Medifast's (MED) CEO Michael MacDonald on Q2 2014 Results - Earnings Call Transcript

Aug. 7.14 | About: Medifast, Inc. (MED)

Medifast (NYSE:MED)

Q2 2014 Earnings Call

August 07, 2014 4:30 pm ET

Executives

Katie M. Turner - Managing Director

Michael C. MacDonald - Chairman, Chief Executive Officer and Chairman of Executive Committee

Timothy G. Robinson - Chief Financial Officer and Principal Accounting Officer

Margaret E. MacDonald-Sheetz - President, Chief Operating Officer, Director and Member of Executive Committee

Analysts

Kurt M. Frederick - Wedbush Securities Inc., Research Division

Mark Sigal - Canaccord Genuity, Research Division

Alec I. Jaslow - Midtown Partners & Co, LLC, Research Division

Operator

Greetings, and welcome to the Medifast Second Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Katie Turner.

Katie M. Turner

Good afternoon, and welcome to Medifast's Second 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 June 30, 2014, that went out this afternoon at approximately 4:05 p.m. 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 statement. Medifast assumes no obligation to update any forward-looking projections that may be made in today's release or on the call posted on the website. 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 C. MacDonald

Thank you, Katie. Good afternoon, everyone, and thank you for joining us. On today's call, I will provide you with a brief overview of our second quarter performance and an update on our strategic initiatives for growth and profitability long term. Tim will review the financial results for the second quarter in more detail and discuss the third quarter and full year 2014 revenue and EPS outlook. I will then provide closing remarks, and we will open up the call to take your questions.

In the second quarter, our ongoing focus on profit improvement yielded positive results, with earnings per diluted share of $0.44, ahead of our guidance for earnings in the range of $0.37 to $0.40 per diluted share. We were able to accomplish this despite continued pressure on revenue in the quarter. Tim will discuss our financials in more detail in a few minutes, but I want to briefly touch on what we have experienced to date in 2014 from a top line perspective.

In the second quarter, net revenue decreased approximately 16.7% to $80.9 million compared to $97.1 million the prior year. This was below our expectations for revenue of $85 million to $88 million. It has been a difficult market so far this year. We continue to see softness in consumer spending. As a result, our team has diligently managed our costs and expenses to maximize our profitability.

I am pleased with our team's ability to deliver earnings thus far in fiscal 2014. Looking ahead, we have a number of exciting initiatives designed to drive incremental revenue, returning to positive year-over-year growth in the fourth quarter of this year. I now would like to take you through these key initiatives for each of our channels.

New products. Our business plan for 2014 assumed a revenue contribution in the second half from the introduction of new product categories. These products are incremental to our current offerings and will create new streams of revenue for the company. We shared information in these new products at our Analyst Day in April and recently launched several of these new products at our Take Shape for Life National Convention in July. The new products include cheddar and sour cream popcorn, sea salt popcorn, spicy black bean veggie chips and sea salt and olive oil veggie chips and are all available in all of our business channels.

We also recently expanded our new Flavors of Home product line with the addition of Beef Stew. The customer response to our Chicken Cacciatore, Chicken with Rice & Vegetables and Turkey Meatball Marinara meals launched in March has been extremely positive. In addition to the expansion of our Medifast food products, we introduced our new Habits of Healthy Sleep kit at convention, which includes our Restfulmind Herbal Sleep Tea, melatonin supplements, our new Chilltime gum, along with a plush eye mask and ear plugs to block out sound and light.

The sleep set is complemented by our new infrared blanket, which was also a hit at the Take Shape for Life store at convention. The revolutionary new blanket is designed to maintain a consistent and comfortable body temperature throughout the night. Restful sleep is vitally important to your health and overall weight management and is essential to waking up refreshed and motivated each day.

These new sleep products are exclusive to Take Shape for Life, support our Healthy Living strategy and provide a solution for clients on a weight-loss journey or those maintaining a healthy weight. Our health coaches are thrilled to share these products with their clients, and I believe this new category will help build incremental revenue in this important channel.

We also have quite a few more new products getting ready to launch across all channels, including our new Healthy Living products and energy infusers, as well as our digital tracking platforms that will allow our clients to integrate their activity trackers with our comprehensive and personalized technology platform. We're excited that 2014 will be our largest new product innovation year in the history of Medifast, with over 30 new product launches throughout the year.

Take Shape for Life initiatives. We've been working diligently to isolate and analyze the key drivers behind revenue growth in our Take Shape for Life channel. As you may know, the majority of our coaches came from within our Take Shape for Life client base. Following a meaningful experience as a client, they decided to join our mission to help others get healthy. We concluded that we need to make it easier to take the first step to become a client or a health coach, and we decided to make several improvements to our BeSlim Club offerings by providing incentives for clients to join us, stay engaged in the journey and subsequently, embrace the opportunity to become a coach themselves.

To that end, we launched our new BeSlim Club at our national convention in July. BeSlim is a free membership for Take Shape for Life clients and health coaches and entitles them to special benefits, including preferential free shipping on orders over $150, new introductory kits that make it financially easier to get started on the plan and new rewards designed to provide ongoing incentives to clients who schedule their orders for automatic monthly processing. We believe these changes will help with conversion of first-time buyers, while increasing retention through the loyalty rewards offering.

To stay more engaged with clients, we recently introduced new virtual coaching videos, which will automatically be delivered to new clients to supplement the personal coaching experience. This video series featuring successful coaches in Take Shape for Life will help deliver a consistent, professional and timely message to all new clients and will also introduce the coaching opportunity at the appropriate point in their journey. We expect this supplemental messaging to improve the client experience, increase client awareness about the benefits of coaching and assist with helping current coaches grow their business.

Earlier this year, Take Shape for Life launched our Stop.Challenge.Choose 12-Week Health Transformation, with the goal of introducing people to Take Shape for Life and helping participants achieve optimal health for the upcoming year. We had more than 21,500 entrants, and during each participant's 12-week transformation, a Take Shape for Life health coach worked with clients to help them learn and implement healthy habits. Several winners were selected in June for an all-expenses-paid trip, including attendance at the Take Shape for Life National Convention and a spa and wellness resort stay. The challenge proved to be very successful. We have just recently launched Phase 2 of this campaign. It is a great tool for health coaches to attract prospective clients and motivate existing clients.

Now let me turn to the Medifast Direct channel. We have faced a meaningful decline in revenue in this channel over the past 12 months. Changing consumer trends in response to our advertising caused us to reevaluate our spending while we analyze the relationship between spending, customer acquisition patterns and retention. While reduction in spending has contributed to our ability to deliver earnings, we're focused on reversing the current revenue trends while remaining efficient.

We are now utilizing the data from our new econometrics model to help us optimize our media mix and the correlations of revenue with many advertising mediums working in concert. In fact, we have launched an updated affiliate marketing program, several new display networks and targeted Facebook advertising to help us drive future growth in the back half of the year.

The new Medifast Advantage program brings an enhanced offer to drive first-time customer orders as well as ongoing benefits for repeat orders. I believe these improvements to the program will aid in new customer conversion and improved retention. New analytical tools to track our customer acquisition/retention trends are now delivering improved forecasting models. Additionally, our email capability continue to advance, and we're now effectively developing our email touch points by key customer segment. Our target offers are yielding a strong response, and we continue to expand our efforts in this area.

All of these initiatives work in concert with our planned e-commerce improvements starting in the fourth quarter. As we enhance our site content, landing pages, shopping experience and cart checkout process, we will see improvements in conversion, which will translate to revenue gains. Lastly, we'll be bringing in a new position, a Vice President of Direct Response, to focus on customer acquisition and retention, and we look forward to the contributions this role will bring.

In order to further improve our creative messaging and value proposition for each business channel, we will be engaging a new advertising agency in the third quarter. In addition to helping us with strategic planning, market analysis and campaign development, they will also work to highlight our wonderful customer success stories. In fact, we just had our 2014 Happy Afters campaign winners celebrate together in Chicago where we captured photography and video that will be used across new digital and broadcast assets later in 2014 and into 2015.

Now let's discuss the Medifast Weight Control Centers. First, we continue to make good progress in our conversion of company-owned centers to the franchise model. We successfully transitioned 24 centers in June to new franchises, and we now have 51 corporate-owned centers and 73 franchise centers in the channel. Second, our attempts to increase traffic through traditional forms of advertising have seen mixed results as customers compared the upfront cost of our program in the center with alternatives that require less commitment.

In response, we introduced our new Fit for Four programs in our centers in late April. This new ease of entry program allows a customer to try a 4-week program at an attractive price point with the option to transition to a longer-term program at the conclusion of the 4-week period. Early indications show a significant increase in client acquisition resulting from the program and a healthy conversion rate after 4 weeks.

While it's too early to determine the long-term success of the program, we are very encouraged by the early results and will continue to offer the program in the third quarter of this year. In addition to the new program, we continue to train and develop our personnel in the centers to provide a high level of personal service to our members.

Lastly, we have recently implemented a realignment of key management personnel to provide a more aggressive focus on revenue growth. These are the key initiatives we have in place to drive revenue growth in the back half of this year. The development of other long-term growth initiatives continues as well. The expansion of our Wholesale Physicians channel, our work with Medix in Mexico and South and Central America and our entry into Canada are all programs that require significant internal focus. And we're pleased with our ability to deliver the infrastructure, technology and marketing deliverables to get these up and running. We'll continue to provide you with updates in these areas as they become material to our performance.

Now I'd like to review a few second quarter 2014 operational updates. Just a few weeks ago, we hosted our annual Take Shape for Life convention in Anaheim, California. It was an exceptional event with approximately 3,000 attendees. At the event, we unveiled new tools and technology to help our coaches grow their business. Health coaches received important leadership training, learned about many new and exciting product offerings and were introduced to the new and improved BeSlim Club, which I mentioned a moment ago. It is our mission to challenge and empower people to achieve their health and wellness goals, and our Take Shape for Life health coaches help us lead the way. We are very pleased with the success of the convention, and I believe this event will be a catalyst to further increase the number of active health coaches in the coming months.

We also launched a new and exciting digital media campaign with executive chef and reality television celebrity, Jason Hisley. The new weekly web series called The Front Burner features Medifast Lean & Green meal recipes as well as Medifast Meal makeovers created by Chef Hisley and will air on Medifast YouTube channel. Chef Hisley, who lost 40 pounds at a Medifast Weight Control Center, will demonstrate how customers can create healthier meals and will provide insight for those seeking a flavorful meal without adding calories.

What sets Medifast apart from other weight loss companies is the rich clinical heritage behind our products and programs. We believe it is important to continue to elevate our international presence in the clinical and scientific community. In an effort to do so, this past June, we announced the addition of 3 new members to our Scientific Advisory Board, including representatives from Canada and Mexico. As members of the Scientific Advisory Board, these medical professionals are tasked with helping Medifast stay on top of emerging research and consumer trends, reviewing the effectiveness, safety and nutritional benefits of Medifast products and programs and assisting in the development of new products and programs. The addition of these esteemed health professionals reinforces Medifast's clinical heritage and our dedication to partnering with the medical community.

Medifast and its employees continue to receive awards and accolades for demonstrating excellence. Medifast received the Gold Effie Award for our Conversations with Yourself media campaign. This award is widely recognized as a preeminent marketing industry honor and known globally as a symbol of achievement. Meg Sheetz was honored as one of The Daily Record's 2014 Top 100 Women and was featured in the Baltimore Business Journal's Enterprising Women issue.

In addition to serving on the Direct Selling Association Board of Directors, I was honored recently to be elected to the Board of Directors of the Direct Selling Education Foundation, a board comprised of men and women who are leaders in direct selling industry. The mission of the Direct Selling Education Foundation is to engage and educate the public about how direct selling empowers individuals, supports communities and strengthens economies worldwide. I am pleased how the opportunity help lead this organization in advancing consumer advocacy initiatives, expanding the understanding of direct selling principles and driving the commitment to ethical practices. Lastly, I was humbled to recently be named as one of The Daily Record's Most Admired CEOs. The Daily Record Awards recognize talented business CEOs throughout Maryland for their leadership and professionalism.

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

Timothy G. Robinson

Thanks, Mike. I will now review our financial results for the second quarter ended June 30, 2014, in more detail. For the second quarter, net revenue decreased 17% to $80.9 million from net revenue of $97.1 million in the second quarter of the prior year. The Take Shape for Life sales channel accounted for 67% of total revenue, Medifast Direct accounted for 19%, Medifast Weight Control Centers and Wholesale Physicians accounted for 14% of total revenue.

Focusing on sales channels in more detail. Revenue in our direct sales channel, Take Shape for Life, decreased approximately 12% to $54.1 million compared to the same period last year. The decrease in revenue for this channel was primarily driven by a decrease in the number of health coaches, along with the decline in revenue per health coach. We ended the second quarter with approximately 10,800 active health coaches, and the average revenue per health coach per month during the quarter was $1,566.

Take Shape for Life commission expense, which is variable based upon product sales, decreased by approximately $5 million compared to the second quarter of 2013. We're now 2 quarters into the new compensation plan, which was strategically designed to reward those who are currently coaching clients and growing their businesses. Overall, the response to the new compensation plan has been positive. We expect our new product launches will contribute to an increase in revenue per health coach as they roll out this year.

Our Medifast Direct segment revenue decreased 29% to $15.2 million as compared to $21.5 million in the second quarter of 2013. Overall sales and marketing expense decreased $1.3 million or 14.8% versus the prior year second quarter. We will continue to monitor the effectiveness of our advertising spend in the balance of the year, with the intention to increase spending as compared to the second half of 2013.

In the second quarter, the Medifast Weight Control Centers and Wholesale Physicians channel revenue decreased 18% to $11.6 million. As many of you know, we made the strategic decision to increase the profitability of our weight control centers, and as a result, we have closed 11 centers since the first quarter of 2013. We also completed the sale of 24 centers to new franchise partners in the second quarter of 2014 as part of the company's long-term plan to transition corporate-owned centers to franchise locations. As of June 30, 2014, we have 51 corporate-owned and 73 franchise centers. Going forward, we'll continue to transition our corporate centers to the franchise model by further enhancing the member experience and profitability at the corporate centers.

Gross profit for the second quarter of 2014 decreased 17% to $60.4 million compared to $72.9 million in the second quarter of the prior year. Our gross profit margin decreased 50 basis points to 74.6% versus 75.1% in the second quarter of 2013. The decrease in gross profit margin was primarily due to decreased manufacturing volume and the shift in sales channel revenue mix.

Selling, general and administrative expenses in the second quarter of 2014 decreased $9.3 million to $53 million versus $62.3 million in the second quarter last year. A significant portion of our selling, general and administrative expenses are variable, and our team has done a nice job managing discretionary spending. Selling, general and administrative expenses as a percentage of net revenue increased 130 basis points to 65.5% from 64.2% in the second quarter last year. It was primarily the result of the sales decline we experienced as it relates to our fixed expense base.

Salaries and benefits decreased by 1 -- approximately $1.8 million in the second quarter compared to the second quarter last year, in part due to the closure of 11 corporate centers over the last 12-month period. Our effective tax rate was 34.1% compared to 35% in the second quarter of 2013. Second quarter net income was $5.7 million or $0.44 per diluted share compared to net income of $7.1 million or $0.51 per diluted share in the second quarter of 2013.

The company's balance sheet remains strong, with stockholders' equity of $97.5 million and working capital of $66.2 million as of June 30, 2014. Cash, cash equivalents and investment securities for the second quarter of 2014 increased $0.8 million to $68.6 million compared to $67.8 million at December 31, 2013, and the company remains free of interest-bearing debt.

In the 3 months ended June 30, 2014, the company repurchased 451,000 shares of common stock for $14.2 million as part of its current share repurchase authorization. The company has 888,000 shares eligible for repurchase under the current share repurchase authorization. Our management team and the Board of Directors remain focused on options to increase shareholder value, including utilization of free cash flow to buy back future shares.

I'll now share our guidance for the third quarter and full year 2014. We expect third quarter 2014 net revenue to be in the range of approximately $75 million to $78 million. Earnings per diluted share are expected to be in the range of $0.35 to $0.37, which assumes a 33% to 34% effective tax rate. We now expect full year 2014 net revenue to be in the range of $320 million to $330 million based on the actual revenue results in the first half, the impact of normal business seasonality and our most recent projections for the remainder of the year.

We are narrowing our guidance range for earnings per diluted share to $1.80 to $1.85 per share. Our guidance includes our expectation that the effective tax rate will be in the range of 33% to 34%. The implied earnings per share guidance for the fourth quarter assumes our typical pattern of favorable quarter-over-quarter spending in advertising and annual third quarter convention expense, along with the positive impact of the key initiatives that Mike discussed earlier.

Well, that concludes our financial review. Now I'd like to turn the call back over to our Chairman and CEO, Michael MacDonald.

Michael C. MacDonald

Thanks, Tim. In closing, we believe we have the right strategic initiatives in place to help fuel future growth across our multiple sales channels to improve our ability to attract new clients and expand growth of current customers to help ensure their success and in turn, further accelerate Medifast's growth long term.

Going forward, we remain focused on prudently managing the controllable aspects of our business to increase our profitability and utilizing the strength of our balance sheet to enhance shareholder value. Clearly, revenue is an important priority, and we remain extremely focused on that over the next 2 quarters.

Thank you very much. We would now like to open the call to your questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Kurt Frederick with Wedbush Securities.

Kurt M. Frederick - Wedbush Securities Inc., Research Division

Gentlemen, the profitability again. I do have a question on the guidance or the implied guidance for Q4. I was just flipping through my model. I don't see a single year where the Q4 EPS was above the Q3 EPS for guidance. It seems to indicate this can be a pretty meaningful increase. So I'm just wondering how I get there?

Timothy G. Robinson

Kurt, it's Tim. So if you look last year actually, if you take out the impact of the one-time closure of 8 Medifast clinics, which was approximately $0.12 per share, last year we would've gone from third quarter of $0.41 a share to fourth quarter of $0.51 a share. The reported EPS in the fourth quarter of last year was $0.39 a share. Again, that was impacted by about $0.12 with the closure of the clinics.

Kurt M. Frederick - Wedbush Securities Inc., Research Division

Okay. Is there anything happening in this year's fourth quarter? I mean, does your guidance include any share repurchases or any additional closures?

Timothy G. Robinson

No, it doesn't consider any additional closures. We do have, in the guidance, an expectation to continue share repurchases. We also have -- if you look at third quarter, fourth quarter, the big delta is, from quarter-over-quarter, is our third quarter absorbs the full cost of our annual conventions. That typically depresses EPS in the third quarter and causes that spread to be large. Then in the fourth quarter, Mike walked through a number of initiatives that we think will be accretive and also increase revenue. So if you look at revenue in the fourth quarter, you'll see an implied growth in revenue for the first time in awhile, quarter-over-quarter, and that's pushing up EPS as well.

Kurt M. Frederick - Wedbush Securities Inc., Research Division

Is that primarily in Take Shape for Life? Is that where you're forecasting the growth? And is that primarily the new products?

Michael C. MacDonald

Its -- well, you've got to realize, Kurt, in the second half, we're increasing our advertising spend by 40% year-over-year. So that spend will cause positive improvement in Med Direct and in, hopefully, across all of our channels, but that should be a positive growth. And I think it's a, for us -- as you know, a lot of our product launches were all backloaded this year towards the back half, so we plan to spend more. So at the end of the year, as an example, our overall spend in advertising will be about 28% of revenue. So we'll spend $24 million on $85 million in the clinics and in the Med Direct. So it's a 28% revenue spend, but 44% increase in the second half. And in that second half, that's really where we're trying to leverage that. And in the fourth quarter -- third quarter, we're only up 5%. Fourth quarter, we're up 150%. So -- and that's, by the way, 2 things: we want to advertise heavily in the fourth quarter and then advertise in that beginning of the year of the diet season.

Margaret E. MacDonald-Sheetz

And too Kurt, just so you know -- sorry, this is Meg. In Q3, we launched the new auto ship program for both Med Direct and Take Shape for Life, August 1. So you put it in the middle of the quarter. And then we have our new maintenance products, which is a whole, again, new product line coming out in November, and these are both accretive actions.

Timothy G. Robinson

And when you look at that spend, Kurt, half-over-half as Mike mentioned, there's more spend in the third quarter than there actually is in the fourth quarter. So again, if you look quarter-over-quarter as far as EPS, you burn the third quarter much more than the fourth quarter with spend.

Kurt M. Frederick - Wedbush Securities Inc., Research Division

Okay. And then maybe an update on the transition. You talked the ones -- the 24 that were converted to the franchise in the first half. What are the assumptions you're building in for the second half of the year?

Michael C. MacDonald

Well, originally, when we had the Analyst Day, we had said we would try to do close to 30, was I think the number that we talked about at the Analyst Day. And we have prospects that we feel we'll probably end up somewhere in that 24 to 30 range. So we've got some more prospects, and we feel good we'll continue to make that transition.

Operator

[Operator Instructions] Our next question comes from Mark Sigal with Canaccord Genuity.

Mark Sigal - Canaccord Genuity, Research Division

Is there something different in the advertising approach in the back half of the year, or perhaps a different strategy you're taking with it that gives you confidence that you're going to see there -- returned efficacy on that?

Michael C. MacDonald

Well, I think there's a couple of things, and I'm going to let Brian jump in, our head of advertising. But one of the things that we've seen is an increase in the cost of advertising versus what it was in the past, and I think the issue is also the effectiveness of advertising has been less effective than in the past, especially in our Weight Control Center model. We've seen the cost of acquisition go up quite a bit, Mark, in terms of the advertising. And that's one of the reasons we're actually going to -- we're interviewing a couple agencies because it's getting more complicated. And the other thing is, and I think you see it, is if people don't stay on the program long enough, you have a very high cost of acquisition and then you can have the person defect off the diet program fast and then you get not so great a return. So, hey Brian, would you like to comment on the second half?

Margaret E. MacDonald-Sheetz

This is Meg. So the econometrics that we have and we've had in place now since the first quarter has been giving us a lot of education on where we should be spending our money and in what mix we should be spending it. So you'll see, along with the agency, new creative executions coming out in the back half of the year, just a better understanding of the mix of where we're going to spend and then more consistency in where we spend. And that, I think, will have a tremendous impact.

Mark Sigal - Canaccord Genuity, Research Division

Okay. And then can you talk a little bit about the feedback that you're getting from health coaches? Where the challenge lays in the continued declines? And also the declined efficiency as well, it's causing some of the more efficient people in the organization to leave.

Margaret E. MacDonald-Sheetz

Yes, I mean, we're not seeing any major leaders that we have leaving the organization. In fact, we just broke 5 new presidentials in 2 new integral [ph] presidentials, which are our top ranks. So we actually feel very confident, especially with the new compensation structure. I do think the field may have to adjust to a new compensation. But in our case, the ones who were building depth and building frontline volume, which is the most stable way for our organization to continue growing, those leaders that are emerging are building it in the right way. So we feel that after convention, in particular, they have some amazing new tools from the acquisition and retention tools that will be in the new BeSlim program that launched August 1. And then we also created a new thing this year called virtual coaching videos that we just launched, and actually came up today, and those are videos that kind of help clients walk through the program. So when you go to be a coach, you don't have to feel overly burdened with other than being a guide to where to find the materials. You don't have to do much more than that. And so we feel like these will be tremendous benefits to those clients coming in and those clients converting into health coaches. This will be the first time in our history, particularly through those virtual coaching videos, that we're seeding the health coach concept to new clients as they get on the start of their program.

Michael C. MacDonald

The other thing, Mark, is we've seen a positive trend. We were down about, if you look at year-over-year, about 1,000 coaches. But we've seen a positive improvement over the last 30 or so days in our coach camp going the other way. So we feel that a lot of the work that we've been doing hopefully will start to pay off. And by the way, it's not been an easy environment in direct selling. The DSA, if you looked at the data, a lot of those companies were down -- most companies were down in direct selling, anywhere from 3.5% to 4%. It was a tough market in the first quarter in direct selling for sure after being up 4% over last year.

Operator

[Operator Instructions] Your next question comes from Alec Jaslow with Midtown Partners.

Alec I. Jaslow - Midtown Partners & Co, LLC, Research Division

I was just wondering if you could talk a little bit about some of the issues you're facing with Medifast Direct, and maybe also if you're getting any consumer feedback that might help going forward?

Margaret E. MacDonald-Sheetz

From a consumer feedback perspective, I think we all know that the trends in the industry are really pulling towards the healthy living and lifestyle changes versus just going on a diet and off a diet. So we feel like we're in a good place, and we feel like we have a really good strategy moving forward to be part of that. We obviously are having customer acquisition issues that we are readily dealing with, and we're going to be working with an agency to really help that. We also launched -- particularly in Medifast Direct, we really haven't been able to put some really good offers out there. And now that we have this new Advantage program for our Medifast Direct platform, they also have some great new acquisition and retention offers. And because email marketing is such a primary tool for Medifast Direct, this program now gives us more reason to reach out to our customers on a more frequent basis. And then this fall, as you heard in Mike's commentary, in the fourth quarter, we'll be having some major e-commerce improvements that we feel will improve the user expense, the checkout, the shopping, the entire look and feel of the Medifast Direct platform.

Operator

At this time, I'd like to turn the floor back over to management for closing comments.

Michael C. MacDonald

We appreciate your participation today, and we look forward to speaking with many of you in the coming weeks. So thank you very much. Have a good evening.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines at this time. Thank you, all, for your participation.

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