MEDIFAST INC (Form: 10-Q, Received: 11/03/2020 16:51:51)

September 30, 2020

December 31, 2019

Foreign currency translation

Unrealized gains on investment securities

Accumulated other comprehensive income

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Table of Contents

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 September 30, 2020

☐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

MED

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 October 26, 2020 was 11,769,830.

Table of Contents

Medifast, Inc. and subsidiaries

Index


Part 1 – Financial Information



Item 1 – Financial Statements


Condensed Consolidated Statements of Income (unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019		2

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2020 and 2019		3

Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2020 and December 31, 2019		4

Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2020 and 2019		5

Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Nine Months Ended September 30, 2020 and 2019		6

Notes to Condensed Consolidated Financial Statements (unaudited)		8

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		23

Item 4 – Controls and Procedures		23

Part II – Other Information

Item 1 – Legal Proceedings		24

Item 1A – Risk Factors		24

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		24

Item 6 – Exhibits		25

Table of Contents

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019

Revenue	$	271,470	$	190,061	$	669,930	$	543,040
Cost of sales		67,434		47,128		171,354		134,250
Gross profit		204,036		142,933		498,576		408,790

Selling, general, and administrative		159,477		122,671		402,385		336,458

Income from operations		44,559		20,262		96,191		72,332

Other income
Interest income, net		44		324		212		1,061
Other income (expense)		30		(3)		12		(11)
		74		321		224		1,050

Income from operations before income taxes		44,633		20,583		96,415		73,382

Provision for income taxes		10,180		4,681		21,550		15,347

Net income	$	34,453	$	15,902	$	74,865	$	58,035

Earnings per share - basic	$	2.93	$	1.36	$	6.36	$	4.91

Earnings per share - diluted	$	2.91	$	1.32	$	6.32	$	4.77

Weighted average shares outstanding
Basic		11,766		11,731		11,772		11,823
Diluted		11,857		12,065		11,840		12,174

Cash dividends declared per share	$	1.13	$	0.75	$	3.39	$	2.25

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

Table of Contents

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019

Net income	$	34,453	$	15,902	$	74,865	$	58,035
Other comprehensive income (loss), net of tax:
Foreign currency translation		(1)		(2)		(3)		(1)
Unrealized gains (losses) on investment securities		(1)		18		75		246

Other comprehensive income (loss)		(2)		16		72		245

Comprehensive income	$	34,451	$	15,918	$	74,937	$	58,280

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

Table of Contents

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except par value)


		September 30,		December 31,
		2020		2019

ASSETS
Current Assets
Cash and cash equivalents	$	156,486	$	76,974
Accounts receivable - net of doubtful accounts of $82 and $235 at
September 30, 2020 and December 31, 2019, respectively		647		1,437
Inventories		41,736		48,771
Investment securities		13,433		15,704
Income taxes, prepaid		-		5,169
Prepaid expenses and other current assets		5,158		6,096
Total current assets		217,460		154,151

Property, plant and equipment - net of accumulated depreciation		26,828		26,039
Right-of-use assets		11,458		12,803
Other assets		3,002		353
Deferred tax assets		2,042		1,307


TOTAL ASSETS	$	260,790	$	194,653

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	108,678	$	76,220
Current lease obligations		3,307		3,168
Total current liabilities		111,985		79,388

Lease obligations, less current lease obligations		8,791		10,433
Total liabilities		120,776		89,821

Stockholders' Equity
Common stock, par value $.001 per share: 20,000 shares authorized;
11,817 and 12,272 issued and 11,768 and 11,764 outstanding
at September 30, 2020 and December 31, 2019, respectively		12		12
Additional paid-in capital		5,135		-
Accumulated other comprehensive income		97		25
Retained earnings		139,770		168,788
Less: Treasury stock at cost, 46 and 489 shares at September 30, 2020 and December 31, 2019, respectively		(5,000)		(63,993)
Total stockholders' equity		140,014		104,832

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	260,790	$	194,653

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

Table of Contents

MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine months ended September 30,
	2020		2019

Operating Activities
Net income	$	74,865	$	58,035
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization		5,259		5,097
Share-based compensation		4,243		3,415
Loss on sale of disposal of property, plant and equipment		28		17
Bad debt expense		508		3,209
Amortization of premium on investment securities		263		355
Deferred income taxes		(735)		1,093
Change in operating assets and liabilities:
Accounts receivable		282		(3,649)
Inventories		7,035		(13,037)
Income taxes, prepaid		5,169		(3,200)
Prepaid expenses and other current assets		938		(232)
Other assets		(2,566)		188
Accounts payable and accrued expenses		30,078		13,818
Net cash flow provided by operating activities		125,367		65,109

Investing Activities
Sale and maturities of investment securities		2,000		3,730
Purchase of property and equipment		(3,852)		(9,224)
Net cash flow used in investing activities		(1,852)		(5,494)

Financing Activities
Options exercised by executives and directors		1,424		279
Net shares repurchased for employee taxes		(532)		(289)
Cash dividends paid to stockholders		(39,892)		(26,658)
Stock repurchases		(5,000)		(33,114)
Net cash flow used in financing activities		(44,000)		(59,782)

Foreign currency impact		(3)		(1)

Increase (Decrease) in cash and cash equivalents		79,512		(168)
Cash and cash equivalents - beginning of the period		76,974		81,364
Cash and cash equivalents - end of period	$	156,486	$	81,196

Supplemental disclosure of cash flow information:
Income taxes paid	$	14,135	$	17,333
Dividends declared included in accounts payable	$	13,715	$	8,955

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

Table of Contents

MEDIFAST, INC. AND SUBSIDIARIES

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

(in thousands)


	Nine months ended September 30, 2020
	Number of Shares Issued		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		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
Net income	-		-		-		-		34,453		-		34,453
Share-based compensation	9		-		2,126		-		-		-		2,126
Options exercised by executives and directors	2		-		174		-		-		-		174
Net shares repurchased for employee taxes	-		-		(36)		-		-		-		(36)
Other comprehensive loss	-		-		-		(2)		-		-		(2)
Cash dividends declared to stockholders	-		-		-		-		(13,437)		-		(13,437)

Balance, September 30, 2020	11,817	$	12	$	5,135	$	97	$	139,770	$	(5,000)	$	140,014

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

Table of Contents


	Nine months ended September 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
Net income	-		-		-		-		15,902		-		15,902
Share-based compensation	-		-		1,170		-		-		-		1,170
Net shares repurchased for employee taxes	-		-		(33)		-		-		-		(33)
Other comprehensive income	-		-		-		16		-		-		16
Treasury stock from stock repurchases	-		-		-		-		-		(23,116)		(23,116)
Cash dividends declared to stockholders	-		-		-		-		(8,762)		-		(8,762)

Balance, September 30, 2019	12,126	$	12	$	12,207	$	72	$	162,902	$	(63,993)	$	111,200

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

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MEDIFAST, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of Medifast, Inc. and its wholly-owned subsidiaries (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 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Form 10-K”).

The results of operations for the three and nine months ended September 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 2019 Form 10-K.

Presentation of Financial Statements - The unaudited condensed consolidated financial statements included herein include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated.

Reclassification - Certain amounts reported for prior periods have been reclassified to be consistent with the current period presentation. No reclassification in the condensed consolidated financial statements had a material impact on the presentation.

Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

Accounting Pronouncements Adopted in 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 $2.9 million in total for the nine months ended September 30, 2020, principally related to the configuration and development of the Company’s new hosted enterprise resource planning tool (“ERP”). The amortization expense associated with the capitalized costs was $0.1 million for the nine months ended September 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.

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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):


	September 30, 2020		December 31, 2019

Raw materials	$	13,702	$	10,880
Packaging		2,761		4,109
Non-food finished goods		6,031		4,421
Finished goods		20,650		31,314
Reserve for obsolete inventory		(1,408)		(1,953)
Total	$	41,736	$	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.

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The following table sets forth the computation of basic and diluted EPS (in thousands, except per share data):


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019

Numerator:
Net income	$	34,453	$	15,902	$	74,865	$	58,035

Denominator:
Weighted average shares of common stock outstanding		11,766		11,731		11,772		11,823
Effect of dilutive common stock equivalents		91		334		68		351
Weighted average shares of common stock outstanding		11,857		12,065		11,840		12,174

Earnings per share - basic	$	2.93	$	1.36	$	6.36	$	4.91

Earnings per share - diluted	$	2.91	$	1.32	$	6.32	$	4.77

The calculation of diluted EPS excluded 88 and 1,100 antidilutive options outstanding for the three months ended September 30, 2020 and 2019, respectively, and 545 and 876 antidilutive options outstanding for the nine months ended September 30, 2020 and 2019, respectively. The calculation of diluted EPS also excluded 0 and 1,374 antidilutive restricted stock awards for the three months ended September 30, 2020 and 2019, respectively, and 3,620 and 709 antidilutive restricted stock awards for the nine months ended September 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 September 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 nine months ended September 30, 2020 and 2019, the Company did not grant stock options.

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


	Nine months ended September 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	(24)		58.80	(10)		28.21
Forfeited	(6)		68.84	-		-
Outstanding at end of the period	67	$	48.71	97	$	52.53
Exercisable at end of the period	48	$	40.83	52	$	40.96

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As of September 30, 2020, the weighted-average remaining contractual life for outstanding stock options was 6.0 years with an aggregate intrinsic value of $7.8 million and the weighted-average remaining contractual life for exercisable stock options was 5.5 years with an aggregate intrinsic value of $5.9 million. The unrecognized compensation expense calculated under the fair value method for stock options expected to vest as of September 30, 2020 was $0.2 million and is expected to be recognized over a weighted average period of 2.2 years. For the nine months ended September 30, 2020, the Company received $1.4 million in cash proceeds from the exercise of stock options. The total intrinsic value for stock options exercised during the nine months ended September 30, 2020 was $1.1 million. For the nine months ended September 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 nine months ended September 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:


	Nine months ended September 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	43		113.68	28		130.89
Vested	(30)		86.79	(32)		47.14
Forfeited	(7)		108.81	(2)		167.48
Outstanding at end of the period	52	$	116.29	51	$	91.98

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 nine months ended September 30, 2020 and 2019. The total fair value of restricted stock awards vested during the nine months ended September 30, 2020 and 2019 was $3.4 million and $4.1 million, respectively.

The total share-based compensation charged against income was $2.1 million and $1.2 million during the three months ended September 30, 2020 and 2019, respectively, and $4.2 million and $3.4 million during the nine months ended September 30, 2020 and 2019, respectively. The total costs of the options and restricted stock awards charged against income was $1.0 million and $0.7 million during the three months ended September 30, 2020 and 2019, respectively, and $2.5 million and $2.2 million during the nine months ended September 30, 2020 and 2019. Included for the three and nine months ended September 30, 2020 was $0.5 million and $0.8 million, respectively, for 16,637 performance-based contingent shares and for the three and nine months ended September 30, 2019 was $0.2 million and $0.5 million, respectively, for 17,780 performance-based contingent shares for certain key executives granted in 2019. Also included for the three and nine months ended September 30, 2020 was $0.6 million and $0.9 million for 27,525 performance-based contingent shares for certain key executives granted in 2020. Additionally, included for the three and nine months ended September 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 $0.5 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 $0.3 million and $0.2 million for the three months ended September 30, 2020 and 2019, respectively, and was $0.9 million and $1.5 million for the nine months ended September 30, 2020 and 2019, respectively.

There was $4.6 million of total unrecognized compensation cost related to restricted stock awards as of September 30, 2020, which is expected to be recognized over a weighted-average period of 1.8 years. There was $4.8 million of

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unrecognized compensation cost related to the 44,162 performance-based shares discussed above as of September 30, 2020, which is expected to be recognized over 2.0 years.

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 September 30, 2020 and 2019, respectively, or for the nine-month periods then ended, respectively.

Our leases relating to office and warehouse space have terms of 19 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 September 30, 2020 and 2019, respectively, and was $2.6 million and $2.1 million for the nine months ended September 30, 2020 and 2019, respectively.

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


	Nine months ended September 30,
	2020		2019

Cash paid for amounts included in the measurements of lease liabilities
Operating cash flow used in operating leases	$	2,778	$	2,121

Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	887	$	1,490

As of September 30, 2020, the weighted average remaining lease term was 3.9 years and the weighted average discount rate was 3.5%.

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


2020 (excluding the nine months ended September 30, 2020)	$	1,052
2021		3,991
2022		3,397
2023		1,851
2024		1,234
Thereafter		1,452
Total lease payments	$	12,977
Less: imputed interest		(879)
Total	$	12,098

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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):

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):


	September 30, 2020
		Cost		Unrealized Gains		Accrued Interest		Estimated Fair Value		Cash & Cash Equivalents		Investment Securities

Cash	$	155,210	$	-	$	-	$	155,210	$	155,210	$	-

Level 1:
Money market accounts		1,276		-		-		1,276		1,276		-
Government & agency securities		2,829		55		12		2,896		-		2,896
		4,105		55		12		4,172		1,276		2,896

Level 2:
Municipal bonds		10,350		56		131		10,537		-		10,537

Total	$	169,665	$	111	$	143	$	169,919	$	156,486	$	13,433

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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 nine months ended September 30, 2020 and 2019, respectively. As of September 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 the Form 10-Q for the Quarter ended June 30, 2020, 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 for the past three years. Of equal importance, our business model is expected to deliver long-term growth in the foreseeable future. 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, the 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.

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 145 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 we expect to meet consumer demand.

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

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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 is a highly effective lifestyle solution for people for whom diets alone have failed. Habits of Health^®, encompasses our community of OPTAVIA Coaches, our OPTAVIA health and wellness programs, and our proprietary OPTAVIA-branded products. This 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 OPTAVIA Coaches. 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 video conferencing platforms. 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 may 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 outsources 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 October 2020, the virus continues to spread, infecting more than 40 million people worldwide, and impacting worldwide economic activity. In response to the pandemic, many governments implemented policies intended to stop or slow the further spread of the disease, such as social distancing and shelter-in-place orders. This has resulted in the temporary closure of schools and non-essential businesses. 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 nine-month period ended September 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. The difference is 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 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.

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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 worldwide 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. We will continue to communicate with our supply chain partners to identify and mitigate risk and to manage inventory levels. 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, 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;

●

prioritizing production to our highest volume products limiting our stock keeping unit (“SKU”) assortment to ensure that we are able to meet anticipated product demand across core items;

●

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 continue to be 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 senior management team meets regularly to review and assess the status of the Company’s operations and health and safety of its various constituencies, and 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 are determined to be in the best interests of 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. We consider all of our significant accounting policies and estimates to be critical.

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 nine months ended September 30, 2020 and 2019, respectively.

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


	Three months ended September 30,
	2020		2019		$ Change		% Change

Revenue	$	271,470	$	190,061	$	81,409	42.8%
Cost of sales		67,434		47,128		(20,306)	(43.1%)
Gross profit		204,036		142,933		61,103	42.7%

Selling, general, and administrative		159,477		122,671		(36,806)	(30.0%)

Income from operations		44,559		20,262		24,297	119.9%

Other income
Interest income, net		44		324		(280)	(86.4%)
Other income (expense)		30		(3)		33	(1100.0%)
		74		321		(247)	(76.9%)

Income from operations before income taxes		44,633		20,583		24,050	116.8%

Provision for income tax		10,180		4,681		(5,499)	(117.5%)

Net income	$	34,453	$	15,902	$	18,551	116.7%

% of revenue
Gross profit		75.2%		75.2%
Selling, general, and administrative costs		58.7%		64.5%
Income from operations		16.4%		10.7%
Income from operations before income taxes		16.4%		10.8%

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	Nine months ended September 30,
	2020		2019		$ Change		% Change

Revenue	$	669,930	$	543,040	$	126,890	23.4%
Cost of sales		171,354		134,250		(37,104)	(27.6%)
Gross Profit		498,576		408,790		89,786	22.0%

Selling, general, and administrative		402,385		336,458		(65,927)	(19.6%)

Income from operations		96,191		72,332		23,859	33.0%

Other income
Interest income, net		212		1,061		(849)	(80.0%)
Other income (expense)		12		(11)		23	(209.1%)
		224		1,050		(826)	(78.7%)

Income from operations before income taxes		96,415		73,382		23,033	31.4%

Provision for income taxes		21,550		15,347		(6,203)	(40.4%)

Net income	$	74,865	$	58,035	$	16,830	29.0%

% of revenue
Gross Profit		74.4%		75.3%
Selling, general, and administrative costs		60.1%		62.0%
Income from Operations		14.4%		13.3%
Income from operations before income taxes		14.4%		13.5%

Revenue: Revenue increased $81.4 million, or 42.8%, to $271.5 million for the three months ended September 30, 2020 from $190.1 million for the three months ended September 30, 2019. The total number of active earning OPTAVIA Coaches for the three months ended September 30, 2020 increased to 42,100 from 32,200 for the corresponding period in 2019, an increase of 30.7%. The average revenue per active earning OPTAVIA Coach was $6,329 for the three months ended September 30, 2020 compared to $5,715 for the three months ended September 30, 2019. Increase in the productivity per active earning OPTAVIA Coach for the quarter was driven by an increase in both the number of clients supported by each Coach as well as an increase in average client spend. Revenue increased $126.9 million, or 23.4%, to $669.9 million for the nine months ended September 30, 2020 from $543.0 million for the nine months ended September 30, 2019. This increase in revenue for the quarter and nine months ended September 30, 2020 resulted from temporary program 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 83.0% of consumable units sold for the three months ended September 30, 2020 compared to 78.0% for the corresponding period in 2019 and 82.0% of consumable units sold for the nine months ended September 30, 2020 compared to 76.0% for the corresponding period in 2019.

Costs of sales: Cost of sales increased $20.3 million, or 43.1%, to $67.4 million for the three months ended September 30, 2020 from the corresponding period in 2019 and increased $37.1 million, or 27.6%, to $171.4 million for the nine months ended September 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 September 30, 2020, gross profit increased $61.1 million, or 42.7%, to $204.0 million from the corresponding period in 2019. As a percentage of sales, gross margin remained flat at 75.2% for the three months ended September 30, 2020 as compared to the corresponding period in 2019. For the nine months ended September 30, 2020, gross profit increased $89.8 million, or 22.0%, to $498.6 million from the corresponding period in 2019. As a percentage of sales, gross margin decreased 90 basis points to 74.4% for the nine months ended September

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30, 2020 from 75.3% for the corresponding period in 2019. The decrease in gross margin percentage for the year-to-date periods was primarily the result of promotional activity as well as higher production costs in 2020.

Selling, general and administrative: Selling, general and administrative (“SG&A”) expenses were $159.5 million for the three months ended September 30, 2020, an increase of $36.8 million, or 30.0%, as compared to $122.7 million from the corresponding period in 2019. As a percentage of sales, SG&A expenses were 58.7% as compared to 64.5% for the three months ended September 30, 2020 and 2019, respectively. SG&A expenses included research and development (“R&D”) costs of $0.8 million and $0.6 million for the three months ended September 30, 2020 and 2019, respectively. The $36.8 million increase in SG&A for the quarter was primarily due to higher OPTAVIA commission expense as a result of growth in OPTAVIA sales, increased salaries and benefits related expenses partially offset by a decrease in sales and marketing expenses. For the nine months ended September 30, 2020, SG&A expenses increased $65.9 million, or 19.6%, to $402.4 million from $336.5 million for the corresponding period in 2019. SG&A expenses included $1.9 million and $1.8 million in R&D costs for the nine months ended September 30, 2020 and 2019, respectively. As a percentage of sales, SG&A expenses were 60.1% for the nine months ended September 30, 2020 as compared to 62.0% for the corresponding period in 2019. The $65.9 million increase in SG&A for the nine months ended September 30, 2020 was primarily due to higher OPTAVIA commission expense as a result of growth in OPTAVIA sales, incremental professional service costs in connection with the Schedule 13D filing and increased salaries and benefits related expenses partially offset by sales and marketing expenses. For the nine months ended September 30, 2020, Non-GAAP adjusted SG&A expenses increased $58.9 million to $395.3 million and Non-GAAP adjusted SG&A as a percentage of revenue decreased 300 basis points year-over-year to 59.0%. 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 the departure of the Company's previous Chief Financial Officer.

OPTAVIA commission expense, which is a variable expense, increased $37.7 million, or 48.8%, to $114.9 million for the three months ended September 30, 2020 from $77.2 million for the corresponding period in 2019. For the nine months ended September 30, 2020, OPTAVIA commission expense increased $57.5 million, or 25.7%, to $281.2 million from $223.7 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 170 basis points to 42.3% for the third quarter of 2020 compared to 40.6% for the third quarter last year and increased 80 basis points to 42.0% for the nine months ended September 30, 2020 compared to 41.2% 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 September 30, 2020, income from operations increased $24.3 million to $44.6 million from $20.3 million for the corresponding period in 2019 primarily as a result of increased gross profit partially offset by increased SG&A expenses. Income from operations as a percentage of sales was 16.4% and 10.7% for the three months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020, income from operations increased $23.9 million to $96.2 million from $72.3 million for the corresponding period in 2019 primarily as a result of increased gross profit partially offset by increased SG&A expenses. Income from operations as a percentage of sales was 14.4% and 13.3% for the nine months ended September 30, 2020 and 2019, respectively. For the nine months ended September 30, 2020, Non-GAAP adjusted income from operations increased $30.9 million to $103.2 million and Non-GAAP adjusted income from operations as a percentage of revenue increased 210 basis points year-over-year to 15.4%.

Other income: For the three and nine months ended September 30, 2020, other income (including interest income) was $0.1 million and $0.2 million, respectively, and for the three and nine months ended September 30, 2019, other income (including interest income) was $0.3 million and $1.1 million, respectively.

Income from operations before income taxes: Income from operations before income taxes was $44.6 million for the three months ended September 30, 2020 as compared to $20.6 million for the three months ended September 30, 2019, an increase of $24.0 million. Income from operations before income taxes as a percentage of sales increased to 16.4% for the three months ended September 30, 2020 from 10.8% for the three months ended September 30, 2019. Income from operations before income taxes was $96.4 million for the nine months ended September 30, 2020 as compared to $73.4 million for the nine months ended September 30, 2019. Income from operations before income taxes as a

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percentage of sales increased to 14.4% for the nine months ended September 30, 2020 from 13.5% for the nine months ended September 30, 2019.

Provision for income tax: For the three months ended September 30, 2020, the Company recorded $10.2 million in income tax expense, an effective tax rate of 22.8%, as compared to $4.7 million in income tax expense, an effective tax rate of 22.7%, for the three months ended September 30, 2019. The slight increase in the effective tax rate was primarily driven by an increase in state income tax rate and a decrease in tax benefit of stock compensation, partially offset by an increase in R&D tax credit and a decrease in meals and entertainment. For the nine months ended September 30, 2020, the Company recorded $21.6 million in income tax expense, an effective tax rate of 22.4%, as compared to $15.3 million in income tax expense, an effective tax rate of 20.9%, for the nine months ended September 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 and in R&D tax credit, partially offset by a decrease in meals and entertainment.

Net income: Net income was $34.5 million and $74.9 million, or $2.91 and $6.32 per diluted share, for the three and nine months ended September 30, 2020 as compared to $15.9 million and $58.0 million, or $1.32 and $4.77 per diluted share, for the three months and nine months ended September 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 $80.3 million or $6.78 per diluted share for the nine months ended September 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 this Form 10-Q, 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 September 30,				Nine months ended September 30,
	2020		2019		2020		2019

Selling, general, and administrative	$	159,477	$	122,671	$	402,385	$	336,458
Adjustments
Professional services for 13D Filing		-		-		5,811		-
Incremental severance costs		-		-		1,237		-
Non-GAAP Adjusted selling, general, and administrative	$	159,477	$	122,671	$	395,337	$	336,458


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019

Income from operations	$	44,559	$	20,262	$	96,191	$	72,332
Adjustments
Professional services for 13D Filing		-		-		5,811		-
Incremental severance costs		-		-		1,237		-
Non-GAAP Adjusted income from operations	$	44,559	$	20,262	$	103,239	$	72,332


	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019

Net income	$	34,453	$	15,902	$	74,865	$	58,035
Adjustments, net of tax
Professional services for 13D Filing		-		-		4,512		-
Incremental severance costs		-		-		961		-
Non-GAAP Adjusted net income	$	34,453	$	15,902	$	80,338	$	58,035

Diluted earnings per share (1)	$	2.91	$	1.32	$	6.32	$	4.77
Impact for adjustments (1)		-		-		0.46		-
Non-GAAP Adjusted diluted earnings per share (1)	$	2.91	$	1.32	$	6.78	$	4.77

(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 $140.0 million and working capital of $105.5 million at September 30, 2020 as compared with $104.8 million and $74.8 million at December 31, 2019, respectively. The $35.2 million net increase in stockholders’ equity reflects $74.9 million in net income for the nine months ended September 30, 2020 offset by $5.0 million spent on repurchases of the Company’s common stock, and $39.9 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 holders of the Company’s common stock as of September 22, 2020 that will be paid in the fourth 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 $169.9 million at September 30, 2020.

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Net cash provided by operating activities increased $60.3 million to $125.4 million for the nine months ended September 30, 2020 from $65.1 million for the nine months ended September 30, 2019 as a result of a $16.8 million increase in net income and $47.0 million increase in operating assets and liabilities.

Net cash used in investing activities was $1.9 million for the nine months ended September 30, 2020 as compared to $5.5 million for the nine months ended September 30, 2019. This change resulted from a $5.4 million decrease in cash used in capital expenditures for the nine months ended September 30, 2020 from the corresponding period in 2019 partially offset by a $1.7 million decrease in sale and maturities of investment securities.

Net cash used in financing activities decreased $15.8 million to $44.0 million for the nine months ended September 30, 2020 from $59.8 million for the nine months ended September 30, 2019. This decrease was due to a $28.1 million decrease in stock repurchases partially offset by a $13.2 million increase in cash dividends paid to stockholders.

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 and U.S. money market 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 September 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 September 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

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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 September 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 ¹	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
July 1 - July 30	64	$	167.13	-	2,322,512
August 1 - August 31	-		-	-	2,322,512
September 1 - September 30	160		160.44	-	2,322,512

(1)	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 previously granted to such employees.

(2)	At the outset of the quarter ended September 30, 2020, there were 2,322,512 shares of the Company's common stock eligible for repurchase under the repurchase authorization dated September 16, 2014 (the "Stock Repurchase Plan").

As of September 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.

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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).

10.1		Amendment to Medifast, Inc. Executive Severance Plan (filed herewith).

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

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 September 30, 2020 filed November 3, 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:	November 3, 2020


	/s/ JAMES P. MALONEY
	James P. Maloney
	Chief Financial Officer
	(Principal Financial Officer)

Dated:	November 3, 2020

Exhibit 10.1

MEDIFAST, INC.

EXECUTIVE SEVERANCE PLAN

Medifast, Inc., a Delaware corporation (the "Company"), has adopted this Medifast, Inc. Executive Severance Plan (the "Plan") to provide key employees of the Company and its affiliates and subsidiaries with severance protection under covered circumstances.

ARTICLE I.

DEFINITIONS AND INTERPRETATIONS

Section 1.01 Definitions. Capitalized terms used in this Plan shall have the following respective meanings, except as otherwise provided or as the context shall otherwise require:

"Annual Base Salary" shall mean the base salary paid to a Participant on an annual basis exclusive of any bonus payments, commission payments or additional payments under any benefit plan of the Company.

"Administrator" shall mean be the Compensation Committee.

"Board" shall mean the Board of Directors of the Company.

"Cause" shall mean (a) indictment or conviction for, or a please of guilty or nolo contendere to, a felony or of a criminal act involving moral turpitude; (b) gross misconduct or willful and continued failure to substantially perform employment duties reasonably requested by the Company or an affiliate, after thirty (30) days' written notice by certified mail of such conduct or failure, and the failure of the Participant to remedy such conduct or failure; (c) fraud, embezzlement, or misappropriation of any amounts of money or other assets or property of the Company; (d) misconduct or negligence in connection with the business of the Company or an affiliate which has a substantial adverse effect on the Company or the affiliate; or (e) violation of any material policy of the Company, including the Company's Code of Conduct and Business Ethics. Determination of Cause shall be made by the Compensation Committee in its sole discretion.

"Change in Control" shall have the meaning set forth in the Amended and Restated 2012 Share Incentive Plan or any successor to such plan.

"Change in Control Period" shall mean the 24 month period beginning on the date of a Change in Control.

"Code" shall mean the Internal Revenue Code of 1986, as amended. Reference in this Plan to any section of the Code shall be deemed to include any amendments or successor provisions to such section and any regulations under such section.

"Compensation Committee" shall mean the Compensation Committee of the Company's Board of Directors.

"Effective Date" shall mean September 12, 2019.

"Good Reason" shall mean a Participant's resignation of employment upon the occurrence (without the Participant's prior written consent) of (a) a material reduction in the Participant's Annual Base Salary or Target Bonus, (b) a material diminution in the Participant's authority, duties or responsibilities, (c) a relocation of the Participant's principal work location by more than 50 miles, or (d) any other action or inaction that constitutes a material breach by the Company of any written agreement under which the Participant provides services; provided, however, that, notwithstanding the foregoing, the Participant may not resign his or her employment for Good Reason unless (i) the Participant has provided the Company with at least thirty (30) days prior written notice of his or her intent to resign for Good Reason (which notice must be provided within ninety (90) days following the occurrence of the event(s) purported to constitute Good Reason); and (ii) the Company has not remedied the alleged violation(s) within the thirty (30) day period following its receipt of such notice.

"Participants" shall mean those employees of the Company or any of its subsidiaries who are from time to time designated as Participants in accordance with Section 2.01.

"Plan" shall mean this Medifast, Inc. Executive Severance Plan, as amended, supplemented or modified from time to time in accordance with its terms.

"Qualifying Termination" shall mean a Participant's Termination of Employment (a) by the Company and its subsidiaries without Cause or (b) by the Participant for Good Reason.

"Target Bonus" shall mean the Participant's target annual incentive bonus.

"Termination Date" shall mean, with respect to any Participant, the actual date of the Participant's Termination of Employment.

"Termination of Employment" shall mean the time when the employee-employer relationship between the Participant and the Company or any subsidiary of the Company is terminated for any reason, with or without Cause, including, but not by way of limitation, a termination by resignation, discharge, death, permanent disability or retirement; provided, that such "Termination of Employment" constitutes a "separation from service" within the meaning of Treasury Regulation Section 1.409A-1(h).

Section 1.02 Interpretation. In this Plan, unless a clear contrary intention appears, (a) the words "herein," "hereof" and "hereunder" refer to this Plan as a whole and not to any particular Article, Section or other subdivision, (b) reference to any Article or Section, means such Article or Section hereof and (c) the words "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term. The Article and Section headings herein are for convenience only and shall not affect the construction hereof.

ARTICLE II.

ELIGIBILITY AND BENEFITS

Section 2.01 Eligible Employees. This Plan is only for the benefit of the following Participants, and no other employees, personnel, consultants or independent contractors shall be eligible to participate in this Plan or to receive any rights or benefits hereunder:

(a) Chief Executive Officer;

(b) Chief Financial Officer; and

(c) All other executive officers of the Company who are direct reports of the Chief Executive Officer and are at the Executive Vice President-level or above ("Other Executives").

ARTICLE III.

SEVERANCE AND RELATED TERMINATION BENEFITS

Section 3.01 Qualifying Termination. Except as set forth in Section 3.02, in the event that a Participant incurs a Qualifying Termination, then, subject to Section 3.03, such Participant shall be entitled to receive the severance benefits set forth on Exhibit A attached hereto.

Section 3.02 Qualifying Termination Following Change in Control. In the event that, during the Change in Control Period, a Participant incurs a Qualifying Termination, then in lieu of the benefits payable pursuant to Section 3.01 and subject to Section 3.03, the Participant will be entitled to receive the severance benefits set forth on Exhibit B attached hereto.

Section 3.03 Conditions to Receipt of Severance Benefits. A Participant's receipt of any payment or benefits under this Article III shall be conditioned on and subject to such Participant's execution and non-revocation of a general waiver and release of claims in favor of the Company, within the applicable time periods for execution following the Termination Date, as set forth in such agreements.

Section 3.04 Other Terminations of Employment. For the avoidance of doubt, in no event shall the Participant be entitled to any benefit under this Plan in the event that the Participant resigns without Good Reason or otherwise terminates employment due to death, permanent disability, or retirement, or is terminated by the Company for Cause.

Section 3.05 No Duplication of Benefits. Notwithstanding anything to the contrary in this Plan, in the event that a Participant is entitled to severance benefits under any other employment agreement, severance agreement or similar agreement between the Participant and the Company, no benefits shall be payable under this Plan.

Section 3.06 Plan Unfunded; Participant's Rights Unsecured. The Company shall not be required to establish any special or separate fund or make any other segregation of funds or assets to assure the payment of any benefit hereunder. The right of any Participant to receive the benefits provided for herein shall be an unsecured claim against the general assets of the Company.

ARTICLE IV.

CLAIMS PROCEDURES

Section 4.01 Initial Claims. A Participant who believes he or she is entitled to a payment under the Plan that has not been received may submit a written claim for benefits to the Plan within 60 days after the Participant's Qualifying Termination. Claims should be addressed and sent to:

Medifast, Inc.

Chair of the Compensation Committee

100 International Drive

Baltimore, MD 21202

If the Participant's claim is denied, in whole or in part, the Participant will be furnished with written notice of the denial within 90 days after the Administrator's receipt of the Participant's written claim, unless special circumstances require an extension of time for processing the claim, in which case a period not to exceed 180 days will apply. If such an extension of time is required, written notice of the extension will be furnished to the Participant before the termination of the initial 90-day period and will describe the special circumstances requiring the extension, and the date on which a decision is expected to be rendered. Written notice of the denial of the Participant's claim will contain the following information:

(a) the specific reason or reasons for the denial of the Participant's claim;

(b) references to the specific Plan provisions on which the denial of the Participant's claim was based;

(c) a description of any additional information or material required by the Administrator to reconsider the Participant's claim (to the extent applicable) and an explanation of why such material or information is necessary; and

(d) a description of the Plan's review procedures and time limits applicable to such procedures, including a statement of the Participant's right to bring a civil action under Section 502(a) of ERISA following a benefit claim denial on review.

Section 4.02 Appeal of Denied Claims. If the Participant's claim is denied and he or she wishes to submit a request for a review of the denied claim, the Participant or his or her authorized representative must follow the procedures described below:

(a) Upon receipt of the denied claim, the Participant (or his or her authorized representative) may file a request for review of the claim in writing with the

Administrator. This request for review must be filed no later than 60 days after the Participant has received written notification of the denial.

(b) The Participant has the right to submit in writing to the Administrator any comments, documents, records or other information relating to his or her claim for benefits.

(c) The Participant has the right to be provided with, upon request and free of charge, reasonable access to and copies of all pertinent documents, records and other information that is relevant to his or her claim for benefits.

(d) The review of the denied claim will take into account all comments, documents, records and other information that the Participant submitted relating to his or her claim, without regard to whether such information was submitted or considered in the initial denial of his or her claim.

Section 4.03 Administrator's Response to Appeal. The Administrator will provide the Participant with written notice of its decision within 60 days after the Administrator's receipt of the Participant's written claim for review. There may be special circumstances which require an extension of this 60-day period. In any such case, the Administrator will notify the Participant in writing within the 60-day period and the final decision will be made no later than 120 days after the Administrator's receipt of the Participant's written claim for review. The Administrator's decision on the Participant's claim for review will be communicated to the Participant in writing and will clearly state:

(a) the specific reason or reasons for the denial of the Participant's claim;

(b) reference to the specific Plan provisions on which the denial of the Participant's claim is based;

(c) a statement that the Participant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, the Plan and all documents, records, and other information relevant to his or her claim for benefits; and

(d) a statement describing the Participant's right to bring an action under Section 502(a) of ERISA.

Section 4.04 Exhaustion of Administrative Remedies. The exhaustion of these claims procedures is mandatory for resolving every claim and dispute arising under the Plan. As to such claims and disputes:

(a) no claimant shall be permitted to commence any legal action to recover benefits or to enforce or clarify rights under the Plan under Section 502 or Section 510 of ERISA or under any other provision of law, whether or not statutory, until these claims procedures have been exhausted in their entirety; and

(b) in any such legal action, all explicit and implicit determinations by the Administrator (including, but not limited to, determinations as to whether the claim,

or a request for a review of a denied claim, was timely filed) shall be afforded the maximum deference permitted by law.

ARTICLE V.

MISCELLANEOUS PROVISIONS

Section 5.01 No Mitigation. No Participant shall be required to mitigate the amount of any payment provided for in this Plan by seeking or accepting other employment following a termination of his or her employment with the Company or otherwise. The amount of any cash payment provided for in this Plan shall not be reduced by any cash compensation earned by a Participant as the result of employment by another employer or by retirement benefits.

Section 5.02 Amendment or Termination. The Board may amend or terminate the Plan at any time; provided, however, that no such termination or amendment may materially and adversely affect any rights of any Participant who has incurred a Qualifying Termination prior to the date of such termination or amendment; and provided, further, that the Plan cannot be terminated or materially amended during the Change in Control Period. Notwithstanding the foregoing, the Plan shall terminate when all of the obligations to Participants hereunder have been satisfied in full.

Section 5.03 Enforceability. The failure of a Participant or the Company or any of its subsidiaries to insist upon strict adherence to any term of the Plan on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of the Plan.

Section 5.04 Governing Law. This Plan shall be governed by and construed in accordance with the laws of the State of Maryland, without giving effect to its conflict of laws rules, and applicable federal law.

Section 5.05 Tax Withholding. The Company shall have the right to deduct from any payment or benefit hereunder all federal, state and local taxes which are required to be withheld therefrom.

Section 5.06 Plan Administration. The Compensation Committee shall have full and final authority to make determinations with respect to the administration of this Plan, to construe and interpret its provisions and to take all other actions deemed necessary or advisable for the proper administration of this Plan, but such authority shall be subject to the provisions of this Plan.

Section 5.07 Successors and Assigns. This Plan shall be binding upon and inure to the benefit of the Company and its successors and assigns. This Plan and all rights of each Participant shall inure to the benefit of and be enforceable by each such Participant and his or her personal or legal representatives, executors, administrators, heirs and permitted assigns. If any Participant should die while any amounts are due and payable to such Participant hereunder, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such Participant's devisees, legatees or other designees or, if there be no such devisees, legatees or other designees, to such Participant's estate. No payments, benefits or rights arising under this Plan may be assigned or pledged by any Participant, except under the laws of descent and distribution.

Section 5.08 Notices. All notices and other communications provided for in this Plan shall be in writing and shall be sent, delivered or mailed, addressed as follows: (a) if to the Company, at the Company's principal office address or such other address as the Company may have designated by written notice to all Participants for purposes hereof, directed to the attention of the Chief Financial Officer of the Company (or such other officer as may be designated by the Company), and (b) if to any Participant, at his or her residence address on the records of the Company or to such other address as he or she may have designated to the Company in writing for purposes hereof. Each such notice or other communication shall be deemed to have been duly given or mailed by United States certified or registered mail, return receipt requested, postage prepaid, except that any change of notice address shall be effective only upon receipt.

Section 5.09 No Employment Rights Conferred. The Plan does not alter the status of each Participant as an at-will employee of the Company. This Plan shall not be deemed to create a contract of employment between any Participant and the Company and/or any of its subsidiaries. Nothing contained in this Plan shall (a) confer upon any Participant any right with respect to continuation of employment with the Company or any of its subsidiaries or (b) subject to the rights and benefits of any Participant hereunder, interfere in any way with the right of the Company or any of its subsidiaries to terminate such Participant's employment at any time.

Section 5.10 Severability. If any provision of the Plan is, becomes, or is deemed to be invalid, illegal, or unenforceable in any respect, the validity, legality, and enforceability of the remaining provisions of this Plan shall not be affected thereby.

Section 5.11 Section 409A.

(a) The Plan is intended to comply with Section 409A of the Code or an exemption thereunder and shall be construed and administered in accordance with Section 409A of the Code. Notwithstanding any other provision of the Plan, payments provided under the Plan may only be made upon an event and in a manner that complies with Section 409A of the Code or an applicable exemption. Any payments under the Plan that may be excluded from Section 409A of the Code either as separation pay due to an involuntary separation from service or as a short-term deferral shall be excluded from Section 409A of the Code to the maximum extent possible. For purposes of Section 409A of the Code, each installment payment provided under the Plan shall be treated as a separate payment. Any payments to be made under the Plan upon a termination of employment shall only be made upon a "separation from service" under Section 409A of the Code. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under the Plan comply with Section 409A of the Code and in no event shall the Company be liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by a Participant on account of noncompliance with Section 409A of the Code.

(b) Notwithstanding any other provision of the Plan, if any payment or benefit provided to a Participant in connection with his or her Qualifying Termination is determined to constitute "nonqualified deferred compensation" within the meaning of Section 409A of the Code and the Participant is determined to be a "specified employee" as

defined in Section 409A(a)(2)(b)(i) of the Code, then such payment or benefit shall not be paid until the first payroll date to occur following the six-month anniversary of the Qualifying Termination or, if earlier, on the Participant's death (the "Specified Employee Payment Date"). The aggregate of any payments that would otherwise have been paid before the Specified Employee Payment Date shall be paid to the Participant in a lump sum on the Specified Employee Payment Date and thereafter, any remaining payments shall be paid without delay in accordance with their original schedule. Notwithstanding any other provision of the Plan, if any payment or benefit is conditioned on the Participant's execution of a Release/Severance Agreement, the first payment shall include all amounts that would otherwise have been paid to the Participant during the period beginning on the date of the Qualifying Termination and ending on the payment date if no delay had been imposed.

(c) To the extent required by Section 409A of the Code, each reimbursement or in-kind benefit provided under the Plan shall be provided in accordance with the following: (i) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during each calendar year cannot affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; and (ii) any right to reimbursements or in-kind benefits under the Plan shall not be subject to liquidation or exchange for another benefit.

IN WITNESS WHEREOF, and as conclusive evidence of the adoption of this Plan, Medifast, Inc. has caused this Plan to be duly executed in its name and behalf by its proper officer thereunto duly authorized as of the Effective Date.

/S/ Daniel R. Chard		11/7/2019
Daniel R. Chard,		Date
Chief Executive Officer,
Medifast, Inc.

MEDIFAST_®

Exhibit A

Amended on September 10, 2020

Qualifying Termination (General)

Cash
Severance

Annual
Bonus –
Year of
Termination

Stock
Options

Time-Based
Restricted
Shares or
Deferred
Shares

Performance –

Based
Restricted
Shares or
Deferred
Shares

Chief
Executive
Officer

1.5 times the
sum of the
Annual Base
Salary and
the Target
Bonus

Pro-rated
annual bonus
for year of
termination,
based on the
number of
full months
during the
year the
Participant
was
employed,
paid at the
end of the
year based
on actual
Company
performance

Fully vest
and remain
exercisable
for 90 days

Vest on a pro-rata basis,
based on the
number of full
months during
the vesting
period the
Participant was
employed

Vest on a pro-rata
basis, based on
the number of full
months during
the performance
period the
Participant was
employed, paid
out at the end of
the performance
period based on
actual
performance

Other
Executives

1 times the
sum of the
Annual Base
Salary and
the Target
Bonus

The Cash Severance shall be paid in a lump sum, no later than 30 days following the Termination Date, subject to Section 3.03. The Annual Bonus — Year of Termination will be paid at the same time the annual bonus is paid to active employees, subject to Section 3.03.

MEDIFAST_®

Exhibit B

Amended on September 10, 2020

Qualifying Termination Following Change in Control

Cash
Severance

Annual
Bonus –
Year of
Termination

Stock
Options

Time-Based
Restricted
Shares or
Deferred
Shares

Performance –

Based
Restricted
Shares or
Deferred
Shares

Chief
Executive
Officer

2.5 times the
sum of the
Annual Base
Salary and
the Target
Bonus

Target
Bonus for
year of
termination,
pro-rated
based on the
number of
full months
during the
year the
Participant
was
employed

Fully vest
and remain
exercisable
for 90 days

Fully vest

Vest on a pro-rata
basis, based on
the number of full
months during
the performance
period the
Participant was
employed, at the
target
performance level

Other
Executives

1.5 times the
sum of the
Annual Base
Salary and
the Target
Bonus

Cash Severance and Annual Bonus — Year of Termination shall be paid in a lump sum, no later than 30 days following the Termination Date, subject to Section 3.03.

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:	November 3, 2020	/s/ Daniel R. Chard
		Daniel R. Chard
		Chief Executive Officer

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.;

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:

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):

(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:	November 3, 2020	/s/ James P. Maloney
		James P. Maloney Chief Financial Officer

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 September 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
	November 3, 2020


	/s/ JAMES P. MALONEY
	James P. Maloney
	Chief Financial Officer
	November 3, 2020