Good afternoon and welcome to the Medifast First Quarter 2015 Earnings Conference Call. All participants will be in a 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 for opening remarks.

Good afternoon, and welcome to Medifast’s First quarter 2016 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 March 31, 2016 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 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 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. Today I will share an overview of our start to 2016 along with an update on the progress we have made on our key initiatives. Tim will then review the first quarter financial results and guidance for the second quarter and the full year for 2016. Finally, we will open up the call to take your questions. We have kicked off the year on a very positive note. Momentum continue to build throughout the first quarter in Take Shape for Life, our largest business segment. Take Shape for Life improved 9% compared to the first quarter last year and this represented a fifth consecutive quarter of improvement in revenue for this business unit. These segment results combined with gross margin expansion of 201 basis points and our team’s consistent efforts to efficiently operate the business fueled our financial performance. On a consolidated basis, net revenue from continuing operations was $72.3 million and adjusted earnings from continuing operations were $0.42. We are pleased that both revenue and profitability were above our guidance for the first quarter. As a result of this positive momentum we are raising our 2016 annual guidance which Tim will review in detail. Our team continues to believe that we are poised to return to growth in 2016. Going forward, we remain intensely focused on taking steps to optimize each of our business segments, Take Shape for Life, Medifast Direct, Franchise, Medifast Weight Control centers and Medifast Wholesale by continuing our plans to differentiate products, programs and service offerings. I would now like to provide you with an update on our key business initiatives for 2016. Across our entire organization, we are on a mission to bring health, happiness well-being and empowerment to our client customer…

Thank you, Mike. I'll now review our performance for the first quarter ended March 31, 2016. Please note that the financial information I reference today will focus on our results from continuing operations. For the first quarter of 2016, we had no activity from discontinued operations, compared to income from discontinued operations net of tax of approximately $28,000 in the first quarter of 2015. In the first quarter, net revenue decreased approximately 1.5% to $72.3 million from net revenue of $73.4 million in the first quarter last year. The Take Shape for Life business unit accounted for approximately 78.4% of revenue. The Medifast Direct business unit accounted for 15.1%, the Franchise, Medifast Weight Control center business accounted for 5.8% and the Medifast Wholesale business unit accounted for 0.7% of net revenue. Focusing on the sales mix in more detail, revenue in our direct sales unit Take Shape for Life was up 9% to $56.7 million from $52.1 million in the first quarter of the prior year. The Sequential quarterly improvement in our year-over-year trending continued in the first quarter and we were pleased to have our second consecutive quarter of positive year-over-year revenue growth in Take Shape for Life. There were approximately 12,600 active health coaches in the first quarter compared to 12,100 in the same period last year and 11,900 in the fourth quarter of 2015. Average revenue per active earning health coach for the quarter increased to $4,490 from $4,316 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 believe that our increased emphasis on key Take Shape for Like strategies, the operational improvements in the health coach experience and the incremental resources added to the Take Shape for…

Thanks Tim. In summary, we are pleased with our start to the year. We remain confident we have the right strategic and executional initiatives in place and our achievements across the organization demonstrated our success thus far. 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. We look forward to future growth across our business segments in 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. Congratulations.

Thank you very much, Frank.

Hey, obviously, you did much better in Take Shape for Life, but what I am most concerned about is that, the – you did much better on both growing the networks as well as the productivity and I was wondering on – in the past, typically when you grow the network, you kind of see a decline in productivity. I was wondering if you could address that like, how that was achieved for that dual benefit.

Well, typically, when a network grows, the growth comes from more junior coaches who – at the entry point have a lower productivity. So that is true and that will continue to happen. What you are seeing is, the existing coaches increasing their productivity which offsets that downward pressure. So we’ve got some nice growth in the health of our coach network where we have leadership advancing occurring in a more rapid rate than we’ve had in recent history and more active involvement in the kind of middle ranks of our coach network and that’s kind offset to the natural impact that you have of growing entry-level coaches at lower productivity. So it’s been a nice mix for us.

Great. Is there active statement to say that your retention is generally stronger than the industry? I mean, I know, I don’t know if you actually give a percentage, actually your industry has it, but, it seems like your sales force is relatively sticky. I was wondering if you can just add something to that.

Yes, we have a very good, I mean, the industry I think has about an 80% turnover, our turnover is about 40%.

Right.

We’ve done a very good job and the other thing is we have great stability and our leadership in the network through the upward ranks. So we’ve had people that have been involved with the company all the way back to 2003, so, and now we are adding younger newer people like, Tim and I were out in San Diego at a recognition meeting and we were really pleased with how many first-time people were in the audience that were much younger and as these people keep going through the ranks, that’s going to help the health of the network as we were bringing up more talented younger people into the system.

Great. And can you make a general statement just about the direct selling market in the US, because it means, for a couple of years obviously, it wasn’t doing good. Have you seen any change there?

Well, I think if you looked at some of the other competitors, I think our 9% growth will stack up very well as a real strong performance in the North American market. North America seems to have been the toughest direct selling market over the last couple of years with obviously huge growth in direct sellers in China, Mexico, some of the other markets. So I feel very, very good that we are focusing on the market that was most important for us and also doing the planning to be able to move to Mexico as we develop an Espanic base within the United States. So we are trying to develop that and then that would be the first place. So, we would go outside the US.

Great, and my last question, can you tell us like, what you’ve learned so far, now it’s early, but in sports nutrition business and have you seen any big difference between the – sort of two organizations that you rolled out on so far?

Yes, in the sports nutrition business, we started out by really establishing the product credibility. So we’ve done a deal at Rutgers University where they are using it for their entire athlete department. We’ve also sponsored the Colonial Athletic Conference Tournament and the Atlantic Hockey Association. So we are getting it into some different sports areas as we start to do that. At the same time, we are really working on the product development side to ensure we have the product depth that we need as we do that. Our initial launch, we’ve launched a chocolate shake, we’ve launched multiple bars, we are coming out with a vanilla bar and then we’ve also hired Play By Play Sports, which is a Sports marketing company firm to help us with other universities. And we’ve hired a young executive who is a professional lacrosse player, Kyle Sweeney who has just joined the company who will help start Maverick Sports which is a Lacrosse company that sold the helmets and the things. Just remember Medifast doesn’t have that expertise in the company, Frank, so we are building that. So, I think we are starting well. We are trying to get credibility established first and we are not trying to be overly aggressive here, but take the right steps in meeting with the right people to start the business.

Great. Thanks guys. Congratulations.

Okay, thank you.

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

Yes, hi, good afternoon.

How are you doing, Mitch?

Hey, really good. Hey, could you just – could you help me connect the dots as far as, what those – the 20% growth in your healthcare health coach sponsorship and how does that translate, like to what we are seeing? Like, so you are up about 4% year-over-year. I mean, what’s going on to 20% growth? And how does that filtered down to the ultimate active health coaches?

Sure. So, a new sponsor coach is a coach who joins to Take Shape for Life, pays the initial fee to join Take Shape for Life. And there is a typically a lag effect from the time they do that to the time they begin to earn and that varies amongst people. So, we see growth in a number of people joining every month. Attrition of existing coaches is stable, actually a little bit improved and the difference really is how quickly people actively start earning. We only count – as you may know, we have many more coaches than our 12,600 what we reported that the number of people actively earning a commission in the period. So, it’s a leading indicator of the number of active coaches you are going to have and that’s something that should happen with attrition which we don’t anticipate at all. These newly sponsored coaches become active often in the subsequent quarter after they join and that’s what we are seeing, it’s mostly the growth that you saw in the fourth quarter, third and fourth quarters of sponsorship are translating into productive active coaches in the first quarter and that’s kind of the way that works.

So, if I look at, your quarter end active coaches of 12,600, I mean, with 20% growth in the sponsorship rates, I mean, is that translating? Should we see a modestly accelerating sort of year-over-year growth or does it accelerate sequentially?

Yes, I mean, we don’t have an exact crystal ball, here but I think what we are expecting is, in the coach count, it’s kind of what you are seeing, right you are seeing some modest, mid single-digit percentage growth in the coach count and of course if we continue to increase sponsorship at rates near 20%, that will accelerate fairly rapidly. It’s a hard thing to exactly predict, but we’ve now put three quarters together of – I think roughly 20%, 20%, 19%, which is beyond our expectations and we are seeing that convert into increasing the overall coach count and at a rate of around 5%. So, I think from a modeling perspective, I think about that continuing at that rate and a little bit better. And if we train two quarters more together of 20% growth that will accelerate beyond that.

Okay, and what are the drivers, I mean, you sort of talked about it a little bit, the drivers of your – the revenue per health coach, obviously there is the mix of new and seasoned coaches, so I get that. But what are the things, I mean, is there any pricing in there? Are there - like what percentage of maybe that growth comes from new products? Can you kind of dive into some of the other drivers of that line?

Yes, so if you look at like this prior quarter, we had a year-over-year benefit from price increase last March 1st. So in 2015, we had one month of price increase and this year we had three months that same price increase. Just as a note, we had another price increase April 1st of 2016 that will start to apply in the second quarter of this year. So price increase, I think has probably given us about 2% or 3%. And then, it’s kind of an interesting thing when you think about what we do, we sell, primarily in Take Shape for Life of 5-in-1 program where you have five meals a day, but you are on program you have five meals a day. We don’t necessarily promote you need a sixth meal that that would be counterproductive. So, can sell more to existing customers, but generally speaking, the way we look at it is, you increase the number of clients or coach and the number of coaches and that primarily gets what gets you your revenue per coach. It’s not necessarily incremental choices of products. Now we did add products like snacks, which can be incremental. We have done some upsell kits to some premium products. But the way I look at it is, it’s really – to get clients to be able to handle more, coaches, I am sorry, to be able to handle an average of more clients is a productivity measure that we are working on through some technology. And then, I think just being able to get the number of active coaches out is the key measure of productivity.

We are also refocusing in Take Shape for Life on our maintenance plan going out with a three and three program, Frank that Mona is focused on. So we are putting, I think, stronger marketing around some of the – we’ve already been really strong selling the replacement strategies, but we are putting stronger marketing around the other approaches. So, we can sell some of the other products as people continue on their journey of healthy living.

Okay, thank you and then, just the final question is, when I am looking at, sort of your guidance and how like the final three quarters compare to last year’s not last nine months, as you are looking basically for low to mid-teen type of revenue or earnings growth and it will be just a low to mid single-digit kind of revenue growth. How does – how is that going to part and the part of a Take Shape like sequentially? Are we going to see, is it a real back-end loaded year, I mean, fourth quarter or actually …

Not at all, Mitch, our third quarter is generally better in revenue than our fourth quarter.

We get some – a little bit of some easier comparison away once we get to the third quarter of the event we had last year in the second quarter in the Wholesale business unit where we had to really shutdown about $4 million of our business which was quite profitable. That makes the comparison first two quarters of this year a little bit difficult, but when we get to the third quarter it makes a little bit easier. But when we think about the Take Shape for Life business, we look at it grows by quarter to be slightly improve this quarter, but – I’ll call relatively consistent. We see some improvements in the Med Direct business as we proceed during the year a little bit. Clearly, the Med Direct business was greatly affected by some of the strategies we’ve taken to improve the Take Shape for Life business. So, it’s a balancing act, how strong we regulate the marketing activities in Med Direct and we are constantly monitoring that and trying to find things we can do there that improve the Med Direct business without creating conflicts.

And we did spend, Mitch in the first quarter 37% on advertising against the revenue we got which is a similar percentage as competitors in that space. But as you know, with 78% of our business right now being Take Shape for Life, we clearly see that as the area of opportunity for us to really drive and to make sure we are not disrupting that improvement.

And Mitch, I think we said in there, we are – we’ve taken – we take a cautious approach to our guidance and I think the opportunities at certainly at the back half could be very, very strong, as you build, we talk about it as non-annuity business but as you build a bigger customer base, a stronger customer base, a stronger coach base, you build momentum and the – the power of that customer base starts to have a long-term impact on your guidance. So, we’ve taken a conservative approach. The opportunity certainly exists for to get larger in the back-end of the year, but our guidance is – assumes kind of a relatively consistent rate of growth.

Okay, and then just the last question is just, related to Med Direct, as you are spending, I mean, is it all digital?

We are spending less on television, Mitch, we did go out. We’ve started with national television, then we did heavy up spending in two cities to pilot more aggressive spending and we saw that the returns weren’t as effective. So we are moving more to digital and we see that as a good strategy. We’ve brought in a consultant to help us by the way to give us some advice. He has got a lot of expertise in this area and I think that will be a benefit to helping us with ideas that maybe – we don’t have internally. So, we are putting a lot of focus on improving the Med Direct business. That’s a key priority for us, but at the same time, we want to make sure we are doing it not at the expense of the improvements in Take Shape for Life.

And we try to keep the perspective that Med Direct is an important business for us, it’s a very profitable business for us, but it is 15% of our business. And so, from a priority perspective, it was really, really important for us to get Take Shape for Life which is now 78% of our business in the quarter, making sure that’s really on the right track as Take Shape for Life grows, the company will grow.

All right, well, thank you very much. I appreciate the time.

Thanks.

Thanks, Mitch. This concludes our question-and-answer session. I would like to turn the conference back over to Medifast’s Chairman and CEO, Michael MacDonald for any closing remarks.

Okay, thank you 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 second quarter 2016 results. Thank you and have a nice evening.

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