Greetings, and welcome to the Medifast Second Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Katie Turner.

Good afternoon, and welcome to Medifast's Second 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 June 30, 2014, that went out this afternoon at approximately 4:05 p.m. Eastern Time. If you've not received the release, it's available on the Investor Relations portion of Medifast's website 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-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 any forward-looking projections that may be made in today's release or on the call posted on the website. All of the 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 a brief overview of our second quarter performance and an update on our strategic initiatives for growth and profitability long term. Tim will review the financial results for the second quarter in more detail and discuss the third quarter and full year 2014 revenue and EPS outlook. I will then provide closing remarks, and we will open up the call to take your questions. In the second quarter, our ongoing focus on profit improvement yielded positive results, with earnings per diluted share of $0.44, ahead of our guidance for earnings in the range of $0.37 to $0.40 per diluted share. We were able to accomplish this despite continued pressure on revenue in the quarter. 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. In the second quarter, net revenue decreased approximately 16.7% to $80.9 million compared to $97.1 million the prior year. This was below our expectations for revenue of $85 million to $88 million. It has been a difficult market so far this year. We continue to see softness in consumer spending. As a result, our team has diligently managed our costs and expenses to maximize our profitability. I am pleased with our team's ability to deliver earnings thus far in fiscal 2014. Looking ahead, we have a number of exciting initiatives designed to drive incremental revenue, returning to positive year-over-year growth in the fourth quarter of this year. I now would like to take you through these key initiatives for each of our channels. New products. Our business plan for 2014 assumed a revenue contribution…

Thanks, Mike. I will now review our financial results for the second quarter ended June 30, 2014, in more detail. For the second quarter, net revenue decreased 17% to $80.9 million from net revenue of $97.1 million in the second quarter of the prior year. The Take Shape for Life sales channel accounted for 67% of total revenue, Medifast Direct accounted for 19%, Medifast Weight Control Centers and Wholesale Physicians accounted for 14% of total revenue. Focusing on sales channels in more detail. Revenue in our direct sales channel, Take Shape for Life, decreased approximately 12% to $54.1 million compared to the same period last year. The decrease in revenue for this channel was primarily driven by a decrease in the number of health coaches, along with the decline in revenue per health coach. We ended the second quarter with approximately 10,800 active health coaches, and the average revenue per health coach per month during the quarter was $1,566. Take Shape for Life commission expense, which is variable based upon product sales, decreased by approximately $5 million compared to the second quarter of 2013. We're now 2 quarters into the new compensation plan, which was strategically designed to reward those who are currently coaching clients and growing their businesses. Overall, the response to the new compensation plan has been positive. We expect our new product launches will contribute to an increase in revenue per health coach as they roll out this year. Our Medifast Direct segment revenue decreased 29% to $15.2 million as compared to $21.5 million in the second quarter of 2013. Overall sales and marketing expense decreased $1.3 million or 14.8% versus the prior year second quarter. We will continue to monitor the effectiveness of our advertising spend in the balance of the year, with the intention to…

Thanks, Tim. In closing, we believe we have the right strategic initiatives in place to help fuel future growth across our multiple sales channels to improve our ability to attract new clients and expand growth of current customers to help ensure their success and in turn, further accelerate Medifast's growth long term. Going forward, we remain focused on prudently managing the controllable aspects of our business to increase our profitability and utilizing the strength of our balance sheet to enhance shareholder value. Clearly, revenue is an important priority, and we remain extremely focused on that over the next 2 quarters. Thank you very much. We would now like to open the call to your questions. Operator?

[Operator Instructions] Our first question comes from Kurt Frederick with Wedbush Securities.

Gentlemen, the profitability again. I do have a question on the guidance or the implied guidance for Q4. I was just flipping through my model. I don't see a single year where the Q4 EPS was above the Q3 EPS for guidance. It seems to indicate this can be a pretty meaningful increase. So I'm just wondering how I get there?

Kurt, it's Tim. So if you look last year actually, if you take out the impact of the one-time closure of 8 Medifast clinics, which was approximately $0.12 per share, last year we would've gone from third quarter of $0.41 a share to fourth quarter of $0.51 a share. The reported EPS in the fourth quarter of last year was $0.39 a share. Again, that was impacted by about $0.12 with the closure of the clinics.

Okay. Is there anything happening in this year's fourth quarter? I mean, does your guidance include any share repurchases or any additional closures?

No, it doesn't consider any additional closures. We do have, in the guidance, an expectation to continue share repurchases. We also have -- if you look at third quarter, fourth quarter, the big delta is, from quarter-over-quarter, is our third quarter absorbs the full cost of our annual conventions. That typically depresses EPS in the third quarter and causes that spread to be large. Then in the fourth quarter, Mike walked through a number of initiatives that we think will be accretive and also increase revenue. So if you look at revenue in the fourth quarter, you'll see an implied growth in revenue for the first time in awhile, quarter-over-quarter, and that's pushing up EPS as well.

Is that primarily in Take Shape for Life? Is that where you're forecasting the growth? And is that primarily the new products?

Its -- well, you've got to realize, Kurt, in the second half, we're increasing our advertising spend by 40% year-over-year. So that spend will cause positive improvement in Med Direct and in, hopefully, across all of our channels, but that should be a positive growth. And I think it's a, for us -- as you know, a lot of our product launches were all backloaded this year towards the back half, so we plan to spend more. So at the end of the year, as an example, our overall spend in advertising will be about 28% of revenue. So we'll spend $24 million on $85 million in the clinics and in the Med Direct. So it's a 28% revenue spend, but 44% increase in the second half. And in that second half, that's really where we're trying to leverage that. And in the fourth quarter -- third quarter, we're only up 5%. Fourth quarter, we're up 150%. So -- and that's, by the way, 2 things: we want to advertise heavily in the fourth quarter and then advertise in that beginning of the year of the diet season.

And too Kurt, just so you know -- sorry, this is Meg. In Q3, we launched the new auto ship program for both Med Direct and Take Shape for Life, August 1. So you put it in the middle of the quarter. And then we have our new maintenance products, which is a whole, again, new product line coming out in November, and these are both accretive actions.

And when you look at that spend, Kurt, half-over-half as Mike mentioned, there's more spend in the third quarter than there actually is in the fourth quarter. So again, if you look quarter-over-quarter as far as EPS, you burn the third quarter much more than the fourth quarter with spend.

Okay. And then maybe an update on the transition. You talked the ones -- the 24 that were converted to the franchise in the first half. What are the assumptions you're building in for the second half of the year?

Well, originally, when we had the Analyst Day, we had said we would try to do close to 30, was I think the number that we talked about at the Analyst Day. And we have prospects that we feel we'll probably end up somewhere in that 24 to 30 range. So we've got some more prospects, and we feel good we'll continue to make that transition.

[Operator Instructions] Our next question comes from Mark Sigal with Canaccord Genuity.

Is there something different in the advertising approach in the back half of the year, or perhaps a different strategy you're taking with it that gives you confidence that you're going to see there -- returned efficacy on that?

Well, I think there's a couple of things, and I'm going to let Brian jump in, our head of advertising. But one of the things that we've seen is an increase in the cost of advertising versus what it was in the past, and I think the issue is also the effectiveness of advertising has been less effective than in the past, especially in our Weight Control Center model. We've seen the cost of acquisition go up quite a bit, Mark, in terms of the advertising. And that's one of the reasons we're actually going to -- we're interviewing a couple agencies because it's getting more complicated. And the other thing is, and I think you see it, is if people don't stay on the program long enough, you have a very high cost of acquisition and then you can have the person defect off the diet program fast and then you get not so great a return. So, hey Brian, would you like to comment on the second half?

This is Meg. So the econometrics that we have and we've had in place now since the first quarter has been giving us a lot of education on where we should be spending our money and in what mix we should be spending it. So you'll see, along with the agency, new creative executions coming out in the back half of the year, just a better understanding of the mix of where we're going to spend and then more consistency in where we spend. And that, I think, will have a tremendous impact.

Okay. And then can you talk a little bit about the feedback that you're getting from health coaches? Where the challenge lays in the continued declines? And also the declined efficiency as well, it's causing some of the more efficient people in the organization to leave.

Yes, I mean, we're not seeing any major leaders that we have leaving the organization. In fact, we just broke 5 new presidentials in 2 new integral [ph] presidentials, which are our top ranks. So we actually feel very confident, especially with the new compensation structure. I do think the field may have to adjust to a new compensation. But in our case, the ones who were building depth and building frontline volume, which is the most stable way for our organization to continue growing, those leaders that are emerging are building it in the right way. So we feel that after convention, in particular, they have some amazing new tools from the acquisition and retention tools that will be in the new BeSlim program that launched August 1. And then we also created a new thing this year called virtual coaching videos that we just launched, and actually came up today, and those are videos that kind of help clients walk through the program. So when you go to be a coach, you don't have to feel overly burdened with other than being a guide to where to find the materials. You don't have to do much more than that. And so we feel like these will be tremendous benefits to those clients coming in and those clients converting into health coaches. This will be the first time in our history, particularly through those virtual coaching videos, that we're seeding the health coach concept to new clients as they get on the start of their program.

The other thing, Mark, is we've seen a positive trend. We were down about, if you look at year-over-year, about 1,000 coaches. But we've seen a positive improvement over the last 30 or so days in our coach camp going the other way. So we feel that a lot of the work that we've been doing hopefully will start to pay off. And by the way, it's not been an easy environment in direct selling. The DSA, if you looked at the data, a lot of those companies were down -- most companies were down in direct selling, anywhere from 3.5% to 4%. It was a tough market in the first quarter in direct selling for sure after being up 4% over last year.

[Operator Instructions] Your next question comes from Alec Jaslow with Midtown Partners. Alec I. Jaslow - Midtown Partners & Co, LLC, Research Division: I was just wondering if you could talk a little bit about some of the issues you're facing with Medifast Direct, and maybe also if you're getting any consumer feedback that might help going forward?

From a consumer feedback perspective, I think we all know that the trends in the industry are really pulling towards the healthy living and lifestyle changes versus just going on a diet and off a diet. So we feel like we're in a good place, and we feel like we have a really good strategy moving forward to be part of that. We obviously are having customer acquisition issues that we are readily dealing with, and we're going to be working with an agency to really help that. We also launched -- particularly in Medifast Direct, we really haven't been able to put some really good offers out there. And now that we have this new Advantage program for our Medifast Direct platform, they also have some great new acquisition and retention offers. And because email marketing is such a primary tool for Medifast Direct, this program now gives us more reason to reach out to our customers on a more frequent basis. And then this fall, as you heard in Mike's commentary, in the fourth quarter, we'll be having some major e-commerce improvements that we feel will improve the user expense, the checkout, the shopping, the entire look and feel of the Medifast Direct platform.

At this time, I'd like to turn the floor back over to management for closing comments.

We appreciate your participation today, and we look forward to speaking with many of you in the coming weeks. So thank you very much. Have a good evening.