med-20220331

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 March 31, 2022

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)


Delaware						13-3714405
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

100 International Drive

Baltimore, Maryland 21202

Telephone Number: (410) 581-8042

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

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

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

MED

New York Stock Exchange

Indicate 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 April 25, 2022 was 11,513,656.

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Medifast, Inc. and Subsidiaries

Index


Part 1 – Financial Information



Item 1 – Financial Statements


Condensed Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2022 and 2021			2

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2022 and 2021			3

Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2022 and December 31, 202 1			4

Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2022 and 2021			5

Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three Months Ended March 31, 2022 and 2021			6

Notes to Condensed Consolidated Financial Statements (unaudited)			7

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			13

Item 3 – Quantitative and Qualitative Disclosures about Market Risk			18

Item 4 – Controls and Procedures			18

Part II – Other Information

Item 1 – Legal Proceedings			19

Item 1A – Risk Factors			19

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			19

Item 6 – Exhibits			20

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MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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


	Three months ended March 31,
	2022		2021

Revenue	$	417,600	$	340,669
Cost of sales	115,314		92,122
Gross profit	302,286		248,547

Selling, general, and administrative	247,199		195,748

Income from operations	55,087		52,799

Other (expense) income
Interest (expense) income	(95)		23
Other (expense) income	(16)		19
	(111)		42

Income from operations before income taxes	54,976		52,841

Provision for income taxes	13,195		11,778

Net income	$	41,781	$	41,063

Earnings per share - basic	$	3.62	$	3.49

Earnings per share - diluted	$	3.59	$	3.46

Weighted average shares outstanding
Basic	11,557		11,772
Diluted	11,638		11,881

Cash dividends declared per share	$	1.64	$	1.42

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

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MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(U.S. dollars in thousands)


	Three months ended March 31,
	2022		2021

Net income	$	41,781	$	41,063

Other comprehensive income, net of tax:
Foreign currency translation	30		78
Unrealized losses on investment securities	(14)		(16)
	16		62

Comprehensive income	$	41,797	$	41,125

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

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MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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


	March 31, 2022		December 31, 2021

ASSETS
Current Assets
Cash and cash equivalents	$	118,003	$	104,183
Inventories	188,972		180,043
Investment securities	4,057		5,361
Income taxes, prepaid	—		945
Prepaid expenses and other current assets	13,227		16,334
Total current assets	324,259		306,866

Property, plant and equipment - net of accumulated depreciation	57,804		56,131
Right-of-use assets	22,942		24,457
Other assets	12,026		6,468
Deferred tax assets	4,404		4,404


TOTAL ASSETS	$	421,435	$	398,326

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	174,369	$	163,309
Current lease obligations	6,663		6,523
Total current liabilities	181,032		169,832

Lease obligations, net of current lease obligations	24,379		26,020
Total liabilities	205,411		195,852

Stockholders' Equity
Common stock, par value $0.001 per share: 20,000 shares authorized;
11,553 and 11,594 issued and 11,552 and 11,593 outstanding
at March 31, 2022 and December 31, 2021, respectively	12		12
Additional paid-in capital	12,834		12,018
Accumulated other comprehensive income	127		111
Retained earnings	203,051		190,333

Total stockholders' equity	216,024		202,474

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	421,435	$	398,326

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

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MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(U.S. dollar in thousands)


	Three months ended March 31,
	2022		2021

Operating Activities
Net income	$	41,781	$	41,063
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization	2,444		1,124
Non-cash lease expense	1,619		889
Share-based compensation	2,275		2,198
Amortization of premium on investment securities	11		28

Change in operating assets and liabilities:
Inventories	(8,929)		(8,842)
Income taxes, prepaid	945		—
Prepaid expenses and other current assets	3,107		(266)
Other assets	(6,632)		(70)
Accounts payable and accrued expenses	7,052		29,202
Net cash flow provided by operating activities	43,673		65,326

Investing Activities
Sale and maturities of investment securities	1,245		3,720
Purchase of property and equipment	(3,009)		(4,598)
Net cash flow used in investing activities	(1,764)		(878)

Financing Activities
Options exercised by executives and directors	—		481
Net shares repurchased for taxes	(1,459)		(1,807)
Cash dividends paid to stockholders	(16,660)		(13,392)
Stock repurchases	(10,000)		(7,500)
Net cash flow used in financing activities	(28,119)		(22,218)

Foreign currency impact	30		78

Increase in cash and cash equivalents	13,820		42,308
Cash and cash equivalents - beginning of the period	104,183		163,723
Cash and cash equivalents - end of period	$	118,003	$	206,031

Supplemental disclosure of cash flow information:
Income taxes paid	$	62	$	56
Dividends declared included in accounts payable	$	19,663	$	17,292

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

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MEDIFAST, INC. AND SUBSIDIARIES

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

(U.S. dollars in thousands)


	Three months ended March 31, 2022
	Number of Shares Issued	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Treasury Stock		Total

Balance, December 31, 2021	11,594	$	12	$	12,018	$	111	$	190,333	$	—	$	202,474
Net income	—	—		—		—		41,781		—		41,781
Share-based compensation	18	—		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, 2022	11,553	$	12	$	12,834	$	127	$	203,051	$	—	$	216,024


	Three months ended March 31, 2021
	Number of Shares Issued	Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Treasury Stock		Total

Balance, December 31, 2020	11,822	$	12	$	7,842	$	41	$	154,351	$	(5,000)	$	157,246
Net income	—	—		—		—		41,063		—		41,063
Share-based compensation	13	—		2,198		—		—		—		2,198
Options exercised by executives and directors	11	—		481		—		—		—		481
Net shares repurchased for taxes	(7)	—		(1,807)		—		—		—		(1,807)
Treasury stock from stock repurchases	—	—		—		—		—		(7,500)		(7,500)
Other comprehensive income	—	—		—		62		—		—		62
Cash dividends declared to stockholders	—	—		—		—		(16,852)		—		(16,852)

Balance, March 31, 2021	11,839	$	12	$	8,714	$	103	$	178,562	$	(12,500)	$	174,891

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

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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 months ended March 31, 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

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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):


	March 31, 2022		December 31, 2021

Raw materials	$	15,340	$	15,196
Packaging	3,640		3,641
Non-food finished goods	13,316		15,991
Finished goods	161,698		152,687
Reserve for obsolete inventory	(5,022)		(7,472)
Total	$	188,972	$	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 March 31,
	2022		2021

Numerator:
Net income	$	41,781	$	41,063

Denominator:
Weighted average shares of common stock outstanding	11,557		11,772
Effect of dilutive common stock equivalents	81		109
Weighted average shares of common stock outstanding	11,638		11,881

Earnings per share - basic	$	3.62	$	3.49

Earnings per share - diluted	$	3.59	$	3.46

The calculation of diluted EPS excluded 44 and 267 antidilutive restricted stock awards for the three months ended March 31, 2022 and 2021, respectively.

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 March 31, 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

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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 three months ended March 31, 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):


	Three months ended March 31,
	2022			2021
	Awards	Weighted-Average Exercise Price		Awards	Weighted-Average Exercise Price

Outstanding at beginning of period	32	$	54.98	61	$	48.19
Exercised	—	—		(11)	42.62

Outstanding at end of the period	32	$	54.98	50	$	49.43
Exercisable at end of the period	28	$	52.76	41	$	44.93

As of March 31, 2022, the weighted-average remaining contractual life for outstanding stock options was 5.1 years with an aggregate intrinsic value of $3.8 million and the weighted-average remaining contractual life for exercisable stock options was 4.9 years with an aggregate intrinsic value of $3.3 million. The unrecognized compensation expense calculated under the fair value method for stock options expected to vest as of March 31, 2022 was $0.1 million and is expected to be recognized over a weighted-average period of 0.9 year. For the three months ended March 31, 2022, there was no exercise activity of stock options. For the three months ended March 31, 2021, the Company received $0.5 million in cash proceeds from the exercise of stock options. The total intrinsic value for stock options exercised during the three months ended March 31, 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):


	Three months ended March 31,
	2022			2021
	Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value

Outstanding at beginning of period	43	$	183.51	50	$	116.06
Granted	29	175.66		17	253.03
Vested	(18)	149.95		(14)	109.14

Outstanding at end of the period	54	$	190.20	53	$	157.80

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 three months ended March 31, 2022 and 2021, respectively. The total fair value of restricted stock awards vested during the three months ended March 31, 2022 and 2021 was $3.2 million and $3.9 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 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

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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 March 31, 2022 and 2021 are as follows (in thousands):


	Three months ended March 31,
	2022			2021
	Shares	Share-Based Compensation Expense		Shares	Share-Based Compensation Expense
Options and restricted stock	86	$	1,087	103	$	938
Performance-based share awards granted in 2022	25	79		—	—
Performance-based share awards granted in 2021	15	640		14	54
Performance-based share awards granted in 2020	26	469		28	495
Performance-based share awards granted in 2019	—	—		17	711
Total share-based compensation	152	$	2,275	162	$	2,198

The total income tax benefit recognized in the accompanying Condensed Consolidated Statements of Income for restricted stock awards was $0.5 million and $1.2 million for the three months ended March 31, 2022 and 2021, respectively.

There was $8.8 million of total unrecognized compensation cost related to restricted stock awards as of March 31, 2022, which is expected to be recognized over a weighted-average period of 2.4 years. There was $11.0 million of unrecognized compensation costs related to the 66,000 performance-based shares discussed above as of March 31, 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 March 31, 2022 and 2021, respectively, or for the three-month periods then ended, respectively.

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 $1.8 million and $1.0 million for the three months ended March 31, 2022 and 2021, respectively.

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


	Three months ended March 31,
	2022		2021

Cash paid for amounts included in the measurements of lease liabilities
Operating cash flow used in operating leases	$	1,756	$	1,002

Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	103	$	11

As of March 31, 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 March 31, 2022 (in thousands):


2022 (excluding the three months ended March 31, 2022)	$	5,443
2023	6,242
2024	5,693
2025	5,825
2026	4,160
Thereafter	5,412
Total lease payments	$	32,775
Less: imputed interest	(1,733)
Total	$	31,042

6. ACCUMULATED OTHER COMPREHENSIVE INCOME

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


	March 31, 2022		December 31, 2021

Foreign currency translation	$	120	$	90
Unrealized gains on investment securities	7		21
Accumulated other comprehensive income	$	127	$	111

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.

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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):


	March 31, 2022
	Cost		Unrealized Gains		Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities

Cash	$	107,342	$	—	$	—	$	107,342	$	107,342	$	—

Level 1:
Money market accounts	10,661		—		—		10,661		10,661		—
Government & agency securities	1,401		5		8		1,414		—		1,414
	12,062		5		8		12,075		10,661		1,414

Level 2:
Municipal bonds	2,625		2		16		2,643		—		2,643

Total	$	122,029	$	7	$	24	$	122,060	$	118,003	$	4,057


	December 31, 2021
	Cost		Unrealized Gains		Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities

Cash	$	94,824	$	—	$	—	$	94,824	$	94,824	$	—

Level 1:
Money market accounts	9,359		—		—		9,359		9,359		—
Government & agency securities	1,401		12		—		1,413		—		1,413
	10,760		12		—		10,772		9,359		1,413

Level 2:
Municipal bonds	3,880		9		59		3,948		—		3,948

Total	$	109,464	$	21	$	59	$	109,544	$	104,183	$	5,361

The Company had no realized losses or gains for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the maturities of the Company’s investment securities were less than one year for all the municipal bonds, and government and agency securities.

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

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administrative agent. The Credit Agreement provides for a $125.0 million senior secured revolving credit facility with a $20.0 million letter of credit sub-limit. The 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 Credit Agreement matures on April 13, 2026.

The Company’s obligations under the 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 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 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 Credit Agreement bear interest at a rate per annum equal to (i) the Adjusted LIBOR Rate for the interest period plus the Applicable Rate (as defined in the Credit Agreement) based on the Company’s Total Net Leverage Ratio (with customary provisions under the Credit Agreement providing for the replacement of LIBOR with a successor rate) or (ii) the Alternate Base Rate (as defined in the Credit Agreement) as in effect from time to time plus the Applicable Rate based on the Company’s Total Net Leverage Ratio. As of March 31, 2022, the Applicable Rate for Eurodollar Loans is 1.25% per annum and the Applicable Rate for ABR Loans is 0.25% per annum.

The 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 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 Credit Agreement requires the Company to maintain a Total Net Leverage Ratio of no more than 3.00 to 1.00 and an Interest Coverage Ratio of at least 3.50 to 1.00.

The Company has no borrowings under the Credit Agreement as of March 31, 2022.

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. These forward-looking statements generally can be identified by use of phrases or terminology such as "intend," “anticipate,” “expects” 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.

Table of Contents

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 63,900 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