UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

☐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)

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 ⌧ No ◻

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 ⌧ No ◻

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. ☐

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ⌧

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

Preferred Stock Purchase Rights

MED

New York Stock Exchange

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 July 30, 2020 was 11,765,496.

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Medifast, Inc. and subsidiaries

Index


Part 1 – Financial Information



Item 1 – Financial Statements


Condensed Consolidated Statements of Income (unaudited) for the Three and Six Months Ended June 30, 2020 and 2019		2

Condensed Consolidated Statements of Comprehensive Income (unaudited) for the Three and Six Months Ended June 30, 2020 and 2019		3

Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2020 and December 31, 2019		4

Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2020 and 2019		5

Condensed Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2020 and 2019		6

Notes to Condensed Consolidated Financial Statements (unaudited)		7

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations		14

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		22

Item 4 – Controls and Procedures		22

Part II – Other Information

Item 1 – Legal Proceedings		23

Item 1A – Risk Factors		23

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		23

Item 6 – Exhibits		24

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MEDIFAST, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts & dividend data)


	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019

Revenue	$	219,999	$	187,103	$	398,460	$	352,979
Cost of sales		60,699		46,393		103,920		87,122
Gross profit		159,300		140,710		294,540		265,857

Selling, general, and administrative		131,201		113,355		242,908		213,787

Income from operations		28,099		27,355		51,632		52,070

Other income
Interest income, net		58		425		168		737
Other income (expense)		1		(2)		(18)		(8)
		59		423		150		729

Income from operations before income taxes		28,158		27,778		51,782		52,799

Provision for income taxes		6,223		6,395		11,370		10,666

Net income	$	21,935	$	21,383	$	40,412	$	42,133

Earnings per share - basic	$	1.86	$	1.80	$	3.43	$	3.55

Earnings per share - diluted	$	1.86	$	1.75	$	3.42	$	3.45

Weighted average shares outstanding
Basic		11,777		11,861		11,774		11,870
Diluted		11,821		12,218		11,822		12,229

Cash dividends declared per share	$	1.13	$	0.75	$	2.26	$	1.50

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)

(in thousands)


	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019

Net income	$	21,935	$	21,383	$	40,412	$	42,133
Other comprehensive income, net of tax:
Foreign currency translation		2		-		(2)		1
Unrealized gains on investment securities		27		102		76		228

Other comprehensive income		29		102		74		229

Comprehensive income	$	21,964	$	21,485	$	40,486	$	42,362

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)

(in thousands, except par value)


		June 30,		December 31,
		2020		2019

ASSETS
Current Assets
Cash and cash equivalents	$	130,828	$	76,974
Accounts receivable-net of doubtful accounts of $61 and $235 at
June 30, 2020 and December 31, 2019, respectively		836		1,437
Inventories		38,580		48,771
Investment securities		14,564		15,704
Income taxes, prepaid		-		5,169
Prepaid expenses and other current assets		6,437		6,096
Total current assets		191,245		154,151

Property, plant and equipment - net of accumulated depreciation		24,574		26,039
Right-of-use assets		11,362		12,803
Other assets		2,833		353
Deferred tax assets		2,071		1,307


TOTAL ASSETS	$	232,085	$	194,653

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	103,335	$	76,220
Current lease obligations		3,270		3,168
Total current liabilities		106,605		79,388

Lease obligations, less current lease obligations		8,744		10,433
Total liabilities		115,349		89,821

Stockholders' Equity
Common stock, par value $.001 per share: 20,000 shares authorized;
11,806 and 12,272 issued and 11,756 and 11,764 outstanding
at June 30, 2020 and December 31, 2019, respectively		12		12
Additional paid-in capital		2,871		-
Accumulated other comprehensive income		99		25
Retained earnings		118,754		168,788
Less: Treasury stock at cost, 46 and 489 shares at June 30, 2020 and December 31, 2019, respectively		(5,000)		(63,993)
Total stockholders' equity		116,736		104,832

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	232,085	$	194,653

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 CASH FLOWS (UNAUDITED)

(in thousands)


	Six months ended June 30,
	2020		2019

Operating Activities
Net income	$	40,412	$	42,133
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization		3,481		3,288
Share-based compensation		2,117		2,245
Loss on sale of disposal of property, plant and equipment		-		17
Amortization of premium on investment securities		182		249
Deferred income taxes		(764)		375
Change in operating assets and liabilities:
Accounts receivable		601		33
Inventories		10,191		(9,585)
Income taxes, prepaid		5,169		(1,365)
Prepaid expenses and other current assets		(341)		(3,052)
Other assets		(2,446)		43
Accounts payable and accrued expenses		25,651		12,831
Net cash flow provided by operating activities		84,253		47,212

Investing Activities
Sale and maturities of investment securities		1,000		2,430
Purchase of property and equipment		(583)		(6,972)
Net cash flow provided by (used in) investing activities		417		(4,542)

Financing Activities
Options exercised by executives and directors		1,250		279
Net shares repurchased for employee taxes		(496)		(256)
Cash dividends paid to stockholders		(26,568)		(17,749)
Stock repurchases		(5,000)		(9,998)
Net cash flow used in financing activities		(30,814)		(27,724)

Foreign currency impact		(2)		1

Increase in cash and cash equivalents		53,854		14,947
Cash and cash equivalents - beginning of the period		76,974		81,364
Cash and cash equivalents - end of period	$	130,828	$	96,311

Supplemental disclosure of cash flow information:
Income taxes paid	$	120	$	11,338
Dividends declared included in accounts payable	$	13,604	$	9,102

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)

(in thousands)


	Six months ended June 30, 2020
	Number of Shares Issued		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income		Retained Earnings		Treasury Stock		Total

Balance, December 31, 2019	12,272	$	12	$	-	$	25	$	168,788	$	(63,993)	$	104,832
Net income	-		-		-		-		18,477		-		18,477
Share-based compensation	7		-		981		-		-		-		981
Net shares repurchased for employee taxes	(5)		-		(487)		-		-		-		(487)
Treasury stock retired from stock repurchases	(489)		-		-		-		(63,993)		63,993		-
Other comprehensive income	-		-		-		45		-		-		45
Cash dividends declared to stockholders	-		-		-		-		(13,099)		-		(13,099)

Balance, March 31, 2020	11,785		12		494		70		110,173		-		110,749
Net income	-		-		-		-		21,935		-		21,935
Share-based compensation	-		-		1,136		-		-		-		1,136
Options exercised by executives and directors	21		-		1,250		-		-		-		1,250
Net shares repurchased for employee taxes	-		-		(9)		-		-		-		(9)
Other comprehensive income	-		-		-		29		-		-		29
Treasury stock from stock repurchases	-		-		-		-		-		(5,000)		(5,000)
Cash dividends declared to stockholders	-		-		-		-		(13,354)		-		(13,354)

Balance, June 30, 2020	11,806	$	12	$	2,871	$	99	$	118,754	$	(5,000)	$	116,736


	Six months ended June 30, 2019
	Number of Shares Issued		Common Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Treasury Stock		Total

Balance, December 31, 2018	12,117	$	12	$	8,802	$	(173)	$	131,344	$	(30,879)	$	109,106
Net income	-		-		-		-		20,750		-		20,750
Share-based compensation	-		-		990		-		-		-		990
Options exercised by executives and directors	10		-		269		-		-		-		269
Net shares repurchased for employee taxes	(1)		-		(256)		-		-		-		(256)
Other comprehensive income	-		-		-		127		-		-		127
Cash dividends declared to stockholders	-		-		-		-		(8,918)		-		(8,918)

Balance, March 31, 2019	12,126		12		9,805		(46)		143,176		(30,879)		122,068
Net income	-		-		-		-		21,383		-		21,383
Share-based compensation	-		-		1,255		-		-		-		1,255
Options exercised by executives and directors	-		-		10		-		-		-		10
Other comprehensive income	-		-		-		102		-		-		102
Treasury stock from stock repurchases	-		-		-		-		-		(9,998)		(9,998)
Cash dividends declared to stockholders	-		-		-		-		(8,797)		-		(8,797)

Balance, June 30, 2019	12,126	$	12	$	11,070	$	56	$	155,762	$	(40,877)	$	126,023

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 (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, 2019 has been derived from the audited consolidated financial statements at that date.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of results that may be expected for the fiscal year ending December 31, 2020. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the 2019 audited consolidated financial statements and notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (“2019 Form 10-K”).

Presentation of Financial Statements - The unaudited condensed consolidated financial statements included herein include the accounts of Medifast, Inc. and its wholly-owned subsidiaries. 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 2020

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40), which addresses the accounting for implementation costs associated with a hosted service. The standard provides amendments to align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license).

On January 1, 2020, the Company adopted ASU 2018-15. The Company capitalized $1.9 million during the quarter ended March 31, 2020 as a result of adoption, principally related to the configuration and development of the Company’s new hosted enterprise resource planning tool (“ERP”). The Company capitalized $2.6 million in total for the six months ended June 30, 2020.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which institutes a new model for recognizing credit losses on financial instruments that are not measured at fair value. On January 1, 2020, the Company adopted ASU 2016-13. There was no material impact on the Company's condensed consolidated financial statements.

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Recently Issued Accounting Pronouncements –Pending Adoption

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and foreign subsidiaries. The standard also simplifies aspects of accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Management has determined the effect that the provisions of ASU 2019-12 will have on the Company’s condensed consolidated financial statements is immaterial.

2. INVENTORIES

Inventories consist principally of packaged meal replacements held in the Company’s warehouses. Inventory is 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 and indirect labor and other indirect manufacturing costs. On a quarterly basis, management reviews inventory for unsalable or obsolete inventory.

Inventories consisted of the following (in thousands):


	June 30, 2020		December 31, 2019

Raw materials	$	9,168	$	10,880
Packaging		2,246		4,109
Non-food finished goods		4,514		4,421
Finished goods		24,580		31,314
Reserve for obsolete inventory		(1,928)		(1,953)
Total	$	38,580	$	48,771

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.

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The following table sets forth the computation of basic and diluted EPS (in thousands, except per share data):


	Three months ended June 30,				Six months ended June 30,
	2020		2019		2020		2019

Numerator:
Net income	$	21,935	$	21,383	$	40,412	$	42,133

Denominator:
Weighted average shares of common stock outstanding		11,777		11,861		11,774		11,870
Effect of dilutive common stock equivalents		44		357		48		359
Weighted average shares of common stock outstanding		11,821		12,218		11,822		12,229

Earnings per share - basic	$	1.86	$	1.80	$	3.43	$	3.55

Earnings per share - diluted	$	1.86	$	1.75	$	3.42	$	3.45

The calculation of diluted EPS excluded 934 and 611 antidilutive options outstanding for the three months ended June 30, 2020 and 2019, respectively, and 965 and 752 antidilutive options outstanding for the six months ended June 30, 2020 and 2019, respectively. The calculation of diluted EPS also excluded 5,774 and 350 antidilutive restricted stock awards for the three months ended June 30, 2020 and 2019, respectively, and 10,626 and 705 antidilutive restricted stock awards for the six months ended June 30, 2020 and 2019, respectively. EPS is computed independently for each of the periods presented above, and accordingly, the sum of the quarterly earnings per common share may not equal the year-to-date total computed.

4. SHARE-BASED COMPENSATION

Stock Options

The Company has issued non-qualified and incentive stock options to employees and nonemployee 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 June 30, 2020, 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 $171.68. Due to the Company’s lack of option exercise history, 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 term for each award. For the six months ended June 30, 2020 and 2019, the Company did not grant stock options.

The following table is a summary of our stock option activity:


	Six months ended June 30,
	2020			2019
	Awards	Weighted-Average Exercise Price		Awards	Weighted-Average Exercise Price
(awards in thousands)
Outstanding at beginning of period	97	$	52.53	107	$	49.26
Exercised	(21)		57.91	(10)		28.21
Forfeited	(6)		68.84	-		-
Outstanding at end of the period	70	$	49.36	97	$	52.53
Exercisable at end of the period	51	$	42.15	52	$	40.96

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As of June 30, 2020, the weighted-average remaining contractual life for outstanding stock options was 6.3 years with an aggregate intrinsic value of $6.3 million and the weighted-average remaining contractual life for exercisable stock options was 5.8 years with an aggregate intrinsic value of $4.9 million. The unrecognized compensation expense calculated under the fair value method for stock options expected to vest as of June 30, 2020 was $0.3 million and is expected to be recognized over a weighted average period of 2.3 years. For the six months ended June 30, 2020, the Company received $1.3 million in cash proceeds from the exercise of stock options. The total intrinsic value for stock options exercised during the six months ended June 30, 2020 was $0.9 million. For the six months ended June 30, 2019, the Company received $0.3 million in cash proceeds from the exercise of stock options. The total intrinsic value for stock options exercised during the six months ended June 30, 2019 was $1.0 million.

Restricted Stock

The Company has issued restricted stock to employees and nonemployee 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:


	Six months ended June 30,
	2020			2019
	Shares	Weighted-Average Grant Date Fair Value		Shares	Weighted-Average Grant Date Fair Value
(shares in thousands)
Outstanding at beginning of period	46	$	98.28	57	$	50.55
Granted	41		111.94	28		130.89
Vested	(29)		82.99	(31)		45.30
Forfeited	(4)		107.50	(2)		167.48
Outstanding at end of the period	54	$	116.00	52	$	92.36

The Company withheld 0.0 million shares of the Company’s common stock to cover minimum tax liability withholding obligations upon the vesting of shares of restricted stock for the six months ended June 30, 2020 and 2019. The total fair value of restricted stock awards vested during the six months ended June 30, 2020 and 2019 was $3.2 million and $4.0 million, respectively.

The total share-based compensation charged against income was $1.1 and $1.3 million during the three months ended June 30, 2020 and 2019, respectively, and $2.1 million and $2.2 million during the six months ended June 30, 2020 and 2019, respectively. The total costs of the options and restricted stock awards charged against income was $0.7 million and $0.8 million during the three months ended June 30, 2020 and 2019, respectively, and $1.5 million during the six months ended June 30, 2020 and 2019. Included for the three and six months ended June 30, 2020 was $0.2 million and $0.3 million, respectively, for 15,821 performance-based contingent shares and for the three and six months ended June 30, 2019 was $0.2 million and $0.3 million, respectively, for 17,780 performance-based contingent shares for certain key executives granted in 2019. Also included for the three and six months ended June 30, 2020 was $0.2 million and $0.3 million for 25,531 performance-based contingent shares for certain key executives granted in 2020. Additionally, included for the three and six months ended June 30, 2019 was $0.1 million and $0.2 million, respectively, for 63,300 performance-based deferred shares for certain key executives, and $0.2 million and $0.3 million, respectively, for 210,000 performance-based contingent shares granted to our Chief Executive Officer. These 273,300 performance-based shares were fully vested on December 31, 2019.

The total income tax benefit recognized in the Condensed Consolidated Statements of Income for restricted stock awards was $0.5 million and $0.4 million for the three months ended June 30, 2020 and 2019, respectively, and was $0.7 million and $1.2 million for the six months ended June 30, 2020 and 2019, respectively.

There was $5.6 million of total unrecognized compensation cost related to restricted stock awards as of June 30, 2020, which is expected to be recognized over a weighted-average period of 1.9 years. There was $3.4 million of unrecognized compensation cost related to the 41,352 performance-based shares discussed above as of June 30, 2020, which is expected to be recognized over 2.2 years.

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5. LEASES AND CONTINGENCIES

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 June 30, 2020 and 2019, respectively, or for the six-month periods then ended, respectively.

Our leases relating to office and warehouse space have terms of 36 months to 122 months. Our leases relating to equipment have lease terms of 60 to 203 months, with some of them having clauses relating to automatic renewal.

The Company’s warehouse agreement also contains 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 will be recognized as expense when they are incurred.

The operating lease expense was $0.9 million and $0.7 million for the three months ended June 30, 2020 and 2019, respectively, and was $1.7 million and $1.4 million for the six months ended June 30, 2020 and 2019, respectively.

Supplemental cash flow information related to the Company’s operating leases were as follows (in thousands):


	Six months ended June 30,
	2020		2019

Cash paid for amounts included in the measurements of lease liabilities
Operating cash flow used in operating leases	$	1,814	$	1,392

Right-of-use assets obtained in exchange for lease obligations
Operating leases	$	-	$	1,490

As of June 30, 2020, the weighted average remaining lease term was 4.1 years and the weighted average discount rate was 3.7%.

The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2020 (in thousands):


2020 (excluding the six months ended June 30, 2020)	$	1,822
2021		3,670
2022		3,154
2023		1,665
2024		1,234
Thereafter		1,452
Total lease payments	$	12,997
Less: imputed interest		(983)
Total	$	12,014

Other Contingencies

On or about April 30, 2020, the Company became aware that one of its products contained an undeclared milk allergen in the product. The sale of this product occurred during the first quarter of 2020 and the first part of the second quarter of 2020. The Company has completed a voluntary recall of the specific lots of this product that were impacted and notified the U.S. Food and Drug Administration, as required. The Company has considered the impact of the recall to our six-month period ended June 30, 2020 to be immaterial to the financial statements. As of June 30, 2020, the Company has concluded the recall program and responded to all government requests. The Company does not expect any significant future financial impact to result from this matter.

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6. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table sets forth the components of accumulated other comprehensive income, net of tax where applicable (in thousands):