|
1
|
NAME OF REPORTING PERSON
Engaged Capital Master Feeder I, LP
|
||
|
2
|
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) o
|
|
|
3
|
SEC USE ONLY
|
||
|
4
|
SOURCE OF FUNDS
WC
|
||
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
|
¨
|
|
|
6
|
CITIZENSHIP OR PLACE OF ORGANIZATION
CAYMAN ISLANDS
|
||
|
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
|
7
|
SOLE VOTING POWER
406,691
|
|
|
8
|
SHARED VOTING POWER
- 0 -
|
||
|
9
|
SOLE DISPOSITIVE POWER
406,691
|
||
|
10
|
SHARED DISPOSITIVE POWER
- 0 -
|
||
|
11
|
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
406,691*
|
||
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o
|
|
|
13
|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.1%
|
||
|
14
|
TYPE OF REPORTING PERSON
PN
|
||
|
1
|
NAME OF REPORTING PERSON
Engaged Capital Master Feeder II, LP
|
||
|
2
|
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) o
|
|
|
3
|
SEC USE ONLY
|
||
|
4
|
SOURCE OF FUNDS
WC
|
||
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
|
¨
|
|
|
6
|
CITIZENSHIP OR PLACE OF ORGANIZATION
CAYMAN ISLANDS
|
||
|
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
|
7
|
SOLE VOTING POWER
343,309
|
|
|
8
|
SHARED VOTING POWER
- 0 -
|
||
|
9
|
SOLE DISPOSITIVE POWER
343,309
|
||
|
10
|
SHARED DISPOSITIVE POWER
- 0 -
|
||
|
11
|
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
343,309*
|
||
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o
|
|
|
13
|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
2.6%
|
||
|
14
|
TYPE OF REPORTING PERSON
PN
|
||
|
1
|
NAME OF REPORTING PERSON
Engaged Capital I, LP
|
||
|
2
|
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) o
|
|
|
3
|
SEC USE ONLY
|
||
|
4
|
SOURCE OF FUNDS
OO
|
||
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
|
¨
|
|
|
6
|
CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
|
||
|
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
|
7
|
SOLE VOTING POWER
406,691
|
|
|
8
|
SHARED VOTING POWER
- 0 -
|
||
|
9
|
SOLE DISPOSITIVE POWER
406,691
|
||
|
10
|
SHARED DISPOSITIVE POWER
- 0 -
|
||
|
11
|
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
406,691*
|
||
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o
|
|
|
13
|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.1%
|
||
|
14
|
TYPE OF REPORTING PERSON
PN
|
||
|
1
|
NAME OF REPORTING PERSON
Engaged Capital I Offshore, Ltd.
|
||
|
2
|
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) o
|
|
|
3
|
SEC USE ONLY
|
||
|
4
|
SOURCE OF FUNDS
OO
|
||
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
|
¨
|
|
|
6
|
CITIZENSHIP OR PLACE OF ORGANIZATION
CAYMAN ISLANDS
|
||
|
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
|
7
|
SOLE VOTING POWER
406,691
|
|
|
8
|
SHARED VOTING POWER
- 0 -
|
||
|
9
|
SOLE DISPOSITIVE POWER
406,691
|
||
|
10
|
SHARED DISPOSITIVE POWER
- 0 -
|
||
|
11
|
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
406,691*
|
||
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o
|
|
|
13
|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.1%
|
||
|
14
|
TYPE OF REPORTING PERSON
CO
|
||
|
1
|
NAME OF REPORTING PERSON
Engaged Capital II, LP
|
||
|
2
|
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) o
|
|
|
3
|
SEC USE ONLY
|
||
|
4
|
SOURCE OF FUNDS
OO
|
||
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
|
¨
|
|
|
6
|
CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
|
||
|
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
|
7
|
SOLE VOTING POWER
343,309
|
|
|
8
|
SHARED VOTING POWER
- 0 -
|
||
|
9
|
SOLE DISPOSITIVE POWER
343,309
|
||
|
10
|
SHARED DISPOSITIVE POWER
- 0 -
|
||
|
11
|
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
343,309*
|
||
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o
|
|
|
13
|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
2.6%
|
||
|
14
|
TYPE OF REPORTING PERSON
PN
|
||
|
1
|
NAME OF REPORTING PERSON
Engaged Capital, LLC
|
||
|
2
|
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) o
|
|
|
3
|
SEC USE ONLY
|
||
|
4
|
SOURCE OF FUNDS
OO
|
||
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
|
¨
|
|
|
6
|
CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
|
||
|
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
|
7
|
SOLE VOTING POWER
750,000
|
|
|
8
|
SHARED VOTING POWER
- 0 -
|
||
|
9
|
SOLE DISPOSITIVE POWER
750,000
|
||
|
10
|
SHARED DISPOSITIVE POWER
- 0 -
|
||
|
11
|
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
750,000*
|
||
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o
|
|
|
13
|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.7%
|
||
|
14
|
TYPE OF REPORTING PERSON
OO
|
||
|
1
|
NAME OF REPORTING PERSON
Engaged Capital Holdings, LLC
|
||
|
2
|
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) o
|
|
|
3
|
SEC USE ONLY
|
||
|
4
|
SOURCE OF FUNDS
OO
|
||
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
|
¨
|
|
|
6
|
CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
|
||
|
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
|
7
|
SOLE VOTING POWER
750,000
|
|
|
8
|
SHARED VOTING POWER
- 0 -
|
||
|
9
|
SOLE DISPOSITIVE POWER
750,000
|
||
|
10
|
SHARED DISPOSITIVE POWER
- 0 -
|
||
|
11
|
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
750,000*
|
||
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o
|
|
|
13
|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.7%
|
||
|
14
|
TYPE OF REPORTING PERSON
OO
|
||
|
1
|
NAME OF REPORTING PERSON
Glenn W. Welling
|
||
|
2
|
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
|
(a) o
(b) o
|
|
|
3
|
SEC USE ONLY
|
||
|
4
|
SOURCE OF FUNDS
OO
|
||
|
5
|
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM 2(d) OR 2(e)
|
¨
|
|
|
6
|
CITIZENSHIP OR PLACE OF ORGANIZATION
USA
|
||
|
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
|
7
|
SOLE VOTING POWER
750,000
|
|
|
8
|
SHARED VOTING POWER
- 0 -
|
||
|
9
|
SOLE DISPOSITIVE POWER
750,000
|
||
|
10
|
SHARED DISPOSITIVE POWER
- 0 -
|
||
|
11
|
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
750,000*
|
||
|
12
|
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
|
o
|
|
|
13
|
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.7%
|
||
|
14
|
TYPE OF REPORTING PERSON
IN
|
||
|
Item 1.
|
Security and Issuer.
|
|
Item 2.
|
Identity and Background.
|
|
|
(i)
|
Engaged Capital Master Feeder I, LP, a Cayman Islands exempted limited partnership (“Engaged Capital Master I”), with respect to the Shares directly and beneficially owned by it;
|
|
|
(ii)
|
Engaged Capital Master Feeder II, LP, a Cayman Islands exempted limited partnership (“Engaged Capital Master II”), with respect to the Shares directly and beneficially owned by it;
|
|
|
(iii)
|
Engaged Capital I, LP, a Delaware limited partnership (“Engaged Capital I”), as a feeder fund of Engaged Capital Master I;
|
|
|
(iv)
|
Engaged Capital I Offshore, Ltd., a Cayman Islands exempted company (“Engaged Capital Offshore”), as a feeder fund of Engaged Capital Master I;
|
|
|
(v)
|
Engaged Capital II, LP, a Delaware limited partnership (“Engaged Capital II”), as a feeder fund of Engaged Capital Master II;
|
|
|
(vi)
|
Engaged Capital, LLC, a Delaware limited liability company (“Engaged Capital”), as the general partner and investment advisor of each of Engaged Capital Master I and Engaged Capital Master II;
|
|
|
(vii)
|
Engaged Capital Holdings, LLC, a Delaware limited liability company (“Engaged Holdings”), as the managing member of Engaged Capital; and
|
|
|
(viii)
|
Glenn W. Welling, as the managing member and Chief Investment Officer (“CIO”) of Engaged Capital and the sole member of Engaged Holdings.
|
|
Item 3.
|
Source and Amount of Funds or Other Consideration.
|
|
Item 4.
|
Purpose of Transaction.
|
|
·
|
The stock trades at a ~40% discount to peers. Currently, the Issuer trades at 6.7x consensus 2014 EBITDA estimates, a 47% and 38% discount to weight loss peers Nutrisystem and Weight Watchers which trade at 12.6x and 10.8x, respectively, despite having what the Reporting Persons believe to be a superior operating model.
|
|
·
|
The Issuer generates strong and consistent cash flows and currently trades at a 10% unlevered free cash flow yield (unlevered free cash flow divided by enterprise value).
|
|
·
|
The Issuer has a strong balance sheet with ~20% of its market cap in cash and no debt. The Reporting Persons believe the Issuer maintains excess liquidity and is evaluating various options for use of this excess capital. The Reporting Persons believe the Company must adopt a disciplined, “return-on-capital”-focused allocation process to ensure that capital is allocated to its highest and best risk-adjusted use, either through organic investments, acquisitions, or returned to shareholders through share repurchases and/or dividends.
|
|
·
|
The Issuer has an opportunity to significantly increase organic growth rates in its largest distribution channel, Take Shape for Life (“TSFL”). The Reporting Persons believe there is significant potential to grow the TSFL network by adding thousands of additional health coaches in new geographic regions within the United States. The Reporting Persons believe the Company’s penetration of the market is significantly below its peers and an enhanced focus in this area will have a material impact on accelerating the Company’s growth. TSFL has only ~11,000 active health coaches compared to other multi-level marketing businesses with much larger networks. For example, for the first quarter of 2014, Herbalife had over 70,000 average active sales leaders in North America while USANA had over 80,000 active associates in the Americas and Europe. Further, TSFL’s direct sales model should result in lower customer churn and less volatility than other weight loss business models (e.g. group meetings, e-commerce, mobile apps).
|
|
·
|
Management is in the process of employing short- and medium-term levers to improve Company performance.
|
|
|
o
|
Efforts underway to franchise the under-performing corporate-owned Medifast Weight Control Centers (“MWCC”) could drive an estimated $5-$10 million increase in earnings.
|
|
|
o
|
Management believes the changes made to the TSFL compensation plan in 2013 will reduce commissions by 2% and increase annual EBITDA by $4-$5 million.
|
|
|
o
|
Growth in the MWCC business is economically attractive and “capital light.” The Issuer is targeting 250 franchised MWCC locations, as compared to only 41 at the end of 2013.
|
|
·
|
~75% gross margin business with flexible cost structure. The Issuer generates revenue primarily from the sale of food. The Issuer’s high gross margins are due to the fact that approximately half of its food products are manufactured internally even with significant excess capacity in its manufacturing facility. The majority of the Issuer’s operating costs are comprised of variable commissions and advertising expenses and therefore provide the Issuer financial flexibility and downside protection.
|
|
·
|
Multi-level marketing model does not present material risk. Unlike other direct sales models, the Issuer’s health coaches do not hold or distribute inventory. Product is shipped directly from the Issuer to the end customer and health coaches do not receive a commission on products they purchase for personal consumption. Further, sales to coaches for personal consumption comprise only approximately 6% of the Issuer’s total revenues.
|
|
·
|
New management team continues to make positive changes. The Issuer’s relatively new management team has, to date, made numerous positive changes to “professionalize” the business, including the recruitment of new management talent and a renewed focus on profitable growth and return on invested capital. The Reporting Persons believe this process is still in early stages and if it continues within both the management ranks and the Board, it has the potential to drive significant shareholder value as the business continues to grow and mature.
|
|
·
|
The Reporting Persons believe that if the public markets fail to recognize the intrinsic value of the Company, the above attributes make the Issuer an attractive acquisition target for a strategic or financial acquirer.
|
|
Item 5.
|
Interest in Securities of the Issuer.
|
|
|
(e)
|
Not applicable.
|
|
Item 6.
|
Contracts, Arrangements, Understandings or Relationships With Respect to Securities of the Issuer.
|
|
Item 7.
|
Material to be Filed as Exhibits.
|
|
|
99.1
|
Joint Filing Agreement by and among Engaged Capital Master Feeder I, LP, Engaged Capital Master Feeder II, LP, Engaged Capital I, LP, Engaged Capital I Offshore, Ltd., Engaged Capital II, LP, Engaged Capital, LLC, Engaged Capital Holdings, LLC and Glenn W. Welling, dated May 14, 2014.
|
|
Engaged Capital Master Feeder I, LP
|
|||
|
By:
|
Engaged Capital, LLC
General Partner
|
||
|
By:
|
/s/ Glenn W. Welling | ||
|
Name:
|
Glenn W. Welling
|
||
|
Title:
|
Managing Member and Chief Investment Officer
|
||
|
Engaged Capital Master Feeder II, LP
|
|||
|
By:
|
Engaged Capital, LLC
General Partner
|
||
|
By:
|
/s/ Glenn W. Welling | ||
|
Name:
|
Glenn W. Welling
|
||
|
Title:
|
Managing Member and Chief Investment Officer
|
||
|
Engaged Capital I, LP
|
|||
|
By:
|
Engaged Capital, LLC
General Partner
|
||
|
By:
|
/s/ Glenn W. Welling | ||
|
Name:
|
Glenn W. Welling
|
||
|
Title:
|
Managing Member and Chief Investment Officer
|
||
|
Engaged Capital I Offshore, Ltd.
|
|||
|
By:
|
/s/ Glenn W. Welling | ||
|
Name:
|
Glenn W. Welling
|
||
|
Title:
|
Director
|
||
|
Engaged Capital II, LP
|
|||
|
By:
|
Engaged Capital, LLC
General Partner
|
||
|
By:
|
/s/ Glenn W. Welling | ||
|
Name:
|
Glenn W. Welling
|
||
|
Title:
|
Managing Member and Chief Investment Officer
|
||
|
Engaged Capital, LLC
|
|||
|
By:
|
/s/ Glenn W. Welling | ||
|
Name:
|
Glenn W. Welling
|
||
|
Title:
|
Managing Member and Chief Investment Officer
|
||
|
Engaged Capital Holdings, LLC
|
|||
|
By:
|
/s/ Glenn W. Welling | ||
|
Name:
|
Glenn W. Welling
|
||
|
Title:
|
Sole Member
|
||
| /s/ Glenn W. Welling | |
|
Glenn W. Welling
|
|
Name and Position
|
Principal Occupation
|
Principal Business Address
|
Citizenship
|
|||
|
Glenn W. Welling
Director*
|
||||||
|
Mark John Cook
Director
|
Company Director
|
3rd Floor, Harbour Centre
George Town, Grand Cayman
Cayman Islands
|
Australia
|
|||
|
Mark Victor Murray
Director
|
Company Director
|
2F Landmark Square
64 Earth Close
Seven Mile Beach
Grand Cayman
Cayman Islands
|
United Kingdom & British Overseas Territory Citizen (Cayman Islands)
|
|
Nature of the Transaction
|
Securities
Purchased/(Sold)
|
Price Per
Share($)
|
Date of
Purchase / Sale
|
|
Purchase of Common Stock
|
3,700
|
30.4470
|
04/04/2014
|
|
|
Purchase of Common Stock
|
4,900
|
30.4887
|
04/07/2014
|
|
|
Purchase of Common Stock
|
2,744
|
30.9581
|
04/10/2014
|
|
|
Purchase of Common Stock
|
16,700
|
30.9285
|
04/11/2014
|
|
|
Purchase of Call Option
|
53,250 (1)
|
29.9709
|
05/13/2014
|
|
|
Sale of Put Option
|
(53,250) (2)
|
29.9709
|
05/13/2014
|
|
Purchase of Common Stock
|
3,200
|
30.4470
|
04/04/2014
|
|
|
Purchase of Common Stock
|
3,700
|
30.4887
|
04/07/2014
|
|
|
Purchase of Common Stock
|
2,156
|
30.9581
|
04/10/2014
|
|
|
Purchase of Common Stock
|
12,900
|
30.9285
|
04/11/2014
|
|
|
Purchase of Call Option
|
46,750 (1)
|
29.9709
|
05/13/2014
|
|
|
Sale of Put Option
|
(46,750) (2)
|
29.9709
|
05/13/2014
|