Medifast Inc (MED) 2011 Q4 法說會逐字稿

Greetings and welcome to the Medifast, Inc. fourth-quarter and fiscal year 2011 earnings conference call. At this time, all participants are in a listen-only mode. A brief 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 Katie Turner for opening remarks. Thank you, Ms. Turner. You may begin.

Good afternoon and welcome to Medifast's fourth-quarter and fiscal year 2011 earnings conference call. On the call with me today are Michael MacDonald, Chairman of the Board and Chief Executive Officer; Meg Sheetz, President and Chief Operating Officer; and Brendan Connors, Chief Financial Officer.

By now, everyone should have access to the earnings release for the period ending December 31, 2011, that went out this afternoon at approximately 4.05 p.m. 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 believes, 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 statement. Medifast assumes no obligation to update any forward-looking projections that may be made in today's release or on the call posted on their website. Medifast does not comment on any 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 today's call. And, with that, I would like to turn the call over to Medifast's Chairman and CEO, Michael MacDonald.

Thank you, Katie. Good afternoon, everyone, and thank you for joining us. On today's call, I will provide you with an update on our business initiatives. I also will provide more color on areas of the business we are seeing improvement and discuss the areas that we plan to address to best position Medifast for long-term growth and profitability.

Brendan will review the financial results for the fourth-quarter and full-year 2011 in more detail and review the first-quarter 2012 revenue and EPS outlook.

I will then provide some closing remarks, and we will open up the call to take your questions.

First, let me start with a brief introduction on my career experience, as most of you had not had the opportunity to meet me.

Most recently I served as an Executive Vice President at OfficeMax, Inc. where I led the Contract Division, a $3.6 billion unit. Prior to OfficeMax, I spent 33 years serving in a variety of senior corporate officer positions for Xerox Corporation, including Senior Vice President of Worldwide Operational Effectiveness; President of Marketing Operations and Global Accounts; and President of Xerox North America. Among my most significant roles was leading the turnaround in North America from 2000 to 2004 as President of North American Solutions Group, a $6.5 billion division of Xerox.

I have been on the Medifast Board for over 13 years and have seen the weight loss industry evolve and grow to approximately a $60 billion industry. I had a great opportunity to learn from my brother, Brad MacDonald, over these years as a member of the Executive Committee. At the same time, I've had the opportunity to experience the growth and evolution of Medifast from being offered only through a physician's office to the current diversified business model offering the consumer three complementary sales channels to meet their individual weight loss goals and support needs.

I'm extremely excited to join the Medifast management team as the Chairman and CEO. I am passionate about the weight loss industry. It's an exciting growth category. I enjoy working with a driven, enthusiastic team and believe Medifast is a great US manufacturer of weight loss and weight maintenance products and programs with an exciting future.

Now I will provide you with an update on our business operations and our strategic initiatives. First, I will focus on our direct sales channel, Take Shape for Life. The number of active health coaches increased 7% to approximately 9600 compared to 9000 in 2010. On a sequential basis, active health coach count decreased as we have seen historically based on the seasonal nature of our business, and as a result, health coaches are less likely to grow their businesses during the holiday season. The average revenue per health coach per month decreased to $1450 from $1550 in fourth quarter of 2011. Our executive team remains focused on improving our results in Take Shape for Life in 2012. The Company has the right team in place under the leadership of Meg Sheetz and Michelle Jones to help better recruit, retain and enhance the productivity of our health coaches.

Specifically our team is continuing to invest in dedicated resources to support our corporate field leadership team through an emphasis on training, new market development, events and incentives.

Training and support remains our top priority. We have started the process of reorganizing our training curriculum and have started simplifying the health coach enrollment process, making it easier for new health coaches to get started and learn the essential skills necessary to build their businesses through the acquisition of clients and health coaches.

We have also begun the development of new interactive e-learning modules that will continue to support our health coaches to develop the necessary skills to acquire new clients and new health coaches. The first 30 days are critical to helping a health coach be successful, and we are leveraging our Trilogy Training site to provide easy steps for them to successfully launch and grow their businesses.

For example, we now have easy to use information available on what a health coach should begin to do on their first day, first week, and first month as a health coach. Our team continues to work diligently to provide our health coaches with the necessary education, tools and support to generate business outside their circle of influence, or war market, which often includes family and friends in their community.

As many of you know, we continue to host regional events throughout the country to ensure participating health coaches receive actionable and relevant content to enhance and grow their business long-term. In 2012 we have increased the number of regional events across the country, focusing all training on core competencies such as new client acquisition and helping all clients understand the business opportunity.

In April we will be hosting our annual Go Global event for our top leaders. Events like Go Global, which promotes simplification and duplication, should lead to continued improvement and our coaches' ability to attract new clients and coaches into their business and help ensure their success.

At these events, leaders are taught skills and techniques to help further develop their own team of health coaches that they mentor. As our leaders continue to develop their training skills, we will be able to more effectively recruit new health coaches. We believe these events, along with all of our other exciting Take Shape for Life initiatives previously mentioned, should help provide momentum in 2012 and place Take Shape for Life in a position to experience growth in health coaches and revenues.

Finally, we're focused on social media as a marketing tool to raise consumer awareness of Take Shape for Life. We recently launched our first mobile app and Facebook page. These applications combined with our Trilogy Training site will help support the increasing demand of mobile learning tools to deliver just-in-time training and support.

The weight loss and weight maintenance results our health coaches and their clients achieve using the Medifast product and programs also provide us with a tremendous opportunity to further showcase individual weight loss and, in turn, success stories. As a result, we plan to increasing improve our website to include more testimonials and individual coach content.

Now I'll spend a few moments discussing our Direct Response Marketing channel. Our team continues to effectively manage this business and strategically spend on marketing and advertising to drive sales. In the quarter, Direct Response revenue increased 6% to $15.6 million, and marketing and advertising increased 4%. We continue to generate more targeted and effective advertising of Medifast portion control meal replacements, which has helped us generate a 2.8-to-1 revenue-to-spend ratio during the fourth quarter of 2011, equal to the rate in 2010. This also led to strong improvements in Direct Response divisional operating income for the quarter. The marketing team continues to focus on the overall integrated marketing strategy by effectively spending advertising dollars via the web, print, radio, TV, and direct mail.

While the Direct Response channel continues to spend on national cable and local broadcast TV advertising, in early February 2012, we launched our first brand advertising campaign, positioning the weight loss program as a solution that helps real people become yourself. Our new television creative showcases a real Medifast success story, Jessica Westmoreland, who lost 85 pounds on the Medifast program. The ad spots are running in select test markets during morning, daytime, and primetime broadcast programming.

In an industry where so many weight-loss programs are focused on celebrities, we want to emphasize Medifast is a plan that helps real people achieve their goals. As part of the marketing campaign, we launched the medifastnow.com. This website features each of Medifast's weight loss support channels, giving clients the ability to select the option that best suits their unique weight loss needs.

Finally, today I would like to spend more time discussing our Medifast Weight Control Centers and Medifast Wholesale Physicians sales channels. We have experienced strong unit growth in 2011, and we consistently increased our same-store sales results throughout the year with a 19% same store sale increase in the fourth quarter. We continue to evaluate ways to provide superior customer service and support to meet the needs of clients seeking additional support and accountability in their weight loss and weight maintenance.

In the fourth quarter of 2011, we opened 10 new corporate centers and ended the year with 70 corporate and 30 franchise centers. In 2012 we will continue to expand the store-level infrastructure necessary to support the future growth of the Medifast Weight Control Center model. We will balance this growth with the pursuit of increased cost efficiencies across our Weight Control Centers as we continue to evolve the model to be as consistent and effective as possible across our new and existing corporate store base. While our unit growth will continue to decrease overall earnings in 2012, which I will discuss in more detail in a few moments, we plan to make our existing clinic base the most profitable it can be long-term through these increased operating efficiencies.

As a reminder, while the new center is being built until there is a breakeven point, we experienced an estimated $100,000 of in-store non-capital expenses. These expenses, which are largely in-store personnel, advertising, and rent, begin two months prior to the opening and diminish over the three to five months post-opening until the store reaches a breakeven point.

We realized a pretax earnings loss of $2.8 million in the fourth quarter of 2011 in the Medifast Weight Control Centers and wholesale sales channels associated with the opening of 31 new Medifast centers in 2011, and 21 of those being opened in the second half of the year. Based on our experience from this year, the current overall economic outlook, and our continued focus on improving same-store sales and profitability, in 2012 we plan to open approximately 25 to 30 additional Medifast Weight Control Centers.

Our team remains focused on growing a successful Weight Control Center model. We will continue to review our annual store growth rate based on our view of internal and external opportunities and challenges in the marketplace.

Medifast has evolved over the last 30 years. The business model evolution has allowed us to realize strong top- and bottom-line growth and generate strong cash flow. The offering of the Medifast products and programs through multiple channels allows us to meet different consumer wants and needs. With our multichannel model, we benefit from cross-channel synergies and overall more diversified go-to-market approach.

Going forward, while we remain excited about our future growth prospects in each of our three primary distribution channels, we're definitely not satisfied with our financial performance in 2011. Our executive team is continuing to review and optimize our overall cost structure to further leverage our sales momentum, improve our margins, and deliver improved earning results while continuing to focus on enhancing the customer experience in each of our sales channels. We will consistently work to make the necessary adjustments and improvements in 2012 to improve our operational efficiencies and overall effectiveness across our sales channels.

In addition, we continue to believe that our vertically-integrated operations and increased capacity allow us to continually improve the long-term leverage of our business model for increased margin expansion 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. Net revenue for the three months ended December 31, 2011, increased 10% to $69.6 million from net revenue of $63 million in 2010. The Take Shape for Life sales channel accounted for 62.2% of total revenue. Medifast Direct accounted for 22.4%. Medifast Weight Control Centers and Wholesale Physicians accounted for 15.4% of total revenue.

Focusing on our sales channels in more detail, our direct sales channel, Take Shape for Life, experienced revenue growth of 4% to $43.3 million compared to the same period last year. Take Shape for Life was driven by increased customer product sales as a result of an increase in active health coaches. The number of active health coaches increased 7% to approximately 9600 compared to 9000 in the fourth quarter of last year.

The Medifast Direct sales channel revenue increased 6% to $15.6 million. Medifast Direct marketing and advertising expenses increased approximately 4% to $5.5 million. And, as Mike mentioned earlier, we achieved a 2.8-to-1 revenue-to-spend ratio in the fourth quarter of 2011 equal to the revenue-to-spend ratio in 2010.

Revenue in the Medifast Weight Control Center and Medifast Wholesale Physicians sales channel increased 57% to $10.7 million. This is due to strong organic growth due to the opening of new corporate and franchised locations and a year-over-year improvement in comparable store sales of 19% in corporate centers opened greater than one year. The Company opened 10 new centers in the fourth quarter for a total of 70 corporate and 30 franchise centers at December 31, 2011.

Gross profit for the fourth quarter of 2011 increased 12% to $52.3 million compared to $46.8 million in the fourth quarter of the prior year. Our gross profit margin increased 100 basis points to 75.2% versus 74.2% in the fourth quarter of 2010. The gross profit margin improvement was primarily the result of leveraging fixed overhead costs in our manufacturing facility. A modest midyear price increase in 2011 offset increased raw material, fuel, and other transportation charges.

Selling, general and administrative expenses increased $9.1 million, or 22% to $50.7 million versus $41.6 million in the fourth quarter last year. As a present of net sales, selling, general and administrative expenses were 72.8% compared to 66% in the fourth quarter of 2010. The largest increases in selling, general and administrative expenses were primarily related to increased expansion of the Medifast Weight Control Center model with 10 corporate centers opening in the fourth quarter that led to additional expenses with minimal sales during the new center's ramp-up phase.

During the fourth quarter of 2011, the Company recorded $1.3 million of additional charges related to increased technology costs, rent expense, and depreciation charges related to our Medifast Weight Control Centers.

Salaries and benefits increased by approximately $3.4 million as compared to the fourth quarter of 2010. The increase includes the hiring of additional expertise in critical areas such as Medifast Weight Control Center division that hired additional expertise in regional trainers, district managers, area managers, mobile managers, dietitians, HR recruiters, operations support, and marketing to support the growth of 31 new corporate center openings in 2011, including the 70 corporate centers and 30 franchise centers in operation as of December 31, 2011.

Sales and marketing expense increased by $1 million in the fourth quarter of 2011 as compared to the prior year, primarily due to the increase in Medifast Direct advertising, as well as an increase in advertising spend for the new and existing Medifast Weight Control Centers.

Operating income for the fourth quarter of 2011 decreased to $1.5 million compared to $5.2 million in the same period a year ago. Our operating margin was 2.2% in the quarter compared to 8.3% in the fourth quarter last year. The decrease in operating income is due to the previously-described increase in SG&A, partially offset by the increase in gross profit margin.

Fourth-quarter net income was $1.2 million or $0.08 per diluted share compared to $3.4 million or $0.23 per diluted share in the fourth quarter of 2010.

Now focusing on a few highlights from our 2011 annual results in more detail.

Net revenue increased 16% to $298.2 million from net revenue of $257.6 million in 2010. Gross profit for the full-year 2011 increased 17% to $224.5 million compared to $192.5 million in 2010. The Company's gross profit margin increased 60 basis points to 75.3% in 2011 versus 74.7% in 2010.

Fiscal year 2011 operating income was $27.4 million compared to $31.6 million in the same period a year ago. Our operating margin was 9.2% versus 12.3% for the same period last year. The decrease in profitability in 2011 is primarily a result of the expansion of the corporate Medifast Weight Control Center model and operational inefficiencies in existing clinics.

In 2011 we recorded $9.1 million in income tax expense or an effective tax rate of 33% as compared to $12.1 million in income tax expense or an effective tax rate of 38.1% last year. The decline in the effective tax rate was a result of extensive tax planning performed by the Company. As part of its tax planning process, the Company amended several returns filed in prior years. As a manufacturing entity based in Maryland, the Company adopted the single sales factor apportionment method in addition to claiming new state job credits, reducing the Company's overall effective tax rate compared to the prior year.

Net income for the fiscal year 2011 was $18.5 million or $1.31 per diluted share compared to net income of $19.6 million or $1.35 per share for the comparable period last year. The Company's balance sheet remains strong with stockholder's equity of $73.4 million and working capital of $43.7 million as of December 31, 2011. Cash, cash equivalents and investment securities were $33.8 million for the full-year 2011.

Now, focusing on a few items as it relates to our financial outlook for the first quarter of 2012.

We expect first-quarter 2012 net revenue to increase in the range of 16% to 19% or $86.5 million to $88.5 million. Earnings per diluted share are expected to be in the range of $0.36 to $0.38 based on an average weighted diluted share count of 13.8 million to 13.9 million shares, and we anticipate a tax rate of 35% to 36%.

In the first quarter of 2012, the Company plans to open three to five new Medifast Weight Control Centers in new and existing markets with expectations to open a total of 25 to 30 new centers by year end. We will continue to review our annual store growth rate based on their view of internal and external opportunities and challenges in the marketplace.

That concludes our financial review. Now I would like to turn the call back over to our Chairman and CEO, Michael MacDonald.

Thanks, Brendan. I would like to conclude our prepared remarks by stating that we remain excited about our future growth in each of our three primary distribution channels, but our executive team is not satisfied with our performance in 2011. We're working diligently to improve our operational efficiencies and effectiveness across our sales channels to improve profitability long-term and realize greater shareholder value.

Now Brendan, Meg, and I are available to take your questions. Operator?

(Operator Instructions). Scott Van Winkle, Canaccord.

Thank you very much. A few questions. So, first, before I forget, Brendan, what was the share count in the fourth quarter?

The share count was 13.83 million shares.

Okay. I'm just having trouble getting to that $0.08.

All right. So to go through a couple of channels, so Take Shape for Life, Mike, we had a comment about typically there is a decline in the number of health coaches Q4 from Q3 sequentially. I've actually seen it flat to up in the numbers I had in the past. I'm wondering if that trend reverses here in the Q1 seasonally strong given that was a little sharper decline than I thought probably would have been likely from Q3 to Q4.

We are going to see -- we're seeing an uptick in our coaches in the first quarter. So we are seeing an improvement in the health coach count so far in the beginning of the year.

And then on Direct Response -- and maybe you said it; I apologize if I did not catch it -- but you have the 2.8-to-1 revenue-to-spend ratio held nice and constant, but you spent a lot less than the growth rate of spending had been over the prior three quarters. Why did you dial that back, and what should we take away from that?

Well, I think one of the things we're trying to do is get a balance in our marketing between what we're spending in Direct Response; what we're spending to support the Weight Control Centers; and we're building up obviously expenses and advertising and spending more in the Weight Control Centers. So we want to make sure we have the right balance.

We feel we're getting a good return from the Medifast Direct advertising, and we did have, Scott, some expenses. We developed a new TV ad, as I talked about, and there's probably about $900,000 worth of costs that go into the creation of that ad. Some of it hit in the first quarter; some of it will hit in the third quarter. But what we're going to really try to do is then use that ad over all our channels and be able to customize that to help all of the Medifast channels. So we feel we've got a good marketing strategy that I think we can execute. But we're trying to balance what we're doing so we can flow through better profitability.

And the goal, Scott, in 2012 for Direct Response in general, the Direct Response channel we like to spend about 10% to 15% more advertising dollars and at least maintain that 2.8-to-1 effectiveness in 2012.

Yes, I can appreciate the idea of comprehensive branding. I guess I always thought of the marketing spend as being very distinct between clinics and Direct Response. Clinics are using local radio. In Direct Response, a lot of it is online, and it's very easy to measure. And I wonder, how can you or how are you going to be able to measure that kind of immediate return on your advertising spend you typically have in direct response. If you're using more of maybe like an umbrella approach, that's probably over-simplifying.

I think it is harder to measure, Scott. I think your point is very valid. But one of all our issues is that the awareness of Medifast is only about 2% across the United States. And one of the things we do need to do is raise the awareness of our brand period to help all three channels.

And I think we're still going to try to be very discreet, as you talked about, to have some very specific programs for Direct Response, very specific to the clinics. But we are working on what is called a one Medifast cross-channel synergy project to look at how we can develop synergies between our channels and also using our website to support that. In fact, we're doing pilots right now in Baltimore, Austin, and Orlando on television that allow us to really test this in the marketplace, and our early returns are pretty good.

And then it's obvious the spending on the clinic side, you gave us some detail there. What I was surprised, the revenue was a lot better in the clinic division. And then if I look at this first quarter, you're indicating some pretty strong revenue. And, by the way, thank you very much for giving some guidance on the out quarter. That's a great, refreshing change. But I'm having trouble getting up to your revenue that you're indicating for Q1 given the Q4 trend, and I'm wondering if I'm missing something. I mean I've got 10% to 15% type of growth in direct to consumer, which is what Brendan just mentioned on advertising spend. Take Shape for Life should be relatively consistent, certainly be up year over year, but probably not a lot.

Are the clinics a lot more productive? I mean are we really going to see some big growth in Q1 on clinics because that what's driving that strong Q1 revenue relative to the Q4 trend?

Well, we are not going to speak on each specific channel, Scott. I just want to give overall guidance. All we can really say is the clinics, we are seeing positive revenue, same store sales growth, but at the same time, we're are really looking at our cost base right now. You saw the loss in the fourth quarter for the clinics. We are addressing that in the first quarter and into the second quarter to address the profitability there.

I mean right now we're very happy with the sales there. The momentum in the Take Shape for Life division has started to return. And like we said, Direct Response, we're spending at least 10% to 15% more advertising dollars, and we're currently satisfied with the effectiveness of that spend.

What I feel good about, Scott, is that basically if you look at our issue, we have a cost issue in terms of probably trying to expand a little bit too quick. We're going to try to cut back on some of the expenditures that have probably been too aggressive in terms of what we really need, and I believe that the revenue is going to be in good shape. And the good news is, what we have to fix is very controllable. And I'm really trying to work on improving the efficiency and effectiveness in the organization so we have much better discipline, better line of sight and improvement in our cost management so we can expand at a pace where we are flowing through better profitability and not just looking at the term clinic drag or whatever.

Great. Thank you.

John San Marco, Janney Montgomery Scott.

My question is about the $4.5 million of weight center hiring expenses that you called out. I guess how far along are you in the process of hiring corporate personnel for the weight center buildout? Is there more incremental hiring spending you're going to do in 2012, or just if you can comment on that $4.5 million bucket?

This is Meg Sheetz. The staff is filled, we've got the right positions in place, and at this point, that cost should stop.

Got it. And then the also another housekeeping on the $1.3 million of "additional charges," I was surprised you called those out. Do you mean to characterize those technology, rent, and depreciation expenses related to the weight centers, do you mean to characterize them as one-time in nature, or how should we think about that?

Certain ones I would characterize as one-time. Out of that $1.3 million, John, I'd characterize about $800,000 as one-time, where the other $500,000 is just more business as usual we needed to complete during the quarter on our major systems.

Got it. And then more generally, there was a lot of commentary both in the press release and your scripts and I think even one of the last questions just more than normal about the cost structure, and it sounds like some things are already underway to attack your cost structure. Can you just clarify what you are doing now or have done recently to enhance the cost structure?

What we're doing is we're looking at, as I mentioned earlier, we've built up a cost structure that is probably too heavy for the revenue we have. And we're going to make the appropriate adjustments to the cost structure and do it as quickly as possible so we can get costs in line and start flowing through greater profitability. And our goal is to execute these plans quickly. We're really focused on operational excellence. We are going to focus on doing things, doing them fast, increasing the clock speed in the Company, and that's what we're working on.

So I feel very confident that we will get the costs under control, because to me, the fourth-quarter costs were unacceptable and way too high given where the revenue was. And we're going to look at improving the bottom 10 clinics and focusing on low-performing clinics, focusing on opening clinics more effectively from a cost perspective, and really trying to improve that.

Got it. So are you still in the planning phases of finding these costs baskets that you can shrink? I mean have you identified items yet?

So we know exactly what we need to do. We're into now, we're focusing on the execution of our strategy, not so much the planning of it. I've been looking at this over the last three months and clearly identified the issues of too much expenditures in our clinic base. We have changed the management in the clinic area, and we are moving forward with a much more prudent plan that allows us to keep growing, but do so where we have a plan that actually grows revenue and improves profitability together.

Okay, great. Well, thank you very much for taking the questions.

Anand Vankawala, Avondale Partners.

Thanks for taking my question. Just on the clinics, when can we expect the segment to really achieve operating breakeven, given that we are -- given that you are focusing on reducing the cost structure throughout 2012?

Right now all I can comment we will be giving quarterly guidance, Anand, will talk on that quarterly. However, just 2012 you will not be breakeven in the clinic. The corporate clinic division just due to the carryover of the 31 centers in prior year, as well as the 25 to 30 additional this year. That won't be hitting breakeven, but every quarter we look forward to updating you on our plan to achieve that as fast as possible.

And I guess just keeping on the clinics, is there any reason that why we should not be expecting the same-store sales to keep in the mid to high teens range in the first half of this year just given the fact that we do have the significant base of clinics that are still in the ramping phase?

Yes, I think definitely during the first half of this year, it is management's expectation to see at least double-digit improvements in same-store sales for centers open greater than one year. That would be a fair assessment.

And I guess, just trying to get a gauge for how the training initiatives are going, can you give us an update on what percent of health coaches have used the TTS site and just what feedback you've received from the channel as far as if they are actually finding it useful?

Sure. We started -- Michelle came in in November, October/November. So we started going out to the field and getting feedback. One of the biggest things was too much all over the site -- too much information, don't know where to go first. So, on the TTS site as of February, we have a whole new look and feel, which is basically, here's what you do on your first day; here's what you do within your first 30 days. It even breaks it down into the weeks. Every week what you need to be doing and what you need to be training on.

So that was an initial feedback, and we were able to respond to that feedback within just a few weeks. So that is up and running and done.

So right now we're getting a lot of positive feedback. We're really looking forward to Go Global, which is the end of April, to really continue to push out our two biggest training initiatives are to foster health coaches and acquire more clients. And so those two training pieces have been created and are being launched at our Go Global at the end of April. So once those are launched, they also come with the new look and feel of future training that we will be doing. We're very excited for the coaches to get their hands on those to be able to make some traction.

Great. And then I guess what are we seeing in terms of conversion rates? I know last year there was some talk about the conversion rates of customers into health coaches dipping down below historical rates. Have we seen that come back up, and where are you seeing that trending?

We will talk -- we can't give that information unfortunately at this time as our guidance didn't include those active health coach counts. Although we will be happy to talk once our numbers are public in early May on Q1 trending, on conversion, as well as active health coach count. But I apologize we can't answer that at this time.

Okay. Thank you.

Kurt Frederick, Wedbush Securities.

Just a couple of quick ones. On the Weight Control Centers, the openings, I think it's 20 to 25 -- or, excuse me, 25 to 30 for the year, I'm just wondering is that going to be more spread out than originally planned? I think before it was really going to be first-half weighted.

Yes, we are actually going to be opening new centers in both existing markets and in some new markets. So you'll see some in the Philadelphia market, Dallas market, and then we're launching into the North Carolina market and adding some in Virginia. So we're excited that -- it's a mix of both. We really want to get -- we can gain greater efficiencies in some of the current markets we have that have room for continued growth.

Is it going to be kind of evenly spread, the openings, throughout the year?

There will be about half and half. So you'll see about 10 to 15 in the first half of the year and 10 to 15 in the back half.

And then on the same-store sales number, you have seen a pretty big acceleration the last few quarters. I'm just wondering what is driving that?

In terms of same-store sales, we saw in the first quarter, we're very happy with a 19% uptick. And that's really driven by -- we have three to four of our existing markets that are really doing very well with our new structure -- we have a lot more corporate overhead -- corporate people, regional managers, regional trainers, and you are seeing we launched that training a few months back, and you are seeing that training really impact the center managers and in turn the sales associates' existing centers. So it really comes down to better training and better oversight, and we're seeing that trending, and we are positive what we are going to see in 2012, as well.

Is that bringing in a lot more people, or you will be able to keep your existing customers longer?

We're able to do both, actually. We're able to keep our existing customers longer, but we are also celebrating that we are getting more sign-ups per store. So that is one of our big metric changes -- not really a metric change, but the view is that centers are excited that they are getting new members. It's not just about increasing the actual sales per store, but you can increase the sales per store by the new members coming on. So that mental shift has helped significantly in bringing that up.

Okay. And I guess the last one is just on -- you talked about like the cost structure is too high. I am just wondering what type of margins that you would like to get to and kind of like a timeframe?

Kurt, on this one, we will have to defer our guidance for Q1 again. I will be happy to talk every quarter now we will be providing guidance, complete transparency into our plans to execute on both our sales strategy for all our sales channels, as well as our cost structure plan to realign and improve profitability. But we'll give you quarterly updates on that plan.

Okay. Thank you.

Chris Krueger, Northland Capital Markets.

All right. Most of my questions have been answered, but another one on the Weight Control Centers. As you open up these new ones and all these others you have opened really in recent years, are there any certain markets that really stand out in either a positive or a negative way?

Yes, the positive markets are the ones that have been open the longest. So Dallas, Baltimore, some great markets for us. And that is all I will fill you in on this point.

And then as far as the most recent openings throughout 2011, do you feel like you have those clinics up and running and positioned well enough to start taking advantage of the diet season once we got through the holidays and into the months of January, February?

I think we're well positioned for the diet season. I think you're seeing good growth in our clinics. I think, as I mentioned before, I think it's more of an issue of us creating the right balance between the expansion plans we have, which we're doing, and ensuring the most effective cost structure.

We're also really looking at our clinic model to make sure we're delivering the same experience for every customer that goes in every clinic. So we've developed a consistent model and consistent approach that is repeatable in every location. So you have the same experience in Dallas, which is a good performing area, as you would in Baltimore.

All right. Thank you. That's all I have.

(Operator Instructions). Gary Albanese, Auriga USA.

Thanks for taking my call. Going back to the coach count in the Take Shape for Life segment, as Scott mentioned at the beginning of the Q&A, it is down year over year, and I had the same thing with my model that has been flat to slightly up. Was that because of the training procedures and the new systems being put in place, or was there more of a macro thing going on? And do those same factors play into the lower revenue per coach trends?

A couple of things there. I mean we are seeing sequential growth in the health coach count. So we're very, very excited about that.

When we talk about revenue per health coach, it is positively trending. We anticipate it growing to low double digits. So we are certainly excited about that.

From a cash perspective, I think what we are doing a better job of right now is really differentiating between training and content. So it is one thing to go to events and use training online that is driven by just information, and it's another to have role-playing and really active training actually taking place. And that is what you will see very differently after the Go Global event this year than you did when we launched TTS at convention. TTS last -- when it was first launched -- was probably more of a content-driven site on a learning management platform. Now we're going to create training on a learning management platform, which will take us to the next level.

When do you think you can really hit some traction on that and really get the growth -- the coach growth back to what you have seen in some prior years?

Yes, we won't really be able to comment on that. I'd like to see Go Global is when we will be launching our new training materials on both sponsoring health coaches and acquiring new clients. And those two pieces we are really excited about what they can do for our coaches who are new all the way through to our coaches who have been with us for 10 years.

Okay. And lastly, going to the clinics, I mean are you having to be somewhat promotional when you open a new site?

What you mean by promotional?

In terms of discounting, special deals.

No, we don't typically push discounts in our clinic models. We have different programs in the models, so it is a pay-per-pound type model. So that is where your pricing differentiation occurs.

Okay. Great. Thank you.

Michael Halen, Sidoti & Co.

Thanks for taking my question. Can you give me a little more color in terms of where the MWCC expansion is going to occur this year? I think it was mentioned that 14 centers or so were going to be opened in New York and New Jersey this coming year. Can you give me any more color on that?

Yes, we are actually looking at the entire opening at this point and deciding where are the best openings for this year based on the current expense drag that we are seeing. So we are looking at not proceeding heavily in New Jersey or New York at this time and looking at focusing on existing markets and markets where we feel it can get better for no better word, bang for our buck.

Okay.

And we will look at southern New Jersey that borders on Philadelphia. So you do have some that are in the Philadelphia advertising market that we would be involved in that are in part of New Jersey. But New York is a very expensive market, and we really want to focus on where we can get a higher return first. And, as we grow, then we can pursue that market.

Okay. Thanks. And also, any more plans for share repurchases this year, or is that something you are going to be pulling back on?

We currently have 275,000 shares authorized and approved by the Board. We are just going to be really looking at that throughout the year and as we see fit we may throughout the year. However, no decision has been made at this time.

Okay. Thank you very much.

Scott Van Winkle, Canaccord.

Thanks. Brendan, make sure I had this right, you mentioned $2.8 million loss in clinics during the quarter. Was that the quarterly number?

That was the quarterly number. So for the quarter, the MWCC and wholesale channel had a $2.8 million loss. That's correct.

So, if I look in your Qs and you break your segment detail out, you had a $1.5 million loss in Q3. Is that comparable to the $2.8 million and that's the same number?

Yes, so we had a $1.3 million sequential decline in profit quarter on quarter. That is correct, Scott.

Perfect. Now, if you took out the Weight Control Center, we look at just at the Take Shape for Life and Direct Response business, was the contribution or for-profit percents of sales up, flat, down year over year? I assume it was probably up a little bit.

It was up slightly year over year. So in terms of the Medifast segment, which it includes Take Shape for Life and Direct Response, actually the profit was 9.8% in 2011 compared to 9.6% in prior year.

Okay. Great. Thank you very much.

You're very welcome, Scott.

There are no further questions in the queue. I would like to hand the call back over to management for closing comments.

Okay. I would like to just thank everybody for participating today on the call. You can be assured that the management team of Medifast is going to be very focused on growing revenue and containing costs and flowing through the maximum profit that we can to our shareholders, and we thank you for participating.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.