Medifast Inc (MED) 2010 Q3 法說會逐字稿

Thank you for your patience. (Inaudible) and we'll follow the formal presentations. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Katie Turner, IR for Medifast Inc. Thank you. You may begin.

Good afternoon and welcome to Medifast third quarter 2010 conference call. On the call with me today are Michael McDevitt, Chief Executive Officer and Brendan Connors, Chief Financial Officer.

By now, everyone should have access to the third quarter earnings release for the period ending September 30, 2010, which went out this afternoon at approximately 4 pm Eastern Time. If you have not received the release, it is available on the Investor Relations portion of Medifast's website at www.choosemedifast.com. This call is being webcast and a replay will be available on the Company's website.

Before we begin we would like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. The words believe, expect, anticipate and other similar expressions generally identify forward-looking statements.

These statements do not guarantee future performance, and therefore undue reliance should not be placed on them. Actual results could differ materially from those projected in any forward-looking statements. Medifast assumes no obligation to update any forward-looking projections that may be made in today's release or posted on their website.

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 only speak as of the date of today's date.

And with that, I would like to turn the call over to Medifast's Chief Executive Officer, Michael McDevitt.

Thank you Katie. Good afternoon everyone and thank you for joining us. On today's call I'll provide highlights of our third quarter results and then Brendan will review the financial results for this quarter in more detail. I will then provide some closing remarks and we will open up the call to take your questions.

We've continued to focus on the balance of driving continued growth while building the infrastructure, the scalability in Medifast Weight Control Centers and our web platforms for Take Shape for Life and Medifast Direct as well as adding the necessary resources both in personnel and operations to position the Company for a great 2011 and beyond.

We are pleased with our strong results for the third quarter of 2010 as the Medifast team focused on consistent execution of our strategy to expand our corporate infrastructure to further support increased long-term growth across each of our distribution channels.

In the third quarter of 2010 our positive sales results were broad-based across each of our three primary distribution channels including Take Shape for Life, Direct Response and our Medifast Weight Control Centers, posting growth of at least 30% as compared to the prior year. As a result we generated a third quarter net revenue increase of 46% to $67.3 million.

Our three primary distribution channels continue to provide a complementary source of personalized support for clients to connect and share Medifast clinically proven weight loss programs. Our revenue increase combined with our further improvement in the gross profit margin and improved leverage of selling, general and administrative expenses resulted in 130 basis point operating margin increase as compared to the prior year period.

Thus we recorded a 70% increase in earnings per diluted share of $0.39 in the third quarter of 2010 as compared to $0.23 per diluted share in the third quarter of 2009. Our continued strong financial performance combined with our infrastructure investments and today's increasing consumer awareness regarding the importance of weight loss and weight management provide confidence on our outlook for the remainder of 2010 and the beginning of the important diet season in fiscal 2011.

Now focusing on the third quarter results in more detail. At the beginning of the third quarter we hosted our Take Shape for Life annual convention. It was great to see some of you from the investment community in Dallas to experience the strength and opportunity of Take Shape for Life along with the passion of our health coaches. The event was extremely successful. We realized a 62% increase in attendance to 2,100 health coaches compared to 1,300 last year.

In addition, we continue to demonstrate the importance of new product innovation with the launch of two pancake flavors, original and chocolate chip, as well as our four soft-serve flavors including chocolate mint, coffee, mango and peanut butter.

In today's environment trust and personal recommendation are significant drivers in consumer purchasing decisions. And Take Shape for Life models of one-on-one interaction continues to excel.

Take Shape for Life clients who have achieved successful results through Medifast's clinically proven and physician recommended products continue to become active health coaches. As a result, we generated a 55% increase in Take Shape for Life coaches at 9,000 for the third quarter of 2010 compared to 5,800 last year. The strength of the Take Shape for Life leadership and field combined with our Medifast medical and clinical heritage and our superior product and program offerings will support the continued growth of our health coach field.

We experienced very positive sequential increases in health coach growth in the third quarter. Throughout the quarter, health coach growth accelerated with a majority of new coaches coming online late in the third quarter as compared to the same period last year. We are very pleased with this trend and believe our continued health coach growth increase further exhibits the strength of the Medifast brand.

Also, as a reminder, and for those of you who may be joining us for the first time today, although we have health coaches in every major US market, approximately 60% of Take Shape for Life sales are currently generated from just seven geographic locations. This is due to the viral marketing aspect of Take Shape for Life. The fourth quarter has continued to see strong health coach growth and we continue to be optimistic about Medifast's opportunity to continue growth in Take Shape for Life as we further develop within our seven top markets and expand throughout additional US markets.

In our Direct Response sales channel our consistent focus on Medifast's clinical research and innovation has helped us generate more targeted and effective advertising leading to 30% sales increase in the third quarter of 2010. On a 28% increase in marketing and advertising spend we generated a 2.8 to 1 revenue spend ratio during the third quarter of 2010 compared to a 2.7 to 1 ratio in 2009. This also led to strong improvement in Direct Response divisional operating income for the quarter.

In our Medifast Weight Control centers our brand's portion controlled meal replacements and personalized support programs continue to meet the needs of clients seeking additional support and accountability. In the third quarter we generated a 46% revenue increase compared to the prior year period. This was due largely to a 20% same-store sales increase and a 10% increase in the number of clinics compared to the prior year.

We opened three new corporate clinics in the third quarter in Rockville, Maryland, Las Colinas, Texas, and Fairfax, Virginia ending the third quarter with 32 corporate and 20 franchise centers.

Today our 32 corporate clinics are located only in four states - Maryland, Florida, Texas and most recently, Virginia. Combined with our franchise locations, we are currently only in eight states. Based on the demonstrated success and client satisfaction of Medifast Weight Control Centers, we believe there is a tremendous opportunity for growth in both new and existing markets. In the fourth quarter and in 2011 we will continue to expand the infrastructure necessary to allow for scalability in this retail model.

We plan to open six to eight more centers in the fourth quarter of 2010 and 25 to 30 centers in fiscal 2011 largely concentrated in existing markets. With this plan expansion we'll also maintain our focus on continued comparable same-store sales growth. Our continued growth and strong financial results validate consistent growing awareness for Medifast's clinically tested, physician recommended products with consumers that are looking to achieve weight loss and weight maintenance.

We intend to remain focused on the investment and advancement of our corporate infrastructure and personnel to increase our consumer reach in new and existing markets utilizing innovative support, communication and marketing strategies as well as the introduction of new products through added production and manufacturing capacity to support our future growth.

Our Dallas distribution center opened in the third quarter of 2010 and is fully operational. The launch was successful and we continue to anticipate a slight short-term drag or expense increase as the distribution center reaches capacity. The facility will support Medifast shipping west of the Mississippi, the Medifast Direct, Take Shape for Life and the Medifast Weight Control Centers.

This distribution center is expected to completely reduce client product transit times to those located west of the Mississippi. By the first quarter of 2011 we expect to see an increased benefit and improved margins from the added distribution capacity as a result of reducing shipping costs and faster delivery to our West Coast clients.

In addition, during 2011 we will add new manufacturing machinery to increase our production and manufacturing capacity to support our future sales growth. The investment will increase our manufacturing capacity to over $800 million in annual retail sales which will match the distribution capacity upon our Dallas distribution center reaching full build-out in the future.

We consistently talk about our focus on scalability in all areas of our vertical infrastructure and we are concentrating on this for the future. We will launch a new Web platform with greatly improved functionality for all of our sales channels that will positively impact the client experience and create increased efficiency for our health coaches. Additionally, we will expand our Call Center operations to manage future increased call volume and provide exceptional service to all clients.

We anticipate that the new Web platform, the launch in the first quarter of 2011, and represents a significant introduction to further improve the overall lifetime value of our clients across each of our sales channels. We believe the new platform will greatly enhance every aspect of the Medifast experience for all of our clients and health coaches.

I also want to provide you with a brief update on our strategy to continually initiate a number of events to provide opportunities for us to offer additional training to our existing health coaches and attract new health coaches. As a reminder, in 2009 we increased our focus on the contents of weekly Super Saturdays. In a select number of cities health coaches host a group event for potential clients to introduce them to the Medifast program. The event also provides current health coaches the opportunity to receive additional program training.

Thanks to the outstanding work of our field leadership team, these weekly health coach and client training events continue to be a huge success as measured by the number of them held, increased attendance and new health coaches joining the network post the events.

In the beginning of 2010 we launched a new series of quarterly hosted regional events called TSFL Regional Events which are strategically planned based on geography, the New Year's health resolutions and (inaudible) seasons, as well as a complementary event to our leadership function. These events can best be described as mini annual conventions and will be held at different locations across the country.

In the third quarter we hosted our annual convention and a TSFL regional event in Annapolis, Maryland, as well as a new market event in Chicago to accommodate a new base of health coaches we have established in the Midwest. The regional events attract on average 500 health coaches. Potential new health coaches are focused on both training and recruiting new health coaches at our regional events.

There are four regional events currently planned for the first quarter of 2011. We believe that as our base of health coaches continues to grow, the need for increased outreach and training will be critical to our success.

We have also increased focus on our two leadership events, Go Global in the spring for emerging leaders and Sundance in the third quarter for our established leaders. The Sundance events were the largest and most comprehensive leadership and training held to date. At these events leaders are taught skills and techniques to help further develop their growing team of health coaches that they mentor. As our leaders continue to develop their training skills, we will be able to more expectedly recruit new health coaches.

Overall the third quarter was strong for Medifast and we believe we are entering the key diet phase on a continued positive trajectory. We are extremely pleased with our financial performance to date and going forward we are confident that our vertically integrated operations and increased capacity will allow us to continually improve the long-term leverage of our business model by expanding our margins and long-term profitable growth.

Now I'd like to turn the call over to our Chief Financial Officer, Brendan Connors, to review our financial results in more detail.

Thanks Mike. Revenue for the three months ended September 30, 2010 increased 46% to $67.3 million compared to $46.1 million in 2009. The Take Shape for Life sales channel accounted for 65% of total revenue. Direct Respond advertising accounted for 24%, Medifast Weight Control Centers accounted for 10% and Doctor accounted for 1% of total revenue.

Focusing on our sales channel in more detail, our Direct Sales channel, Take Shape for Life, experienced revenue growth of 53% to $43.7 million compared to the same period last year. Growth in revenues for Take Shape for Life was driven by increased cuts in our product sales as a result in an increase in active health coaches. The number of active health coaches increased 55% to approximately 9,000 compared to 5,800 in the third quarter of 2009.

The Direct Response sales channel revenue increased 30% to $16.1 million in part due a 28% increase in advertising dollars spend as Medifast continues to experience a more effective advertising message through more targeted advertising based on extensive analytical research and improved cost in our closing rates.

As Mike mentioned earlier, we achieved a 2.8 to 1 revenue to spend ration in the third quarter of 2010 as compared to a 2.7 to 1 ratio in the same period of last year.

Revenue in the Medifast Weight Control Centers sales channel increased 46% to $6.7 million. This is due to a 20% increase in comparable store sales for units opened greater then one year, as well as 32 corporate centers being open in the third quarter of 2010 compared to 24 in the third quarter of 2009.

Gross profits for the third quarter of 2010 increased 48% to $50.5 million compared to $34.1 million in the third quarter of the prior year. The Company's gross profit margin increased about 100 basis points to 75% in the third quarter versus 74% in the third quarter of 2009.

In the third quarter of 2010, the Company opened a second distribution center in Dallas, Texas. The distribution center will greatly improve service levels to customers, located west of the Mississippi River, and as Mike mentioned earlier, we expect the new facility will positively impact the margin in fiscal 2011.

Selling, general and administrative expenses increased $12.9 million or 45% through $41.4 million in the third quarter of 2010. As a percent of net sales, selling and general administrative expenses decreased 40 basis points to 61.5% compared to 61.9% in the third quarter of 2009.

The largest increases in SG&A expense were related to higher variable expenses such as Take Shape for Life commission expense, as directly related to product sales and personnel expenses. Take Shape for Life commission expense increased $6 million in the third quarter of 2010 due to the 53% increase in sales.

Salaries and benefits increased by approximately $3.2 million as compared to the third quarter 2009. The increase includes a hiring of additional expertise in critical areas such as Medifast Weight Control Center Support, manufacturing, distribution, call center, and IT to support the strong growth in fiscal 2011 and beyond.

We also (inaudible) of a new Dallas, Texas distribution center in July of 2010, also lead to the hiring of additional personnel in both distribution and the call center.

Operating income for the third quarter of 2010 increased 63% to $9 million compared to $5.6 million in the same period a year ago. Our operating margin expanded 130 basis points to 13.4% from 12.1% for the same period last year. This improvement was due to strong net revenue growth that helped drive improved gross margins, increased leverage of sales and marketing expenses associated with that vertically integrated business model.

Third quarter net income increased 67% to $5.8 million or $0.039 per diluted share compared to $3.4 million or $0.23 per diluted share for the third quarter of 2009.

Our balance sheet remains strong with stockholders' equity of $69 million and working capital of $44.2 million as of September 30, 2010. For the first nine months of 2010 cash, cash equivalents and investment securities increased 125% or $20.3 million to $36.6 million as a result of improved operating cash flow.

Now focusing on a few items as it relates to our financial outlook for the balance of fiscal 2010. We continue to expect gross profit margin improvement in the range of 50 to 100 basis points in 2010 as it compares to the prior year. And as previously mentioned, our new Dallas distribution center is expected to positively impact margins in fiscal 2011.

We expect our fiscal 2010 advertising spend to increase by 25% to 30% with a revenue to spend ratio of 2.8 to 1.

The full year tax rate is expected to be approximately 39% to 40%. We have full year diluted shares outstanding of approximately 14.8 million to 15 million shares.

In the fourth quarter of 2010 we plan to open an additional six to eight new Medifast Weight Control centers. The Company opened six corporate and two franchise clinics in the first nine months of the year.

That concludes our financial overview. Now I'd like to turn the call back over to our CEO, Mike McDevitt.

Thank you Brendan. I would like to conclude our prepared remarks by reiterating that the management team's confidence and excitement about Medifast's outlook for the remainder of the 2010 and fiscal 2011. We appreciate the hard work and the dedicated efforts of all of our employees, health coaches, franchise partners and our valued clients for their continued support.

We would now like to open the call up to your questions. Operator?

Thank you. We will now begin our question and answer session. (OPERATOR INSTRUCTIONS)

Our first question is from Scott Van Winkle Canaccord Genuity. Please go ahead with your question.

Hi guys. Congrats on the continued momentum.

Thank you very much.

I have a few questions for Brendan, run through some numbers and some other questions. First of all, was there a re-- last year's Q3, was there kind of a recasting of some of the expenses between revenue and gross margin?

In terms of -- the only change we had this year is moving our shipping revenue up into the sales line item but no other changes now.

Okay. Obviously we didn't correct for that. And does the ads -- advertising spend for the quarter, did you say it was $5.8 million?

That is correct, Scott.

Okay, so if I assume even the high end of your range of 30% for the year, that only has your ad spending up about a little over 10% in the fourth quarter. Are you just going to be a little more cautious in the fourth quarter about how you spend your money?

The fourth quarter is always one that we go into starting the quarter with a bit of 15% to 20% pull back from what we did in the past. As we continue to see success throughout that quarter, we do ramp out during that time frame but we do go into that forecasting our traditional 15% to 20% pullback in advertising for both the Medifast Weight Control Centers and the Medifast Direct Respond.

Okay, then speaking of the fourth quarter, it used to be the case that your fourth quarter gross margin was always a little lower than the trend coming in to the quarter. Is that still going to be the case? Are there some catch-ups at the end of the year that we should assume in the fourth quarter this year?

In the fourth quarter, Scott, we do an inventory reevaluation when we redo our standard costs. Last year it was pretty large. I think it was about 150 basis points decline from the average of the year. I wouldn't anticipate it being that large this year but we are going to have the reevaluation in Q4. And as you remember, we do revalue and each unit that goes out the door at less expense, it does impact positively the following year. The answer is there will be a reevaluation but I don't anticipate as large as last year.

And I guess to stick with that fourth quarter, Mike, you made some comments that recruiting of health coaches has been strong thus far in the fourth quarter. Can you quantify that? I mean last year in the fourth quarter recruiting was relatively modest compared to the prior period and obviously that should be the case. It sounds like maybe that's not the case this time?

Of course you always have to go back to how we account for active health coaches and we always account for active health coaches as those that are active on the last day of the quarter and because December is something where the holidays and life can often get in the way with health coaches, even if we have strong recruiting numbers through the October-November time frames, sometimes that month of December coaches might take a little bit of time off which causes an appearance that we had a large drop-off in the health coach growth rates.

We of course do anticipate the holidays coming again this year. We do anticipate some coaches having that get in the way a bit but we're very excited with the coach growth rates we've seen thus far early in the fourth quarter.

Okay and that would explain why the first quarter recruiting is so much stronger.

Exactly. You're going to have that automatic uptick from those that are re-engaged who took a little time off.

Okay, and then this 6% to 8% in the fourth quarter of new units, is that all corporate or is there a franchise mixed in there?

That would be all corporate centers, yes.

All corporate. Okay, and then Brendan, in the third quarter you talked about the costs around the new distribution center in Texas. Were all of those costs on the SG&A line?

Yes, they will be sitting in SG&A, not in the gross margin line, that's correct.

So I mean, is it safe to say that that was -- was that a million bucks or a half million bucks in the quarter, that type of number?

Yes, a little under a half million dollars, Scott, a little under half a million.

And we probably won't see, I would assume, much growth in the fourth quarter on that number. Is that the right kind of assumption? Was there any kind of one-time start-up cost in that?

No, not really. That's really just bringing on additional people before you're up to capacity, but yes, you won't see any increase in that cost in Q4.

Okay. I have other questions but I'll cede the floor.

Great, thank you very much.

The next question is from Chris Krueger with Northland Capital. Please go ahead with your question.

Hi, good afternoon, nice quarter.

Hi Chris.

Talking again about fourth quarter trends, I believe as far as the absolute top line sales seasonality, I think last year you were roughly flat in the fourth quarter to the third quarter. I believe you commented that your diversified model has greatly reduced that seasonality. Looking at this year's fourth quarter, would you see it the same way or do you think the seasonality comes back a bit?

I think it's a great question. As we proved last year, our business model does help us hedge against that classic diet season strong 15% to 25% drop-off in overall revenue. We're going into this fourth quarter expecting a very positive fourth quarter. As I mentioned earlier, we do pull back our advertising early on in the quarter to ensure that consumers are still listening at this given time of the year. If in fact they are listening, we continue to ramp that up throughout the course of the quarter.

So we anticipate a strong fourth quarter, much better than what the overall industry of the diet does in the fourth quarter as compared to what they drop off at, but we're also seeing right now in the fourth quarter just very strong trending, everything pointing towards a positive pop in the first quarter for next year, just from everything we're seeing from consumer anticipation right now.

Okay. And then you've indicated that recruiting's been strong the last couple of months. Beginning about December and [final day] brings and all that, are the growth rates in recruiting better than they have been in recent Septembers and October periods or what's another way to think about strength?

I would say as far as percentage I would not say that they're better than the past. You do start to get into a little bit of a lot of large numbers in the sense that they're much larger than we were earlier. Net-wise, I am very optimistic about where this recruiting figure could go in 2011 as compared to this past year from a net percentage -- from a net number, not the percentage number.

So all in all, very, very happy with where the recruiting numbers are sitting for the third quarter as well as where we're moving in the fourth quarter.

Okay. I've asked this question before. When you talk about the top seven markets still being the big growth drivers for Take Shape for Life, are there a few other markets that are starting to emerge that you can talk about?

We are starting to see some new markets emerge but then again, our current seven leaders are still growing at such tremendous rates, it just shows the excitement of the lack of saturation we're seeing overall in Take Shape for Life. For our current seven leaders to still be growing at such strong rates with still so much white space across the entire United States, we're very confident that moving into 2011 we're going to see some of those smaller markets for Take Shape for Life really take heed and have strong growth rates there as well.

Okay. And then two numbers questions, I don't know if you said this on the call but what was your depreciation and your CapEx for the quarter?

Depreciation about $2.5 million. CapEx was -- it was $3.1 million.

All right. That's all I got. Thanks.

Thank you very much.

The next question is from Scott Henry with Roth Capital. Please go ahead with your question.

Mr. Henry, your line is live, please go ahead.

The next question is from Paul [Marasculo] with Wells Fargo. Please go ahead with your question.

Hi gentlemen. How are you?

Great thanks.

By the way I happened to be -- found the company as a customer.

And how did they treat you as a customer?

Ten months, 135 pounds, so pretty good.

Well congratulations.

My question is, what are those seven geographic regions?

The seven geographic -- I'm sorry, you can finish your question first.

That was it. What are those seven geographic regions?

The seven geographic regions that we have the focal of our Take Shape for Life approach right now has been in Portland, Oregon, Dayton, Ohio, Boise, San Diego, Sarasota, Florida, Atlanta, Georgia and Albany, New York.

Wow. So I guess --

You can see that they are not the largest metropolitan areas out there.

Not at all.

This is the business model that just has such a viral aspect to it. The success of customers are what drives this and in a time frame where a lot of times advertising is difficult to break through because of all the noise of advertising, having a personal recommendation come from someone who's lost that weight combined with having this clinical and medical heritage as a Medifast organization is just the perfect combination to have people really understand it, buy into it and accept what the Take Shape for Life business is becoming, so very excited about those seven continuing to grow and we're having a lot more dots pop up on the map every day as well.

I guess my next question would be is there any reason that you could say that the Company has such great top line revenue growth and traded 22 times (inaudible) and 17 times [forward] earnings?

I choose not to kind of comment on the day to day activation of the stock.

All right, a better question. Do you still foresee the same type of growth for 2011, '12, '13, etcetera?

I'm pretty confident --

I didn't realize the seven geographic regions were such small areas. I figured you would have said Houston, Texas, Dallas, Maryland. I was shocked when you said those areas.

Of course. I think that we continue to see the obesity epidemic grow throughout the United States. This year we saw the number of obese and overweight individuals grow from 66% to 77% by some studies. There's just tremendous runway and opportunity for the Medifast business. It continues to excel and help consumers lose weight and keep that weight off and I foresee Medifast having a very strong and bright future in 2011 and beyond.

Thanks.

Thank you.

The next question is from Scott Van Winkle with Canaccord Genuity. Please go ahead with your question.

Hi thanks. So Brendan, last quarter I think you took the stocks revenue figure and put it in with Take Shape for Life. How are you going to account for that in the -- is that how we should look at it?

I believe last quarter it was probably included in the clinic figure. I think we said 11% for the clinic, however this quarter we just broke it out to show the 10% of sales for the clinics and 1% for docs wholesale.

Moving forward, what we're going to do because the docs is a wholesale account that is much looked at the same as our -- from a profitability standpoint very similar to franchisees, so we continue to have a strong growth of our health professionals inside Take Shape for Life. That's over 20% of those 9,000 coaches being health professionals. However that is a very different figure than that doctors 1% figure.

So overall sales to docs organizations are strong inside the Medifast business and continue to grow. The wholesales account from doctors moving forward in 2011 will be incorporated into that franchisee wholesale figure.

Okay, okay. And then a couple of balance sheet questions, I wonder if you could comment on inventory being up sequentially. I assume that was driven by the new facility?

That's exactly it, Scott. That's building the [days on hand] of the new Dallas, Texas facility.

Okay and then a little criticism here. Investment securities in your balance sheet, $16 million. I would tell you tell you at this price, I think that $16 million should be buying back stock.

We do currently have an approval from the board of directors for roughly about another $365 -- 365 shares of Medifast and I can say it's an active conversation amongst the Company and we do have plans on reopening that conversation at the next board meeting.

Okay. And then what are your thoughts about the late recruiting during the quarter, because that would imply the recruiting was softer earlier in the period.

It's an interesting concept. If you recall the second quarter we spoke of a shipping notification challenge which called for some service level issues in the shipping and contact center. What that did was it caused an immediate cost of goods challenge in the second quarter, having extra shipments go out and having additional call center reps brought on.

But at the same time what it did was coaches that were brought on during the second quarter, so normally become effective in the third quarter as it takes three months for a coach to become effective, they were spending their time not as much becoming effective as still dealing with those issues early on so it prolonged the time line for them to become effective.

So I believe that the uptake later on in the quarter was largely due to that issue was fixed before the third quarter had started but it was the lag of that issue was causing their attention to be shifted early on in that quarter so I think it was just getting back to where we were trending later on in that quarter.

And then a lot of food companies are talking about higher commodities, anything we see that -- soy protein or anything like that we should be worried about in your commodity mix?

Nothing as of right now that we are concerned on for the upcoming year.

Great, thank you.

Thank you.

(OPERATOR INSTRUCTIONS) Your next question is from Julie Bryant with MKG Financial. Please go ahead with your question.

Great, thanks, hello. Great numbers.

Thank you.

Yes, can you talk a little bit, as we head into the next year and that new website platform comes up, some of the potential operating issues, cash flow impact, how you're prepared for that, because I see websites that have come up before and they run into operational difficulties so if you could just address that a little bit I'd appreciate it.

Of course. I'm proud to say that the majority of the cash flow as opposed to getting that website up and running hasn't taken CapEx in the year 2010 but intentions are no reasons why cash flow would be impacted immediately in 2011.

We are, if you recall, we initially spoke on that website moving forward live sometime by the end of this year but just make sure that everything is working as best as need be. We actually went back and are doing additional levels of testing both from the field of Take Shape for Life both from the consumer standpoint and from the internal standpoint. So we're going to be launching that sometime in the first quarter and it'll be going live being thoroughly tested and making sure that everything is operational.

Some ideas of what it does is the Medifast shopping cart as of today, the website as of today has a [built-on] technology from back roughly around 2004 and it's been added on to since then. This is going to be so much more of an intuitive website for consumers. It's going to reduce the amount of clicks in order to purchase. It's going to allow more upsell capabilities and I think it's going to really work to help increase the lifetime value of consumers, decrease the (inaudible) and increase the closing rates for consumers on the website.

So all in all we're very happy to have that up and running but we're going to make sure it's proper form before so.

Terrific. Thanks so much.

Thank you.

I'm showing no further questions in queue.

Excellent. Well I'd like to thank you for your participation today. We look forward to sharing our progress with you on our fourth quarter and full year 2010 conference call. And as a reminder, we will be visiting with investors in the coming weeks in New York and Boston as well as attending investor conferences in December and January.

We appreciate your interest and hope to see you on the road. Thank you very much.

This concludes today's teleconference. You may disconnect your lines. Thank you for your participation.