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RE: Thoughts on MED

sinnerMan — Wed, 16 May 2007 15:34:40 GMT

Thanks for sharing the CAC number Andrew. It is indeed odd that they mentioned that Q2 and Q3 are historically strong as anyone who has been following the company for a while knows that the first half is usually the strongest just as with any other diet product company.

RE: Thoughts on MED

burkett.andrew — Wed, 16 May 2007 15:04:39 GMT

FYI, I have listened to the earnings call and the CAC was around $170. I agree with you that the next quarter is a very important quarter. They are ramping up advertising by 50% over q1, and if I remember right its gonna be another 40% higher in q3 over q2. This with much more focus being put on TV ads, which had been decreased considerably from the year before.

I'm gonna hang on to the shares, because if they can get growth back on track, the shares are definitely selling at a bargain.

As an aside, it was mentioned that q2 and q3 were historically strong quarters. They almost made it sound like that it was more so than q1, which I found odd.

All there is to do now is to wait and see, I suppose.

RE: Thoughts on MED

sinnerMan — Wed, 16 May 2007 14:08:33 GMT

Medifast has now reported two quarters where earnings have declined year-over-year and as I mentioned to a subscriber in an email last week, I am concerned about Medifast.

For all the "noise" made about customer acquisition costs (CAC) in previous quarters, no questions asked directly about CAC in the Q4 2006 conference call. Based on an advertising spend of $2.6 million in Q4 2006 and 9,500 customers (the mid point of the 9,000 to 10,000 customers they claimed to have acquired in Q4 2006), the CAC works out to $273.68, a substantial increase until you consider that the fourth quarter of the year is traditionally the slowest for weight management companies (new year resolutions are long forgotten, folks are busy with christmas and enjoying large thanksgiving meals). However CAC in Q4 2005 was only $100. I am yet to listen to the Q1 2007 conference call and hence do not know if CAC increased or decreased last quarter. If you did listen to the call, please share your thoughts with the rest of us.

They have managed to grow revenue without sacrificing profitability. Revenue grew 49% to $15.3 million in Q4 2006 but just 5% in Q1 2007 to $20.1 million. This would have normally been sufficient reason to sell Medifast as the first quarter is traditionally their strongest quarter. However, they reiterated full year 2007 guidance of $85 to $88 million in revenue, a 15% to 19% increase and diluted profits of 45 to 46 cents per share, a 18 to 21% increase while reporting Q4 2006 as well as Q1 2007 results.

I believe that the next quarter is going to be crutial in figuring out if they can indeed meet their 2007 targets or not. If they can, the stock is selling at a discount to fair value. Hence while I am not as enthusiastic about Medifast right now, I am going to wait one more quarter to see if I should sell or hold on to Medifast.

Thoughts on MED

burkett.andrew — Wed, 16 May 2007 13:00:39 GMT

What are your thoughts on Medifast of late? They missed earnings, and they're growth seems to be decelerating pretty rapidly. I own shares in MED and in NTRI, which operates the same basic business. NTRI is considerably larger, and yet its revenue is still growing at great clip, much better than MED at the moment. Personally, this makes me worry about the long term prospects of MED. Do you still like MED, as much, as when it was put into the model portfolio?