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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________ to ________.
Commission File Number: 001-31573
Medifast, Inc.
(Exact name of registrant as specified in its charter)

Delaware |  | 13-3714405
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

100 International Drive
Baltimore, Maryland 21202
Telephone Number: (410) 581-8042
(Address of Principal Executive Offices, Zip Code and Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, par value $0.001 per share |  | MED |  | New York Stock Exchange

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐
Non-accelerated filer | ☐ | Smaller reporting company | ☐
Emerging growth company | ☐ |  |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The number of shares of the registrant’s common stock outstanding at April 25, 2022 was 11,513,656.

Table of Contents
Medifast, Inc. and Subsidiaries
Index

Part 1 – Financial Information |
Item 1 – Financial Statements |
Condensed Consolidated Statements of Income (unaudited) for the Three Months Ended March 31, 2022 and 2021 | 2
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three Months Ended March 31, 2022 and 2021 | 3
Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2022 and December 31, 202 1 | 4
Condensed Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31, 2022 and 2021 | 5
Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three Months Ended March 31, 2022 and 2021 | 6
Notes to Condensed Consolidated Financial Statements (unaudited) | 7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13
Item 3 – Quantitative and Qualitative Disclosures about Market Risk | 18
Item 4 – Controls and Procedures | 18
Part II – Other Information |
Item 1 – Legal Proceedings | 19
Item 1A – Risk Factors | 19
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds | 19
Item 6 – Exhibits | 20

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MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(U.S. dollars in thousands, except per share amounts & dividend data)

| Three months ended March 31, |  |
| 2022 |  | 2021 |  |  |  |
Revenue | $ | 417,600 |  |  | $ | 340,669 |  |  |  |  |
Cost of sales | 115,314 |  |  | 92,122 |  |  |  |  |
Gross profit | 302,286 |  |  | 248,547 |  |  |  |  |
Selling, general, and administrative | 247,199 |  |  | 195,748 |  |  |  |  |
Income from operations | 55,087 |  |  | 52,799 |  |  |  |  |
Other (expense) income |  |  |  |  |  |  |
Interest (expense) income | (95) |  |  | 23 |  |  |  |  |
Other (expense) income | (16) |  |  | 19 |  |  |  |  |
| (111) |  |  | 42 |  |  |  |  |
Income from operations before income taxes | 54,976 |  |  | 52,841 |  |  |  |  |
Provision for income taxes | 13,195 |  |  | 11,778 |  |  |  |  |
Net income | $ | 41,781 |  |  | $ | 41,063 |  |  |  |  |
Earnings per share - basic | $ | 3.62 |  |  | $ | 3.49 |  |  |  |  |
Earnings per share - diluted | $ | 3.59 |  |  | $ | 3.46 |  |  |  |  |
Weighted average shares outstanding |  |  |  |  |  |  |
Basic | 11,557 |  |  | 11,772 |  |  |  |  |
Diluted | 11,638 |  |  | 11,881 |  |  |  |  |
Cash dividends declared per share | $ | 1.64 |  |  | $ | 1.42 |  |  |  |  |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(U.S. dollars in thousands)

| Three months ended March 31, |  |
| 2022 |  | 2021 |  |  |  |
Net income | $ | 41,781 |  |  | $ | 41,063 |  |  |  |  |
Other comprehensive income, net of tax: |  |  |  |  |  |  |
Foreign currency translation | 30 |  |  | 78 |  |  |  |  |
Unrealized losses on investment securities | (14) |  |  | (16) |  |  |  |  |
| 16 |  |  | 62 |  |  |  |  |
Comprehensive income | $ | 41,797 |  |  | $ | 41,125 |  |  |  |  |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(U.S. dollars in thousands, except par value)

| March 31, 2022 |  | December 31, 2021
ASSETS |  |  |
Current Assets |  |  |
Cash and cash equivalents | $ | 118,003 |  |  | $ | 104,183 |
Inventories | 188,972 |  |  | 180,043 |
Investment securities | 4,057 |  |  | 5,361 |
Income taxes, prepaid | — |  |  | 945 |
Prepaid expenses and other current assets | 13,227 |  |  | 16,334 |
Total current assets | 324,259 |  |  | 306,866 |
Property, plant and equipment - net of accumulated depreciation | 57,804 |  |  | 56,131 |
Right-of-use assets | 22,942 |  |  | 24,457 |
Other assets | 12,026 |  |  | 6,468 |
Deferred tax assets | 4,404 |  |  | 4,404 |
TOTAL ASSETS | $ | 421,435 |  |  | $ | 398,326 |
LIABILITIES AND STOCKHOLDERS' EQUITY |  |  |
Current Liabilities |  |  |
Accounts payable and accrued expenses | $ | 174,369 |  |  | $ | 163,309 |
Current lease obligations | 6,663 |  |  | 6,523 |
Total current liabilities | 181,032 |  |  | 169,832 |
Lease obligations, net of current lease obligations | 24,379 |  |  | 26,020 |
Total liabilities | 205,411 |  |  | 195,852 |
Stockholders' Equity |  |  |
Common stock, par value $0.001 per share: 20,000 shares authorized; |  |  |
11,553 and 11,594 issued and 11,552 and 11,593 outstanding |  |  |
at March 31, 2022 and December 31, 2021, respectively | 12 |  |  | 12 |
Additional paid-in capital | 12,834 |  |  | 12,018 |
Accumulated other comprehensive income | 127 |  |  | 111 |
Retained earnings | 203,051 |  |  | 190,333 |
Total stockholders' equity | 216,024 |  |  | 202,474 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 421,435 |  |  | $ | 398,326 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
4

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MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(U.S. dollar in thousands)

| Three months ended March 31,
| 2022 |  | 2021
Operating Activities |  |  |
Net income | $ | 41,781 |  |  | $ | 41,063 |
Adjustments to reconcile net income to cash provided by operating activities |  |  |
Depreciation and amortization | 2,444 |  |  | 1,124 |
Non-cash lease expense | 1,619 |  | 889 |
Share-based compensation | 2,275 |  | 2,198 |
Amortization of premium on investment securities | 11 |  |  | 28 |
Change in operating assets and liabilities: |  |  |
Inventories | (8,929) |  |  | (8,842) |
Income taxes, prepaid | 945 |  |  | — |
Prepaid expenses and other current assets | 3,107 |  |  | (266) |
Other assets | (6,632) |  |  | (70) |
Accounts payable and accrued expenses | 7,052 |  |  | 29,202 |
Net cash flow provided by operating activities | 43,673 |  |  | 65,326 |
Investing Activities |  |  |
Sale and maturities of investment securities | 1,245 |  |  | 3,720 |
Purchase of property and equipment | (3,009) |  |  | (4,598) |
Net cash flow used in investing activities | (1,764) |  |  | (878) |
Financing Activities |  |  |
Options exercised by executives and directors | — |  |  | 481 |
Net shares repurchased for taxes | (1,459) |  |  | (1,807) |
Cash dividends paid to stockholders | (16,660) |  |  | (13,392) |
Stock repurchases | (10,000) |  |  | (7,500) |
Net cash flow used in financing activities | (28,119) |  |  | (22,218) |
Foreign currency impact | 30 |  |  | 78 |
Increase in cash and cash equivalents | 13,820 |  |  | 42,308 |
Cash and cash equivalents - beginning of the period | 104,183 |  |  | 163,723 |
Cash and cash equivalents - end of period | $ | 118,003 |  |  | $ | 206,031 |
Supplemental disclosure of cash flow information: |  |  |
Income taxes paid | $ | 62 |  |  | $ | 56 |
Dividends declared included in accounts payable | $ | 19,663 |  |  | $ | 17,292 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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MEDIFAST, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(U.S. dollars in thousands)

| Three months ended March 31, 2022
| Number of Shares Issued |  | Common Stock |  | Additional Paid-In Capital |  | Accumulated Other Comprehensive Income |  | Retained Earnings |  | Treasury Stock |  | Total
Balance, December 31, 2021 | 11,594 |  |  | $ | 12 |  |  | $ | 12,018 |  |  | $ | 111 |  |  | $ | 190,333 |  |  | $ | — |  |  | $ | 202,474 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | 41,781 |  |  | — |  |  | 41,781 |
Share-based compensation | 18 |  |  | — |  |  | 2,275 |  |  | — |  |  | — |  |  | — |  |  | 2,275 |
Net shares repurchased for taxes | (8) |  |  | — |  |  | (1,459) |  |  | — |  |  | — |  |  | — |  |  | (1,459) |
Treasury stock from stock repurchases | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (10,000) |  |  | (10,000) |
Treasury stock retired from stock repurchases | (51) |  |  | — |  |  | — |  |  | — |  |  | (10,000) |  |  | 10,000 |  |  | — |
Other comprehensive income | — |  |  | — |  |  | — |  |  | 16 |  |  | — |  |  | — |  |  | 16 |
Cash dividends declared to stockholders | — |  |  | — |  |  | — |  |  | — |  |  | (19,063) |  |  | — |  |  | (19,063) |
Balance, March 31, 2022 | 11,553 |  |  | $ | 12 |  |  | $ | 12,834 |  |  | $ | 127 |  |  | $ | 203,051 |  |  | $ | — |  |  | $ | 216,024 |

| Three months ended March 31, 2021
| Number of Shares Issued |  | Common Stock |  | Additional Paid-In Capital |  | Accumulated Other Comprehensive Income |  | Retained Earnings |  | Treasury Stock |  | Total
Balance, December 31, 2020 | 11,822 |  |  | $ | 12 |  |  | $ | 7,842 |  |  | $ | 41 |  |  | $ | 154,351 |  |  | $ | (5,000) |  |  | $ | 157,246 |
Net income | — |  |  | — |  |  | — |  |  | — |  |  | 41,063 |  |  | — |  |  | 41,063 |
Share-based compensation | 13 |  |  | — |  |  | 2,198 |  |  | — |  |  | — |  |  | — |  |  | 2,198 |
Options exercised by executives and directors | 11 |  |  | — |  |  | 481 |  |  | — |  |  | — |  |  | — |  |  | 481 |
Net shares repurchased for taxes | (7) |  |  | — |  |  | (1,807) |  |  | — |  |  | — |  |  | — |  |  | (1,807) |
Treasury stock from stock repurchases | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (7,500) |  |  | (7,500) |
Other comprehensive income | — |  |  | — |  |  | — |  |  | 62 |  |  | — |  |  | — |  |  | 62 |
Cash dividends declared to stockholders | — |  |  | — |  |  | — |  |  | — |  |  | (16,852) |  |  | — |  |  | (16,852) |
Balance, March 31, 2021 | 11,839 |  |  | $ | 12 |  |  | $ | 8,714 |  |  | $ | 103 |  |  | $ | 178,562 |  |  | $ | (12,500) |  |  | $ | 174,891 |

The accompanying notes are an integral part of these condensed consolidated financial statements.
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MEDIFAST, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The accompanying unaudited condensed consolidated financial statements of Medifast, Inc. and its wholly-owned subsidiaries (“Medifast,” the “Company,” “we,” “us,” or “our”) included herein have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, certain information and notes that are normally required by GAAP have been condensed or omitted. However, in the opinion of management, all adjustments consisting of normal, recurring adjustments considered necessary for a fair presentation of the financial position and results of operations have been included and management believes the disclosures that are made are adequate to make the information presented not misleading. The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited consolidated financial statements at that date included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (“2021 Form 10-K”).
The results of operations for the three months ended March 31, 2022 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2022. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the 2021 audited consolidated financial statements and notes thereto, which are included in the 2021 Form 10-K.
Presentation of Financial Statements - The unaudited condensed consolidated financial statements included herein include the accounts of the Company. All significant intercompany accounts and transactions have been eliminated.
Reclassification - Certain amounts reported for prior periods have been reclassified to be consistent with the current period presentation. No reclassification in the condensed consolidated financial statements had a material impact on the presentation.
Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.
Accounting Pronouncements Adopted in 2022
In March 2020, the FASB issued Accounting Standards Update ("ASU") 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying accounting principles under GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met and to other derivative instruments if there is a change to the interest rates used for discounting, margining or contract price alignment. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. We adopted Topic 848 beginning in the first quarter of fiscal 2022 without any material impact on the Company's financial position and results of operations.
2. INVENTORIES
Inventories consist principally of raw materials, non-food finished goods and packaged meal replacements held in the Company’s warehouses and outsourced distribution centers. Inventories are stated at the lower of cost or net realizable value, utilizing the first-in, first-out method. The cost of finished goods includes the cost of raw materials, packaging supplies, direct
7

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and indirect labor and other indirect manufacturing costs. On a quarterly basis, management reviews inventories for unsalable or obsolete inventories.
Inventories consisted of the following (in thousands):

| March 31, 2022 |  | December 31, 2021
Raw materials | $ | 15,340 |  | $ | 15,196
Packaging | 3,640 |  | 3,641
Non-food finished goods | 13,316 |  | 15,991
Finished goods | 161,698 |  | 152,687
Reserve for obsolete inventory | (5,022) |  |  | (7,472) |
Total | $ | 188,972 |  | $ | 180,043

3. EARNINGS PER SHARE
Basic earnings per share (“EPS”) computations are calculated utilizing the weighted average number of shares of the Company’s common stock outstanding during the periods presented. Diluted EPS is calculated utilizing the weighted average number of shares of the Company’s common stock outstanding adjusted for the effect of dilutive common stock equivalents.
The following table sets forth the computation of basic and diluted EPS (in thousands, except per share data):

| Three months ended March 31, |  |
| 2022 |  | 2021 |  |  |  |
Numerator: |  |  |  |  |  |  |
Net income | $ | 41,781 |  |  | $ | 41,063 |  |  |  |  |
Denominator: |  |  |  |  |  |  |
Weighted average shares of common stock outstanding | 11,557 |  |  | 11,772 |  |  |  |  |
Effect of dilutive common stock equivalents | 81 |  |  | 109 |  |  |  |  |
Weighted average shares of common stock outstanding | 11,638 |  |  | 11,881 |  |  |  |  |
Earnings per share - basic | $ | 3.62 |  |  | $ | 3.49 |  |  |  |  |
Earnings per share - diluted | $ | 3.59 |  |  | $ | 3.46 |  |  |  |  |

The calculation of diluted EPS excluded 44 and 267 antidilutive restricted stock awards for the three months ended March 31, 2022 and 2021, respectively.
4. SHARE-BASED COMPENSATION
Stock Options
The Company has issued non-qualified and incentive stock options to employees and non-employee directors. The fair value of these options are estimated on the date of grant using the Black-Scholes option pricing model, which requires estimates of the expected term of the option, the risk-free interest rate, the expected volatility of the price of the Company’s common stock, and dividend yield. Options outstanding as of March 31, 2022 generally vest over a period of three years and expire ten years from the date of grant. The exercise price of these options ranges from $26.52 to $66.68. Due to the Company’s lack of option exercise history on the date of grant, the expected term is calculated using the simplified method defined as the midpoint between the vesting period and the contractual term of each option. The risk free interest rate is based on the U.S. Treasury yield curve in effect on the date of grant that most closely corresponds to the expected term of the option. The expected volatility is based on the historical volatility of the Company’s common stock over the period of time equivalent to the expected
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term for each award. The dividend yield is computed as the annualized dividend rate at the grant date divided by the strike price of the stock option. For the three months ended March 31, 2022 and 2021, the Company did not grant stock options.
The following table is a summary of our stock option activity (in thousands, except per share data):

| Three months ended March 31,
| 2022 |  | 2021
| Awards |  | Weighted-Average Exercise Price |  | Awards |  | Weighted-Average Exercise Price
Outstanding at beginning of period | 32 |  |  | $ | 54.98 |  |  | 61 |  |  | $ | 48.19 |
Exercised | — |  |  | — |  |  | (11) |  |  | 42.62 |
Outstanding at end of the period | 32 |  |  | $ | 54.98 |  |  | 50 |  |  | $ | 49.43 |
Exercisable at end of the period | 28 |  |  | $ | 52.76 |  |  | 41 |  |  | $ | 44.93 |

As of March 31, 2022, the weighted-average remaining contractual life for outstanding stock options was 5.1 years with an aggregate intrinsic value of $3.8 million and the weighted-average remaining contractual life for exercisable stock options was 4.9 years with an aggregate intrinsic value of $3.3 million. The unrecognized compensation expense calculated under the fair value method for stock options expected to vest as of March 31, 2022 was $0.1 million and is expected to be recognized over a weighted-average period of 0.9 year. For the three months ended March 31, 2022, there was no exercise activity of stock options. For the three months ended March 31, 2021, the Company received $0.5 million in cash proceeds from the exercise of stock options. The total intrinsic value for stock options exercised during the three months ended March 31, 2021 was $2.3 million.
Restricted Stock
The Company has issued restricted stock to employees and non-employee directors generally with vesting terms up to five years after the date of grant. The fair value of the restricted stock is equal to the market price of the Company’s common stock on the date of grant. Expense for restricted stock is amortized ratably over the vesting period.
The following table summarizes our restricted stock activity (in thousands, except per share data):

| Three months ended March 31,
| 2022 |  | 2021
| Shares |  | Weighted-Average Grant Date Fair Value |  | Shares |  | Weighted-Average Grant Date Fair Value
Outstanding at beginning of period | 43 |  |  | $ | 183.51 |  |  | 50 |  |  | $ | 116.06 |
Granted | 29 |  |  | 175.66 |  |  | 17 |  |  | 253.03 |
Vested | (18) |  |  | 149.95 |  |  | (14) |  |  | 109.14 |
Outstanding at end of the period | 54 |  |  | $ | 190.20 |  |  | 53 |  |  | $ | 157.80 |

The Company withheld approximately 8,000 and 7,000 shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the vesting of shares of restricted stock for the three months ended March 31, 2022 and 2021, respectively. The total fair value of restricted stock awards vested during the three months ended March 31, 2022 and 2021 was $3.2 million and $3.9 million, respectively.
Market and Performance-based Share Awards
The Company has issued market and performance-based share awards to certain key executives who were granted deferred shares and may earn between 0% and 250% of the target number depending upon both the Company's total stockholder return and the Company's performance against predetermined performance goals over a three-year performance period after the date of grant. Market and performance-based share awards that are tied to the Company’s total stockholder return are valued using the Monte Carlo method and are recognized ratably as expense over the award’s performance period. The fair value of the performance-based share awards is equal to the market price of the Company’s common stock on the date of grant adjusted by
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expected level of achievement over the performance period. Expense for performance-based share awards is amortized ratably over the performance period.
Share-based compensation expense is recorded in selling, general, and administrative expense in the accompanying Condensed Consolidated Statements of Income. The total expenses during the three months ended March 31, 2022 and 2021 are as follows (in thousands):

| Three months ended March 31,
| 2022 |  | 2021
| Shares |  | Share-Based Compensation Expense |  | Shares |  | Share-Based Compensation Expense
Options and restricted stock | 86 |  |  | $ | 1,087 |  |  | 103 |  |  | $ | 938 |
Performance-based share awards granted in 2022 | 25 |  |  | 79 |  |  | — |  |  | — |
Performance-based share awards granted in 2021 | 15 |  |  | 640 |  |  | 14 |  |  | 54 |
Performance-based share awards granted in 2020 | 26 |  |  | 469 |  |  | 28 |  |  | 495 |
Performance-based share awards granted in 2019 | — |  |  | — |  |  | 17 |  |  | 711 |
Total share-based compensation | 152 |  |  | $ | 2,275 |  |  | 162 |  |  | $ | 2,198 |

The total income tax benefit recognized in the accompanying Condensed Consolidated Statements of Income for restricted stock awards was $0.5 million and $1.2 million for the three months ended March 31, 2022 and 2021, respectively.
There was $8.8 million of total unrecognized compensation cost related to restricted stock awards as of March 31, 2022, which is expected to be recognized over a weighted-average period of 2.4 years. There was $11.0 million of unrecognized compensation costs related to the 66,000 performance-based shares discussed above as of March 31, 2022, which is expected to be recognized over a weighted-average period of 2.1 years.
5. LEASES
Operating Leases
The Company has operating leases for office and warehouse space and certain equipment. In certain of the Company’s lease agreements, the rental payments are adjusted periodically based on defined terms within the lease. The Company did not have any finance leases as of March 31, 2022 and 2021, respectively, or for the three-month periods then ended, respectively.
Our leases relating to office and warehouse space have lease terms of 18 months to 126 months. Our leases relating to equipment have lease terms of 24 months to 203 months, with certain of them having automatic renewal clauses.
The Company’s warehouse agreements also contain non-lease components, in the form of payments towards variable logistics services and labor charges, which the Company is obligated to pay based on the services consumed by it. Such amounts are not included in the measurement of the lease liability but are recognized as expenses when they are incurred.
The operating lease expense was $1.8 million and $1.0 million for the three months ended March 31, 2022 and 2021, respectively.
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Supplemental cash flow information related to the Company’s operating leases was as follows (in thousands):

| Three months ended March 31,
| 2022 |  | 2021
Cash paid for amounts included in the measurements of lease liabilities |  |  |
Operating cash flow used in operating leases | $ | 1,756 |  |  | $ | 1,002 |
Right-of-use assets obtained in exchange for lease obligations |  |  |
Operating leases | $ | 103 |  |  | $ | 11 |

As of March 31, 2022, the weighted average remaining lease term was 5.3 years and the weighted average discount rate was 2.1%.
The following table presents the maturity of the Company’s operating lease liabilities as of March 31, 2022 (in thousands):

2022 (excluding the three months ended March 31, 2022) | $ | 5,443 |
2023 | 6,242 |
2024 | 5,693 |
2025 | 5,825 |
2026 | 4,160 |
Thereafter | 5,412 |
Total lease payments | $ | 32,775 |
Less: imputed interest | (1,733) |
Total | $ | 31,042 |

6. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table sets forth the components of accumulated other comprehensive income, net of tax where applicable (in thousands):

| March 31, 2022 |  | December 31, 2021
Foreign currency translation | $ | 120 |  |  | $ | 90 |
Unrealized gains on investment securities | 7 |  |  | 21 |
Accumulated other comprehensive income | $ | 127 |  |  | $ | 111 |

7. FINANCIAL INSTRUMENTS
Certain financial assets and liabilities are accounted for at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy prioritizes the inputs used to measure fair value:
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies.
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Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value from the perspective of a market participant.
The following tables present the Company’s cash and financial assets that are measured at fair value on a recurring basis for each of the hierarchy levels (in thousands):

| March 31, 2022
| Cost |  | Unrealized Gains |  | Accrued Interest |  | Estimated Fair Value |  | Cash & Cash Equivalents |  | Investment Securities
Cash | $ | 107,342 |  |  | $ | — |  |  | $ | — |  |  | $ | 107,342 |  |  | $ | 107,342 |  |  | $ | — |
Level 1: |  |  |  |  |  |  |  |  |  |  |
Money market accounts | 10,661 |  |  | — |  |  | — |  |  | 10,661 |  |  | 10,661 |  |  | — |
Government & agency securities | 1,401 |  |  | 5 |  |  | 8 |  |  | 1,414 |  |  | — |  |  | 1,414 |
| 12,062 |  |  | 5 |  |  | 8 |  |  | 12,075 |  |  | 10,661 |  |  | 1,414 |
Level 2: |  |  |  |  |  |  |  |  |  |  |
Municipal bonds | 2,625 |  |  | 2 |  |  | 16 |  |  | 2,643 |  |  | — |  |  | 2,643 |
Total | $ | 122,029 |  |  | $ | 7 |  |  | $ | 24 |  |  | $ | 122,060 |  |  | $ | 118,003 |  |  | $ | 4,057 |

| December 31, 2021
| Cost |  | Unrealized Gains |  | Accrued Interest |  | Estimated Fair Value |  | Cash & Cash Equivalents |  | Investment Securities
Cash | $ | 94,824 |  |  | $ | — |  |  | $ | — |  |  | $ | 94,824 |  |  | $ | 94,824 |  |  | $ | — |
Level 1: |  |  |  |  |  |  |  |  |  |  |
Money market accounts | 9,359 |  |  | — |  |  | — |  |  | 9,359 |  |  | 9,359 |  |  | — |
Government & agency securities | 1,401 |  |  | 12 |  |  | — |  |  | 1,413 |  |  | — |  |  | 1,413 |
| 10,760 |  |  | 12 |  |  | — |  |  | 10,772 |  |  | 9,359 |  |  | 1,413 |
Level 2: |  |  |  |  |  |  |  |  |  |  |
Municipal bonds | 3,880 |  |  | 9 |  |  | 59 |  |  | 3,948 |  |  | — |  |  | 3,948 |
Total | $ | 109,464 |  |  | $ | 21 |  |  | $ | 59 |  |  | $ | 109,544 |  |  | $ | 104,183 |  |  | $ | 5,361 |

The Company had no realized losses or gains for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the maturities of the Company’s investment securities were less than one year for all the municipal bonds, and government and agency securities.
8. DEBT
Credit Agreement
On April 13, 2021, the Company and certain of its subsidiaries (collectively, the “Guarantors”) entered into a credit agreement (the “Credit Agreement”) among the Company, the Guarantors, the lenders party thereto and Citibank, N.A., in its capacity as
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administrative agent. The Credit Agreement provides for a $125.0 million senior secured revolving credit facility with a $20.0 million letter of credit sub-limit. The Credit Agreement 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 Agreement matures on April 13, 2026.
The Company’s obligations under the Credit Agreement are guaranteed by the Guarantors. The obligations of the Company and the Guarantors are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.
Under the Credit Agreement, the Company will pay to the administrative agent for the account of each revolving lender a commitment fee on a quarterly basis based on amounts committed but unused under the revolving facility from 0.20% to 0.40% per annum depending on the Company’s Total Net Leverage Ratio (as defined in the Credit Agreement). The Company is also obligated to pay the administrative agent customary fees for credit facilities of this size and type.
Revolving borrowings under the Credit Agreement bear interest at a rate per annum equal to (i) the Adjusted LIBOR Rate for the interest period plus the Applicable Rate (as defined in the Credit Agreement) based on the Company’s Total Net Leverage Ratio (with customary provisions under the Credit Agreement providing for the replacement of LIBOR with a successor rate) or (ii) the Alternate Base Rate (as defined in the Credit Agreement) as in effect from time to time plus the Applicable Rate based on the Company’s Total Net Leverage Ratio. As of March 31, 2022, the Applicable Rate for Eurodollar Loans is 1.25% per annum and the Applicable Rate for ABR Loans is 0.25% per annum.
The Credit Agreement contains affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments and change the nature of their businesses. The Credit Agreement also contains customary events of default, subject to thresholds and grace periods, including, among others, payment default, covenant default, cross default to other material indebtedness and judgment default. In addition, the Credit Agreement requires the Company to maintain a Total Net Leverage Ratio of no more than 3.00 to 1.00 and an Interest Coverage Ratio of at least 3.50 to 1.00.
The Company has no borrowings under the Credit Agreement as of March 31, 2022.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
Certain information in this report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 our management 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 2021 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, OPTA VIA®, 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.
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Our OPTA VIA 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 OPTA VIA Coaches: Provide individualized support and guidance to customers on the path to optimal health and wellbeing.
•OPTA VIA 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 products, called “Fuelings,” backed by dietitians, scientists and physicians.
We help customers achieve their health goals through a network of approximately 63,900 independent OPTA VIA Coaches, about 90% of whom were customers first, and have impacted more than 2 million lives to date. OPTA VIA Coaches introduce customers to a set of healthy habits, in most cases starting with the habit of healthy eating, and offer exclusive Fuelings, which 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 customer’s day-to-day lives.
The OPTA VIA coaching model is customer-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. OPTA VIA Coaches provide personalized support to customers and motivate them by sharing their passion for healthy living and lifestyle transformation. We believe this personal coaching is an essential factor in customer success based on findings from a clinical study published in Obesity Science and Practice in 2018, which validated the effectiveness of combining the OPTA VIA meal plan with education and support consistent with that was provided by OPTA VIA Coaches.
The entrepreneurial spirit of our OPTA VIA Coaches is another key to our success, as they create a continuous cycle of growth, activating new customers, many of whom go on to become OPTA VIA Coaches. We offer economic incentives designed to support each OPTA VIA 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
OPTA VIA Coaches are independent contractors, not employees, who support customers and market our products and services primarily through word of mouth, email and social media channels such as Facebook, Instagram, Twitter and video conferencing platforms. As entrepreneurs, OPTA VIA Coaches market our products to friends, family and other acquaintances. OPTA VIA products are shipped directly to OPTA VIA customers who are working with an OPTA VIA Coach. OPTA VIA Coaches do not handle or deliver merchandise to customers. This arrangement frees our OPTA VIA 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 ("U.S."), with a large and growing market opportunity. We believe our coach-based model is scalable and drives both customer success and growth. We expect our continued investment in fostering a robust community around our OPTA VIA brand and our OPTA VIA 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., OPTA VIA, LLC, Jason Enterprises, Inc., Jason Properties, LLC, Medifast Franchise Systems, Inc., Seven Crondall Associates, LLC, Corporate Events, Inc., OPTA VIA (Hong Kong) Limited, OPTA VIA (Singapore) PTE. LTD and OPTA VIA 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
1 OPTA VIA makes no guarantee of financial success. Success with OPTA VIA results from successful sales efforts, which require hard work, diligence, skill, persistence, competence, and leadership. Please see the OPTA VIA Income Disclosure Statement (http://bit.ly/ids OPTA VIA) for statistics on actual earnings of Coaches.
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and consumed in those countries. We outsource a distribution center in Hong Kong to provide 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 U.S. 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. Nutritional supplements and health foods have been designated critical/essential infrastructure in the U.S. As a manufacturer and distributor 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 during the COVID-19 pandemic continue to be protecting the health and safety of our employees and OPTA VIA Coaches, and their families, and we have undertaken numerous steps and instituted additional precautions to protect their safety and well-being, including:
•enhanced safety protocols, limiting visitation to our plant and distribution center and rolling out additional sick leave (crisis pay) for our onsite essential employees;
•through the majority of 2021, our non-essential employees continued to work from home. Effective October 2021, the Company implemented a hybrid work approach which enables our non-essential employees the flexibility to work partially from home and partially from the office;
•established additional health and safety precautions in our headquarters and manufacturing and distribution centers, including use of personal protective equipment and frequent hand sanitization;
•created process controls in relation to social distancing, visitors, travel and quarantine; and
•organized 16 vaccination clinics in partnership with the health department across all our operations.
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 the 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, OPTA VIA Coaches and customers.
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 2 to the audited consolidated financial statements included in the 2021 Form 10-K. We consider all of our significant accounting policies and estimates to be critical. There were no significant changes in our critical accounting policies during the first quarter of 2022.
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
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the circumstances. Actual results may differ from these estimates under different assumptions or conditions. There were no significant changes in our critical estimates during the first quarter of 2022.
Overview of Results of Operations
Our product sales accounted for approximately 98.0% of our revenues for each of the three months ended March 31, 2022 and 2021, respectively.
The following tables reflect our income statements (in thousands, except percentages):

| Three months ended March 31, |  |  |  |
| 2022 |  | 2021 |  | $ Change |  | % Change
Revenue | $ | 417,600 |  |  | $ | 340,669 |  |  | $ | 76,931 |  |  | 22.6 | %
Cost of sales | 115,314 |  |  | 92,122 |  |  | (23,192) |  |  | (25.2)%
Gross profit | 302,286 |  |  | 248,547 |  |  | 53,739 |  |  | 21.6 | %
Selling, general, and administrative | 247,199 |  |  | 195,748 |  |  | (51,451) |  |  | (26.3%)
Income from operations | 55,087 |  |  | 52,799 |  |  | 2,288 |  |  | 4.3 | %
Other (expense) income |  |  |  |  |  |  |
Interest (expense) income | (95) |  |  | 23 |  |  | (118) |  |  | (513.0%)
Other (expense) income | (16) |  |  | 19 |  |  | (35) |  |  | (184.2%)
| (111) |  |  | 42 |  |  | (153) |  |  | (364.3%)
Income from operations before income taxes | 54,976 |  |  | 52,841 |  |  | 2,135 |  |  | 4.0 | %
Provision for income taxes | 13,195 |  |  | 11,778 |  |  | (1,417) |  |  | (12.0%)
Net income | $ | 41,781 |  |  | $ | 41,063 |  |  | $ | 718 |  |  | 1.7 | %
% of revenue |  |  |  |  |  |  |
Gross profit | 72.4 | % |  | 73.0 | % |  |  |  |
Selling, general, and administrative costs | 59.2 | % |  | 57.5 | % |  |  |  |
Income from operations | 13.2 | % |  | 15.5 | % |  |  |  |

Revenue: Revenue increased $76.9 million, or 22.6%, to $417.6 million for the three months ended March 31, 2022 from $340.7 million for the three months ended March 31, 2021. The average revenue per active earning OPTA VIA Coach was $6,536 for the three months ended March 31, 2022 compared to $6,454 for the three months ended March 31, 2021. Increase in the productivity per active earning OPTA VIA Coach for the quarter was driven by an increase in both the number of customers supported by each Coach as well as an increase in average customer spend. The year-over-year growth in revenue was primarily driven by the increase in the number of active earning OPTA VIA Coaches and in the productivity per active earning OPTA VIA Coach.
Cost of sales: Cost of sales increased $23.2 million, or 25.2%, to $115.3 million for the three months ended March 31, 2022 from $92.1 million for the three months ended March 31, 2021. The increase in cost of sales was primarily driven by an increase in OPTA VIA product sales and higher product costs and shipping costs resulting from inflation in raw ingredient costs, and freight and labor costs. In addition, a cceleration of demand for OPTA VIA-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 March 31, 2022, gross profit increased $53.8 million, or 21.6%, to $302.3 million from $248.5 million for the three months ended March 31, 2021. The increase in gross profit was primarily attributable to
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higher revenue partially offset by increased cost of sales. As a percentage of revenue, gross profit decreased 60 basis points to 72.4% for 2022 from 73.0% for 2021. The decrease in gross margin percentage for the quarter was primarily due to a customer acquisition program and higher product and shipping costs resulting from inflation in raw ingredient costs, and freight and labor costs.
Selling, general, and administrative: Selling, general, and administrative (“SG&A”) expenses were $247.2 million for the three months ended March 31, 2022, an increase of $51.5 million, or 26.3%, as compared to $195.7 million from the corresponding period in 2021. As a percentage of revenue, SG&A expenses were 59.2% for the three months ended March 31, 2022 as compared to 57.5% for the corresponding period in 2021. The increase in SG&A expenses for the three months ended March 31, 2022 was primarily due to higher OPTA VIA Coach compensation expense, increased salaries and benefits-related expenses for employees, incremental costs related to continued investment in information technology and distribution infrastructure, as well as the increased credit card fees resulting from higher sales. SG&A expenses included research and development costs of $0.9 million and $1.0 million for the three months ended March 31, 2022 and 2021, respectively, in connection with the development of new products and programs and clinical research activities.
OPTA VIA Coach compensation expense, which is a variable expense, increased $36.8 million, or 25.2%, to $183.0 million for the three months ended March 31, 2022 from $146.2 million for the corresponding period in 2021. The increase was primarily the result of increased OPTA VIA product sales. The total number of active earning OPTA VIA Coaches for the three months ended March 31, 2022 increased to 63,900 from 52,500 for the corresponding period in 2021, an increase of 21.7%.
Income from operations: For the three months ended March 31, 2022, income from operations increased $2.3 million to $55.1 million from $52.8 million for the corresponding period in 2021 primarily as a result of increased gross profit partially offset by increased SG&A expenses. Income from operations as a percentage of revenue decreased to 13.2% for the three months ended March 31, 2022 from 15.5% for the corresponding period in 2021 due to the factors described above impacting gross profit and SG&A expenses.
Provision for income taxes: For the three months ended March 31, 2022, the Company recorded $13.2 million in income tax expense, an effective tax rate of 24.0%, as compared to $11.8 million in income tax expense, an effective tax rate of 22.3%, for the three months ended March 31, 2021. The increase in the effective tax rate for the three months ended March 31, 2022 was primarily driven by a decrease in the tax benefit of stock compensation and other items as well as an increase in the state income tax rate.
Net income: Net income was $41.8 million, or $3.59 per diluted share, for the three months ended March 31, 2022 as compared to $41.1 million, or $3.46 per diluted share, for the three months ended March 31, 2021. The period-over-period changes were driven by the factors described above impacting gross profit and SG&A expenses.
Liquidity and Capital Resources
The Company had stockholders’ equity of $216.0 million and working capital of $143.2 million at March 31, 2022 as compared with $202.5 million and $137.0 million at December 31, 2021, respectively. The $13.5 million net increase in stockholders’ equity reflects $41.8 million in net income for the three months ended March 31, 2022 offset by $10.0 million spent on repurchases of the Company’s common stock and $19.1 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 this report. The Company declared a quarterly dividend of $1.64 per share on March 17, 2022, to stockholders of record as of March 29, 2022 that will be paid in the second quarter of 2022. 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 $109.5 million at December 31, 2021 to $122.1 million at March 31, 2022.
Net cash provided by operating activities decreased by $21.6 million to $43.7 million for the three months ended March 31, 2022 from $65.3 million for the three months ended March 31, 2021 primarily driven by a $22.2 million decrease in accounts payable and accrued expenses and a $6.6 million decrease in other assets partially offset by a $3.4 million increase in prepaid expenses and other current assets, a $1.3 million increase in depreciation and amortization, a $0.9 million increase in prepaid income taxes and a $0.7 million increase in net income. We continued to expand our cloud computing technology capabilities to support our planned growth during the three months ended March 31, 2022.
Net cash used in investing activities was $1.8 million for the three months ended March 31, 2022 as compared to $0.9 million for the three months ended March 31, 2021.
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Net cash used in financing activities increased by $5.9 million to $28.1 million for the three months ended March 31, 2022 from $22.2 million for the three months ended March 31, 2021. This increase was primarily due to a $2.5 million increase in stock repurchases and a $3.3 million increase in cash dividends paid to stockholders.
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.
From time to time the Company evaluates potential acquisitions that complement our business. If consummated, any such transactions may use a portion of our working capital or require the issuance of equity or debt. We have no present understandings, commitments or agreements with respect to any material acquisitions.
On April 13, 2021, the Company entered into a credit agreement, 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 March 31, 2022, the Company was in compliance with all of its debt covenants and there were no borrowings outstanding under the credit facility.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates and a decline in the stock market. The Company does not enter into derivatives, foreign exchange transactions or other financial instruments for trading or speculative purposes.
The Company is exposed to market risk related to changes in interest rates and market pricing impacting our investment portfolio. Its current investment policy is to maintain an investment portfolio consisting of municipal bonds and U.S. money market securities directly or through managed funds. Its cash is deposited in and invested through highly rated financial institutions in North America. Its marketable securities are subject to interest rate risk and market pricing risk and will fall in value if market interest rates increase or if market pricing decreases. If market interest rates were to increase and market pricing were to decrease immediately and uniformly by 10% from levels at March 31, 2022, the Company estimates that the fair value of its investment portfolio would decline by an immaterial amount and therefore it would not expect its operating results or cash flows to be affected to any significant degree by the effect of a change in market conditions on our investments.
There have been no material changes to our market risk exposure since December 31, 2021.
Item 4. Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of March 31, 2022. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and on a timely basis. Based on this evaluation performed in accordance with the criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, our management concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Act) during the fiscal quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Part II Other Information
Item 1. Legal Proceedings
The Company is, from time to time, subject to a variety of litigation and similar proceedings that arise out of the ordinary course of its business. Based upon the Company’s experience, current information and applicable law, it does not believe that these proceedings and claims will have a material adverse effect on its results of operations, financial position or liquidity. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.
Item 1A. Risk Factors
There have been no material changes to the risk factors set forth in Part I, Item 1A of the 2021 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities

2022 |  | Total Number of Shares Purchased (1) |  | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program |  | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2)
January 1 - January 31 |  | 41,864 |  |  | $ | 199.48 |  |  | 41,864 |  |  | 2,042,616
February 1 - February 28 |  | 14,647 |  |  | 186.10 |  |  | 8,600 |  |  | 2,034,016
March 1 - March 31 |  | 2,166 |  |  | 180.52 |  |  | — |  |  | 2,034,016

(1)Also included are shares of common stock surrendered by employees and directors to the Company to cover minimum tax liability withholding obligations upon the exercise of stock options or the vesting of shares of restricted stock previously granted to such employees and directors.
(2)At the outset of the quarter ended March 31, 2022, there were 2,084,480 shares of the Company's common stock eligible for repurchase under the stock repurchase authorization dated September 16, 2014 (the "Stock Repurchase Plan").
As of March 31, 2022, there were 2,034,016 shares of the Company’s common stock eligible for repurchase under the Stock Repurchase Plan. There can be no assurances as to the amount, timing or prices of repurchases, which may vary based on market conditions and other factors. The Stock Repurchase Plan does not have an expiration date and can be modified or terminated by the Board of Directors at any time.
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Item 6. Exhibits

Exhibit Number |  | Description of Exhibit
3.1 |  | Restated and Amended Certificate of Incorporation of Medifast, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K (File No. 001-31573) filed February 27, 2015).
3.2 |  | Amended and Restated Bylaws of Medifast, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Amendment No. 1 Current Report on Form 8-K (File No. 001-31573) filed on December 4, 2019).
10.1 |  | Medifast, Inc. Amended and Restated 2012 Share Incentive Plan Grant Notice Perfo rmance Share Units (filed herewith).
10.2 |  | Medifast, Inc. Amended and Restated 2012 Share Incentive Plan Grant Notice Nonemployee Director Deferred Shares (filed herewith).
10.3 |  | Medifast, Inc. Amended and Restated 2012 Share Incentive Plan Grant Notice Employee Deferred Share s (filed herewith).
10.4 |  | Medifast, Inc. Amended and Restated 2012 Share Incentive Plan Grant Notice Nonemployee Director Deferred Share Cash Equivalent (filed herewith).
31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1 |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 |  | The following financial statements from Medifast, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 filed May 2, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Income, (ii) Condensed Consolidated Statements of Comprehensive Income, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Changes in Stockholders’ Equity, and (vi) Notes to the Condensed Consolidated Financial Statements (filed herewith).
104 |  | Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

In accordance with SEC Release No. 33-8238, Exhibit 32.1 is being furnished and not filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Medifast, Inc.

By: | /s/ DANIEL R. CHARD |
| Daniel R. Chard |
| Chief Executive Officer |
| (Principal Executive Officer) |
Dated: | May 2, 2022 |
| /s/ JAMES P. MALONEY |
| James P. Maloney |
| Chief Financial Officer |
| (Principal Financial Officer) |
Dated: | May 2, 2022 |

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