Medifast Inc (MED) 2013 Q1 法說會逐字稿

Greetings, and welcome to the Medifast,Inc. First Quarter 2013 Earnings Conference Call. (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 First Quarter 2013 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 Timothy Robinson, Chief Financial Officer.

By now, everyone should have access to the earnings release for the period ending December 31, 2012 that went out this afternoon at approximately 4.05 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'd like to remind everyone that 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 statement.

Medifast assumes no obligation to update forward-looking projections that may be made in today's release or on the call posted on its website. Medifast does not comment on issues or items currently or potentially in litigation with adversarial third parties and/or under investigation by regulatory or law enforcement agencies of a state or federal government. All forward-looking statements contained herein speak only as of the date of today's call. And with that, I'd 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 strategic initiatives and discuss areas of our business where we realized greater efficiencies in an effort to improve Medifast's future growth and profitability long term.

Sam will review the financial results for the first quarter in more detail and discuss the second quarter and full year 2013 revenue and EPS outlook. I will then provide closing remarks and we will open up the call to take your questions.

In the first quarter, we continued to focus on driving operational excellence throughout our Take Shape for Life, Medifast Direct, Medifast Weight Control Center, and wholesale physician sales channels, as well as our internet support departments, to better position our business for maximum profitability long term. In the first quarter, we were able to generate an 8% increase in revenue to $96 million, while further enhancing our customer experience in each of the sales channels.

Our continuous review of our overall cost structure to further leverage our sales enabled us to improve our operating margin 200 basis points and deliver an earnings per share increase of 48% to $0.43 in the first quarter of 2013 and our expectations for revenue in the range of $93 million to $95 million and earnings per diluted share in the range of $0.32 to $0.35. Excluding the $400,000 or $0.03 per diluted share benefit from the lower tax rate versus the first quarter of 2012, earnings per diluted share would have been $0.40 for the first quarter of 2013.

Jim will discuss our financials in more detail in a few minutes.

In the first quarter, we were pleased with the introduction of our national brand advertising campaign as we combined a new campaign with traditional direct response and call to action approaches. We are and will continue to utilize creative assets that focus on messaging to drive conversion, line acquisition, and client retention across each channel.

Of course, to achieve our long term objectives, we must also build brand recognition and use our new conversations with yourself campaign to connect with prospective customers and share with them the (inaudible) multiple channel support options. We have taken a more conservative approach to our marketing spending in the first quarter of 2013 as we balanced this call to action and brand building approach, as well as further engage consumer discretionary spending order activity and the competitive environment.

We finished the first quarter with our consolidated advertising spend flat and drove sales and marketing expense down 3% as compared to the first quarter of 2012. We are pleased with our building to generate 8% revenue growth and increased leverage from this spending level.

First, I'll focus on Take Shape for Life. The number of active health coaches increased to 11,300 at the end of the first quarter of 2013. We are pleased with our health coach productivity as our average revenue per health coach per month for the quarter was $1,720 as compared to $1,650 in the first quarter of 2012. We are continuing to invest in dedicated resources to support our field leadership team through an emphasis on training. New market development events and incentives across Take Shape for Life.

In the first quarter, we realized strong adoption and many of our new health coaches sponsoring in flight acquisition tools that were launched in the fourth quarter of 2012, including our business opportunity and achieving optimal health videos, as well as our new health coach enrollment kits, featuring our Just in Time training program developed to provide new health coaches with the information and skills they need to achieve success in their first 30 days.

We continue to believe that the first 30 days are critical to helping a health coach be successful. And over the last year we have developed tools to provide easy steps for them to successfully launch and grow their businesses.

In addition, last quarter I mentioned the early distribution strength of Success From Home magazine, another great acquisition tool in which Take Shape for Life was featured in the February issue. Today we have sold over 80,000 issues. This amazing third party publication is a strong tool to support our coaches in the promotion of their businesses in their communities and the publication will be relevant for up to 12 months.

We recently had our annual Go Global event from the top Take Shape for Life field leaders and earners in Dallas, Texas. It was a tremendous event with approximately 950 qualifying attendees, the highest ever. That's why Go Global for one simplification and best practices fell foster to continued improvement and our coaches ability to attract new clients and coaches into their businesses and help ensure their success long term.

In 2013, we're increasingly focused on expanding our TSSL health coach presence in all 50 states, so more clients achieve optimal health. In May, we kicked off a new market development initiatives with events scheduled in five cities and a focus on client acquisition and the health coach business opportunity. Most importantly, this is a collaborative effort between a company and our field leaders. We plan to leverage radio in select cities, (inaudible) social media to drive attendance and build awareness for the events.

These events also serve as a prelaunch introduction to Dr. Anderson's new book, Discover Your Optimal Health, scheduled to hit stores in early July. Another innovation, we had to help further provide our health coaches with the knowledge and information they need to be successful is a certification program in conjunction with COPE, the Center for Obesity Prevention and Education, with the College of Nursing at Villanova University. Health coaches can prepare for and complete an online course via new TSSL eLearn formal to receive their certification.

TSSL is also enhancing its online health coach tools with the launch of iShare TSFL, a mobile optimized website that allows health coaches to capture information from prospective clients and coaches and send personalized messages with pre-loaded videos and content directly from their mobile device or PC.

I will now spend a few moments discussing our manifest direct sales channel. Our team focuses their efforts on this business in two primary ways. First, by strategically spending on marketing and advertising to drive traffic and sales, and secondly, by focus on and optimizing eCommerce performance via our online content strategy and by driving the metrics most formally with website performance.

We have continued to invest in both tools and talent to drive this business channel. In the first quarter of 2013, Medifast's direct revenue increased 2% to $23 million. While advertising in the sale channel was lower than the first quarter of 2012 as the Company reallocated part of the sales channel spend into the Medifast brand advertising activities and gauged customer order activity. We effectively leveraged marketing dollars while closely monitoring the consumer discretionary spending environment. We are pleased that the Medifast success story was again featured in the People magazine Half Your Size issue, and Medifast was favorably mentioned in several weight loss summaries from leading consumer research publications.

As I mentioned earlier, the customers reallocated a portion--the Company has reallocated a portion of channel specific spending to highlight the brand across all businesses. And as a result, the previously reported Medifast direct levers of spend metric is no longer comparable with period year periods. The Company will now report revenue spend based on total consolidated revenue and total advertising spend as this represents a better measure of the Company's overall advertising effectiveness.

In the first quarter of 2013, the Company's revenue spend ratio improved to 9.6 to one, versus nine to one in the first quarter of 2012.

Among some of the important metrics we monitor, Medifast Direct realized first quarter year-over-year increases in Google search clicks, unique site visitors, total orders, and order ship sign up as compared to the first quarter of 2012. Our team capitalized on learning from our web analytic tools and our content management monitoring technologies to drive more optimized site performance and will continue to do so with constant testing across all of our websites. Analyzing content, navigation, the shopping experience, and the checkout process we're implementing ongoing improvements to ensure the best possible customer experience.

We believe the opportunity to build the Medifast brand is a very important investment in our future and look forward to continuing to improve and enhance our overall marketing effectiveness to drive sales long term.

Finally, today, I'd like to spend some time discussing our Medifast weight control centers and Medifast wholesale physicians sales channel. Revenue in the sales channel increased 2% to $13.7 million in the first quarter of 2013. While same store sales declined by 16% for corporate centers open greater than one year, we generated a $2.8 million profit improvement with segment income before taxes of $600,000, compared to a loss of $2.2 million in the first quarter last year. The Company focused efforts on profitability improvement by creating operational efficiencies, optimizing staffing levels and managing expenses.

While we're still ahead of where we thought we would be from a profitability standpoint in this channel through the year, we remain focused on driving future improvements. As we previously communicated, future center unit growth will be generated by additional franchise locations. We expect to open five to seven franchise locations in 2013 with one open in the first quarter and the remainder opening in the second half of the year. As a reminder, our franchisees plan to open approximately 40 centers total over the next three to four years, and we have started the process of adding new franchisee partners for the future. We entered the first quarter with a total of 86 corporate and 36 franchise centers. We will continue to ensure we're delivering technology assistance to enable franchise centers to be more efficient and effective as we work to grow the franchise model further, both with existing partners and new franchisees. In fact, we recently launched a new online resource center to provide our partners with easier and faster access to key information to help them drive their businesses.

I also wanted to provide everyone with a brief update on our strategic partnership with Medix. We believe Medix distribution of Medifast clinically proven meal replacement options help us to address and reduce obesity in key countries outside of the U.S. In the first quarter, Medix started their registration and regulatory process to open Medifast weight control centers in Columbia and other Central and South American countries. Medix also had a large presence at an obesity summit in Mexico City in late February. Medifast presented at the conference and the Medix team was able to take orders for Medifast products on the floor in what was a successful physician conference.

Medifast continues to work with its--Medix continues to work with its extensive physician network while also opening approximately 30 weight control centers over the next several years. This is a long term partnership with Medix and we are being prudent with the rollout to ensure a successful start. This partnership is a great example of how we are expanding Medifast products and programs internationally to renew complementary distribution channels.

Going forward we will continue to explore ways to grow the Medifast brand to help fight obesity on a global basis with an emphasis on entering new markets with a low capital investment and a focus on increased profitability.

I would now like to turn the call over to Tim Robinson, our Chief Financial Officer, to review our first quarter 2013 financial results in more detail and provide you an outlook for the remainder of 2013.

Thanks, Mike. I'll now review our financial results for the first quarter ended March 31, 2013 in more detail. For the first quarter, net revenue increased 8% to $96 million from revenue of $88.9 million in the first quarter of the prior year. As Mike mentioned, our reported net revenue for the quarter exceeded our guidance of $93 million and $95 million. The Take Shape for Life sales channel counted for 61.9% of total revenue. Medifast direct accounted for 23.9%. Medifast weight control centers and wholesale physicians counted for 14.2% of total revenue.

Focusing on our sales channels in more detail, our direct sales channel Take Shape for Life experienced revenue growth at 12% to $59.4 million, compared to the same period last year. Take Shape for Life growth was driven by increased customer product sales.

As Mike mentioned, Medifast's direct segment revenue increased 2% to $23 million, as compared to $22.5 million in the first quarter of 2012.

In the first quarter, the Medifast weight control centers and whole physicians channel revenue increased 2% to $13.7 million. While comparable stores for centers opened greater than one year decreased by 15%, as Mike mentioned, we saw a $2.8 million improvement in the segment's operating profit year-over-year. We had 73 Medifast weight control centers in the comparable store base as of March 31, 2013.

Gross profit for the first quarter of 2013 increased 8% to $72.4 million, compared to $66.8 million in the first quarter of the prior year. Our gross profit margin increased 30 basis points to 75.4% versus 75.1% in the first quarter of 2012.

Margin improvement during the quarter is a result of pricing adjustments, including offering fewer customer discounts, partially offset by increased commodity and shipment costs.

Selling, general, and administrative expenses in the first quarter of 2013 increased $3.2 million to $63.8 million versus $60.6 million in the first quarter of last year. As a percent of net revenue, selling, general, and administrative expenses decreased to 66.5% from 68.2% in the first quarter of 2012.

Take Shape for Life commissions expenses, which is variable based on product sales, increased by approximately $3.2 million, as Take Shape for Life grew 12% compared to the first quarter of 2012. Health coaches do not need to purchase products themselves to reach--receive commissions and health coaches are not compensated for their own orders, nor for the recruitment of clients or new health coaches. Importantly, commissions are not paid out on sales of enrollment kits, business building tools, or event registration. So essentially, we don't pay commission on non-consumable items. And finally, clients pay the exact same price for products through Take Shape for Life as do individuals who elect to do the program without a coach through Medifast Direct.

Salaries and benefits decreased by approximately $900,000 in the first quarter of 2013 as compared to last year. The increase in salaries and benefits is due to savings recognized as a result of the restructuring that took place at the end of the first quarter of 2012 to facilitate a workforce reduction in the Medifast weight control centers and corporate facilities.

(Inaudible) were partially offset by the hiring of and increased salaries for key executive positions. Sales and marketing expense decreased by $300,000 the first quarter of 2013 as compared to the first quarter of last year. Operating income was $8.6 million, or 8.9% of total net revenue, compared to $6.1 million, or 6.9% of net revenue, in the first quarter of 2012.

Our effective tax rate was 31.9% compared to 37% in the first quarter of 2012. This decrease in the effective tax rate was a result of state tax restructuring in addition to benefiting from newly enacted research and development credits, which became effective January 1, 2013, but were applicable retroactively to 2012 activities.

As Mike mentioned, the lower tax rate versus the first quarter of 2012 contributed to $400,000, or $0.03 per diluted share, to the Company's first quarter 2013 earnings.

First quarter net income was $5.9 million, or $0.43 per diluted share based on approximately 13.9 million shares outstanding, compared to net income of $4 million, or $0.29 per diluted share, for the comparable quarter last year.

The Company's balance sheet remains strong with stockholder's equity of $97.3 million, and working capital of $63.7 million as of March 31, 2013. Cash, cash equivalents, and investment securities for the first quarter of 2013 increased by $8.9 million to $68.9 million, compared to $60 million as of December 31, 2012. As we previously announced the Company paid off the remaining value of its outstanding long term debt and remains free of any interest bearing debt.

We remain optimistic for the remainder of 2013 and now we'll share the guidance for the second quarter and full year 2013. We expect second quarter 2013 net revenue to be in the range of approximately $98 million to $102 million, or an increase of approximately 5% to 9%. Earnings per diluted share are expected to be in the range of $0.45 to $0.50, and assume a 34.4% effective tax rate. This compares to reported earnings per diluted share of $0.20 in the second quarter of 2012. During the second quarter of 2012, the Company reported a one-time $3.7 million FDC related expense, an $800,000 gain in other income associated with the proceeds from a key man insurance policy for the Company's former Executive Chairman of the Board, and accelerating commission expense of $400,000 owed to the former Executive Chairman.

Including these items, earnings per diluted share were $0.45 in the second quarter of 2012. Our normalized tax rate would have been 30.4% in the second quarter of 2012 net of these items.

Continue to expect full year 2013 net revenues to increase 7.9% to 12.1%, or in the range of $385 million to $400 million, and our earnings per diluted share are expected to be in the range of $1.70 to $1.80 per share. Our guidance includes our expectation that the effective tax rate for the full year will be in the range of 34% to 35%. Expansion into new markets and continued growth in our conversion and brand awareness will contribute to our net revenue increase, while an ongoing focus on increasing our operational efficiencies and ensuring the right pricing and discount mix to drive client acquisition and retention, will help deliver earnings per diluted share improvements.

So that concludes our financial review. Now I'd like to turn the call back over to our Chairman and CEO, Mike McDonald.

Thanks, Tim. We believe our multichannel weight loss and weight management business model allows us to benefit from cross channel synergies and an overall diversified go to market approach. We're excited about our future growth prospects in each of our three sales channels and we will consistently work to make the necessary adjustments to improve our operational efficiencies and overall effectiveness across our distribution channels in 2013. In addition, we continue to believe that our vertically integrated operations and increased capacity will allow us to continue to improve the long term leverage of our business model for increased margin expansion and long term profitable growth.

In closing, we are pleased with our start to 2013. The Medifast business model has allowed us to realize strong top and bottom line growth, as well as strong cash flow generation. And we remain optimistic about our long term growth prospects and the team in place to help us achieve our goals. We appreciate your interest in Medifast. (Inaudible) Tim and I are available to take your questions. Operator?

Thank you. (Operator Instructions) Our first question comes from Scott Van Winkle with Canaccord Genuity. Please proceed with your question.

All right, thanks. Good job on the margins, guys.

Thanks, Scott.

So a couple questions. First on Take Shape for Life, I don't think I've ever seen you guys have an 1,100 active health coach growth number sequentially before. Was--you went through the training, obviously, a lot of things have been done there, and made some investments. Was there anything else? I mean, was anything incremental in the Q1 versus years past? Or I assume the way you're measuring the numbers still the same, I just wonder if there's any other color on that big health coach growth jump?

No. I think that the adoption of the new training materials that were put out, the coaches, the leadership, is really driving consistency. The other is we use Success from Home magazine kind of came out into the field in January or February, which is a great tool to help people realize how legitimate the business model we have is, and that was a great addition to the vast tools that we've created to help get more coaches onboard along with just more clients turning into health coaches.

Okay. Now, I don't know if this is something you track. I'm sure you certainly have the data. But so, you're spending kind of brand building on the marketing side, you're driving people to this kind of one Medifast website. Has there been any noticeable increase in people coming in to shape--Take Shape for Life through your website rather than through another health coach?

I think the most--.

--Oh, go ahead.

I think the--from a business perspective, Take Shape for Life is obviously a relationship based business. So I would say that there's obviously many more opportunities for people to build their relationships one on one than there are through any type of leads program that we could offer.

Okay. Well, that kind of parlays into my next question, which is I understand the change in the advertising spend ratio. I guess what I don't understand is why you'd apply that across your entire revenue base. Take Shape for Life is a one on one business. Advertising really doesn't drive that segment. So I'm kind of wondering what your thinking was there. I mean, if you want to get off the specific spend direct response, I get that. I would just--I think you should be just reporting an advertising figure every quarter and let us figure out what revenue we want to apply it against.

Well, Scott, from my--basically, if you look at our advertising spend, it primarily drives the business that is outside of Take Shape for Life.

Right.

So we're looking at that very closely and trying to evaluate what the right mix is between branding--because as you know, Medifast brand is only in the 20s of brand awareness. So we're trying to balance building the brand up, and then also doing what we need to do, call to action advertising, to drive activity over the Med Direct website. And we're looking at that balance, so we'll make adjustments as we go forward because we could at some point spend a little to much on branding and have to take that back and spend more on call to action if we see we're not driving enough revenue. So that's really the balance we're looking at. And if you look at the non-Take Shape for Life revenues, that's really what we're trying to drive with the advertising.

Okay, and then last question. I won't monopolize the call here. So do you have some numbers--and if you said this in the call, I apologize. I got a little distracted in the middle with another report. But do you have the numbers as if that Monday after Easter was your Friday shipping day, as to what the sales growth in Take Shape for Life and direct response would have looked like?

Well, we know that the--we know the last few days of revenue in the first quarter were better than what we expected. So we think some of the revenue pulled in, people accelerated their orders, shifted their orders up a little bit, in the first quarter. So we (inaudible) back numbers, but we definitely saw a little bit of a push there at the end that we weren't anticipating. You can see some of the auto ship orders that were scheduled for that weekend. We kind of see the activity moved up a day or two. So it seems like people--some people at least--put some of their orders in in advance--or moved their orders in advance of the holiday.

Got you. So it was--it might have still been a detriment, that holiday shift, but it wasn't as big as you thought.

No, it wasn't as big.

That's correct. It was there, but it definitely was a little lighter than we thought.

Great. Thank you very much.

(Operator Instructions) Our next question comes from the line of Michael Halen with Sidoti and Company. Please proceed.

Hi, everybody.

Hi, Michael, how are you?

Doing good. Thanks. Okay. So in terms of the Medix weight control centers opens, were there any openings in the quarter, and can you let us know how many you think might be open this year?

Well, on the Medix openings, they're going to happen in the back half of the year, Mike. And they're still--we don't know totally what the number's going to be because there's a couple corporate centers that they're going to open, and then there's places where they'll go into clinics and they're going to make sort of mini centers. And we don't have--we haven't finalized that information yet. We're pleased with the progress they're making. In fact, they're bringing a couple employees up here for the next month to actually be trained in our center programs and things like that. So once we--what we'll do from a public disclosure standpoint is once we announce the opening of the first center, we'll announce for the plans for this year.

Okay, thanks. And then in terms of branding and advertising, and correct me if I'm wrong, but I think you'd mentioned in the past that you expected to spend a little more heavily in the first quarter. And if that's the case, will some spending shift back into Med Direct during the rest of the year, or do you expect to continue to shift spending out of Med Direct into some of the branding initiatives?

Why the--we're looking at that right now. We've clearly shifted money into the branding initiatives, because we want to try to build a long term business while also trying to get short term results. So we're balancing long term strategy versus short term, but we will look at that if we see that we feel that the pool advertising from direct response will get us a better return, our team will look at that and we'll balance the spending between the brand and the direct response.

Obviously, TV advertising is committed through the first half of the year. You don't just shut off television in the short term. But we have tremendous flexibility through the back six months to look at that as we're seeing the revenue come in over the second quarter.

Okay. Thank you very much.

Our next question comes from Kurt Frederick with Wedbush Securities. Please proceed with your question.

Hi, good afternoon. I'm just wondering if you could talk a little bit about the cash. It looks like you have close to $5.00 a share in cash, no debt. Just wondering what your plans are for that.

That's a good position, Kurt, I think. I'm actually (inaudible) about that. But the intention is for us in the second half of the year, we will be looking to do share buybacks. That's--that will clearly happen. We still have that. We're also looking at potential other strategic moves that we could potentially make, and that's basically what we're looking at. So we're evaluating our options and we'll be coming forward with a strategy in the second half on that.

Okay. Are there any share buybacks in the guidance?

No.

And then maybe you can talk a little bit about the weight control centers. Look like in the corporate centers at least, there's a big swing as far as the same store sales. I was wondering if you could talk a little bit about that and any changes you've made in the centers, and kind of like the plans going forward as to any changes you may be putting in in the near term.

What we're seeing is similar to what Weight Watchers and some of the other people have seen is, you're seeing a little bit more difficulty in the retail environment. That's the nice thing about having 61% of your revenue take (inaudible). That's a higher relationship business, and is not as affected by some of the slowdowns in the retail. But in our centers, and even in our franchise centers, we're seeing some impact--some impact of economic factors on discretionary spending. So basically what we're trying to do, and it's working very well, is we're trying to get the current clients to be on the program longer, and we have a lot of focus on making sure clients have strong relationships with us, stay a longer period of time, and stay on the program longer. That's been a big focus.

And we also have a focus on making sure we're getting the right advertising mix and the right operational effectiveness in each center to improve the same store revenue sales. So we're very focused on that right now. And operationally, that's a major priority for us. But we're thrilled with the--despite a little bit of the toughness in revenue in the center business, we're very excited about the $2 million plus improvement in the profit in our centers.

So we've been working very hard also to make sure we have the right level of resources, that we're focused on improving the profitability as we transition our center model. And as I said, when you transition from company-owned to the franchise center model, that is a transition as you stop building your own centers, you've got to work with partners and get them going. And there is a gap there between when you're going to get accelerated revenue.

Okay. When you talk about the change in profitability, where is the bulk of that coming from?

We've seen a very good focus on our SG&A in our centers. So we've done a very good job of making sure we're looking at the hours centers are open, the manpower that's in the centers, looking at how effectively we're doing our programs and the time spent with each of the people that comes into a center. So I think operationally is where we're getting improved productivity and cost reduction.

Okay. And then just--last question is on the franchise centers. I think you said five to seven for 2013. I guess one, does that include anything for the Medix?

No. That does not include Medix at all. That's just the franchise in North America, Kurt. And we're working closely--remember, over the last 30 days is when we've really started going out and trying to attract new franchisees, because we had to create the infrastructure internally. We had to do a franchise in a box model and do things where we could provide the necessary support because we're converting the company, as I said, when we have to make this conversion from a company that did their own locations to now providing support to partners. And we're doing a good job. A lot of deliverables are ready to go for people to start looking at acquiring Medifast franchises, and we're getting to a good state of implementation. And I think you'll see that between now and the end of the year.

Okay. Sounds good. Thank you.

Our next question comes from Chris Kruger with Northam Capital Markets. Please proceed.

Good afternoon.

Hi, Chris. How are you?

Not too bad. Just to follow on a weight control center question. The counts are down 16%. Was that pretty much across the board throughout all markets in the country? Are there any glaring weak spots where you might have to change things or get out?

There were some markets that--as an example, in Texas was a market in case where--remember that infamous quarter where we spent $37 million to get $34 million, which I wasn't very happy about--it was my first one. Well, we spent a ton of money a year ago in the beginning of the year in the Texas market. And what happened this year, we spent less money so we had somewhat of a decline in revenue, but we actually overspent dramatically in that market in the year before. And they're still doing well in that market. It's just a matter of what level do you want the spending to be. And they are the kinds of things we're looking at in this market because even when we talk to some of our franchisees who spend quite a bit of money--they spend quite a bit of money on advertising, between 15% and 24% depending on their location. They're saying that advertising in some areas is not being very effective in bringing in new clients right now. So we're very carefully balancing that as we look at what we're doing and get feedback from our partners, and making sure we're really--in a way, I mean, we're really looking to try to optimize our profitability while we're still growing our revenue, but not overspending in areas where we're not going to get a return.

Okay. And on Take Shape for Life, any update on potentially merging markets? I know you've always said six or seven that were the leading markets in the U.S. Any other ones starting to--.

--We're starting a five-city tour right now with Dr. Ray. I'm leaving--we have events--Meg can tell us the five cities.

We have five cities we're going into, so we have Chicago, Minneapolis, Charlotte, Salt Lake City, and Denver that we'll be going into this summer. So we have different dates about every other weekend between now and our convention to start opening. And we've already had--and seeded those markets with different types of marketing related event communication to build coaching there, and we partnered with our leaders, which is really the tremendous thing, and they're driving it, we're supporting it. So our field is driving the expansion into those markets, which we're extremely excited about.

Okay, I'm in Minneapolis. What would I look for to see evidence of that?

We will be in Minneapolis. I'm actually going there myself, so you can look forward to seeing me there with Dr. Ray. I'm probably not as good looking as Dr. Ray, but I'll be there--I think the date is--.

--We can send you the date. How about that?

Sure.

Minneapolis is on the 21st of June.

Yes. 21st of June.

21st, 22nd.

All right. That's all I had for questions.

Thank you.

(Operator Instructions) At this time I'd like to turn the floor back over to Management for closing remarks.

We appreciate your participation today and we look forward to speaking with many of you during the upcoming investor conferences. But we want to thank you, by the way, for your support of Medifast, and we very much appreciate it. Thank you very much.

Thank you. Ladies and gentlemen, this concludes our teleconference. You may disconnect your lines at this time. Thank you all for your participation.