Third-quarter fiscal 2009 results announced by Medifast

Medifast, Inc. (NYSE: MED), a provider of leading clinically proven portion-controlled weight-loss programs, announced today third quarter financial results for the period ended September 30, 2009.

Third Quarter 2009 highlights included:

• Third quarter revenues increased 65% to $45.0 million, compared to 2008;
• Diluted EPS for the quarter increased 109% to $0.23 versus $0.11 year-over-year;
• Direct sales segment, Take Shape for Life, increased sales 105% year-over-year for the quarter;
• Medifast Weight Control Centers quarterly revenues increased 106%;
• Direct response quarterly revenues increased 14% versus a year ago;
• Operating margins improve to 12.4% versus 8.8% in the comparable quarter;
• Generated Free Cash Flow of $5.3 million.

For the third quarter ended September 30, 2009, Medifast reported revenue of $45.0 million, a 65% increase over the $27.3 million reported in the third quarter of 2008. The Company reported net income of $3.4 million, or $0.23 per fully diluted share, compared with $1.5 million, or $0.11 per fully diluted share in the third quarter of 2008, a diluted EPS increase of 109%.

For the nine months ended September 30, 2009, Medifast reported revenue of $119.4 million, an increase of 49% from the $80.0 million reported for the nine months ended September 30, 2008. The Company reported net income of $8.9 million, or $0.60 per fully diluted share, for the nine month period, versus $4.5 million, or $0.32 per fully diluted share, in 2008.

"We are extremely pleased to report yet another quarter of record revenues and net income," commented Michael S. McDevitt, Chief Executive Officer of Medifast, Inc. "The Medifast program is clearly resonating with consumers as a strong value proposition with the best possible support options for rapid and safe weight loss, as well as the recommendation of 20,000 physicians over 30 years. The growth reported in our direct sales, direct response and clinics segments re-enforces our belief that the outlook for all distribution channels remains strong."

Revenues in the direct sales segment, Take Shape for Life, increased 105% to $27.9 million compared with $13.6 million in the same quarter of 2008. Revenue growth was driven by an increase in the number of active health coaches, which resulted in increased customer product sales. The number of active health coaches during the third quarter increased to approximately 5,800 compared with 3,200 during the period a year ago, an increase of 81% and up from 4,650 at the end of the second quarter of 2009. The net increase of 1,150 health coaches during the quarter is a record for the company and should lead to continued strong growth in the segment. The growth in Take Shape for Life is a result of the hard work, commitment and passion of our coaches. To help fuel this growth, the Company continued to improve tools and training, particularly during its July 2009 National Convention. The unique opportunity to supplement income while helping family, friends and associates improve their quality of life continues to gain significant traction.

During the second quarter, sales in the Company's direct response segment experienced growth of 14% during the quarter to $12.2 million compared with $10.6 million a year ago. This is the first year-over-year increase in five quarters for the direct response segment, as diligent controls of the revenue-to-spend metric, which measures advertising effectiveness, cultivated a 2.7 to 1 ratio for the third quarter, compared with 2.5 to 1 a year ago on an advertising spend increase of $200,000. The increase in the revenue-to-spend metric, coupled with the increase in advertising spend, provided tremendous margin improvement for the segment. Medifast Direct's continued improvement in its advertising effectiveness was primarily attributable to several factors to including a more focused print campaign, continued improvements in the contact center conversion rates, and the use of its customized web analytics tool, C3 Metrics, implemented this time last year, which allows the Company to more accurately track originating clicks and customer conversion related to our web spending.

The Company reported record revenues in its Medifast Weight Control Centers segment of $4.5 million, a 106% increase compared to the third quarter of a year ago, driven by strong same-store sales and new clinics opened during the year. Same-store sales increased 20% for the quarter compared to the third quarter of 2008 for clinics open greater than one year, as a result of effective advertising and increased closing rates. With the growth being experienced by its corporate clinics and franchisees, management expects continued future growth in the Medifast Weight Control Centers channel and will focus on building the best internal infrastructure to support this market segment. With a foundation of proven clinical results and physician support, products and programs that deliver rapid, guaranteed weight loss coupled with accountability and support, consumers are embracing the unique value offered by Medifast Weight Control Centers.

Ms. Meg Sheetz, President and COO of Medifast, Inc. commented, "Gross margins during the first nine months of 2009 have increased to 76.1% compared to 75.9% a year ago. Operating margins improved significantly during the third quarter to 12.4% compared to 8.8% in the third quarter of last year as we continue to experience the benefits of our vertically integrated business model and see improvement in our advertising effectiveness ratios."