAVIA®, which provides people with a simple, yet comprehensive approach to help them achieve lasting optimal health and wellbeing. OPTAVIA offers clinically proven plans, scientifically developed products and a framework for habit creation reinforced by independent Coaches and Community support. As a physician-founded company with a 40+ year history, Medifast is a leader in the U.S. weight management industry, and has impacted more than 3 million lives to date. The company continues to innovate and build upon its scientific and clinical heritage to deliver on its mission of offering the world Lifelong Transformation, One Healthy Habit at a Time®.
Our OPTAVIA brand offers a highly competitive and effective lifestyle solution centered on developing new healthy habits through smaller, foundational changes called microHabits. OPTAVIA is built around four key components:
Independent OPTAVIA Coaches: Coaches, about 90% of whom first started as Customers, provide individualized support and guidance to their Clients along their journeys to optimal health and wellbeing.
OPTAVIA Community: A Community of like-hearted people provide each other with real-time connection and support.
The Habits of Health® Transformational System: A proprietary evidence-based and holistic approach to lifestyle transformation which offers guidance on simple ways to create healthy habits in every area of life.
Products & Plans: Lifestyle plans with clinically proven health benefits and scientifically developed products, backed by dietitians, scientists and physicians.

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We help customers achieve their health goals through a network of approximately 47,100 independent active earning OPTAVIA Coaches. OPTAVIA Coaches introduce customers to a set of healthy habits, in most cases starting with the habit of healthy eating, and offer exclusive OPTAVIA-branded “Fuelings.” Fuelings are nutrient-dense, portion-controlled, nutritionally interchangeable and simple to use. They are formulated with high-quality ingredients and are fortified with probiotic BC30™ cultures, vitamins and minerals, as well as other nutrients essential for good health. In the third quarter of 2023, the company announced OPTAVIA ACTIVE, a new line of premium exercise supplements and protein powders, OPTAVIA ACTIVE Essential Amino Acid (EAA) Blend and Whey Protein, designed to address age-related muscle mass decline and support muscle health. The new products work within existing OPTAVIA plans for those looking to achieve or maintain their optimal weight but also are a great solution for people wanting to enhance their health and wellbeing through movement. Our products support the process of integrating healthy habits into our customers’ day-to-day lives.
The OPTAVIA coaching model is customer-centric and boasts an energized health and wellness community. It promotes holistic health and wellness and positions healthy weight as a catalyst to greater lifestyle changes. OPTAVIA Coaches provide personalized support to customers and motivate them by sharing their passion for healthy living and lifestyle transformation.
OPTAVIA Coaches are another key to our success, as they share their own health and wellness experience and attract new customers, a portion of whom go on to become OPTAVIA Coaches. We offer economic incentives designed to support each OPTAVIA Coach’s long-term success, providing the opportunity to improve their finances while supporting the healthy lifestyles in their families and communities they interact with.1
OPTAVIA Coaches are independent contractors, not employees, who support customers and market our products and services to friends, family and other acquaintances, primarily through word of mouth, email and social media channels such as Facebook, Instagram, X (formerly known as Twitter) and video conferencing platforms. Products are shipped directly to OPTAVIA customers. OPTAVIA Coaches do not handle inventory or deliver merchandise to customers. This arrangement frees our OPTAVIA Coaches from having to manage inventory and allows them to maintain an arms-length transactional relationship while focusing their attention on support and encouragement.
We measure our success by the results our customers are able to achieve. The more OPTAVIA Coaches we have, the more customers we can serve. We believe our Coach-based model is scalable and drives both customer success and growth. We expect our continued investment in fostering a robust community around our OPTAVIA brand and Coaching model will continue to drive a sustainable, repeatable business rhythm focused on our mission of offering the world Lifelong Transformation, One Healthy Habit at a Time.
Our operations are conducted through our wholly owned subsidiaries, Jason Pharmaceuticals, Inc., OPTAVIA, LLC, Jason Enterprises, Inc., Jason Properties, LLC, Seven Crondall Associates, LLC, Corporate Events, Inc., OPTAVIA (Hong Kong) Limited, OPTAVIA (Singapore) PTE. LTD and OPTAVIA Health Consultation (Shanghai) Co., Ltd.
Recent Initiatives
The Company’s Fuel for the Future program is intended to optimize spending through value engineering, operational efficiency and improved procurement, and is expected to free up capital to invest in growth initiatives and raise margins. As a part of these efforts and due to economic changes in the Asia-Pacific region following the COVID-19 pandemic, Medifast exited its operations in Hong Kong and Singapore as of July 1, 2023. This departure was executed with the intention to help better prioritize resources that were previously dedicated to these markets in order to support initiatives that the Company anticipates will have a greater impact on revenues and profitability. This includes investing in technology and digital capabilities as well as rolling out product offerings that are complementary to its existing program, bringing OPTAVIA to new demographics and expanding the Company's total addressable market.
Additionally, on July 27, 2023, the Company announced a new product line, which was launched to customers in September 2023, OPTAVIA ACTIVE, which includes premium amino acid supplements and protein powders, OPTAVIA ACTIVE Essential Amino Acid (EAAs) Blend and OPTAVIA ACTIVE Whey Protein, with other products expected to be rolled out in 2024. Both the EAA Blend and the Whey Protein are designed to help new and existing customers of all fitness levels. With the announcement of the new product line, the Company targets new customer demographic segments and triples its total addressable market by entering the sports nutrition category, a $30 billion market. Further, the new product line is expected to extend the lifetime value of customers by extending their time with their OPTAVIA Coach as customers learn to live the habit of healthy motion. Finally, the new products also extend our offerings by adding exercise, making OPTAVIA a strong choice for those interested in using lifestyle modification along with the support of medically supported weight loss. Formulated to
1 OPTAVIA makes no guarantee of financial success. Success with OPTAVIA results from successful sales efforts, which require hard work, diligence, skill, persistence, competence, and leadership. Please see the OPTAVIA Income Disclosure Statement (http://bit.ly/idsOPTAVIA) for statistics on actual earnings of Coaches.
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work with or without OPTAVIA nutrition plans and guided by Coach support, OPTAVIA ACTIVE, similar to the Company’s other lines of products, is backed by science, made with no colors, flavors or sweeteners from artificial sources and is Informed Sport certified, which is a global standard in sports nutrition quality control that ensures its certified products contain no banned substances.
Through a small pilot launched in June 2023, in partnership with a network of several telehealth providers, the Company began exploring a combination of its habit-based, Coach-guided solution, OPTAVIA, together with innovations in medically supported weight loss, including GLP-1 medications. These pilots have provided valuable insight around potential future positioning and approach. The compelling three-way partnership between customer, clinician and Coach appears to resonate with the customer base who is interested in medically supported weight loss.
Medifast plans to continue investing in its offer to support all areas of its proprietary Habits of Health Transformational System, which includes weight loss, motion, hydration, sleep, and other macro-habits. The Company is committed to innovating as the industry evolves to continue delivering evidence-based solutions that are effective in helping customers create healthy habits and reach their wellness goals.
The Company is also pursuing expanding the customer base with a focus on Hispanic demographic groups in the US, where Medifast is underrepresented. To better connect with this group, we have translated approximately 70% of our main materials and website into Spanish, and expect to translate the remaining 30% by the end of the year. In October, in conjunction with National Hispanic Heritage month, the Company executed its first ever Spanish-language social and digital pilot, intended to build brand awareness and to learn how to best market OPTAVIA’s clinically proven health benefits and scientifically developed products, plans, Coaches and community to this growing demographic. The goal is to leverage the learnings from the social and digital pilot, with an anticipated larger, more comprehensive media effort to the US Hispanic market in 2024. We believe that advancing our business in the US Hispanic demographic will help us set the stage for future expansion into Latin America.
Macroeconomic Conditions
An overall decline in the health of the economy and other factors impacting consumer spending, such as natural disasters, pandemics, geopolitical conflicts, inflation and potential worsening in economic conditions may affect consumer purchases and reduce demand for our products. These uncertainties make it challenging for our management to estimate our future business performance.
We are exposed to market risks from changes in commodity or other raw material prices. Rising inflation could impact our cost structure and put pressure on consumer spending. Increases in commodity prices or food costs, including as a result of inflation, could affect the global and U.S. economies and could also adversely impact our business, financial condition or results of operations. Our variable cost structure can be utilized to adapt to changing market conditions with potential actions including adjustments to our manufacturing, distribution and customer support infrastructure. In addition, adverse labor market conditions could constrain our ability to manufacture and deliver products or increase the associated costs. As a response, we may periodically take incremental pricing actions to offset supply chain costs, inflationary pressures, and adverse labor market conditions.
In addition, beginning in February 2022, the war in Ukraine and corresponding events have had, and could continue to have, adverse effects on regional and global markets. Further, as the Israeli/Palestinian conflict in Gaza develops, it could have a similarly adverse impact on consumer sentiment and regional and global markets. While our operations are not directly impacted by these events, the duration of hostilities and the vast array of sanctions and related events (including cyberattacks) cannot be predicted. As a result, those events present uncertainty and risk. To date, the war in Ukraine and conflict in Gaza has had no material impact on our business.
In response to changing macroeconomic conditions, the Company may take further actions that alter its business operations as may be required by governmental authorities, or that are determined to be in the best interests of employees, OPTAVIA Coaches and customers.
Critical Accounting Policies and Estimates
The preparation of our 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 are believed to be reasonable under
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the circumstances. Actual results may differ from these estimates under different assumptions or conditions. There were no significant changes in our critical estimates during the first nine months of 2023.
Our unaudited condensed consolidated financial statements are prepared in accordance with GAAP. Our significant accounting policies are described in Note 2 to the audited consolidated financial statements included in the 2022 Form 10-K. We consider all of our significant accounting policies and estimates to be critical. During Q1 2023 we made a change to our customer terms and conditions (“Customer T&Cs”) that resulted in a change to our revenue recognition policy which is described below. There were no other significant changes in our critical accounting policies during the first nine months of 2023.

Revenue Recognition: Our revenue is derived primarily from point of sale transactions executed over an e-commerce platform for weight loss, weight management, and other healthy living products. Prior to a change in our Customer T&Cs in the first quarter of 2023, revenue was recognized upon receipt by the customer and net of discounts, rebates, promotional adjustments, price adjustments, allocated consideration to loyalty programs, and estimated returns. Upon the change of our Customer T&Cs, revenue is now recognized upon delivery to the shipping carrier and net of discounts, rebates, promotional adjustments, price adjustments, allocated consideration to loyalty programs, and estimated returns. The impact of this change to the quarter ended March 31, 2023 was an increase of approximately $9.1 million in revenue and $2.8 million of income from operations.

Revenue is recognized when control of the promised products is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for transferring those products. When determining whether the customer has obtained control of the products, we consider any future performance obligations.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. Our contracts have performance obligations to fulfill and deliver products from the point of sale transaction along with the related customer reward programs.

Our performance obligations are satisfied at a point in time. Revenue from products transferred to customers at a point in time accounted for substantially all of our revenue for the nine months ended September 30, 2023 and 2022. Revenue on these contracts is recognized when the obligations under the terms of the contract with our customer are satisfied.

Our return policy allows for customer returns of consumable products within 30 days of purchase and upon our authorization. We adjust revenues for the products expected to be returned and a liability is recognized for expected refunds to customers. We estimate expected returns based on historical levels and project this experience into the future.

Our sales contracts may give customers the option to purchase additional products priced at a discount. Options to acquire additional products at a discount can come in many forms, such as customer reward programs and incentive offerings including pricing arrangements, and promotions.

We reduce the transaction price for customer reward programs and certain incentive offerings including pricing arrangements, promotions, and incentives that represent variable consideration and separate performance obligations. The Company accounts for sales rewards that provide the customer with a material right as a separate performance obligation of the transactions, and therefore allocates consideration between the initial sale of products and the customer reward program and incentive offering.

Amounts billed to customers for shipping and handling activities are treated as a promised service performance obligation and are recorded as revenue in our Consolidated Statements of Income upon fulfillment of the performance obligation. Shipping and handling costs incurred by the Company for the delivery of products to customers are considered a cost to fulfill the contract and are included in cost of sales in our Consolidated Statements of Income.

We expense OPTAVIA Coach compensation and credit card fees during the period in which the corresponding revenue is earned. These costs are recorded in selling, general and administrative expense in our Consolidated Statements of Income.
Overview of Results of Operations
Our product sales accounted for approximately 98% of our revenues for each of the three months ended September 30, 2023 and 2022.
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The following tables reflect our income statements (in thousands, except percentages):
Three months ended September 30,
20232022$ Change% Change
Revenue$235,869$390,398$(154,529)(39.6)%
Cost of sales58,492107,549(49,057)(45.6)%
Gross profit177,377282,849(105,472)(37.3)%
Selling, general, and administrative151,868234,693(82,825)(35.3)%
Income from operations25,50948,156(22,647)(47.0)%
Other income (expense)
Interest income (expense)1,033(261)1,294 495.8 %
Other income (expense)
7(17)24 141.2 %
1,040(278)1,318 474.1 %
Income from operations before income taxes26,54947,878(21,329)(44.5)%
Provision for income taxes3,41811,723(8,305)(70.8)%
Net income$23,131$36,155$(13,024)(36.0)%
% of revenue
Gross profit75.2 %72.5 %
Selling, general, and administrative costs64.4 %60.1 %
Income from operations10.8 %12.3 %
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Nine months ended September 30,
20232022$ Change% Change
Revenue$881,039$1,261,332(380,293)(30.2)%
Cost of sales246,558354,515(107,957)(30.5)%
Gross profit634,481906,817(272,336)(30.0)%
Selling, general, and administrative516,755754,610(237,855)(31.5)%
Income from operations117,726152,207(34,481)(22.7)%
Other income (expense)
Interest income (expense)1,314(519)1,833 353.2 %
Other expense(45)(37)(8)(21.6)%
1,269(556)1,825 328.2 %
Income from operations before income taxes118,995151,651(32,656)(21.5)%
Provision for income taxes25,61534,601(8,986)(26.0)%
Net income$93,380$117,050$(23,670)(20.2)%
% of revenue
Gross profit72.0 %71.9 %
Selling, general, and administrative costs58.7 %59.8 %
Income from operations13.4 %12.1 %

Revenue: Revenue decreased $154.5 million, or 39.6%, to $235.9 million for the three months ended September 30, 2023 from $390.4 million for the three months ended September 30, 2022. The decline in revenue for the three months ended September 30, 2023 was primarily driven by a decrease in the number of active earning OPTAVIA Coaches to 47,100 as of September 30, 2023 from 66,200 as of September 30, 2022 and the decline in the productivity per active earning OPTAVIA Coach. The average revenue per active earning OPTAVIA Coach was $5,008 for the three months ended September 30, 2023 compared to $5,897 for the three months ended September 30, 2022. Revenue decreased $380.3 million, or 30.2%, to $881.0 million for the nine months ended September 30, 2023 from $1,261.3 million for the nine months ended September 30, 2023. The decline in revenue for the nine months ended September 30, 2023 was driven by a decrease in the number of active earning OPTAVIA Coaches and the decline in productivity per active earnings OPTAVIA Coach, partially offset by a $9.1 million impact from a timing difference related to changes in the Company’s sales order terms and conditions with its customers in the first quarter. The average revenue per active earning OPTAVIA Coach was $5,545 for the nine months ended September 30, 2023 compared to $6,367 for the nine months ended September 30, 2022. The decrease in productivity per active earning OPTAVIA Coach for the three months ended September 30, 2023 and nine months ended September 30, 2023 was driven by continued pressure on customer acquisition, partially offset by a price increase implemented in November 2022.
Cost of sales: Cost of sales decreased $49.1 million, or 45.6%, to $58.5 million from $107.5 million for the three months ended September 30, 2023 from the corresponding period in 2022. The decrease in cost of sales for the three months ended September 30, 2023 was primarily driven by decreased volumes, efficiencies in inventory management and lower supply chain costs including benefits from the optimization of our distribution center footprint. These decreases are partially offset by higher product costs resulting from inflationary pressures on raw ingredient costs, shipping costs, and labor costs. Cost of sales decreased $108.0 million, or 30.5%, to $246.6 million from $354.5 million for the nine months ended September 30, 2023. The decrease in cost of sales for the nine months ended September 30, 2023 was primarily driven by decreased volumes, partially offset by higher product costs resulting from inflationary pressures on raw ingredient costs, shipping costs, and labor costs.
Gross profit: Gross profit decreased $105.5 million, or 37.3%, to $177.4 million from $282.8 million for the three months ended September 30, 2023 from the corresponding period in 2022. The decrease in gross profit for the three months ended
20

September 30, 2023 was due to lower revenue. As a percentage of revenue, gross profit increased 270 basis points to 75.2% for the three months ended September 30, 2023 from 72.5% for the corresponding period in 2022. Gross profit as a percentage of revenue was positively impacted by efficiencies in inventory management and lower supply chain costs including benefits from the optimization of our distribution center footprint. For the nine months ended September 30, 2023, gross profit decreased $272.3 million, or 30.0%, to $634.5 million from $906.8 million for the nine months ended September 30, 2023. The decrease in gross profit for the nine months ended September 30, 2023 was due to lower revenue as well as cost inflation from raw ingredient costs, shipping costs, and labor costs. As a percentage of revenue, gross profit increased 10 basis points to 72.0% for the nine months ended September 30, 2023 from 71.9% for the corresponding period in 2022.
Selling, general, and administrative: SG&A expenses were $151.9 million for the three months ended September 30, 2023, a decrease of $82.8 million, or 35.3%, as compared to $234.7 million from the corresponding period in 2022. SG&A expenses decreased for the three months ended September 30, 2023 primarily due to decreased Coach compensation on lower volumes and fewer active earning Coaches, as well as progress on several cost reduction and optimization initiatives, and charitable donations in 2022. As a percentage of revenue, SG&A expenses were 64.4% for the three months ended September 30, 2023 as compared to 60.1% for the corresponding period in 2022. SG&A expenses as a percentage of revenue increased for the three months ended September 30, 2023 primarily reflecting the loss of leverage on fixed costs due to lower sales volumes compared to 2022 as well as market research and investment costs related to medically supported weight loss activities. SG&A expenses included research and development costs of $1.3 million and $1.1 million for the three months ended September 30, 2023 and 2022, respectively, in connection with the development of new products, programs and clinical research activities. SG&A expenses were $516.8 million for the nine months ended September 30, 2023, a decrease of $237.9 million, or 31.5%, as compared to $754.6 million from the corresponding period in 2022. As a percentage of revenue, SG&A expenses were 58.7% for the nine months ended September 30, 2023 as compared to 59.8% for the corresponding period in 2022 primarily reflecting progress on several cost reduction and optimization initiatives and charitable donations in 2022, partially offset by the loss of leverage on fixed costs due to lower sales volumes compared to 2022. SG&A expenses included research and development costs of $3.4 million and $3.3 million for the nine months ended September 30, 2023 and 2022, respectively, in connection with the development of new products and programs and clinical research activities. SG&A expenses decreased for the nine months ended September 30, 2023 primarily due to decreased Coach compensation on lower volumes and fewer active earning Coaches, as well as progress on several cost reduction and optimization initiatives, and charitable donations in 2022.
Income from operations: For the three months ended September 30, 2023, income from operations decreased $22.6 million to $25.5 million from $48.2 million for the corresponding period in 2022 primarily as a result of decreased gross profit partially offset by decreased SG&A expenses. Income from operations as a percentage of revenue decreased to 10.8% for the three months ended September 30, 2023 from 12.3% for the corresponding period in 2022 due to the factors described above impacting SG&A expenses, partially offset by the factors impacting gross profit. For the nine months ended September 30, 2023, income from operations decreased $34.5 million to $117.7 million from $152.2 million for the corresponding period in 2022 primarily as a result of decreased gross profit partially offset by decreased SG&A expenses. Income from operations as a percentage of revenue increased to 13.4% for the nine months ended September 30, 2023 from 12.1% for the corresponding period in 2022 due to the factors above impacting gross profit and SG&A expenses.
Provision for income taxes: For the three months ended September 30, 2023, the Company recorded $3.4 million in income tax expense, an effective tax rate of 12.9%, as compared to $11.7 million in income tax expense, an effective tax rate of 24.5%, for the three months ended September 30, 2022. The decrease in the effective tax rate for the three months ended September 30, 2023 was primarily driven by the increase in the tax benefit for charitable donations of inventory, an increase in research and development tax credits, and a decrease in state income taxes. During the quarter ended September 30, 2023, the Company completed its 2022 Federal income tax return, which included an update to the estimated tax-basis cost of charitable donations of inventory and the estimated research and development tax credits. For the nine months ended September 30, 2023, the Company recorded $25.6 million in income tax expense, an effective tax rate of 21.5%, as compared to $34.6 million in income tax expense, an effective tax rate of 22.8%, for the nine months ended September 30, 2022. The decrease in the effective tax rate for the nine months ended September 30, 2022 was primarily driven by the increase in the tax benefit for charitable donations of inventory.
Net income: Net income was $23.1 million and $93.4 million, or $2.12 and $8.55 per diluted share for the three and nine months ended September 30, 2023 as compared to $36.2 million and $117.1 million, or $3.27 and $10.30 per diluted share, for the three and nine months ended September 30, 2022. The period-over-period changes were driven by the factors described above.
Liquidity and Capital Resources
The Company had stockholders’ equity of $193.0 million and working capital of $114.2 million at September 30, 2023 as compared with $155.0 million and $81.9 million at December 31, 2022, respectively. The $38.0 million net increase in
21

stockholders’ equity reflects $93.4 million in net income for the nine months ended September 30, 2023 offset by $3.6 million used for repurchases of the Company’s common stock and $54.5 million for dividends paid to holders of the Company’s common stock as well as the other equity transactions described in the “Condensed Consolidated Statements of Changes in Stockholders’ Equity” included in this report. On September 7, 2023, the Company declared a quarterly dividend of $1.65 per share payable on November 7, 2023, to stockholders of record as of September 19, 2023. Future share repurchases and the payment of any future dividends are subject to the business judgment of our Board of Directors, taking into consideration our historical and projected results of operations, financial condition, cash flows, capital requirements, industry conditions, covenant compliance, changes in laws and regulations, current economic environment and other factors considered relevant. The Company’s cash, cash equivalents and investment securities increased from $87.7 million at December 31, 2022 to $157.8 million at September 30, 2023.
Net cash provided by operating activities decreased by $5.7 million to $137.1 million for the nine months ended September 30, 2023 from $142.8 million for the nine months ended September 30, 2022 primarily driven by a $25.9 million increase related to changes in inventory balances, a $6.1 million increase in prepaid expenses and other current assets, a $3.9 million increase in other assets, an increase of $1.7 million in depreciation and amortization expenses, offset by a $23.7 million decrease in net income, a $2.3 million reduction in share-based compensation, a $3.8 million reduction in deferred income taxes, a $1.2 million reduction in non-cash lease expense, and a $13.1 million reduction in accounts payable and accrued expenses. We decreased our inventory purchases during the period ended September 30, 2023 to align with sales demand. Accounts payable and accrued expenses decreased due to the timing of payments.
Net cash used in investing activities was $50.3 million for the nine months ended September 30, 2023 as compared to $2.4 million for the nine months ended September 30, 2022. The increase was primarily due to the purchase of investment securities during the nine months ended September 30, 2023. Net cash used in financing activities decreased by $113.4 million to $61.9 million for the nine months ended September 30, 2023 from $175.3 million for the nine months ended September 30, 2022. This decrease was primarily due to the $100.0 million accelerated share repurchase (“ASR”) program as of June 30, 2022 that did not recur in 2023, a $16.4 million decrease in other repurchases of the Company’s common stock, partially offset by a $1.8 million increase in net shares repurchased for taxes and an increase of $1.3 million of cash dividends paid to stockholders.
In pursuing its business strategy, the Company may require additional cash for operating and investing activities. The Company expects future cash requirements in both the short term and the long term, if any, to be funded from operating cash flow and financing activities.
From time to time, the Company evaluates potential acquisitions that complement our business. If consummated, any such transactions may use a portion of our working capital or require the issuance of equity or debt. We have no present understandings, commitments or agreements with respect to any material acquisitions.
On April 13, 2021, the Company and certain of its subsidiaries (collectively, the “Guarantors”) entered into a credit agreement among the Company, the Guarantors, the lenders party thereto and Citibank, N.A., in its capacity as administrative agent. On May 31, 2022, the Credit Agreement was amended to increase the borrowing capacity and convert the interest rate to be based on SOFR, from LIBOR (the “Amended Credit Agreement”). The Amended Credit Agreement provides for a $225.0 million senior secured revolving credit facility with a $20.0 million letter of credit sublimit. The Amended Credit Agreement also provides for an uncommitted incremental facility that permits the Company, subject to certain conditions, to increase the senior secured revolving credit facility by up to $100.0 million. The Amended Credit Agreement contains affirmative and negative covenants customarily applicable to credit facilities. As of September 30, 2023, the Company had no borrowings under the credit facility and was in compliance with all of its debt covenants.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and a decline in the stock market. The Company does not enter into derivatives, foreign exchange transactions or other financial instruments for trading or speculative purposes.
The Company is exposed to market risk related to changes in interest rates and market pricing impacting our credit facility and investment portfolio. Its current investment policy is to maintain an investment portfolio consisting of corporate bonds and U.S. money market securities directly or through managed funds. Its cash is deposited in and invested through highly rated financial institutions in North America. Its marketable securities are subject to interest rate risk and market pricing risk and will fall in value if market interest rates increase or if market pricing decreases. If market interest rates were to increase and market pricing were to decrease immediately and uniformly by 10% from levels at September 30, 2023, the Company estimates that the fair value of its investment portfolio would decline by an immaterial amount and therefore it would not expect its operating results or cash flows to be affected to any significant degree by the effect of a change in market conditions on our investments. As of September 30, 2023 the Company also did not have any outstanding borrowings.
22

There have been no material changes to our market risk exposure since December 31, 2022.
Item 4. Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Act, as amended, as of September 30, 2023. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Act is recorded, processed, summarized and reported accurately and on a timely basis. Based on this evaluation performed in accordance with the criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, our management concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
23

Part II Other Information
Item 1. Legal Proceedings
The Company is, from time to time, subject to a variety of litigation and similar proceedings that arise out of the ordinary course of its business. Based upon the Company’s experience, current information and applicable law, it does not believe that these proceedings and claims will have a material adverse effect on its results of operations, financial position or liquidity. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.
Item 1A. Risk Factors
There have been no material changes to the risk factors set forth in Part I, Item 1A of the 2022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
2023
Total Number of Shares Purchased (1)
Average Price Paid per ShareTotal Number of Shares Purchased
as Part of a Publicly Announced
Plan or Program
Maximum Number of Shares that May
Yet Be Purchased Under the Plans or Programs (2)
July 1 - July 311,146 94.54 — 1,323,568
August 1 - August 3117 84.40 — 1,323,568
September 1 - September 3023 77.56 — 1,323,568
(1)All of the shares of the Company’s common stock reflected in this column were surrendered by employees and directors to the Company to cover minimum tax liability withholding obligations upon the exercise of stock options or the vesting of shares of restricted stock and performance-based share awards previously granted to such employees and directors.
(2)At the outset of the quarter ended September 30, 2023, there were 1,323,568 shares of the Company’s common stock eligible for repurchase under the stock repurchase authorization dated September 16, 2014 (the "Stock Repurchase Plan").
As of September 30, 2023, there were 1,323,568 shares of the Company’s common stock eligible for repurchase under the Stock Repurchase Plan. There can be no assurances as to the amount, timing or prices of repurchases, which may vary based on market conditions and other factors. The Stock Repurchase Plan does not have an expiration date and can be modified or terminated by the Board of Directors at any time.
24

Item 6. Exhibits
Exhibit NumberDescription of Exhibit
3.1
3.2
31.1
31.2
32.1
101
The following financial statements from Medifast, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 filed November 6, 2023, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Stockholders’ Equity, and (vi) Notes to the Condensed Consolidated Financial Statements (filed herewith).
104Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
In accordance with SEC Release No. 33-8238, Exhibit 32.1 is being furnished and not filed.
25

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Medifast, Inc.
By:/s/ DANIEL R. CHARD
 Daniel R. Chard
Chief Executive Officer
(Principal Executive Officer)
Dated:November 6, 2023
/s/ JAMES P. MALONEY
James P. Maloney
Chief Financial Officer
(Principal Financial Officer)
Dated:November 6, 2023
26

Exhibit 31.1
RULE 13a-14(a) CERTIFICATION
I, Daniel R. Chard, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Medifast, Inc. (the “Registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.The Registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date:November 6, 2023/s/ Daniel R. Chard
Daniel R. Chard
Chief Executive Officer


Exhibit 31.2
RULE 13a-14(a) CERTIFICATION
I, James P. Maloney, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Medifast, Inc. (the “Registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;
4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
Date:November 6, 2023/s/ James P. Maloney
James P. Maloney
Chief Financial Officer


Exhibit 32.1
MEDIFAST, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q (the “Report”) for the quarter ended September 30, 2023 of Medifast, Inc. (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel R. Chard, Chief Executive Officer and I, James P. Maloney, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company.
By:/s/ DANIEL R. CHARD
Daniel R. Chard
Chief Executive Officer
November 6, 2023
/s/ JAMES P. MALONEY
James P. Maloney
Chief Financial Officer
November 6, 2023

v3.23.3
Cover - shares
9 Months Ended
Sep. 30, 2023
Oct. 23, 2023
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2023  
Document Transition Report false  
Entity File Number 001-31573  
Entity Registrant Name Medifast, Inc.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 13-3714405  
Entity Address, Address Line One 100 International Drive  
Entity Address, City or Town Baltimore  
Entity Address, State or Province MD  
Entity Address, Postal Zip Code 21202  
City Area Code 410  
Local Phone Number 581-8042  
Title of 12(b) Security Common Stock, par value $0.001 per share  
Trading Symbol MED  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   10,892,602
Entity Central Index Key 0000910329  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2023  
Document Fiscal Period Focus Q3  
Amendment Flag false  
v3.23.3
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Income Statement [Abstract]        
Revenue $ 235,869 $ 390,398 $ 881,039 $ 1,261,332
Cost of sales 58,492 107,549 246,558 354,515
Gross profit 177,377 282,849 634,481 906,817
Selling, general, and administrative 151,868 234,693 516,755 754,610
Income from operations 25,509 48,156 117,726 152,207
Other income (expense)        
Interest income (expense) 1,033 (261) 1,314 (519)
Other income (expense) 7 (17) (45) (37)
Total other income (expense) 1,040 (278) 1,269 (556)
Income from operations before income taxes 26,549 47,878 118,995 151,651
Provision for income taxes 3,418 11,723 25,615 34,601
Net income $ 23,131 $ 36,155 $ 93,380 $ 117,050
Earnings per share        
Basic (in usd per share) $ 2.12 $ 3.30 $ 8.58 $ 10.37
Diluted (in usd per share) $ 2.12 $ 3.27 $ 8.55 $ 10.30
Weighted average shares outstanding        
Basic (in shares) 10,892 10,964 10,881 11,290
Diluted (in shares) 10,933 11,042 10,925 11,369
Cash dividends declared per share (in usd per share) $ 1.65 $ 1.64 $ 4.95 $ 4.92