Former Senior Vice President-Financial Operations & Controller at NutriSystem, Inc.
A announced the appointment of R. So we found a way to use a combination of statistical modeling and regression models to score the file and identify pockets of customers we could go back to from several years ago. Nutrisystem has been helping millions of people in achieving their weight loss goals. American News Group Sponsored. Anything else we should be thinking of that kind of creates that dynamic in the fourth quarter? Gross margin for the quarter was It's been an area of growth for us.
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In conjunction with our current in-house attribution model, which already uses a variety of external inputs, these additional insights will ensure that we carefully broaden and optimize our media mix across online and off-line channels.
These new models will help us be even more precise with attribution as we further expand into areas where attribution can be difficult, such as programmatic display, social influencer campaigns and PR. We expect these models to be fully operational in the first quarter of To that end, based on some early results in the influencer space and the relative appeal at South Beach as seen across digital channels, we're in the process of developing a robust social influencer program for the South Beach Diet along with a micro-influencer program with user-generated content for both brands that will launch in early The success of these campaigns will be judged by our new attribution model overlays that we just discussed.
And finally, to support our growth initiatives, we'll also be creating an expanded library of media assets, designed purposefully for digital usage. We've added additional production days in Q3 and early Q4 to support new campaigns planned for the first quarter. In short, we believe we are well positioned across both brands as we march forward. Brand evolution, product innovation and profitable digital expansion are the keys to growth that will fuel We've made important strides in our overall business during the first 6 months of this year, having announced meaningful innovations in the area of personalized nutrition and have a clear plan with an emphasis on efficient digital media growth, supported by strong branding and creative, that will open up new audiences to us as we head into the new year.
I'll now turn the call over to Mike, who will walk you through our second quarter financial results and discuss our third quarter and updated full year guidance. After that, Keira will update you on our recent marketing initiatives and discuss our go-to-market strategies in more detail.
New customer revenue for Nutrisystem came in as anticipated, while reactivation revenue came in above projections, resulting in our revenue forecast beat. Gross margin for the quarter was We used targeted promotions to attract former customers to the Nutrisystem brand during the summer season, which performed stronger than expected and supported the reactivation revenue growth. Marketing as a percentage of revenue was in line with expectations at As a reminder, marketing expense is front-loaded and attached to a new customer's first order.
As a result, as we build up the South Beach Diet's customer base, which constitutes a higher percentage of our spend year-over-year, marketing will be a higher percentage of revenue. Over time, we expect South Beach reactivation revenues to grow and improve this percentage. For the full year of , we are maintaining our guidance ranges for revenue and adjusted EBITDA, which has us returning to growth in the second half of the year. This reflects the impacts of our second half marketing investments.
Some of these media test investments may not be as productive as our traditional marketing efforts, so we have factored this into our top line guidance. We view these near-term media investments along with our investments in attribution and branding this year as extremely valuable and strongly believe they will better position us for Our free cash flow continues to be strong, enabling us to continue to invest in our business to drive growth and return capital to shareholders.
Investment dollars are allocated to position us to expand our reach. These include investments behind our e-commerce platform, digital marketing efforts, product development and deployment of media towards driving growth and awareness behind our new South Beach Diet brand.
I'll now turn the call over to Keira. Keira Krausz, Nutrisystem, Inc. I'll start on Nutrisystem's progress and South Beach's continued growth in the second quarter, and then talk about the key areas of growth for In Q2, we advanced the Nutrisystem business.
We continue to develop creative to appeal to new customer groups. Our targeted creative for Nutrisystem for Men and Nutrisystem D are performing. In June, we entered these TV ads that are significantly different in look and feel.
Early results have shown these ads efficiently drive online searches for the Nutrisystem brand, and overall, are about equal to existing creative for other metrics. This new campaign showed we can diversify our creative approaches and can contemporize the brand. We increased the percentage of customers who return to us, driven by 2 actions. First, we came into the quarter with a diversified set of product offering that meet a variety of customer needs, and this has should allowed us to increase yield.
Second, via statistical modeling and enhanced segmentation, we reached customers who have not purchased in several years.
We reintroduced former customers to our most customizable program, Uniquely Yours, by showcasing the changes to our food portfolio and offering it as special welcome back price. Our ability to segment and go deeper into our database is a meaningful development. We aim to increase average selling price for reactivations, a area in which we have had past success.
And to that end, we are constantly testing offers and creative. We completed a number of digital expansion initiatives. We tested programmatic display and will expand in the back half of this year in a way that allows us to confirm profitability and prepare for ramp up in We employed a highly segmented approach on Facebook, using 18 custom audiences. We also conducted tests with several third-party partners to reach new audiences and generate leads at acceptable costs.
Based on learnings from these initiatives, we expect to profitably expand our digital reach even further in We soft launched this complement to Nutrisystem's day program's midyear for 2 reasons. First, we believe that DNA Body Blueprint will help us expand reach but know it'll little take iterations to refine the creative and messaging for digital and TV.
Second, there are a number of metrics we need to watch and control with this product, response, conversion, the up-sell rate, the impact on our highly successful shakeup sells, how many and how quickly customers return the kit for processing, how the kit processing affects length of stay, just to name a few.
While the DNA Body Blueprint had very high consumer appeal and research, a product so innovative will benefit from input from actual customers, and we expect to modify and evolve the product as progresses. Overall, we saw improvement between Q1 and Q2 in attracting customers to the Nutrisystem brand, and while we have not yet returned to the rate of customer growth we experienced in , we are on the path to improve creative and digital expansion as we prepare for As for South Beach, we saw continued strong growth in the second quarter and remain very excited about this brand.
South Beach is targeted to a different demographic than Nutrisystem, and we have seen that the digital channels are helping us reach the customer target. Consequently, we are aggressively pursuing additional digital opportunities. Plans to increase our [PC] are on track. Having introduced good, better, best plan options, we've continued to move customers to the premium option.
We're increasing a la carte sales and just introduced the South Beach by the Pack. Finally, former South Beach customers are rejoining more than planned. As we employ tactics to improve , we are simultaneously laying the groundwork for Everything we are doing is about expanding reach to introduce ourselves to new people and motivate them to choose us while ensuring strong returns on our marketing spend.
We are focused on 4 key marketing initiatives to drive profitable growth: Nutrisystem is one of the strongest brands in weight-management and wellness.
We've partnered with an external agency that has a long and successful history of working with top CPG brands to develop compelling brand stories, communicated via visual cues and simple messages to substantially grow customers, revenues and profits. Two, continue to develop integrated, multichannel creative campaigns that present a consistent brand story for Nutrisystem South Beach, yet are modified to appeal to discrete customer groups in different media formats, both digital and TV.
We've proven via Nutrisystem for Men and its creative that this can help us extend reach. We intend to develop creative for women and men, young parents and empty nesters and core prospects and new targets. Three, enhance our attribution techniques. We have a good track record of identifying how our target customers consume content and then profitably spending to introduce ourselves.
We intend to continue to move into new sources, digital and off-line, to introduce our brands to completely new people. As we move forward, it's likely that these new sources will be at the very top of the sales funnel, and we've long recognized that each person's journey between introduction and purchase is unique with multiple touch points along the way.
Today, we use a variety of data inputs, media agency attribution models and Google to formulate attribution assumptions to drive spend decisions. As we expand further into new channels, in order to ensure that we are investing appropriately to yield new customers at an acceptable cost, we are onboarding an external commercial effectiveness firm to enhance our analysis.
We are particularly interested in the ability to link off-line and online behaviors and to ascribe value to social influencers and earned media activities. We're also one of the beta testers for enhanced Google , which aims to address the challenge to attribution posed by multi-device usage. The new model should be implemented during the back half of , and we expect to be tweaking media mix during this period as we adjust and confirm the models to drive media decisions.
Four, expand digital aggressively while preserving our discipline around expected returns on our marketing spend. We have multiple efforts underway to achieve this goal. A, based on success in Q2 discussed earlier, we'll expand Facebook, programmatic, pre-roll video and third-party lead generation for both Nutrisystem and South Beach.
B, our optimization team is constantly focused on improving conversion, with the focus on the mobile experience. Because of their consistent wins in the past, conversion rates on mobile have risen over time. So if -- even as mobile traffic has increased, our conversion rates overall are stable. We'll expect the wins to continue. C, we will continue to enhance our apps. As a reminder, NuMi and the South Beach app exist to support customers on program, downloads, uses, sessions and revenue are all up in , and key engagement stats exceed app averages.
As we prepare for , we are building in-app e-commerce functionality, integrating the apps more seamlessly and adding features that enable communal content and additional sharing.
D, because South Beach is as much lifestyle as weight-loss program and because it appeals to a demographic that is receptive to social influencers, we believe it is particularly appropriate for a broader, bigger social influencer initiative.
Our relationship with Jessie James Decker and our other work with social influencers have demonstrated the promise. So look for us to have a substantial push in this channel with South Beach in We'll also continue to work with our own customers, those who are living the Nutrisystem or South Beach healthy lifestyle and have lost weight as they share their stories and advocate for our brands on social. And we'll be evolving to introduce a new micro influencer program for each brand on Instagram.
This year is one of tremendous innovation on the product, brand, creative and digital fronts. We believe the Nutrisystem and South Beach programs are uniquely effective at helping people learn to live healthy and lose weight. And we aim to profitability introduce ourselves to as many people as possible, through as many ways as we can, and we look forward to Now I'll turn the call back to Dawn.
I'm pleased with the progress we have made since February on Nutrisystem and the growth on South Beach. Looking to the remainder of , we expect modest growth throughout the third and fourth quarters and believe our efforts to date, coupled with second half investments in our innovation pipeline, brand and digital media expansion, will pave the way for meaningful growth in and beyond.
Our recent announcements around the DNA Body Blueprint and our branded vitamin pack lines demonstrate our focus on science-backed nutrition, to drive not only weight loss but overall health and wellness. In June, we were honored to be announced as the Greater Philadelphia EY Entrepreneur of the Year winner in consumer and retail products and are looking forward to attending the National Finals in November.
We believe our future is bright. We'll continue to leverage our expertise in analytics and measurement to guide our decision-making around media investments and product innovation. We have 2 powerhouse names with brand permission to do more at various touch points of the consumers' journey to optimal health. We believe our brand and product work, in concert with efficiently expanding on the digital front, will allow us to reach customers that have not historically had us in their consideration set.
And we also believe that we will continue to grow lifetime value as we extend our relationships with existing customers. Our mission is to help people achieve their optimal weight and advance on their journey to optimal health. It is the heart of what we do, and it is the sense of pride across our entire organization. We've helped millions on this quest and look forward to helping millions more.
Now we'll open up the lines for questions. Congratulations on a nice recovery here and on the positive revenue guidance for the third quarter. Certainly, it seems like you guys have turned the corner. Wanted to ask about -- as we think about the guidance for Q3 and the rest of the year, certainly seems like the revenue guidance here was better than expected, getting back to positive growth.
And then you alluded to -- on the -- in the prepared remarks, a whole bunch of different sort of growth initiatives that you have for the back half of this year that don't sound like they're really going to drive any sort of revenue or profits in a big way until next year and beyond.
But it sounds like there's a couple of things between marketing for the DNA Body Blueprint, I don't know if there's going to be any marketing for supplements that your testing as well and just thinking about things like the development of a platform for user-generated content and some of the extra production days that you're going to be doing in Q3 and Q4?
Can you kind of give us a sense of each of those buckets? Kind of how that will impact -- presumably negatively, how that will impact the results of this year? And what the opportunity could be for those things in and beyond? I'll start off, and then Mike can jump in. We're pleased that Q2 came in slightly better than we anticipated. And remember, our prior guidance, we'd already built-in return to growth in the back half of the year.
So as you've heard, we've been doing a ton of work around product innovation, brand messaging, digital expansion, attribution, and we're excited about where we're heading.
And we're maintaining our guidance to allow for some level of variations as a result of the investment spend.
So if you think about it, some of these things as we redeploy media, as we test different areas of media, as we test different creatives, we need to see. Some things will work, something would -- may not.
So as we think about building an app, as we get ready for , we've decided to keep the guidance flat, which made sense to us. The only thing I would add is, when you look at the expense, we factored in a larger portion of the expense in Q3. So as you look at the EPS cadence in the third and fourth quarters, that's why you'll see the third be a little bit lower than what's implied in Q4.
And then I was going to ask about the fourth quarter because it does look like -- just subtracting out the third quarter out of the full year guidance, it does look like you're looking for some type of margin inflection in the fourth quarter. I was wondering -- I mean, that certainly makes sense if you're weighting most of these new marketing initiatives into the third quarter.
Anything else we should be thinking of that kind of creates that dynamic in the fourth quarter? The primary driver is -- are the investments that we just talked about. However, in the fourth quarter, it's also benefiting from some reactivation revenues that we expect, albeit small, to come through the South Beach Diet.
And you get -- in the fourth quarter, you get a slightly higher percentage of reactivation revenues on less media spend because it's a lower seasonal spend for us in the fourth quarter. So you're getting that dynamic as well. Our next question comes from the line of Linda Bolton-Weiser from D. Linda Ann Bolton-Weiser, D. So I'm just trying to dissect kind of the comments that you made about your new creative or your tweaked creative that started airing, I guess, in June.
You said that you found that the new creative drove online searches but, otherwise, was equal to previous advertising on other metrics. So can you explain that a little bit more? So what are the other metrics that you might have hoped to see improving but you didn't?
And so I guess net-net, are we to come away thinking that the tweaked advertising is a little bit better but not a ton better? Can you just give a little more color on that, please? Sure, Linda, this is Keira. Yes, so they -- those ads were better driving online interests and a little less or about the same as driving phone calls.
Obviously, the trend in the world is towards online rather than phone calls. And we think that we have ways of increasing the other metrics, like phone calls, over time. And a lot of the work that we're doing now with the brand and the creative gives us pretty good belief that a new look and feel to Nutrisystem can perform better than the creative that we had last diet season.
This is a specially designed plan for vegetarians. All the meals and snacks of this plan include good carbohydrates and protein. The NutriSystem diet program is low in carbohydrates and rich in protein. Food at NutriSystem tastes good. In addition, to make it even tastier, you can add your choice of cereals and muffins, as well as oatmeal to the meals. When you are dieting with NutriSystem, it will never make you feel that you are under weight-loss diet program.
Other than breakfast, lunch and dinner, the company is offering desserts, snacks and shakes as well. All in all, almost all the food items offered in the diet program are tasty and the existing customers of the program are very happy with the taste.
Cost of the diet program depends on the chosen menu and diet plan. Initially, you may find it high. However, when you cross-check it by calculating your overall expenditure on your grocery items, time saved in shopping, preparation and other things, the cost is pretty reasonable.
Existing customers of the program are very happy with the diet program cost, and most of them say that the convenience, taste and results associated with the program are worth the price paid. It is very effective and you will start seeing the results in the first week itself. The diet program has assisted millions of individuals in losing and controlling their weight; in addition, it has even improved their health and fitness too.
The portion controlled meals are convenient to consume, and you can get over the burden of grocery shopping and food preparation. You can reheat the food just before consuming — that is all, you do not have to do anything else.
Start taking action and lose weight. Home Subscribe Fitness Grail. Diet Plans Nutrisystem program has several plans as listed below.