Medifast Annual Report 2020 Form 10-K (NYSE:MED) Published: March 2nd, 2020 PDF generated by stocklight.com UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . Commission file number: 001-31573 Medifast, Inc. (Exact name of registrant as specified in its charter) Delaware 13-3714405 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 100 International Drive Baltimore, Maryland 21202 (Address of principal executive offices) (Zip code) (410) 581-8042 (Registrant’s 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, $0.001 par value per share MED New York Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No ◻ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ◻ No ⌧ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ⌧ No ◻ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging growth company in Rule 12b-2 of the Exchange Act. Large accelerated filer ⌧ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). ¨ Yes ☐ No ⌧ As of June 28, 2019, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of the Registrant’s common stock (based on the closing sale price of $128.30, as reported by the New York Stock Exchange on such date) held by non- affiliates was approximately $1.5 billion. The number of shares of the registrant’s common stock outstanding at February 14, 2020 was 11,765,154. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission for its 2020 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements often include words such as “may,” “will,” “should,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “seek,” “would,” “could,” or similar expressions and are made in connection with discussions of future operating or financial performance and/or events or developments that we expect or anticipate will occur in the future. Forward-looking statements reflect management’s expectations, beliefs, plans, objectives, goals and strategies as of the date of this Report. Although we believe that these forward-looking statements and the underlying assumptions on which they are based are reasonable, forward-looking statements are not guarantees of future performance. By their nature, forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Our actual results and financial condition may differ materially from what is anticipated in the forward-looking statements. Some of the risks and uncertainties that may affect our business include: ● our ability to maintain and grow our network of OPTAVIA Coaches; ● risks associated with our direct-to-consumer business model; ● overall economic and market conditions and the resultant impact on consumer spending patterns; ● disruptions in our supply chain; ● health or advertising related claims by our clients; ● our ability to continue to develop innovative new services and products and to continue to appeal to the market; ● our ability to protect against online security risks, including security breaches and identity theft; ● our ability to protect our brand and other intellectual property rights; ● expansion into international markets increases our operational, regulatory and other risks; ● the departure of one or more key personnel; ● adverse publicity associated with our products or business units; ● the impact of existing and future laws and regulations on our business; ● product liability claims; and ● other risks and uncertainties described elsewhere in this Report, including those described under Item 1A - “Risk Factors” of this Report, and in subsequent filings with the Securities and Exchange Commission (the “SEC”). Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Report. We undertake no obligation to update any information contained in this Report or to publicly release the results of any revisions to forward-looking statements to reflect events or circumstances of which we may become aware after the date of this Report. 2 Table of Contents Page PART I Item 1 Business 4 Item 1A Risk Factors 14 Item 1B Unresolved Staff Comments 22 Item 2 Properties 22 Item 3 Legal Proceedings 22 Item 4 Mine Safety Disclosure 23 PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity 23 Securities Item 6 Selected Financial Data 24 Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A Quantitative and Qualitative Disclosures about Market Risk 30 Item 8 Financial Statements and Supplementary Data 31 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 54 Item 9A Controls and Procedures 54 Item 9B Other Information 55 PART III Item 10 Directors, Executive Officers and Corporate Governance 55 Item 11 Executive Compensation 55 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 56 Item 13 Certain Relationships and Related Transactions, and Director Independence 56 Item 14 Principal Accountant Fees and Services 56 PART IV Item 15 Exhibits and Financial Statement Schedules 56 Item 16 Form 10-K Summary 58 3 PART I ITEM 1. BUSINESS SUMMARY Medifast is the company behind one of the fastest-growing health and wellness communities called OPTAVIA®, which offers Lifelong Transformation, One Healthy Habit at a Time®. Reflecting the success of its approach to health and wellness for its clients, Medifast has consistently grown revenue ahead of peers and competitors. Of equal importance, our business model is expected to deliver long-term growth. Medifast has redefined direct selling by combining the best aspects of the model, while eliminating those dimensions that have typically challenged other companies. Medifast is often compared to diet and weight loss-only companies or to multi-level marketing companies, but our model is very different. The company supports clients through independent OPTAVIA Coaches, majority of whom were clients first. Our operations are conducted through our wholly owned subsidiaries, Jason Pharmaceuticals, Inc., OPTAVIA, LLC, Jason Enterprises, Inc., Jason Properties, LLC, Medifast Franchise Systems, Inc., Medifast Nutrition, Inc., Seven Crondall Associates, LLC, Corporate Events, Inc., OPTAVIA (Hong Kong) Limited, OPTAVIA (Singapore) PTE. LTD and OPTAVIA Health Consultation (Shanghai) Co., Ltd. OPTAVIA is a highly effective lifestyle solution for people for whom diets alone have failed. Habits of Health ®, the approach developed by OPTAVIA Co-founder and independent OPTAVIA Coach, Dr. Wayne Scott Andersen, combines clinically proven plans with scientifically developed products and the ongoing support of Coaches. We sell a variety of weight loss, weight management and healthy living products all based on our proprietary formulas under the Medifast®, OPTAVIA®, Thrive by Medifast, Optimal Health by Take Shape for Life, and Flavors of Home ® brands. Our product line includes more than 170 consumable