Medifast Inc (MED) 2009 Q1 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Medifast first-quarter 2009 financial results conference call.

At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Brendan Connors, Vice President of Finance for Medifast, Inc. Thank you, Mr. Connors. You may begin.

Thank you very much. Good morning. My name is Brendan Connors and I am Medifast VP of Finance. I am joined today by Michael McDevitt, our CEO and CFO. I would like to welcome you to Medifast's first-quarter call for the period ended March 31, 2009.

Before we begin, I would like to have Mr. Robert Blum from Lytham Partners read the following statement.

Thank you, Brendan.

The Company invokes the protections of the Private Securities Litigation Reform Act of 1995 regarding any statements made during this call and memorializing any or all transcriptions thereof that may be forward-looking statements. The Company specifically disclaims the authenticity of any transcription other than the transcription created by its conference call vendor.

The words believe, expects, anticipates, and other similar expressions generally identify forward-looking statements. Participants on this call are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their date. Similarly, descriptions of Medifast objectives, strategies, plans, goals or targets contained herein are also considered forward-looking statements.

Medifast believes this call should be considered in conjunction with all of its filings with the United States Securities and Exchange Commission and cautions its listeners that these forward-looking statements are subject to certain events, risks, uncertainties and other factors. Some of these factors include, among others, Medifast's inability to attract and retain independent associates and members; stability in the pricing of print, TV and direct mail marketing initiatives affecting the cost to acquire customers; increases in competition; litigation; regulatory changes; and its planned growth into new domestic and international markets and new channels of distribution.

Although Medifast believes that the expectations, statements and assumptions reflected in these forward-looking statements are reasonable, it cautions listeners to always consider all of the risk factors and any other cautionary statements carefully in evaluating each forward-looking statement during this call, as well as those set forth in its latest annual report on Form 10-K and quarterly report on Form 10-Q and other filings filed with the United States Securities and Exchange Commission, including its current reports on Form 8-K.

Medifast does not comment on issues or items currently or potentially in litigation with adversarial third parties and/or under investigation by appropriate regulatory or law enforcement agencies of the state or federal government.

All of the forward-looking statements contained herein speak only as of the date of this call.

With that, now I would like to turn the call over to Mr. Brendan Connors, VP of Finance for Medifast, to go over the financial results. Brendan?

Thank you very much, Robert.

For the three months ended March 31, 2009, Medifast reported revenue of $33.7 million versus $25.2 million for the same period in 2008, representing an increase of 34%. Take Shape For Life sales channel accounted for 56% of total revenue. Direct marketing accounted for 33%; Medifast Weight Control Centers, 9%; and Doctors Wholesale, 2%.

Take Shape For Life sales, which are composed of product sales to customers supported by our health coaches, increased by 92% compared to the first quarter of 2008. As compared to the first quarter of 2008, the direct response sales channel revenues decreased by 13%. However, the advertising dollars spent were 17% less than the first quarter of 2008, as the Company continues to focus on more effective advertising spend.

The Company's Medifast Weight Control Centers division increased sales by 72% due to an increase in same-store sales, the opening of new corporate centers throughout 2008, as well as the introduction of the new franchise model.

The Company had selling, general and administrative expenses of $21.6 million in the first quarter of 2009, which was an increase of $4.6 million from the same period in the prior year. As a percentage of sales, selling, general and administrative expenses decreased to 64.2% versus 67.6% in the first quarter of 2008, or 340 basis points. The largest dollar value increases in SG&A expense were attributed to increased Take Shape for Life commission expense that is directly related to sales, personnel expense, and other expenses that include items such as depreciation, amortization, and credit card processing fees. These increases in SG&A were offset by a decrease in advertising expense during the first quarter of 2009 compared to the first quarter of 2008.

Take Shape For Life commission expense, which is directly related to sales growth, increased by $3.8 million, as compared to the first quarter of 2008, due to the 92% increase in sales.

Salaries and benefits increased by approximately $700,000 as compared to the first quarter of 2008. The increase includes the hiring of additional expertise in critical areas such as Take Shape for Life and the Medifast Weight Control Centers in the second half of 2008, which have greatly impacted revenue growth in 2009.

In addition, the opening of eight new corporately-owned clinics in the Houston, Texas market and two in the Dallas, Texas market also required the hiring of additional center managers and support staff.

Other expenses, which include items such as credit card processing fees, depreciation and amortization, increased by $250,000 as compared to the first quarter of 2008.

In the first quarter of 2009, advertising expense decreased by $900,000 from approximately $5.2 million in the first quarter of 2008 to $4.3 million in the first quarter of 2009.

In the first quarter of 2009, the Company experienced improvement in its gross margin as a percentage of sales to 76.1% from 75.8% in the first quarter of 2008. The margin improvement is reflective of the addition of efficient new machinery and process improvements achieved in our vertically integrated business model.

In the first quarter of 2009, the Company reported net income of $2.5 million, or $0.17 per diluted share, compared to $1.4 million or $0.10 per diluted share for the first quarter of 2008, an increase of 70%.

Pretax profit, as a percent of sales, increased to 11.8% in the first quarter of 2009 as compared to 8.1% in the first quarter of 2008. Improved profitability in the first quarter of 2009 is due to sales growth in the Take Shape for Life division and Medifast Weight Control Centers, as well as improved advertising effectiveness in the Medifast direct marketing sales channel, gross margin improvement, as well as leveraging the fixed costs associated with our vertically integrated support structure. The first quarter of 2009 represented the Company's 38th consecutive quarter of profitability.

The Company's balance sheet remains strong with stockholders equity of $41 million and working capital of $15.9 million at March 31, 2009, compared to $33.7 million and $9.8 million at March 31, 2008 respectively. The Company's cash and cash equivalents balance increased by $4.5 million to end the quarter with $6.3 million. As of March 31, 2009, the Company had an impressive 2.9-to-1 current ratio, and 1.4-to-1 quick ratio. In addition, the Company had $4.3 million in funds available on its line of credit at the end of the first quarter.

The Company has invested heavily in the past few years on capital expenditures such as new IT systems and infrastructure, clinic build-outs, phone systems, new machinery. While there will always be costs associated with maintaining and improving our infrastructure, in 2009, the Company has reduced CapEx as the Company focuses on generating more free cash flow for the business. In the first quarter of 2009, the Company generated $4.5 million in free cash flow as a result of increased sales, improvements in inventory, and a decrease in CapEx spend.

Now, I would like to turn the call over to Michael McDevitt, Medifast's CEO.

Thank you, Brendan.

The first quarter of 2009 was a tremendous quarter for Medifast. During the quarter, we saw record revenues, record net income and EPS, strong growth in all of our active health coaches, improvement in our direct response revenue-to-spend metric, growth in same-store sales for our clinics, and continued improvements in our gross margins.

As we have discussed on recent calls, we believe that we are a medical weight loss company rooted in 30 years of clinical research which, due to our multichannel marketing and support strategy, is witnessing significant growth in the Medifast brand awareness as we continue to improve and enhance our marketing and training capabilities.

Our belief is that we are still in the very early stages of reaching the more than 75 million Americans that are actively seeking a weight loss program that will produce the results that they desire and in a safe and effective manner.

As I mentioned, revenues during the quarter were an all-time record of $33.7 million, an increase of 34% compared to a year ago. More importantly, our diluted earnings per share growth outpaced our revenue growth substantially with earnings of $0.17 for the quarter or a 70% increase over the first quarter of 2008.

We are especially pleased that the performance of Medifast this quarter was not driven strictly by the growth of one segment but by the growth and/or improvement of each of our segments -- Take Shape for Life, Medifast Direct, and Medifast Weight Control Centers. Our success during the first quarter, especially in light of the macro economic environment, leads us to believe that 2009 will be an extremely strong year for Medifast.

First off, let me discuss the results of our Direct Sales segment, Take Shape for Life. To the many new individuals that are following Medifast, let me remind you that Take Shape for Life is our physician-led network of health coaches, many of whom have had personal weight loss success on the Medifast program and who have chosen to use their newly learned behaviors to coach others with the same needs and for this receive financial compensation for the valuable services they render to their clients to help them adhere to the Medifast program.

Revenues during the quarter increased 92% to $18.9 million. The growth in product sales is a result of increased customers on the program driven by the increases in active health coaches. We ended the quarter with approximately 4000 active health coaches, an increase of 1800 or 82% compared with the first quarter of 2008 and up 600 from just three months prior. As we have discussed in the past, growth in active health coaches leads to growth in customers, which leads to growth in product sales. The average health coach is currently producing an estimated $1600 a month in product sales for the Company and from these sales earns an estimated $600 a month in compensation income -- which in these current economic times, extra income of several hundred dollars a month can mean a lot for many families.

As I mentioned, Take Shape for Life is a physician-led network of independent health coaches, health coaches whose focus is on helping people develop the individual responsibility to take back control and create health in their life. The health coaches provide a cost-neutral way to support clients to healthy weight loss while also teaching clients the long-term habits of health to help set up an individual for future success. As the coaches' clients lose on average 2 to 5 pounds per week utilizing the clinically proven Medifast program, the clients start feeling better, having more energy, and become excited to learn more about the Medifast program so that they can share their success with their friends and family.

One of the major reasons for the current Take Shape for Life growth is the continued commitment of the Company to provide more simplistic and easily duplicatable methods for these thousands of successful clients to duplicate their success by becoming a health coach and helping their friends and family have the same weight loss success. The Company's focus on training and duplication is shown in the growing number of active health coaches quarter over quarter, a figure we strive to see continued improvement.

Additionally, we look forward to our 2009 Take Shape for Life national convention scheduled to take place during the second week of July in Phoenix, Arizona, where many of our health coaches, including those from the medical community, will come together to educate themselves on the recent enhancements that we have put into place to allow them to be more successful. These include enhancements to our back-office in motion, where health coaches have access to a platform provided for them to manage their customers; enhancements to our e-commerce site; new product introductions; and most importantly, we will be launching a new "business in a box".

Many of you recall that we launched our first business in a box during the 2007 national convention. This was a combination of four binders with a significant amount of written material designed to educate a health coach on the products and programs and how to manage their customers and their business. Since the time of that launch, we have seen tremendous growth in the number of active health coaches, as it created a very easy way to understand what tools and techniques would allow them to be successful.

This year, we will be consolidating the information in the business in a box into a combination of DVDs and CDs and a much more condensed written material that we believe will even further enhance health coaches' ability for success. We have also recently developed additional DVDs that will be used by our health coaches as an easy and effective way to educate consumers on the benefits of both the Medifast products and the personal opportunity to become a health coach. These DVDs were introduced this month as a precursor to the national convention. If the excitement of our coaches upon release is any indication, they will be a huge success.

Let me now turn my attention to our Direct Response segment. As we discussed, we have come out of the gates with a decreased advertising spend as we work to determine the level of acceptance that our campaigns would receive by consumers currently willing to invest in their health, given the overall economic environment.

During the first quarter, we decreased our advertising spend by 17%. However, our revenues were down just 13% to $11.1 million. To put it more simply, our revenue-to-spend during the quarter improved to 2.6-to-1 versus 2.5-to-1 in the first quarter of a year ago and 2.5-to-1 which occurred during fiscal 2008 as a whole. This equates to an operating margin improvement for this segment of nearly 2%. We see this as a potentially very strong signal that we are gaining traction with our new campaigns and initiatives to continue to improve the profitability of this segment and grow it into the future.

As we discussed during the call last quarter, we believe that there is room to grow both in effectiveness and in our total ad spend by fine-tuning our message, improving our call conversions, and upgrading our WebCart for easier use and enhancing the opportunity to upsell additional products. In that regard, we are still on pace to launch our new WebCart for direct response in the second quarter.

While the results of the first quarter cannot yet be considered a trend, we believe that the improvements shown provide great optimism that our Direct Response segment can continue to be a large driver for us, both in revenue and profit growth. We have also seen that the Direct Response advertising spend actually assists all other sales divisions of Medifast as it grows the overall brand awareness of the Medifast, making the efforts of our health coaches and the advertising of our Medifast Weight Control Centers' advertising more effective. We will continue to remain flexible with our ad spend, keeping a tight grasp on the levers we control in order to produce positive results for this segment.

Finally, we saw continued strength in our Clinic segment, the Medifast Weight Control Centers. Revenues during the quarter in this segment increased 72% to $3 million versus the quarter a year ago and is up from $2.3 million in the fourth quarter.

During the quarter, we had 21 corporate clinics open and 10 franchisee centers, which is an increase from 14 corporate clinics during the first quarter of 2008 and no franchisee locations. During the quarter, average clinic sales were $40,000 per month, an increase versus $39,000 during the first quarter of 2008. As we have discussed in the past, this growth is especially gratifying given the large number of new locations opened during the last number of months that tend to have a drag on average store sales during their startup phase while they build the Medifast brand awareness into new markets.

For locations opened greater than one year, on same-store sales, we saw average store sales increase 12% to $53,000 compared with a year ago. We are extremely pleased that, even in the economic environment where brick-and-mortar clinics can experience weakness due to the program fee that is associated with it, we are experiencing growth. A large reason for the continued success of the Medifast Weight Control Centers is the additional level of service that they offer a client is looking for the ultimate in support for their weight loss needs.

I would like to take this time to thank our franchisees for all of their hard work in helping to build this proven model and their continued efforts to provide the ultimate client service experience, which represents the overall Medifast brand very positively.

While we remain conservative in the near term and continue with our plans to open just four to five additional locations during 2009 in the Austin and Houston markets, as it has continued to be proven that a certain percentage of weight loss-seeking consumers demand a model that will provide them with this gold standard type of one-on-one service, we believe that the growth and acceptance of the Medifast program in a brick-and-mortar clinic setting bodes well for us in the future.

Our goal for 2009 continues to be to generate strong free cash flow by the growth in revenues as well as the reduction in CapEx versus recent years. The Company generated $4.5 million in free cash flow in the first quarter of 2009. Cash and cash equivalents increased to $6.3 million at March 31, 2009, compared to $1.8 million at the end of 2008.

As we have said for many quarters, the Company's business model of providing a clinically-backed product with nearly 30 years of history rooted in academia, having been recommended by over 15,000 doctors and helping consumers find success through the support channel that best suits their needs, is a model we believe can be extremely successful in making Medifast the leader in medical weight loss.

We thank you for your time this morning, and we look forward to your questions.

(Operator Instructions). Chris Krueger, Northland Securities.

Congratulations on a good quarter. I've got a few quick questions. First, what was your CapEx in the quarter?

$720,000 in spend. It was about $2.7 million last year, Q1.

The goal for the year was -- it's going to be lower than last year. Is there an overall goal for the year?

We had forecasted roughly $5 million in total CapEx for the year. Currently, we are below that figure, but we are still anticipating that full $5 million.

Okay. As far as your Take Shape for Life recruiting events, how many -- in the last couple of months, how many of those have you had per month, and what is your goal there?

That's a great question. It's getting more difficult to answer the exact number on those. A big focus for us over the past year has been to make them more duplicatable to not really need the corporate support and allow the field and these health coaches to be more successful on their own. So, in a given weekend, we could have two to three of these Super Saturday events going on at any given time -- on a Friday, Saturday night, obviously.

So I would say, on average right now, we are seeing about five to six of these events per month. However, we do believe that number will be rising significantly throughout the course of this year.

Okay. As far as your annual event, do you have any early expressions as to how many people you think may attend?

Right now, we are preparing for roughly about 1600 to 1800 individuals in attendance at the event.

What was that last year?

Last year was roughly 750.

Okay. As far as your clinics go, how many company-owned clinics did you end the quarter with, and how many franchise?

We ended the quarter with 21 corporate clinics and 10 franchisees ordering products.

21 and 10. And just as a refresher, what did you finish '08 with?

2008 we closed with 20 corporate clinics and 5 franchisees.

Okay. Then, overall, for the remainder of the year, I think you just stated you expect open four to five company-owned clinics?

correct. We expect to close the year at about 25 to 26 corporate clinics at this given time and franchisees of course are unknown as they are third parties coming on board. We are currently exploring with the current success we are having in the Medifast Weight Control Centers if it would make sense to be a bit more aggressive in that. But we are currently looking at that strategy right now with no decisions made.

Are there some in the pipeline for the franchise that there's at least a few that you think are going to open?

Yes. We do have contracts for I believe up to 14 right now, of which they are opening throughout the course of this year. 14 would be the total, so 4 additional.

Okay. And last question -- on all your various IT projects and e-commerce and back-office and all of that kind of stuff, just give us kind of a run down as to -- is a lot of the spending on those things near-term over with, and how are those things working?

Yes. I mean a large reason for the CapEx being around that $700,000 figure, below the run rate of $5 million, was due to the fact that a lot of our IT major projects were -- spent the money on and up and running in the fourth quarter of 2008. The major two would be the back-office for Take Shape for Life, the back-office in motion, which went live in the fourth quarter and has been working very well. I attribute that to some of the success that Take Shape for Life is currently having from the first quarter.

The next major project is that of the Medifast WebCart, which will be going live late in June of this year. The major expenses to that were taken in the fourth quarter of this past year, as most of the buildup occurred there. We are on schedule for that to launch in June of this year, and we anticipate that having significant impact on the overall closing rate, which will impact our revenue to spend figure in a positive manner.

All right, that's all I've got. Thanks.

Scott Van Winkle, Canaccord Adams.

Congrats, another great quarter.

A few things -- so, on Take Shape for Life, can you talk a little bit more? I got the DVD comment but I think I missed kind of what it was that you launched in anticipation of conventions.

I'm sorry. Can you state that again, Scott?

I think you were talking about a DVD tool you launched for Take Shape for Life.

We did. We launched three additional DVDs for Take Shape for Life. They are focused on the -- it's basically almost like a business card for the health coaches. They are a very low cost for the health coaches, and they hand these out to potential clients to make them aware of what the program has to offer for helping to recruit clients. There's also a DVD for current clients of Take Shape for Life to help them understand what the opportunity aspect is of becoming a health coach. There's also a DVD on recruiting of health professionals inside Take Shape for Life, which is a different message than that of the average individual who is on the program. This is more for the health professional and how to incorporate that into their office.

Okay, so you've got something product-focused, something recruiting-focused. Was there any change in kind of the pitch that you are providing health coaches as a way of kind of growing their business? Have you come up with anything new maybe that kind of was created in the field and worked back your way that is a more successful rate of closing? You know, you're getting to be a bigger business. I'm wondering if there is kind of some maturation of the sales model for the distributors.

There's definitely several new messages. I think it is always continuing to be focused on the overall goal of helping to get America healthy. What we are really focusing now is on their valuable services that they render to their clients and how they can help their clients adhere and stay compliant on the 5-1 program.

We also do commonly speak to the results that we have clinically proven on the Medifast program, that being about two to five pounds per week. You'll see now, on the recruiting of health coaches DVD, that it's a bit more of an opportunity that we talked to about the average income of health coaches as I mentioned in the call being roughly $600 on a monthly basis, and really just what they can do as far as to help their friends and family witness that same success that they did.

As you are familiar, this is a business of weight loss and allows it, in the Direct Sales division, to be -- these are walking testimonials who just want to talk about their success. We are providing them tools to help them be more consistent in that message.

Mike, that $600 in income a month, that's certainly the mean. Do you have any idea what the median would be?

The median is going to come around to that $200 figure.

Okay, all right. (multiple speakers)

As of course you know, when health coaches get started, it takes them several months to ramp up their business model. So you're going to have many -- with the current recruiting rate, you're going to have a lot of them not earning anything right out of the gates as they get their business, as they study and become wise to what it is to become health coach.

Okay. Moving over to clinics, how much of that $3 million was franchise fees?

Franchise fees would be 0 in the first quarter. That was all recorded in the fourth quarter. If you recall, our franchise fee is roughly $10,000 per center.

Okay. How difficult is it to recruit professionals for those corporate-owned clinics? You're using -- was it a nurse practitioner I believe?

Currently, it is just a manager and a counselor. We do -- a lot of our staff that we are hiring, we are seeing a great success coming from hiring individuals who are certified in nutrition and dietitianists either right out of school or experienced in the market. So, it's a combination of a sales manager as well as support counselors that have that nutrition and dietitian education.

Okay. (multiple speakers)

As far as the ease we are seeing from recruiting them, in the local markets right now, just going to the colleges where these clinics are, we are seeing great success and very much ease of recruiting these types of individuals.

For some reason, I thought you had some clinics that were -- that could write scripts or something like that. I guess I am just mis-remembering.

We had explored that option several years ago with the anticipation of the pharmaceutical drug that was coming out. However, because that has been pushed back, we've simply pushed the model back.

I got you, I got you. In that revenue-to-spend ratio that you talked about and improved this quarter, is there seasonality to that or could we kind of assume that 2-to-6 or 2-to-4 -- whatever the number is going to end up being for the next several quarters -- can we just kind of assume that throughout the year?

I wouldn't say you can assume it throughout the year. Last year, we were very adamant about being consistent on our revenue spend by not spending in areas that were not really showing the results.

In years past, we had tried campaigns, even it was irrelevant of the quarter -- first, second or third -- we would try new campaigns that did not seem to stick and it would drive the revenue-to-spend down.

This year, again, we are going to be very focused on driving at least consistency in the matter if not constant improvement.

Any new products planned this year to expand the portfolio?

We will be expanding several new Medifast products. We will be launching them this year at the Take Shape for Life Annual Convention, both those and extension of meal replacements and additional add-on products as well.

Just the last question -- you know, you talked about how your marketing spend benefits the other divisions beyond the direct response. You know, now you are spending less. Are we to assume that a smaller percentage of potential Take Shape for Life customers kind of get farmed out of the direct-response business?

I think it is really two different areas. The spend is less. Therefore, the brand awareness might not be growing as quickly due to the direct-response business. However, as far as the number of Medifast customers that are aware now of Take Shape for Life, because of Take Shape for Life's current success and growth rates and growth in new cities, that is actually expanding.

So we are becoming much more aware of how to message the opportunity behind Take Shape for Life to Medifast direct-response customers. We are having more success, even with the less amount of spend, on having more Medifast customers aware of it and actually make that transformation.

All right. The clinic business is starting to get significant in size. What's the management organization behind the clinic business?

The management organization behind the clinic business -- we transferred and had a new individual take over that division roughly about midway through 2007, an individual with over 20 years experience in the medical weight loss clinic business.

Underneath him, of course, he has area managers, counselors, managers, marketing team, operations team. So it is growing into itself to be that of a complete business section of Medifast. We are starting to see that as the number of clinics grow. We already had built that infrastructure of employees and now we're starting to see more benefits to the bottom line with each additional clinic we put out.

One other question -- on the fourth-quarter call in February, I think you were talking about revenue running up 26% or consistent with the fourth quarter when you were talking about Q1 to date. Should we assume that business strengthened throughout the March quarter?

I think it's very fair assumptions. When we spoke in February, we said that we had been seeing equal if not even a bit better of run rates from what we saw throughout the entire year of 2008. For what we reported at the -- today with that 34% growth rate, the month of March was most likely the most prominent of our months.

Excellent. Thank you very much.

Bill Smith, William Smith & Company.

Congratulations, another great quarter, really good.

On the momentum, the sales momentum, I mean do you see that -- you talked about March but have you seen that continue in April as well?

We have continued to see improvements in all of the different sections of Medifast, from the clinics, the Direct Response, and the Direct Sales. Right now we have anticipated a very strong year as a whole for Medifast, seeing that growth month over month in the first quarter.

Yes. You generated a significant amount of free cash in that quarter. I mean, how sustainable do you think that is at $4.5 million as you go forward throughout the year?

We had an internal goal of having about 4% free cash flow generated from the revenue we saw throughout the course of this year. We exceeded that in the first quarter, but you have to take into account a large percent of that came from the reduction in inventory figure. In the fourth quarter, you take on a heavy inventory of your third-party products because you have to be prepared for that jump in sales in the first quarter.

I don't anticipate the inventory coming down to those exact levels that they did from fourth to first quarter-over-quarter. But we are still very much anticipating to meet or exceed that 4% free cash flow figure throughout the course of the year.

That's of the top line, where you're talking about?

Yes, that is of the top line.

Right. Okay, so you generated free cash and you've built up a decent amount of cash on the balance sheet. What about the buyback? Can you talk about that, or what you've done and how do you look at that now as you go forward?

I believe we've announced that we have the potential to buy back shares. At this current time, we are not going to be extending that, at least not from this exact point in time. It is something that is always an opportunity out there, I think, for us to purchase back shares. We don't do it to protect the market price of the stock; we do it more for potential rewarding of Medifast employees as well as building up a treasury piece for internal purposes. So as of this time, we've pretty much completed what we are going to of that buyback, but we always keep our doors open by having that ability.

Okay. Great work, Mike. Thanks a lot.

Thank you very much.

(Operator Instructions). Timothy Collins, Security Research Associates.

Congratulations. Great quarter. So my question really has to do kind of with your demographics of the business and your spending patterns. So the first quarter was the worst quarter the world has seen economically for a long time, and dietary slimming is certainly postponable. So I can understand an influx of new coaches because there are a lot of people seeking new income. But can you just kind of go through what you saw happening during the quarter as far as the average spend of your customers and the new clients and the ability of people to ramp and just how you were able to be so recession-proof?

Oh, gladly. The first thing I will do is I'll point out to the fact that, yes, we did see a nice growth in the number of coaches in the Take Shape for Life business. However, the number of coaches in growth does not in any way equate to increased revenue sales. The only way to increase revenue sales is for customers to actually purchase the product that is Medifast.

We saw that increase in coaches. What usually tends to occur is it takes a coach roughly three months to become knowledgeable on the business. From that point, they start to produce roughly about $1600 in product sales on a monthly basis that went by them acquiring customers.

From our spend in direct-response and as far as the average lifetime value in direct-response, we've actually seen the maintaining if not a little bit of improving improvement in our lifetime value of consumers. Of course, being just the first quarter of the year and customers' lifetime value extending beyond those three months, we are not exactly sure of what the new customers' lifetime value is. That is something we track at the beginning of each and every year. However, customers who had ordered in the fourth quarter, who were new customers, are continuing to meet or exceed those lifetime values.

The lifetime values of our Clinic division continue to be maintained very high because of the program fee as well as the product fee.

In the Clinic division, there is no way to become a customer without purchasing a program, which equates to, again, a very large lifetime value from those consumers. They also have the highest value of success.

Take Shape For Life, the average lifetime value of those consumers continued to maintain what it had been in the past years. I really attribute the success of the maintaining of lifetime values to that of the Company providing value to consumers in a time where every consumer out there is seeking value.

The Medifast program is pretty much cost-neutral from that of eating the everyday food that most consumers take in. At the same time, it produces results of two to five pounds per week, which is greater than most of the other weight-loss companies that are out there. So, on a cost-per-pound-lost basis, they are generating -- they are having very much success on Medifast and doing it at a very low cost.

So I think, in these kind of economic times, consumers tend to search for the value actually is, as opposed to what the best marketers might be. Medifast for over 30 years now has continued to provide just tremendous value for its consumers by generating results for what it is they purchase from the Company.

That's a wonderful answer. Thank you and keep up the good work.

(Operator Instructions). Gentlemen, as we have no further questions, I would like to turn the floor back over to Michael McDevitt for any closing remarks.

We appreciate you taking the time to hear us share our vision for the Company. We are excited about where we are today and the opportunities for the future. We thank you for your continued support and look forward to speaking to you when we announce our second-quarter numbers. Thank you and have a great day.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.