Medifast 2024 Update

A quick update on this (possible) melting ice cube.

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The perfectionist in me is trying to get comfortable publishing more frequently. Not simply to “generate content” but to share short, perhaps incomplete or imperfect notes/research that may be useful to readers. I figure an imperfect update from me might be better than a reader completely missing a piece of information on a watchlist company because I was too afraid to hit send.

I’d appreciate your feedback in the comments.

Medifast 2024 Update

Disclosure: Long

Revenue for the full year decreased 44% to $602.5 million. Active earning coaches declined from 41,100 at Q4 2023 to 27,100 at Q4 2024 (-34%), and revenue per coach declined from $5,538 to $4,391 (-21%). The company points to a slowing decline in coach atrophy: down 5.5% in Q4 vs. -22.2% at Q1.

Gross margin increased by 140bps to 73.8% from lower costs, lower inventory donations and efficiencies.

SG&A decreased 32% and increased as a % sales from 60.6% to 73.3%. The company attributed the increase as follows:

• 330bps due to company-led acquisition efforts

• 330bps due to loss of leverage on employee comp

• 160bps due to loss of leverage on fixed costs

• 200 bps due to supply chain optimization.

The supply chain optimization of $12.5mm:

• Loss on impairment of equipment held for sale: $2,499 thousand. This loss resulted from the closure of the Maryland Distribution Center and the sale of its assets.

•Accelerated depreciation charges: $9,190 thousand. These charges were due to the adjustment of the useful lives of certain underutilized supply chain assets at other locations .

•Non-cash charges for supply chain optimization: $11,689 thousand. This appears to be the sum of the loss on impairment and accelerated depreciation.

•One-time severance costs: $813 thousand. These costs were incurred as part of the distribution center closure.

Adjusting for these one-time items EBIT was $15mm.

Additionally, the company paid the second of two $5mm payments to LifeMD, which won’t repeat. It seems to me this LifeMD partnership was a dud, but maybe there’s more to it or it hasn’t reached fruition. At the very least these payments shouldn’t reoccur.

Adjusted for the one-time items, profit, cash flow, and return on capital were satisfactory.

In the latest earnings call the company points to $24mm marketing spend in 2024 compared to about $4mm in 2023. They won’t disclose plans for 2025, but anticipate lower marketing spend as “non-working” (i.e. design, etc. ) vs the actual ad spend itself won’t repeat in 2025. They anticipate spending more on coach comp. this year.

Additional bullets from my read of the Q4 conference call transcript:

• % customers who have used GLP-1 = 17%, up from 3% at beginning of 2024

• 22% of coaches have used GLP-1.

• 2025 priorities: 1. customer acquisition, 2) coach productivity, 3) advancing clinical research

• Most customers getting prescription thru own provider, not LifeMD

• Canceled credit facility in October 2024 (they don’t think they’ll need the liquidity)

Valuation

Valuation remains attractive. The company has $162mm cash and investments as of Q4 2024 and just $10mm lease liabilities. Compare that to a market cap of $135mm. As long as MED doesn’t die, owners should do okay from here. Then again, this could be a melting ice cube that leaves buyers with nothing but wet hands.

Caveat Emptor!

Stay Rational!

Adam

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