Medifast Inc (MED) 2015 Q4 法說會逐字稿

Good afternoon, and welcome to the Medifast fourth-quarter and full year 2015 earnings conference call.

(Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Katie Turner. Please go ahead.

Good afternoon. Welcome to Medifast's fourth quarter and FY15 earnings conference call. On the call with me today are Michael MacDonald, Chairman and Chief Executive Officer; and Timothy Robinson, Chief Financial Officer.

By now, everyone should have access to the earnings release for the period ending December 31, 2015, that went out this afternoon at approximately 4:05 PM Eastern time. If you did not receive the release, it's available on the investor relations portion of Medifast's website, at www.medifastnow.com. This call is being recorded, and a webcast and replay will be available on the Company's website.

Before we begin, we would 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 statements. Medifast assumes no obligation to update any forward-looking projections that may be made in today's release or on today's call. All the forward-looking statements contained herein speak only as of the date of today.

And with that, I would like to turn the call over to Medifast's Chairman and CEO, Michael MacDonald

Good afternoon, everyone, and thank you for joining us. Today, I will share an overview of our fourth quarter and 2015 performance, along with an update on the progress we have made regarding our key areas of focus. I will also provide an outlook on our 2016 objectives and initiatives. Tim will then review the financial results and 2016 first-quarter and full-year guidance, and then we will open up the call to take your questions.

We made significant progress in 2015. Our efforts to improve our business resulted in the first quarter of positive revenue growth in Take Shape for Life, our largest business segment, since the third quarter of 2013. Take Shape for Life grew 5% in the fourth quarter, representing the fourth consecutive quarter of improvement in our year-over-year revenue trending.

Overall, net revenue from continuing operations for 2015 was $272.8 million, in line with our guidance. While net revenue was down slightly when compared to the prior year, we reversed the trend in 2015, and are poised to return to growth in 2016. Our gross margin for the year expanded 50 basis points, and we efficiently managed our expenses.

Adjusted earnings per share from continuing operations was $1.73, in line with our guidance of $1.72 to $1.76. These results are a demonstration of our team's ability to execute in our core focus areas and strategic initiatives, as we work to improve each of our business segments: Take Shape for Life, Medifast Direct, Medifast Weight Control Center franchises, and wholesale. I would now like to provide you with an update on our key business initiatives.

We remain focused on taking steps to optimize each of our business segments, by differentiating products, programs, and service offerings. Our three strategic pillars for 2015 were the growth and simplification of Take Shape for Life, the optimization of Medifast Direct Response, and product and program innovation. We are very pleased with the growth in Take Shape for Life in the fourth quarter, which demonstrates the initial success we're seeing in our largest business segment.

During the year, every initiative we executed was developed to drive growth and/or simplification. From our new health coach tools to incentives to promotions across technology and events. We believe we've built a stronger foundation for future growth during Mona Ameli's first year with the Company.

Health coach growth and productivity are key metrics for determining performance within this business unit. The total number of active earning health coaches in the fourth quarter increased to 11,900, up from 11,700 in the fourth quarter last year. The fourth quarter is historically a seasonally low quarter for Take Shape for Life, and we're pleased with the improvement we saw.

We are also experiencing meaningful increases in sponsorship of new coaches, year over year. For example, new coach sponsorship grew 20% in both of third and fourth quarters of 2015. Average revenue per health coach for the fourth quarter of 2015 was $4,039, compared to $3,896 in quarter four last year.

We generated increased coach productivity, as a result of our higher new client acquisition and higher average order revenue value, year over year. It is important to remember that new health coaches take time to ramp up to a more normalized rate of productivity, thus an increase in the rate of sponsorship, combined with growth in productivity, is a positive combination. We believe these improvements reflect the early success of the initiatives we put in place to simplify and improve the health coach journey, from the initial sign-up to new standardized training in the business path, to sustainable leadership development.

In addition, the opportunity for health coaches to maximize the business opportunity, while encouraging their clients to reach their optimal health goals, is an important evolution in how we approach Take Shape for Life. These efforts are vital to attracting new health coaches, and are essential for the retention of existing health coaches. As we enter 2016, we have solid business momentum in Take Shape for Life.

We're optimistic about the future growth of this important business unit, and also clearly understand that it is taking time to fully realize the financial benefits of our efforts. Our coach network is highly engaged, and we continue to see solid sponsorship and client acquisition rates. For those of you who may not have seen it, Take Shape for Life success stories were featured in People's Half their Size issue, a nice endorsement, highlighting the positive impact our Take Shape for Life program has in communities across the country.

Additionally, in the first quarter, we had Take Shape for Life regional events in 43 states, with 8,000 attendees. And most recently, our annual Go Global event, held in Baltimore during February, was sold out. We are making meaningful progress on the execution of our key initiatives to simplify the business, provide effective training, and further differentiate the Take Shape for Life value proposition.

We knew the return to top line growth in Take Shape for Life would take time to manifest itself, and we're pleased with the positive results in the fourth quarter. It is exciting for me, and other members of our team, to really see the reinvigoration of our health coach network.

The second key pillar is the continued optimization of the Medifast Direct Response business. New customer acquisition remains challenged in the fourth quarter, as revenue was down 18% in the period. We are seeing a crowded competitive space, and a continuing and rapid shift in consumer trends in the direct to consumer segment.

This business segment is clearly not performing the way we would like it to, but we are focused on fixing that with a sense of urgency. Let me provide some color around the new product and program options we are testing, in order to find the right combination to help improve results. As I mentioned on our quarter three call, we began the fourth quarter with the October launch of the new Medifast Achieve plan, aimed at addressing customer acquisition and improving retention.

Medifast Achieve is a simple and flexible plan, with a wide variety of product options for customers, on their self-guided weight loss or weight management journey. We offer several options for convenient, automatic monthly delivery to customers, which helps promote plan compliance and higher lifetime value. We know that rebuilding momentum in the Medifast Direct channel will take time.

While we don't yet have clear visibility of the optimal formula, we will continue to evaluate additional opportunities for new offerings, promotions and programs. Along those lines, we have identified a number of shorter-term initiatives to help drive revenue in 2016. These include the identification of partners to open up acquisition opportunities, expanded analytics and attribution, a new summer promotional campaign, site configuration changes to allow easier product selection, consumer research to capitalize on strong customer experiences and grow from challenges, re-invigorations of promotional offers to drive acquisition, email reactivation campaigns, direct mail acquisition, and offers to our Medifast Advantage customers for off-cycle orders.

Throughout the first quarter of 2016, we have also reallocated our media spending to the areas demonstrating the best short-term results. In the arena of future growth opportunities, we were excited to recently launch a new sports nutrition product line. Dual Fuel bars and ready to drink shakes deliver high-quality protein and carbohydrates, to help support performance and fuel recovery after exercise. The new products are well-designed, contain no artificial flavors, colors, sweeteners or preservatives, and only 3 to 5 grams of sugar.

We launched this line through partnerships with Rutgers University and the Jimmy V Foundation for Cancer Research. In addition to use by student-athletes, Rutgers is promoting the products to all students on campus, in addition to alumni and local consumers, and multiple retail channels around the campus. A portion of proceeds from the sale of the products go back to support Rutgers Athletics.

We believe this model is scalable across other universities and athletic conferences, and could develop into a nice business for us. The V Foundation, a major nonprofit organization focused on cancer research, is also promoting the products to all their constituents. A portion of the proceeds go directly to the V Foundation to help fight cancer.

As we move forward, we expect these initial partnerships, along with our recent agreement with Play-by-Play Sports, a sports marketing company, will get us is off to a good start in the sports nutrition area. While this is not expected to have a meaningful impact on our financial performance in 2016, it does showcase our focus on innovation, in terms of partnerships and how we can leverage our deep experience and product development, and entering new categories with our nutritional products. In addition to leveraging new products and managing our growing product offering, our product development team is continually reviewing key trends within nutrition, and we have much more to come through 2016.

From an organizational perspective, the first quarter of 2016 will mark a period of transition for Medifast. Last month, our senior leadership team was realigned, to reflect the changing needs of the business and provide even greater emphasis in our key areas of focus. This realignment resulted in the departure of three executive vice presidents in February.

Additionally announced on Tuesday that Meg Sheetz, President & COO, has decided to leave Medifast after spending the last 16 years with the Company. Meg contributed in many ways throughout the organization, and she will certainly be missed. I will be taking some time to assess our leadership needs, so we won't be immediately filling Meg's position.

Tim will discuss the financial impacts of these changes on our first quarter and going forward. Change in any organization gives rise to new opportunities and rebirth. Our Management team is ready for the new challenges in front of us, and our streamlined senior team is posed to accelerate the activities required to return the Company to sustainable revenue and profit growth.

Lastly, from a capital allocation perspective, we remain focused on enhancing shareholder value. In 2015, we repurchased approximately 364,341 shares of our common stock. And in December, we announced the initiation of a $0.25 per share quarterly cash dividend, the first ever in our Company's history. The Board of Directors and Executive team remain confident in our ability to consistently generate cash, and are very pleased to return excess capital to shareholders through a quarterly cash dividend, while we maintain our existing stock repurchase program.

We believe Medifast is well-positioned for future success, with a strong balance sheet, progress in our strategic operational initiatives, and a new, streamline corporate structure to drive profitability and enhance return for our shareholders. With that, I would like to turn the call over to CFO, Tim Robinson, who will discuss our financial results in more detail, and our outlook for 2016.

Thank you, Mike. I will now review our performance for the fourth quarter and fiscal year ended December 31, 2015. Please note that the financial information I reference today will focus on our results from continuing operations.

For the fourth quarter of 2015, we had a loss from discontinued operations, net of tax, of approximately $42,000. In the fourth quarter, net revenue decreased 2%, to $61.3 million, from net revenue of $62.3 million in the fourth quarter of last year. The Take Shape for Life business unit accounted for approximately 78.3% of revenue.

The Medifast Direct business unit accounted for approximately 15.2%. The franchised Medifast Weight Control Center business accounted for 6%, and the Medifast wholesale business unit accounted for about 0.5% of net revenue. Focusing on our sales mix in more detail, revenue on our direct sales unit, Take Shape for Life, was up 5%, to $48 million, from $45.7 million in the fourth quarter of the prior year.

Sequential quarterly improvement in year-over-year trending continued in the first quarter, and we were pleased to return to positive year-over-year revenue growth in Take Shape for Life for the first time since the third quarter of 2013. There were approximately 11,900 active health coaches in the fourth quarter, compared to 11,700 for the same period last year. Average revenue per active earnings health coach for the quarter increased to $4,039, from $3,896 in the fourth quarter of last year.

We continue to be encouraged by the improvement in our newly sponsored coach talent, and the increased level of coach productivity. We believe that our increased emphasis on key Take Shape for Life strategies, the operational improvements in the health coach experience, and the incremental resources added to the Take Shape for Life team are having a cumulative impact that will drive continued improved results in 2016. It is also important to mention that we feel now that we have good visibility in the key growth drivers in the Take Shape for Life business.

Our activities are focused on fueling the growth trajectory that began in 2015. And as a result, we are confident that the Take Shape for Life improvement will continue. Our Medifast Direct segment revenue decreased 18%, to $9.3 million, as compared to $11.4 million in the fourth quarter of 2014.

As Mike discussed, we continue to have challenges in this business unit, and our teams are testing initiatives across acquisition, conversion, retention, on-boarding and reactivation, in order to drive improved results. Advertising in the quarter increased to $2.6 million, from $1 million in the fourth quarter of 2014. Sales and marketing spend in the fourth quarter of 2014 was unusually low.

Revenue in the franchised Medifast Weight Control Center business unit decreased modestly, to $3.7 million, from $3.8 million in the same period last year. The decrease in revenue was primarily driven by fewer franchise centers in operation during the period. We ended the quarter with 61 franchise centers in operation, compared to 73 centers at the same time last year.

Wholesale channel revenue, which is comprised of revenue from healthcare providers and other wholesale partners, decreased $1.1 million, to $300,000. The decrease was fueled by the loss of certain accounts, resulting from Medifast's enforcement of business partner compliance requirements, as discussed in prior earnings calls.

Gross profit for the fourth quarter of 2015 was $45.2 million, compared to $45 million in the fourth quarter of 2014. Our gross profit margin increased 160 basis points, to 73.8%, versus 72.2% in the fourth quarter of 2014, driven primarily by a price increase, along with the improved manufacturing efficiencies.

Selling, general and administrative expenses in the fourth quarter of 2015 were $39.7 million, or 64.7% of sales, versus $40.8 million in the fourth quarter of last year, a decrease of $1.1 million. Excluding a $2 million charge for a franchise loan default guarantee by Medifast, and a $1 million charge in extraordinary legal advisor expenses resulting from 13D filers.

Fourth-quarter 2014 adjusted SG&A was $37.8 million, or 61% of sales. Sales and marketing expense increased by $2.2 million in the fourth quarter of 2015, as compared to the fourth quarter of 2014.

Fourth-quarter operating income from continuing operations, before tax, was $5.9 million, or 9.7% of net revenue, compared to adjusted income from continuing operations, before tax, of $7.2 million, or 11.5% of net revenue in the fourth quarter of 2014. Fourth-quarter 2015 income from continuing operations, net of tax, was $3.9 million, or $0.33 per diluted share, based on approximately 11.9 million shares outstanding. Fourth-quarter 2014 income from continuing operations, net of tax, was $2.6 million, or $0.21 per diluted share, based on approximately 12.2 million shares outstanding.

Fourth-quarter 2014 adjusted income from continuing operations was $4.6 million, or $0.38 per diluted share. Adjusted income from continuing operations excludes a $1.3 million accrual for the franchise loan default guaranteed by Medifast, and $700,000 in extraordinary legal and advisory expenses resulting from 13D filers.

Adjusted income from continuing operations is a non-GAAP financial measure. Please refer to the financial tables in today's press release for a reconciliation of all non-GAAP financial measures.

Our effective tax rate was 34.3%, compared to 37.9% in the fourth quarter of 2014. The effective tax rate in the fourth quarter of 2014 was affected by our inability to utilize certain tax deductions during that period.

Turning to our full-year results. Net revenue from continuing operations decreased 4.4%, to $272.8 million, for the fiscal year ended December 31, 2015, compared to $285.3 million in 2014. Take Shape for Life revenue in 2015 was $202.2 million, compared to $206.7 million in 2014.

Medifast Direct revenue was $48.7 million, as compared to $57.2 million in 2014. Franchised Medifast Weight Control Center revenue was $17.1 million, as compared to $15.4 million in 2014. And lastly, Medifast wholesale revenue was $4.8 million in 2015, compared to $6 million in 2014.

Income from continuing operations for the FY15 was $19.6 million, for $1.62 per diluted share, based on approximately 12.1 million shares outstanding. Compared to $21 million, or $1.65, per diluted share for the comparable period last year, based on approximately 12.8 million shares outstanding. Excluding the extraordinary legal and advisory expenses from 13D filers in 2015 and 2014, and the accrued franchise loan obligation in 2014, adjusted income from continuing operations would have been $20.9 million, or $1.73 per share, in 2015, and $24.1 million, or $1.89 per diluted share, in 2014.

Our effective tax rate for 2015 was 34.1%, compared to 33.6% in 2014. Our balance sheet remained strong, with stockholders' equity of $88.6 million, and working capital $64.5 million, as of December 31, 2015. Cash, cash equivalents and investment securities for the fourth quarter of 2015 increased to $67.1 million, compared to $52.6 million at December 31, 2014.

We did not purchase repurchase any shares during the fourth quarter of 2015. For the full year ended December 31, 2015, we repurchased 364,341 shares of common stock, at an average purchase price of $28.83. We currently have approximately 850,000 shares remaining, on a repurchase authorization, as of the end of 2015.

Now, turning to our guidance. We expect first-quarter net revenue from continuing operations to be in the range of $68 million to $71 million, and adjusted earnings per diluted share from continuing operations be in the range of $0.30 to $0.33.

Our first-quarter guidance excludes anticipated restructuring costs associated with the separation agreements for several senior executives, as Mike discussed earlier, approximating $1.4 million before tax. We expect 2016 full-year revenue from continuing operations to be in the range of $273 million to $280 million, and full-year adjusted earnings per diluted share from continuing operations to be in the range of $1.73 to $1 78.

To provide a little more color around our guidance, as I mentioned, we have significant visibility in Take Shape for Life's continuing growth trajectory, but do not yet have the same visibility on the impact of the actions we are taking in Med Direct will have on that business unit's sales and profitability. We think it's prudent take a cautious view on that business in our guidance, until such time as we see positive momentum from our newly implemented strategies and tactics. We will certainly update our expectations as the year progresses.

The Company expects annual savings associated with restructuring, excluding the current year of restructuring costs noted above, to be approximately $2.3 million. With regard to our restructuring initiatives, as Mike mentioned earlier, we're working on strengthening each area of our business, and ensuring we have a team of the best and brightest executives, across each business unit and in each functional area of the Company. As such, we have made some changes to the senior team.

You are now seeing the impact of these changes we made a year ago in Take Shape for Life, when we brought Mona Ameli to Medifast. We continue to upgrade our talent as needed, and some of you may have noticed that we announced in our 8-K that we may hire an executive search firm to help us find exceptional talent for certain positions, should the need arise. As we move forward in that process, we will update you as appropriate.

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

Thanks, Tim. In summary, we are pleased with the execution of our key areas of focus in 2015. We are confident we have the right strategic and executional initiatives in place, and are pleased with the achievements across the organization during 2015.

I would like to take a moment to thank our incredible team members, health coaches, clients, customers, and valued partners, for their hard work, dedication, and support of Medifast and Take Shape for Life. The actions we have taken will drive future performance across each of our business segments, and we look forward to a successful 2016. We appreciate your interest and support of Medifast.

And with that business review, Tim and I are available to take your questions. Operator?

(Operator Instructions)

Frank Camma, Sidoti.

Good afternoon, guys. Now that you have about a year here with new leadership at Take Shape for Life, and obviously, you are finding some positive trends there. When you look back, is there anything that you could boil down to what's accounted for the success in the recruitment trends? I'm trying to figure out if you've been able to [implement] --

I think there's two things, Frank. I think the new leadership has been an extreme positive, but also the revitalization of the network. What we have done, I think, very successfully -- and Meg had a lot to do with this -- we built an alacrity team, of people from the Company with people from the network, the top leadership.

And we also tried to eliminate quite a bit of conflict among the channels, to develop better trust among -- between the Company and the network. And I think that's revitalized the network, their leadership and their people, along with creating much more trust in the organization. And I think Mona has done a great job bringing her expertise into that mix, and really has been a very, very positive hire that was made into Medifast.

Frank, if I can just add to that. I think that -- give you a couple of examples, one or two examples here. I think we are laser focused now on the key drivers in the business.

And one example of that is, we had the incentive contest running towards the latter part of last year and the beginning of this year, which really focused on business drivers. And as the result of that program that many, many more people achieved the incentive trip than we expected. And most of the goals associated with that contest were around planting seeds that would eventually grow -- in essence, grow trees that would grow fruit.

And as you can see, sponsorship was up 20% in the third and fourth quarter, which had a lot to do with how we're motivating the field, and the types of resources we are giving them. We have allocated personnel within our staff. We allocated them to Take Shape for Life, I believe about a year ago. When Mona arrived, we had about 9 employees in Take Shape for Life; we have 37 now. We have teams of people that are dedicated to supporting the coaches in the area of business development.

We separated our call center into business development staff, who are facing -- really, they are dedicated for coaches versus customer calls. So we really created a lot of dedication, and focused on the areas that we felt that we felt the business needed to grow. And leadership was one of those areas. And so we've touched upon a number of things that I think, in a combined way, have really made the difference.

And Mike mentioned a little bit, too, I think important that is, some of the things we've done have actually hurt the other channels. And Medifast Direct, clearly, we've limited what they are able to do, to avoid some of the conflict that was perceived to exist in the past.

And we think that's also helped them really gain momentum, and we're working hard to keep Medifast Direct going well, and trying to take other types of angles to get Medifast Direct to go. But that strategy has clearly worked, and really has built the momentum.

And I think, Frank, that Wayne Anderson in the alacrity team, and the top 30 to 40 leaders of Take Shape for Life, are very highly motivated, and I think doing a terrific job right now.

Great, okay. And speaking of Medifast Direct, can you make any comments about -- since we're -- I know your seasonality is different. But since we're at the end of diet season now, can you make any comments about how, maybe, the competitive landscape not only got stronger, or maybe a revitalized Weight Watchers, but obviously, Nutrisystem more importantly? Like how that's impacted the business?

I think the issue for us, Frank, is that there clearly was a ton of advertising in the first few months of the year. And we didn't start advertising, really, until about the third or the fourth week of January, because there was so much clutter. And by the way, with the spend, with only us being less than 20% of our business being Med Direct, we clearly cannot go out there and spend like some of our competitors in that particular space, because our key opportunity is in the Take Shape for Life space.

But I think we did spend more. We spent, I think, $2.5 million in the first quarter, versus $1 million in the fourth quarter, in the advertising area. But we are trying to really target what is the most effective ways to do it. Because for us, we are not going to spend the kind of money that some of the bigger players are going to spend in that particular area.

(multiple speakers) I'm sorry, go ahead.

I'm sorry, Frank. Just a quick point of clarification [is in] a lot of numbers. The numbers Mike referred to were our fourth-quarter spend. Our first-quarter spend is more than that. It's the highest quarter of spend.

We spent over $4 million in the first quarter. And as a percentage of revenues, our first quarter, we spend close to 40% of our revenues. Whereas in the full year, the number is down in the 28% to 30% range. So on a percentage basis, we are high in the first quarter. But Mike is correct. I think when you compare the absolute dollars that are spent, compared to what you saw with some of the other advertisement happening in the first quarter, we had to be careful not to be drowned out.

Plus, you must have found some rate pressure, with what's going on with not only the other companies, but also the presidential cycle, I'm assuming.

Yes, there's no question there's been increases in the cost of the whole thing, and I think that's clearly been a factor.

Okay. Just touch on -- I know it's very small, but this question like, is wholesale even a feasible business at this point? I know you lost the customer -- or you decided to cut customers off there. But is that a business you pursue? Or is it -- just trying to figure out what the strategy is there

One of the nice things for us, Frank, is that every one of our business units is profitable, and there's no drag on the Company. And wholesale is not a drag on the Company, a very little, in the way of administrative costs associated with that particular channel. And in some ways, it can be a feeder into some of our other businesses. But it's clearly smaller than it was before, and we are feeling that in the first quarter.

On a year-over-year comparison basis, that -- the loss of that business contributed probably close to $0.06 per share. But we did it because of the negative impact that was having on our coach network for those, to find that product available in alternative sites on the Internet, we had to shut that down. So it was painful in the short-term. It will be accretive in the long-term.

Okay. Great. Thanks, guys.

Mitch Pinheiro, Wunderlich Securities.

Hey, good afternoon. So first, just a housekeeping thing. I was looking in the text of your -- when I add up the various divisions, I am coming up with slightly higher revenue then you reported, by about $1.1 million. So I didn't know if I was missing something, or whether I am just having a difficult time with my Excel program here. But I was coming up -- and I don't think it's rounding. But if you can check that out? You don't have to give me an answer at the moment, but -- maybe I'm wrong.

Yes, we will certainly double-check that.

All right, double-check that, please. And then the question -- so around -- you are looking to save about $2.3 million, I guess, through your -- through the executive departures. Is that simply for people that are gone that are saving $2.3 million? Or is it a lot more extensive than that?

No, it's from a financial perspective, and that number, there is four. There are other people at lower levels that we have made changes to. But quite honestly, some of those positions will be replaced with something similar, so we didn't include that in the restructuring cost. But there are other -- some other costs that are not included in the $1.4 million and the $2.3 million. But that's the majority of it.

Yes, but it just seems a little -- it seems a lot for merely four people. So I was just curious as to if it was just the compensation, or whether there were some other expenses in there?

It's not -- it's stock compensation, compensation, those things combined, for those executives.

Okay. And then just some -- these are random questions, so I apologize for no maybe necessarily logical order here. But why didn't you have any share repurchases in the fourth quarter?

I think the first quarter --

Excuse me, the fourth quarter. I meant the fourth quarter, I'm sorry.

Yes. So look, we were really excited to initiate our first dividend. So the Company's history has not had a dividend. And we talked about trying to have a balance in our approach to capital allocation. And our focus in the fourth quarter was getting that dividend process started.

So we maintain the share repurchase, so we certainly have that in our arsenal. But I think we have a nice, balanced approach now. And I think there will be times and opportunities where we repurchased stock. And -- but we initiated a steady approach, at this point, to our allocation -- capital allocation strategy.

Okay. And then, so looking at guidance here, on the revenue side. So at the low end of guidance, obviously, there's virtually no growth in revenue at the high end, maybe 2.5%. And I realize there's -- the moving parts in here are going to be different.

But can you talk, maybe, about the anticipated growth rate for Take Shape for Life's relative -- I mean Medifast Direct sounds like it's going to be flat to down, and sounds like wholesale might still be slightly down. So that means, obviously, Take Shape for Life, you're very encouraged by what you're seeing right now. What type of growth rate is embedded into the high end of guidance? Or maybe both ends, low and high, for Take Shape?

Yes, sure, we can probably provide color around that. We -- as you know, we don't typically guide revenue by business unit. But I think that when you look into the numbers, you can certainly extrapolate out what's happening.

So Take Shape for Life has a very interesting, positive thing going on here and if you haven't already, if you chart out the past five or six quarters, you'll see a very consistent improvement in growth rate. One time, they were down 10%, then down 7%, then down 4%, then even, and now at 5%. Obviously, that can't continue at that trajectory forever, but we see Take Shape for Life building on the growth rate that they ended with, at the end of the year.

So certainly, we're not anticipating large double-digit growth, or anything like that. This is something that takes time, as we know, to build, as your new coaches create some level of productivity. New coaches, in the beginning, are learning, so they're not nearly as productive. So I would think that that Take Shape for Life business is building on where we finished the end-of-the-year.

And Med Direct, for us, clearly, we said it. We're -- have a little harder time right now, gaining clear visibility into all the components of what's happening in the competitive pressures out there, in just the consumer space, as far as what's happening with food products and things that we're doing internally to try to improve that. So we have taken a little bit more of a cautious approach in our initial guidance on Med Direct.

So I think with Med Direct, we would be very pleased for Med Direct to get that trajectory back even flat. And with what we're doing to Med Direct, in a way that's really helping Take Shape for Life, that would be a big success, because --

Yes, and I think, Mitch, if you looked at it, we went from a negative 14% in 2014 to a negative 4% this year. And now, we're going to go from a negative 4% into the positive ranges. And we also absorbed $4 million or $5 million with shutting down illegal sales on the Internet. So literally, we have been making operational progress, in terms of going back to the positive range in the revenue side.

Okay. So help me connect. Active health coaches in fourth quarter declined sequentially, which I realize it's a small quarter, it's not necessarily a big diet quarter. But I'm trying to contrast that to this new coach sponsorship number you said was up 20%. Can you talk about what that means? And how all the numbers connect together?

Sure. So when we talk about active coaches, we're talking what we call active earning coaches. Those are coaches that actually earn compensation during the quarter. And new coaches, although they are sponsored and they come in, very often don't produce right away.

So they are like planting a seed, and you're waiting for the plant to grow. So there is a lot of training involved, and things like that. So you could have a very big sponsorship quarter, and you are adding to your total coach count, but your active coach count is going to slowly build as people to become productive.

And our coach count is not our total coach count that we publicly use the metrics. We use our active earning coach count. And so there's always going to be some percentage of people that don't perform. And one of the reasons why you see a dip, typically, in headcount in the fourth quarter is because of all the holidays. So sequentially, it would be quite unique for us to have sequential improvement from third quarter to fourth quarter, because of that. And that's a perpetual seasonal trend that we see.

So that's how it works. And so when you see that new sponsorship happening, and you are starting to plant these seeds. And I think just to have --truthfully, just a have coach productivity increase during the same period of time means that your existing coaches' productivity is really rising, to make up for the fact that your brand-new coaches coming in have low productivity. So that's the dynamic for how that works. And then, there's a point in time there a coach becomes, call it, a mature state, and should produce close to average productivity, but that takes time.

So do you expect, for 2016, a balanced growth rate in Take Shape for Life, in terms of an equal amount of increased active health coaches, and an increase in the revenue per health coach? Or is maybe -- how do you view that?

Yes, so we have had some expansion in our productivity per health coach, of about 3% or 4%. I think we expect that to continue a little bit, as we -- as our product offerings grow. And I think price gives us a little bit of productivity, as well. And we will see that again this year, although on a smaller level.

So yes, I think we will expect house productivity to go up a little bit. But the key driver that's going to drive total revenue is going to be the number of active coaches. That's the big driver.

Okay. And then so I -- the Medifast Direct business, I realize that you are removing the channel conflict that hurt Take Shape for Life. And I realize that it's -- you just said it was -- all yours segments are profitable. But doesn't -- it seems like Medifast Direct is a distraction. And I guess my question is, why not -- is there any way that you can make a more distinctive change in Medifast Direct, like in a bigger way, to either distance itself from Take Shape for Life, or -- it just seems to have optically --

Yes, Mitch, we are working on a strategy. It will take us probably about a year, as we go forward, to try to approach what you are saying. So we can give more exclusivity types of things to our channels, so that's something we are looking at. We can't talk about that now, in the sense that it's in early stages, but that is something we are looking at.

Also, Mitch, I think if you look and see -- it's a great point, and I think we have begun to do that in a lot of different ways. And, as Mike said, it will happen in a more robust way, going forward. But what we did early last year is, we made a price differential between the two channels. So it's actually -- the coaches have a price advantage over Med Direct, which I think is somewhat unusual, in a way, when you think about Internet. But that helped a great deal.

We also changed our programs that are featured in Take Shape for Life and Med Direct, where Take Shape for Life primarily features our 5 & 1 plan. And we created the Achieve plan online, so that customers' offers, when they come in, is a different offering than what you will find from a coach. And so that helps, as well.

And we have done other things. We have created some product lines that are unique in Take Shape for Life, and unique in Medifast Direct. We have a Thrive product line that is in Med Direct, and we have an Optimum Health product line that's in Take Shape for Life.

So we've started to do that, and they're gradual steps, but we are starting to create that separation, so that the direct selling component of our business, Take Shape for Life, begins -- more and more, will have a exclusive, unique offering.

That's all I have. I appreciate it. Thanks for taking the questions.

This concludes our question-and-answer session. I would like to turn the conference back over to Michael MacDonald for any closing remarks.

Thanks for your interest in Medifast, and participation on today's call. We look forward to providing you with an update on our business, when we report our first-quarter 2016 results. Thank you, and have a nice evening.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.