Medifast's (MED) CEO Michael MacDonald on Q1 2014 Results - Earnings Call Transcript

Medifast, Inc. (NYSE:MED) Q1 2014 Earnings Conference Call May 5, 2014 4:30 PM ET

Executives

Katie Turner - ICR, Inc.
Michael MacDonald - Chairman and Chief Executive Officer
Meg Sheetz - President and Chief Operating Officer
Timothy Robinson - Chief Financial Officer

Analysts

Scott Van Winkle - Canaccord Genuity
Mitch Pinheiro - Imperial Capital
Alex Jaslow - Midtown Partners
Kurt Frederick - Wedbush Securities

Operator

Greetings and welcome to the Medifast First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host Katie Turner. Thank you. You may begin.

Katie Turner

Good afternoon. Welcome to Medifast's first quarter 2014 earnings conference call. On the call with me today are Michael MacDonald, Chairman 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 March 31, 2014 that went out this afternoon at approximately 4:05 pm 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 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 statement. Medifast assumes no obligation to update any forward-looking projections that may be made in today's release or on today's. 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.

Michael 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 strategic initiatives and discuss areas of our business where we realize greater efficiencies and an effort to improve Medifast's future growth and profitability long term. Tim will review the financial results for the first quarter in more detail and discuss the second quarter and full year 2014 revenue and EPS outlook. I will then provide closing remarks, and we'll open up the call to take your questions.

We are off to a solid start in 2014, generating earnings results ahead of our expectations. Our team remained focused on driving operational excellence throughout our Take Shape for Life, Medifast Direct, Medifast Weight Control Center and Wholesale Physician sales channel as well as our internal support department. And I am extremely pleased with our team's ability to closely manage the controllable aspects of our business. This allowed us to achieve 110 basis point improvement and operating margin for the first quarter and deliver earnings per share increase of 6% to $0.45 which was $0.10 above the high end of earnings guidance range of $0.32 to $0.35 for the first quarter. Net revenue fell within our guidance range and we were able to deliver the strong earnings results despite of reduction in revenue year-over-year. Tim will discuss our financial in more details in few minutes. But I want to briefly touch on what we have experienced to date in 2014 from a top line perspective.

Heading into the first quarter our net revenue guidance implied a decrease versus the first quarter of 2014. And while our first quarter sales performance was in line with our expectations, we want to address the few other dynamics that we believer are impacting our top line results. While it was hard to quantify, we've seen more cautious consumer discretionary spending environment across each of our sales channel and an evolving weight loss competitive landscape. As a result in the first quarter we strategically focused on profitability and managed our business accordingly. We opted to limit our spending by maximizing the efficiency of our spending. This is demonstrated by improvement in our overall revenue and spending ratio. Company wide we saw ratio of 12.5 to 1 in the first quarter of 2014 as compared to 9.6 to 1 in the first quarter of 2013. As the year progresses we are begin to reinvest additional dollars in marketing while continuing to focus on the efficient management of these investments. Before we get too far in our discussion today, on behalf of Meg, Tim and Brian, and our broader team. I want to thank those of you that recently attended our Medifast Analysts Day in New York. It was great to see you. As many of you know, at the event we provided an update on our recent accomplishments and plans for 2014. We also discussed the execution of our strategic initiative which focuses on health coach expansion, weight control center conversion, a new product and technology introduction. It was a great opportunity for you to explore and try the 27 new products that we expected to launch throughout this year. I am really proud of our product team and very excited about the evolution at Medifast's products as we increasingly work to adjust not only weight loss and weight management but importantly the growing consumer demand for an overall healthy living approach. This brings us significant growth opportunity for Medifast in the future. We believe our focus on these strategic plans will allow us to expand our business and increase our health coach network and enhance shareholder value long term.

I would now like to focus on operational update for the first quarter of 2014. Our team remains focused on several initiatives to increase health coach growth client acquisition and retention. In January, Take Shape for Life

Launched our Stop, Challenge and Choose campaign with a goal of encouraging a healthier lifestyle and helping participant achieve optimal health for the coming year. We had more than 21,500 entrants and during each participant's 12 week transformation, a Take Shape for life health coach, work with clients to help them learn and implement healthy habits. Several winners will be selected from an all expenses pay trip including a visit to Disney Land, attendance at the National Take Shape for Life convention and a stay at the Four Seasons Hotel, Westlake Village, California spa and Wellness resort. This is another example of our vision to inspire clients to embrace a long-term healthy living approach. We want to challenge and empower people to remain healthy for life and our Take Shape for Life health coaches continue to help us lead the way. Our Aruba Health Coach Recognition Trip resulted in 155 qualifiers which were above our expectations. This trip gave our health coaches the opportunity to celebrate their success in early March. Throughout the quarter, we also hosted five successful super regional events in San Diego, Portland, St. Louis, Orlando, and White Plains, New York. We had great attendance from health coaches in each of these surrounding areas. Specifically we continue to focus these events on creating high impact learning experiences for our health coaches as well as creating a full year of calendar incentives to drive and health coach acquisition.

Lastly, we recently returned from Go Global event in Austin, Texas, where our top field leaders received the continued training and education they need to grow their business. Focusing on the Medifast's Direct channel, our revenues were down versus the first quarter last year primarily due to our reduced sales and marketing spend, we are pleased at the efficiency in spending we did put into place. Additionally, we generated encouraging results from our free shipping days, promotional campaigns, product offers and special incentives to general new interests and motivate retention. We implemented improvements to our business intelligence and analytics tracking and now see the actual results of all discounting and promotional activities as well as the associated spending on a daily basis. We have introduced cart up sale offerings in the quarter as well as a test of our new referral program that we plan to expand throughout the year. We've also ramped up our email marketing efforts and are pleased this is now become a significant contributor to our integrated marketing approach. Our new mobile commerce site for Medifast's Direct is seeing more traffic as consumers gravitate to their mobile devices, we have continued to expand our breadth across our own web and social properties as well as across the earned spaces within the digital landscape.

Moving forward our spending will be closely tied to the information derived from our new econometrics model which will allow us to optimize our advertising mix on a quarter-to-quarter basis and even further optimize spending efficiency. Our business continuous to be driven by customers who want to live healthier and happier lives. True weight loss management is a life time journey and Medifast wants to be there each step of the way. We believe there are many prospective new customers who would trust the heritage of the Medifast's clinically proven and doctor recommended approach for healthy living products and performance oriented items down the road.

At Medifast we believe that the foundation of our future success relies in our ability to continue to innovate and create new products for customers and health coaches. We already have a vast array of food options. However, the customers that love our products had told us they want more. Our newest product innovations include sour cream and chive mashed potatoes and garlic mashed potatoes. In addition, we launched our new flavors of home in the first quarter including chicken cacciatore, chicken with rice and vegetable and turkey meatball marinara. The customers' response to these products has been very positive. Flavors of Home allows for a healthy, lean and green meal to be ready in just a few minutes. We believe catching this incremental meal option is a tremendous business opportunity and allows us to provide a six meal at a day for our customers. 2014 will be the biggest new product year in a history or Medifast with 27 new product new launches. For those who have joined us in Analyst Day, we hope you enjoyed your first taste of our new products.

Now focusing on a Medifast's Weight Control Centers and Wholesale Physicians channel for a moment. We continue our efforts to identify new franchise partners. In the first quarter, we've opened 13 new franchise locations since late December, 2013 for a total of 49 franchise centers at the end of the first quarter. Our openings in the first quarter include centers in Washington State, Alabama, Louisiana, Tennessee and California. We will continue to support current franchise expansion activities and have new marketing initiative in place to share the opportunity.

In the first quarter, we continue to make progress in our international expansion plans. While we still have white space to cover in the United States, some of our bigger growth opportunities are abroad. We are well underway with our expansion into Mexico and Latin America through our partnership with Medix. In fact, Medix acquired 13 slim centers at the end of the first quarter where Medifast's products will be distributed. And we also announced our Canadian market launch in March. Initially this expansion will include Medifast's Direct and Medifast's Medical providers. We expect to have over 50 product choices available in Canada as the year progresses. The obesity epidemic is an international problem and I am pleased to lead a company whose mission is to provide a solution to consumers to healthy and nutritious products and programs that paves the way for lasting health.

In February, Medifast was honored as one of the top companies in 2014 Mid-Market Elite list for Chief Executive Magazine. This award recognizes leading mid market companies and is presented the businesses that exemplify superior growth, track record of innovation and exceptional corporate culture leadership in a compelling business model. There are approximately 197,000 companies in the U.S. that comprise the mid market. So this was certainly an impressive recognition for our company. I would like to thank our entire team at Medifast for their hard work. Our most recent accomplishment was the announcement on April 22 with our strategic partner Medix acquired 11 Medifast's Weight Control Centers in Texas in Florida. Today, we announced that Medix has added one more center bringing the total number of centers acquired to 12. This deal advances our plan to transition our corporate Weight Control Centers to the franchise model. Additionally, this acquisition marks the first Medix owned Weight Loss Centers in the United States. This partnership is a great example of how we are expanding Medifast's products and program internationally through new complimentary 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 increasing profitability.

With that overview, I would now like to turn the call over to Tim Robinson, our Chief Financial Officer to review our first quarter 2014 financial results and guidance.

Tim Robinson

Thanks Mike. I'll now review our financial results for the first quarter ended March 31, 2014 in more detail. For the first quarter net revenue decreased 10% to $86.5 million within our guidance expectations from net revenue of $96 million in the first quarter of the prior year. The Take Shape for Life sales channel accounted for 65.8% of total revenue. Medifast Direct accounted for 19.8%. And Medifast Weight Control Centers and Wholesale Physicians accounted for 14.4% of total revenue.

Focusing on sales channels in more details, revenue on our direct sales channel Take Shape for Life decreased approximately 4% to $57 million compared to the same period last year. The decrease in revenue for this channel primarily due to slight decrease in number of health coaches and the decline in revenue per health coach. We entered the first quarter at approximately 11,100 active health coaches and the average revenue per health coach per month during the quarter was $1,626.

Our Medifast's Direct segment revenue decreased 26% to $17.1 million as compared to $23 million in the first quarter of 2013. The decrease in revenue in this channel was primarily due to a reduction in sales and marketing spend as the company continues to monitor consumer spending patterns. Our Medifast Direct segment represents approximately 20% of overall revenues, while the majority of our advertising spends attributed to this channel. Increased focused on this dynamic had a significant impact on overall company profitability. To drive future revenue growth, we'll be strategically investing in marketing throughout the remainder of the year while continuing to focus on efficient management of those investments.

In the first quarter our sales and marketing expense decreased by $3.1 million or 30.3% versus the prior year first quarter. In the first quarter, the Medifast Weight Control Centers and Wholesale Physicians channel revenue decreased 9% to $12.4 million. The decrease in part was due to the fact that we closed 11 corporate centers in 2013. Our team remained focused on profitability improvement by creating operational efficiencies, optimizing staffing level and managing expenses. As on March 31, 2014, Medifast had 75 corporate-owned and 49 franchise owned centers. However, we have subsequently announced the sale of 12 centers to Medix which scheduled to close during the second quarter. This will bring the total to 63 corporate owned and 61 franchise centers.

Going forward, as Mike mentioned will continue to expand the number of franchise locations and further enhanced the customer experience and profitability at the corporate centers.

Gross profit for the first quarter of 2014 decreased 12% to $63.9 million compared to $72.4 million in the first quarter of the prior year. Our gross profit margin decreased to 150 basis points to 73.9% versus 75.4% in the first quarter of 2013. The decrease in gross profit margin was the result of increased manufacturing costs and shipping rates, it was adversely affected by product and program mix across the channels.

Selling, general and administrative expenses in the first quarter of 2014 decreased $8.6 million to $55.2 million versus $63.8 million in the first quarter of last year. Selling, general and administrative expenses as a percentage of net revenue decreased 270 basis points to 63.8% from 66.5% in the first quarter of 2013.

Take Shape for Life commissions expense which is variable based on product sales decreased by approximately $3 million compared to the first quarter of 2013. As a reminder, health coach do not need to purchase products themselves to receive commissions, and health coach were not compensated on their own orders nor for the recruitment of clients or new health new coaches. Commissions were not paid out on the sale of enrollment kits, business building tools or event registration.

Salaries and benefits decreased by $1.2 million in the first quarter of 2014 as compared to the last year. This decrease was approximately due to the closure of 11 corporate centers during 2013. Operating income was $8.7 million or 10% as a percent of net revenue and this represents a 110 basis point improvement as compared to the first quarter of 2013. Our effective tax rate was 33.7% compared to 31.9% in the first quarter of 2013. The prior year tax rate was positively impacted by research and development credits which were retroactive to 2012.

First quarter net income was $6 million, up $0.45 per diluted share compared to net income of $5.9 million, up $0.43 per diluted share in the first quarter of 2013. The company's balance sheet remained strong with stockholders' equity of $105.2 million and working capital of $72.8 million as of March 31, 2014. Cash, cash equivalents, and investment securities for the first quarter of 2014 increased $9.6 million to $77.4 million compared to $67.8 million at December 31, 2013. And the company remains free of interest bearing debt.

The company had 1.3 million shares eligible for repurchase under the current share repurchase authorization. We did not make any share repurchase during the three months ended March 31, 2014.

I will now share guidance for the second quarter and full year 2014. We expect second quarter 2014 net revenue to be in the range of approximately $85 million to $88 million. Earnings per diluted share expected to be in the range of $0.37 to $0.40 which assumes 34% of effective tax rate. We continue to expect full year 2014 net revenue to be in the range of $340 million to $380 million. And earnings per diluted share are expected to be in the range of $1.80 to $1.90. Our guidance include our expectation of the effective tax rate will be in the range of 33% to 34%.

Expansion into new markets and continued growth in our conversion and brand awareness will contribute to our net revenue increased while an ongoing focus on increasing our operational efficiencies and ensuring the right pricing and discount mix and right client acquisition and retention will help deliver our earnings per diluted share improvement.

So that concludes our financial review. Now, I'll like to turn the call back over to our Chairman and CEO Mike MacDonald.

Michael MacDonald

Thanks, Tim. In closing, we are pleased with our start to 2014. Our multi channel weight loss and weight management business model allows us to benefit from an overall more diversified go to market approach. We are excited about our future prospects in each of our sales channels; we are consistently working to make necessary adjustments to improve our operational efficiencies and overall effectiveness. The strength of Medifast business model has allowed us to realize consistent top and bottom line growth as well as strong cash flow generation. We are continued to use this to our advantage as we expand and explore both organic and acquisition related growth opportunities to maximize long-term shareholder value. We appreciate your interesting in Medifast.

And with that overview, Tim, Meg and I are available to take your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Scott Van Winkle with Canaccord. Please proceed with your question.

Scott Van Winkle - Canaccord Genuity

Hi, thank you very much. I have a few questions if you don't mind. So first got to start with your guidance. So the second quarter guidance, it is kind of hard to get down to that EPS guidance for Q2 given the revenue and given the margins we saw in Q1. Is there anything that we should think about significant increase in that spending Q2 or incremental gross margin pressure in Q2?

Tim Robinson

Yes, it is not margin pressure really, Scott. I mean we will see margins -- we expect margins a little better than we saw in Q1. I think we do expect more ad spend.

Scott Van Winkle - Canaccord Genuity

Okay so if I did my math right was the ad spent down $3 million year-over-year in Q1?

Tim Robinson

Yes.

Scott Van Winkle - Canaccord Genuity

So in Q2, are we expecting an increase year-over-year?

Tim Robinson

Not an increase year-over-year but not as large as decrease.

Scott Van Winkle - Canaccord Genuity

Okay so we won't see that SG&A ratio falling into percentage sales like we saw in Q1?

Tim Robinson

Yes, what I will say Scott a we model in that daily, weekly so as we get throughout the quarter we will adjust if necessary but at this point, if you look at the first quarter, we spent significant amount of quarter advertising in January into February and we slowdown in the March, similar pattern would start off here in the second quarter and we've gone fairly strong here in April, and we will continue to monitor its effectiveness

Scott Van Winkle - Canaccord Genuity

If you think about the sale of the clinics, I was thinking that selling dozen clinics might kind of take off $0.5 million to $1 million in losses from the sale of those clinics. We are getting an offset there I mean that's benefiting you selling those 12 centers, correct, from the standpoint of earnings.

Tim Robinson

Yes, but that's not going to happen, schedule closed towards the end of the year second quarter. So that's not going to impact in the second quarter.

Scott Van Winkle - Canaccord Genuity

Got you, got you, okay. And so you expect the gross margin improve a little bit in Q2, what is that -- is that -- I don't think that mix is changing standpoint of program fees, is it?

Tim Robinson

No, you have little bit-- not quarter-over-quarter but obviously for 11 clinics that we sold last year, your program fees that come out of that, obviously come out your, very, very high margin, it has small impact on the first and second quarter but not in the impact between the two quarters. Impact on margins in the first quarter really made of a couple of things. We had -- we did up increase shipping cost from our carriers which will carry into second quarter. We made some adjustments on the shipping size and our box sizes to reduce the average number of boxes that we use per order especially with our new Flavors from Home meals, they are larger physically and we are finding that they don't actually fit in the same box that we used before so we need some adjustments that will help in the second quarter that kind of a hurt little bit in the first quarter. And we did have some raw material pricing challenges with a few products. We rectified some of those for the second quarter. We have some products availability; there are a couple raw ingredients that cause us some price escalations. So we think some of those things will improve in the second quarter so we expect better margin in the second than in the first.

Michael MacDonald

We expect Scott to get continual operational productivity as we move forward.

Scott Van Winkle - Canaccord Genuity

Great and then last question. So you obviously are expecting a boost from the new product launch. And I agree with you the products are very, very good. Where should we see that in by channel most significantly? Probably not in the clinics, is that going to show up more in Take Shape for Life or more in Direct Response do you think?

Meg Sheetz

Well, I believe definitely Take Shape products are already poised to sell more healthy living oriented products. I think the customers that are in Medifast Direct will better asking for that the ones you are transitioning out of weight loss into maintenance. The ones in Take Shape for Life I think it would be huge opportunity for them to actually go out and answer people who don't necessarily have weight loss but wanted to just have a healthier lifestyle which is what is taught me habits of health, but I think Take Shape products has a greater capacity this year to work with these products and in the future we have strategies against how to expand into other channel.

Scott Van Winkle - Canaccord Genuity

And Meg do you -- where average revenue per health coach has been trending, little bit lower for the last four quarters, what's the goal? Is your goal or expectation to see revenue per health coach increase year-over-year?

Meg Sheetz

I mean I am uncomfortable with the numbers that it is sitting at right now. I think our biggest thing is to just getting obviously we are more focused on acquiring new clients and sponsoring more health coaches which obviously this quarter was tad bit disappointing. But we see like we have got some really good initiative coming at the end of Q2 when we watch convention and at beginning of Q3, that will really help drive significant differentiation for Take Shape for Life it had before.

Michael MacDonald

The other thing, Scott, this is Mike. We have a better compare in the second half. So we can be consistent with our advertising and then launch all these new products and get them out there, and a lot of them are in the last six months. We feel that's really a good opportunity for us because of the compare where we had a strong compare in the beginning.

Operator

Our next question comes from the line of Mitch Pinheiro with Imperial Capital. Please proceed with your question.

Mitch Pinheiro - Imperial Capital

Yes, hi, good afternoon. So just following up on Meg where you said you were little disappointment with the health coaches is being down. Why do you think it was down slightly year-over-year? Or what were the driving factors on that?

Meg Sheetz

So I think one of the biggest pieces from health coach acquisitions as last year in January, we launched the success from home magazine which was the great acquisition tool and really help our number and this year we didn't do a large initiative like that. But certainly one so the compare from last quarter to this quarter did not have as many tools in it. And then again from a compensation perspective, I just got back from Go Global, our leadership present, it was in Austin, Texas, and we had a lot of readers at the very top rank who said it took me, grandfathering was over December 31, they admitted it took them a month or two to really figure out the best balance of growing depth and then growing front line volume for their businesses so for them to be able to teach it, when they got to Go Global, they are absolutely more confident in the month of April than they were in the first quarter. So I would say that might have something to do with as well.

Mitch Pinheiro - Imperial Capital

Okay, second question. So the Medifast Direct business so a $6 million year-over-year revenue drop is big. I mean it is a third consecutive 20% kind of the year-over-year decline and I need to understand, I don't understand how you can be pleased with that kind of drop. You said you are pleased with the efficiencies --

Michael MacDonald

We are not pleased with the revenue, be sure of that, Mitch, the revenue is disappointing. I think we are still searching for the right answer and we put a lot of money into it and if you look at it we probably spend, I would say we spent $26 million in clinics and Medifast Direct; it might be $100 million. We are still spending a lot of money on -- money we actually advertise on and we are not happy with that. We are going to be meeting some major agencies and looking at that. We feel we could have done better there. So we are happy with our efficiency, we are not happy with the how the money has been driving the revenue for sure.

Mitch Pinheiro - Imperial Capital

Okay, that's very helpful, thank you.

Michael MacDonald

So we are not. I just want you to understand that for my perspective. We have a lot of work to do there and our real issue the reason we got efficient was because we weren't effective.

Mitch Pinheiro - Imperial Capital

Right, last question, actually two more. What were the raw materials that we were seeing some price pressure on?

Meg Sheetz

So the price pressure occurred with an egg vendor, we have raw material that went into all our product and they were bought out and therefore for now while we search for substitute, it is very unique formulation that we use in our product and we are in the process of continuing to garner some different suppliers for that.

Mitch Pinheiro - Imperial Capital

Okay, thank you and then last question on the weight loss centers. Does the SG&A expense in that segment, does that scale down in proportion to the number of centers you have? As you continue to suffer down 50% in company owned centers, will we see SG&A scale down 50%?

Michael MacDonald

No, because you still have corporate overhead that you have to get up, Mitch, on that so you -- you will see improvement in SG&A but over time some of the headquarters we get devoted to the franchise model, some of them will go away. So as we do the transition, it might a little be a little more SG&A in the corporate center and so you fully make the transition in some of the resources in it.

Tim Robinson

Also it is not off centre, they are obviously the exact same situation, so we have some large centers that cuts and carry much higher SG&A than some of the smaller centers so.

Michael MacDonald

It's good theory but it all depends on which the timing and which center and when.

Operator

(Operator Instructions)

Our next question comes from the line of Alex Jaslow with Midtown partners. Please proceed with your question.

Alex Jaslow - Midtown Partners

Hey, guys, good evening. I was just wondering and trying to get little bit of understanding on Med Direct and the decline there. Did you find that the breakdown of customers, there is less new customers or you may be could talk about the customers they are more reactivating from prior years or mostly new customers?

Tim Robinson

If you -- we break the revenue down, it is clearly a customer acquisition issue so we can -- some of our new metrics and new data that we are able to see it is kind of breaks the revenue down to just seeing returning, it is not true annuity business right but it is returning business versus new customers. And the issue is really on the customer acquisition side. And that's why we kind of really attributed really directly to our advertising dollar which is what brings in new customer so we try lots of different things in the first quarter. Some very short term led even for a single day trying different offers. We've also tried some pricing offers for one full month during the quarter where we lowered our total monthly cost to see what kind of impact that would have. So we are trying a number of different things while changing up the media that we are trying to see, which has the biggest impact.

Alex Jaslow - Midtown Partners

All right, that's helpful. And then further I think you mentioned there is some pressure on raw material which I am seeing across the board. Shall we -- assuming you fix some of the shipping issues, do you think raw materials would be an issue towards the second half and later half of the year?

Meg Sheetz

I don't think raw material is a huge issue. I do think you are seeing in a commodity market certainly prices are going up in places. I think we have definitely done a lot of work in getting some price commitment for this year. So I don't see it being a hugely fluctuating event, no.

Tim Robinson

And the pressures we have Alex was really not so much of schedule or negotiated pricing increase, it was the loss for the key vendor where we have a react by -- again unique formulation, we had to find another vendor that would make for us in a short a period of time so we paid a premium for it.

Meg Sheetz

And it was actually manufacturing company that was bought by another, and their facility that manufactured it was temporary shutdown so now that they're back up we have the product but now they are changing their price structure. So we obviously have other vendors in line and can easily reformulate product, just not -- we didn't have any notice.

Operator

Thank you. Our next question comes from the line of Kurt Frederick with Wedbush Securities. Please proceed with your question

Kurt Frederick - Wedbush Securities

Hi, good, how are you doing? I want to talk little bit on the Weight Control Centers. What was the same store sales sale in Q1?

Tim Robinson

Q1 same store sale were down about 14%.

Kurt Frederick - Wedbush Securities

Okay so how is that look as we go forward the next couple of quarters from the sale of the 12 centers?

Tim Robinson

Yes, so those specific 12 centers the impact, I don't know have sheet in front -- I don't know the exact answer to that question so I don't want to misspeak. I know that when we look at the sales within these centers, shortly after the first quarter, we launched some new initiatives that seemed to be taking hold; I'll let Meg speak to it. But early indications are very positive.

Meg Sheetz

Yes, so we decided, we have been obviously doing lot of testing of promotions throughout all the channels and so in Medifast, the Weight Control Centers we tested for the month of April, this new -- it is called Fit in Four and basically it is for four weeks you come in you get a program and then you get Medifast meals for that month. And it is a lower cost option of shorter time frame but the success rate we are seeing and the sign-up rates we are seeing are high. It is about $15 a day versus the previous program that Weight Control Centers were offering so it is so offer the other programs, 50% of people are signing up for this new shorter version and 50% are still signing up for the longer program. And I think the added plus there is that people are having difficult time making a long-term commitment but when they find out and see the results immediately, they are more likely to stay longer. And we are actually seeing that. So it is very preliminary obviously April data that they we are looking at, we're anxious to see May as well but so far there is some really good things happening there.

Kurt Frederick - Wedbush Securities

And that's in all the company owned centers.

Meg Sheetz

That's in all of the company owned centers, yes.

Kurt Frederick - Wedbush Securities

If I look at -- I guess come back to revenue guidance and so it looks like on the low end of guidance your revenue would be fairly flat next few quarters. You have kind of mentioned that there is a lot of stuff coming out throughout the year additional products and that. Can you talk about little what the impact of those products is as far as your guidance is concerned?

Michael MacDonald

We are going to have two things happen, Kurt. You are going to have positive revenue with the product and I think we don't know the negative impact of the clinic transition. So really is a balance of both happening and that's what we -- depending on the timing of the sale, if we don't sell some of the clinics until later, revenue could be better but I think very clearly we are coming out with a lot of these products in that mid year time period after our convention and we see an opportunity in the back half to leverage that opportunity. How to quantify it, is difficult because we just don't know how many -- with the clinic sales you are going to be at -- we have got some very good prospects and we feel we are going to make good progress but we don't have the exact view of that yet. And we'll have a better view when we do our next earnings because we will have more time to see it.

Meg Sheetz

Yes, as we talked about before and definitely the Favors at Home, those of you have tried it, it's our lean and green meal, it sold out, so we thought it would have an adoption rate and it surpassed the adoption rate we thought so right now the new product perspective we are extremely happy about the new ones we've launched thus far. But I think it's not only just the product, there is a lot of unique activities and new things coming out in the back half of the year that we are very excited about to improve the products.

Operator

Thank you. We have no further questions in queue at this time. I would like to turn the floor back over to management for closing comments.

Michael MacDonald

Well, I just want to thank everybody for participating on a call and for your interest in Medifast. Thank you very much.

Operator

Thank you. This concludes today's teleconference. Thank you for your participation. You may disconnect your line at this time. And have a wonderful day.