Nutrisystem's (NTRI) CEO Dawn Zier on Q2 2016 Results - Earnings Call Transcript

| About: Nutrisystem Inc (NTRI)

Nutrisystem, Inc. (NASDAQ:NTRI)

Q2 2016 Earnings Conference Call

July 27, 2016 5:00 p.m. ET

Executives

John Mills - ICR

Dawn Zier - President and CEO

Mike Monahan - CFO

Keira Krausz - Chief Marketing Officer

Analysts

Alex Fuhrman - Craig-Hallum

Linda Bolton Weiser - B. Riley

Mitch Pinheiro - Wunderlich

Chris Krueger - Lake Street Capital Market

Frank Camma - Sidoti

Matthew Gall - Barrington Research

Operator

Greetings, and welcome to the Nutrisystem Second Quarter 2016 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]

I would now like to turn the conference over to your host John Mills, ICR, Investor Relations. Please go ahead.

John Mills

Great, thank you. Good afternoon everyone, and thank you for joining us to discuss Nutrisystem's second quarter 2016 financial results. Today Dawn Zier, President and Chief Executive Officer, will provide an overview of our quarterly achievements and an update on the business. Mike Monahan, Chief Financial Officer, will review the second quarter results and provide third quarter and updated full year 2016 financial guidance. And Keira Krausz, Chief Marketing Officer, will review and provide insight into the company's marketing initiatives.

Before we begin, I would like to remind everyone that during this conference call, Nutrisystem management will make certain forward-looking statements about its outlook for 2016 and beyond that involve risk and uncertainties. Forward-looking statements are generally preceded by words such as believe, plan, intend, expect, anticipate, or similar expressions. Forward-looking statements are protected by the Safe Harbor contained in the Private Securities Litigation Reform Act of 1995. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risk, and changes in circumstance that are difficult to predict, and many of which are outside of the Company's control.

Factors that could cause actual results to differ from expectations include, but are not limited to, those factors set forth in Nutrisystem's filings with the SEC. Nutrisystem is making these statements as of July 27, 2016, and assumes no obligation to publicly update or revise any of the forward-looking statements made during this call.

In addition to the GAAP results, Nutrisystem will provide certain non-GAAP financial measures on this conference call. Nutrisystem's earnings press release for the second quarter 2016 can be found under the News Release link on the Investor Relations Page of the Company's Web site at www.nutrisystem.com. The tables attached to that earnings press release include reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

And with that, I will now turn the call over to Dawn Zier.

Dawn Zier

Thanks, John. Good afternoon, and thanks for joining today's call. We're pleased to report another quarter of strong results driven by solid momentum across our direct-to-consumer and retail channels. Second quarter revenues were up 15%, and marked our twelfth consecutive quarter of year-over-year revenue growth.

In addition to strong top line results, we exceeded our previously provided guidance for second quarter EPS and adjusted EBITDA, with each growing north of 30%. Our top and bottom line growth were fueled by a number of factors, including our success to date in attracting new customers to the brand, reactivating former ones, expanding gross margins, and increasing revenue per customer.

Product innovation continues to be front and center, and there is heightened demand for our products, particularly Turbo10, Uniquely Yours, and our product to upsell. Also notable are our newly unveiled transition and maintenance program Success and our growing shakes business. As stated on our last call, our strategic vision centers on building a multi-brand and multi-channel approach to capture an even more significant share of the weight loss market, and to expand into the broader health and wellness space where it makes sense and plays to our strength.

Our continued focus and execution around our strategic initiatives will be a catalyst for growth as we head into 2017. As a quick reminder, our priorities are: One, delivering sustainable growth to the Nutrisystem brand by focusing on innovation, marketing, customer care, and supply chain logistics; two, launching the South Beach Diet in January of 2017, and capitalizing on its strong brand equity to attract new customers to our portfolio; and three, expanding our offerings to younger health-conscious consumers who are looking to lose or maintain their weight through optimal nutrition.

Our commitment to these initiatives combined with our ability to innovate and provide superior customer experience positions us well. We will leverage our product development, marketing, ecommerce, supply chain and distribution know-how to continue to drive growth within the Nutrisystem brand and successfully commercialize new brands. Before I provide a look towards 2017 and the reasons behind our confidence in driving continued long-term sustainable growth, I thought it would be helpful to review a few recent highlights.

In the second quarter, the momentum from a strong and successful 2015 diet season propelled continued growth, reflecting a heightened awareness and demand for our products. New product innovations such as Turbo10 and TurboShakes were clear winners, and customers continue to gravitate towards our premium offering, Uniquely Yours. We expect growth to continue through the duration of the year. We successfully brought in new customers, won back former customers, and increased revenue per customer through a combination of pricing, program upgrades, and product add-ons.

Customer service and improvements to the overall customer experience are important priorities for us, and improvements in these areas, coupled with more flexible options will help keep customers using our products longer. By offering a wide variety of options at different price points, we better meet consumer needs and are able to attract a broader group of customers.

Retail performed in line with our expectation. We continue to work with Wal-Mart to make a more diverse range of products available to their customers which are [ph] promotional placement, and grow on Walmart.com. In May, we introduced several products in the frozen aisle in over 400 Wal-Mart locations, and this limited time test will run through Q1 of 2017. We're still evaluating new opportunities for expanded distribution with grocers, and remain confident several new retailers will be introduced to the mix with products targeted towards their audiences.

We take pride in the tremendous progress we have made in revitalizing Nutrisystem and in leveraging our strong brand awareness over the last several years. We're moving full steam ahead with our plan for diet season 2017, and believe the enhancements we are making will resonate with those new and former customers. We will continue to upsell shakes along with other products to drive upfront revenue. In addition, the introduction of our new maintenance program, Success, will help extend our relationship with customers beyond their initial diet cycle.

We're also excited to be launching our new brand the South Beach Diet in January. We have the marketing expertise and strong infrastructure to build, grow, [indiscernible] South Beach. We believe having two strong and differentiated brands Nutrisystem and the South Beach Diet will allow us to reach broader segments within the weight loss base. Keira will provide a more detailed update shortly.

Now let's talk a bit about shakes. Shakes continue to be popular and profitable across all our lines of business and it's a trend that we expect to stay. Younger health-conscious customers are responding positively to our new Shake360 line. Overall, shakes as a category we'll remain invested in for the long-term. By integrating shakes into our core program, selling them a la carte, and also having a dedicated brand, we have the flexibility to make sure we're capitalizing on the demand within this category in a meaningful way.

Before I turn the call over the Mike, I want to reiterate how pleased we are with what we have been able to accomplish to-date in 2016. We're well on our way to our third year of double-digit revenue growth. Looking ahead to 2017, we're excited about the growth prospects for both Nutrisystem and our second significant brand, the South Beach Diet. A track record of delivering 12 consecutive quarters of year-over-year revenue growth is quite remarkable. I am thankful for the collective effort, outstanding performance, dedication and focus of the talented team here at Nutrisystem that is making it all possible, and driving meaningful shareholder value.

Mike will now walk through our financial results and discuss our guidance. Mike?

Mike Monahan

Thanks, Dawn. Good afternoon everyone. In the second quarter, we continued to deliver growth on both the top and bottom line. Consolidated revenue increased 15% year-over-year, to $149.8 million. The net effect of improvements we've made in the business, both in 2016 and historically, are driving consistent growth. Specifically, new customer revenue growth improved reactivation revenue, and higher revenue per customer in the direct channel. Revenue per customer continued to grow largely from increased sales of our premium program, pricing, flexible add-ons, and increases in shake sales. Reactivation revenue also contributed to our growth as we've had increasing success from former customers back to our brand.

Q2 2016 gross margin was 53.9% on a consolidated basis versus 52% in the second quarter of 2015. Year-over-year, our direct-to-consumer margins grew as a result of historical price increases, less promotion, and management of our cost of goods. Continued improvements in our value proposition and revenue-per-customer have enabled us to expand into new marketing channels profitably. Marketing spend was $35.6 million or 23.8% of revenue inclusive of media testing for Shake360. General and administrative expense was $17.5 million or 11.7% of revenue, versus 12.6% in the second quarter of 2015. As in the first quarter, we continue to realize scale on our G&A line as we grow.

Adjusted EBITDA was $29.9 million; inclusive of $1.3 million of South Beach and Shake360 initiative spend. Earnings per share came in at $0.54 on a GAAP basis, inclusive of $0.03 of investment expense related to the South Beach Diet and Shake360 initiative.

Throughout the first half of this year, we have delivered strong financial results. We are well-positioned to carry this momentum through the second half of 2016. As a result, we are raising the bottom end of our guidance and projecting revenue to be in the range of $520 million to $532 million, adjusted EBITDA of $66.8 million to $70.5 million, and consolidated earnings per share of $1.05 to $1.13 or $1.19 to $1.27, excluding investment expense related to South Beach Diet and Shake360 initiative. As a reminder, for the full year these two initiatives represent $0.14 of total earnings per share, which equate to a total of $5.5 million of cash operating expense and $1 million of amortization expense.

Capital expenditures are expected to be $13 to $14 million for the full year. For the third quarter, we are projecting revenue to be in the range of $113 million to $118 million, adjusted EBITDA in the range of $15.6 million to $17.6 million, and earnings per share of $0.23 to $0.28. Included in our first quarter earnings per share guidance it's $0.05 of investment for the South Beach Diet and Shake360 initiative.

We continue to focus on four key areas that have successfully driven our top line revenue growth along with improvement in profit, specifically one, we continue to attract more customers to our brand with the direct to consumer channel. Revenues from new customers in their initial diet cycle were up 15% in the second quarter, primarily driven by increased customer starts, improved pricing, improved shake purchases and increased sales of more flexible options that we are marketing. For the full year 2016, we have projected continued growth due to increased product demand and our ability to profitably deploy marketing dollars to extend the customer reach. Reactivation revenue grew 17% year-over-year, and it's an area of consistent improvement. In the second quarter, reactivation revenue was $36 million as former customers are seeing value in our new product offerings, and we continue to improve customer engagement efforts. We expect double-digit growth year-over-year in this revenue stream for the full year.

Two, we continue to improve the economics of each customer. Revenue per customer increased year-over-year in the second quarter. The combination of increased upsells, pricing, sales of our premium and flexible offerings are resonating with customers and have enabled us to drive improved consumer economics. Gross margins are improving due to increases in average selling price, effective management of food cost, and benefits of warehouse investments we've recently made. In the first half of 2016, we opened our third frozen warehouse enabling us to meet out increased demand and improving our delivery efficiency.

Three, we continue to extend our customer reach through new media channels and products. Total marketing expense was $35.6 million in the second quarter, increasing 16% from the second quarter of 2015. Our focus in 2016 has been to continue to deploy marketing dollars through the channels that have traditionally worked for us, and reach new customers through media and channel expansion. In 2016, we've had success billing our digital acquisition channel, but also reaching new television audiences.

Four, we continue to partner with retailers to extend our brand. For 2016, retail is delivering as planned. The second quarter growth was driven by the successful execution of the rollback promotion and timing of shipment. As mentioned on our last call, we anticipate retail revenue to be $36 million for the full year 2016. We continue to have positive reception from grocery retailers, and look to build these relationships over the long-term to provide new growth opportunities.

As of June 30, 2016, we had cash in short-term investment of $38 million. For Q2 2016, the Board of Directors have declared a dividend of $17.5 per share payable August 18, 2016, to stockholders of record as of August 8, 2016.

I will now turn the call over to Keira.

Keira Krausz

Thanks, Mike. Nutrisystem is having a great 2016. We are building out for growth in 2017. Our new initiatives are on track, and we are on schedule and excited about the January launch of the South Beach Diet.

We have three brand promises that govern everything we do. One, we improve your health by helping you lose weight and maintain your ideal weight. Two, we deliver state scientifically-proven effective weight loss. When we say, "No fat, no gimmicks," we mean that we are not interested in quick fixes that take fast. Three, we want all of our programs be easy to follow. Whether you are on the fully structured program or one that offers you more flexibility, we make success possible by removing the complexity.

In the second quarter, these brand promises as reflected by Turbo10, Uniquely Yours, and our TurboShakes attracted new customers in Nutrisystem. We are able to increase TV spend and possibly bring in more customers from television, because our goal is to reach potential customers wherever they are as they spend time online, keep in touch on Facebook, watch YouTube or check Instagram, we are continuing to expand spend into digital. These expansion efforts increase the generation significantly.

We are bringing in new customers and those customers are buying more from us. As we have demonstrated consistently improving our programs and increasing values so that we can ship product mix and commence higher prices by respective ways to drive revenue per customer. In addition, this year we have expanded the ways we interact with our customers, so that we have data-driven, deeper understanding of their journey and their needs, and we are using the information we gather to introduce more solution-oriented products, segment the customer base more effectively and better target our marketing.

The foundation of our data base performance-driven marketing is information. To motivate people to engage with us, we've provided high quality content app rules that help them to be more successful on their journey to healthier life. In the second half of 2015, we launched The Leaf, where we start up the early content that helps anyone looking to lose weight, get healthier and get fit, and we revamped our free digital app NuMi to make it fully complementary to all the Nutrisystem's loss program. Usage for both The Leaf and NuMi is way up, and the second quarter of this year engagement more than doubled. So we had over 720,000 sessions and newly had over 3 million sessions.

As we understood more about what people want and need to achieve their goals, we've been able to better serve them in three broadways. First, where often people who are on program ready to go in frozen a la carte food items that augment their 28 day program. Second, we're selling shakes. Not only are this year's TurboShakes fully complementary to our weight loss program, but also because they are pack of protein and high-quality carbohydrate, they provide benefit to those in maintenance mode as well. And third, we are offering more transition programs that better meet customers' needs. We ask customers who are ready to move from a fully structured 28-day program what they would want. And based on this customer feedback, our nutrition has created success as super program that takes the same proven nutritional principle to Nutrisystem and makes them very simple to put them into practice. This program builds on Nutrisystem's lessons on portion size and optimal nutrition mix, and since its launch in May, response to success has been strong.

Combining our product innovation talent of our data base marketing skills to some more solution to current customer is a powerful way to deepen and lengthen the relationship people have with us and should help us increase customer life science value.

Reactivation revenue has been on the upfront for some time driven by the fact that as we grow new customers, they have a larger pool of recent customers we can reach out too. In addition, in 2016, the percentage of former customers returning to us is growing. The word is out that our program like Turbo10 and Uniquely Yours are better than ever, and we become more adapt and sophisticated about targeting products, offers and messages to past customers.

For the Nutrisystem system business, we have one put in the presence and one put in the future. We are growing in 2016, and we are laying the groundwork for more growth entire season 2017. We are preparing to profitably expand media spend via television, digital and social media to meet consumers wherever they are.

Because consumers continue to use their mobile devices for everything, we are improving our mobile and app experiences. For example, this fall we are releasing a new version of our ecommerce site that response to each users' device, which should allow us to continue to improve mobile conversion. And as innovation is essential to our business, we are excited about 2017 products. Our product development team's work will keep our messages often to new, fresh, and compelling. And we look forward to sharing more when we get to 2017.

In addition to growing the Nutrisystem business, we are expanding to other segments and customers for Shake360 and South Beach Diet. As Dawn mentioned, shakes are popular, popular category across all of our lines of business. Nutrisystem customers order shakes with weight loss programs and continue with the shakes to help and maintain their weight loss.

To attract younger customers to our customer base, we also have Shake360, a version of our shakes that include plant proteins and derived vitamins and minerals from vegetables and fruits. The segment of consumers who equate healthy eating with weight management is growing, and Shake360 is aimed at this segment. As we move into Q3 we have started spending more on media, and because we are going for a younger customer a greater percentage of our marketing spend is naturally on digital and social media marketing.

The South Beach Diet, the larger of our two new brands is progressing nicely, and we are on our way to a full marketing launch in January. Our food development team has worked with chefs and nutritionists to finalize the food. And I can report that food is flavorful and delicious. We have also finished the packaging design. On July 1, we gained control of the URL and immediately a temporary content site. Eventually this content will morph into our South Beach Diet content site parallel to the Nutrisystem's The Leaf. And Southbeachdiet.com will become a full ecommerce site. The purpose of the current site is to mean our SEO ranking and to collect leads, and that's going well.

Sometime in September we'll be starting to test an ecommerce site and doing some small marketing tests. The purpose of this fall activity is to give us more information to guide our January plan, as we do not leave major campaigns to chance. Our creative team just came back South Beach where we filmed our first commercial. In Q4, we'll be finalizing the January television campaign, creating the digital and social media assets, and releasing a new app that supports the South Beach Diet. We will launch a multi-channel marketing campaign in January. As we work on the South Beach Diet, we're enthusiastic about our ability to have two strong and differentiated brands in the weight loss base, Nutrisystem and South Beach. The South Beach vibe, its flavors, its sounds, and visuals will allow us to define the brand in a way that will attract a new set of customers. We look forward to meeting them and helping them reach their dreams.

Now, I will turn the call back over to Dawn to add some closing remarks.

Dawn Zier

Thanks, Keira, and to everyone on the call today for taking the time to follow our company and for your interest in Nutrisystem. The Nutrisystem business is growing on all fronts. We're profitably expanding our reach, deepening and lengthening our relationship with customers, and winning back more former customers. We are a sophisticated digital and data-driven company that leverages product development, marketing, customer care, and supply chain logistics to drive sustainable growth. We are pleased with our success so far this year, and believe we are well on our way to delivering a third year of double-digit growth.

Looking ahead to 2017, we are very excited to begin to bring to life our strategic vision of building a multi-brand and multi-channel approach to capture an even more significant share of the weight loss market through the continued strength and growth of the Nutrisystem brand and the launch of the South Beach Diet. As always, I'd like to thank our shareholders for their ongoing support and confidence.

And I'd now like to open the phones up for questions.

Question-and-Answer Session

Operator

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Alex Fuhrman from Craig-Hallum Capital Group.

Alex Fuhrman

Great, thanks for taking my question, and congratulations on another great quarter. I'd love to ask a little bit more about the timing of the South Beach Diet launch, and specifically, some of the tests you're going to do in September on the marketing and the ecommerce font. I mean is this effectively just kind of a soft launch to see what happens without putting any substantial marketing dollars behind it, or is this only going to be available in certain geographies or something like that?

And then, just thinking kind of as you go throughout 2017 and plan for that, is it your hope or intention to have the South Beach Diet line front and center with some of your retail partners? If I remember correctly, I want to say -- I think QVC used to carry the South Beach Diet Cookbook once upon a time, have they been receptive to doing something with the South Beach Diet under your control as well?

Keira Krausz

This is Keira. I'll answer the September test question and then I'll let Dawn talk about retail plans and beyond. So the September is really what I would call a test. Its primary purpose really is, you know, we like to test things before we launch into them so that we can get a sense of response, and if we're on the right track so we can still have time to adjust before the most critical time of the year for a diet, which is January. So, really I would qualify it as a test rather than a soft launch, but you need a Web site even to test, so we will be launching the Web site in support for that test. And Dawn, you want to say a few words about…

Dawn Zier

Sure. And Alex, we've talked in the past that for South Beach we are focusing on the direct-to-consumer launch first, and that we plan to have retail be a follower of that. So right now I wouldn't plan anything for 2017 for retail of South Beach. More likely early 2018, possibly tail end of 2017, but it's not our priority right now.

Alex Fuhrman

Okay, that's very helpful. Thanks. And then a related question, I mean, just thinking about the new shakes you've been rolling out with the Shake360 as well as some of the shakes that you've perhaps had for a little longer, is that having an impact on just some of your more basic customer metrics in terms of lifetime value of a customer? Is that changing the length of stay at all, customers who either opt into the shakes or receive the free shakes?

And then if I could just -- a real quick follow-up on the South Beach Diet. It doesn't sound like that's going to obviously add a tremendous amount of revenue or anything like that into the fourth quarter, but is there any South Beach Diet impact factored into your guidance for the full year?

Mike Monahan

This is Mike. I'll take the last part of the question, and then I can send it back to Dawn. On the revenue piece of it, we have about $1.5 million for the year for both initiatives, Shake360 and South Beach. So it's a small amount of revenue that's factored into our forecast. And that's for the full year. In the back-half of the year it's less than $1 million.

Dawn Zier

As far as the shakes go, as Keira said, they are popular and profitable across all our lines of business, and what we are finding is that people are taking shakes upfront with the initial order because it complements our program very nicely, and that when some people decide to move off the program in terms of the full-structured food program, some of them are definitely staying with the shakes. But again, we are excited about the entire shake business because we integrate them with our core program, we are selling them a la carte, and then of course having a separate dedicated brand is great. So we expect to continue to do well with shakes and see growth in that category.

Mike Monahan

Great, that's helpful. Thank you very much.

Operator

Thank you. Our next question comes from Linda Bolton Weiser from B. Riley.

Linda Bolton Weiser

Hi, congratulations on a strong quarter.

Dawn Zier

Thanks, Linda.

Linda Bolton Weiser

So I just wanted to ask about the guidance. I mean, you actually beat the consensus EPS by $0.5, and you even beat the high end of your own guidance range by a little bit. And yet the midpoint of the EPS guidance only went up by a penny for the year. So is that -- and I find in my model you guided very close to what I had and what the consensus had for the third quarter? So I guess if I have to lower something or whatever I guess it would be the fourth quarter. So are you just being conservative or is there something that you're seeing on the spending front or something, or the marketing, or something that is making you not raise the guidance by a little bit more?

Mike Monahan

So, overall, we beat the top end of our range by a penny. And part of that was due to -- we have some favorability in gross margin, and we also had some timing on the retail side of the business where we shipped a little bit more in Q2 than was originally in our plan. And that'll come out of the back-half of the year. So overall, we felt very comfortable with entering into the second half of the year where it's traditionally seasonally slower part of our business to maintain the guidance range that we had.

Linda Bolton Weiser

Okay. And then can I ask about gross margin because that was pretty impressive. It was up a lot [ph] year-over-year and it kind of exceeded expectations, at least for three [ph], because I thought the shifting to the Uniquely Yours is actually a little bit of a dampener on gross margin. So, is there something else going on that's really driving that? And can you remind us like the shakes, is that accretive to gross margin as a mix factor?

Mike Monahan

Yes, you're correct. So Uniquely Yours does have a slightly lower gross margin percentage, but it does have a longer length of stay and we get more gross margin dollars. On the percentage, what that's being more than offset with, we're doing less promotion, we're managing our cost of goods, we're realizing some value on the cost of goods line, and supply chain is doing a great job, and we also opened up a new warehouse in the middle of the country mid-Q1. And basically, what that did was it got us closer to our consumers, so we're realizing some savings on the shipping side.

Linda Bolton Weiser

Okay, great. So that sounds pretty sustainable then in terms of modest gross margin increase I guess going forward. And I guess that was your guidance for the year, for the gross margin to be up?

Mike Monahan

Correct. So what you'll see in Q3, because we have seasonally slightly lower volume than in Q2, I would expect the gross margin to be slightly lower than it was in the second quarter just due to the scale of our overhead cost. And in the fourth quarter it tends to be a little bit lower because of the mix of retail. And in the direct-to-consumer it's a bigger quarter for our retail business than it tends to be in the lower quarter for the direct-to-consumer revenue. But on a year-over-year basis I would expect both quarters to be up over 2015.

Linda Bolton Weiser

Great, that's very helpful. And then can you just give us a dollar figure of QVC, and retail, and direct sales in the quarter?

Mike Monahan

Sure. The second quarter for QVC was slightly under $4 million. And then the direct business was a little over $136 million, and retail did a little under $9.6 million, as a breakdown. And as a reminder, I think we talked about this on the prior call, the cadence of the QVC revenues is different year-over-year just due to the timing of the show. So we would expect revenue for the full-year, we expect QVC to be relatively flat. But we had more revenue in the first quarter of this year, and we'll have the little bit less in the back-half of the year on a year-over-year basis.

Linda Bolton Weiser

Okay, thank you. And then on the media costs, I know you commented on that in the first quarter in terms of presidential primaries. And when we add the Olympics into the mix here coming in the back-half, I mean, have you sort of put that into your plan, and pretty much your plan is on track, and nothing surprising on the media cost front?

Mike Monahan

Yes, I would expect -- I'll let Keira, if she has something to add, but just to take the first part, I would expect marketing as a percentage of revenue to be up quarter-over-quarter for two reasons. One, we have our initiative spend for South Beach and Shake360 on the marketing line. As Keira mentioned, she'll be doing the testing that'll feed into that line. And then secondly, we are seeing some -- we have factored into the plan rates being up slightly on a year-over-year. So was we enter, it's been an unusual year, as we've talked about, in terms of the media rates with the elections going on. So we factored in some rate increases in the third quarter into our overall guidance as we've entered it. Keira?

Keira Krausz

Yes.

Linda Bolton Weiser

And then finally, I mean you said that your customers are up as well as your customer -- or revenue per customer is up. So your customers are up as well. Can you make a comment as to whether your customers are up double-digit or up mid single-digit, or can you give a little more specificity on number of customers year-over-year?

Mike Monahan

So we typically don't disclose the new customers that we're bringing in. I mean, I can tell you the combination of our overall customers. We're bringing in new customers, and that's up year-over-year. I can't give the specific amount. But we're also -- what we're especially pleased about as well is we're having great success brining back former customers at a faster rate. So our customer accounts are in good shape. And then you combine that with the success we've had with the upsells, and the overall revenue we're collecting for each customer. And that's really the simple reason why our revenue is growing with the strength that it has.

Linda Bolton Weiser

Okay. That's all for me. Thanks a lot.

Dawn Zier

Thanks, Linda.

Operator

Thank you. [Operator Instructions] Our next question comes from Mitch Pinheiro from Wunderlich.

Mitch Pinheiro

Yes, hi. Good afternoon.

Dawn Zier

Hi, Mitch.

Mitch Pinheiro

Just a couple of questions here, first, I think Mike, you said retail in the quarter was $9.6 million. Did I hear that correctly?

Mike Monahan

A little below that, correct, a little below that…

Mitch Pinheiro

A little below that, okay. And what did you say about -- you sort of shipped a little more in this quarter -- I mean, borrowed from this third quarter a little bit, is that what also I heard?

Mike Monahan

We booked revenue for the retail business when it's shipped to our distributor. So, we had shipments in late Q2 that we were expecting to come in Q3. So, some of the revenue was booked late in Q2.

Mitch Pinheiro

Okay.

Mike Monahan

So, there would be a slight shift between -- there will be shift between the third quarter and the second quarter, but overall the revenue for the full year we're still expecting 36 million as we mentioned.

Mitch Pinheiro

Okay. And then -- thank you, that's helpful. And then you've been talking for a while I guess on just about we have -- there are some new retailers that you are excited that have been testing your product; and haven't really seen anything yet, just curious, is that more geared around the timing of diet season, so if we do see new retailers that will be at end of the year kind of thing, is that fair or any color around why -- is it just take long to get these guys to move what's the story with that?

Dawn Zier

Yes. So it's exactly that image. So, generally it takes nine to 12 months depending on when each retailer does their reset, because they have to make room for people on the shelf. So generally that's geared towards in October-November reset for a lot of these players, which could get us in -- or even at Q1 reset which would get us in for diet season. So we are having a lot of active conversations right now, and expect to be able to share more on the next call, but it is a longer process than the direct process for sure.

Mitch Pinheiro

And did I hear you correctly that Walmart, you're testing with Walmart with some of the frozen, and that's going to continue through the first quarter of 2017?

Dawn Zier

Yes. So we have -- so we will be in the 400 stores through Q1 of 2017 at which point we'll do a full evaluation and then look through what the next step will be from that. So that's currently and again 400 -- a little over 400 stores in the Northeast.

Mitch Pinheiro

And how do you -- I mean so far I mean what do you think the how would you gauge the response to that product?

Dawn Zier

I mean, obviously there's definite demand for the products that are out there. And what we're looking at right now again measuring up the velocity, it's early; some stores started in May other stores are just adding and they're beginning to rollout. So it does take a little time to get the full throttle going. But I would say it's doing okay to-date and what we are really looking for is this one-day kick concept that we put out there is that the optimal way to go into frozen and the other things that we will be looking at, but again I would say so far nothing that is very different from what we expected.

Mitch Pinheiro

Okay. That was -- thank you for that. And then what about learnings on the Shake360 like what did you learn in Q2 and how have you changed anything in particular for the current product?

Keira Krausz

This is Keira. So what we thought is pretty much as expected that Shake360 customers are younger than the core Nutrisystem customer in its rep business, and that what we wanted and expected, but those are the right customers for the product. And as a result of seeing who's coming in and who likes the part the most, we've adjusted our marketing plans towards -- more towards social and digital channels, because since they are more heavily going inside social and they tend to shop more digitally, that's how we will most recent. And that right now we are spending in digital and social, a little TV, but mainly digital and social iterating through the second half of 2016 now to improve it. We're always going to be messaging and respond, and acquisition cost. So I will say that our priority for diet season because that's the diet season. Our Nutrisystem Southeast, those are weak loss product, and Shake360 is a bit more longer plate, that is where we are with Shake360.

Mitch Pinheiro

Okay, thank you. Just a couple of quick questions as it relates to South Beach, any -- and if you said this, I apologize, but any color on how the economics are going to work to you, is it going to be very similar to what we see with your core product, or does anything differ?

Mike Monahan

Our billing and assumption is that the economics are going to be similar. Our hope is to be agnostic between two brands and be able to market behind the brands that resonate with those customers.

Mitch Pinheiro

Okay, when it comes to -- when you look at your 15% new customer revenue, I was looking for like a breakdown of your customer starts, you don't give that, how big of an impact would be like the premiumisation or pricing? Is that an equal amount to new? I mean is there like a blend here, or are you guys relying on one trigger more than another in the whole new customer revenue?

Mike Monahan

Each of the triggers are performing well. So, we are growing on the new customer side. The pricing and program mix is providing a good amount of growth for us. That's been really helpful. So as we brought in a large number of new customers in the first quarter, as those customers stay on program, they are paying the higher prices and contributing to the revenue stream in that way. So, we don't give out the specific percentages, but the pricing and program mix was a solid driver for us in the second quarter.

Mitch Pinheiro

Thank you. And the final question is just regarding reactivation revenue, are you seeing the same premiumisation, the same upsell in those reactivated customers that you are in your new customers?

Mike Monahan

Yes, the reactivated customers are -- what's resonating well with them is the Uniquely Yours program is something bringing them back, and also the flexible option that when customers come back to it, especially those who have done the structured program, they are familiar with our products and our programs. So as we have introduced some of these more flexible options that Dawn mentioned specifically on the frozen side where you can choose different types of food and the number of days you want to go on a diet, we found that that's resonated quite well with our former customers.

Mitch Pinheiro

Okay. All right, thank you for taking the questions.

Dawn Zier

Thank you, Mitch.

Operator

Thank you. Our next question comes from Chris Krueger from Lake Street Capital Market.

Chris Krueger

Hi, good afternoon.

Dawn Zier

Hi, Chris.

Chris Krueger

Hi. I think, Mitch, covered most of my questions, but one topic remaining is, what are you seeing on the competition front as far as your big competitor in the advertising are doing earlier in the year and now that they have changed a bit almost nine months into it; any commentary there?

Keira Krausz

Yes. If we believe it's a really big market and that there is room for multiple players, and on the last round of earnings call it seemed like all the main players had a pretty good first quarter, and I think we are first out on the next call and we are obviously doing quite well. I think each business is a little bit unique, a little bit of a different business model, and you know, we are happy with where we stand in the industry and that we've been leading the last couple of years in growth, and we continue to grow.

Chris Krueger

All right, very good, thank you.

Keira Krausz

You are welcome.

Operator

Thank you. Our next question comes from Frank Camma from Sidoti.

Frank Camma

Hey, guys.

Keira Krausz

Hi, Frank.

Frank Camma

Just one quick one from me, I won't hold you up. Could you just give a little more clarity on obviously you have got a lot on your plate, you are doing really well, but little more clarity on the strategy for other than the shake business obviously, but so the transition products where you can really capitalize on your huge customer base longer term beyond your typical 90-day? I just wonder if you could add a little bit, I know you talked about a little bit, but could you just add to the strategy there?

Keira Krausz

Yes, one of the strats that we believe we have as a company is our analytical rigor and the fact that we really are very data-driven, and that allows us to target offers to customers, and I think we have done an exceptionally good job at that this year. Not only have we gotten customers to do upsells very well, but we are introducing and having success with our new maintenance program Success, which provides a nice unit transition for customers. We love the continuity prescription business model. It's an area that we think we could continue to leverage as we go forward and really understanding those customer data points and being able to optimize and capitalize on them with multiple brands like Nutrisystem and South Beach, but also products that meet their needs as they go through their weight loss journey. It's certainly going to be an area of focusing growth perhaps.

Frank Camma

Great, and just one more quick one, just on South Beach; are your current food suppliers very similar, is there lot of overlap, just curious about that.

Mike Monahan

We are leveraging some of our current suppliers, but we also brought in a number of new suppliers to help us with the program.

Frank Camma

Okay, great. That's all I want to know. Thank you.

Keira Krausz

Thanks, Frank.

Operator

Thank you. Our next question comes from Matthew Gall from Barrington Research.

Matthew Gall

Hi, good afternoon everyone.

Dawn Zier

Hi, Matt.

Matthew Gall

Hi. Most of my questions have been answered, but one thing that kind of stuck out to me, Keira, that you had mentioned, with your digital platforms both NuMi and The Leaf, and the number of sessions that -- it's obviously a large number. Are you also tracking anything as far as per user engagement, length of engagement, and things like that and how are you basically re-launching or recreating those platforms to kind of keep your consumer engaged longer?

Keira Krausz

So, first of all, yes, we track all the information that people give us. And that allows us to serve each customer in a slightly different way. We have personalized messaging that can be sent to each person, and then we can figure out which offers to send them. And as for -- are we able then to come figure out whether -- how we should change those platforms over time? Yes. That's what we are always watching to see what people are using, where they are going, what they are doing, and then sort of offering or changing NuMi on the fly.

Matthew Gall

Got you, all right. Well, thank you very much, and congrats on the strong quarter.

Dawn Zier

Thanks.

Keira Krausz

Thank you.

Operator

Thank you. I will now turn the call back over to our CEO, Dawn Zier, for closing comments.

Dawn Zier

I would like to thank everyone for their time this afternoon, and we look forward to meeting with many of you at our upcoming investor events. So, thanks again for your continued support and confidence in our company.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time thank you for your participation.

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