Medifast Inc (MED) 2014 Q1 法說會逐字稿

Greetings, and welcome to the Medifast first-quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Katie Turner. Thank you. You may begin.

Good afternoon.

Welcome to Medifast's first-quarter 2014 earnings conference call. On the call with me today are Michael MacDonald, Chairman 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 March 31, 2014 that went out this afternoon at approximately 4:05 p.m. Eastern time. If you have not received the release, it's available on the investor relations portion of Medifast's web site at www.medifastnow.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 the prepared remarks contain forward-looking statements, and management may make additional forward-look 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 projection that may be made in today's press release or on today's call. All of the forward-looking statements contained herein speak only as of the date of today's call.

With that, I would like to turn the call over to Medifast Chairman and CEO, Michael MacDonald.

Thank you, Katie.

Good afternoon everyone, and thank you for join 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. Tim will review the financial results for the first quarter in more detail and discussion the second-quarter and full-year 2014 revenue and EPS outlook. I will then provide closing remarks, and we'll open up the call to take your questions.

We are off to a solid start in 2014, generating earnings results ahead of our expectations. Our team remains focused on driving operational excellence throughout our Take Shape for Life, Medifast Direct, Medifast Weight Control Center, and Wholesale Physicians sales channel, as well as our internal support departments, and I'm extremely pleased with our team's ability to closely manage the controllable aspects of our business. This allowed us to achieve 110 basis point improvement in operating margin for the first quarter and deliver an earnings per share increase of 6%, to $0.45, which was $0.10 above the high end of our earnings guidance range of $0.32 to $0.$0.35 for the first quarter. Net revenue fell within our guidance range, and we were able to deliver the strong earnings results despite a reduction in revenue year over year.

Tim will discuss our financials in more detail in a few minutes, but I want to briefly touch on what we have experienced to date in 2014 from a top-line perspective. Heading into the first quarter, our net revenue guidance implied a decrease versus the first quarter of 2014. And while our first quarter sales performance was in line with our expectations, we wanted to address a few of the dynamics that we believe are impacting our top-line results.

First, while it's hard to quantify, we have seen a more cautious consumer discretionary spending environment across each of our sales channels and an evolving weight loss competitive landscape. As a result, in the first quarter we strategically focused on profitability and managed our business accordingly. We opted to limit our spending by maximizing the efficiency of our spending.

This is demonstrated by improvement in our overall revenue-to-spending ratio. Company-wide we saw a ratio of 12.5 to 1 in the first quarter of 2014, as compared to 9.6 to 1 in the first quarter of 2013. As the year progresses, we will begin to reinvest additional dollars in marketing, while continuing to focus on the efficient management of these investments.

Before we get too far in our discussion today, on behalf of Meg, Tim, Brian, and our broader team, I want to thank those of you that recently attended our Medifast Analysts Day in New York. It was great to see you. As many of know, at the event we provided an update on our recent accomplishments and plans for 2014.

We also discussed the execution of our strategic initiatives, which focused on health coach expansion, weight control center conversion, and new product and technology introductions. It was a great opportunity for you to explore and try the 27 new products that we expected to launch throughout this year. I'm really proud of our product team, and very excited about the evolution of Medifast products as we increasingly work to address not only weight loss and weight management, but importantly the growing consumer demand for an overall healthy living approach.

This brings a significant growth opportunity for Medifast in the future. We believe our focus on these strategic plans will allow us to expand our business, increase our health coach network, and enhance shareholder value long term.

I would now like to focus on operational updates for the first quarter of 2014. Our team remains focused on several initiatives to increase health coach growth, client acquisition, and retention. In January, Take Shape for Life launched our Stop, Challenge and Choose campaign with a goal of encouraging a healthier lifestyle and helping participants achieve optimal health for the coming year.

We had more than 21,500 entrants, and during each participant's 12-week transformation, a Take Shape for Life health coach worked with clients to help them learn and implement healthy habits. Several winners will be selected from an all-expenses-paid trip, including a visit to Disneyland, attendance at the national Take Shape for Life convention, and a stay at the Four Seasons Hotel Westlake Village California Spa and Wellness resort.

This is another example of our vision to inspire clients to embrace a long-term healthy living approach. We want to challenge and empower people to remain healthy for life, and our Take Shape for Life health coaches continue to help us lead the way. Our Aruba Health Coach Recognition Trip resulted in 155 qualifiers, which was above our expectations. This trip gave our health coaches the opportunity to celebrate their success in early March.

Throughout the quarter we also hosted five successful super-regional events in San Diego, Portland, St. Louis, Orlando, and White Plains, New York. We had great attendance from health coaches in each of these surrounding areas. Specifically, we continue to focus these events on creating high-impact learning experiences for our health coaches, as well as creating a full year of calendar incentives to drive client and health coach acquisition. Lastly, we recently returned from our Go Global event in Austin, Texas, where our top field leaders received the continued training and education they need to grow their business.

Focusing on the Medifast Direct channel, our revenues were down versus the first quarter last year, primarily due to our reduced sales and marketing spend. We were pleased at the efficiency of spending we did put into place. Additionally, we generated encouraging results from our free shipping days, promotional campaigns, product offers, and special incentives to generate new interest and motivate retention.

We implemented improvements to our business intelligence and analytics tracking, and now see the actual results of all discounting and promotional activities, as well as the associated spending on a daily basis. We have introduced cart upsale offerings in the quarter, as well as a test of our new referral program that we plan to expand throughout the year. We have also ramped up our e-mail marketing efforts, and are pleased this has now become a significant contributor to our integrated marketing approach.

Our new mobile commerce site for Medifast Direct is seeing more traffic. As consumers gravitate to their mobile devices, we have continued to expand our breadth across our own web and social properties, as well as across the earned spaces within the digital landscape. Moving forward, our spending will be closely tied to the information derived from new econometrics model, which will allow us to optimize our advertising mix on a quarter-to-quarter basis, and even further optimize spending efficiency.

Our business continues to be driven by customers who want to lead healthier and happier lives. True weight loss management is a lifetime journey, and Medifast wants to be there each step of the way. We believe there are many prospective new customers who would trust the heritage of the Medifast clinically proven and doctor-recommended approach for healthy living products and performance-oriented items down the road.

At Medifast, we believe that the foundation of our future success relies on our ability to continue to innovate and create new products for customers and health coaches. We already have a vast array of food options. However, the customers that love our products have told us they want more. Our newest product innovations include sour cream and chive mashed potatoes and garlic mashed potatoes. In addition, we launched our new Flavors of Home in the first quarter, including chicken cacciatore, chicken with rice and vegetables, and turkey meatball marinara.

The customer response to these products has been very positive. Flavors of Home allows for a healthy, lean, and green meal to be ready in just few minutes. We believe capturing this incremental meal option is a tremendous business opportunity, as it allows us to provide a sixth meal at a day for our customers. 2014 will be the biggest new product year in the history of Medifast, with 27 new product launches. For those of you that joined us at our Analyst Day, we hope you enjoyed your first taste of our new products.

Now focusing us on our Medifast Weight Control Centers and Wholesale Physicians channel for a moment, we continue our efforts to identify new franchise partners. In the first quarter, we have opened 13 new franchise locations since late December 2013 for a total of 49 franchise centers at the end of the first quarter. Our openings in the first quarter include centers in Washington State, Alabama, Louisiana, Tennessee, and California. We will continue to support current franchise expansion activities, and have new marketing initiatives in place to share the opportunity.

In the first quarter, we continued to make progress in our international expansion plans. While we still have white space to cover in the United States, some of our biggest growth opportunities are abroad. We are well underway with our expansion into Mexico and Latin America through our partnership with Medix. In fact, Medix acquired 13 Slim Centers at the end of the first quarter where Medifast products will be distributed.

And we also announced our Canadian market launch in March. Initially this expansion will include Medifast Direct and Medifast medical providers. We expect to have over 50 product choices available in Canada as the year progresses.

The obesity epidemic is an international problem, and I'm pleased to lead a company whose mission is to provide a solution to consumers through healthy, nutritious products and programs that pave the way for lasting health. In February, Medifast was honored as one of the top companies in the 2014 Mid-Market Elite List for Chief Executive Magazine. This award recognizes leading mid-market companies, and is presented to businesses that exemplify superior growth, track record of innovation, and exceptional corporate culture, leadership, and a compelling business model. There are approximately 197,000 companies in the US that comprise the mid-market. So this was certainly an impressive recognition for our Company. I would like to thank our entire team at Medifast for their hard work.

Our most recent accomplishment was the announcement on April 22 that our strategic partner Medix acquired 11 Medifast Weight Control Centers in Texas and Florida. Today we announced that Medix has added 1 more center, bringing the total number of Centers acquired to 12. This deal advances our plan to transition our corporate Weight Control Centers to the franchise model.

Additionally, this acquisition mark this first Medix-owned Weight Loss Centers in the United States. This partnership is a great example of how we are expanding Medifast products and programs internationally through new 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 increasing profitability.

With that overview, I would now like to turn the call over to Tim Robinson, our Chief Financial Officer, to review our first-quarter 2014 financial results and guidance.

Thanks, Mike.

I'll now review our financial results for the first quarter ended March 31, 2014 in more detail. For the first quarter, net revenue decreased 10% to $86.5 million, within our guidance expectations, from net revenue of $96 million in the first quarter of the prior year. The Take Shape for Life sales channel accounted for 65.8% of total revenue, Medifast direct account for 19.8%, the Medifast Weight Control Centers and Wholesale Physicians accounted for 14.4% of total revenue.

Focusing on our sales in more detail, revenue in our direct sales channel, Take Shape for Life, decreased approximately 4% to $57 million, compared to the same period last year. The decrease in revenue for this channel is primarily due to a slight decrease in the number of health coaches and the decline in revenue per health coach. We ended the first quarter with approximately 11,100 active health coaches, and the average revenue per health coach per month during the quarter was $1,626.

Our Medifast Direct segment revenues decreased 26% to $17.1 million, as compared to $23 million in the first quarter of 2014. The decrease in revenue in this channel is primarily due to the reduction in sales and marketing spend as the Company continues to monitor consumer spending patterns. Our Medifast Direct segment represents approximately 20% of our overall revenues, while the majority of our advertising spend is attributed to this channel. Increased focus on these dynamics had a significant impact on overall Company profitability.

To drive future revenue growth, we'll be strategically investing in marketing throughout the remainder of the year while continuing to focus on efficient management of those investments. In the first quarter, our sales and marketing expense decreased $3.1 million (sic -- see Press Release "$3.2 million"), or 30.2%, versus the prior year first quarter.

In the first quarter the Medifast Weight Control Centers and Wholesale Physicians channel revenue decreased 9% to $12.4 million. The decrease in part was due to the fact that we closed 11 corporate centers in 2013. Our team remains focused on profitability improvements by creating operational efficiencies, optimizing staffing levels, and managing expenses. As of March 31, 2014, Medifast had 75 corporate-owned and 49 franchise-owned centers. However, we have subsequently announce the sale of 12 centers to Medix, which are scheduled to close during the second quarter. This will bring the totals to 63 corporate-owned, and 61 franchise centers. Going forward, as Mike mentioned, we'll continue to expand the number of franchise locations and further enhance the customer experience and profitability at the corporate centers.

Gross profit for the first quarter of 2014 decreased 12% to $63.9 million compared to $72.4 million in the first quarter of the prior year. Our gross profit margin decreased 150 basis points to 73.9%, versus 75.4% in the first quarter of 2013. The decrease in gross profit margin was the result of the increased manufacturing costs and shipping rates, and was adversely affected by product and program mix across our channels.

Selling, general and administrative expense in the first quarter of 2014 decreased $8.6 million to $55.2 million versus $63.8 million in the first quarter last year. Selling, general and administrative as a percentage of net revenue decreased 270 basis points to 63.8% from 66.5% in the first quarter of 2013.

Take Shape for Life commissions expense, which is variable based on product sales, decreased by approximately $3 million, compared to the first quarter of 2013. As a reminder, health coaches do not need to purchase the product themselves to receive commissions, and health coaches are not compensated on their own orders, nor for the recruitment of clients or new health coaches. Commissions are not paid out on the sale of enrollment kits, business building tools, or event registration.

Salaries and benefits decreased by $1.2 million in the first quarter of 2014 as compared to last year. These decrease was partially due to the closure of 11 corporate centers during 2013. Operating income was $8.7 million, or 10% as a percentage of net revenue, and this represents 110 basis point improvement as compared to the first quarter of 2013. Our effective tax rate was 33.7% compared to 31.9% in the first quarter of 2012. The prior-year tax rate was positively impacted by research and development credits which were retroactive to 2012. First quarter net income was $6 million, or $0.56 per diluted share, compared to net income of $5.9 million, or $0.43 per diluted share in the first quarter of 2013.

The Company's balance sheet remains strong with stockholders' equity of $105.2 million and working capital of $72.8 million as of March 31, 2014. Cash, cash equivalents and investment securities for the first quarter of 2014 increased $9.6 million to $77.4 compared to $67.8 million at December 31, 2013, and the Company remains free of interest-bearing debt.

The company has 1.3 million shares eligible for repurchase under the current share repurchase authorization. We did not make any share repurchase during the three months ended March 31, 2014.

I'll now share our guidance for the second quarter and full year 2014. We expect second-quarter 2014 net revenue to be in the range of approximately $85 million to $88 million. Earnings per diluted share are expect to be in the range of $0.37 to $0.40, which assumes a 34% effective tax rate.

We continue to expect full-year 2014 net revenue to be in the range of $340 million to $380 million, and earnings per diluted share are expected share are expected to be in the range of $1.80 to $1.90 per share. Our guidance includes our expectation that the effective tax rate will be in the range of 33% to 34%.

Expansion into new markets and continued growth in our conversion and brand awareness will contribute to our net revenue increases, while an ongoing focus on increasing our operational efficiencies and insuring the right pricing and discount mix to drive client acquisition and retention will help deliver our earnings per diluted share improvements.

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

Thanks, Tim.

In closing, we are pleased with our start to 2014. Our multi-channel weight loss and weight management business model allows us to benefit from an overall more diversified go-to-market approach. We are excited about our future prospects in each of our sales channels. We are consistently working to make the necessary adjustments to improve our operational efficiencies and overall effectiveness.

The strengths of Medifast's business model has allowed us to realize consistent top- and bottom-line growth, as well as strong cash flow generation. We will continue to use this to our advantage as we expand and explore both organic and acquisition-related growth opportunities to maximize long-term shareholder value.

We appreciate your interest in Medifast. And with that overview, Tim, Meg, and, are available to take your questions. Operator?

(Operator Instructions)

Our first question comes from the line of Scott Van Winkle with Canaccord. Please proceed with your question.

Hi, Thank you very much. I have a few questions, if you don't mind. So first, got to start with the guidance. So the second quarter guidance, it's kind of hard to get down to that EPS guidance for Q2, given the revenue and given the margins we saw in Q1. Is there anything that we should think about, a significant increase in ad spend in Q2, or incremental gross margin pressure in Q2?

It's not margin pressure, really, Scott. We'll see margins -- we expect margins a little better than we saw in Q1. I think we do expect more ad spend.

Okay. If I did my math right, was the ad spend down $3 million year over year in Q1?

Yes.

So in Q2, are we expecting an increase year over year?

Not an increase year over year, but not as large of a decrease.

Okay. So we won't see that SG&A ratio falling as a percentage of sales like we saw in Q1?

Yes, but what I will say, Scott, as we're monitoring that daily and weekly. As we get throughout the quarter, we'll adjust as necessarily. But at this point, we look to the first quarter, we spent a significant amount of the quarter's advertising in January into February, and we slowed down into March. Similar pattern would start off here in the second quarter. We've gone fairly strong here in April, and we'll continue to monitor it effectiveness.

And then if we think about the sale of the clinics, I was thinking that selling a dozen clinics might kind of take off $0.5 million to $1 million in losses from the sale of those clinics. We're getting an offset there. I mean, that's benefiting you selling those 12 centers, correct, from the standpoint of earnings?

Yes, ah, but that's not going to happen. Scheduled close dates were the end of second quarter. So that's not going to have an impact on the second quarter.

Got you, got you, got you. Okay. And you expect the gross margin to improve a little bit in Q2. What is that? Is that -- I don't think the mix is changing from the standpoint of program fees, is it?

No. You have a little bit, not quarter over quarter, but obviously for the 11 clinics that we sold last year, your program fees that come out of that, come out at very, very high margin. Has a small impact on the first and second quarter, but not an impact between the two quarters.

Impact on margin in the first quarter is really made up of a couple of things. We did have some increased shipping costs from our carriers, which will carry into second quarter. We've made some adjustments on the shipping size and our box sizes to reduce the average number of boxes that we use per order, especially with our new flavors from Home Meals.

They are larger physically, and we're finding that they don't actually fit in the same box that we used before. So we made some adjustments that will help in the second quarter that have kind of hurt a little bit in the first quarter.

And then we did have some raw material pricing challenges with a few products. We have rectified some of those for the second quarter, but we have some product availability with a couple of raw ingredients that caused us some price escalations. We think some of those things will improve in the second quarter. So we expect better margins in the second quarter than the first.

And we expect, Scott, to get continual operational productivity as we move forward.

Great, and then the last question. So you're obviously expecting a boost from the new product launch, and I agree with you, the products were very, very good. Where should we see that in, by channel, most significantly? Probably not in the Clinics. Is that going to show up more in Take Shape for Life, or more in Direct response, do you think?

I believe definitely Take Shape for Life is already poised to sell more healthy living-oriented products. I think the customers that are in Medifast Direct that are asking for it are the ones who are transitioning out of weight loss into maintenance. The ones in Take Shape for Life, I think is the huge opportunity for them to actually go out and sponsor people who don't necessarily have weight loss, but want to just have a healthier lifestyle, which is what is taught in the Habits of Health.

So I think Take Shape for Life has a greater capacity this year to work with those products. And in the future we have strategies against how to expand it in the other channels.

And, Meg, do you -- average revenue for health coaches has been trending a little bit lower for are the last four quarters. What's the goal? Is your goal or expectation to see revenue per health coach increased year over year?

I'm not uncomfortable with the number that it's sitting at right now. I think our biggest thing is just getting -- obviously we're more focused on acquiring new clients and sponsoring more health coaches, which obviously this quarter was a tad bit disappointing. But we feel like we've got some really good initiatives coming at the end of Q2 when we launch a convention, and at the beginning of Q3 that will really help drive significant differentiation for Take Shape for Life than they've had before.

The other thing, Scott, this is Mike, we have a better compare in the second half. So if we can be consistent with our advertising and then launch all these new products and get them out there, and a lot of them are in the last six months, we feel that's really a good opportunity for us because of the compare, where we had a stronger compare in the beginning.

Great. Thank you very much.

Thank you. Our next question comes from the line of Mitchell Pinheiro with Imperial Capital. Please proceed with your question.

Hi, good afternoon. Just following up, Meg, what you said. You're a little disappointed with the health coaches being down. Why do you think it was down slightly year over year? What were the driving factors on that?

I think one of the biggest pieces from a health coach acquisition is last year in January we launched the Success From Home Magazine, which was a great acquisition tool and really helped our numbers. And this year we didn't do not a large initiative like that. So that's certainly one. The compare from last quarter to this quarter did not have as many tools in it.

And then again, from a compensation perspective, I just got back from Go Global, our leadership event that was in Austin, Texas. And we had a lot of leaders at the very top ranks who said, it took me, because grandfathering was over December 31. They admitted it took them a month or two to really figure out the best balance of growing depth and then growing front-line volume for their businesses. For them to be able to teach it, when they got to Go Global, they are absolutely more confident in the month of April than they were in the first quarter. So I would say that might have something to do with it, as well.

Okay. Second question. The Medifast Direct business, it's a $6 million year-over-year revenue drop is big. It's the third consecutive 20% kind of year-over-year decline. And I need to -- I don't understand how you can be pleased with that kind of drop. You say you're pleased with the efficiencies of your --

We're not pleased with the revenue, be assured that, Mitch.

Okay, okay.

The revenue is disappointing. I think we're still searching for the right answer. We put a lot of money into it. And if you look at it, we probably spend -- say we spend $26 million between the Clinics and the Medifast Direct, it might be $100 million. We're still spending a lot of money on -- money we actually advertise on, and we're not happy with that.

We're going to be meeting with some major agencies and looking at that. We feel we could have done better there. So we're happy with our efficiency. We're not happy with how the money has been driving the revenue, for sure.

Okay. That's very helpful. Thank you.

So we're not. I just want you to understand that. From my perspective, we have a lot of work to do there. And our real issue is the reason we got efficient was because we weren't effective.

Right. Last question. Actually, two more. What were the raw materials that we're seeing some price pressure on?

The price pressure occurred with an egg vendor. We have a raw material that went into all our egg products, and they were bought out. And therefore for now, while we search for a substitute, it's a very unique formulation that we used in our product and we're in the process of continuing to garner some different suppliers for that.

Okay, thank you. And then last question on the weight loss centers. Does the SG&A expense in that segment, does that scale down in proportion to the number of centers you have? So if you -- as you continue to sell, if you're down 50% in Company-owned centers, will we see SG&A scale down 50%?

No, because you still have corporate overhead that you have to get out, Mitch, on that. So you'll see improvements in SG&A, but over time some of the headquarters will get devoted to the franchise model. Some of it will go away. So as we do the transition, you might have a little more SG&A in the corporate center until you fully make the transition and determine the resources you need.

Okay.

You also -- it's not all centers are obviously in exactly same situation. So we have some larger centers that carry much higher SG&A than some of the smaller centers. So it's good theory, but it all depends on which -- the timing of which centers until when.

Okay. All right. Thank you very much. Very helpful.

Thank you.

(Operator Instructions)

Our next question comes from the line of Alex Jaslow with Midtown Partners. Please proceed with your question.

Hello, guys. Good evening. I was just wondering, trying to get a little bit of understanding on Med Direct and the decline there. Do you find that the breakdown of customers, there's less new customers? Or maybe you could talk about the customers that are more reactivating from prior years, or mostly new customers?

Yes, if we break the revenue down, it's clearly a customer acquisition issue. So we can -- some of our new metrics and new data that we're able to see, it kind of breaks the revenue down to existing, returning business, it's not truly annuity business, right, but it's returning business versus new customers. And the issue is really on the customer acquisition side. That's why we kind of really attribute it really directly to our advertising dollar, which is what brings in new customers.

So we tried lots of different things in the first quarter. Some very short-term lived, even for a sing day, trying different offers. We've also tried some pricing offers for one full month during the quarter where we lowered our total monthly costs to see what kind of impact that would have. So we're trying a number of different things, as well as changing up the media that we're trying, to see which has the biggest impact.

That's helpful. And then I think you mentioned there was some pressure on raw materials, which I'm seeing across the board. Assuming you fix some of the shipping issues, do you think raw materials will be an issue towards the second half and later half of the year?

I don't think raw materials will be a huge issue. I do think you're seeing in the commodity market, certainly prices are going up in places. I think we have definitely done a lot of work in getting some price commitments for this year. So I don't see it being a hugely fluctuating event, no.

And the pressure we had, Alex, was really not so much a scheduled or negotiated price increase.

Right.

It was the loss of a key vendor where we had to react by, again unique formulation. We had to find another vendor that would make it for us in a short period of time. So we paid a premium for it.

It was actually a manufacturing company that was bought by another, and their facility that manufactured it was temporary shut down. So now that they're back up, we have the product. But now they're changing their price structure. So we have other vendors in mind and can easily reformulate product, just not -- we didn't have any notice.

Okay. That's helpful. Thanks, guys.

Thank you. Our next question comes from the line of Kurt Frederick with Wedbush Securities. Please proceed with your question.

I want to talk a little bit on the Weight Control Centers. What was the same-store sales in Q1?

Q1 same-store sales were down about 14%.

Okay. So how does that look as we go forward the next couple of quarters from the sale of the 12 centers?

Yes. So the -- those specific 12 centers, the impact, the -- I don't (inaudible), Kurt, I don't know the exact answer to that question, so I don't want to misspeak. I know that when we look at the sales within these centers, shortly after the first quarter we launched some new initiatives that seemed to be taking hold, and I'll let Meg speak to it. But the earlier indications are very positive.

Yes. We decided -- we've been obviously doing a lot of testing of promotions throughout all of the channels. So in the Medifast Weight Control Centers, we tested for the month of April, this new -- it's called Fit In Four. Basically it's for four weeks you come in, you get a program, and then you get Medifast meals for that month. And it's a lower cost option, a shorter time frame, but the success rates we're seeing and the sign-up rates we're seeing are high. It's about $15 a day versus the previous programs that the Weight Control Centers were offering.

So we still offer the other programs. 50% of people are signing up for this new shorter version and 50% are still signing up for the longer program. And so I think the added plus there is that people are having a difficult time making a long-term commitment, but when they sign up and see the results immediately, they're more likely to stay longer. And we're actually seeing that.

So very preliminary, obviously April data that we're looking at. We're anxious to see May as well, but so far there are some very good things happening there.

And that's in all of the Company-owned centers?

That's in all of the Company-owned centers, yes.

Okay. If I look at -- I guess going back to the revenue guidance, then. So it looks like on the low end of guidance, your revenue would be fairly flat the next few quarters. You've kind of mentioned that there's a lot of stuff coming out throughout the year, additional products and that. Can you talk a little bit about what the impact of those products is as far as your guidance is concerned?

Well, you're going to have two things happen, Kurt. You're going to have the positive revenue with the products, and the thing we don't know is the negative impact of the clinic transition. So it really is a balance of both happening.

And that's what we -- depending on the timing of the sales, if we don't sell some of the clinics until later, revenue could be better. But I think very clearly, we're coming out with a lot of these products in that mid--year time period after our convention, and we see an opportunity in the back half to leverage that opportunity. How to quantify it is difficult, because we just don't know how many -- what the clinic sales are going to be yet.

We've got some very good prospects, and we feel we're going to make good progress, but we don't have the exact view of that yet. And we'll have a better view when we do our next earnings, because we'll have more time to see it.

Yes. As we talked about before, I definitely -- the Flavors of Home, those of you have tried it, it's our Lean and Green meal. It sold out. So we thought it would have an adoption rate, and it surpassed the adoption rate we thought. So right now, from a new product perspective we're extremely happy about the new ones we've launched thus far. It's not only just the products, there's a lot of unique activities and new things coming out in the back half of the year that we're very excited about, to include the products.

Okay. All right. Thank you.

Thank you. We have no further questions in queue at this time. I would like to turn the floor back over to management for closing comments.

Well, I just want to thank everybody for participating on the call and for your interest in Medifast. Thank you very much.

Thank you. This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.