MEDIFAST : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

Note Regarding Forward-Looking Statements

Certain information in this report contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, Section
21E of the Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
generally can be identified by use of phrases or terminology such as "intend,"
"anticipate," "expects" or other similar words or the negative of such
terminology. Similarly, descriptions of Medifast's objectives, strategies,
plans, goals or targets contained herein are also considered forward-looking
statements. These statements are based on the current expectations of the
management of Medifast and are subject to certain events, risks, uncertainties
and other factors. These risks and uncertainties include, but are not limited
to, those described in our 2020 Form 10-K and those described from time to time
in our future reports filed with the SEC. Although Medifast believes that the
expectations, statements and assumptions reflected in these forward-looking
statements are reasonable, it cautions readers to always consider all of the
risk factors and any other cautionary statements carefully in evaluating each
forward-looking statement in this report. All of the forward-looking statements
contained herein speak only as of the date of this report.



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 global company behind one of the fastest-growing health and
wellness communities, OPTAVIA®, which offers Lifelong Transformation, One
Healthy Habit at a Time®. Reflecting the success of our holistic approach to
health and wellness, we have consistently grown revenue over the past five
years. Of equal importance, we expect our differentiated model to continue to
deliver growth in the foreseeable future.

Medifast has created a new business model by combining the most powerful aspects
of direct selling, 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
different. We employ a differentiated direct-to-consumer sales model in which
91.0% of our revenue comes from subscription-based meal-plan orders.

Our OPTAVIA brand offers a highly competitive and effective lifestyle solution
centered on developing new healthy habits through smaller, foundational changes
called micro-habits. The program is built around four key components:



? Independent OPTAVIA Coaches: Provide individualized support and guidance to

clients on the path to optimal health and wellbeing.

? OPTAVIA Community: A Community of like-hearted people providing each other with

real-time connection and support.

? The Habits of Health® Transformational System: A proprietary system which

offers easy steps to a sustainably healthy lifestyle.

Products & Plans: Clinically proven plans and scientifically developed

? OPTAVIA-branded nutritional products, called “Fuelings,” backed by dietitians,

scientists and physicians.


We help clients achieve their health goals through a network of more than 59,000
independent OPTAVIA Coaches, 90.7% of whom were clients first, and have impacted
2.0 million lives to date. OPTAVIA Coaches introduce clients to a set of healthy
habits, in most cases starting with the habit of healthy eating, and offer
exclusive OPTAVIA-branded nutritional products, or Fuelings. Fuelings are
nutrient-dense, portion-controlled, nutritionally interchangeable and simple to
use. They are formulated with high-quality ingredients and are fortified with
probiotic cultures, vitamins and minerals, as well as other nutrients essential
for good health. Our products support the process of integrating healthy habits
into our clients' day-to-day lives.

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The OPTAVIA coaching model is client-centric and boasts an energized health and
wellness community. It promotes holistic health and wellness and positions
healthy weight as a catalyst to greater lifestyle changes. OPTAVIA Coaches
provide personalized support to clients and motivate them by sharing their
passion for healthy living and lifestyle transformation. We believe this
personal coaching is an essential factor in client success based on findings
from a clinical study published in Obesity Science and Practice in 2018, which
validated the OPTAVIA model when its meal plan was combined with education and
support consistent with that provided by OPTAVIA Coaches.



The entrepreneurial spirit of our OPTAVIA Coaches is another key to our success,
as they create a continuous cycle of growth, activating new clients, many of
whom go on to become OPTAVIA Coaches. We offer economic incentives designed to
support each OPTAVIA Coach's long-term success, which we believe plays an
important role in their financial wellness, providing the opportunity to improve
their finances while changing the health trajectory of families, communities and
generations.1



OPTAVIA Coaches are independent contractors, not employees, who support 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 entrepreneurs, OPTAVIA Coaches market our products to
friends, family and other acquaintances. OPTAVIA products are shipped directly
to OPTAVIA clients who are working with an OPTAVIA Coach. OPTAVIA Coaches do not
handle or deliver merchandise to clients. This arrangement frees our OPTAVIA
Coaches from having to manage inventory and allows them to maintain an
arms-length transactional relationship while focusing their attention on support
and encouragement.

We are one of the fastest growing health and wellness companies in the United
States, with a large and growing market opportunity. Our scalable coach-based
model drives both client success and growth. We believe our continued investment
in fostering a robust community around our OPTAVIA brand and our OPTAVIA
Coaching Model will continue to drive a sustainable, repeatable business rhythm
focused on our mission of offering the world Lifelong Transformation, One
Healthy Habit at a Time.

Our operations are conducted through our wholly owned subsidiaries, Jason
Pharmaceuticals, Inc., OPTAVIA, LLC, Jason Enterprises, Inc., Jason Properties,
LLC, Medifast Franchise Systems, Inc., Seven Crondall Associates, LLC, Corporate
Events, Inc., OPTAVIA (Hong Kong) Limited, OPTAVIA (Singapore) PTE. LTD and
OPTAVIA Health Consultation (Shanghai) Co., Ltd.

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



COVID-19 Update


A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and has spread
around the world, including to the United States. In March 2020, the World
Health Organization
declared COVID-19 a worldwide pandemic.

In response to the pandemic, many governments implemented policies intended to
stop or slow the further spread of the disease, such as social distancing
guidelines, shelter-in-place orders and other measures in response to the
COVID-19 pandemic. Nutritional supplements and health foods have been designated
critical/essential infrastructure in the U.S.  As a manufacturer and distributer
of these products our manufacturing and distribution facilities remain fully
operational to date and we have not experienced any meaningful disruption to our
worldwide supply chain.  The Company's priorities



1 OPTAVIA makes no guarantee of financial success. Success with OPTAVIA results
from successful sales efforts, which require hard work, diligence, skill,
persistence, competence, and leadership. Please see the OPTAVIA Income
Disclosure Statement (http://bit.ly/idsOPTAVIA) for statistics on actual
earnings of Coaches.

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during the COVID-19 pandemic continue to be protecting the health and safety of
our employees and OPTAVIA Coaches, and their families and we have undertaken
numerous steps and instituted additional precautions to protect their safety and
well-being, including:


instituting enhanced safety protocols to comply with guidelines from government

? and health officials, limited visitation to our plant and distribution center

and rolling out additional sick leave (crisis pay) for our onsite essential

employees;

successfully implementing a work-from-home plan for all non-essential employees

? to comply with guidelines from government and health officials and also

extended crisis pay;

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;

providing additional health and safety precautions in our headquarters,

? manufacturing and distribution centers, including use of personal protective

equipment and frequent hand sanitization; and

? process controls in relation to social distancing, visitors, travel and

   quarantine.




Although vaccines are available in various countries where we operate, it is
possible the COVID-19 pandemic could further impact our operations and the
operations of our suppliers and vendors, particularly in light of the potential
of variant strains of the virus to cause a resumption of high levels of
infection and hospitalization. Should that occur, 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
expectations. Factors that could cause actual results to differ from
management's expectations include 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. 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 communicate with our supply chain partners to identify and
mitigate risk and to manage inventory levels. The Company may take further
actions that alter its 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.



These uncertainties make it challenging for our management to estimate our
future business performance. However, we intend to continue to actively monitor
the impact of COVID-19 and related developments on our business and will update
our practices accordingly, as we have done throughout the pandemic.



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 approximately 98.0% of our revenues for each of
the three and six months ended June 30, 2021 and 2020, respectively.



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


                                                Three months ended June 30,
                                                  2021               2020          $ Change     % Change

Revenue                                      $       394,189$       219,999$   174,190       79.2%
Cost of sales                                        100,482             60,699      (39,783)     (65.5)%
Gross profit                                         293,707            159,300       134,407       84.4%

Selling, general, and administrative                 232,273            131,201     (101,072)     (77.0)%

Income from operations                                61,434             28,099        33,335      118.6%

Other (expense) income
Interest (expense) income                               (67)                 58         (125)    (215.5)%
Other (expense) income                                  (22)               

1 (23) (2300.0)%

                                                        (89)                

59 (148) (250.8)%

Income from operations before income taxes            61,345             

28,158 33,187 117.9%

Provision for income tax                              14,382              6,223       (8,159)    (131.1)%

Net income                                   $        46,963$        21,935$    25,028      114.1%

% of revenue
Gross profit                                           74.5%              72.4%
Selling, general, and administrative costs             58.9%              

59.6%

Income from operations                                 15.6%              

12.8%

Income from operations before income taxes             15.6%              12.8%






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                                                Six months ended June 30,
                                                  2021              2020         $ Change     % Change

Revenue                                      $      734,858$      398,460$   336,398      84.4%
Cost of sales                                       192,604           103,920      (88,684)    (85.3)%
Gross Profit                                        542,254           294,540       247,714      84.1%

Selling, general, and administrative                428,021           242,908     (185,113)    (76.2)%

Income from operations                              114,233            51,632        62,601     121.2%

Other (expense) income
Interest (expense) income                              (44)               168         (212)   (126.2)%
Other expense                                           (3)              (18)            15    (83.3)%
                                                       (47)               

150 (197) (131.3)%

Income from operations before income taxes          114,186            

51,782 62,404 120.5%

Provision for income taxes                           26,160            11,370      (14,790)   (130.1)%

Net income                                   $       88,026$       40,412$    47,614     117.8%

% of revenue
Gross Profit                                          73.8%             73.9%
Selling, general, and administrative costs            58.2%             

61.0%

Income from Operations                                15.5%             

13.0%

Income from operations before income taxes            15.5%             13.0%




Revenue:  Revenue increased $174.2 million, or 79.2%, to $394.2 million for the
three months ended June 30, 2021 from $220.0 million for the three months ended
June 30, 2020. The average revenue per active earning OPTAVIA Coach was $6,662
for the three months ended June 30, 2021 compared to $5,851 for the three months
ended June 30, 2020. 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 $336.4 million, or 84.4%, to $734.9 million for the six months ended
June 30, 2021 from $398.5 million for the six months ended June 30, 2020. This
increase in revenue for the quarter and six months ended June 30, 2021 was
primarily driven by the growth in active earning OPTAVIA Coach count and
increase in the productivity per active earning OPTAVIA Coach, which resulted in
more clients participating in our Optimal Weight 5 & 1 Plan®. OPTAVIA-branded
products represented 94.1% of consumable units sold for the three months ended
June 30, 2021 compared to 83.0% for the corresponding period in 2020 and 91.7%
of consumable units sold for the six months ended June 30, 2021 compared to
81.0% for the corresponding period in 2020. Consistent with business and brand
strategy, the Company has completed the sunset of the Medifast-branded product
line during the quarter ended June 30, 2021.

Cost of sales:  Cost of sales increased $39.8 million, or 65.5%, to $100.5
million for the three months ended June 30, 2021 from the corresponding period
in 2020 and increased $88.7 million, or 85.3%, to $192.6 million for the six
months ended June 30, 2021 from the corresponding period in 2020. The increase
in cost of sales was primarily driven by an increase in OPTAVIA product sales,
higher product costs and shipping costs, as well as inventory write-offs related
to the sunset of the Medifast-branded product line. In addition, acceleration of
demand in OPTAVIA-branded products led to the increase in the Company's use of
co-manufacturers, which further increased cost of sales.

Gross profit:  For the three months ended June 30, 2021, gross profit increased
$134.4 million, or 84.4%, to $293.7 million from the corresponding period in
2020. As a percentage of revenue, gross profit increased 210 basis points to
74.5% for 2021 from 72.4% for 2020. For the six months ended June 30, 2021,
gross profit increased $247.7 million, or 84.1%, to $542.3 million from the
corresponding period in 2020. As a percentage of sales, gross margin remained
flat at 73.8% for the six months ended June 30, 2021 as compared to the
corresponding period in 2020. The increase in gross

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margin percentage for the quarter was primarily the result of promotional
activity we rolled out during the second quarter of 2020 that did not occur in
the second quarter of 2021.

Selling, general, and administrative:  Selling, general, and administrative
("SG&A") expenses were $232.3 million for the three months ended June 30, 2021,
an increase of $101.1 million, or 77.0%, as compared to $131.2 million from the
corresponding period in 2020. As a percentage of revenue, SG&A expenses were
58.9% as compared to 59.6% for the three months ended June 30, 2021 and 2020,
respectively. For the six months ended June 30, 2021, SG&A expenses increased
$185.1 million, or 76.2%, to $428.0 million from $242.9 million for the
corresponding period in 2020. As a percentage of sales, SG&A expenses were 58.2%
for the six months ended June 30, 2021 as compared to 61.0% for the
corresponding period in 2020. The increase in SG&A for the quarter and six
months ended June 30, 2021 were primarily due to higher OPTAVIA commission
expense, increased salaries and benefits related expenses for employees,
increased consulting costs related to information technology projects, and
increased credit card fees resulting from higher sales. SG&A expenses included
research and development ("R&D") costs of $1.1 million and $0.5 million for the
three months ended June 30, 2021 and 2020, respectively, and $2.2 million and
$1.1 million for the six months ended June 30, 2021 and 2020, respectively.



OPTAVIA commission expense, which is a variable expense, increased $80.4
million, or 87.5%, to $172.4 million for the three months ended June 30, 2021
from $92.0 million for the corresponding period in 2020. For the six months
ended June 30, 2021, OPTAVIA commission expense increased $152.3 million, or
91.6%, to $318.7 million from $166.3 million for the corresponding period in
2020.  The increase was primarily the result of increased OPTAVIA product sales.
This trend is the result of the success we are experiencing with our
growing OPTAVIA Integrated Coach Model. The total number of active
earning OPTAVIA Coaches for the three months ended June 30, 2021 increased to
59,200 from 36,500 for the corresponding period in 2020, an increase of 62.2%.
As OPTAVIA revenue increased as a portion of the Company's total sales mix, the
commission rate as a percentage of revenue increased 190 basis points to 43.7%
for the second quarter of 2021 compared to 41.8% for the second quarter last
year and increased 170 basis points to 43.4% for the six months ended June 30,
2021 compared to 41.7% for the corresponding period in 2020.



Income from operations:  For the three months ended June 30, 2021, income from
operations increased $33.3 million to $61.4 million from $28.1 million for the
corresponding period in 2020 primarily as a result of increased gross profit
partially offset by increased SG&A expenses. Income from operations as a
percentage of revenue was 15.6% and 12.8% for the three months ended June 30,
2021 and 2020, respectively. For the six months ended June 30, 2020, income from
operations increased $62.6 million to $114.2 million from $51.6 million for the
corresponding period in 2020 primarily as a result of increased gross profits
partially offset by increased SG&A expenses. Income from operations as a
percentage of sales was 15.5% and 13.0% for the six months ended June 30, 2021
and 2020, respectively.


Income from operations before income taxes:  Income from operations before
income taxes was $61.3 million for the three months ended June 30, 2021 as
compared to $28.2 million for the three months ended June 30, 2020, an increase
of $33.1 million. Income from operations before income taxes as a percentage of
revenue increased to 15.6% for the three months ended June 30, 2021 from 12.8%
for the three months ended June 30, 2020. Income from operations before income
taxes was $114.2 million for the six months ended June 30, 2021 as compared to
$51.8 million for the six months ended June 30, 2020. Income from operations
before income taxes as a percentage of sales increased to 15.5% for the six
months ended June 30, 2021 from 13.0% for the six months ended June 30, 2020.



Provision for income tax:  For the three months ended June 30, 2021, the Company
recorded $14.4 million in income tax expense, an effective tax rate of 23.4%, as
compared to $6.2 million in income tax expense, an effective tax rate of 22.1%,
for the three months ended June 30, 2020. For the six months ended June 30,
2021, the Company recorded $26.2 million in income tax expense, an effective
rate of 22.9%, as compared to $11.4 million in income tax expense, an effective
rate of 22.0%, for the six months ended June 30, 2020. The increase in the
effective tax rate for the quarter and six months ended June 30, 2021 was
primarily driven by an increase in the state income tax rate and limitations on
the deductibility of officer compensation offset by an increase in the tax
benefit of stock compensation.

Net income: Net income was $47.0 million and $88.0 million, or $3.96 and $7.42
per diluted share, for the three and six months ended June 30, 2021 as compared
to $21.9 million and $40.4 million, or $1.86 and $3.42 per diluted share, for
the

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three and six months ended June 30, 2020. The period-over-period changes were
driven by the factors described above in the explanations from operations.

Liquidity and Capital Resources

The Company had stockholders' equity of $194.7 million and working capital of
$150.3 million at June 30, 2021 as compared with $157.2 million and $123.0
million at December 31, 2020, respectively. The $37.5 million net increase in
stockholders' equity reflects $88.0 million in net income for the six months
ended June 30, 2021 offset by $19.7 million spent on repurchases of the
Company's common stock and $33.8 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 quarterly dividend of $1.42 per share on June 3,
2021, to stockholders of record as of June 22, 2021 that will be paid in the
third quarter of 2021. 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 $174.5 million
at December 31, 2020 to $197.4 million at June 30, 2021.

Net cash provided by operating activities increased $1.9 million to $86.2
million
for the six months ended June 30, 2021 from $84.3 million for the
six months ended June 30, 2020 primarily driven by a $47.6 million increase in
net income offset by $49.7 million decrease in net cash flow from operating
assets and liabilities.

Net cash used in investing activities was $7.1 million for the six months ended
June 30, 2021 as compared to net cash provided by investing activities of $0.4
million for the six months ended June 30, 2020. This change resulted from a
$11.6 million increase in cash used in capital expenditures for the six months
ended June 30, 2021 from the corresponding period in 2020 partially offset by a
$4.1 million increase in sale and maturities of investment securities. Cash used
in capital expenditures for the six months ended June 30, 2021 expanded our
technology and supply chain capabilities to support our planned growth.

Net cash used in financing activities increased $20.2 million to $51.0 million
for the six months ended June 30, 2021 from $30.8 million for the six months
ended June 30, 2020. This increase was primarily due to a $14.7 million increase
in stock repurchases, a $3.5 million increase in cash dividends paid to
stockholders and a $1.3 million increase in net shares repurchased for employee
taxes.

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 of June 30, 2021, the Company maintained a credit facility, which provides
for a $125.0 million senior secured revolving credit facility with a $20.0
million letter of credit sublimit and also provides for an uncommitted
incremental facility that permits the Company, subject to certain conditions, to
increase the senior secured revolving credit facility by up to $100.0 million.

The credit facility contains affirmative and negative covenants customarily
applicable to credit facilities. As of June 30, 2021, the Company was in
compliance with all of its debt covenants and there were no borrowings
outstanding under the credit facility.




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