Nutrisystem’s Dawn Zier On Turning Around A Household Name

Call Start: 17:00 January 1, 0000 5:42 PM ET

Nutrisystem Inc. (NASDAQ:NTRI)

Q2 2018 Earnings Conference Call

July 30, 2018 17:00 ET

Executives

John Mills - Managing Partner, ICR

Dawn Zier - President & CEO

Michael Monahan - CFO

Keira Krausz - Chief Marketing Officer

Analysts

Alex Fuhrman - Craig-Hallum Capital Group LLC

Linda Bolton Weiser - D.A. Davidson & Co.

Frederick Wightman - Citigroup Global Markets, Inc.

Kara Anderson - B. Riley & Co.

Chris Howell - Barrington Research

Operator

Greetings and welcome to the Nutrisystem Second Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

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

John Mills

Good afternoon, and thank you for joining us on Nutrisystem's second quarter 2018 conference call. Today, Dawn Zier, President and Chief Executive Officer will provide an overview of the business. Mike Monahan, Chief Financial Officer will review the second quarter 2018 results and provide third quarter and updated full-year 2018 financial guidance. And Keira Krausz, Chief Marketing Officer, will provide insights into the Company's marketing initiatives. We will then open up the call to take your questions. We would appreciate participants limiting themselves to two questions and then rejoining the queue.

I would like to remind everyone that during this conference call, Nutrisystem management will make certain forward-looking statements about its outlook for 2018 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 30, 2018, and assumes no obligation to publicly update or revise any forward-looking statements.

In addition to the GAAP results, Nutrisystem will provide certain non-GAAP financial measures. Nutrisystem's earnings press release for the second quarter of 2018 can be found under the News Release link on the Investor Relations page of the Company's website at 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.

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

Dawn Zier

Thank you, John, and thanks to everyone who has joined. I am pleased to report our second quarter results demonstrated a continued positive movement in the overall health of our company as our revenue, EBITDA, EPS all exceeded our previous guidance.

Three main points I would like to touch upon for the quarter. One; our revenue per customer, average selling price and reactivation revenues for the quarter grew year-over-year. Two; as expected our cost per acquisition has significantly improved over the first quarter of 2018. And three; our multiplier strategy supported by two highly recognized names in the health and wellness industry is working very well and it provides a strong scalable platform for future growth. We're pleased with the growth of the South Beach diet and believe that it will continue to scale for many years to come.

Looking through remainder of 2018. As we previously communicated, we expect modest growth throughout the third and fourth quarters and believe our efforts to date coupled with second half investments and our innovation pipeline, brand, and digital media expansion will pave the way for or turn to meaningful growth in 2019 and beyond. I'd now like to discuss product innovation and advertising then in light of strong investor interest I'll tell you more about our digital initiatives and some of the important investments that we'll be doing in the second half of the year.

Our recent announcements around the nationally available DNA Body Blueprint and the branded vitamin pack lines for both Nutrisystem and South Beach. Showcase our focus on science-backed personalized nutrition to drive not only weight loss but overall health and wellness.

The groundbreaking news that DNA technology is a major step forward in the areas of weight loss maintenance and personalized nutrition. We believe innovations in this area will broaden our consumer considerations that allow to attract new customers to our brand. It will also help deepen our relationship with our customers as they work to achieve their initial weight loss goals and then transition to an ongoing healthy lifestyle.

The first and what we anticipate will be several product variations along these lines provide each customer that signed up for DNA Body Blueprint. A personalized blueprint or action plan based on a unique genetic make-up focused specifically on eating behavior, nutrition, metabolism, and vitamin. They'll then be able to cover their Nutrisystem program based on the findings as well as discuss the report in more detail with the weight loss counselor should they choose.

We're pleased with the steps that we've taken in personalized nutrition over the last few years. We strongly believe that one brand or product can't be all things to all people which is why we will continue to differentiate and expand with new product introductions and services offering enhanced customization, unique consumer segments at different price points along their health and wellness journey.

DNA Body Blueprint is our most advanced offering to-date and again we've excited about future planned efforts in our pipeline that we'll unveil over the next 12 months. We've been asked a lot about our digital efforts recently, in part because of some of the recognition we've received from Google and other. We're highly regarded as a metric based omnichannel marketing company and like to spend a few minutes telling you about how we've taken our performance marketing expertise and applied it to our digital marketing effort.

Nutrisystem's marketing was traditionally focused around television. From 2015 to 2018 however, our percentage increased in digital spend has been outpacing the average B2C company by 2 to 1 as we find attractive opportunities to reach new audiences and reinforce our brand through digital channels. As a result, our mix is shifting.

Out of all marketing efforts, we're focused on economic results and returns on our spend. Our efforts in digital have been as rigorous as our practices in tech [ph] in part because it is disciplined. Nutrisystem was recently featured at a Google marketing live event showcasing our focus on analytics, attribution and digital growth and will be a beta tester of the new suite of Google 360 products.

Our ability to attract customers to more topic on our digital channels has been a part of the Nutrisystem's success story over the past few years. It will continue to build from here always with a disciplined approach that we use for all of our marketing spend. We also recognized that the optimal methods for marketing will vary based on the brand and product. We've seen for example that digital marketing had greater efficacy and payback with our South Beach brand likely because of the demographic profile.

As we prepare for 2019, we've greenlighted several new investments for the second half of 2018 around product, branding, attribution and efficient media expansion within digital. There will also be some additional media spending Q3 and Q4 to fine tune our program configuration and our advertising messaging across different channels. These investments will give us the flexibility to test them on across some critical areas and position us well to profitably expand our reach to new target segments in 2019.

First; with the two of the strongest and most recognized brands in weight management and wellness we're excited about the insights that we're gaining from the extensive brand research efforts that we have underway. These insights on forming more contemporary and compelling creative that we believe will allow us to expand our reach to a broader set of consumers across a wider variety of channels.

Next, we're onboarding one of the leading commercial effectiveness companies with expertise in omnichannel attribution and media mix optimization. In conjunction with our current in-house attribution model which already is a variety of external inputs, these additional insights will ensure that we carefully broaden and optimize our media mix across online and offline channel. These new models will help us be even more precise with attribution as we further expanded to areas where attribution can be difficult such as programmatic display social influence or campaigns and PR.

We expect these models to be fully operational in the first quarter of 2019. To that end, based on some early results in the influence our state and the relative appeal of South Beach is seeing across digital channel when the process is developing a robust social influence the program for the South Beach diet along with a micro influencer program with user generated content for both brands that will launch in early 2019.

The success of these campaigns will be judged by our new attribution model overlays that we just discussed. And finally, the support of both initiatives will also be creating an expanded library of media assets designed purposefully for digital usage with additional production days in Q3 and early Q4 with four new campaign's plans for the first quarter.

In short, we believe we're 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 2019. We've made important strides in our overall business during the first six months of this year having out 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 creator 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 your through our second quarter financial results and discuss our third quarter and updated full year 2018 guidance. After that Keira will update you on our recent marketing initiatives and discuss our go to market strategies in more detail.

Michael Monahan

Thanks, good afternoon everyone. Revenue in the second quarter came in at $191.3 million exceeding the top-end of our guidance range. Adjusted EBITDA in the second quarter was $41 million with earnings per share of $0.87. New customer revenue for Nutrisystem came in as anticipated while reactivation revenue came in above projections resulting in our revenue forecast beat. The South Beach diet brand contributed $19 million to our top-line revenue in the quarter. QVC revenue contributed $4.4 million and revenue from the retail channel was $7.9 million. Gross margin for the quarter was 53.8% down 50 basis points year-over-year as the South Beach diet became a larger percentage of revenue year-over-year and Nutrisystem promotional offers were higher than projected later in the quarter.

We used targeted promotions to attract more and more 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 24.7% second quarter of 2018 versus 23% in the second quarter of 2017. As a reminder, marketing expense that's front loaded and attached to a new customers 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.

General and administrative expense was $18.1 million or 9.5% of revenue versus 11% in the second quarter of 2017. As we continue to manage expenses and achieve efficiencies in the business. Our Q2 effective tax rate was 23% and we finished the quarter with $83.5 million of cash, cash equivalents and short-term investments on hand.

For the full year 2018 we are maintaining our guidance ranges for revenue and adjusted EBITDA which is returning to growth in the second half of the year. Consolidated revenue is projected to be in the range of $693 million - $708 million and adjusted EBITDA of a $110.5 million. Earnings per share of $2.07 to $2.17 is increased from our previous range of $2.04 and $2.14 primarily due to a lower expected effective tax rate and a lower share count resulting from our share repurchases in the second quarter.

Both the South Beach diet and retail revenue projections are expected to be in-line with our previous estimate of $70 million and $34 million respectively. Capital expenditures are expected to be $10 million to $12 million and our effective tax rate is projected to be 22.3% for the full year. For the third quarter, we are projecting revenue to be in the range of $162 million to $167 million. Adjusted EBITDA of $25.5 million to $27.5 million and earnings per share of $0.50 to $0.55 cents. This reflects the impact of our second half marketing investments.

We have elected to maintain our full year revenue and adjusted EBITDA guidance ranges for the following reason. In the third and fourth quarters of 2018, we will be airing new creative and different marketing channels to support our innovative new products and attribution sets. Some of these media test investments may not be as productive as our traditional marketing effort so we get back to existing, to our top-line guidance. We view these near-term media investments along with our investment attribution and branding this year as extremely valuable and strongly believe they will better position us for 2019.

These investments represent approximately $2 million spend in the second half of the year and are included in our updated forecast. Our free cash flow continues to be strong enabling us to continue to invest in our business to drive growth in 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 plan.

As a reminder earlier this year, we increased our dividend from $0.70 per share to a $1 per share on an annual basis. Over the last 12 months we've returned over $25 million of cash to shareholders through our dividend. Year-to-date we've purchase $25 million of stock $10 million in Q1 and $15 million in Q2 of 2018. We now have $22.5 million remaining on our $50 million buyback authorization that expires in November of 2019.

For Q2 2018 the board of directors has declared a dividend of $0.25 per share payable August 20, 2018 to stockholders of record as of August 9, 2018.

I'll now turn the call over to Keira.

Keira Krausz

Thanks Mike. I'll start on Nutrisystem's progress and South Beach continued growth in the second quarter and then talk about the key areas of growth for 2019. It Q2 we advanced the Nutrisystem business. We continued to develop creative to appeal to new customer groups. Our target to create a Nutrisystem for men and Nutrisystem D are performing.

In June, we introduced TV ads that are significantly different in look and feel. Early results have found these ads efficiently drive online searches for the Nutrisystem brand and overall are about equal to existing created for other metrics. This new campaign showed we can diversify our creative approaches and hence temporize the brand. We increased the percentage of customer to return to us driven by two actions. First, we came into the quarter with the diversified set of product offerings that needed variety of customer needs and this has allowed us to increase yield. Second, via typical modeling and enhanced segmentation we reach customers who had not purchased in several years.

We re-introduced former customers to our most customizable program Uniquely Yours by showcasing the changes to our food portfolio and offering it at best welcome back price. Our ability to segment include deeper into our activity is a meaningful development. We increased average selling price and reactivation in area in which we have had success and to that end we are constantly testing offers and create it.

We completed a number of digital stance initiative. 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 a ramp up in 2019. 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 cost.

Based on learnings from these initiatives, we expect to probably expand our digital reach even further in 2019. We prepare for the marketing launch of the DNA Body Blueprint. We stopped once that complements the 2018 programs mid-year for two reasons. First; we believe that DNA Body Blueprint will help us expand, but now it'll take iteration to find the creative and messaging for digital and TV.

Second there are a number of metrics we need to watch and control with this product the span, conversation, the upsell rate, the impact on our highly successful shake up so how many and how quickly customers return it for processing how that can practice the things, length of stay just to name a few. While the DNA Body Blueprint has very high consumer appeal and research a product so innovative will benefit from input from actual customers. We expect a modify in about the product as 2018 progresses.

Overall, we saw improvement between Q1 and Q2 in attracting customers for the Nutrisystem brand and while we have not yet returned the relative customer growth we expand in 2017, we are on the path to improve creative and digital expansion as we prepare for 2019.

As for South Beach, we saw continued strong growth in the second quarter and remained very excited about the brand. South Beach is targeted to a different demographic than Nutrisystem and we've seen the digital channel helping it reach the customer target. Consequently, we're aggressively pursuing additional digital opportunity.

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 are increasing A La Carte sales and just introduced South Beach Vita Pack. Finally, former South Beach customers are rejoining more than plan.

And we employed tactics to improve 2018, we are simultaneously laying the groundwork for 2019. Everything we're doing is about expanding reach to introduce ourselves to new people and motivate them to choose us while we're still ensuring strong returns on our marketing spend. We're focused on four key marketing initiatives to drive profitable growth. One; evolve the Nutrisystem brand. Nutrisystem is one of the strongest brand and weight management wellness. We've partnered with an external agency that has a long and successful history of working with top CPG brand has developed compelling brand stories communicated via visual cues and simple messages to substantially grow customers, revenue, and profit. Two; continue to develop integrated multi-channel created campaign that presents a consistent brand story for Nutrisystem and South Beach yet are modified to appeal to discrete customer groups and different media format both digital and TV.

We've proven via Nutrisystem for men and it's creative that this can help us expand reach. We intend to develop creative for women and men, young parents and [indiscernible] and core prospects and new targets. Three; enhance our attribution technique. 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 offline 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 input, media agency attribution models and Google 360 to formulate attribution assumptions that drive and decision. As we expand further into new channel 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 build offline and online behavior and to drive value through social influences and earn media activities. We're also one of the beta testers for enhanced Google 360, which aims to address the attribution posed by multi-device usage. The new model should be implemented during the back half of 2018 and we expect to be tweaking media mix during this period as we adjust and confirm the models that drive 2019 media decision.

Four, expand the growth 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 to Facebook, Programmatic, pre-rolled video and third-party lead generation for both Nutrisystem and South Beach. B, our optimization team is constantly focused on improving conversion with a focus on the mobile experience because of their consistent wins in the past conversion rates on mobile have risen over time. So even if mobile traffic has increased our conversion rate overall are stable.

We'll expect the wind to continue. C, we will continue to enhance our ads. As a reminder, NuMi and the South Beach having supports customers on programs, downloads, usage, sessions and revenue were all up in 2018 and key engagements stayed at average. As we prepare for 2019, we are building in-house e-commerce functionality integrating the apps more seamlessly and adding features that enables new contest and additional sharing. D, because South Beach is as much like our other 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 basis to change sector and our other work professional interest have demonstrated a promise to look for substantial push in this cannel with South Beach in 2019. 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 and they've shared their stores and advocate for our brand 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 front. 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 profitably introduce ourselves to as many people as possible to as many ways as we can and we look forward to 2019.

Now, I'll turn the call back to Dawn.

Dawn Zier

Thank you, Keira. I'm pleased with the progress we've made since February on Nutrisystem and the growth on South Beach. Looking to the remainder of 2018 we expect modest growth throughout the third and fourth quarters and leave 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 2019 and beyond.

Our recent announcements in our DNA Body Blueprint and our branded tag line demonstrate our focus on science-backed nutrition strive not only weight loss but overall health and wellness. In June, we were honored to be announced at the 2018 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 and analytical measurement to guide our decision making around media investment and product innovation. We have two power house names with brand permission to do more at various touch points over the consumers journey to optimal health.

We believe our brand and product work in constant with efficiently expanding on the digital front will allow us to reach customers that have not historically had their considerations. And we also believe that we will continue to grow lifetime value as we extend our relationship 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 track and look forward to helping millions more. Now we'll open up the lines for questions. Operator?

Question-and-Answer Session

Operator

Our first question comes from the line of Alex Fuhrman from Craig-Hallum. Please proceed with your question.

Alex Fuhrman

Hi guys thank you for taking my question. And congratulation on a nice recovery here and the positive revenue guidance for the third quarter. Certainly, 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 in the prepared remarks, the whole bunch of different sort of growth initiatives that you have for the back half of this year that don't sound like they are really going to drive any sort of revenue or profits in a big way until next year and beyond.

And I think Mike did mention $2 million of testing that you're going to be doing and I was wondering if you could remind us what specially that $2 million was referring to and I believe I just missed that. But it sounds like there are couple of things between marketing for the DNA Body Blueprint I don't know if there is going to be any marketing for the supplements that you are testing as well and just thinking about things like the development that they – platform for user generated content and some of the extra products days that you are going to be doing in Q3 and Q4.

Can you kind of give us a sense of each of those buckets and how that will impact presumably negatively how that will impact the results this year and then what the opportunity could be for those things in 2019 and beyond?

Dawn Zier

Thanks Alex. I'll start off and then Mike can jump in. We're pleased that thesis came in slightly better than we anticipated and remember our prior guidance we 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 make sure we get this right for 2019, we've built in an increased investment as Mike talked about of around $2 million in the second half of the year really designed to test the variety of these initiatives. DNA Body Blueprint being one and we're making our clients to allow for some level of variation as a result of the investment and spend.

So, if you think about it some of these things as we deploy immediately has different areas of media as we have different creators. We need to see somethings will work something may not. So, as we think about building an ad as we ready for 2019, we decided to keep the guidance flat which makes sense to us.

Michael Monahan

It's Mike. 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 was implied in Q4.

Alex Fuhrman

Great. That's helpful 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, as that certainly makes sense if you're waiting most of these new marketing initiatives into the third quarter. Is there anything else there just in terms of gross margin or marketing or G&A anything else we should be thinking of that that kind of creates that dynamic in the fourth quarter?

Michael Monahan

The primary driver 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 of the lower fees and all spend for us in the fourth quarter so you're getting that dynamic as well.

Alex Fuhrman

Okay. That's very helpful thank you very much.

Dawn Zier

Thanks Alex.

Operator

Our next question comes from the line of Linda Bolton Weiser from D.A. Davidson. Please proceed with your question.

Linda Bolton Weiser

Thanks. So, I'm just trying to dissect kind of the comments that you made about your new creative, or your tweet 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 another metric. So, can you explain that a little bit more. So, what are the other metrics that you might have hoped to see improve but you didn't?

And so, I guess net-net are we to come away thinking that the tweets advertising is a little bit better but not a ton better can you just give a little more color and that please? Thanks.

Keira Krausz

Sure. This is Keira. Yes, so as we are better at driving online interest and a little less or about the same as about the 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 overtime any way a lot of the work that we're doing now is the brand and accretive gives us pretty good belief that I knew look and feel to Nutrisystem can perform better than the creative that we have last time.

Linda Bolton Weiser

Okay. And then are we to understand that the -- I guess the spending, the incremental spending is to test things or to try out things that will be used for diet season 2019 is that kind of the idea here? And when you're talking about on boarding all these different external parties and companies that come in and help you, I mean is this sort of any addition to your cost structure?

I mean are we going to see kind of a little bit of a higher cost level generally speaking like in 2019 because you're bringing in these other resources to be able to do some of the marketing work?

Dawn Zier

Hi, Linda it's Dawn. So really, we're onboarding one company and that is really to help confirm our current attribution models as well as give us more insight on top of final digital which is really important and the interaction between offline and online. This is a major lever in terms of how we allocate spend across the business areas. So, that's really what's happening there. We don't see it as really driving overall costs. This is really an investment that we're doing to really prepare us for diet season and it will help us going forward, if anything we see opportunity.

Linda Bolton Weiser

Thank you.

Dawn Zier

Welcome.

Operator

Our next question comes from the line of Greg Badishkanian from Citi.

Frederick Wightman

Hi guys, it's actually Fred Wightman on for Greg. I think in the prepared remarks you had mentioned that some promo offers for the Nutrisystem business were higher than expected later in the quarter. I was wondering if you could just talk a bit about that. Some other people in the sector talks about getting more aggressive throughout the summer, and just wanted to see if you've seen a change in that from a competitive standpoint?

Keira Krausz

This is Keira. So, not really commenting on the competitor. But I will comment on what we did, so we found a way to use a combination of statistical modeling and regression models to four to five [ph] and identified pockets of customers we could go back to from several years ago and we wanted to introduce them to a product they may have never heard of including uniquely yours which is a popular product with the highest amount of customization in the frozen foods and to get to notice that product and come back to us, we offered them a good price. A welcome back price if you will and that was really highly successful, so even with the lower price we made it up in the volume by far and now we're testing to see if we can test other offers to introduce people to uniquely yours.

And also as a reminder, our average selling price for this quarter was up.

Frederick Wightman

Okay thanks. And then just based on guidance, it looks like we could actually see year-over-year declines in the top-line in the fourth quarter. Could you just help us understand what would cause that given the return to growth that you seem to be expecting in the third quarter here?

Michael Monahan

The midpoint. This is Mike, midpoint of the implied guidance comment shows growth. If you take the lower end of the guidance would factor in going a lack of growth in the fourth quarter, but we're fully expecting to see growth in the second half of the year.

Frederick Wightman

Great, thanks.

Operator

Our next question comes from the line of Kara Anderson from B. Riley FBR. Please proceed with your question.

Kara Anderson

So, I recognized that it's a soft launch but can you clarify how the DNA product is intended to be sold and then speak to the opportunity and for DNA Body Blueprint as an a la carte option is it something occurs to and then how we should think about contributions in 2019?

Dawn Zier

Okay. So again, we just launched this 10 days ago and we're very excited about the opportunity in the market. It's something, it's one of our more complicated product. So right now, the way we're testing it is as an accompaniment to the current Nutrisystem program, but we see many different iterations of how this could involve over the next 12 months and this is something that is part of our process into 3 in Q. 4 to think further about it.

As Keira mentioned there is a lot of interplay between different dynamics that could happen but we think this is a really on trend and very much in the minds of many consumers out there and will allow us to expand to new audiences with something that is really cutting edge new and exciting. So again, we fully expect to refine modify evolve the product as 2018 progresses and we head into 2019. We're excited where it goes this is the point of testing and learning and we'll tell you more as we head into 2019.

Kara Anderson

Okay. And if I can just ask one more question on the DNA product. Whether any studies have been done or planned to be done that would support any claims on the success on the Nutrisystem program following maybe a more tailored program that incorporates findings from the DNA products?

Keira Krausz

This is Keira. Hi, so we're always in the process of doing clinicals and evolving the and then it's sort of the science-backed behind our product. So, we didn't go out with a claim or anything but we'll incorporate into a clinical concern in the future.

Dawn Zier

And there are lot of scientific studies out there that support the inter length between per diet nutrition and being able to lose weight and if you check out our white paper online you'll see lot of interesting references there lots of the details there around the science behind our product and innovation.

Kara Anderson

Okay. Thank you.

Operator

Our next question comes from the line of Chris Howell from Barrington Research. Please proceed with your question.

Chris Howell

Hi, I had a few questions for you. You had mentioned on the last call about this growth in low double digits for the reactivation revenues and the success that you had this past quarter. And I was curious if you could break it down more granular as far as how far back that customer went or left Nutrisystem and you were able to acquire them. So, I guess the different pockets of reactivation revenue store what are you seeing on a more granular level within your success?

Keira Krausz

I mean this is Keira. So, without getting too specific just for competitive reasons we are able to go back now several years. And that constitutes a breakthrough for us.

Chris Howell

Okay. So, you are seeing I guess -- I guess you're able to acquire these customers back who have been away from the program for many years.

Keira Krausz

Correct. That's absolutely correct.

Chris Howell

And I would assume you are having even better success with those that have watched recently.

Keira Krausz

That would be correct.

Chris Howell

Okay. And then as I look at South Beach Diet you mentioned $70 million in revenues for this year I guess how should we think about its growth for 2019 as much as you could share?

You had mentioned before the data aggregation success in Nutrisystem being converted over to South Beach where does that currently stand?

Keira Krausz

Well, you know we don't give guidance for 2019 but we believe we're just getting started on South Beach. We're pleased with the growth taking its – in the ballpark of $70 million over the last two years and we believe its early stages for South Beach and now we'll continue to give more to evolve this planet. You know, we spoke about VC, a lot of interest in digital, on digital channels for this product. We will continue to evolve the product and have new offerings and the things that work on Nutrisystem are also supporting overwhelmed to South Beach.

So, we're very excited but we won't give any numbers towards 2019 at this point.

Chris Howell

Okay. That makes sense. And then my last question is just with regards to up-sells and cross-sells and what you are seeing there. I guess how should I think about the margins that you accrue on these types of sales versus your core lines of business and how much of a mix is this right now and could it be in the future?

Michael Monahan

So, this is Mike. The up-sells and cross-sells continue to grow year-over-year. It's been an area of growth for us. And as we introduce new up-sells and cross-sells, we always looked at them to see margin accretive.

Chris Howell

Okay. That's all I have for right now.

Operator

Ladies and gentlemen, we have reached the end of the question-and-answer session and I would like to turn the call back to Dawn Zier, CEO for closing remarks.

Dawn Zier

Thank you. Thank you for your time this afternoon. I would like to thank the Nutrisystem team for their commitment and dedication in serving our customers and returning shareholder value. I'd like to extend a thank you to our shareholders for their ongoing support and confidence. We look forward to our next call where we will discuss our third quarter results and continued process. And we're very excited as we head into 2019. Thank you for your time today.

Operator

This concludes today's conference. You may disconnect your lines at the time. Thank you for your participation.

Source : https://seekingalpha.com/article/4192248-nutrisystem-inc-ntri-ceo-dawn-zier-q2-2018-results-earnings-call-transcript

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