Q1 2020 Earnings Call
[music].
The day <unk> <unk> first quarter access go 2020 earnings conference call.
Oh purchase offense or <unk>.
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Oh it now like to turn the conference every two Scott band Michael. Please go ahead.
Good afternoon walk him no matter of fact first quarter 2020 earnings conference call.
On the call with me today are Damned chart, Chief Executive Officer, and Joe Kalamazoo.
Term Chief Financial Officer.
By now everyone should have access to the earnings release for the period ended March 31st 2020.
But when out this afternoon at approximately four or five P.M. eastern time.
If you've not receive the release it is available on the Investor Relations fortunate manifests website.
The U.W.W. Dot met a fast Inc. Dot com.
This call is being Webcasted, a replay will be available on the company's website.
Before we begin we'd like to remind everyone better 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 identified forward looking statements.
Statements do not guaranteed future performance and therefore onto you rely on should not be placed upon them.
Actual results could differ materially from those projected in any forward looking statements.
Matter of fact assumes no obligation to update any forward looking projections that may be made in today's release or call.
All the forward looking statements contain hearing speak only hazard dated this call and with that I like to turn the call over them at a fast Chief Executive Officer, Dan chart.
Thank you Scott and good afternoon to everyone. Joining us. Thank you for taking time to be with us today.
On the call with me today is Joe Kellerman was appointed interim Chief Financial Officer in early March.
Oh is that as distinguished career with Medifasts since joining in 2012 spirit, serving in a series of senior financial Rolls since that time, including corporate controller and Vice President of finance.
Also served as interim Chief Financial Officer, Oh, the company and 2013.
The the finance function until a permanent appointment is made.
Currently conducting an extensive search for a C.F. so that will lead to the comfortable to leave the company into our next phase of growth.
Oh, sorry, today's call like giving a brief overview of our first quarter performance in an update on how our business was impacted in the quarter by the economic and social disruption related to the covert 19 pandemic.
I will also share with you what we're doing in the current quarter to adapt to the new business environments to assure that we continue to deliver long term growth in the growing health and wellness marketplace than Joe will review Q1 financial results in more detail well then both be available to take your questions.
Oh, Please report the manifested libert above the high end of our guidance on both the top and bottom line. During the first quarter reporting revenues of $178.5 million <unk> gap adjusted earnings per diluted share, which excludes expenses in connection with the schedule 13, d. filing and severance costs.
Was $1.93 cents in the quarter.
<unk> was driven by continued improvement in the number of active burning coaches on both a year over year and a sequential basis.
Boarding the highest level in the company's history with 32600 coaches at the end of the first quarter.
The resumption of coat coach growth is a clear demonstration of the underlying health and strength of our business and an indication of the way our differentiated offer continues to resonate with prospective clients and coaches as we focus on delivering our mission of offering the world lifelong transformation one healthy happened at a time.
We've been working diligently to build further momentum in attracting new clients and sponsoring do coaches and saw encouraging progress as we move through the first quarter.
Perhaps not surprisingly it with them downward pressure with both Klein acquisition, a coke sponsorship at the end of the first quarter and in early April is a corona virus.
Demick began to impact the macro environment.
However, we've made we've been encouraged by the new client new coach numbers, we've seen in recent weeks as people adjust the new normal and perspective coaches and clients respond to programming changes we made in late March in early April.
The health and wellness services and products, we offer provide a proven solution to help clients achieved their healthy weight as well as learn incorporate.
Either healthy habits in their lives to achieve optimal health.
Further the address will market remains significant as the focus on health and wellbeing is projected to continue its growth.
Fact, as people slowly move out of a more sedentary period as mandated by the stay at home orders, we believe there'll be an increase demand for solutions, which help people lose weight begin fitness and focus on their long term health.
As a company we've worked and invested extensively in the past several years before we integrate our operating infrastructure through cloud based technology and remote training and communication practices, we feel confident in our ability to operate effectively in this new unchanging environment.
We've made all the necessary adjustments short processes and procedures to ensure that we deliver excellent service can execute against our long term growth opportunity.
Particular, we've completed extensive work on our technology supply chain infrastructure and as as a result, our performance in these areas continues to meet historical standards as we continue to see marked improvements in the key metrics, we use to track client and coach satisfaction.
We believe our long term sustainable revenue growth outlook will be unaffected and that our ability to drive shareholder value remains intact. As a result, we remain committed to our dividend policy, which reflects the strength of our balance sheet are highly attractive business and financial model and the confidence of the board and the management team in.
Our ability to deliver against our goals.
Were 85% of our revenues generated from your subscription orders, providing a strong recurrent revenue source, which has remained strong in the face of the pandemic and uncertain economic environment.
<unk> approximately 80 per cent of our expenses are variable, which allows us to stay nimble it quickly adjust our spending where necessary.
This combination provides important consistency and confidence in our financial outlook.
This is obviously been a period of adjustment an adoption for populations across the world and consumers are distracted from their day to day activities as a result.
<unk> organization, including our network of more than 30000 off the via coaches has been built to be highly adaptable and that has been particularly evidence in the pet during the past six weeks or so.
I'm very encouraged by the resilience of our employees are coaches and our clients and I'm appreciative of everybody's efforts.
Productivity across the organization is very high providing a virtually seamless operating environment.
Well the vast majority of our employees have transition to working from home.
Manufacturing distribution feel so facilities are operating uninterrupted as they provide essential food products.
Our customer service and support functions are also operating very well and we're delivering a high level of service to our coaches and clients with strong feedback from the feel.
You know the field, we've already transitioned our annual convention from I live in person event to a virtual conference to be held during the same period of time as our previously scheduled convention in July.
He also postponed our annual leadership incentive trip from April to the late fall.
Why these changes we remain highly engaged with our off the via coaches utilizing virtual events and communications to fill any voids.
Many ways the pandemic will provide us with an opportunity to test new digital approaches to fill engagement.
Which bring with with them the ability to reach farther in greater number of people that traditional in person events at a fraction of the costs.
We have some exciting plans in place for ensuring no level of drop off during in connection and energy and look forward to the long term learnings such events can provide for our business.
This is a business it has been operating for more than 18 years now.
And the majority of our coaches started his clients who are successful using our programs products and services.
That means that our leadership has strong personal experiences of what works with that just successful use everyday.
Are filled let communications are particularly strong as a result.
As an example at the height of the pandemic in April our coach leaders held a highly successful virtual coach training event called business momentum Twentytwenty at home.
This was attended by remarkable 8300 registered participants and included sessions for coaches and clients as well as guess.
Training was provided around the four skills of acquiring new clients supporting clients sponsoring coaches and developing coach leaders.
This was a phenomenal response during a challenging time for individuals and <unk> and it was a demonstration of how much are offering resonates with people as they address issues around health and wellness.
Along with engaging the feel through top down the bottom up events, we continue to create new ways to maintain demand for our business and grow our client and coach base.
As part of adjusting to the new operating environment. We made several changes to our plan programming at the end of Q. want you to for example in March we introduce an incentive called forward in health and incentive designed to support new Klein growth and new coach sponsorship as well as reactivation, a former clients and April.
We also introduced a new promotion called essential start.
Which is a limited time offer of a discounted essential five and one kid help coaches assist new clients as they start their health journey.
He's promotions support new Klein enrollment in an off the via premiere subscription order and the habits of health transformation system.
Because of the positive result in April we have extended this promotion through May and expanded it into the Asia Pacific region as well.
As a result of the training incentives and promotions, we have seen a substantial improvement in new client acquisition and new coach sponsoring since mid April.
We've also seen significant increases and page views in her office of your business management tool for coaches, which is an early indication of the engagement over off the via coaches.
We're still in the early stages of the execution of these programs the results have been encouraging.
Will be working to build on this impact over the coming months.
Our investment of technology in operations also continues.
We lost our new enterprise resource planning system or E.R.P. system. This month.
The support of our consultants the Lloyd.
New cloud paste E.R.P. system is expected to improve production forecasting order management inventory control and provide the incremental capacity to support growth in the orders.
Are testing for the last 12 months has been completed.
And we are confident with the implementation.
<unk> Asia Pacific markets remains an important part of our long term mission and growth strategy facility early stages of development of our first to markets Hong Kong and Singapore.
We are encouraged by the development of these markets as we continue to increase service and support to improve coach inclined experience.
On April six we opened or Hong Kong distribution facility <unk>.
20000 foot facility.
Well, it's significantly reduce the delivery times and logistic costs in our open Asian markets and provide a base for future expansion across Asia and the <unk> in the future.
He also planned to expand our expand our support footprint by adding a contact center in Manila drink too too provided the pandemic related restrictions were lifted.
As part of our strategy to build an innovator, our mobile platform and other digital technologies.
We have moved forward with plans to open a satellite office in Salt Lake City, Utah.
Poison that location will include the leadership team responsible for digital product management.
Way engineering.
And our global contact management operations.
Office will open in August and we'll scale to 10 15 to 20 employees over the next 12 to 18 months.
It will work in tandem with our Baltimore based I teach him to support the upcoming launch of our digital mobile platform currently scheduled for a beta launched in the third quarter of this year.
As I mentioned before I'm very proud of the efforts of the entire organization and our coach network and giving back to the community, but particularly today's than today's challenging times.
2018, we announced our philanthropic initiative healthy habits for all the program is designed to provide the education and access necessary to make healthy habits are reality for everyone, especially those in underserved communities.
<unk> donate more than $2.5 million.
Local and national nonprofits through 2023.
As a <unk> public Raffles with the devastating impact that covert 19.
We quickly mobilize our employees and coaches to provide additional relief for vulnerable populations across the country. You partnered with no Kid hungry, which provides emergency grants and other assistance to help make sure the children, who rely on free and reduce price lunches at schools do not suffer from a lack of healthy food schools of transition to.
Ritual classes across the country.
Also here in Baltimore, you're providing funding for laptops, there will be distributed too vulnerable students at the heart the East Harbor campus of living classroom Foundation.
He's laptops once sure that students in our local community have access to the tools they need to continue their education from home.
Again, I'm very proud of our support to our local communities and appreciative all the efforts that our employees and our coaches they've made and adapting to today's challenges and paying it forward to commute to support our community.
Our businesses at the heart of a 230 billion dollar health and wellness industry.
Medication is the foundation of our success.
I called companies, we must adapt to health and economic challenges across the globe, but we are confident in our mission and our business and growth opportunity.
We were in a very strong financial position in a large in growing addressable market with a competitive advantage that we are leveraging for sustainable growth for long term.
We enjoy business model it can not only offer physical health, but also financial help to our clients and coaches positioning us well in both the short term and the long term.
Let me turn the call over to Joe.
Thank you then good afternoon, everyone. It's been a pleasure speaking with some of you over the last couple of months no mater to be supporting Medaphis. During the time mission is more critical whenever.
Let me walk you through our financial results through the first quarter it'd be March 31st 2020.
Revenue for the first quarter of 2020 increase 7.6%, who 178.5 moon versus.
65.9 million in the first quarter of 2000.
Then highlighted we ended the quarter with our highest level of active coaches in the company's history 32600.
This represents 19.9% growth as compared to 27200 coaches in the same here last year.
I read revenue per active earning code for the quarter <unk> <unk> <unk>.
Eyebrows in $333 compared to.
As an $870 for the first quarter last year.
Note however.
It was that this metric showed a sequence who who do we improvement.
<unk>.
Discussed in our choir earnings call.
I'll be here declining revenues <unk>, earning code was anticipated as a result of the operational mid wins.
In 2000 I Mmm.
<unk> portion of less hundred clients as a percentage of total clients.
<unk> most tender clients represent the higher average spend versus more tendered clients was downward pressure on this metric.
We expect revenue <unk> earnings who to normalize in the future.
Acquisition <unk>.
Sponsorship improves.
Also note it'd be a branded products group to 79% worked well.
<unk>.
First quarter approved 73% and the player period.
Gross profit for the first quarter of 20, 28.1%.
35.2 million.
Or to 125.1, who are year period.
Was profit margin as a percentage of net revenue increase 40 basis points.
5.8%.
Since 75.4%.
<unk>.
Improved gross margin was the result of our price increase taken mid year 2019, Oh, good weather reduction is still discounts realize during the first quarter 2020.
Two a year ago.
Let's do you need for the first quarter of 2020 increased alone 3 million to 111.7 boom compared to 124 million for the first quarter 2019.
Increase was primarily results of higher up the V.A. permission expense.
<unk>.
Professional service costs.
Connection with the schedule 30 D. filing.
Increase salaries and benefits in service.
<unk> revenue increase 210 basis.
You will be your to 62.6% of revenue versus 65% in the first quarter of 2019.
I'm gap adjusted S.D.N.A. increased 5.7 million to 106.1 billion in the first quarter of 2020 as a group had as a percentage of revenue decrease.
I'd be basis waves, you'll be your 259.5%.
Non gap adjusted S.D.N.A. excludes expenses in connection with the schedule 13 filing.
4.6 million, that's severance costs of 1 million.
Additionally, as we discussed last quarter, we began seated normalization of credit card debt expense.
Deployed enhanced security less well and this could discontinued.
That's not bad that expense during the first quarter of 2020 was below 2019 levels and back to 2018 levels and has been holding relatively constant over the last five months.
So a month to month improvements.
He took them operations decrease 1.2 million to 23.5 million.
4.7 million.
Require you appeared has increased gross profit was offset like increase as D.N.A. expenses.
They come from operations as a percentage of revenue was 13.2% for the quarter.
Increase of 170 nieces points from a year ago period.
Non gap adjusted income from operations, which excludes expenses in connection with the schedule 30 D. filing.
Costs increase what point 4 million 29.1.
You have to just didn't come from operations as a percentage of revenue was 16.3%.
Increase of 140 basis points.
Ago period.
Alright, effective tax rate was 21.8% compared to 17.1% and the first quarter of 29.
Increase in the first quarter effective tax rate.
Really reflects the impacted the increase in the state tax rate Eddie decrease in tax benefit of stock compensation.
Would eat them in the first quarter of 2020 was 18.5 million or $1.56 per diluted sure.
Done approximately 11.8 million shares outstanding.
Non gap, adjusted maybe which excludes expenses in connection with the third <unk> and seven's costs.
2.9 million.
$1.93.
Sure.
Quarter 2090, but it was 20.8 million or $1.70 per diluted based on approximately 12.2 million shows that so.
A balance sheet remains very strong with cash cash equivalents, an investment securities as of March 31st 2020.
105.3 million compared to 92.7 billion.
Over 31st 29th Hmm.
Company remains free.
It's very bad and it's very well position in this challenging geared toward micro economic environment.
In addition to a strong financial position, yeah worked to ensure our supply chain, whose won't position for the current market uncertainties.
Allowing us to effectively supply consumer demand.
Each of our facilities continues to operate.
Oh and recommended safety protocols and I'll logistics partners continue to operate effectively as well.
Oh Board of directors declared a quarterly cash dividend in the first quarter 30.4 million or a dollar hmm that's per share.
Which is payable on me 620 20.
This reflected a 57 per cent increase.
Quarterly dividend over the period is a direct result of our school financial position and attracted business model.
During the first quarter the company did not repurchase any additional shares.
Approximately 2.369 million shares of I'm, a stock remaining under our stock we purchase program.
Nobody will continue to look for opportunities two's, possibly we purchase it shares in the future at prices that are deemed attractive.
Where's the market volatility.
Active available debt financing.
Uncertain business prospects as a result.
Oh, good 90, pandemic and emphasis on preserving liquidity and financial flexibility makes undertaking each stock we purchase at this environment a bit more challenging.
We will however continued to assess these opportunities on an ongoing basis as we continue to monitor evaluate our capital allocation strategy.
We heard a position to capitalize on these opportunities.
Eyes.
Good news on certain times, resulting from the <unk>, we have decided not to provide guidance for the second quarter and our with Gordon good guidance for the full year 2020.
You do not feel at this time, we can reasonably project. The second literate were full year due to the ever changing environment where in.
However to follow up on Dad's earlier comment on our promotional activities.
Providing indication of our most gruesome trends.
April compared to the same period last year, our promotions are performing well and April revenue has ended up with a slight improvement over the same period last year.
Additionally, we have seen improved new client acquisition and could sponsorship as a result of the pool give any changes we've made.
We also focused on controlling our spending for the remainder of the year.
His dad vector the earlier you have cancelled our in person convention, which will be replaced with the virtual event.
We're also restructuring are 2021 programming, which will not require inexpensive cool in the second half with 2020 or.
2021.
Well you reference expenses accrued in the second half of 2019.
2020, insipid trip total $5.6 million.
Each of these changes you'll significant savings in the back here for 2020, some of which we will read the 0.2 additional cokes and flights according initiatives.
As we had discussed.
We were navigating this very on certain environment day by day with their health and safety of aren't met a fast enough to be a community remaining at the top with our priorities.
Doing to focus on and bill for the future unhealthy habit at a time.
Yeah <unk>.
<unk>.
Thank you well now began the question M. and fashion.
To ask a question you May press start then one on your touch 10 fan.
If you're using a speaker phone please pick up your handset before pressing likings.
Can withdraw your question please press tar them too.
At this time, all pod momentarily to assemble a roster.
I first question comes from stuff well the thing with Jeffrey Please go ahead.
Thank you good evening, everyone. At first question Dan. It's for you to just take us back a bit in time here fourth quarter report end of February you were certainly posturing as a quite conservative outlook for the court and came in well above that maybe just help us.
Reconcile what changed in the business relative to what you had set out for us and and and then I just want to clarify your comments on the the April quarter today that it's up slightly you every year <unk> contextualize that relative today nearly 8% cross your according to for the March quarter.
Yeah sure stuff. So it is you remember coming out of the fourth quarter and that was a quarter, where we third and fourth quarter of the court is quarters. When he had some operational challenges that we focused on fixing in the in the fourth quarter.
Headwinds associated with those challenges and what we faced in a in the early first quarter, which is what let us to to guide on a relatively modest growth year over year.
At the same time, we were dealing with towards the <unk> the back end of the corridor the.
Impacts the pandemic, which also create a lot of uncertainty. So at the same time, we were cutting expenses to ensure that we could understand how we would sustain profitability in a certain environment.
So we you know worked intensively to to focus on creating a strong march including putting in place an incentive to focus our coaches on client acquisition and that helped US finished the quarter up stronger than we we had anticipated and with the expenses.
We cut that helped the bottom line overdeliver versus or guidance.
They give you a little more more context April.
April included two specific.
Promotional well, one one promotion and one incentive so the incentive it was the same one that we ran in March.
Which specifically encourages through a bonus structure for our coaches to acquire acquire new clients and and the second is a as a price promotion on art and essential kit, which is focus specifically on new clients and so with those two.
Those too.
Promotion that one promotion in an incentive in place we were able to to to it to achieve a year over year increase in April. So that's kind of the context is challenging headwinds coming in to the end of March and beginning of April.
That were able to to turn around and a achieve your over your girl, but we're still very early in the corridor, we need to understand how.
That growth and momentum or will say the growth will sustain through the rest of the quarter and that's what we're specifically focused on understanding is is how this new promotion that that we've seen that that on the surface appears to have been very successful will maintain throughout the rest the core.
Okay. That's very helpful. And then just one final question is to take this one level deeper on the promotion you did find a promotion if I recall in November and December early part of December.
Sounds like a another maybe more incentive driven activation in the first quarter April quarter today, we've got another incentive and promotion.
How should we think about number one the receptivity to some of these activation campaigns, you're putting in the market and then I think you've mentioned now on all of them, it's really about customer acquisition.
So help us think to also about the the building of that customer base intent feature <unk> then what you might look for over the course of the next couple of quarters to convert I'm Mark your customers into <unk>.
Sure I mean, it as you know we don't promote our business a lot and certainly this is the the departure from what we've done in the past.
And so we we were specifically focused on a couple of things are our main objective was giving our coaches the tools they needed to break through a challenging environment from a communication standpoint, I think it's not lost on anybody that.
What's been on People's mind, as the global pandemic. So refocusing them on client acquisition was the first purpose and then giving them the tool in the form of a price discount.
Was the the mechanism to to help execute that.
And so as as a as Joe stated earlier, we saw that that improvement in the April.
Results, the time being tied to increase client acquisition as well as a coach sponsorship. So you know the question you're asking is is exactly what we're focused on his now that we have a a healthy influx of new clients.
As we're moving through April how do we continue to maintain that through through the rest of the the the corridor. So we extend to that promotion that we ran in April into May as well and our coaches are specifically focused on on doing what they do very well, which is supporting those clients and as they support.
And those clients achieve health results a portion of those become coaches and go on to to recreate that cycle of ringing and other new clients. So I think we you know we feel good about what we've seen so far.
But we also recognize that <unk> along with every other company in the country and really the world. We're trying to understand how the overall populations react and how the continue in changing our economy is going to in fact, our business, but yeah. That's.
Such as we now right now and and we wanted to make sure that we we gave a investors and you as analysts as much information as we have about our current situation.
Okay. That's getting just one that's more housekeeping question for you. It's just on the promotion price promotion versus the incentive you help us think through talk to the P.N.L. is it a net sales adjustment when you price promote or does that come through.
In in advertising and promotional like spend sign with M.S.G.N.A. thinks she just the mechanics.
The price discount.
Sure I mean, it's it's it's a little bit of both there I'd be into forwarded health actually you had an impact on the as today costs.
No for the business here, we're we're looking at.
Hundred and 3200 70 basis point.
Impact regarding that.
As far as the central kit promotion.
That would have an impact on our gross margins.
We are we are seeing.
We'll be seeing an an impact on the gross margins here, but.
Extended that at the May we're not necessarily sure exactly how that's going to play out for the for the entire quarter.
Okay. Thank you that's it for us.
Okay. So.
I can't if you'd like to ask a question. Please press start them. One. Our next question comes from Doug Lane, What claim research. Please go ahead.
Yeah. Good evening, everybody just looking yeah, there's a lot of cross currents here and there has been in the past several quarters that we've been talking about and I'm trying to get a feel for how operating margins, which were under pressure in the second half down 200 basis points are so all the sudden turned around and increase.
Just as much as they did so what are really as far as I can tell record operating margin levels and Meanwhile, your sales growth, although it's better than expected. It's still decelerating. So help me understand what's going on from your margin standpoint.
Yeah, Thanks Dog <unk>.
It's going since you asked the about last year, you're right. We were operating margins were under pressure largely because of a quickly changing forecast.
So we won't know revisit all the reasons for that but it but it had to do with our ability to manage standing in the face of of of a decline in our in our revenues really just the opposite happened in the first quarter. I mean, we we were because these were macro impacts and things were all.
Already aware of we began adjusting our spending early in the corridor and then finish the quarter in March a stronger than we had anticipated. So in that case, we had less spending than anticipated because of of we're aggressively managing R.S.G.N.A. and.
Then we we finish the quarter stronger than we anticipated. So that's what to created the outsized operating margin and it's still very strong, but more modest top line revenue growth.
Okay, well that makes sense and and taking that out then you know <unk>, you're not spending as much when in person meetings I get that given the environment, but that's not a permanent change right I mean, you're still going to have to have the in person.
Activity as a direct salary so really shall we think about perhaps unusually high margins. This year and then maybe adjusting back to normal assuming there's anything close to normal in 2021.
We're taking this a a quarter of the time and trying to understand what what what we learn as we go through it so I think.
We're we've as you point out we'll achieve some savings in the back half of the year, which is typically the main are too big it's expensive there are the convention and the cruel for the next year's leadership advancement trip.
So in the case of the convention as you point out we're going to be doing a virtual event, which we anticipate will will generate some savings will be using those savings either to sure profit for the back half of the year, So operating margin or as we understand more about.
How to support our coaches spend back to drive a revenue as well. So we're we're you know.
Kind of taking a little bit of a wait and see approach to better understand what the environment. It as we go forward in our our our favor I mean, what recent favor is to continue to help our coaches grow through client acquisition and at the same time make sure that were being responsible and managing R.P. analysis actively.
You know as far as what it means for future years.
I think this you know very likely that there'll be some things that we learn in this environment that will continue to use as we transition. So we'll evaluate what this what a what we've learned from these promotions as Joe pointed out we are not accruing in the back half of the year for the next year as leadership at.
It's been trip.
We'll look at how we use our funds to to help and support and.
Recognize our leaders as they develop in in a as coaches and you know beyond that again, we're just we're we're trying to understand how to best support in a very different environment. So we're going to take it one quarter to time in it and as soon as we have more clarity into.
The environments and what we're doing will be sharing it with you as his analysts and with broader investors.
Okay now that's fair and you know I I understand that Dan, but not everybody's pulled guidance because it <unk> certainly companies like you that.
Sales and margin number indicating demand seems to be in pretty good shape. You mentioned you do in April supply chain seems to be in pretty good shape. So if somebody here from the outside what am I looking for some problem to Cogut situation is this something you're concerned about that might happen with at the coach logo over the demand.
Well I mean, you sell coot products. So that's a preferential product is there anything that supply chain, we should be looking for or is it just general conservatism, which will be understandable as well.
No I think what we're looking at certainly is.
We we want to make sure that we understand what the impact is of an economic downturn on our business I think that's what were you know now potentially facing it could be positive if if we're viewed as a an income opportunity.
Could also be negative if we're viewed as a an expense that goes beyond what people are are willing to spend if if their their incomes are tightened up. So you know we feel we feel good about where we are particularly as it relates to are very strong balance sheet with no debt and plenty of cash.
So you know in terms of of of our on the you know what we're what we're looking for what you should be looking for.
Is a return to an understanding of you know where the future is so you know with with with every stayed in a slightly different.
Point in time in terms of returning to work you know that that has an impact. So we want to see how the economy returned to normal we want to make sure that were able to to continue to keep our employees, particularly what would.
Are deemed as essential employees and our supply chain.
Healthy we have.
Great lengths, including putting a fulltime nurses both at our manufacturing facility as our as well as that are distribution facility and we have.
You know we have a screening process. We also are going through a very strict policy around quarantining for anybody who travels but this is all new to US we haven't had to worry about that in the past and so that's that those are the uncertainties along with understanding how the.
The the long term impact the promoting our business what that looks like but so that's that's kind of what we're looking for and those are those outcomes of of those different activities what will be sharing with you.
Okay fair enough. Thanks, Dan.
Thank you.
Our next question comes from Bell Baker with Skype Research. Please go ahead.
Yes I.
It's kind of two questions that are interrelated really I'm kinda curious if he could put a little perspective fine you know when you acquire new coaches.
Starkly versus what's happening now you know in this cover 19 kind of environment I mean historically.
I think have you gotten hang pouches.
People, who work in an office environment and being notice traveling awful lot wait 10 recruiting you know at at their job site and I think I view, adding new coaches from social media.
And you know relationships that aren't.
In an office and I'm wondering how important one is versus the other historically versus today, where people may not be going to work.
But they might be spending a lot of time on social media and.
And then the related question is.
I know you don't you know spend a lot of money on advertising anymore, but you have this whole tool set to help website, social media and I'm wondering if you're seeing any changes and trends now that we're in a club at 19 environment and and can you help your.
Coaches and tweak things or advise them in in this brave no dystopian world.
Sure I think the first question social versus versus in person.
Or virtual versus a person. If you went back you know five or six years I'd say, there was probably more of a balance in the last three years in particular are coaches at Ben advocate far more adept at working through social media and so as far more important for US which is why I think we feel.
Like we're in a good position to to be able to operate successfully or to have to support our coaches in that endeavor as they continue to use social media.
As a way to to tell them to tell their story.
And that's so that's that's because all the majority of our coaches were clients first that's how they we're attracted to coaching and so that in turn becomes how they move forward and continue to try other new clients.
As far as as far as advertising that's an interesting question because we actually view the 43 per cent of revenue that we spend as compensation for our coaches for in person advertising and so we we we view every year that we have a significant.
A word of mouth campaign that goes on a across the United States and in Hong Kong and Singapore to attract new clients.
And you know is that relates to your last part of your question, which is do we help how can we help the answer is yes with started being we started to be far more proactive.
In a leveraging our P.R. wins, which include everything from magazine placements to T.V. placements to to then you know pushouts two are filled up coaches and they in turn share it share those things on social media. So we think that say not only there's been an important part of the last several years, but will become any.
Greasing the important part of of our future in terms of how we attract clients and <unk>.
[noise] okay.
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Are you finding that.
The message I mean, one of the.
Risk factors for covered 19 is that obesity is that a message that is fascinating.
Yeah.
Deliberately told our coaches to kind of stay away from trying to.
You know focus on.
Our product being a solution in the face of covert 19, that's maybe part of the question, but I think there's a there's an aspect that we that were saying and all that we believe we'll see more of which is that the majority of the world being on Lockdown are are doing.
More eating unless exercising and then they typically would so you know you can <unk> you can see what the trends are so I think.
We we believe particularly as the the lock down Star Sue.
Loosen up that and I think we're we're seeing it already been through search strands people are less consumed with understanding.
The pandemic more focused on taught in in an understanding how they're going to emerging become the person they want to be that that that means 10 or 15 pounds lighter that's part of it but really our focus goes far beyond weight. It focuses on a cheating a lifelong health and.
So I think the being healthy.
Is going to continue to be on everyone's mind, which means we will continue to have a large addressable market and the way. They do that we know from experience is helped by having a a partnership or the support of a coach and doing that and a program that helps people learn healthy habits, which is exactly what what we focus.
So I think our coaches or a a great position to to help the the the population emerge.
From the Lockdowns and and the focus on a on their collective help.
If I could just squeeze in one quick one here too.
Do you think the first quarter would've looked any different that's covered 19 hadn't have happened.
And have salad, how much or.
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I mean.
Yeah, that's right. The first part of the question is yes, we saw a significant pressure in the back half.
March as soon as as soon as the country was going through a very uncertain time.
In terms of you know projecting what the difference would be I think yeah likely we would have been stronger that we haven't try to mhm calculating communicate that but that we did not I mean, it didn't have a negative impact on our business.
What did that sort of.
T.C.L. itself in the beginning of April you are taught talking positively about April.
We we feel good about where we ended April but the the growth in April was was driven.
By a set of tools that we haven't used before and so okay. So good about is that our coaches were extremely engaged and very successful and communicating our message and we're going to continue to to monitor very closely to understand how those new clients were coming in perform.
You know compared to what are what our clients look like in the past and then how they what portion of those convert to coaches. So there's no. There's no reason for us to pay pessimistic about that but it's it's one of those on certain areas for us right now.
Thanks, Thanks for answering all my question.
Thanks, though.
That's kind of quit that question and answer fashion.
I'd like to turn the conference back up into Mr charge for any closing remarks.
Like to think everybody for joining and and a appreciate a bowl.
All of our shareholders who've joined listen on the calls in particular I also would want to recognize.
Are coaches our clients in our employees. During this challenging time I think we feel good about how we have whether the headwinds coming in and we feel confident and a a good about our future and our long term prospects as we continue to focus on on helping the world because.
Healthier.
That look forward to speaking with many of you soon.
The conference is now concluded. Thank you for attending today's presentation you may now disconnect.