10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

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

Telephone Number: (410) 581-8042

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

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 ⌧ 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 checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ⌧

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 Preferred Stock Purchase Rights	MED	New York Stock Exchange New York Stock Exchange

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 30, 2020 was 11,765,496.

Medifast, Inc. and subsidiaries

Index

Part 1 – Financial Information
Item 1 – Financial Statements
Condensed Consolidated Statements of Income (unaudited) for the Three and Six Months Ended June 30, 2020 and 2019	2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2020 and 2019	3
Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2020 and December 31, 2019	4
Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2020 and 2019	5
Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2020 and 2019	6
Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	22
Item 4 – Controls and Procedures	22
Part II – Other Information
Item 1 – Legal Proceedings	23
Item 1A – Risk Factors	23
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 6 – Exhibits	24

1

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts & dividend data)

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Revenue	$	219,999	$	187,103	$	398,460	$	352,979
Cost of sales		60,699		46,393		103,920		87,122
Gross profit		159,300		140,710		294,540		265,857
Selling, general, and administrative		131,201		113,355		242,908		213,787
Income from operations		28,099		27,355		51,632		52,070
Other income
Interest income, net		58		425		168		737
Other income (expense)		1		(2)		(18)		(8)
		59		423		150		729
Income from operations before income taxes		28,158		27,778		51,782		52,799
Provision for income taxes		6,223		6,395		11,370		10,666
Net income	$	21,935	$	21,383	$	40,412	$	42,133
Earnings per share - basic	$	1.86	$	1.80	$	3.43	$	3.55
Earnings per share - diluted	$	1.86	$	1.75	$	3.42	$	3.45
Weighted average shares outstanding
Basic		11,777		11,861		11,774		11,870
Diluted		11,821		12,218		11,822		12,229
Cash dividends declared per share	$	1.13	$	0.75	$	2.26	$	1.50

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)

(in thousands)

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Net income	$	21,935	$	21,383	$	40,412	$	42,133
Other comprehensive income, net of tax:
Foreign currency translation		2		-		(2)		1
Unrealized gains on investment securities		27		102		76		228
Other comprehensive income		29		102		74		229
Comprehensive income	$	21,964	$	21,485	$	40,486	$	42,362

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

3

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except par value)

		June 30,		December 31,
		2020		2019
ASSETS
Current Assets
Cash and cash equivalents	$	130,828	$	76,974
Accounts receivable-net of doubtful accounts of $61 and $235 at
June 30, 2020 and December 31, 2019, respectively		836		1,437
Inventories		38,580		48,771
Investment securities		14,564		15,704
Income taxes, prepaid		-		5,169
Prepaid expenses and other current assets		6,437		6,096
Total current assets		191,245		154,151
Property, plant and equipment - net of accumulated depreciation		24,574		26,039
Right-of-use assets		11,362		12,803
Other assets		2,833		353
Deferred tax assets		2,071		1,307
TOTAL ASSETS	$	232,085	$	194,653
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	103,335	$	76,220
Current lease obligations		3,270		3,168
Total current liabilities		106,605		79,388
Lease obligations, less current lease obligations		8,744		10,433
Total liabilities		115,349		89,821
Stockholders' Equity
Common stock, par value $.001 per share: 20,000 shares authorized;
11,806 and 12,272 issued and 11,756 and 11,764 outstanding
at June 30, 2020 and December 31, 2019, respectively		12		12
Additional paid-in capital		2,871		-
Accumulated other comprehensive income		99		25
Retained earnings		118,754		168,788
Less: Treasury stock at cost, 46 and 489 shares at June 30, 2020 and December 31, 2019, respectively		(5,000)		(63,993)
Total stockholders' equity		116,736		104,832
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	232,085	$	194,653

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)

(in thousands)

	Six months ended June 30,
	2020		2019
Operating Activities
Net income	$	40,412	$	42,133
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization		3,481		3,288
Share-based compensation		2,117		2,245
Loss on sale of disposal of property, plant and equipment		-		17
Amortization of premium on investment securities		182		249
Deferred income taxes		(764)		375
Change in operating assets and liabilities:
Accounts receivable		601		33
Inventories		10,191		(9,585)
Income taxes, prepaid		5,169		(1,365)
Prepaid expenses and other current assets		(341)		(3,052)
Other assets		(2,446)		43
Accounts payable and accrued expenses		25,651		12,831
Net cash flow provided by operating activities		84,253		47,212
Investing Activities
Sale and maturities of investment securities		1,000		2,430
Purchase of property and equipment		(583)		(6,972)
Net cash flow provided by (used in) investing activities		417		(4,542)
Financing Activities
Options exercised by executives and directors		1,250		279
Net shares repurchased for employee taxes		(496)		(256)
Cash dividends paid to stockholders		(26,568)		(17,749)
Stock repurchases		(5,000)		(9,998)
Net cash flow used in financing activities		(30,814)		(27,724)
Foreign currency impact		(2)		1
Increase in cash and cash equivalents		53,854		14,947
Cash and cash equivalents - beginning of the period		76,974		81,364
Cash and cash equivalents - end of period	$	130,828	$	96,311
Supplemental disclosure of cash flow information:
Income taxes paid	$	120	$	11,338
Dividends declared included in accounts payable	$	13,604	$	9,102

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)

(in thousands)

	Six months ended June 30, 2020
	Number of Shares Issued		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Treasury Stock		Total
Balance, December 31, 2019	12,272	$	12	$	-	$	25	$	168,788	$	(63,993)	$	104,832
Net income	-		-		-		-		18,477		-		18,477
Share-based compensation	7		-		981		-		-		-		981
Net shares repurchased for employee taxes	(5)		-		(487)		-		-		-		(487)
Treasury stock retired from stock repurchases	(489)		-		-		-		(63,993)		63,993		-
Other comprehensive income	-		-		-		45		-		-		45
Cash dividends declared to stockholders	-		-		-		-		(13,099)		-		(13,099)
Balance, March 31, 2020	11,785		12		494		70		110,173		-		110,749
Net income	-		-		-		-		21,935		-		21,935
Share-based compensation	-		-		1,136		-		-		-		1,136
Options exercised by executives and directors	21		-		1,250		-		-		-		1,250
Net shares repurchased for employee taxes	-		-		(9)		-		-		-		(9)
Other comprehensive income	-		-		-		29		-		-		29
Treasury stock from stock repurchases	-		-		-		-		-		(5,000)		(5,000)
Cash dividends declared to stockholders	-		-		-		-		(13,354)		-		(13,354)
Balance, June 30, 2020	11,806	$	12	$	2,871	$	99	$	118,754	$	(5,000)	$	116,736

	Six months ended June 30, 2019
	Number of Shares Issued		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Total
Balance, December 31, 2018	12,117	$	12	$	8,802	$	(173)	$	131,344	$	(30,879)	$	109,106
Net income	-		-		-		-		20,750		-		20,750
Share-based compensation	-		-		990		-		-		-		990
Options exercised by executives and directors	10		-		269		-		-		-		269
Net shares repurchased for employee taxes	(1)		-		(256)		-		-		-		(256)
Other comprehensive income	-		-		-		127		-		-		127
Cash dividends declared to stockholders	-		-		-		-		(8,918)		-		(8,918)
Balance, March 31, 2019	12,126		12		9,805		(46)		143,176		(30,879)		122,068
Net income	-		-		-		-		21,383		-		21,383
Share-based compensation	-		-		1,255		-		-		-		1,255
Options exercised by executives and directors	-		-		10		-		-		-		10
Other comprehensive income	-		-		-		102		-		-		102
Treasury stock from stock repurchases	-		-		-		-		-		(9,998)		(9,998)
Cash dividends declared to stockholders	-		-		-		-		(8,797)		-		(8,797)
Balance, June 30, 2019	12,126	$	12	$	11,070	$	56	$	155,762	$	(40,877)	$	126,023

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

6

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 (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, 2019 has been derived from the audited consolidated financial statements at that date.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2020. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the 2019 audited consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Form 10-K”).

Presentation of Financial Statements - The unaudited condensed consolidated financial statements included herein include the accounts of Medifast, Inc. and its wholly-owned subsidiaries. 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 2020

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), which addresses the accounting for implementation costs associated with a hosted service. The standard provides amendments to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license).

On January 1, 2020, the Company adopted ASU 2018-15. The Company capitalized $1.9 million during the quarter ended March 31, 2020 as a result of adoption, principally related to the configuration and development of the Company’s new hosted enterprise resource planning tool (“ERP”). The Company capitalized $2.6 million in total for the six months ended June 30, 2020.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which institutes a new model for recognizing credit losses on financial instruments that are not measured at fair value. On January 1, 2020, the Company adopted ASU 2016-13. There was no material impact on the Company's condensed consolidated financial statements.

7

Recently Issued Accounting Pronouncements –Pending Adoption

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The standard also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Management has determined the effect that the provisions of ASU 2019-12 will have on the Company’s condensed consolidated financial statements is immaterial. 

2. INVENTORIES

Inventories consist principally of packaged meal replacements held in the Company’s warehouses. Inventory is stated at the lower of cost or net realizable value, utilizing the first-in, first-out method. The cost of finished goods includes the cost of raw materials, packaging supplies, direct and indirect labor and other indirect manufacturing costs. On a quarterly basis, management reviews inventory for unsalable or obsolete inventory.

Inventories consisted of the following (in thousands):

	June 30, 2020		December 31, 2019
Raw materials	$	9,168	$	10,880
Packaging		2,246		4,109
Non-food finished goods		4,514		4,421
Finished goods		24,580		31,314
Reserve for obsolete inventory		(1,928)		(1,953)
Total	$	38,580	$	48,771

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.

8

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,
	2020		2019		2020		2019
Numerator:
Net income	$	21,935	$	21,383	$	40,412	$	42,133
Denominator:
Weighted average shares of common stock outstanding		11,777		11,861		11,774		11,870
Effect of dilutive common stock equivalents		44		357		48		359
Weighted average shares of common stock outstanding		11,821		12,218		11,822		12,229
Earnings per share - basic	$	1.86	$	1.80	$	3.43	$	3.55
Earnings per share - diluted	$	1.86	$	1.75	$	3.42	$	3.45

The calculation of diluted EPS excluded 934 and 611 antidilutive options outstanding for the three months ended June 30, 2020 and 2019, respectively, and 965 and 752 antidilutive options outstanding for the six months ended June 30, 2020 and 2019, respectively. The calculation of diluted EPS also excluded 5,774 and 350 antidilutive restricted stock awards for the three months ended June 30, 2020 and 2019, respectively, and 10,626 and 705 antidilutive restricted stock awards for the six months ended June 30, 2020 and 2019, 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 nonemployee 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 June 30, 2020, 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 $171.68. Due to the Company’s lack of option exercise history, 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. For the six months ended June 30, 2020 and 2019, the Company did not grant stock options.

The following table is a summary of our stock option activity:

	Six months ended June 30,
	2020			2019
	Awards	Weighted-Average Exercise Price		Awards	Weighted-Average Exercise Price
(awards in thousands)
Outstanding at beginning of period	97	$	52.53	107	$	49.26
Exercised	(21)		57.91	(10)		28.21
Forfeited	(6)		68.84	-		-
Outstanding at end of the period	70	$	49.36	97	$	52.53
Exercisable at end of the period	51	$	42.15	52	$	40.96

9

As of June 30, 2020, the weighted-average remaining contractual life for outstanding stock options was 6.3 years with an aggregate intrinsic value of $6.3 million and the weighted-average remaining contractual life for exercisable stock options was 5.8 years with an aggregate intrinsic value of $4.9 million. The unrecognized compensation expense calculated under the fair value method for stock options expected to vest as of June 30, 2020 was $0.3 million and is expected to be recognized over a weighted average period of 2.3 years. For the six months ended June 30, 2020, the Company received $1.3 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, 2020 was $0.9 million. For the six months ended June 30, 2019, the Company received $0.3 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, 2019 was $1.0 million.

Restricted Stock

The Company has issued restricted stock to employees and nonemployee 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:

	Six months ended June 30,
	2020			2019
	Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value
(shares in thousands)
Outstanding at beginning of period	46	$	98.28	57	$	50.55
Granted	41		111.94	28		130.89
Vested	(29)		82.99	(31)		45.30
Forfeited	(4)		107.50	(2)		167.48
Outstanding at end of the period	54	$	116.00	52	$	92.36

The Company withheld 0.0 million 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, 2020 and 2019. The total fair value of restricted stock awards vested during the six months ended June 30, 2020 and 2019 was $3.2 million and $4.0 million, respectively.

The total share-based compensation charged against income was $1.1 and $1.3 million during the three months ended June 30, 2020 and 2019, respectively, and $2.1 million and $2.2 million during the six months ended June 30, 2020 and 2019, respectively. The total costs of the options and restricted stock awards charged against income was $0.7 million and $0.8 million during the three months ended June 30, 2020 and 2019, respectively, and $1.5 million during the six months ended June 30, 2020 and 2019. Included for the three and six months ended June 30, 2020 was $0.2 million and $0.3 million, respectively, for 15,821 performance-based contingent shares and for the three and six months ended June 30, 2019 was $0.2 million and $0.3 million, respectively, for 17,780 performance-based contingent shares for certain key executives granted in 2019. Also included for the three and six months ended June 30, 2020 was $0.2 million and $0.3 million for 25,531 performance-based contingent shares for certain key executives granted in 2020. Additionally, included for the three and six months ended June 30, 2019 was $0.1 million and $0.2 million, respectively, for 63,300 performance-based deferred shares for certain key executives, and $0.2 million and $0.3 million, respectively, for 210,000 performance-based contingent shares granted to our Chief Executive Officer. These 273,300 performance-based shares were fully vested on December 31, 2019.

The total income tax benefit recognized in the Condensed Consolidated Statements of Income for restricted stock awards was $0.5 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively, and was $0.7 million and $1.2 million for the six months ended June 30, 2020 and 2019, respectively.

There was $5.6 million of total unrecognized compensation cost related to restricted stock awards as of June 30, 2020, which is expected to be recognized over a weighted-average period of 1.9 years. There was $3.4 million of unrecognized compensation cost related to the 41,352 performance-based shares discussed above as of June 30, 2020, which is expected to be recognized over 2.2 years.

10

5. LEASES AND CONTINGENCIES

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, 2020 and 2019, respectively, or for the six-month periods then ended, respectively.

Our leases relating to office and warehouse space have terms of 36 months to 122 months. Our leases relating to equipment have lease terms of 60 to 203 months, with some of them having clauses relating to automatic renewal.

The Company’s warehouse agreement also contains 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 will be recognized as expense when they are incurred.

The operating lease expense was $0.9 million and $0.7 million for the three months ended June 30, 2020 and 2019, respectively, and was $1.7 million and $1.4 million for the six months ended June 30, 2020 and 2019, respectively.

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

	Six months ended June 30,
	2020		2019
Cash paid for amounts included in the measurements of lease liabilities
Operating cash flow used in operating leases	$	1,814	$	1,392
Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	-	$	1,490

As of June 30, 2020, the weighted average remaining lease term was 4.1 years and the weighted average discount rate was 3.7%.

The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2020 (in thousands):

2020 (excluding the six months ended June 30, 2020)	$	1,822
2021		3,670
2022		3,154
2023		1,665
2024		1,234
Thereafter		1,452
Total lease payments	$	12,997
Less: imputed interest		(983)
Total	$	12,014

Other Contingencies

On or about April 30, 2020, the Company became aware that one of its products contained an undeclared milk allergen in the product. The sale of this product occurred during the first quarter of 2020 and the first part of the second quarter of 2020. The Company has completed a voluntary recall of the specific lots of this product that were impacted and notified the U.S. Food and Drug Administration, as required. The Company has considered the impact of the recall to our six-month period ended June 30, 2020 to be immaterial to the financial statements. As of June 30, 2020, the Company has concluded the recall program and responded to all government requests. The Company does not expect any significant future financial impact to result from this matter.

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6. ACCUMULATED OTHER COMPREHENSIVE INCOME

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

	June 30, 2020		December 31, 2019
Foreign currency translation	$	(3)	$	(1)
Unrealized gains on investment securities		102		26
Accumulated other comprehensive income	$	99	$	25

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 represent cash and the available-for-sale securities adjusted cost, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or investment securities (in thousands):

	June 30, 2020
		Cost		Unrealized Gains		Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities
Cash	$	130,733	$	-	$	-	$	130,733	$	130,733	$	-
Level 1:
Certificate of deposit		-		-		-		-		-		-
Money market accounts		95		-		-		95		95		-
Government & agency securities		2,830		63		-		2,893		-		2,893
		2,925		63		-		2,988		95		2,893
Level 2:
Municipal bonds		11,429		50		192		11,671		-		11,671
Total	$	145,087	$	113	$	192	$	145,392	$	130,828	$	14,564

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	December 31, 2019
		Cost		Unrealized Gains		Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities
Cash	$	36,593	$	-	$	-	$	36,593	$	36,593	$	-
Level 1:
Certificate of deposit		35,000		-		-		35,000		35,000		-
Money market accounts		5,381		-		-		5,381		5,381		-
Government & agency securities		2,832		2		-		2,834		-		2,834
		43,213		2		-		43,215		40,381		2,834
Level 2:
Municipal bonds		12,610		34		226		12,870		-		12,870
Total	$	92,416	$	36	$	226	$	92,678	$	76,974	$	15,704

The Company had no realized losses or gains for the three and six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020 and 2019, gross unrealized losses and gains related to individual securities that had been in a continuous loss position for 12 months or longer were not significant. The maturities of the Company’s investment securities generally range up to 3 years for municipal bonds and for government and agency securities.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Note Regarding Forward-Looking Statements

This report contains information that may constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” and similar expressions, which are not historical in nature, identify forward-looking statements. However, the absence of these words or expressions does not necessarily mean that a statement is not forward-looking. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including statements relating to future operating results, are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, caution should be taken not to place undue reliance on any such forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. In addition, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in our 2019 Form 10-K, the Form 10-Q for the Quarter ended March 31, 2020 and this Form 10-Q and those described from time to time in our future reports filed with the SEC.

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 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 165 consumable options, including, but not limited to, bars, bites, pretzels, puffs, cereal crunch, drinks, hearty choices, oatmeal, pancakes, puddings, soft serve, shakes, smoothies, soft bakes, and soups. The Thrive by Medifast and Optimal Health by Take Shape for Life lines include a variety of specially formulated bars, shakes, and smoothies for those who are maintaining their weight for long-term healthy living. We identify opportunities to expand our product line by regularly surveying our clients and studying industry and consumer trends. This allows us to introduce new, high quality products that meet consumer demand.

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Our nutritional products are formulated with high-quality ingredients. Products include individually portioned, calorie- and carbohydrate-controlled meal replacements that share a similar nutritional footprint and provide a balance of protein and good carbohydrates. Our meal replacements are also fortified to contain vitamins and minerals, as well as other nutrients essential for good health. We offer our OPTAVIA clients exclusive OPTAVIA-branded nutritional products, or “Fuelings,” and also offer a variety of other weight loss, weight management, and healthy living products under other brands. OPTAVIA Fuelings come in a variety of flavors that appeal to a broad variety of tastes. Our products are nutrient-dense, portion-controlled, nutritionally interchangeable and simple to use.

OPTAVIA encompasses our community of OPTAVIA Coaches, our OPTAVIA health and wellness programs, and our proprietary OPTAVIA-branded products. The OPTAVIA integrated coaching model is centered around providing focused, individualized attention to our clients. Our OPTAVIA Coaches provide the support and encouragement for clients to successfully learn and adopt a more healthy lifestyle. This clinically-proven plan translates into better client results when compared to programs that leave individuals to adopt and maintain healthy habits on their own. Our clients receive personalized attention from our OPTAVIA Coaches who share, educate, motivate and pass along their passion for healthy living. We believe this personal, direct-sales and service strategy is optimal for activating and supporting our clients. In a clinical study published in Obesity Science and Practice in 2018, the OPTAVIA model’s effectiveness was validated when its meal plan was combined with education and support from OPTAVIA Coaches.

Our OPTAVIA Coaches are independent contractors, not employees, who support our clients and market our products and services primarily through word of mouth, email and via social media channels such as Facebook, Instagram, Twitter and Zoom. As direct-sales entrepreneurs, OPTAVIA Coaches market our products to friends, family and other acquaintances with whom they have established strong relationships.

The entrepreneurial success of our OPTAVIA Coaches is the key to our success. We are focused on scaling our OPTAVIA Integrated Coaching Model by offering economic incentives that are attractive to independent entrepreneurs and reflective of the new “gig economy.” Our successful clients frequently become enthusiastic health and wellness advocates themselves and choose to become OPTAVIA Coaches. This process of clients becoming OPTAVIA Coaches underpins our growth.

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. The Company oursources a distribution center in Hong Kong to give the Company adequate product distribution capacity for the foreseeable future. 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.

COVID-19 Update

In December 2019, a novel strain of coronavirus (“COVID-19”) was identified in Asia. Over the next several months, COVID-19 quickly spread across the world. In March 2020, the World Health Organization declared COVID-19 a worldwide pandemic. As of June 30, 2020, the virus continues to spread, infecting more than 10 million people worldwide, and impacting worldwide economic activity.  No vaccine is currently available. Many governments implemented policies intended to stop or slow the further spread of the disease, such as social distancing and shelter-in-place orders, resulting in the temporary closure of schools and non-essential businesses, and these measures remain in place and may continue for a significant period of time.  Because the Company sells products that are essential to the daily lives of consumers, the COVID-19 pandemic has not had a material impact to our consolidated operating results for the six-month period ended June 30, 2020.  

While the duration and severity of this COVID-19 pandemic is uncertain, 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 estimates due to 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. These

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uncertainties make it challenging for our management to estimate our future business performance. However, we continue to actively monitor the impact of COVID-19 and related developments on our business.

Although the COVID-19 pandemic has impacted our business operations in multiple ways, our manufacturing facility remains fully operational to date and we have not experienced any meaningful disruption to our world-wide supply chain.  Additionally, nutritional supplements and health foods have been designated critical/essential infrastructure in the U.S. and, as such, we have continued to actively manufacture and distribute our products in our markets around the world.  While our manufacturing and distribution employees continue to work on site, they are following additional health and safety guidelines. In response to the public health crisis posed by COVID-19, in March 2020 we took numerous actions, including:

● successfully implementing a work-from-home plan for all non-essential employees to comply with guidelines from government and health officials;

● changing this year’s OPTAVIA convention from a live event in July to a virtual event;

● employing incentives and promotions to help OPTAVIA Coaches adjust to the adverse effect of overall economic conditions and the nationwide actions taken to control the spread of the virus;

● providing additional health and safety precautions in our headquarters, manufacturing and distribution centers, including use of personal protective equipment and frequent sanitization;

● process controls in relation to social distancing, visitors, travel and quarantine

The Company’s priorities during the COVID-19 pandemic are protecting the health and safety of our employees and their families, OPTAVIA Coaches; maximizing the availability of products that help consumers with their needs; and the use of our employees’ talents and our resources to help society meet and overcome the current challenges. The Company will continue to proactively respond to the situation and may take further actions that alter the Company’s business operations as may be required by governmental authorities, or that the Company determines are in the best interests of its employees, OPTAVIA Coaches and consumers.

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 1 to the unaudited condensed consolidated financial statements included in this report.

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.

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Overview of Results of Operations

Our product sales accounted for 98% of our revenues for the three months and six months ended June 30, 2020 and 2019, respectively.

The following tables reflect our income statements (in thousands, except percentages):

	Three months ended June 30,
	2020		2019		$ Change		% Change
Revenue	$	219,999	$	187,103	$	32,896	17.6%
Cost of sales		60,699		46,393		(14,306)	-30.8%
Gross profit		159,300		140,710		18,590	13.2%
Selling, general, and administrative		131,201		113,355		(17,846)	-15.7%
Income from operations		28,099		27,355		744	2.7%
Other income
Interest income, net		58		425		(367)	-86.4%
Other income (expense)		1		(2)		3	-150.0%
		59		423		(364)	-86.1%
Income from operations before income taxes		28,158		27,778		380	1.4%
Provision for income tax		6,223		6,395		172	2.7%
Net income	$	21,935	$	21,383	$	552	2.6%
% of revenue
Gross profit		72.4%		75.2%
Selling, general, and administrative costs		59.6%		60.6%
Income from operations		12.8%		14.6%
Income from operations before income taxes		12.8%		14.8%

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	Six months ended June 30,
	2020		2019		$ Change		% Change
Revenue	$	398,460	$	352,979	$	45,481	12.9%
Cost of sales		103,920		87,122		(16,798)	-19.3%
Gross Profit		294,540		265,857		28,683	10.8%
Selling, general, and administrative		242,908		213,787		(29,121)	-13.6%
Income from operations		51,632		52,070		(438)	-0.8%
Other income
Interest income, net		168		737		(569)	-77.2%
Other expense		(18)		(8)		(10)	125.0%
		150		729		(579)	-79.4%
Income from operations before income taxes		51,782		52,799		(1,017)	-1.9%
Provision for income taxes		11,370		10,666		(704)	-6.6%
Net income	$	40,412	$	42,133	$	(1,721)	-4.1%
% of revenue
Gross Profit		73.9%		75.3%
Selling, general, and administrative costs		61.0%		60.6%
Income from Operations		13.0%		14.8%
Income from operations before income taxes		13.0%		15.0%

Revenue: Revenue increased $32.9 million, or 17.6%, to $220.0 million for the three months ended June 30, 2020 from $187.1 million for the three months ended June 30, 2019. The total number of active earning OPTAVIA Coaches for the three months ended June 30, 2020 increased to 36,500 from 30,600 for the corresponding period in 2019, an increase of 19.3%. The average revenue per active earning OPTAVIA Coach was $5,851 for the three months ended June 30, 2020 compared to $5,863 for the three months ended June 30, 2019. Revenue increased $45.5 million, or 12.9%, to $398.5 million for the six months ended June 30, 2020 from $353.0 million for the six months ended June 30, 2019. This increase in revenue for the quarter and six months ended June 30, 2020 resulted from business initiatives which drove more clients to be on our plans, aided by the ongoing transition of clients to higher priced OPTAVIA-branded products. OPTAVIA-branded products represented 83% of consumable units sold for the three months ended June 30, 2020 compared to 75% for the corresponding period in 2019 and 81% of consumable units sold for the six months ended June 30, 2020 compared to 74% for the corresponding period in 2019.

Costs of sales: Cost of sales increased $14.3 million, or 30.8%, to $60.7 million for the three months ended June 30, 2020 from the corresponding period in 2019 and increased $16.8 million, or 19.3%, to $103.9 million for the six months ended June 30, 2020 from the corresponding period in 2019. The increase in cost of sales was primarily driven by an increase in product sales.

Gross profit: For the three months ended June 30, 2020, gross profit increased $18.6 million, or 13.2%, to $159.3 million from the corresponding period in 2019. As a percentage of sales, gross margin decreased 280 basis points to 72.4% for the three months ended June 30, 2020 from 75.2% for the corresponding period in 2019. For the six months ended June 30, 2020, gross profit increased $28.7 million, or 10.8%, to $294.5 million from the corresponding period in 2019. As a percentage of sales, gross margin decreased 140 basis points to 73.9% for the six months ended June 30, 2020 from 75.3% for the corresponding period in 2019.The decrease in gross margin percentage for the quarter and year-to-date periods was primarily the result of promotional activity as well as higher production costs in 2020. 

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Selling, general and administrative: Selling, general and administrative (“SG&A”) expenses were $131.2 million for the three months ended June 30, 2020, an increase of $17.8 million, or 15.7%, as compared to $113.4 million from the corresponding period in 2019. As a percentage of sales, SG&A expenses were 59.6% as compared to 60.6% for the three months ended June 30, 2020 and 2019, respectively. SG&A expenses included research and development (“R&D”) costs of $0.5 million for the three months ended June 30, 2020 and 2019. For the six months ended June 30, 2020, SG&A expenses increased $29.1 million, or 13.6%, to $242.9 million from $213.8 million for the corresponding period in 2019. SG&A expenses included $1.1 million and $1.2 million in R&D costs for the six months ended June 30, 2020 and 2019, respectively. As a percentage of sales, SG&A expenses were 61.0% for the six months ended June 30, 2020 as compared to 60.6% for the corresponding period in 2019. The $17.8 million and $29.1 million increases in SG&A for the quarter and six months ended June 30, 2020 were primarily due to higher OPTAVIA commission expense as a result of our growth in OPTAVIA sales, incremental professional service costs in connection with the Schedule 13D filing and additional coach incentives. For the three months ended June 30, 2020, Non-GAAP adjusted SG&A expenses increased $16.4 million to $129.8 million and Non-GAAP adjusted SG&A as a percentage of revenue decreased 160 basis points year-over-year to 59.0%.  Non-GAAP adjusted SG&A excludes expenses in connection with the Schedule 13D filing of $1.2 million and severance related costs of $0.2 million resulting from organizational change with the Company's Chief Financial Officer (“CFO”). For the six months ended June 30, 2020, Non-GAAP adjusted SG&A expenses increased $22.1 million to $235.9 million and Non-GAAP adjusted SG&A as a percentage of revenue decreased 140 basis points year-over-year to 59.2%.  Non-GAAP adjusted SG&A excludes expenses in connection with the Schedule 13D filing of $5.8 million and severance related costs of $1.2 million resulting from organizational change with the Company's CFO.

OPTAVIA commission expense, which is variable expense, increased $14.0 million, or 18.0%, to $92.0 million for the three months ended June 30, 2020 from $78.0 million for the corresponding period in 2019. For the six months ended June 30, 2020, OPTAVIA commission expense increased $19.8 million, or 13.5%, to $166.3 million from $146.5 million for the corresponding period in 2019. The increase was primarily the result of increased product sales. As OPTAVIA revenue increased as a portion of the Company’s total sales mix, the commission rate as a percentage of revenue increased 10 basis points to 41.8% for the second quarter of 2020 compared to 41.7% for the second quarter last year and increased 20 basis points to 41.7% for the six months ended June 30, 2020 compared to 41.5% for the corresponding period in 2019. This is an outcome of the success we are experiencing with our OPTAVIA integrated coach model.

Income from operations: For the three months ended June 30, 2020, income from operations increased $0.7 million to $28.1 million from $27.4 million for the corresponding period in 2019 primarily as a result of increased gross profits partially offset by increased SG&A expenses. Income from operations as a percentage of sales was 12.8% and 14.6% for the three months ended June 30, 2020 and 2019, respectively. For the six months ended June 30, 2020, income from operations decreased $0.5 million to $51.6 million from $52.1 million for the corresponding period in 2019 primarily as a result of increased SG&A expenses partially offset by increased gross profits. Income from operations as a percentage of sales was 13.0% and 14.8% for the six months ended June 30, 2020 and 2019, respectively. For the three months ended June 30, 2020, Non-GAAP adjusted income from operations increased $2.2 million to $29.5 million and Non-GAAP adjusted income from operations as a percentage of revenue decreased 120 basis points year-over-year to 13.4%. For the six months ended June 30, 2020, Non-GAAP adjusted income from operations increased $6.6 million to $58.7 million and Non-GAAP adjusted income from operations as a percentage of revenue decreased 10 basis points year-over-year to 14.7%.

Other income: For the three and six months ended June 30, 2020, other income (including interest income), was $0.1 million and $0.2 million, respectively, and for the three and six months ended June 30, 2019, other income (including interest income), was $0.4 million and $0.7 million, respectively.

Income from operations before income taxes: Income from operations before income taxes was $28.2 million for the three months ended June 30, 2020 as compared to $27.8 million for the three months ended June 30, 2019, an increase of $0.4 million. Income from operations before income taxes as a percentage of sales decreased to 12.8% for the three months ended June 30, 2020 from 14.8% for the three months ended June 30, 2019. Income from operations before income taxes was $51.8 million for the six months ended June 30, 2020 as compared to $52.8 million for the six months

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ended June 30, 2019. Income from operations before income taxes as a percentage of sales decreased to 13.0% for the six months ended June 30, 2020 from 15.0% for the six months ended June 30, 2019.

Provision for income tax: For the three months ended June 30, 2020, the Company recorded $6.2 million in income tax expense, an effective rate of 22.1%, as compared to $6.4 million in income tax expense, an effective rate of 23.0%, for the three months ended June 30, 2019. The decrease in the effective tax rate was primarily driven by a decrease in state income tax rate, and an increase in tax benefit of stock compensation partially offset by a decrease in R&D tax credit. For the six months ended June 30, 2020, the Company recorded $11.4 million in income tax expense, an effective rate of 22.0%, as compared to $10.7 million in income tax expense, an effective rate of 20.2%, for the six months ended June 30, 2019. The effective tax rate was negatively impacted by an increase in state income tax rate and a decrease in tax benefit of stock compensation.

Net income: Net income was $21.9 million and $40.4 million, or $1.86 and $3.42 per diluted share, for the three and six months ended June 30, 2020 as compared to $21.4 million and $42.1 million, or $1.75 and $3.45 per diluted share, for the three months and six months ended June 30, 2019. The period-over-period changes were driven by the factors described above in the explanations from operations. Non-GAAP adjusted net income was $23.1 million and $45.9 million, or $1.96 and $3.89 per diluted share, for the three and six months ended June 30, 2020. 

Non-GAAP Financial Measures

In an effort to provide investors with additional information regarding our results, we disclose various Non-GAAP financial measures in our quarterly earnings press release and other public disclosures. The following GAAP financial measures have been presented on an as adjusted basis: SG&A expenses, income from operations, net income and diluted earnings per share. Each of these as Non-GAAP financial measures excludes the impact of certain amounts as further identified below that the Company believes are not indicative of its core ongoing operational performance. A reconciliation of each of these Non-GAAP financial measures to its most comparable GAAP financial measure is included below. These Non-GAAP financial measures are not intended to replace GAAP financial measures.

We use these Non-GAAP financial measures internally to evaluate and manage the Company’s operations because we believe they provide useful supplemental information regarding the Company’s on-going economic performance. We have chosen to provide this information to investors to enable them to perform more meaningful comparisons of operating results and as a means to emphasize the results of on-going operations.

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The following tables reconcile the Non-GAAP financial measures included in this report (in thousands):

	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Selling, general, and administrative	$	131,201	$	113,355	$	242,908	$	213,787
Adjustments
Professional services for 13D Filing		1,203		-		5,811		-
Incremental severance costs		239		-		1,237		-
Non-GAAP Adjusted selling, general, and administrative	$	129,759	$	113,355	$	235,860	$	213,787
	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Income from operations	$	28,099	$	27,355	$	51,632	$	52,070
Adjustments
Professional services for 13D Filing		1,203		-		5,811		-
Incremental severance costs		239		-		1,237		-
Non-GAAP Adjusted income from operations	$	29,541	$	27,355	$	58,680	$	52,070
	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019
Net income	$	21,935	$	21,383	$	40,412	$	42,133
Adjustments, net of tax
Professional services for 13D Filing		937		-		4,535		-
Incremental severance costs		186		-		965		-
Non-GAAP Adjusted net income	$	23,058	$	21,383	$	45,912	$	42,133
Diluted earnings per share (1)	$	1.86	$	1.75	$	3.42	$	3.45
Impact for adjustments (1)		0.10		-		0.47		-
Non-GAAP Adjusted diluted earnings per share (1)	$	1.96	$	1.75	$	3.89	$	3.45

(1) The weighted-average diluted shares outstanding used in the calculation of these Non-GAAP financial measures are the same as the weighted-average shares outstanding used in the calculation of the reported per share amounts.

Liquidity and Capital Resources

The Company had stockholders’ equity of $116.7 million and working capital of $84.6 million at June 30, 2020 as compared with $104.8 million and $74.8 million at December 31, 2019, respectively. The $11.9 million net increase in stockholders’ equity reflects $40.4 million in net income for the six months ended June 30, 2020 offset by $5.0 million spent on repurchases of common stock, and $26.5 million for declared dividends paid to holders of the Company’s common stock as well as the other equity transactions described in the “Condensed Consolidated Statements of Changes in Stockholders’ Equity” included in our condensed consolidated financial statements included in this report. The Company declared a dividend of $13.4 million, or $1.13 per share, to common stockholders as of June 30, 2020 that will be paid in the third quarter of 2020. While we intend to continue the dividend program and believe we will have sufficient liquidity to do so, we can provide no assurance that we will be able to continue to declare and pay dividends. The Company’s cash, cash equivalents, and investment securities increased from $92.7 million at December 31, 2019 to $145.4 million at June 30, 2020.

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Net cash provided by operating activities increased $37.1 million to $84.3 million for the six months ended June 30, 2020 from $47.2 million for the six months ended June 30, 2019 as a result of a $39.9 million increase in operating assets and liabilities partially offset by a $1.7 million decrease in net income.

Net cash provided by investing activities was $0.4 million for the six months ended June 30, 2020 as compared to net cash used in investing activities of $4.5 million for the six months ended June 30, 2019. This change resulted from a $6.4 million decrease in cash used in capital expenditures for the six months ended June 30, 2020 from the corresponding period in 2019 partially offset by a $1.4 million decrease in sale and maturities of investment securities.

Net cash used in financing activities increased $3.1 million to $30.8 million for the six months ended June 30, 2020 from $27.7 million for the six months ended June 30, 2019. This increase was due to a $8.8 million increase in cash dividends paid to stockholders partially offset by a $5.0 million decrease in stock repurchases.

In pursuing its business strategy, the Company may require additional cash for operating and investing activities. The Company expects future cash requirements, if any, to be funded from operating cash flow and financing activities.

The Company evaluates acquisitions from time to time as presented.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and a decline in the stock market. The Company does not enter into derivatives, foreign exchange transactions or other financial instruments for trading or speculative purposes.

The Company is exposed to market risk related to changes in interest rates and market pricing impacting our investment portfolio. Its current investment policy is to maintain an investment portfolio consisting of municipal bonds, U.S. money market securities, and high-grade corporate securities, directly or through managed funds. Its cash is deposited in and invested through highly rated financial institutions in North America. Its marketable securities are subject to interest rate risk and market pricing risk and will fall in value if market interest rates increase or if market pricing decreases. If market interest rates were to increase and market pricing were to decrease immediately and uniformly by 10% from levels at June 30, 2020, the Company estimates that the fair value of its investment portfolio would decline by an immaterial amount and therefore it would not expect its operating results or cash flows to be affected to any significant degree by the effect of a change in market conditions on our investments.

There have been no material changes to our market risk exposure since December 31, 2019.

Item 4. Controls and Procedures

Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of June 30, 2020. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and on a timely basis. Based on this evaluation performed in accordance with the criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, our management concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

We rely extensively on information systems and technology to manage our business and summarize operating results. We have completed the implementation of a new global ERP system in the second quarter of 2020, which replaces our existing operating and financial systems. The ERP system is designed to accurately maintain the Company’s financial records, enhance operational functionality and provide timely information to the Company’s management team related to

22

the operation of the business. The transition did not result in significant changes in our internal control over financial reporting.

There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II Other Information

Item 1. Legal Proceedings

The Company is, from time to time, subject to a variety of litigation and similar proceedings that arise out of the ordinary course of its business. Based upon the Company’s experience, current information and applicable law, it does not believe that these proceedings and claims will have a material adverse effect on its results of operations, financial position or liquidity. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in Part I, Item 1A of the 2019 Form 10-K and the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

2020	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs 2
April 1 - April 30	134¹	$	68.80	-	2,368,587
May 1 - May 31	-		-	-	2,368,587
June 1 - June 30	46,075		108.50	46,075	2,322,512

(1) 134 shares of common stock were surrendered by employees to the Company to cover minimum tax liability withholding obligations upon the vesting of shares of restricted stock.

(2) At the outset of the quarter ended June 30, 2020, there were 2,368,587 shares of the Company's common stock eligible for repurchase under the repurchase authorization dated September 16, 2014 (the "Stock Repurchase Plan").

As of June 30, 2020, there were 2,322,512 shares of the Company’s common stock eligible for repurchase under the Stock Repurchase Plan. There can be no assurances as to the amount, timing or prices of repurchases, which may vary based on market conditions and other factors. The Stock Repurchase Plan does not have an expiration date and can be modified or terminated by the Board of Directors at any time.

23

Item 6. Exhibits

Exhibit Number	Description of Exhibit
3.1	Restated and Amended Certificate of Incorporation of Medifast, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 001-31573) filed February 27, 2015).
3.2	Amended and Restated Bylaws of Medifast, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Amendment No. 1 Current Report on Form 8-K (File No. 001-31573) filed on December 4, 2019).
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	The following financial statements from Medifast, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 filed August 6, 2020, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Stockholders’ Equity, and (vi) Notes to the Condensed Consolidated Financial Statements (filed herewith).
104	Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

In accordance with SEC Release No. 33-8238, Exhibit 32.1 is being furnished and not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

Medifast, Inc.

By:	/s/ DANIEL R. CHARD
	Daniel R. Chard
	Chief Executive Officer
	(Principal Executive Officer)
Dated:	August 6, 2020
	/s/ JAMES P. MALONEY
	James P. Maloney
	Chief Financial Officer
	(Principal Financial Officer)
Dated:	August 6, 2020

24

EX-31.1

Exhibit 31.1

RULE 13a-14(a) CERTIFICATION

I, Daniel R. Chard, certify that:

1.     I have reviewed this report on Form 10-Q of Medifast, Inc.;

2.     Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.     Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.     The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

ay
Date:	August 6, 2020	/s/    Daniel R. Chard
		Daniel R. Chard
		Chief Executive Officer

EX-31.2

Exhibit 31.2

RULE 13a-14(a) CERTIFICATION

I, James P. Maloney, certify that:

1.    I have reviewed this report on Form 10-Q of Medifast, Inc.;

2.    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.    I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)    Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.    I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

ay
Date:	August 6, 2020	/s/    James P. Maloney
		James P. Maloney Chief Financial Officer

EX-32.1

Exhibit 32.1

MEDIFAST, INC.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q (the “Report”) for the quarter ended June 30, 2020 of Medifast, Inc. (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel R. Chard, Chief Executive Officer and I, James P. Maloney, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of the operations of the Company.

By:	/s/ DANIEL R. CHARD
	Daniel R. Chard
	Chief Executive Officer
	August 6, 2020
	/s/ JAMES P. MALONEY
	James P. Maloney
	Chief Financial Officer
	August 6, 2020

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2020	Jul. 30, 2020
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report 1	true
Document Period End Date	Jun. 30, 2020
Document Transition Report 1	false
Entity File Number	001-31573
Entity Registrant Name	Medifast, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	13-3714405
Entity Address, Address Line One	100 International Drive
Entity Address, City or Town	Baltimore
Entity Address, State or Province	MD
Entity Address, Postal Zip Code	21202
City Area Code	410
Local Phone Number	581-8042
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		11,765,496
Entity Central Index Key	0000910329
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q2
Amendment Flag	false
Common Stock [Member]
Document Information [Line Items]
Title of 12(b) Security	Common Stock, par value $0.001 per share
Trading Symbol	MED
Security Exchange Name	NYSE
Preferred Stock [Member]
Document Information [Line Items]
Title of 12(b) Security	Preferred Stock Purchase Rights
No Trading Symbol Flag	true
Security Exchange Name	NYSE

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Revenue	$ 219,999	$ 187,103	$ 398,460	$ 352,979
Cost of sales	60,699	46,393	103,920	87,122
Gross profit	159,300	140,710	294,540	265,857
Selling, general, and administrative	131,201	113,355	242,908	213,787
Income from operations	28,099	27,355	51,632	52,070
Other income (expense)
Interest income, net	58	425	168	737
Other expense	1	(2)	(18)	(8)
Other income (expense)	59	423	150	729
Income from operations before income taxes	28,158	27,778	51,782	52,799
Provision for income taxes	6,223	6,395	11,370	10,666
Net income	$ 21,935	$ 21,383	$ 40,412	$ 42,133
Basic earnings per share
Earnings per share - basic	$ 1.86	$ 1.80	$ 3.43	$ 3.55
Diluted earnings per share
Earnings per share - diluted	$ 1.86	$ 1.75	$ 3.42	$ 3.45
Weighted average shares outstanding -
Basic	11,777	11,861	11,774	11,870
Diluted	11,821	12,218	11,822	12,229
Cash dividends declared per share	$ 1.13	$ 0.75	$ 2.26	$ 1.50

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 21,935	$ 21,383	$ 40,412	$ 42,133
Other comprehensive income, net of tax:
Foreign currency translation	2		(2)	1
Unrealized gains on investment securities	27	102	76	228
Other comprehensive income	29	102	74	229
Comprehensive income	$ 21,964	$ 21,485	$ 40,486	$ 42,362

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Current Assets
Cash and cash equivalents	$ 130,828	$ 76,974
Accounts receivable-net of doubtful accounts of $61 and $235 at June 30, 2020 and December 31, 2019, respectively	836	1,437
Inventories	38,580	48,771
Investment securities	14,564	15,704
Income taxes, prepaid		5,169
Prepaid expenses and other current assets	6,437	6,096
Total current assets	191,245	154,151
Property, plant and equipment - net of accumulated depreciation	24,574	26,039
Right-of-use assets	11,362	12,803
Other assets	2,833	353
Deferred tax assets	2,071	1,307
TOTAL ASSETS	232,085	194,653
Current Liabilities
Accounts payable and accrued expenses	103,335	76,220
Current lease obligations	3,270	3,168
Total current liabilities	106,605	79,388
Lease obligations, less current lease obligations	8,744	10,433
Total liabilities	115,349	89,821
Stockholders' Equity:
Common stock, par value $.001 per share: 20,000 shares authorized; 11,806 and 12,272 issued and 11,756 and 11,764 outstanding at June 30, 2020 and December 31, 2019, respectively	12	12
Additional paid-in capital	2,871
Accumulated other comprehensive income	99	25
Retained earnings	118,754	168,788
Less: Treasury stock at cost, 46 and 489 shares at June 30, 2020 and December 31, 2019, respectively	(5,000)	(63,993)
Total stockholders' equity	116,736	104,832
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 232,085	$ 194,653

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) shares in Thousands, $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
CONDENSED CONSOLIDATED BALANCE SHEETS
Allowance for doubtful accounts	$ 61	$ 235
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	20,000	20,000
Common stock, issued	11,806	12,272
Common stock, outstanding	11,756	11,764
Treasury stock, common, shares	46	489

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Operating Activities
Net income	$ 40,412	$ 42,133
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization	3,481	3,288
Share-based compensation	2,117	2,245
Loss on sale of disposal of property, plant and equipment		17
Amortization of premium on investment securities	182	249
Deferred income taxes	(764)	375
Change in operating assets and liabilities:
Accounts receivable	601	33
Inventories	10,191	(9,585)
Income taxes, prepaid	5,169	(1,365)
Prepaid expenses and other current assets	(341)	(3,052)
Other assets	(2,446)	43
Accounts payable and accrued expenses	25,651	12,831
Net cash flow provided by operating activities	84,253	47,212
Investing Activities
Sale and maturities of investment securities	1,000	2,430
Purchase of property and equipment	(583)	(6,972)
Net cash flow provided by (used in) investing activities	417	(4,542)
Financing Activities
Options exercised by executives and directors	1,250	279
Net shares repurchased for employee taxes	(496)	(256)
Cash dividends paid to stockholders	(26,568)	(17,749)
Stock repurchases	(5,000)	(9,998)
Net cash flow used in financing activities	(30,814)	(27,724)
Foreign currency impact	(2)	1
Increase in cash and cash equivalents	53,854	14,947
Cash and cash equivalents - beginning of the period	76,974	81,364
Cash and cash equivalents - end of the period	130,828	96,311
Supplemental disclosure of cash flow information:
Income taxes paid (received)	120	11,338
Dividends declared included in accounts payable	$ 13,604	$ 9,102

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) shares in Thousands, $ in Thousands	Common Stock [Member]	Additional Paid- In Capital [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2018	$ 12	$ 8,802	$ (173)	$ 131,344	$ (30,879)	$ 109,106
Balance (in shares) at Dec. 31, 2018	12,117
Net income				20,750		20,750
Share-based compensation		990				990
Options exercised by executives and directors		269				269
Options exercised by executives and directors (in shares)	10
Net shares repurchased for employee taxes		(256)				(256)
Net shares repurchased for employee taxes, (in shares)	(1)
Other comprehensive income			127			127
Cash dividends declared to stockholders				(8,918)		(8,918)
Balance at Mar. 31, 2019	$ 12	9,805	(46)	143,176	(30,879)	122,068
Balance (in shares) at Mar. 31, 2019	12,126
Balance at Dec. 31, 2018	$ 12	8,802	(173)	131,344	(30,879)	109,106
Balance (in shares) at Dec. 31, 2018	12,117
Net income						42,133
Net shares repurchased for employee taxes, (in shares)	(0)
Other comprehensive income						229
Balance at Jun. 30, 2019	$ 12	11,070	56	155,762	(40,877)	126,023
Balance (in shares) at Jun. 30, 2019	12,126
Balance at Mar. 31, 2019	$ 12	9,805	(46)	143,176	(30,879)	122,068
Balance (in shares) at Mar. 31, 2019	12,126
Net income				21,383		21,383
Share-based compensation		1,255				1,255
Options exercised by executives and directors		10				10
Other comprehensive income			102			102
Treasury stock from stock repurchases					(9,998)	(9,998)
Cash dividends declared to stockholders				(8,797)		(8,797)
Balance at Jun. 30, 2019	$ 12	11,070	56	155,762	(40,877)	126,023
Balance (in shares) at Jun. 30, 2019	12,126
Balance at Dec. 31, 2019	$ 12		25	168,788	(63,993)	104,832
Balance (in shares) at Dec. 31, 2019	12,272
Net income				18,477		18,477
Share-based compensation		981				981
Share-based compensation (in shares)	7
Net shares repurchased for employee taxes		(487)				(487)
Net shares repurchased for employee taxes, (in shares)	(5)
Other comprehensive income			45			45
Treasury stock retired from stock repurchases				(63,993)	63,993
Treasury stock retired from stock repurchases, (in shares)	(489)
Cash dividends declared to stockholders				(13,099)		(13,099)
Balance at Mar. 31, 2020	$ 12	494	70	110,173		110,749
Balance (in shares) at Mar. 31, 2020	11,785
Balance at Dec. 31, 2019	$ 12		25	168,788	(63,993)	104,832
Balance (in shares) at Dec. 31, 2019	12,272
Net income						40,412
Net shares repurchased for employee taxes, (in shares)	(0)
Other comprehensive income						74
Balance at Jun. 30, 2020	$ 12	2,871	99	118,754	(5,000)	116,736
Balance (in shares) at Jun. 30, 2020	11,806
Balance at Mar. 31, 2020	$ 12	494	70	110,173		110,749
Balance (in shares) at Mar. 31, 2020	11,785
Net income				21,935		21,935
Share-based compensation		1,136				1,136
Options exercised by executives and directors		1,250				1,250
Options exercised by executives and directors (in shares)	21
Net shares repurchased for employee taxes		(9)				(9)
Other comprehensive income			29			29
Treasury stock from stock repurchases					(5,000)	(5,000)
Cash dividends declared to stockholders				(13,354)		(13,354)
Balance at Jun. 30, 2020	$ 12	$ 2,871	$ 99	$ 118,754	$ (5,000)	$ 116,736
Balance (in shares) at Jun. 30, 2020	11,806

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of Medifast, Inc. and its wholly-owned subsidiaries (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, 2019 has been derived from the audited consolidated financial statements at that date.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2020. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the 2019 audited consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Form 10-K”).

Presentation of Financial Statements - The unaudited condensed consolidated financial statements included herein include the accounts of Medifast, Inc. and its wholly-owned subsidiaries. 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 2020

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), which addresses the accounting for implementation costs associated with a hosted service. The standard provides amendments to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license).

On January 1, 2020, the Company adopted ASU 2018-15. The Company capitalized $1.9 million during the quarter ended March 31, 2020 as a result of adoption, principally related to the configuration and development of the Company’s new hosted enterprise resource planning tool (“ERP”). The Company capitalized $2.6 million in total for the six months ended June 30, 2020.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which institutes a new model for recognizing credit losses on financial instruments that are not measured at fair value. On January 1, 2020, the Company adopted ASU 2016-13. There was no material impact on the Company's condensed consolidated financial statements.

Recently Issued Accounting Pronouncements –Pending Adoption

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The standard also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Management has determined the effect that the provisions of ASU 2019-12 will have on the Company’s condensed consolidated financial statements is immaterial. 

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Inventories

6 Months Ended

Jun. 30, 2020

Inventories [Abstract]

Inventories

2. INVENTORIES

Inventories consist principally of packaged meal replacements held in the Company’s warehouses. Inventory is stated at the lower of cost or net realizable value, utilizing the first-in, first-out method. The cost of finished goods includes the cost of raw materials, packaging supplies, direct and indirect labor and other indirect manufacturing costs. On a quarterly basis, management reviews inventory for unsalable or obsolete inventory.

Inventories consisted of the following (in thousands):

	June 30, 2020		December 31, 2019
Raw materials	$	9,168	$	10,880
Packaging		2,246		4,109
Non-food finished goods		4,514		4,421
Finished goods		24,580		31,314
Reserve for obsolete inventory		(1,928)		(1,953)
Total	$	38,580	$	48,771

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Earnings Per Share

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Earnings Per Share

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,
	2020		2019		2020		2019
Numerator:
Net income	$	21,935	$	21,383	$	40,412	$	42,133
Denominator:
Weighted average shares of common stock outstanding		11,777		11,861		11,774		11,870
Effect of dilutive common stock equivalents		44		357		48		359
Weighted average shares of common stock outstanding		11,821		12,218		11,822		12,229
Earnings per share - basic	$	1.86	$	1.80	$	3.43	$	3.55
Earnings per share - diluted	$	1.86	$	1.75	$	3.42	$	3.45

The calculation of diluted EPS excluded 934 and 611 antidilutive options outstanding for the three months ended June 30, 2020 and 2019, respectively, and 965 and 752 antidilutive options outstanding for the six months ended June 30, 2020 and 2019, respectively. The calculation of diluted EPS also excluded 5,774 and 350 antidilutive restricted stock awards for the three months ended June 30, 2020 and 2019, respectively, and 10,626 and 705 antidilutive restricted stock awards for the six months ended June 30, 2020 and 2019, 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.

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Share-based Compensation

6 Months Ended

Jun. 30, 2020

Share-based Compensation [Abstract]

Share-based Compensation

4. SHARE-BASED COMPENSATION

Stock Options

The Company has issued non-qualified and incentive stock options to employees and nonemployee 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 June 30, 2020, 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 $171.68. Due to the Company’s lack of option exercise history, 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. For the six months ended June 30, 2020 and 2019, the Company did not grant stock options.

The following table is a summary of our stock option activity:

	Six months ended June 30,
	2020			2019
	Awards	Weighted-Average Exercise Price		Awards	Weighted-Average Exercise Price
(awards in thousands)
Outstanding at beginning of period	97	$	52.53	107	$	49.26
Exercised	(21)		57.91	(10)		28.21
Forfeited	(6)		68.84	-		-
Outstanding at end of the period	70	$	49.36	97	$	52.53
Exercisable at end of the period	51	$	42.15	52	$	40.96

As of June 30, 2020, the weighted-average remaining contractual life for outstanding stock options was 6.3 years with an aggregate intrinsic value of $6.3 million and the weighted-average remaining contractual life for exercisable stock options was 5.8 years with an aggregate intrinsic value of $4.9 million. The unrecognized compensation expense calculated under the fair value method for stock options expected to vest as of June 30, 2020 was $0.3 million and is expected to be recognized over a weighted average period of 2.3 years. For the six months ended June 30, 2020, the Company received $1.3 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, 2020 was $0.9 million. For the six months ended June 30, 2019, the Company received $0.3 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, 2019 was $1.0 million.

Restricted Stock

The Company has issued restricted stock to employees and nonemployee 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:

	Six months ended June 30,
	2020			2019
	Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value
(shares in thousands)
Outstanding at beginning of period	46	$	98.28	57	$	50.55
Granted	41		111.94	28		130.89
Vested	(29)		82.99	(31)		45.30
Forfeited	(4)		107.50	(2)		167.48
Outstanding at end of the period	54	$	116.00	52	$	92.36

The Company withheld 0.0 million 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, 2020 and 2019. The total fair value of restricted stock awards vested during the six months ended June 30, 2020 and 2019 was $3.2 million and $4.0 million, respectively.

The total share-based compensation charged against income was $1.1 and $1.3 million during the three months ended June 30, 2020 and 2019, respectively, and $2.1 million and $2.2 million during the six months ended June 30, 2020 and 2019, respectively. The total costs of the options and restricted stock awards charged against income was $0.7 million and $0.8 million during the three months ended June 30, 2020 and 2019, respectively, and $1.5 million during the six months ended June 30, 2020 and 2019. Included for the three and six months ended June 30, 2020 was $0.2 million and $0.3 million, respectively, for 15,821 performance-based contingent shares and for the three and six months ended June 30, 2019 was $0.2 million and $0.3 million, respectively, for 17,780 performance-based contingent shares for certain key executives granted in 2019. Also included for the three and six months ended June 30, 2020 was $0.2 million and $0.3 million for 25,531 performance-based contingent shares for certain key executives granted in 2020. Additionally, included for the three and six months ended June 30, 2019 was $0.1 million and $0.2 million, respectively, for 63,300 performance-based deferred shares for certain key executives, and $0.2 million and $0.3 million, respectively, for 210,000 performance-based contingent shares granted to our Chief Executive Officer. These 273,300 performance-based shares were fully vested on December 31, 2019.

The total income tax benefit recognized in the Condensed Consolidated Statements of Income for restricted stock awards was $0.5 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively, and was $0.7 million and $1.2 million for the six months ended June 30, 2020 and 2019, respectively.

There was $5.6 million of total unrecognized compensation cost related to restricted stock awards as of June 30, 2020, which is expected to be recognized over a weighted-average period of 1.9 years. There was $3.4 million of unrecognized compensation cost related to the 41,352 performance-based shares discussed above as of June 30, 2020, which is expected to be recognized over 2.2 years.

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Leases and Contingencies

6 Months Ended

Jun. 30, 2020

Leases and Contingencies [Abstract]

Leases and Contingencies

5. LEASES AND CONTINGENCIES

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, 2020 and 2019, respectively, or for the six-month periods then ended, respectively.

Our leases relating to office and warehouse space have terms of 36 months to 122 months. Our leases relating to equipment have lease terms of 60 to 203 months, with some of them having clauses relating to automatic renewal.

The Company’s warehouse agreement also contains 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 will be recognized as expense when they are incurred.

The operating lease expense was $0.9 million and $0.7 million for the three months ended June 30, 2020 and 2019, respectively, and was $1.7 million and $1.4 million for the six months ended June 30, 2020 and 2019, respectively.

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

	Six months ended June 30,
	2020		2019
Cash paid for amounts included in the measurements of lease liabilities
Operating cash flow used in operating leases	$	1,814	$	1,392
Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	-	$	1,490

As of June 30, 2020, the weighted average remaining lease term was 4.1 years and the weighted average discount rate was 3.7%.

The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2020 (in thousands):

2020 (excluding the six months ended June 30, 2020)	$	1,822
2021		3,670
2022		3,154
2023		1,665
2024		1,234
Thereafter		1,452
Total lease payments	$	12,997
Less: imputed interest		(983)
Total	$	12,014

Other Contingencies

On or about April 30, 2020, the Company became aware that one of its products contained an undeclared milk allergen in the product. The sale of this product occurred during the first quarter of 2020 and the first part of the second quarter of 2020. The Company has completed a voluntary recall of the specific lots of this product that were impacted and notified the U.S. Food and Drug Administration, as required. The Company has considered the impact of the recall to our six-month period ended June 30, 2020 to be immaterial to the financial statements. As of June 30, 2020, the Company has concluded the recall program and responded to all government requests. The Company does not expect any significant future financial impact to result from this matter.

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Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2020

Accumulated Other Comprehensive Income [Abstract]

Accumulated Other Comprehensive Income

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, 2020		December 31, 2019
Foreign currency translation	$	(3)	$	(1)
Unrealized gains on investment securities		102		26
Accumulated other comprehensive income	$	99	$	25

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Financial Instruments

6 Months Ended

Jun. 30, 2020

Financial Instruments [Abstract]

Financial Instruments

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 represent cash and the available-for-sale securities adjusted cost, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or investment securities (in thousands):

	June 30, 2020
		Cost		Unrealized Gains		Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities
Cash	$	130,733	$	-	$	-	$	130,733	$	130,733	$	-
Level 1:
Certificate of deposit		-		-		-		-		-		-
Money market accounts		95		-		-		95		95		-
Government & agency securities		2,830		63		-		2,893		-		2,893
		2,925		63		-		2,988		95		2,893
Level 2:
Municipal bonds		11,429		50		192		11,671		-		11,671
Total	$	145,087	$	113	$	192	$	145,392	$	130,828	$	14,564

	December 31, 2019
		Cost		Unrealized Gains		Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities
Cash	$	36,593	$	-	$	-	$	36,593	$	36,593	$	-
Level 1:
Certificate of deposit		35,000		-		-		35,000		35,000		-
Money market accounts		5,381		-		-		5,381		5,381		-
Government & agency securities		2,832		2		-		2,834		-		2,834
		43,213		2		-		43,215		40,381		2,834
Level 2:
Municipal bonds		12,610		34		226		12,870		-		12,870
Total	$	92,416	$	36	$	226	$	92,678	$	76,974	$	15,704

The Company had no realized losses or gains for the three and six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020 and 2019, gross unrealized losses and gains related to individual securities that had been in a continuous loss position for 12 months or longer were not significant. The maturities of the Company’s investment securities generally range up to 3 years for municipal bonds and for government and agency securities.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2020

Summary of Significant Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of Medifast, Inc. and its wholly-owned subsidiaries (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, 2019 has been derived from the audited consolidated financial statements at that date.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2020. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the 2019 audited consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Form 10-K”).

Presentation of Financial Statements

Presentation of Financial Statements - The unaudited condensed consolidated financial statements included herein include the accounts of Medifast, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Reclassification

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

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.

Recent Accounting Pronouncements

Accounting Pronouncements Adopted in 2020

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), which addresses the accounting for implementation costs associated with a hosted service. The standard provides amendments to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license).

On January 1, 2020, the Company adopted ASU 2018-15. The Company capitalized $1.9 million during the quarter ended March 31, 2020 as a result of adoption, principally related to the configuration and development of the Company’s new hosted enterprise resource planning tool (“ERP”). The Company capitalized $2.6 million in total for the six months ended June 30, 2020.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which institutes a new model for recognizing credit losses on financial instruments that are not measured at fair value. On January 1, 2020, the Company adopted ASU 2016-13. There was no material impact on the Company's condensed consolidated financial statements.

Recently Issued Accounting Pronouncements –Pending Adoption

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The standard also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Management has determined the effect that the provisions of ASU 2019-12 will have on the Company’s condensed consolidated financial statements is immaterial. 

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Inventories (Tables)

6 Months Ended

Jun. 30, 2020

Inventories [Abstract]

Inventories

Inventories consisted of the following (in thousands):

	June 30, 2020		December 31, 2019
Raw materials	$	9,168	$	10,880
Packaging		2,246		4,109
Non-food finished goods		4,514		4,421
Finished goods		24,580		31,314
Reserve for obsolete inventory		(1,928)		(1,953)
Total	$	38,580	$	48,771

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2020

Earnings Per Share [Abstract]

Earnings Per Share, Basic and Diluted

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,
	2020		2019		2020		2019
Numerator:
Net income	$	21,935	$	21,383	$	40,412	$	42,133
Denominator:
Weighted average shares of common stock outstanding		11,777		11,861		11,774		11,870
Effect of dilutive common stock equivalents		44		357		48		359
Weighted average shares of common stock outstanding		11,821		12,218		11,822		12,229
Earnings per share - basic	$	1.86	$	1.80	$	3.43	$	3.55
Earnings per share - diluted	$	1.86	$	1.75	$	3.42	$	3.45

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Share-based Compensation (Tables)

6 Months Ended

Jun. 30, 2020

Share-based Compensation [Abstract]

Stock Option Activity

The following table is a summary of our stock option activity:

	Six months ended June 30,
	2020			2019
	Awards	Weighted-Average Exercise Price		Awards	Weighted-Average Exercise Price
(awards in thousands)
Outstanding at beginning of period	97	$	52.53	107	$	49.26
Exercised	(21)		57.91	(10)		28.21
Forfeited	(6)		68.84	-		-
Outstanding at end of the period	70	$	49.36	97	$	52.53
Exercisable at end of the period	51	$	42.15	52	$	40.96

Restricted Stock Activity

	Six months ended June 30,
	2020			2019
	Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value
(shares in thousands)
Outstanding at beginning of period	46	$	98.28	57	$	50.55
Granted	41		111.94	28		130.89
Vested	(29)		82.99	(31)		45.30
Forfeited	(4)		107.50	(2)		167.48
Outstanding at end of the period	54	$	116.00	52	$	92.36

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Leases and Contingencies (Tables)

6 Months Ended

Jun. 30, 2020

Leases and Contingencies [Abstract]

Summary of supplemental cash flow information

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

	Six months ended June 30,
	2020		2019
Cash paid for amounts included in the measurements of lease liabilities
Operating cash flow used in operating leases	$	1,814	$	1,392
Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	-	$	1,490

Summary of maturity of the Company's operating lease liabilities

The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2020 (in thousands):

2020 (excluding the six months ended June 30, 2020)	$	1,822
2021		3,670
2022		3,154
2023		1,665
2024		1,234
Thereafter		1,452
Total lease payments	$	12,997
Less: imputed interest		(983)
Total	$	12,014

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Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2020

Accumulated Other Comprehensive Income [Abstract]

Schedule of 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, 2020		December 31, 2019
Foreign currency translation	$	(3)	$	(1)
Unrealized gains on investment securities		102		26
Accumulated other comprehensive income	$	99	$	25

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Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2020

Financial Instruments [Abstract]

Cash and Available for Sale Securities Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses, and Fair Value by Significant Investment Category

The following tables represent cash and the available-for-sale securities adjusted cost, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or investment securities (in thousands):

	June 30, 2020
		Cost		Unrealized Gains		Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities
Cash	$	130,733	$	-	$	-	$	130,733	$	130,733	$	-
Level 1:
Certificate of deposit		-		-		-		-		-		-
Money market accounts		95		-		-		95		95		-
Government & agency securities		2,830		63		-		2,893		-		2,893
		2,925		63		-		2,988		95		2,893
Level 2:
Municipal bonds		11,429		50		192		11,671		-		11,671
Total	$	145,087	$	113	$	192	$	145,392	$	130,828	$	14,564

	December 31, 2019
		Cost		Unrealized Gains		Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities
Cash	$	36,593	$	-	$	-	$	36,593	$	36,593	$	-
Level 1:
Certificate of deposit		35,000		-		-		35,000		35,000		-
Money market accounts		5,381		-		-		5,381		5,381		-
Government & agency securities		2,832		2		-		2,834		-		2,834
		43,213		2		-		43,215		40,381		2,834
Level 2:
Municipal bonds		12,610		34		226		12,870		-		12,870
Total	$	92,416	$	36	$	226	$	92,678	$	76,974	$	15,704

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Summary of Significant Accounting Policies (Narrative) (Detail) - USD ($) $ in Thousands	Jun. 30, 2020	Mar. 31, 2020	Dec. 31, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018
Summary of Significant Accounting Policies [Abstract]
Capitalized computer software	$ 2,600	$ 1,900
Cumulative effect adjustments from changes in accounting standards	$ 116,736	$ 110,749	$ 104,832	$ 126,023	$ 122,068	$ 109,106

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Inventories (Detail) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Inventories [Abstract]
Raw materials	$ 9,168	$ 10,880
Packaging	2,246	4,109
Non-food finished goods	4,514	4,421
Finished goods	24,580	31,314
Reserve for obsolete inventory	(1,928)	(1,953)
Inventory	$ 38,580	$ 48,771

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Earnings Per Share (Narrative) (Detail) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Stock Options [Member]
Anti-dilutive awards	934	611	965	752
Restricted Stock [Member]
Anti-dilutive awards	5,774	350	10,626	705

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Earnings Per Share (Earnings Per Share) (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019
Numerator:
Net income	$ 21,935	$ 18,477	$ 21,383	$ 20,750	$ 40,412	$ 42,133
Denominator:
Weighted average shares of common stock outstanding	11,777		11,861		11,774	11,870
Effect of dilutive common stock equivalents	44		357		48	359
Weighted average shares of common stock outstanding	11,821		12,218		11,822	12,229
Basic earnings per share
Earnings per share - basic	$ 1.86		$ 1.80		$ 3.43	$ 3.55
Diluted earnings per share
Earnings per share - diluted	$ 1.86		$ 1.75		$ 3.42	$ 3.45

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Share-based Compensation (Narrative) (Detail) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended				6 Months Ended		12 Months Ended
	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation	$ 1,100		$ 1,300		$ 2,117	$ 2,245
Proceeds from stock options exercised					$ 1,250	$ 279
Common Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares withheld for employee taxes		5,000		1,000	0.0	0.0
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation	700		800		$ 1,500	$ 1,500
Total income tax benefit recognized related to restricted stock awards	500		400		$ 700	1,200
Compensation cost recognition weighted average period					1 year 10 months 24 days
Share-based compensation arrangement, fair value of awards vested					$ 3,200	$ 4,000
Shares granted in period					41,000	28,000
Shares vested in period					29,000	31,000
Unrecognized compensation costs	5,600				$ 5,600
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee service share based compensation nonvested awards total compensation cost not yet recognized	300				$ 300
Compensation cost recognition weighted average period					2 years 3 months 18 days
Weighted-average remaining contractual life of options outstanding					6 years 3 months 18 days
Aggregate intrinsic value of options outstanding	6,300				$ 6,300
Weighted-average remaining contractual life of options exercisable					5 years 9 months 18 days
Aggregate intrinsic value of options exercisable	$ 4,900				$ 4,900
Intrinsic value of options exercised					$ 900	$ 1,000
Performance Shares [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Compensation cost recognition weighted average period					2 years 2 months 12 days
Share-based compensation arrangement shares to be issued	41,352				41,352
Shares vested in period							273,300
Unrecognized compensation costs	$ 3,400				$ 3,400
Performance Shares [Member] | Chief Executive Officer [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation			200			$ 300
Shares granted in period						210,000
Performance Shares [Member] | Certain Key Executive [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation						$ 200
Performance Shares [Member] | Key Executives [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation			100
Shares granted in period						63,300
Granted in 2019 [Member] | Performance Shares [Member] | Certain Key Executive [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation	200		$ 200		$ 300	$ 300
Shares granted in period					15,821	17,780
Granted in 2020 [Member] | Performance Shares [Member] | Certain Key Executive [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation					$ 300
Shares granted in period					25,531
Granted in 2020 [Member] | Performance Shares [Member] | Key Executives [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation	$ 200
Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, shares authorized under stock option plans, exercise price range, lower range limit					$ 26.52
Minimum [Member] | Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period					3 years
Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, shares authorized under stock option plans, exercise price range, upper range limit					$ 171.68
Maximum [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period					5 years
Maximum [Member] | Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award expiration period					10 years

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Share-based Compensation (Summary of Stock Options Activity) (Details) - Stock Options [Member] shares in Thousands	6 Months Ended
	Jun. 30, 2020 $ / shares shares	Jun. 30, 2019 $ / shares shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares, Outstanding at beginning of period | shares	97	107
Shares, Exercised | shares	(21)	(10)
Shares, Forfeited | shares	(6)
Shares, Outstanding at end of the period | shares	70	97
Shares, Exercisable at end of the period | shares	51	52
Weighted-Average Exercise Price, Outstanding at beginning of period | $ / shares	$ 52.53	$ 49.26
Weighted-Average Exercise Price, Exercised | $ / shares	57.91	28.21
Weighted-Average Exercise Price, Forfeited | $ / shares	68.84
Weighted-Average Exercise Price, Outstanding at end of the period | $ / shares	49.36	52.53
Weighted-Average Exercise Price, Exercisable at end of the period | $ / shares	$ 42.15	$ 40.96

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Share-based Compensation (Summary of Restricted Stock Activity) (Detail) - Restricted Stock [Member] - $ / shares shares in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Dec. 31, 2019
Shares
Outstanding at beginning of period	46	57	57
Granted	41	28
Vested	(29)	(31)
Forfeited	(4)	(2)
Outstanding at end of period	54	52	46
Weighted-Average Grant Date Fair Value
Outstanding at beginning of period	$ 98.28	$ 50.55	$ 50.55
Granted	111.94	130.89
Vested	82.99	45.30
Forfeited	107.50	167.48
Outstanding at end of period	$ 116.00	$ 92.36	$ 98.28

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Leases and Contingencies (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Lessee, Lease, Description [Line Items]
Finance leases	$ 0.0	$ 0.0	$ 0.0	$ 0.0
Clauses relating to automatic renewal			true
Operating lease expense	$ 0.9	$ 0.7	$ 1.7	$ 1.4
Minimum [Member] | Operating Lease Arrangement for Real Estate [Member]
Lessee, Lease, Description [Line Items]
Lease term	36 months		36 months
Minimum [Member] | Operating Lease Arrangement for Equipment [Member]
Lessee, Lease, Description [Line Items]
Lease term	60 months		60 months
Maximum [Member] | Operating Lease Arrangement for Real Estate [Member]
Lessee, Lease, Description [Line Items]
Lease term	122 months		122 months
Maximum [Member] | Operating Lease Arrangement for Equipment [Member]
Lessee, Lease, Description [Line Items]
Lease term	203 months		203 months

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Leases and Contingencies (Schedule of Supplemental Cash Flow Information) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019
Leases and Contingencies [Abstract]
Cash paid for amounts included in the measurements of lease: Operating cash flow from operating leases liabilities	$ 1,814	$ 1,392
Right-of-use assets obtained in exchange for lease obligations - Operating leases		$ 1,490
Weighted average remaining lease term	4 years 1 month 6 days
Weighted average discount rate	3.70%

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Leases and Contingencies (Schedule of Future Minimum Lease Commitments ) (Details) $ in Thousands	Jun. 30, 2020 USD ($)
Lessee, Operating Lease, Liability, Payment, Due [Abstract]
2020 (excluding the six months ended June 30, 2020)	$ 1,822
2021	3,670
2022	3,154
2023	1,665
2024	1,234
Thereafter	1,452
Total lease payments	12,997
Less: imputed interest	(983)
Total	$ 12,014

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Accumulated Other Comprehensive Income (Schedule of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	Jun. 30, 2020	Dec. 31, 2019
Accumulated Other Comprehensive Income [Abstract]
Foreign currency translation	$ (3)	$ (1)
Unrealized gains on investment securities	102	26
Accumulated other comprehensive income	$ 99	$ 25

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Financial Instruments (Narrative) (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2020	Jun. 30, 2019	Jun. 30, 2020	Jun. 30, 2019
Financial Instruments [Line Items]
Realized loss or gains	$ 0	$ 0	$ 0	$ 0
US Treasury and Government Short-term Debt Securities [Member]
Financial Instruments [Line Items]
Available for Sale Securities Maturity Period			3 years

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Financial Instruments (Cash and Available for Sale Securities Adjusted Cost, Gross Unrealized Gains, Gross Unrealized Losses, and Fair Value by Significant Investment Category) (Detail) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2020	Dec. 31, 2019
Cash And Cash Equivalents And Marketable securities [Line Items]
Cost	$ 145,087	$ 92,416
Unrealized Gains	113	36
Accrued Interest	192	226
Estimated Fair Value	145,392	92,678
Cash & Cash Equivalents	130,828	76,974
Investment Securities	14,564	15,704
Cash [Member]
Cash And Cash Equivalents And Marketable securities [Line Items]
Cost	130,733	36,593
Estimated Fair Value	130,733	36,593
Cash & Cash Equivalents	130,733	36,593
Fair Value, Inputs, Level 1 [Member]
Cash And Cash Equivalents And Marketable securities [Line Items]
Cost	2,925	43,213
Unrealized Gains	63	2
Estimated Fair Value	2,988	43,215
Cash & Cash Equivalents	95	40,381
Investment Securities	2,893	2,834
Fair Value, Inputs, Level 1 [Member] | Certificates of Deposit [Member]
Cash And Cash Equivalents And Marketable securities [Line Items]
Cost		35,000
Estimated Fair Value		35,000
Cash & Cash Equivalents		35,000
Fair Value, Inputs, Level 1 [Member] | Money Market Funds [Member]
Cash And Cash Equivalents And Marketable securities [Line Items]
Cost	95	5,381
Estimated Fair Value	95	5,381
Cash & Cash Equivalents	95	5,381
Fair Value, Inputs, Level 1 [Member] | Government and Agency Securities [Member]
Cash And Cash Equivalents And Marketable securities [Line Items]
Cost	2,830	2,832
Unrealized Gains	63	2
Estimated Fair Value	2,893	2,834
Investment Securities	2,893	2,834
Fair Value, Inputs, Level 2 [Member] | Municipal Bonds [Member]
Cash And Cash Equivalents And Marketable securities [Line Items]
Cost	11,429	12,610
Unrealized Gains	50	34
Accrued Interest	192	226
Estimated Fair Value	11,671	12,870
Investment Securities	$ 11,671	$ 12,870