Mar 7, 2013
Executives
Katie M. Turner - Managing Director of Healthy Living Michael C.
MacDonald - Chairman, Chief Executive Officer and Chairman of Executive Committee Timothy G. Robinson - Chief Financial Officer Margaret E.
MacDonald-Sheetz - President, Chief Operating Officer, Director and Member of Executive Committee
Analysts
Kurt M. Frederick - Wedbush Securities Inc., Research Division Michael Halen - Sidoti & Company, LLC
Operator
Greetings, and welcome to the Medifast, Inc. Fourth Quarter and Full Year 2012 Earnings Conference Call.
[Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Katie Turner, for opening remarks.
Thank you. Ms.
Turner, you may begin.
Katie M. Turner
Good afternoon, and welcome to Medifast's Fourth Quarter and Fiscal Year 2012 Earnings Conference Call. On the call with me today are Michael MacDonald, Chairman of the Board 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 December 31, 2012, that went out this afternoon at approximately 4:05 p.m. Eastern Time.
If you have not received the release, it is available on the Investor Relations portion of Medifast's 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 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 forward-looking projections that may be made in today's release or on the call posted on its website. Medifast does not comment on issues or items currently or potentially in litigation with adversarial third parties and are under investigation by regulatory or law-enforcement agencies of the state or federal government.
All 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.
Michael C. MacDonald
Thank you, Katie. Good afternoon, everyone, and thank you for joining us.
On today's call, I will provide you with an update on our business initiatives, including areas of the business where we are seeing momentum and discuss the areas we're increasing efficiencies to improve Medifast's future growth and profitability long-term. Tim will review the financial results for the fourth quarter in more detail and discuss the first quarter and full year 2013 revenue and EPS outlook.
I will then provide closing remarks, and we will open up the call to take your questions. This time last year, we communicated to you our renewed focus on driving operational excellence throughout our Take Shape for Life, Medifast Direct, Medifast Weight Control Center and Wholesale Physicians sales channels, as well as our internal support departments to better position our business for maximum profitability long-term.
I'm pleased to say that in 2012, our executive team worked diligently to review and enhance our overall cost structure to further leverage our sales momentum, improve our margins and deliver improved earning results while continuing to focus on enhancing the customer experience in each of our sales channels. In 2012, our net revenue increased approximately 20% to $356.7 million from net revenue of $298.2 million in 2011.
With each of the company's 3 primary sales channels, contributing to this year-over-year revenue increase. Net income for the fiscal year 2012 increased $3.1 million to $21.6 million or $1.57 per diluted share, excluding 2 nonrecurring items, including an FTC settlement recorded in the second quarter of $3.7 million or $0.27 per diluted share and a sales tax accrual of $2 million net of tax or $0.14 per diluted share in the fourth quarter of 2012, which Tim will discuss in more detail in a few minutes.
This compares to a net income of $18.5 million or $1.31 per diluted share for the comparable period last year. Tim will provide details on the sales tax accrual in a few minutes.
Now I will discuss each of the 3 primary sales channels in more detail. First, I'll focus on Take Shape for Life.
The number of active health coaches increased to 10,200 at the end of 2012. On a sequential basis, active health coach count decreased as you've seen historically as health coaches are less likely to grow their businesses during the holiday season.
Throughout the year, we worked on improving our health coach and client acquisition and retention. Our average revenue per health coach per month ended the year at $1,635 as compared to $1,555 in 2011.
We are pleased with our health coach productivity as we really started to see positive results from our efforts to improve our overall Take Shape for Life performance in 2012. We successfully hosted 9 Take Shape for Life health coach events with over 6,500 attendees or over 60% of our health coaches attending one or more events in 2012.
This also includes record-breaking attendance at our Take Shape for Life Annual Convention in Washington, D.C. where we celebrated 10 years of helping America get healthy.
The year we focused on simplifying the opportunity for our health coaches to acquire clients and develop their businesses. Specifically, we continue invest in dedicated resources to support our field leadership team through an emphasis on training, new market development, events and incentives.
It was great to see many of you at our Analyst Day in Maryland in December. You may remember, we talked about the Success from Home magazine as our latest acquisition tool.
In less than 3 weeks, we sold 2/3 of our inventory. This amazing third-party publication is a strong tool to support our coaches in the promotion of their businesses in their communities.
To start 2013, we kicked off January with 2 of our largest West Coast events that attracted over 3,000 health coaches and clients. At these 2 events, we introduced live stream technology, which allowed over 1,000 additional clients and coaches to attend the kickoff events virtually.
The West Coast continues to be a strong market for us. We are very pleased with the enthusiasm of our health coaches at these events.
In 2013, we're increasingly focused on expanding our Take Shape for Life health coach presence in all 50 states to help more clients achieve optimal health. We believe these events, along with all of our other exciting Take Shape for Life initiatives, should increasingly place Take Shape for Life in a position to experience increased momentum in health coaches and revenues long-term.
As a reminder, the vast majority of our health coaches are currently or were formerly clients using our products for their own weight loss or weight maintenance needs. Approximately 94% of our Take Shape for Life product sales are shipped directly to and personally consumed by our clients, while the remaining 6% of our Take Shape for Life product sales are shipped to and consumed by our health coaches.
Many of our health coaches still use our products to help in their weight maintenance. But it's important to remember, our health coaches do not receive a discount for their own product orders nor do they receive commission on Medifast products purchased for their own personal consumption.
I will now spend a few moments discussing our Medifast Direct sales channel. Our team continues to effectively manage this business and strategically spend on marketing and advertising to drive sales.
In 2012, Medifast Direct revenue increased 16% to $84.4 million, and we achieved a 3:1 revenue-to-spend ratio. This is the highest full year revenue-to-spend ratio we have achieved, and it illustrates the strength of our marketing team and their efforts to drive greater efficiencies in this sales channel.
We continue to generate more targeted and effective advertising of Medifast 5 & 1 Plan and portion-controlled meal replacements. Medifast Direct realized significant year-over-year increases in Google Search clicks, site visitors, number of buyers, total orders, average order value and the number of clients that are Medifast Advantage auto ship program in 2012.
Our team capitalized on learning from our web analytics tool and our content management monitoring technologies to drive more optimized site performance. To this point, we have introduced web technology that allows us to test and deliver targeted content to different web visitors that's created more personalized customer experience, as well to improve our lifetime value per customer.
We have also expanded our one Medifast message to share our multiple channel options with new customers so they can choose the support option that best serves their weight loss or weight management goals and needs. We have done this by developing distinct creative messages to highlight each channel.
The key differentiating elements of each and continuing to focus on the wonderful success stories we have from real people, our Medifast customers. In the fourth quarter, we launched our renewed MyMedifast and MyTSFL online communities that offer clients the ability to track their Medifast meals, Lean & Green meals and water consumption throughout the day, as well as weight measurements, exercise routines and more.
Clients can view and share graphs and reports that track their progress as they continue on their journey towards optimal health. More importantly, clients and customers can interact directly with other people in the program via robust social community.
To go hand-in-hand with the online community, we also launched a new mobile application available for download on the Apple App Store for the iPhone, iPad and the Google Play for Android. We believe our investment in advanced training and technology will continually enhance our online presence, grow site traffic and to continue improve order conversion long-term.
We continue to invest in our fully integrated advertising campaign across television, print and radio, highlighted by a very strong focus on digital as we have continued to be very efficient in our spend. As many of you remember, we had our first-ever national sponsorship of Notre Dame in football in 2012.
This is very exciting for us, and we are very pleased with the results across the digital television, radio assets from this partnership, which will continue in 2013. To kick off January of 2013, we took our marketing approach to a new level and unveiled our first-ever national television campaign called Conversations with Yourself that features 3 real Medifast clients and has been featured not only in the New York Times, but also in Adweek and on Mashable, touted as a fresh approach to weight loss advertising.
We now have a strong mix of direct response and call-to-action re-messaging along with powerful and emotionally compelling brand-building content that will help grow our overall brand awareness across the broad spectrum of mediums. We believe the drive to build our brand is a very important investment in our future and look forward to continuing to improve in our hands -- and enhance our overall marketing effectiveness to drive sales in the future.
Finally today, I'd like to spend some time discussing our Medifast Weight Control Centers and Medifast Wholesale Physicians sales channel. We continue to increase our same-store sales in this channel, with a 12% increase for the year versus 13% in 2011.
We ended the year with 68 corporate centers and a comparable store base versus 40 last year. As a reminder, our new corporate center openings are weighted towards the first half of 2012, with 19 new centers, 5 of which were in new designated market areas for us: Virginia, North Carolina, including Raleigh-Durham, North Carolina; Hampton Roads, Virginia; Richmond, Virginia and others.
We are improving our lifetime value per customer in our corporate centers through training, counseling and standardization of processes. We continue to balance evaluating ways to provide superior customer service and support the needs of our clients seeking additional accountability in their weight loss and weight maintenance while driving greater profitability through the sales channel.
Improvement and profitability is an ongoing effort, but we did see a profit improvement of $2.1 million to $0.6 million loss in 2012 from a loss of $2.7 million in 2011. In addition, the fourth quarter was our third consecutive quarter of profitability in the Medifast Weight Control Center and wholesale sales channel.
While we're still ahead of where we thought we would be from a profitability standpoint in this channel for the year, we remain focused on driving future improvements. In 2013, our franchise partners intend to expand into additional new markets with limited Medifast presence currently.
As a reminder, our franchises plan to open approximately 40 centers total over the next 3 to 4 years. And in fact, in 2012, 5 new franchise centers opened, 3 in Sacramento, 1 in Minneapolis and 1 in Eau Claire, Wisconsin.
This demonstrates the strengths of the Medifast Weight Control Center business model and the positive relations we have forged with our franchise partners. Going forward, we will focus on delivering technology and systems to enable franchise centers to be more efficient and effective as we work to grow the franchise model further, both with existing partners and new franchises.
I also want to provide everyone with a brief update on our strategic partnership with Medix. As a reminder, Medix is a leader in pharmaceutical obesity products in Mexico.
We are pleased to report that in the fourth quarter, we officially launched our Medix products in Mexico with Medix physicians network. In January, Medifast and Medix announced plans to increase distribution of Medifast's meal replacement products and programs across Latin America to include Argentina, Bolivia, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama, Paraguay, Peru, Venezuela and Uruguay.
We believe Medix's distribution and Medifast's clinically proven meal replacement options will help us address and reduce obesity in key countries outside the U.S. Medix plans to work with its extensive physicians network while also opens approximately 30 Weight Control Centers over the next several years including the first center in the first half of 2013, and I expect 5 to 6 centers in 2013.
Our partnership with Medix is a great example of how our executive team is expanding the Medix products and programs internationally through new complementary distribution channels. Going forward, we will continue to explore ways to grow the Medifast brand to help fight obesity on a global basis, with an emphasis on entering new markets with a low capital investment and a focus on increased profitability.
And with that overview, I would like to conclude by welcoming Tim Robinson, our Chief Financial Officer, to Medifast. Tim joins us with over 25 years of diverse management experience and finance accounting and business operations.
Most recently, he held the position of Vice President, Business Operations for Canon Business Solutions Inc. where he served as a key member of the executive team for this national office product subsidiary of Canon U.S.A.
We're excited to have Tim on the team and believe his ability to develop and implement new financial processes and systems will create the financial platform needed to support our future growth initiatives across our multichannel business. And with that, I would turn the call over to Tim to review our financial results in more detail.
Timothy G. Robinson
Thanks, Mike. I'm excited to be a new part of Medifast team.
For those of you I have not yet had a chance to meet, I look forward to seeing you in the coming weeks and months. So now focusing on the results for the fourth quarter of 2012.
Net revenue increased 20% to $83.2 million from net revenue of $69.6 million in the fourth quarter of the prior year. As Mike mentioned, our reported net revenue for the quarter was at the high end of our guidance of $82 million to $84 million.
The Take Shape for Life sales channel accounted for 62.2% of total revenue. Medifast Direct accounted for 21.8%.
Medifast Weight Control Centers and Wholesale Physicians accounted for 16% of total revenue. Focusing on our sales channels in more detail, our direct sales channel of Take Shape for Life experienced revenue growth of 20% to $51.8 million compared to the same period last year.
Take Shape for Life growth was driven by an increased customer product sales as a result of an increase in active health coaches and an increase in the monthly revenue per active health coach. The number of active health coach at the end of fourth quarter of 2012 was approximately 10,200, and the average revenue per health coach per month increased to $1,571 from $1,452 in the fourth quarter of 2011, which is an increase of 8%.
Revenue for the Medifast Direct division increased 17% to $18.2 million as compared to $15.6 million in the fourth quarter of 2011. Due to more effective advertising message, more targeted advertising online and local radio spots and by highlighting customer successes in large national publications and on television, the company experienced a 3.2:1 revenue spent ratio in the fourth quarter 2012 compared to 2.8:1 in the same period last year.
In the fourth quarter, revenue for the Medifast Weight Control Centers and Wholesale Physicians channel increased 24% to $13.3 million due to growth from the opening of new corporate and franchise centers throughout the year and the year-over-year improvement in comparable store sales of 4% for centers opened and created in 1 year. We had 68 Medifast Weight Control Centers in the comparable store base at December 31, 2012, and we had a total of 87 corporate and 35 franchise centers in the fourth quarter of 2012.
Gross profit for the fourth quarter of 2012 increased 20% to $62.8 million compared to $52.3 million in the fourth quarter of the prior year. Our gross profit margin increased 30 basis points to 75.5% versus 75.2% in the fourth quarter of 2011.
Margin improvement during the quarter resulted from reducing discounts across the company's sales channels and a slight improvement in the overhead as a percentage of sales. Reported selling, general and administrative expenses includes a nonrecurring sales tax accrual.
The focus on sales tax on Internet-based remote sellers has gained momentum in many states. Because of this trend, combined with the desire of the company to create symmetry amongst all sales channels, we have resigned our positions to be more consistent with other major Internet and remote sellers, and we'll now be collecting and remitting sales tax in all states that impose sales or use tax.
In order to mitigate the financial impact on any prior year activity, the company is taking advantage of voluntary disclosure agreements with various states. The total amount of sales tax liability in 2012 related to such disclosure agreements is approximately $3.3 million before income tax and $2 million after income tax.
As a result, reported selling, general and administrative expenses increased $8.4 million to 52 -- $59.2 million in the fourth quarter of 2012 versus $50.8 million in the fourth quarter last year. As a percentage of net revenue, selling, general and administrative expenses decreased to 71.1% from 73% in the fourth quarter of 2011.
Selling, general and administrative expenses, excluding the nonrecurring sales tax accrual of $2 million after tax, were $0.14 per diluted share in the fourth quarter of 2012, increased $5.2 million to $56 million versus $50.8 million in the fourth quarter last year. As a percentage of net revenues, selling, general and administrative expenses decreased to 67.2% from 73% in the fourth quarter of 2011.
Take Shape for Life commissions expense, which is variable based on product sales, increased by approximately $3.6 million as Take Shape for Life sales grew a healthy 20% compared to the fourth quarter of 2011. As Mike mentioned, health coaches do not need to purchase products themselves to receive commissions and health coaches are not compensated for their own orders nor for recruitment of clients or health coaches.
Importantly, commissions are not paid out on the sales enrollment kits, business building tools or event registration. So essentially, we don't pay commissions on non-consumable items.
And finally, clients pay the exact same price for products sold through Take Shape for Life as do individuals who elect to do the program without a coach through our Medifast Direct division. Salaries and benefits increased by $800,000 for the fourth quarter of 2012 as compared to last year.
The increase in salaries and benefits is due to the hiring of employees in our information technology, finance, Take Shape for Life, legal and marketing departments to support our growth. Sales and marketing expenses decreased by $900,000 in the fourth quarter of 2012 as compared to the fourth quarter last year.
And as a percentage of net revenue was 9% as compared to 12% in the fourth quarter of 2011. Operating income, excluding the $2 million sales tax accrual previously mentioned, was $6.9 million or 8.2% as a percentage of net revenue.
That compares to $1.5 million or 2.2% as a percentage of net revenue in the fourth quarter of 2011. Operating income as reported was $3.6 million.
Our effective tax rate was 49.6% compared to 19% in the fourth quarter of 2011. Our effective tax rate for the full year of 2012 was 35.1%.
Excluding the recording of sales tax accrual of $2 million recorded in the fourth quarter and the FTC settlement in the second quarter, our full year effective tax rate would have been 29.4%. The company anticipates a tax rate of approximately 33% in the first quarter of 2013.
Fourth quarter net income, excluding the sales tax accrual, would have been $3.9 million or $0.28 per diluted share based on approximately 13.8 million shares outstanding compared to net income of $1.2 million or $0.08 per diluted share for the comparable quarter last year. Reported net income in the fourth quarter of 2012 was $1.9 million or $0.13 per diluted share.
The company's balance sheet remains strong, with stockholder equity of $90.8 million and working capital of $59.8 million as of December 31, 2012. Cash, cash equivalents and investment securities for the fourth quarter of 2012 increased by $26.2 million to $60 million compared to $33.8 million at December 31, 2011.
So now focusing on few items that relate to our financial outlook for 2013. We expect net revenue for the first quarter of 2013 to increase by 4.6% to 6.8%, resulting in revenues in the range of $93 million to $95 million.
And earnings per diluted share are expected to be in the range of $0.32 to $0.35. The first quarter of 2013 is a bit unique from a calendar perspective in terms of how the holidays and our shipping days fall.
The last 3 days of the quarter fall over the Easter holiday weekend when the company will be closed. Additionally, we're pleased with the early results of our first-ever national brand advertising campaign as we continue to focus on messaging that drives conversion, client acquisition and client retention across each channel, while we also tap the one Medifast multiple support option message and we build our overall brand awareness.
We plan a slightly more conservative marketing spend in the first quarter of 2013 as we balance our response and brand building approach and engage both customer sentiment and the competitive arena. We remain optimistic for the full year of 2013 and we'll now share an outlook for the full year in addition to our quarterly revenue and earnings guidance I just provided.
We expect full year 2013 net revenue to increase 7.9% to 12.1% or in the range of $385 million to $400 million. And earnings per diluted share are expected to be in the range of $1.70 to $1.80.
Expansion to new markets and continued growth in our conversion of brand awareness will contribute to our net revenue increases while an ongoing focus on increasing our operational efficiencies and ensuring the right pricing and discount mix to drive client acquisition and retention help deliver our earnings per diluted share improvements. Well, that concludes our financial overview.
Now I'd like to turn the call back over to our Chairman and CEO, Michael MacDonald.
Michael C. MacDonald
Thanks, Tim. The evolution of the Medifast business model has allowed us to realize strong top and bottom line growth as well as strong cash flow generation.
We believe the improvements we've made in our overall management team and also in our multichannel weight loss and weight management business model allows us to benefit from cross-channel synergies and overall more diversified go-to-market approach. We're excited about our future growth prospects in each of our 3 sales channels, and we will consistently work to make the necessary adjustments to improve our operational efficiencies and overall effectiveness across our distribution channels in 2013.
In addition, we continue to believe that our vertically integrated operations and our increased capacity will allow us to continue to improve the long-term leverage of our business model for increased margin expansion and long-term profitable growth. In closing, we've come a long way in just a year, and we believe this illustrates that we're taking the right steps to best position Medifast for increased earnings and strong cash flow generation to enhance shareholder value long-term.
We are pleased with our start to 2013. We're optimistic about our long-term growth prospects, and the team in place to help us achieve our goals.
Now Tim, Meg and I are available to take your questions.
Operator
[Operator Instructions] Our first question comes from the line of Kurt Frederick with Wedbush Securities.
Kurt M. Frederick - Wedbush Securities Inc., Research Division
So I was just wondering on the $8 million ad campaign that you're running, what -- how's the timing of that fall into the quarters?
Michael C. MacDonald
On the ad campaign, Kurt, we spend more money in the beginning of the year in the first 2 quarters, but it's not that different across the year. We spend a little bit more in the first 2 quarters.
The one change we've made is that about $8 million is going into the brand portion of the campaign, which is the conversations campaign. And by the way, that drives all 4 channels, and we're seeing a lot more activity on the websites.
And from that, we're continuing to try to focus on improving our conversion rate.
Kurt M. Frederick - Wedbush Securities Inc., Research Division
Okay. And you said -- I think I heard the direct marketing piece you're going to pull back a little bit in Q1?
Michael C. MacDonald
Direct marketing, we've taken direct marketing down a little bit to put that into the conversations campaign overall, but it's not significant. It's a few million dollars.
Margaret E. MacDonald-Sheetz
And we'll use -- we'll gauge the customer responses to those ads and decide what the future investment will be throughout the rest of the year as well.
Kurt M. Frederick - Wedbush Securities Inc., Research Division
Okay. And then do you have the -- what is the average revenue at the company-owned Weight Control Centers?
Michael C. MacDonald
You mean current location?
Kurt M. Frederick - Wedbush Securities Inc., Research Division
Right.
Michael C. MacDonald
I'd say about $650,000. The franchises would be around $1.1 million, Kurt.
Kurt M. Frederick - Wedbush Securities Inc., Research Division
$1.1 million, okay. And then just one more.
On I think the last call, you had talked about like the back-office stuff that you're putting in and you talked a little bit on improved analytics and then simplified health coach acquisition. I was wondering if you could discuss maybe some of the learnings from that upgrade, and then what specifically the additional data is that is now available to you?
Michael C. MacDonald
Meg, why don't you take that one.
Margaret E. MacDonald-Sheetz
Yes, we've got 2 phases. We've made some incremental adjustments and changes to the way we run our back office for our coaches, but there is a bigger project still in the pipeline for this coming year into the next year to deliver a very new phase.
So some of the changes that you're talking about, although slight, are just easier reporting look and feel, but the bigger changes will come later this year. But certainly, the training aspect and the coaching, helping coach our coaches to mentor others better, is all up on the coach connection sites have been improved.
The way our website is functioning, that's been improved dramatically and changed. We've actually created a new MyTSFL portal, which is a great place for coaches to keep track of -- and clients to keep track of their weight loss.
So those are the bigger functionalities right now that's tied into that. The off-submission back-office reporting will be later in the year.
Operator
[Operator Instructions] Our next question comes from the line of Michael Halen with Sidoti & Company.
Michael Halen - Sidoti & Company, LLC
Just a couple of quick ones. Can you give us any color in terms of tax rate for the full year?
Timothy G. Robinson
Yes, Mike, we expect our tax rate for 2013 to be around 33%.
Michael Halen - Sidoti & Company, LLC
Okay, great. And I know you had mentioned 40 centers in the next 2 or 3 years by some current franchisees.
I was just curious if any other franchisees have joined? Or are there any other franchisees from outside?
Michael C. MacDonald
Yes, Mike, right now -- right now, Michael, we've been working on completing the process called developing franchise in a box where we develop the tools to go out and market to new franchisees. Those tools will be available in the next 30 days or so, and then we'll start that marketing process.
So all of the franchises that we're moving on so far won some current people. Now we're going to go out and start marketing nationally over the next 30 days as we complete the deliverables, but I want to be very sure that we have the right tools so as we engage people, we can teach them to get up the learning curve very, very quickly.
Michael Halen - Sidoti & Company, LLC
Okay, great. And I guess, one more.
Can you talk about the when you -- I guess the timing of the new franchise centers and when you think they might open throughout the year as this is going to be something we're looking [indiscernible] back half or...
Michael C. MacDonald
As we look at this year, we're looking at anywhere from 8 to 15, the weeks that we're already committed to in the U.S., and clearly, as I mentioned, the 5 to 6 in Mexico. But as we start to market this, it doesn't take that long to do these.
We'll have additional centers as we get people to sign up. So that's the initial thing.
We think we have anywhere from 12 to 20 already, and then we'll see what happens after we go out the market.
Michael Halen - Sidoti & Company, LLC
Okay. Do you expect them to be opened in the first half or?
Michael C. MacDonald
I think most of those will be open in the second half. And that's one of the reasons as we do this transition, it is a major transition going from a company-owned to franchises.
That's where you saw us be a little conservative on the revenue side because of that transition. We want to make sure we're not -- we want to make sure we have the right things in place so we create a good long-term sustainable business rather than move too quickly and do what we did when we're building the company-owned ones and make that same mistake again.
Operator
[Operator Instructions] Thank you. I would now like to turn the call back over to management for closing comments.
Michael C. MacDonald
Well, what I want to do is just say thank you very much. I appreciate everybody participating on the call.
And I -- if anyone has any other follow-up questions, we would absolutely be happy to answer those over the next few days. But we thank you for your support of Medifast, and we look forward to creating greater shareholder value in the future.
Thanks very much.
Operator
Thank you. This concludes today's teleconference.
You may disconnect your lines at this time, and thank you for your participation.