MED
#Thank you, <UNK>.
Good afternoon, everyone, and thank you for joining us.
Today I will share an overview of our performance in the second quarter including an update on key initiatives.
<UNK> will then review the second quarter financial results and guidance for the third quarter and full year 2016.
Finally, we'll open up the call to take your questions.
Our success from early in the year continued through the second quarter of 2016.
Our entire team has worked tirelessly over the last few years to better differentiate our business units and highlight their respective value propositions to clients and customers.
We know this approach will yield the best results for each business unit.
These efforts have resulted in a strong foundation for continued success.
And while we still have significant plans to continue to develop the strategic objectives, it is proving successful as we saw Take Shape for Life post double-digit revenue growth in the second quarter, the highest level of year-over-year revenue growth for Take Shape for Life in three years.
Take Shape for Life grew 10% compared to the second quarter last year representing the 6th consecutive quarter of improvement in revenue growth.
Take Shape for Life results fueled our consolidated financial performance in the quarter and helped us achieve greater leverage across our cost structure.
Across the entire business, gross margin expanded 110 basis points in the quarter to 74.8%, and our team remained focused on officially managing our expenses to support our revenue plans.
On a consolidated basis, net revenue from continuing operations was $71.1 million, earnings per diluted share from continued operations was $0.29, and adjusted earnings per share from continuing operations was $0.63.
Revenue was in line with our expectations, which when combined with the strength of our cost and expense leverage drove strong profitability performance.
As a result of this positive momentum, we are raising our 2016 annual adjusted earnings from continuing operations guidance, which <UNK> will review in detail.
Our team continues to believe that we are poised to return to growth at the total Company level in 2016.
We remain intently focused on continuing to take steps to optimize each of our business segments ---+ Take Shape for Life, Medifast Direct franchise, Medifast Weight Control Centers, and Medifast Wholesale by advancing our plans to differentiate brands, products, programs, and service offerings.
I would now like to provide you with an update on our key business initiatives for 2016.
Across our health coach network, we are helping clients redefine the path to optimal well being.
As we have shared in the past, new client and health coach growth and productivity are key metrics for determining performance within Take Shape for Life, and <UNK> will share more of the positive metrics in these areas in the financial review section.
We continue to generate increased productivity as a result of higher new client acquisitions, higher new health coach sponsorship, and a higher average order value year-over-year.
Our coach network is stronger than ever, as demonstrated by the rate of sponsorship combined with the productivity growth in Quarter 2.
We believe Take Shape for Life's continued positive momentum reflects the meaningful progress we have made executing our key initiatives to simplify the business including providing effective training and further differentiating the value proposition.
Much of the second quarter was spent planning for our Take Shape for Life national convention at Austin, Texas, held July 21st to 24th.
We are pleased to report that it was the largest convention in the Company's history with more than 3,400 registered attendees, over 20% growth from last year's convention.
Overall, the energy level, excitement and engagement from the field was outstanding, and united all attendants around this year's powerful Lead from the Future Act Now event theme.
We believe that collaboration between the field and corporate teams is the strongest it's ever been in the history of Take Shape for Life.
<UNK> <UNK>, President of Take Shape for Life and our team continue to bring our top field and corporate leaders together for planning and strategy sessions to ensure full collaborative alignment on these important plans.
Together with the tremendous partnership with a leading provider of full potential branding for global brands, we created a fully exclusive brand and product offering that is only available to our family of health coaches and clients.
We expect this new exclusive brand to go a long way towards solving for any strategic conflict that existed between Take Shape for Life and our Medifast Direct business.
This project started approximately two years ago and has been a wonderful journey to get us to the official launch of our lifestyle brand, Optavia, which we unveiled at the annual national Take Shape for Life convention.
This marks a significant evolution for us.
It is the first time in our Company's history that we have an exclusive offering for Take Shape for Life putting us in a prime position for future growth across the diverse audience not only in the United States but, over time, throughout the world.
Over the past two years, we worked closely with our field leadership, surveyed all Take Shape for Life health coaches and conducted numerous rounds of extensive research both in the United States and internationally.
We have established a lifestyle brand in Optavia that has a meaning and breadth to help our health coach community better fulfill the tremendous opportunity they have to share our optimal well being offering.
Specifically, at our convention, we launched 13 new innovative Optavia Fuelings that feature bold flavors and exciting ingredients sourced from around the world, including Morocco, Bolivia, Indonesia and the Philippines and are packed with 25 vitamin and minerals as well as probiotics, which helps support digestive and immune health as part of a balanced diet and healthy lifestyle.
Additionally, these products are free from artificial colors, flavors, sweeteners or preservatives, and are all non-GMO.
Importantly, Optavia Fuelings provide the same scientifically proven nutritional profile as our existing portfolio of over 70 products so our health coaches and clients can very easily interchange the new Optavia products with their existing favorites and our existing plans.
The response from our health coaches at our annual convention was overwhelmingly positive on this exciting brand evolution.
It's a big step forward that a brand and a product portfolio that is exclusive to health coaches and their clients.
All health coaches now have the opportunity to offer Optavia Fuelings to clients nationwide in combination with our existing product offerings.
This will help attract new audiences to Take Shape for Life while re-energizing current, even prior, clients within Take Shape for Life.
Over the course of the next year, we will undergo a gradual comprehensive brand and product evolution, and by our annual national convention in 2017 in Dallas, Texas, the full brand and product transition to Optavia will be complete.
Not only will this provide a tremendous opportunity for growth for Take Shape for Life, but as I discussed in just a bit, it presents significant upsides for our other business units who will continue to offer the Medifast branded product line.
We are extremely pleased with how far Take Shape for Life has come and are very optimistic about the continued growth and success of our largest business unit.
Shifting to our Medifast Direct business, it represents 13% of our sales in the quarter.
First a note about the longer-term potential of this business unit, as we have shared, our focus on returning Take Shape for Life to growth has included making strategic decisions that have impacted the performance of Medifast Direct.
That said, the introduction of the Optavia Lifestyle brand and the exclusive product line and the eventual complete transition by July of 2017 presents significant future potential for Medifast Direct.
That notwithstanding, our short-term revenue of customer acquisition performance has been challenging.
We have engaged additional expertise and partners as we work on immediate improvement initiatives.
This business segment is an important profit contributor, and we're taking steps to address the business performance with a sense of urgency.
The most important area of focus is the ability to invest in additional advertising that will result in new customer revenue without negatively impacting the momentum in Take Shape for Life.
We have clear financial targets in place and are very disciplined about our spending, placements and offers within specific parameters.
In the second quarter our decrease in advertising spending far outpaced our decrease in revenue, and this fueled strong profit performance.
Or as we implement new initiatives across digital media, direct response television, Web content, customer onboarding, and many other areas, we are confident we will soon be in a position to ramp up spend efficiently and positively impact our near-term results.
Additionally, our team continues to work closely with our franchise Medifast Weight Control Center partners.
As we have noted on many occasions, we are very fortunate that strong franchise business operators who know this space very well.
Together, we are working with our franchise partners to involve the offerings in the centers and initiate new pilot programs to test future concepts while continuing to deliver a strong value offering.
This business and other partnership with franchise owners represents an important part of our business and a compelling support offering for current and prospective center members.
We continue to take steps forward to accelerate the activities required to return the Company to sustainable revenue and profitability growth.
Our ongoing and consistent improvement across tiers of our business over the last few years and, importantly, the first half of 2016, truly demonstrates the positive momentum we are building and why our team is excited about what the future holds for Medifast.
With Take Shape for Life, a very significant part of our business plan, it's increasingly important that we expand the talent on our management team with individuals with extensive experience in growing a healthy direct-selling business.
To that end, I'm pleased to introduce the newest member of our management team, effective August 1st, Bill Baker joined us as our Executive Vice President in Information Technology.
Bill comes with significant leadership experience in a number of industries, most notably in direct selling at Rodan & Fields and Arbonne International.
So Bill brings a plethora of experience across the core IT function that will aid in our strategic plans across all business units and functions.
Bill's background in direct selling industry will reap immediate dividends as we improve the technology roadmap for Take Shape for Life.
We will believe this is a critical step to its further accelerating the growth in our Take Shape for Life business first domestically and then internationally.
I also want to take the opportunity to thank our entire team at the corporate offices and our partners in the field for their hard work and dedication.
As a testament to the values of both our corporate team and health coach community, Medifast was named to the 2016 Forbes 100 Most Trustworthy Companies in America list.
Our finance team under the leadership of CFO <UNK> <UNK> consistently strives to reach the highest standards of financial management, and it's an honor to be included in this prestigious list of companies from such a well-respected national business publication.
In addition, Take Shape for Life was the only organization in the direct selling industry to be recognized on the list, a significant achievement for a direct-selling company.
In addition, Take Shape for Life has been named by the Direct Selling Association to its 2016 DSA Top 20.
It is truly an honor to have Take Shape for Life recognized as a top 20 company again because of their incredible field of health coaches who work so hard every day to share the Take Shape for Life optimal health community.
We continue to reach new levels of success.
In summary, our team remains committed for delivering value to shareholders.
Our strong and consistent cash generation enables us to be in a position to continue enhancing shareholder value to both our existing dividend and share repurchase programs.
Our third quarterly dividend will be paid in August, and as of June 30, 2016, we have approximately 850,000 shares of common stock available to buy back under the existing repurchase program.
We are very pleased with our operational achievements and financial results in 2016 year-to-date, and we are confident we have the right strategic and executional initiatives in place for future sustainable top and bottom-line growth.
With that, I'd like to turn the call over to our CFO, <UNK> <UNK>, who will discuss our financial results in more detail and our outlook for 2016.
Thank you, Mike, and good afternoon, everybody.
I will now review our performance for the second quarter ended June 30, 2016.
Please note that the financial information I reference today will focus on our results from continuing operations.
For the second quarter of 2016, we had no activity from discontinued operations compared to income from discontinued operations net of tax were approximately $400,000 in the second quarter of 2015.
Before I get into the operational results for the quarter, I want to take a moment to explain an important recent decision to record a $6.1 million noncash expense for a software asset impairment.
I will reference this expense several times during the call and will reflect expense in our reconciliation of non-GAAP measures, help provide better insight into our ongoing operational results.
The impairment expense is a result of a comprehensive evaluation, a recent decision to implement a new, state-of-the-art, proven direct sales software platform for Take Shape for Life and to cease work on an internally developed software platform.
Technology solutions that have evolved rapidly in the past several years and our business requirements have changed since the scope and design of our internally developed system was determined several years ago.
The new comprehensive cloud-based software solution has significant advantages over the internally developed platform that better meets our current and future requirements and will be deployed to our field much more rapidly.
In addition, implementation of the new platform is more cost-effective, over time.
The new software platform greatly enhances our coaches' ability to manage their business activities and clients' communications.
Additionally, the software is designed to process commission payments for health coaches, provide deep insights into our business trends, and try to enhance online experience for clients and coaches.
We felt this was a very important step for repairing the infrastructure for accelerated growth domestically and internationally.
As Mike mentioned we recently hired a very talented new IT executive with deep roots in the direct-selling industry.
Bill actually assisted us for the final evaluation and decision prior to arriving this week and will now lead the team that will implement the new solution over the next 9 to 12 months.
Now I'd like to take you through our second quarter results for continuing operations.
In the second quarter, net revenue decreased approximately 1.5%, $71.1 million from net revenue of $72.2 million in the second quarter last year.
The Take Shape for Life business unit that accounted for approximately 80.7% of revenue.
The Medifast Direct business unit accounted for 13.1%.
The franchise Medifast Weight Control Center's business unit accounted for 5.8%, and the Medifast Wholesale business unit accounted for 0.4% of net revenue.
Expanding on our sales mix in more detail, revenue in the direct sales unit, Take Shape for Life, was up 10% to $57.4 million from $52.3 million second quarter of the prior year.
The sequential quarterly improvement year-over-year trending continued in the second quarter, and we were pleased to have our third consecutive quarter positive year-over-year revenue growth in Take Shape for Life.
We were also very pleased to return to double-digit growth in Take Shape for Life for the first time in three years.
There were approximately 12,800 active health coaches in the second quarter compared to 11,800 in the same period last year, and 12,600 in the first quarter of 2016.
New coach sponsorship continued to grow in double digits at 15% in the second quarter.
Average revenue per active earning health coach for the quarter increased to $44,179 from $44,123 in the second quarter of last year.
We continue to be encouraged by the improvement in our newly sponsored coach count and the increased level of coach productivity.
We believe that our increased efforts in some key Take Shape for Life strategies, the increased engagement level of our field leaders, the operational improvements in the health coach experience, and the incremental resources added to the Take Shape for Life team are having a cumulative impact that have translated into operating momentum and will, in turn, drive sustainable growth.
We continue to be pleased with the visibility we have into the key growth drivers in Take Shape for Life business, and our activities are intently focused on fueling the growth trajectory of Take Shape for Life over the next several quarters and years.
Our Medifast Direct segment revenue decreased 32% to $9.3 million, as compared to $13.7 million in the second quarter of the prior year.
As Mike discussed, this business unit continues to experience challenges, and our team is working to implement and test initiatives across acquisition, conversion, retention, onboarding and reactivation in order to drive and improve results.
Total Medifast Direct advertising in the quarter decreased 61% to $1.6 million from $4.1 million in the second quarter of 2015.
This reflects the strategic decision to manage this business appropriately given our focus on returning Take Shape for Life to growth.
It also reinforces our discipline to not only stand behind initiatives that meet our criteria while we work feverishly on implementing the improvements Mike set forth earlier.
While customer acquisition challenges continue to be addressed, this business unit continues to deliver strong contribution towards our overall profitability.
As we gain increased traction with the plans currently in place, we expect our advertising spending will slowly ramp up again.
Revenue in the franchise, Medifast Weight Control Center business unit, decreased to $4.1 million from $4.7 million in the same period last year.
The decrease in revenue was primarily driven by fewer franchise centers in operation during the period.
We ended the quarter with 57 franchise centers in operation compared to 62 at the end of the same period last year.
Medifast Wholesale revenue, which is comprised of revenue from health care providers and other wholesale partners decreased $1.2 million to $300,000.
This was expected and communicated on several prior earnings calls.
The decreased revenue was intentional as it was caused by Medifast enforcement of our business partners' compliance requirements.
It resulted in us closing a number of customer accounts in mid-2015.
As we move into the third quarter and second half of 2016, we expect this to be a much easier comparison for us.
Gross profits for the second quarter of 2016 was consistent with the prior-year period at $53.2 million.
We were pleased to see our gross profit margin as a percentage of net revenue expand by 110 basis points to 74.8% versus 73.7% in the second quarter of 2015.
The increase was driven primarily by price increase and improvements in our supply chain operations.
Selling, general, and administrative expenses in the second quarter of 2016 were $48.2 million versus $44.5 million in the second quarter last year, excluding the $6.1 million noncash asset impairment expense this quarter that I mentioned earlier, and $300,000 extraordinary legal and advisory expenses resulting from 13D [filings] in the second quarter of last year.
Our second quarter of 2016 adjusted SG&A was $42.1 million, or 59.2% of revenues compared to $44.2 million, or 61.3% of revenues in the second quarter of last year.
Sales and marketing expense decreased $2.9 million in the second quarter of 2016 as compared to our second quarter of 2015.
Second quarter operating income from continuing operations before tax was $5.1 million, or 7.2% of net revenue compared to income from continuing operations before tax of $8.8 million, or 12.2% of net revenue in the second quarter of 2015.
On an adjusted basis, operating income from continuing operation before tax was 15.7% of net revenue compared to 12.6% of net revenue in the second quarter of last year.
Income from continuing operations was $3.4 million, or $0.29 per diluted share based on approximately 11.9 million shares outstanding.
The second quarter of 2015 income from its continuing operations net of tax was $5.8 million, or $0.48 per diluted share based on approximately 12.2 million shares outstanding.
Our second quarter adjusted income from continuing operations was $7.5 million, or $0.63 per diluted share compared with adjusted income from continuing operations of $6 million or $0.50 per diluted share in the second quarter of 2015.
Adjusted income from continuing operations is a non-GAAP financial measure.
Please refer to the tables in today's press release for a reconciliation of all non-GAAP financial measures.
Our effective tax rate was 33.3% compared to 33.8% in the second quarter of 2015.
The decrease in the effective tax rate was due to an increase in the domestic manufacturing deduction and the change in the tax law making certain research and development credits permanent allowing us to recognize the credit throughout the year.
In prior years, recognition of this credit was dependent on the timing of the annual approval by Congress.
Our balance sheet remains very strong with stockholders' equity of $91.3 million and working capital of $73.4 million as of June 30, 2016.
Cash, cash equivalents and investment securities for the second quarter of 2016 increased $12.5 million to $79.6 million compared to $67.1 million at December 31, 2015.
We did not repurchase any shares during the quarter, the second quarter of 2016.
We currently have approximately $850,000 shares remaining on our repurchase authorization as of June 30, 2016.
Now turning to our guidance.
We expected third quarter net revenue from continuing operations to be in the range of $64 million to $67 million, and earnings per diluted share from continuing operations to be in the range of $0.43 to $0.46.
For the full year, we are reiterating our revenue guidance from continuing operations to be in the range of $275 million to $282 million.
We continue to take a cost (inaudible) on our top line guidance as we monitor the positive momentum from a newly implemented Take Shape for Life strategies and work diligently to reverse the trends in the Med Direct business.
As a result of our recent noncash asset impairment expense we now expect earnings per diluted share from continuing operations to be in the range of $1.38 to $1.43.
The Company is raising its guidance for adjusted earnings per diluted share and continuing operations to $1.79 to $1.84 per diluted share from our prior guidance of $1.75 to $1.80.
Adjusted earnings per share excludes $1.2 million of restructuring costs associated with separation agreements with several senior executives and a $6.1 million noncash asset impairment expense.
The Company expects annual savings associated with restructuring, excluding the current year restructuring costs about to be approximately $2.2 million.
That concludes our operational and financial overview.
We appreciate your interest in Medifast, and Mike and I are available now to take your questions.
Operator.
No, we had done a number of things in the quarter from our perspective.
One, we had a price increase that took place April 1, so we had the full quarter, the benefit of a price increase.
We also had some really good work done in our supply chain operations around the cost of getting the product to the customer, primarily the delivery cost to the customer by redesigning packaging to be more efficient in our ---+ the size and the footprint of the box.
So those things will continue to be ongoing.
I think when you look at the forecast for the full year, kind of, the implied guidance for the fourth quarter is somewhat similar to what it was last fourth quarter.
And I think there, you know, we are looking at opportunities to make some investments in the fourth quarter (multiple speakers) is advertising and also we've got a lot of packaging design and things we need to do for the new Optavia brand.
So we took the conservative approach, I think, on the fourth quarter.
We'd like to have the opportunity to make those choices in the fourth quarter if the right opportunities are presented to us.
Yes, our hybris platform is being implemented at that time, <UNK>, so once we have a new platform in for Med Direct, that would be the time to potentially increase our advertising.
We're still working on product development, as an example, on some of the products, so we don't have the product line filled out yet.
But we have signed up about [70] colleges and universities, and we also have the ECAC, the Atlantic Hockey League, and the CAA Conference where we are sponsoring three conferences.
So one of the things we're doing, <UNK>, is really trying to get the right references and start to sign these people up.
It does take some time, so we don't expect that to be material this year.
But it will also help us to prepare and experiment with the product line, so as <UNK> looks in the future at our Optavia product line, she can determine what she wants to do with those types of products down the road.
But we feel good about the progress we're making, and we're going to have some good, solid references of people working with us to give credibility to our approach.
It's a subscription model, <UNK>, because there's very little up front cost associated with it.
There's no acquisition other than as a public company, in order to be SOX compliant there are some servers we're going to have to procure, but they're relatively insignificant, just to make sure we have adequate backup.
We have <UNK> here for a minute.
<UNK>, one of the key issues is the system to allow us to do that.
I'm going to let <UNK> answer that question.
So what we do is really a cross-reference of market on understanding the potential, both from a product positioning standpoint that what Optavia presents as the optimal well being, which is a combination of not only losing weight but weight maintenance and attractiveness of, you know, a sustainable lifestyle.
And we cross-referenced that with opportunities and the market size of direct selling, which is the business model.
So when you look at that, we assess the opportunities that are also geographically close to us, so that we're able to do a cross-reference of actually starting our international expansion in the home country, in the US through the various ethnic markets and then expand, you know, then, with leadership and with people here going to foreign markets with us.
So we have looked at what that looks like from a timeframe perspective of regulatory approvals but also a time perspective of making sure that we have the right leadership that can go in with us and open those markets.
Yes, I think that's the right way to think about it.
I think we've come out of the second quarter favorable to where we expected to be, and we have an opportunity now I think to make some investments in the latter part of the year to help 2017 get off to a great start.
And we're going to monitor some of the testing that we're doing to see how that does and as we see those things, kind of, prove success in customer acquisition, you know, we'd love to make those investments into, kind of, getting a jumpstart.
So that's exactly how to look at it.
The other thing we're doing, too, <UNK>, is we're also investing in the conversion of our product lines to Optavia where we're creating very exclusive new products for our network.
And I think that's a key area for us because the first 13 were the convention, but we expect to launch more in the first quarter and more as we go through the year because our goal is to have the product line changeover done by July of next convention.
And, by the way, a very exciting thing out of convention is we had double the sign-ups for our next convention, which is the most we've ever had, and we had 3,400 people, and our sign-up process was double what it was at the end of last year's convention.
No, I think that from an advertised perspective was a low quarter and, you know, we constantly test and look at the cost of client acquisition.
We, kind of, pull the lever forward and backwards based on how that works.
But I think that is not where our expected levels are.
I think the brands further separate the opportunities to have a bigger presence with Medifast Direct without negatively impacting Take Shape for Life will start to grow.
And, as I said, as opportunities grow, our spending will grow.
The other thing, I think, <UNK>, is even the decision we made on the asset impairment is how to lower our cost as we go forward versus increase our cost.
So we are managing our cost base very, very efficiently.
I don't think there's any question.
If you'd look at the last few years, we've done that pretty well.
But we do need to put more money into advertising in the fourth quarter once we get the systems in place, and we improve the processes.
And we have a very good consulting firm we've hired that are working with us on that, and that should be a big benefit.
I think that where we take ---+ and certainly we're always looking to opportunities to take any kind of cost out, but just, I think, reframe that a little bit.
When you look at most of the costs that have come out in the past, we took business units that were not profitable, like the clinics.
And that's where a lot of our costcutting over the past several years has come from.
You know, our employee base is about half what it was because we don't have all the folks out there manning the clinics.
So that's largely where a lot of that's come from.
I wouldn't really look at it that way.
It's not we're looking for those types of things.
I think that we're looking to make investments to grow the business, and I think this past quarter is an example from a timing perspective.
With everything happening with the Optavia launch, it wasn't the right time for us to make those investments in advertising.
But that time will present itself again, and we do expect to ramp that spending back up again with profitable revenue growth.
And, by the way, we've been investing in products and in Take Shape for Life and adding resources.
We're not cutting back the investment.
I think where we've done a good job, <UNK>, is we've restructured very well out at businesses that were unprofitable to make each business profitable, and I think that's where you've seen the bigger reductions.
Yes, the 13 products we just launched are very, very similar profit margins as our existing one.
It is priced higher.
Our core product line today, you know, price points about $18.95, and the new product line, you know, is with the premium read into it's about $22.95.
So it's different price points.
Yes, the price increase affected part of our offering.
The price increase really didn't apply most to much of our acquisition offers that are out there.
So we made sure the client acquisition was really not affected this time.
So we have one quarter of history behind us, but it's very low single digits.
(technical difficulty) impact.
I think if it applied to everybody across the board, it would probably be about a 4% price increase and maybe we're getting a flowthrough of 1.5% or something like that.
Yes, I think the intent, certainly, is to keep Med Direct on trend as well.
I think our priority was the Optavia line, and I think the strategy will be different, however.
They will not be the same.
So our intent here is not to have the same products sold in each of those channels.
So we will have some planning to do with Med Direct and what that product looks like, what those offerings look like in the future, but they will be different in the offering to Optavia.
I think what you're going to see ---+ we would expect, <UNK>, some levels of improvement in Med Direct, but I believe over the next 12 months until you have a totally differentiated product line, you'll continue to see ---+ Med Direct will improve, but we won't see step function improvement until you see a differentiated product line.
And our goal, really, is to make sure that we're focusing on creating a great experience for this whole Optavia experience and, clearly, that's today's, in our businesses, 80% Take Shape for Life, and 13% Med Direct.
So I think we need to understand that's the basis of our business.
We're really a very strong, direct-selling company, and our goal is not to try to be Nutrisystems.
Well, you know, coach growth is somewhat seasonal.
So when you think about sequential growth, as you go into the latter part of the year, you know, people ---+ that's around the holidays and so we always see a little bit of [a tell].
But I think the momentum on a year-over-year basis is we feel we're pretty consistent.
So we expect to continue to see health coach growth throughout the year on a year-over-year basis.
But there is some sequential quarter seasonality.
You always do have your convention expense, which always happens in July relative to third quarter.
I mean, that has some impact, certainly.
I didn't calculate it, but the impact is probably more than several cents.
So that definitely has some impact.
But on a year-over-year basis, that's not very different.
I think the third quarter, you know, as you start to attract new coaches, newer coaches are less productive than your average coach, so you kind of ---+ period of growth.
There usually is some downward pressure.
In all honesty, we haven't seen that in the past couple of quarters, which is a great thing, to see your average revenue per coach go up at a time when you're growing is different than the trends we had seen in the past.
So with that base, it means that your existing coaches are increasing their productivity as well as you're getting new coaches.
So that's a really good sign.
So, look, I think there's definitely some opportunities in the third quarter, hopefully, if we hit on all cylinders to do better than our guidance.
But, you know, we like to make sure we set a guidance level that we feel very, very comfortable; that we're going to be able to achieve and always like to have upside.
I just want to thank everybody for participation on the call today.
Thank you very much.
