Medartis
Annual Report 2011

Plain-text annual report

to what Connecting to what Matters Matters 2011 annual report contents 2011: year in review 2 connecting our success to our clients’ success 5 connecting science, marketing, and product innovation 10 connecting to a healthy connecting the dots: 2011 future 16 financials 17 Multiple support Choices Multiple support Choices Over 70 Medifast Meals Over 70 Medifast Meals to Choose From to Choose From Proud Us Manufacturer Proud Us Manufacturer success story Jessica Westmoreland lost success story Jessica Westmoreland lost 85 lbs* on the Medifast 5 & 1 Plan 85 lbs* on the Medifast 5 & 1 Plan whether we are empowering clients with choices, building on initiatives set forth in prior years, or setting new milestones to conquer, medifast is always connected to what matters most— getting people healthy and helping them find hope, health, and happiness. it is this connection that continues to drive us forward. *Results will vary. Typical weight loss on the Medifast 5 & 1 Plan® is up to 2–5 pounds per week. 1 2011 letter to shareholders Year in Review When Medifast began its transformation from a regional, doctor distributed, meal replacement plan to a clinically proven, multi-channel weight control program, Medifast has continued to achieve unprecedented annual growth—from both a financial perspective and in terms of the sheer number of people we have been able to help, nationwide, every year. michael c. macdonald executive chairman of the board, chief executive officer In 2011, Medifast celebrated 31 years of developing, manufacturing, and marketing healthy, portion-controlled, nutritionally balanced meal replacements for weight loss. Our product selection has expanded to offer more than 70 delicious Medifast Meals and snacks. And as our clients get slimmer, Medifast continues to report healthy sales growth, achieving a five-year Compound Annual Growth Rate (CAGR) of 37%. Of course, we have a time-tested, clinically proven program, and healthy, medically formulated meals recommended by over 20,000 doctors since 1980. What truly differentiates Medifast from its competitors is how we connect our clients to success through multiple, distinct distribution channels under the Medifast brand. Take Shape For Life (TSFL), Medifast Direct, Medifast Weight Control Centers (MWCC), and Medifast Medical Providers offer our clients a choice that improves their chances for long-term success by offering support that works with their own specific needs, goals, lifestyle, and personalities. 2011 was a year of continued growth, new initiatives, and organizational development. Medifast remains solid financially, and poised for even greater success in the future—through growth and transformation. We are determined to carry forward the vision of our leader Bradley T. MacDonald, despite the profound personal and professional loss his recent passing brings. In 2011, the Company reported a year-over-year gain of 16% in net revenues, to $298.2 million from $257.6 million in 2010. Each of our primary distribution channels contributed to this year-over-year revenue increase. margaret e. sheetz president, chief operating officer 2 | 2011 AnnuAl RepoRt Gross profit for the year ending December 31, 2011, increased 17% to $224.5 million, compared to $192.5 million in the same period last year. The Company’s gross profit margin increased 60 basis points to 75.3% in 2011 versus 74.7% in 2010. The Company’s balance sheet remains strong, with stockholders’ equity of $73.4 million and working capital of $43.7 million as of December 31, 2011. As we move forward in 2012 and beyond, Medifast is focused on responsible long-term growth throughout all channels. Medifast ended the year with a renewed strategic focus on driving excellence throughout these sales channels, and our internal support divisions, to better position our business for maximum profitability as we continue to grow in the future. Our executive team is continuing to review and enhance our overall cost structure to further leverage our sales momentum and deliver improved earnings results, while continuing to focus on enhancing the client experience in each of our distribution channels. As always, Medifast remains dedicated to reducing the strain that America’s obesity epidemic places on our citizens, our healthcare system, and our economy. We look forward to sharing a healthy future with our partners and offer sincere thanks to our valued clients, Medifast employees, Take Shape For Life Health Coaches, Medifast Weight Control Centers operations, Medifast Medical Providers, Board of Directors, and Shareholders for their continued support of Medifast, Inc. Sincerely, Michael C. MacDonald Michael C. MacDonald Executive Chairman of the Board, Chief Executive Officer Margaret E. Sheetz President, Chief Operating Officer about mr. macdonald Michael C. MacDonald joined Medifast’s Executive North American Solutions Group, a $6.5 billion division Committee of the Board of Directors in 1998 and has of Xerox. In addition, Mr. MacDonald was President of served as Executive Chairman since November 2011. He Global Accounts and Marketing from 2004 to 2007, was promoted to Chairman & Chief Executive Officer in where he led the re-branding of the Xerox Corporation. February 2012. Prior to this role, he was Executive Vice He also has international experience in marketing, sales, President of OfficeMax, overseeing the Contract Division: and operations with both Xerox and OfficeMax. a $3.6 billion division of the OfficeMax Company. He has spent an additional 33 years in sales, marketing, and In addition to serving as Chairman and CEO of Medifast, general management at Xerox Corporation. Among his Inc., Mr. MacDonald also serves on the Jimmy V. most significant roles was leading the turnaround in North Foundation and the Archdiocese of Baltimore Catholic America from the years 2000 to 2004 as President of the Community Foundation. 3 board of directors SEATED (left to right): George Lavin, Esq.; Jeannette M. Mills; Margaret Sheetz, President and Chief Operating Officer, Medifast, Inc.; Sr. Catherine T. Maguire, RSM; Barry B. Bondroff, CPA; STANDING (left to right): Jason L. Groves, Esq., Executive Vice President and General Counsel, Medifast, Inc.; Donald F. Reilly, OSA; Michael C. MacDonald, Executive Chairman of the Board, Chief Executive Officer, Medifast, Inc.; John P. McDaniel; Jerry D. Reece; NOT PICTURED: Harvey C. “Barney” Barnum, Charles P. Connolly, Jr. 4 | 2011 AnnuAl RepoRt 2011 connecting our success to our clients’ success Multiple Distribution Channels, One Mission Medifast is fueled by our medically formulated products and clinically proven program. It is our unique business model that propels us to greater success for both the Company and its customers. Our multiple distribution channels allow for greater access to the Medifast products and program in varying markets and by different individuals, and helps empower our clients to choose the support that works best for their personal needs, goals, and lifestyle. It also provides opportunities for our physicians and for those who want to become Take Shape For Life Health Coaches to benefit financially from a great product, program, and our shared passion to “pay it forward.” 5 BEFORE TAkE SHAPE FOR LIFE David Johnson Take Shape For Life (TSFL) is the direct selling division of Medifast. At the heart of this business model is the Take Shape For Life Health Coach, who is trained and educated to support and mentor Clients on the Medifast 5 & 1 Plan®. The combination of the Medifast Program, the support of the Health Coach, and co-founder Dr. Wayne S. Andersen’s Habits of Health system make up the “triad of health” that is the basis for the TSFL program. Clients also have access to support from registered, licensed dietitians, certified personal trainers, and behavior specialists through phone access, email, and online discussion boards. This business model provides an exciting business opportunity for Clients who wish to share their success with others and pay it forward by becoming Health Coaches themselves. Revenue in this direct sales channel increased 12% to $186.2 million in the fiscal year 2011. The channel added 600 new Health Coaches, an increase of 7% compared to 2010. Growth in revenue was driven by increased Client product sales as a result of an increase in the number of active Health Coaches. In 2011, TSFL introduced a cutting-edge training and e-Learning initiative. The initiative ensures that both new and experienced Coaches receive unparalleled training in product, program, and how to grow their business. ” With the support of my Health Coach, I started the program and I am no longer a bystander to life—now I’m a fully engaged and active participant in my own life. –David Johnson, lost 205 lbs* with the support of a Take Shape For Life Health Coach” 6 | 2011 AnnuAl RepoRt ” The Medifast 5 & 1 Plan® offered me healthy, long-term results with tasty food and an easy-to-follow plan. –Jessica Westmoreland, lost 85 lbs* with Medifast Direct” MEDIFAST DIRECT In this direct-to-consumer channel, customers order Medifast products directly through the Company’s website or through its in-house contact center, for shipment right to their door. Medifast Direct is a popular choice for those who are self-motivated or want to pursue their weight-loss goals independently. Support is provided through an online community called MyMedifast, and access to registered, licensed dietitians, certified personal trainers, and behavior specialists through a call center, email, and online discussion boards. The Company’s online, direct-response marketing channel experienced a 14% increase in 2011 revenue to $73 million, compared to $64.2 million for the same time period in 2010. Medifast Direct updated its website and created an improved checkout process that enhanced the customer experience. BEFORE *Results will vary. Typical weight loss on the Medifast 5 & 1 Plan® is up to 2–5 pounds per week. Jessica Westmoreland 7 ” My weekly meetings with the staff were critical to my success, and the support I received was irreplaceable! –Cynthia Lujan, lost 73 lbs* with Medifast Weight Control Centers” MEDIFAST WEIGHT CONTROL CENTERS Medifast Weight Control Centers (MWCC) are a great choice for those who prefer a more structured approach and personal accountability. Members benefit from comprehensive Medifast plans for weight loss and maintenance, a medical review, customized member counseling, and body composition analysis. A personal weight-loss Counselor works with each member to ensure they receive the nutritional and full-scale behavioral support tools needed for enduring health and wellbeing—all based on the member’s individual goals. MWCC opened the 100th Medifast Weight Control Center in 2011, an effort that included expanding the number of corporate centers to 70—an 80% increase compared to fiscal 2010. Combined with the wholesale segment, MWCC reported a 41% increase in revenue in 2011 to $39 million, compared to $27.7 million at the same time in 2010. In 2012, the Company is focused on improving operational effectiveness and efficiency— balancing sales growth and profitability. BEFORE *Results will vary. Typical weight loss on the Medifast 5 & 1 Plan® is up to 2–5 pounds per week. 8 | 2011 AnnuAl RepoRt Cynthia lujan MEDIFAST MEDICAL PROVIDERS Medifast Medical Providers are licensed health care providers who recommend the Medifast Program within their practices. Providers carry an inventory of Medifast products that they resell to their patients, or they simply recommend the program to their patients through in- office program materials. They also provide the appropriate monitoring for their patients on the Program. This is especially crucial for patients with comorbidities such as diabetes, heart disease, and hypertension. The Company offers an additional in-house support program to assist Medical Providers and their staff, including access to registered, licensed dietitians, certified personal trainers, and a behavior specialist. ” I chose Medifast because, for the first time, I have a solution that gives people a likelihood of success, and a program that’s easy to do. ” –Gary Manko, M.D., Medifast Medical Provider 9 2011connecting initiative and innovation To Create a Platform for Growth Medifast has set a solid platform of initiatives and innovations across infrastructure, science, product development, education, and marketing with the goal of driving growth and increasing profitability in 2012 and beyond. We look to that future with confidence. 10 | 2011 AnnuAl RepoRt scaling for future growth TALENT DEVELOPMENT • Attracting seasoned executive leadership to help the Company scale operations for growth and increase profitability • Implementing competency-based employee development and just-in-time learning technologies • Building a Leadership Development Institute designed to grow future leaders from within the Company INFORMATION TECHNOLOGy • Expanding robust IT systems infrastructure across operations and e-commerce platforms while focusing on implementation of industry best enterprise solutions • Expanding data warehouse capabilities to provide robust, real time measurement tools • Driving cost savings and revenue expansion opportunities via predictive and business process modeling OPERATIONS • Executing capacity expansion initiatives across manufacturing and distribution networks 11 science innovation SCIENTIFIC ADVISORy BOARD Founded in 2008, the Scientific Advisory Board’s role is to continually review the effectiveness, safety, and nutritional benefits of Medifast’s products and programs. The team of specialists also assists in the development of new Medifast Meals and supplements, as well as weight-loss approaches for specific medical needs (e.g., patients with heart disease), people in certain groups (e.g., teens and nursing mothers), or those who make certain lifestyle choices (e.g., vegetarians). The work of this cross-disciplinary group builds on Medifast’s heritage of medically sound approaches to weight loss and the incorporation of leading-edge clinical research into the company’s products and programs. From left to right: John E. Hayes, Ph.D., Assistant Professor of Food Science, Director, Sensory Evaluation Center, The Pennsylvania State University; George A. Bray, M.D., Boyd Professor, Pennington Biomedical Research Center at Louisiana State University; Mark Messina, Ph.D., Adjunct Associate Professor, Department of Nutrition, School of Public Health, Loma Linda University, President, Nutrition Matters, Inc.; Sylvia B. Rowe, MA, Adjunct Professor, Tufts Friedman School of Nutrition Science and Policy, Adjucnt Professor, University of Massachusetts, Amherst, President, SR Strategy; Lawrence J. Cheskin, M.D., F.A.C.P., Associate Professor of Health, Behavior and Society at the Johns Hopkins Bloomberg School of Public Health, Director, Johns Hopkins Weight Management Center; John P. Foreyt, Ph.D., Professor, Department of Psychiatry and Behavioral Sciences, Department of Medicine, Baylor College of Medicine; Param Dedhia, M.D., Physician of Integrative Medicine, Canyon Ranch 12 | 2011 AnnuAl RepoRt product innovation In 2011, the Company expanded the Medifast product line in response to our customers’ requests for more savory meals, breakfast foods, and additional convenience items. New products introduced include Spiced Pancake, Sugar-Free Syrup, Original-Style Eggs with egg whites, and Southwest-Style Eggs with egg whites. Orange Blend, a zingy citrus drink, and ready-to-eat, gluten-free Medifast BBQ Bites and Medifast Cheese Pizza Bites were also added to our ever-expanding menu. Based on the popularity of the “freshly baked” Brownie, the Chocolate Chip Soft Bake was developed. We also added our newest savory selection, the Hearty Vegetarian Sloppy Joe. The Company also upgraded its Accessories line, adding a 17-piece Medifast Blender with BPA- free plastic traveling cups. spiced pancake & sugar-free syrup original-style eggs southwest-style eggs bbq bites cheese pizza bites orange blend chocolate chip soft bake 17-piece blender and accessories 13 educational innovation THE MACDONALD CENTER FOR OBESITy PREVENTION AND EDUCATION (C.O.P.E.) The MacDonald Center for Obesity Prevention and Education (C.O.P.E.) in the College of Nursing at Villanova University was established in 2011 through the support of the MacDonald Family Foundation and the Take Shape For Life Foundation. C.O.P.E. is a nonprofit center that focuses on interdisciplinary collaboration in the prevention of obesity through education and research. C.O.P.E. fosters the growing need for education by supporting the development of healthy lifestyles and behaviors among Americans through: • Practical experiences for nursing students and the student population • Educational opportunities for health professionals and educators, through conferences, webinars, and additional resources • Training programs for community groups • Obesity and weight-management resources for professionals and consumers • Creative nutrition educational programs for school children • Continuing education opportunities for organizations, health professionals, corporations, and institutions the october 6 inauguration of the macdonald center for obesity prevention and education at villanova university college of nursing From left to right: Marcia Costello, Ph.D., RD, LDN, Assistant Professor and Chair of the Cope Advisory Committee; M. Louise Fitzpatrick, EdD, RN, FAAN, Connelly Endowed Dean and Professor; Col. Bradley T. MacDonald, USMC (ret.); guest speaker Sylvia Escott-Stump, MA, RD, LDN, President of the American Dietetic Association; and Denice Ferko- Adams, MPH, RD, LDN, Director of COPE 14 | 2011 AnnuAl RepoRt marketing innovation While maintaining each channel’s unique attributes and identity, in 2011, Medifast strengthened customer perception and awareness by uniting all four channels under the umbrella of one, strong Medifast brand. key initiatives will forge a clearer and more approachable presence in the national marketplace. Highlights include: Web Initiatives: Although each channel maintained a unique web presence, they were brought together within one, unique web test portal that explains the fast, simple, safe, portable, and long term Medifast Program, and allows the customer to choose which channel site to investigate. Broadcast Advertising and Branding: Medifast also launched its first primetime television commercial, entitled, Become Yourself, which differentiated Medifast from the clamor of other weight-loss programs by featuring real-life Medifast success Jessica Westmoreland in lieu of industry-standard celebrity endorsements. “customs” commercial featuring medifast direct success story jessica westmoreland 15 2011 connecting to a healthy future our mission at Medifast is to combat the obesity epidemic and improve the health of our nation in two ways: first, through clinically proven, weight-management products and protocols; and second, through multiple, innovative support channels. We’ve come a long way since we launched this multi-channel business model, and an even longer way since Medifast was introduced to physicians in the 1980s. Our history of growth and the investments made to facilitate initiatives and expansion in 2011 provide a solid base for achieving future goals. In 2012 the Company will continue to: • Review and enhance our overall cost structure to further leverage our sales and profitability • Focus on enhancing the customer experience in our distribution channels • Expand our product selection • Empower our employees at every level to serve our clients’ needs and offer them more options to create long-term health • Support programs such as Target 100, with the goal of recycling 100% of waste and becoming a green company • Sponsor charities such as the American Heart Association, American Diabetes Foundation, and the Marine Toys for Tots Foundation 16 | 2011 AnnuAl RepoRt BEFORE ” Medifast is the best thing that ever happened to me! It gave me the life I always wanted, and the confidence I needed. I am so grateful. ” –Christine Kirkpatrick Lost 55 lbs* with Medifast *Results will vary. Typical weight loss on the Medifast 5 & 1 Plan® is up to 2–5 pounds per week. 11445 Cronhill Drive Owings Mills, Maryland 21117 

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