Good afternoon and welcome to the Medifast First Quarter 2017 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 first quarter 2017 earnings conference call. On the call with me today are Daniel Chard, 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, 2017 that went out this afternoon at approximately 4:05 P.M. Eastern Time. If you have 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 I begin, we would 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 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 CEO, Dan Chard.

Thank you, Katie. Good afternoon everyone. We are pleased to discuss our first quarter 2017 financial results with you today. I will provide a brief overview of our financial and operational business performance. Tim will then review our financial results in more detail and share our 2017 annual guidance. Finally, Tim and I will be available to answer your questions. We are pleased with our start to 2017. In the first quarter, we continue to make progress on our key strategic initiatives across our organization. We have taken steps to position Medifast for an accelerated rate of growth with sustainable improvement in profitability as we progress through the 2017 year and over the next several years. Revenue of $70.6 million was in line with our expectations. Gross profit margin expanded 140 basis points and we managed our expenses well to drive earnings of $0.51 per diluted share, which exceeded our guidance of $0.45 to $0.48 per share. We continue to make progress in preparing Medifast for a very promising future, which includes deeper penetration of our existing US market, as well as expansion into new markets. This month we will complete a companywide initiative focused on aligning our growth strategy, internal processes, and organization to improve our efficiency and execution capability. Our teams have already begun leveraging a broader set of resources to partner with and support our growing community of Health Coaches to achieve our growth goals. Now let me focus on our operational performance in greater detail. Take Shape For Life reported its sixth consecutive quarter of year-over-year growth, up 2%. We reported 13,000 active earning Health Coaches during the quarter, an increase of 3%. Our quarterly revenue growth rate to depth in the quarter consistent with our expectations given the slow sponsoring we had in Q4. We…

Thank you, Dan, and good afternoon everybody. In the first quarter, revenue was $70.6 million was in line with our expectations. Take Shape For Life accounted for approximately 82% of revenue. Medifast Direct accounted for 12.7%. Franchise Medifast Weight Control Centers accounted for 4.9%, and Medifast Wholesale accounted for 0.4% of net revenue. Revenue in Take Shape For Life increased 2.3% to $58 million from $56.7 million in the first quarter of the prior year. As Dan mentioned, there were approximately 13,000 active health coaches in the first quarter, compared to 12,600 in the same period last year and 12,500 in the fourth quarter of 2016. Average revenue per active earning health coach for the quarter decreased slightly to $4,463 as compared to $4,490 in first quarter of last year. Our Medifast Direct revenues decreased 18.3% to $8.9 million, as compared to $10.9 million in the first quarter of 2016. Total Medifast direct advertising in the quarter decreased 44% to $2.3 million from $4.1 million in the first quarter of 2016. This decrease is a result of our ongoing initiatives to optimize our advertising spend to acquire growing number of customers that support long-term profitable growth. Going forward, our strategy is to gradually shift our emphasis to an integrated business model driving online customers into our coaching model of gaining a higher lifetime value and minimizing any remaining conflict between our current business units. Revenue in the franchise Medifast Weight Control Centers decreased to 3.5 million from 4.2 million in the same period last year. The decrease in revenue is primarily driven by fewer franchise centers in operation during the period. We ended the quarter with 37 franchise centers in operation, across 19 reseller locations, compared to 58 centers at the end of the same period last year. Medifast Wholesale…

[Operator Instructions] The first question comes from Frank Camma of Sidoti. Please go ahead.

Hi good afternoon guys.

Hi Frank.

Hi Frank.

Can you talk about the guidance for Q2; I know you're not changing the full year. I think we [indiscernible] strongest last year your SG&A did pretty aggressively in Q2 as a percent of revenue, can you remind us why that was and it doesn't look like obviously you're not expecting that again this quarter, so just kind of wondering what went on last year?

Yes, so it is a little bit last year, little bit this year. So last year you may recall in the first quarter we did some restructuring. So, we took out a decent amount of expense from the first quarter into the second quarter, so you saw the drop there. All the restructuring cost was forced into the first quarter. So you had a pretty good drop in the second quarter. So that’s kind of the shift last year. This year you have - there is an upcoming convention; especially it is a really big deal for us. It is a big event. And unlike even prior years we have made investments in systems, investments in the story behind our Take Shape For Life soon to be up to being a group. So we put - we have a decent amount of cost in the second quarter of this year that we didn't have last year, but preparing really for, really big transformation here in July. And that’s really the catalyst that will drive the increased revenue growth in second half.

Got it, okay. Second question is just the health coach productivity continues to be very strong, especially in light of like how much growth you had in total account, can you just explain like, do I have a right thought that at some point just because of the way your model works, it seems like you kind of almost tap out on the ability to improve that productivity or am I wrong about that? Like is it really like a natural limit, I guess is what I'm saying per health coach?

Hi, I think, this is Dan Frank. I think what I have to say is, the number goes up and down slightly depending on what’s happening and related to sponsoring, but in general it’s fairly stable as you have said. We don't foresee it dropping significantly and lightly as we continue to roll out OPTAVIA and come out of the convention. We’d expect that sponsoring increases in the back half of the year that we’d also see productivity potentially just up slightly, but it’s a reflection largely of the way our coaches work with their clients. Most of them have, multiple clients they work with the [indiscernible] which why it is a fairly stable number for us.

I guess the dip in Q4 was some of that was kind of one-time right, because of certain product products weren't available, is that correct when it went down it was around 41 on that level?

Yes, it is the combination of things that are very related. So, we had, as you know in the fourth quarter we had some supply challenges, some of our brand-new products. And that had an impact on - some impact on revenue, but more have been impacted on sponsoring on new coaches and so the combination of those two things put downward pressure on the productivity. And then we typically though in the fourth quarter, historically at least in the fourth quarter to holidays, a little bit different productivity anyway.

Sure. All right, my last question is just on advertising spend on Medifast Direct, I mean I thought you drove surprisingly strong revenue there given the spend level, can you talk it all about like what percentage of your revenue roughly is as members coming back on the program or previous customers once again trying the program in the New Year, do you have sort of a feel for that?

I don't have a number for you. I think we have a feel for, what I can tell you is that we don't have a very robust effort to go back after last customer. So we do some email campaigns for last customers, and the way we track customers in our system is that once a customer gets an account with us, we measure them as a customer and not a - if they come back six months from now, they are still the same customer. They don't get recorded with the new customer. So we have some kind of add other information I think that says, I think it is a relatively smaller percentage of our customers in the, my guess would be, somewhere in the 10% to 15% range, but the way we track our customers where we track lifetime value, all those things is once we attach an ID to you, you are a customer. So like a metrics, that metric that we look that closely at our metric that we report. From an advertising perspective, I think we are actually pleased with the quarter and we are pleased with what we have already seen in April, and we have been trying for long time as you know to find that right mix be able to acquire a customer at a very efficient cost. So that, as we go forward we could afford to attach that customer to a coach, which we know is a better outcome for the customer as far the hang on program, we know it is a better outcome for us, it is more profitable outcome for us. So, if we had maintained our previous spend, it would never financially make sense to attach a coach and pay a coach for coaching a customer and also pay for the acquisition. So we are really pleased with what we saw on the first quarter is we had a very good acquisition cost. We have seen it come through in April as well and you are starting to see that trajectory of revenue growth in Med Direct, you are starting to see that the rebound. We expect to see more of that in the second quarter.

It must be a good thing for the coach too obviously, since they get some free leads, but so how do you determine like who gets what, is it all sort of random by geography, I mean how will you do that?

We are developing, I will call it an algorithm, but it is tied to performance. So those coaches were performing at the right levels, who didn’t know, in essence will provide the best kind of support are those who we see believe and we are at the very beginning stages of this right now, and a big part of this is making sure that our coaches understand that we are working with them to make this potential drivers for their success so there can be - and it can be a big difference maker and kind of accelerated growth in our coach models we do it. So, I think more to come, but I think what we are seeing and what we are understanding about the possibilities are very encouraging.

Great. Thanks guys.

Thanks Frank.

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

Well, I would like to thank all of you for your interest in Medifast and for your participation in today's call. We look forward to speaking with you again when we report our second quarter 2017 financial results and we wish all of you a pleasant evening.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.