1. BY: Nicole Shan, Muen Yue Presented: April 30th, 2019

2. Agenda Introduction Industry Overview Company Overview
Macroeconomic Overview
Financial Analysis
Valuation
Recommendation

3. Introduction

4. Introduction Selection Criteria Watching List Company
Small-Medium Size
Growing Company
Company
Medifast, Inc (MED)
Industry
Weight Loss Service
Life Cycle Stage
Mature (US) Growth (Asia)
Market Cap
1.84 Billion
Shares Outstanding
12.08 Million
Stock Price (as of 04/29/2019)
$154.75
52 week range $
P/E Ratio (TTM)
33.50
Forward Dividend
3.00

5. Introduction Aug 2 2Q18 Earnings Revenue 55% EPS 84% Jul 23, 2018
Mar 6, 2018
4Q17 Earnings
Full Year Revenue
Increased by 10%
May 3, 2018
1Q18 Earnings
Revenue Increased by 40%
EPS 98%
Jul 23, 2018
New Product
Aug 2
2Q18 Earnings
Revenue 55%
EPS 84%
Nov 7, 2018
3Q18 Earnings
Revenue 80%
EPS 107%
Stock Price: -29%
Introduction
3q18 outlook million, EPS
139.2 million, eps 1.14
Stock price
Source: Yahoo Finance

6. Industry Overview

7. Industry Background - Weight Loss Service
Industry Definition: Provide nonmedical services to clients and assist these individuals with losing or maintain a desired weight.
Distribution model: Direct Selling
Markets: US and Asia Pacific (Singapore and Hong Kong)
Food Safety: Scientifically-valid, consumer-centric, high quality innovations for lasting health

8. Industry Performance Key External Driver:
Growing number of overweight or obese citizens
Healthy eating trend
New market coverage in Asia Pacific
Online services
Target demographic is women ages who wish to lose pounds and who have tried and failed to achieve and maintain their healthy weight previously.
Overweight is defined as body mass index (BMI) ≥ 25.0 but <30.0; BMI was calculated from self-reported weight and height (weight [kg]/ height [m²]).
Source:

9. Weight Loss Apps Fitness Center Hospital and Clinics Competition
Peer Competition

10. M&A Trend EV/Sales 703.9 $1,337.4 ($111.45) $985.46 ($82.12) 89.2
Date Announced
Acquirer
Target
EV/Sales
EV/EBITDA
12/10/2018
1.9x
15.2x
10/06/2017
1.4x
8.1x
703.9
$1,337.4
($111.45)
$985.46
($82.12)
89.2
$ ($112.99)
$722.52
($60.21)
2019F
High Bound
Low Bound
EV/Sales
EV/EBITDA
US$ in Million
Nutrisystem revenue growth rate 12.6%, 14.8%, 17.9%, 27.8%, (0.8%)
Omega revenue growth rate 26.3%, 16.4%, 8.8%, (11.9%)

11. Direct Selling 2017 Direct Selling Business Activity
Direct selling industry is regulated by various national, state and local government agencies, but generally do not include “bright line” rules and are inherently fact-based and subject to interpretation.
2017 Direct Selling Business Activity
Source:

12. Market Strategy
United States: Concentrate on building direct sales network in regions where the company is currently under-represented.
Word of mouth and social media marketing toward increasingly younger demographics.
Asia Pacific: Singapore and Hong Kong as gateway.
Highest CAGR of 7.1%, compared with 4.3% globally.
USANA Revenue
Source:
Euromonitor, Marketdata, LLC
USANA 10-K,

13. Business Overview

14. 9 Wholly Owned Subsidiaries
Overview
Company Introduction
9 Wholly Owned Subsidiaries
Medifast Inc. is a leading manufacturer and distributor of clinically proven healthy living products and programs
The company manufactures weight loss, weight management, and other consumable health and nutritional products
Focuses on four major businesses: nutrition, diagnostics, pharmaceutical, medical devices.
Founded in 2980, based in Baltimore, Maryland
Jason Pharmaceutical Inc
OPTAVIA, LLC
Jason Enterprises, Inc.,
Medifast Franchise Systems (“MFSI”), Inc.,
Jason Properties, LLC
Medifast Nutrition, Inc.,
Seven Crondall Associates, LLC,
Performance Products, LLC
Corporate Events, Inc.
Source: Company 2018 Annual Report; Capital IQ

15. Business Philosophies & Highlights
+61% Number of Active Earning Coaches (Q – Q4 2018)
+26% of Net Sales Per Active Earning Coach (Q – Q4 2018)
+66% in Revenue ( )
+74% Operating Income from 2017 to 2018
+102 % Diluted EPS from 2017 to 2018
Holistic approach to improve overall health and wellness
Coach and community
support clinically demonstrated
to contribute meaningfully
to success
An effective lifestyle solution for people for whom diets have previously failed
Empowering a new attitude towards food
Lifelong transformation supported through the incorporation of Healthy Habits
Source: Company Presentation

16. Products
Easy-to-follow program that delivers fast results for busy people
30 day kits & Gluten Free kits
5 Medifast Meals + 1 lean and green meal each day
Select Kit: lose weight while enjoying 4 Medifast Meals, 2 lean and green meals and 1 healthy snack each day
Complete Kit: includes supplements - benefiting the digestive and heart health. Adding a 30-day Probiotic and Omega-3 supplement bundle
Source: Company Website

17. Multiple Channels of Distribution
OPTAVIA is the personal coaching unit of Medifast
Direct to consumer business unit through word-of-mouth communication and personal one-on-one coaching
This coach community is made up of OPTAVIA Coaches, who are independent contractors and trained to provide coaching and support to clients utilizing the OPTAVIA platform
Provide online product and program information, tools and support, and access to our registered dieticians
Future growth of the Company primarily depends on the growth of the OPTAVIA Coaches worldwide
Direct to consumer business unit through our website and in-house call centers
customers order Medifast products directly through the Company’s website, or our in-house call center
Upon request, customers can also be connected to an OPTAVIA Coach
digital advertising, direct mail, , public relations, word of mouth referrals, social media initiatives, and other means as deemed appropriate
bricks and mortar-based customer support centers offering a fee-based consultation service and Medifast-branded products
sells product through franchise and reseller locations
These locations offer structured programs and a team of professionals to help customers achieve weight-loss and weight-management success at center locations
Medifast Wholesale discontinued in 2017
Source: Company Website;

18. Revenue Segment
Source: Company 2017 Annual Report

19. OPTAVIA Circle for Growth
Strategy
Launch in Hong Kong, Singapore gateway markets by June 30, 2019
Building global presence of successful optimal weight loss plans
Nutrition
Hydration
Sleep
Movement
Accelerate our repeatable business rhythm
Mobile app-based platform
Improve use of data analytics
Capitalize on OPTAVIA Brand and compelling health and wellness message
Streamline the coach experience
Accelerate Coach Success
Utilize
Technology
to Optimize
Effectiveness
Expand
Segments &
Geographies
Drive Product
Innovation
OPTAVIA Circle for Growth
Growth Strategy
Source: Company presentation;

20. SWOT Analysis SWOT Analysis Strength Opportunities Weakness Threats
Leadership position in the market
Strong distribution network
Successful track record of developing new products – product innovation.
Weakness
Less new technologies
lack of choice
Not very good at product demand
Opportunities
Global Expansion
Merger & Acquisition
Threats
Intense Competition
High Uncertainty in new markets
Source: Company website; Annual report 2018

21. Financial Analysis

22. Financial Analysis Sales Revenue Growth Gross Profit Growth
EBIT Growth
Gross Margin %
EBITDA Margin %
EBIT Margin %
Source: Capital IQ

23. Financial Ratios & Dupont Analysis
Short-term Liquidity
Profitability

24. Valuation

25. Valuation-Comparable Comps
WW International (NYSE:WW), formerly known as Weight Watchers International Inc, is an American company that offers various products and services to assist in healthy habits, including weight loss and maintenance, fitness, and mindset. It delivers its program in three combined ways: online via its mobile app and website, coaching online or by phone, and optional in-person meetings around the world.
Mkt. Cap($MM)- 1,202
Rev.($MM)- 1,514.1 EBITDA($MM)
P/E- 16.5x
Herbalife Nutrition (NYSE:HLF) is a global multi-level marketing corporation that develops, markets, and sells dietary supplements, weight management, sports nutrition, and personal-care products. The company operates in 94 countries through a network of approximately 3.2 million independent distributors.
Mkt. Cap($MM)- 7,493.5
Rev.($MM)- 4,891.8 EBITDA($MM) P/E-47.5x
Usana Health Sciences, Inc., (NYSE:USNA) is a Utah-based multi-level marketing company that produces various nutritional products, dietary supplements and skincare products. Usana products, most of which are manufactured at the company’s West Valley City facility, are sold in 24 countries[1] via a network of independent distributors
Mkt. Cap($MM)- 1,934.1 Rev.($MM)- 1,189.2 EBITDA($MM)
P/E-32.9x
VIVUS (NASDAQ:VVUS), aims to provide the solutions of obesity, sleep and other health issues. Vivus also developed an obesity drug, Qnexa (now called Qsymia), a combination of phentermine and topiramate, two existing weight-loss drugs
Mkt. Cap($MM)-38.7
Rev.($MM)-65.1
EBITDA($MM)- 7.4
P/E-NA
Source: Yahoo Finance, Capital IQ

26. Valuation-Comparable Comps
Source: Capital IQ

27. Valuation-Comparable Comps
Source: Capital IQ

28. Valuation-Comparable Comps
Enterprise Value /
Price /
Sales
EBITDA
EBIT
EPS
Company
Ticker
2018
2019E
2020E
WW International WW
1.8x
1.95x
1.88x
6.3x
8.73x
8.17x
0.0x
5.6x
13.65x
10.58x
Herbalife Nutrition
HLF
1.71x
1.64x
11.2x
10.71x
9.83x
0.1x
26.5x
16.49x
14.18x
Usana Health Sciences, Inc
USNA
1.4x
1.34x
1.22x
8.1x
7.91x
6.82x
0.4x
16.2x
15.98x
13.50x
VIVUS
VVUS
3.4x
3.39x
3.22x
30.0x
-2.4x
0.00x
Medifast
MED
3.1x
2.28x
21.2x
14.76x
11.91x
2.0x
30.3x
22.22x
17.79x
Maximum
3.2x
14.8x
11.9x
22.2x
17.8x
75th Percentile
2.3x
1.9x
10.7x
9.8x
16.5x
14.2x
Median
8.7x
8.2x
16.0x
13.5x
Mean
2.1x
15.4x
8.4x
7.3x
15.7x
13.7x
25th Percentile
1.7x
1.6x
7.9x
6.8x
13.6x
10.6x
Minimum
1.3x
1.2x
$184.3
Source: Capital IQ

29. New Market with High Uncertainty
Revenue Driver: Continuous of US Market Miracle
New Market Coverage in Hong Kong and Singapore
YoY % Growth
2014
2015
2016
2017
2018
2019F
2020F
Long-Term
Revenue (Model*)
-12%
-4% 1%
10%
66%
41%
21% 8%
Revenue (Official)
40%-44%
N/A
25%
Expense Driver: Commissions Fee increased faster than revenue growth
New Market Marketing Expense
% of Revenue
2014
2015
2016
2017
2018
2019F
2020F
Long-Term
Operating Expense (Model)
-12%
-4% 1%
10%
66%
64%
62%
Commissions (Official)
30.0%
30.6%
33.7%
35.6%
39.6%
N/A
43%
Other SG&A (Official)
32.7%
31.4%
26.8%
22.4%
18%
* Model means the downside case of our model

30. Other Risks Direct Selling Regulation
Food Safety and Brand Reputation (Highly rely on word of mouth marketing)
New Market Performance
Uncertainty related to contract coaches

31. DCF Valuation (Downside Case)
Target Price: $
Current Price (April 29): $154.75
Discount Rate
WACC %
Terminal Growth Rate %
Terminal Value Billion
Discount Rate %
Shares Outstanding Million

32. Recommendation

33. Recommendation Range: $184 - $200 Current Price: $155
Valuation
Reasons
Recommendation
Range: $184 - $200
Current Price: $155
New Market Opportunity
Leading Position in industry
Regulation Risk
Market Uncertainty
Size of Our Portfolio
Buy 80 market

34. Recommendation
SELL market