10-Q 1 med-20220630.htm 10-Q med-20220630
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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 June 30, 2022
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 July 25, 2022 was 11,017,899.
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 June 30,Six months ended June 30,
2022202120222021
Revenue$453,333 $394,189 $870,933 $734,858 
Cost of sales131,651 100,482 246,965 192,604 
Gross profit321,682 293,707 623,968 542,254 
Selling, general, and administrative272,718 232,273 519,917 428,021 
Income from operations48,964 61,434 104,051 114,233 
Other expense
Interest expense(164)(67)(259)(44)
Other expense(4)(22)(20)(3)
(168)(89)(279)(47)
Income from operations before income taxes48,796 61,345 103,772 114,186 
Provision for income taxes9,683 14,382 22,878 26,160 
Net income$39,113 $46,963 $80,894 $88,026 
Earnings per share - basic$3.44 $4.00 $7.06 $7.48 
Earnings per share - diluted$3.42 $3.96 $7.01 $7.42 
Weighted average shares outstanding
Basic11,354 11,753 11,455 11,762 
Diluted11,435 11,858 11,534 11,869 
Cash dividends declared per share$1.64 $1.42 $3.28 $2.84 
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 June 30,Six months ended June 30,
2022202120222021
Net income$39,113 $46,963 $80,894 $88,026 
Other comprehensive income (loss), net of tax:
Foreign currency translation148 (11)$177 $67 
Unrealized losses on investment securities(7)(17)$(21)$(33)
141 (28)$156 $34 
Comprehensive income$39,254 $46,935 $81,050 $88,060 
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)
June 30,
2022		December 31,
2021
ASSETS
Current Assets
Cash and cash equivalents$61,069 $104,183 
Inventories156,974 180,043 
Investment securities— 5,361 
Income taxes, prepaid8,547 945 
Prepaid expenses and other current assets16,710 16,334 
Total current assets243,300 306,866 
Property, plant and equipment - net of accumulated depreciation58,544 56,131 
Right-of-use assets21,347 24,457 
Other assets12,955 6,468 
Deferred tax assets4,404 4,404 
TOTAL ASSETS$340,550 $398,326 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
 Accounts payable and accrued expenses$154,782 $163,309 
       Revolving credit facility
27,000 — 
 Current lease obligations6,378 6,523 
Total current liabilities188,160 169,832 
 Lease obligations, net of current lease obligations22,914 26,020 
Total liabilities211,074 195,852 
Stockholders' Equity
Common stock, par value $0.001 per share: 20,000 shares authorized;
11,019 and 11,594 issued and 11,018 and 11,593 outstanding
at June 30, 2022 and December 31, 2021, respectively
11 12 
Additional paid-in capital— 12,018 
Accumulated other comprehensive income268 111 
Retained earnings 129,197 190,333 
Total stockholders' equity129,476 202,474 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$340,550 $398,326 
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)
Six months ended June 30,
20222021
Operating Activities
Net income$80,894 $88,026 
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization 5,176 2,453 
Non-cash lease expense3,2112,187 
Share-based compensation5,1404,344 
Amortization of premium on investment securities14 49 
Change in operating assets and liabilities:
Inventories23,069 (42,398)
Income taxes, prepaid(7,602)— 
Prepaid expenses and other current assets(376)(4,657)
Other assets(8,169)(762)
Accounts payable and accrued expenses (13,922)36,962 
Net cash flow provided by operating activities87,435 86,204 
Investing Activities
Sale and maturities of investment securities5,267 5,145 
Purchase of property and equipment(5,849)(12,196)
Net cash flow used in investing activities(582)(7,051)
Financing Activities
Borrowing under revolving credit facility
27,000 — 
Options exercised by executives and directors— 702 
Net shares repurchased for taxes(1,479)(1,833)
Cash dividends paid to stockholders(35,617)(30,095)
Stock repurchases, settled
(100,038)(19,730)
Stock repurchases, not yet settled
(20,010)— 
Net cash flow used in financing activities(130,144)(50,956)
Foreign currency impact177 67 
(Decrease) Increase in cash and cash equivalents(43,114)28,264 
Cash and cash equivalents - beginning of the period104,183 163,723 
Cash and cash equivalents - end of period$61,069 $191,987 
Supplemental disclosure of cash flow information:
Income taxes paid$30,283 $26,751 
Dividends declared included in accounts payable$19,305 $17,531 
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)
Six months ended June 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 income— — — — 41,781 — 41,781 
Share-based compensation18 — 2,275 — — — 2,275 
Net shares repurchased for 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 income— — — 16 — — 16 
Cash dividends declared to stockholders— — — — (19,063)— (19,063)
Balance, March 31, 202211,553 $12 $12,834 $127 $203,051 $— $216,024 
Net income— — — — 39,113 — 39,113 
Share-based compensation1 — 2,865 — — — 2,865 
Net shares repurchased for 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 income— — — 141 — — 141 
Cash dividends declared to stockholders— — — — (18,598)— (18,598)
Balance, June 30, 202211,019 $11 $— $268 $129,197 $— $129,476 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Six months ended June 30, 2021
Number of
Shares Issued		Common StockAdditional Paid-In
Capital		Accumulated Other
Comprehensive Income		Retained
Earnings		Treasury StockTotal
Balance, December 31, 202011,822 $12 $7,842 $41 $154,351 $(5,000)$157,246 
Net income— — — — 41,063 — 41,063 
Share-based compensation13 — 2,198 — — — 2,198 
Options exercised by executives and directors11 — 481 — — — 481 
Net shares repurchased for 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, 202111,839 $12 $8,714 $103 $178,562 $(12,500)$174,891 
Net income— — — — 46,963 — 46,963 
Share-based compensation10 — 1,697 — 142 — 1,839 
Options exercised by executives and directors3 — 221 — — — 221 
Net shares repurchased for 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, 202111,738 $12 $10,606 $75 $185,343 $(1,347)$194,689 
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, 2021 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, 2021 (“2021 Form 10-K”).
The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2022. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the 2021 audited consolidated financial statements and notes thereto, which are included in the 2021 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 2022
In March 2020, the FASB issued Accounting Standards Update ("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 adopted Topic 848 beginning in the first quarter of fiscal 2022 without any material impact on the Company's financial position and results of operations.
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
8
and indirect labor and other indirect manufacturing costs. On a quarterly basis, management reviews inventories for unsalable or obsolete inventories.
The Company donated inventory with an aggregate cost of $9.4 million to Ukrainian refugees and those in need in Ukraine, increasing SG&A during the three months ended June 30, 2022. The donations were made to two 501(c)(3) organizations that are coordinating the distribution throughout refugee camps in Europe and in Ukraine.
Inventories consisted of the following (in thousands):
June 30, 2022December 31, 2021
Raw materials$12,942$15,196
Packaging2,9873,641
Non-food finished goods12,81015,991
Finished goods131,435152,687
Reserve for obsolete inventory(3,200)(7,472)
Total$156,974$180,043
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 June 30,Six months ended June 30,
2022202120222021
Numerator:
Net income$39,113 $46,963 $80,894 $88,026 
Denominator:
Weighted average shares of common stock outstanding11,354 11,753 11,455 11,762 
Effect of dilutive common stock equivalents81 105 79 107 
Weighted average shares of common stock outstanding11,435 11,858 11,534 11,869 
Earnings per share - basic$3.44 $4.00 $7.06 $7.48 
Earnings per share - diluted$3.42 $3.96 $7.01 $7.42 
The calculation of diluted EPS excluded 3 and 0 antidilutive restricted stock awards for the three months ended June 30, 2022 and 2021, respectively, and 1 and 0 antidilutive restricted stock awards for the six months ended June 30, 2022 and 2021, 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
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dividend yield. Options outstanding as of June 30, 2022 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 six months ended June 30, 2022 and 2021, the Company did not grant stock options.
The following table is a summary of our stock option activity (in thousands, except per share data):
Six months ended June 30,
20222021
AwardsWeighted-Average Exercise PriceAwardsWeighted-Average Exercise Price
Outstanding at beginning of period33 $54.98 61 $48.19 
Exercised— — (14)50.58 
Outstanding at end of the period33 $54.98 47 $47.51 
Exercisable at end of the period28 $52.76 38 $42.18 
As of June 30, 2022, the weighted-average remaining contractual life for outstanding stock options was 4.8 years with an aggregate intrinsic value of $4.2 million and the weighted-average remaining contractual life for exercisable stock options was 4.7 years with an aggregate intrinsic value of $3.6 million. The unrecognized compensation expense calculated under the fair value method for stock options expected to vest as of June 30, 2022 was $0.1 million and is expected to be recognized over a weighted-average period of 0.6 year. For the six months ended June 30, 2022, there was no exercise activity of stock options. For the six months ended June 30, 2021, the Company received $0.7 million in cash proceeds from the exercise of stock options. The total intrinsic value for stock options exercised during the six months ended June 30, 2021 was $2.3 million.
Restricted Stock
The Company has issued restricted stock to employees and non-employee 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 (in thousands, except per share data):
Six months ended June 30,
20222021
SharesWeighted-Average Grant Date Fair ValueSharesWeighted-Average Grant Date Fair Value
Outstanding at beginning of period44 $183.51 50 $116.06 
Granted38 176.81 21 267.15 
Vested(19)155.57 (25)113.91 
Forfeited(1)186.53 (2)154.91 
Outstanding at end of the period62 $187.80 44 $182.96 
The Company withheld approximately 8,000 and 7,000 shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the vesting of shares of restricted stock for the six months ended June 30, 2022 and 2021, respectively. The total fair value of restricted stock awards vested during the six months ended June 30, 2022 and 2021 was $3.3 million and $6.7 million, respectively.
Market and Performance-based Share Awards
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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 and the Company's performance against predetermined performance goals over a three-year performance period after the date of grant. Market and performance-based share awards that are tied to the Company’s total stockholder return 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.
Share-based compensation expense is recorded in selling, general, and administrative expense in the accompanying Condensed Consolidated Statements of Income. The total expenses during the three months ended June 30, 2022 and 2021 are as follows (in thousands):
Three months ended June 30,
20222021
SharesShare-Based Compensation ExpenseSharesShare-Based Compensation Expense
Options and restricted stock86 $1,311 103 $938 
Market and performance-based share awards granted in 202225 433 — — 
Performance-based share awards granted in 202115 647 14 54 
Performance-based share awards granted in 202026 474 28 495 
Performance-based share awards granted in 2019— — 17 711 
Total share-based compensation152 $2,865 162 $2,198 
The total expenses during the six months ended June 30, 2022 and 2021 are as follows (in thousands):
Six months ended June 30,
20222021
SharesShare-Based Compensation ExpenseSharesShare-Based Compensation Expense
Options and restricted stock91 $2,398 91 $2,059 
Market and performance-based share awards granted in 202225 512 — — 
Performance-based share awards granted in 202115 1,287 14 357 
Performance-based share awards granted in 202026 943 28 850 
Performance-based share awards granted in 2019— — 17 1,078 
Total share-based compensation157 $5,140 150 $4,344 
The total income tax benefit recognized in the accompanying Condensed Consolidated Statements of Income for restricted stock awards was $0.4 million and $0.9 million for the three months ended June 30, 2022 and 2021, respectively, and $0.9 million and $2.1 million for the six months ended June 30, 2022 and 2021, respectively.
There was $8.9 million of total unrecognized compensation cost related to restricted stock awards as of June 30, 2022, which is expected to be recognized over a weighted-average period of 2.0 years. There was $9.4 million of unrecognized compensation costs related to the 65,477 performance-based shares discussed above as of June 30, 2022, which is expected to be recognized over a weighted-average period of 2.1 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 June 30, 2022 and 2021, respectively, or for the six-month periods then ended, respectively.
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Our leases relating to office and warehouse space have lease terms of 18 months to 126 months. Our leases relating to equipment have lease terms of 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 $1.7 million and $1.4 million for the three months ended June 30, 2022 and 2021, respectively, and $3.5 million and $2.4 million for the six months ended June 30, 2022 and 2021, respectively.
Supplemental cash flow information related to the Company’s operating leases was as follows (in thousands):
Six months ended June 30,
20222021
Cash paid for amounts included in the measurements of lease liabilities
Operating cash flow used in operating leases$3,674 $2,005 
Right-of-use assets obtained in exchange for lease obligations
Operating leases$103 $9,745 
As of June 30, 2022, the weighted average remaining lease term was 5.3 years and the weighted average discount rate was 2.1%.
The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2022 (in thousands):
2022 (excluding the six months ended June 30, 2022)
$3,525 
20236,241 
20245,693 
20255,825 
20264,160 
Thereafter5,412 
Total lease payments$30,856 
Less: imputed interest(1,564)
Total $29,292 
6. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table sets forth the components of accumulated other comprehensive income, net of tax where applicable (in thousands):
June 30,
2022		December 31,
2021
Foreign currency translation$268 $90 
Unrealized gains on investment securities— 21 
Accumulated other comprehensive income$268 $111 
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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):
June 30, 2022
CostUnrealized GainsAccrued InterestEstimated Fair
Value		Cash & Cash
Equivalents		Investment
Securities
Cash$60,277 $— $— $60,277 $60,277 $— 
Level 1:
Money market accounts792 — — 792 792 — 
Total$61,069 $— $— $61,069 $61,069 $— 
December 31, 2021
CostUnrealized GainsAccrued InterestEstimated Fair
Value		Cash & Cash
Equivalents		Investment
Securities
Cash$94,824 $— $— $94,824 $94,824 $— 
Level 1:
Money market accounts9,359 — — 9,359 9,359 — 
Government & agency securities1,401 12 — 1,413 — 1,413 
10,760 12 — 10,772 9,359 1,413 
Level 2:
Municipal bonds3,880 9 59 3,948 — 3,948 
Total$109,464 $21 $59 $109,544 $104,183 $5,361 
The Company had a realized loss of $0.2 million for the three and six months ended June 30, 2022 and no realized gain or losses for the three and six months ended June 30, 2021.
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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 June 30, 2022, 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.
The Company has $27.0 million of borrowings outstanding under the Amended Credit Agreement as of June 30, 2022.

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. As a result, approximately $20.0 million remains at JPMorgan Chase for additional repurchases until the completion of the ASR program. The final number of shares that will be delivered to the Company under the ASR agreement will be 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. The Company expects to receive the remaining shares no later than October 3, 2022. The effect of the potential share settlement is excluded in the diluted EPS calculation as the effect is anti-dilutive.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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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. 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 2021 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 global company behind one of the fastest-growing health and wellness communities, OPTAVIA®, which offers Lifelong Transformation, One Healthy Habit at a Time®. Reflecting the success of our holistic approach to health and wellness, we have consistently grown revenue over the past five years. Of equal importance, we expect our differentiated model to continue to deliver growth in the foreseeable future.
Our OPTAVIA brand offers a highly competitive and effective lifestyle solution centered on developing new healthy habits through smaller, foundational changes called micro-habits. The program is built around four key components:
•Independent OPTAVIA Coaches: Provide individualized support and guidance to customers on the path to optimal health and wellbeing.
•OPTAVIA Community: A Community of like-hearted people providing each other with real-time connection and support.
•The Habits of Health® Transformational System: A proprietary system which offers easy steps to a sustainably healthy lifestyle.
•Products & Plans: Clinically proven plans and scientifically developed products, called “Fuelings,” backed by dietitians, scientists and physicians.
We help customers achieve their health goals through a network of approximately 68,000 independent OPTAVIA Coaches, about 90% of whom were customers first, and have impacted more than 2 million lives to date. OPTAVIA Coaches introduce customers to a set of healthy habits, in most cases starting with the habit of healthy eating, and offer exclusive Fuelings, which are nutrient-dense, portion-controlled, nutritionally interchangeable and simple to use. They are formulated with high-quality ingredients and are fortified with probiotic cultures, vitamins and minerals, as well as other nutrients essential for good health. Our products support the process of integrating healthy habits into our customer’s 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. We believe this personal coaching is an essential factor in customer success based on findings from a clinical study published in Obesity Science and Practice in 2018, which validated the effectiveness of combining the OPTAVIA meal plan with education and support consistent with that was provided by OPTAVIA Coaches.
The entrepreneurial spirit of our OPTAVIA Coaches is another key to our success, as they create a continuous cycle of growth, activating new customers, many of whom go on to become OPTAVIA Coaches. We offer economic incentives designed to support each OPTAVIA Coach’s long-term success, which we believe plays an important role in their financial wellness,
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providing the opportunity to improve their finances while changing the health trajectory of families, communities and generations.1
OPTAVIA Coaches are independent contractors, not employees, who support customers and market our products and services primarily through word of mouth, email and social media channels such as Facebook, Instagram, Twitter and video conferencing platforms. As entrepreneurs, OPTAVIA Coaches market our products to friends, family and other acquaintances. OPTAVIA products are shipped directly to OPTAVIA customers who are working with an OPTAVIA Coach. OPTAVIA Coaches do not handle 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 are one of the fastest growing health and wellness companies in the United States ("U.S."), with a large and growing market opportunity. 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 our OPTAVIA 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, Medifast Franchise Systems, Inc., Seven Crondall Associates, LLC, Corporate Events, Inc., OPTAVIA (Hong Kong) Limited, OPTAVIA (Singapore) PTE. LTD and OPTAVIA Health Consultation (Shanghai) Co., Ltd.
As we previously disclosed, global expansion is an important component of our long-term growth strategy. In July 2019, we commenced our international operations, entering into the Asia Pacific markets of Hong Kong and Singapore. Our decision to enter these markets was based on industry market research that reflects a dynamic shift in how health care is being prioritized and consumed in those countries. We outsource a distribution center in Hong Kong to provide adequate product distribution capacity for the foreseeable future in these markets.
COVID-19 Update
A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and has spread around the world, including to the U.S. In March 2020, the World Health Organization declared COVID-19 a worldwide pandemic.
In response to the pandemic, many governments implemented policies intended to stop or slow the further spread of the disease, such as social distancing guidelines, shelter-in-place orders and other measures. Nutritional supplements and health foods have been designated critical/essential infrastructure in the U.S. As a manufacturer and distributor of these products our manufacturing and distribution facilities remain fully operational to date and we have not experienced any meaningful disruption to our worldwide supply chain. The Company’s priorities during the COVID-19 pandemic continue to be protecting the health and safety of our employees and OPTAVIA Coaches, and their families, and we have undertaken numerous steps and instituted additional precautions to protect their safety and well-being, including:
•enhanced safety protocols, limiting visitation to our plant and distribution center and rolling out additional sick leave (crisis pay) for our onsite essential employees;
•through the majority of 2021, our non-essential employees continued to work from home. Effective October 2021, the Company implemented a hybrid work approach which enables our non-essential employees the flexibility to work partially from home and partially from the office;
•established additional health and safety precautions in our headquarters and manufacturing and distribution centers, including use of personal protective equipment and frequent hand sanitization;
•created process controls in relation to social distancing, visitors, travel and quarantine; and
•organized 16 vaccination clinics in partnership with the health department across all our operations.
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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Although vaccines are available in various countries where we operate, it is possible the COVID-19 pandemic could further impact our operations and the operations of our suppliers and vendors, particularly in light of the potential of variant strains of the virus to cause a resumption of high levels of infection and hospitalization. Should that occur, the extent to which the pandemic ultimately impacts the Company’s business, financial condition, results of operations, cash flows, and liquidity may differ from management’s current expectations. Factors that could cause actual results to differ from management’s expectations include inherent uncertainties regarding the duration and further spread of the outbreak, its severity, government actions taken to contain the virus or treat its impact, changes in consumer behavior resulting from the pandemic and how quickly and to what extent normal economic and operating conditions can resume. The senior management team meets regularly to review and assess the status of the Company’s operations and the health and safety of its various constituencies, and will continue to proactively respond to the situation and communicate with our supply chain partners to identify and mitigate risk and to manage inventory levels. 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.
These uncertainties make it challenging for our management to estimate our future business performance. However, we intend to continue to actively monitor the impact of COVID-19 and related developments on our business and will update our practices accordingly, as we have done throughout the pandemic.
Critical Accounting Policies and Estimates
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 2021 Form 10-K. We consider all of our significant accounting policies and estimates to be critical. There were no significant changes in our critical accounting policies during the first six months of 2022.
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 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 six months of 2022.
Overview of Results of Operations
Our product sales accounted for approximately 98.0% of our revenues for each of the three and six months ended June 30, 2022 and 2021, respectively.
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The following tables reflect our income statements (in thousands, except percentages):
Three months ended June 30,
20222021$ Change% Change
Revenue$453,333 $394,189 $59,144 15.0 %
Cost of sales131,651 100,482 31,169 31.0 %
Gross profit321,682 293,707 27,975 9.5 %
Selling, general, and administrative272,718 232,273 40,445 17.4 %
Income from operations48,964 61,434 (12,470)(20.3)%
Other expense
Interest expense(164)(67)(97)144.8 %
Other expense(4)(22)18 (81.8)%
(168)(89)(79)88.8 %
Income from operations before income taxes48,796 61,345 (12,549)(20.5)%
Provision for income taxes9,683 14,382 (4,699)(32.7)%
Net income$39,113 $46,963 $(7,850)(16.7)%
% of revenue
Gross profit71.0 %74.5 %
Selling, general, and administrative costs60.2 %58.9 %
Income from operations10.8 %15.6 %
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Six months ended June 30,
20222021$ Change% Change
Revenue$870,933 $734,858 $136,075 18.5 %
Cost of sales246,965 192,604 54,361 28.2 %
Gross profit623,968 542,254 81,714 15.1 %
Selling, general, and administrative519,917 428,021 91,896 21.5 %
Income from operations104,051 114,233 (10,182)(8.9)%
Other expense
Interest expense(259)(44)(215)488.6 %
Other expense(20)(3)(17)566.7 %
(279)(47)(232)493.6 %
Income from operations before income taxes103,772 114,186 (10,414)(9.1)%
Provision for income taxes22,878 26,160 (3,282)(12.5)%
Net income$80,894 $88,026 $(7,132)(8.1)%
% of revenue
Gross profit71.6 %