Medifast, Inc. Q1 2010 Earnings Call Transcript

Medifast, Inc. Q1 2010 Earnings Call Transcript
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Medifast, Inc. (MED)

Q1 2010 Earnings Call

May 5, 2010 04:30 am ET

Executives

Katie Turner - IR

Michael McDevitt - CEO and CFO

Brendan Connors - VP, Finance

Analysts

Scott Van Winkle - Canaccord Adams

Tom Kaplan - East Shore Partners

Presentation

Operator

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Greetings and welcome to the Medifast Inc first quarter 2010 earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions).

As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Katie Turner Investor Relations for Medifast Inc. thank you Ms. Turner you may now begin.

Katie Turner

Thanks. Good afternoon and welcome to Medifast first quarter 2010 conference call. On the call with me today are Michael McDevitt Chief Executive Officer and Brendan Connors, Vice President of finance. By now everyone should have access to the first quarter earnings release for the period ending March 31 2010. This will release went out at approximately 4 pm eastern time today.

If you have not received the release, it is available on Investor Relations portion of Medifast website at www.choosemedifast.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 are generally identifying forward-looking statements. These statements do not guarantee future performance and therefore undue reliance should not be placed on them. Also descriptions of Medifast objectives, strategies, plans, goals or targets contained herein are considered forward-looking statements. Actual results could differ materially from those projected in any forward-looking statements. Medifast assumes no obligation to update any forward-looking projections that maybe made in today’s release or on the call posted to their website.

Medifast does not comment on issues or items currently or potentially in litigation with adversarial third parties and/or under investigation by appropriate regulatory or law enforcement agencies as the state or federal government. All of the forward-looking statements contained herein speak only as of the date of today’s call. And with that I would like to turn the call over to Medifast's Chief Executive Officer Michael McDevitt.

Michael McDevitt

Thank you, Katie. Good afternoon everyone and thank you for joining us. On today’s call I’ll provide highlights of our first quarter results and then Brendan will review the financial results for the quarter in more detail. We will then open the call up for your questions.

In the first quarter of 2010, we delivered record sales and earnings. This performance represents our 42 consecutive quarter of profitability. Revenue for the first quarter increased 75% to $60.6 million due to strong growth in each of our three primary distribution channels, including Take Shape For Life, Direct Response, and our Medifast weight control centers. This strong topline performance drove our first quarter profitability as we leveraged fixed costs and expenses with our vertically integrated operations. The first quarter of 2010 provided a strong starting point to what we believe will be another successful year for Medifast.

We attribute our success to Medifast's strategy of providing the best selection of quality portion controlled weight loss products within a multi-platform program that allows Medifast to best meet the many different client support and education needs in their weight loss or weight maintenance. Increasingly the Take Shape For Life, Direct Response and Medifast Weight Control center channels provide a complimentary source of support for health coaches and clients to connect and share Medifast’s clinically proven weight loss programs. Each of our sales channels provide clients with a differentiated level of support they desire to achieve their health and weight loss goals.

In the past thirty years, over 20,000 doctors have recommended our products to more than 1 million clients who have lost weight, and maintained their weights. The credibility of our products and the results they produce continues to resonate extremely well with new and existing clients. This credibility, our strong team members and our superior product offerings create the foundation that supports every channel within the Medifast business model.

It is reflected in our Take Shape for Life sales channel through the personal testimonials and stories of our health coaches and health professionals that continue to use and recommend Medifast products.

The growing awareness and strength of our brand has helped to increase our Take Shape for Life active health coaches 78% to over 7100 compared to 4000 coaches last year. And our Direct Response sales channel, our focus on clinical research and innovation has helped us to target more effective advertising, leading to 43% sales growth in this channel for the first quarter of 2010. On our planned 30% increased marketing and advertising spend, we generated a 2.8 to 1 revenue to spend ratio during the first quarter of 2010 compared to 2.6 to 1 ratio in 2009.

This led to strong improvements in operating income. And of course in our Medifast weight control centers, the efficacy of our portion-controlled meal replacements and personalized support programs are the gold standard of weight loss. Personal counselors provide one-on-one support and develop an individual program for each and every client that walks through the doors.

The focus on client service and support helped generate record clinical revenues. Same-store sales for clinics open greater than one year increased 30% year-over-year. In 2009 we expanded our clinic into a number of new markets and had 27 clinics in the comparable store base located in Florida, Maryland, Texas, compared to 21 clinics last year.

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