Good afternoon and welcome to the Medifast Fourth Quarter and Full Year 2015 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [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 fiscal year 2015 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’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 recorded and a 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 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’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. 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, inline 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. We essentially 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 remained 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…

Thank you Mike. I'll 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 78.2% of revenue. The Medifast Direct business unit accounted for 15.2%, the Franchise, Medifast Weight Control center business accounted for 6% and the Medifast Wholesale business units accounted for about 0.5% of net revenue. Focusing on the sales mix in more detail, revenue from 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 year-over-year trending continued in the fourth 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 earning 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 count and increased level of coach productivity. We're pleased that our increased emphasis on key Take Shape For Like strategies. The operational improvements and 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…

Thanks Jim. 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 the 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?

We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Frank Camma with Sidoti. Please go ahead.

Good afternoon, guys.

Good afternoon Frank. How are you?

Good. Hey, now that you have about a year with new leadership at Take Shape For Life and obviously you're finding some positive trends there. When you look back is there anything that you could drill to what's kind of accounted for the success in the recruitment trends. I'm just trying to figure out what if you have been able to pinpoint there.

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’ve done, I think very successfully and [indiscernible] to do with this we're building an ready [ph] 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 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.

Hey, Frank, if I could just add to that I think to give you a couple of examples one or two examples here, I think we are kind of laser-focused now on the key drivers in the business. And one example of that is we had the incentive contest running for the latter part last year and the beginning of this year, which really focused on business drivers. And the results for that program that many, many more people achieved the incentive trip than we had expected. And most of the goals associated with that contest were around planting seeds that would eventually grow and in essence grow trees that will bear 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’re 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 nine employees in Take Shape For Life, we have 37 now. We have teams of people that are dedicated to supporting the coaches in 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 the business needed to grow and leadership was one of those areas. And so we kind of touched upon a number of things I think in a combined way that really made a 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 was limited in what they are able to do to avoid some of the conflict that was perceived to exist in the past and we think that 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 is clearly working, really has built the momentum.

And I think Frank, that Wayne Andersen and the Alacrity [ph] 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, and just speaking of Medifast Direct can you make any comments about first of all I know your seasonality is different. But as we are kind of at the end of diet season now, can you make any comments about how maybe the competitive landscape, not only a stronger or may be vitalize weight watchers but obviously [indiscernible] system more importantly like how they impacted the business?

Well 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 till about a third or the fourth week of January because there was so much clutter. And by the way with the spend was only us being less than 20% of our business being Med Direct we clearly cannot equate [ph] there in 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 spend I think $2.5 million in the first quarter versus a $1 million in the fourth quarter in the advertising area. But we’re trying to really target what’s the most effective ways to do it because for us we’re not going to spend the kind of money that some of the bigger players are going to spend in that particular area.

Okay. But you also have -- I'm sorry, go ahead.

I'm sorry, Frank. Just a quick point of clarifications in a lot of numbers. The numbers Mike referred to fourth quarter spend, our first quarter spend is more than that. It’s the highest quarter spend. We’ve spent over $4 million in the first quarter. As a percentage of revenues our first quarter we spend close to 40% of revenues whereas in the full year the number is down in the 28% to 30% range. So on a percentage basis we're high in the first quarter. But Mike is correct, I think when you compare the absolute dollar spend compared to what you saw with some of the other advertising happening in the fourth quarter, we had to be careful not to get rammed [ph] out.

Plus you must have found some rate pressure with what's going on with not only the other companies but also to some of the [indiscernible] on this segment.

Yeah, well there is no question, there has been increases in the cost of the whole thing. And I think that's clearly been a factor.

Okay. And just touch on -- I know it's very small, but this question Mike, is wholesale a feasible business so despite -- I mean I know I lost a customer. Or you kind of decided to kind of [indiscernible] there. But is that a business you pursue or is it just kind just kind of – 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. There is no drag on the company. And wholesale is not a drag on the company, very little in the way that administrative a cost associated with that particular channel. And in some ways that 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 and alternative sites on the Internet. We have to shut that down. So it was painful in the short term. It will be accretive in the long-term.

Okay, great, thanks guys.

You're welcome.

The next question comes from Mitch Pinheiro with Wunderlich Securities. Please go ahead.

Hey good afternoon.

Hi Mitch how are you?

Hey good. So first just a housekeeping thing. I was looking in the text of your – when I add up the various divisions, I'm coming with a slightly higher revenue than you reported by about $1.1 million. So I don't know if I was missing something or whether I'm just having a difficult time with my Excel program here. But I was coming up – it doesn't add up, I don't think this 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.

Yeah we'll certainly double check that.

Double check that, please. And then the question – so around, you're looking to save about $2.3 million, I guess through the executive departures. Is that simply four people that are gone that are saving $2.3 million or is it a lot more extensive than that?

It's from a financial perspective in that number. There is four, there are other people, lower levels that we 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. And but that's the majority of it.

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

It's stock compensation, and compensation, those things combined for those executives.

Okay and then just – these are random questions so I apologize for no maybe necessary 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.

So we were really excited to initiative our first dividend, so the company's history it's not had a dividend. We talked about trying to have a balance in our approach to capital allocation and our focus in the fourth quarter was kind of getting that dividend process started. So we maintained the share repurchase. So we certainly have that in our arsenal. But I think we kind have a nice balanced approach now. I think there will be times and opportunities where we repurchase stock. But we kind of initiated a steady approach at this point to our allocation strategy.

Okay. And then turning to the guidance here on the revenue side; so at the low end of guidance obviously there is virtually no growth in the revenue, at the high end maybe 2.5%. And I realized the moving parts in here are going to be different. But could you talk maybe about, instead of maybe the anticipated growth rate for Take Shape For Life relative, 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 sort of embedded into the high end of guidance or maybe both ends, the low and high for Take Shape.

Yeah, sure we're going to try to provide some color around that. 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, very interesting positive thing going on here. And if you – if you have not already, if you chart out the past five or six quarters you will see very consistent improvement in growth rate. One time they were down 10 then down 7 and then down four, then even and now up 5. Obviously that can't continue with 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 kind a takes time as we know to build, as your new coaches create some level of productivity. New coaches in the beginning are learning, so not nearly as productive. So I would think of that Take Shape For Life business as building on where we finished the end of the year. And Med Direct for us clearly we said it, we're – have a harder time right now gaining clear visibility in all the components of what happening and the competitive pressures out there and 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've taken a little bit more of a cautious approach in our initial guidance on Med Direct. So I think the Med Direct we would be very pleased for Med Direct to kind of just 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 will be a big success.

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

Okay, so how many connect, I mean so active health coaches in the fourth quarter declined sequentially, which I realized 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 sort to connect together.

Sure when we talk about active coaches we're thought what we called active learning coaches. Those are coaches that actually earn the compensation during the quarter. And new coaches although the response and they coming very often don't produce right away. So they're 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 be having a very big sponsorship quarter and you're adding to your total coach count but your active coach count is slowly building as people start to become productive. And as our coach count is not our total coach count that we probably use the metrics. We use our active coach count. And so there is always going to some percentage of people that don't perform and one of the reasons why you see deep typically of 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 the third quarter to fourth quarter because of that method as a perpetual seasonal trend that we see. So that's kind of how it works, so when you see that kind of new sponsorship happening and you're starting to see planting seeds. And I think just to have coach productivity increased during that 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 to how that works. And then there is a point in time where the coach becomes called the matured state [ph]. And should produce close to average productivity, but that takes time.

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

Yeah so we've had some expansion of our active [ph] health coach for about 3% or 4%. And I think we expect that to continue a little bit as we – as our product offerings grew. And I think price gives us a little bit of productivity as well. And we'll see that again this year although in smaller levels. So yeah I think we will expect coach 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 I mean the Medifast direct business, I realize that you're removing the channel conflict that hurt Take Shape For Life and I realize that it's – you just said it was all of your 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, that in a bigger way to either distance itself from Take Shape For Life or -- it just seems to have optically, optically…

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

And also Mitch, I think if you look and it's a great point. And I think we have begun to do that in a lot of different ways. And Mike said it will happen in a robust rate -- 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 is -- which I think is somewhat unusual in a way when you think about Internet but that help 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 five and one plan. And we created the Achieve plan in online. So that customers offers when they come in, is a different offering that what you will find on – from a coach. So that helps us well. And we've done other things. We've created some product lines that are unique in Take Shape For Life, and unique in Medifast Direct. We have a Thrive product line that's in Med Direct and we have an Ultimate product line that for Take Shape For Life. So we started to do that and there are gradual steps but we are starting to create that separation so that the direct selling component of our business Take Shape For Life it begins more and more we will have a more exclusive unique offering.

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

Okay, thanks very much Mitch. We appreciate it.

Thanks Mitch.

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 in 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.