NTRI
#Thanks, <UNK>, and good afternoon.
I am pleased that we were able to deliver double digit revenue growth for the second diet season in a row.
Additionally, we delivered our seventh consecutive quarter of year-over-year revenue growth, underscoring the soundness of our plan and our ability to execute.
We're off to a strong start in 2015, and saw momentum build in the second half of the quarter as we optimized our multichannel marketing campaigns.
Our first quarter exceeds both our top- and bottom-line expectations.
It's clear that our marketing, product development, and engagement initiatives are resonating with consumers.
First-quarter revenues grew 12% year-over-year, and that, coupled with improved gross margins, resulted in adjusted EBITDA more than doubling year-over-year.
As a result of our better-than-anticipated performance and continued momentum into Q2, we are raising our full-year guidance; and, based on our midpoint, expect to deliver another year of double-digit revenue growth.
I will now highlight some of the areas which contributed to our success in the first quarter and which we believe will continue to drive growth throughout 2015.
First, we had an effective acquisition marketing campaign, with increased pricing and reduced promotional incentives as compared to last year's diet season.
This drove increases in customer activation, average selling price, paid length of stay, and gross margin.
We believe in the value of our product, and we are carefully evaluating the opportunity for future price increases.
We also put changes in place to shift product mix towards our premium offerings, which fuels increased customer satisfaction and paid length of stay.
And finally, our reactivation revenues showed year-over-year growth based on our projected higher volumes from last year's success, and a mid-quarter revamping of our digital marketing efforts to past customers.
In our retail channel, we continue to have strong traction at Walmart.
We are beginning to expand into other channels, as was part of our forecasted plan.
Our expansion into Sam's Club for diet season was successful, and we expect to be back there again in diet season 2016.
We also tested our diet products in Meyer and Harris Teeter earlier this year, and will receive placement of our kits in approximately 200 stores starting in September.
Additionally, we believe that there is potential at both Walmart.com and Amazon, two channels we began to focus on in Q4 of last year.
As a result of these wins and the increase in year-over-year velocity at Walmart, we are well on our way to achieving our projected 20% full-year retail growth.
Retail is an important channel, as it enables us to increase brand awareness and capture new customers who are outside of our traditional consideration set.
We continue to believe that both the direct and retail channels hold significant opportunities for future growth.
Product innovation remains one of our top areas of focus.
We're always striving to better understand how we can develop products and programs that consumers want, and balance this with their willingness to pay.
We continue to enhance our food portfolio; have over 100 products with no artificial preservatives or flavors.
We follow food trends very closely and plan to introduce new packaging in diet season 2016 to reflect a fresher feeling and more contemporary portfolio.
We are pleased that we have the most comprehensive array of offerings available, with more grab-and-go choices and more frozen options than our leading competitor.
And, of course, we have our new fresh product line.
Based on our testing of Simply Fresh in California, it is clear that this product, while at a much more expensive price point for consumers, is on-trend and attracts an audience that would not necessarily otherwise consider us.
We believe that this may have the potential to be a small niche offering to upscale customers and can provide a positive brand halo around healthy eating.
But it could not yet scale to the point where it can effectively be offered at an affordable enough price point to attract a more mass consumer while maintaining the degree of margin that we're looking for.
With that being said, we do plan to expand into several additional markets as we continue to assess the profit potential of such a program.
In the near term, we do not see it being a significant driver, but it's a great product with a strong partner.
We're looking for ways in which we can incorporate more fresh elements into our weight loss programs, as we do see value there.
And we will continue to test new products and offerings, in addition to fresh, to new customer segments across all phases of the weight loss spectrum focusing on scale, willingness to pay, and overall profitability.
Customer care and engagement are also important drivers to our growth, and we believe our investments in these areas are paying off.
For a consumer, the weight loss journey is a complex and multifaceted process that requires not only effective weight loss products but also support and guidance.
This comes in the form of content, community, technology; and, of course, food counseling.
Our counselors are available to our customers from 7 AM to midnight, seven days a week.
The ability that our customers have to talk to someone directly who is trained and knowledgeable at the touch of a button should not be underestimated.
We have laid the groundwork and have the building blocks in place to drive long-term, sustainable growth.
We are focused on delivering growth through both our strategic initiatives, as well as through rapid response to consumer and customer insights as they arise.
Additionally, we are extraordinarily disciplined when it comes to operational rigor and data analytics.
We will continue to innovate around the right balance of structure and flexibility along with providing differentiated products at varied price points to reach a broader mix of diet [intenders].
While there is still a lot we plan to do to continue to drive growth in 2015, we are already focused on, and have plans in the works, for some exciting new things for diet season 2016.
We continue to make measurable progress on the four strategic pillars we announced just over two years ago.
And, as the results show, I am confident that we are on the right path.
As a reminder, our four pillars center on, one, innovation ---+ we will launch new products and programs at an accelerated pace to better serve our existing customer segments and attract new customer segments to the brand.
Two, data-driven marketing fundamentals: we will grow our direct-to-consumer and e-commerce business by focusing on key levers that will accelerate growth.
Three, channel expansion: we will capture greater market share through both channel and product diversification to reach new audiences.
And four, operational excellence: we will continue to execute with rigor and continued cost discipline.
I will now turn the call over to <UNK>, who will walk through the first-quarter results and discuss our second-quarter and increased full-year 2015 guidance.
Following <UNK>, <UNK> will provide insights around our key marketing initiatives as well as some of the industry trends we've been watching.
<UNK>.
Thanks, <UNK>.
Good afternoon, everyone.
We completed the first quarter of 2015 with strong top- and bottom-line results, exceeding our revenue, adjusted EBITDA, and EPS ranges, and achieving our seventh consecutive quarter of year-over-year revenue growth.
Year-over-year revenue for the first quarter increased 12% to $137 million compared to $122 million in Q1 2014.
Year-over-year adjusted EBITDA for the first quarter increased 146% to $8 million, resulting in earnings per share of $0.10.
For the full year, we are increasing our guidance for revenue, adjusted EBITDA, and EPS.
Revenue is now projected to be in the range of $440 million to $455 million; adjusted EBITDA of $51.6 million to $55.6 million; and earnings per share of $0.81 to $0.91.
Capital expenditures are projected to be approximately $7 million to $9 million for the full year.
For the second quarter, we are projecting revenue to be in a range of $123 million to $128 million; adjusted EBITDA of $20.1 million to $22.1 million; and earnings per share of $0.35 to $0.40.
We continue to see a number of favorable trends that are driving our financial results and projections.
These trends supported not only the top-line growth in our business but also adjusted EBITDA and margin improvement.
Specifically, they are broken down into six key categories.
One, improved customer economics: we are benefiting from the price increases that we implemented in Q1 and Q3 of 2014.
On average, each new customer in 2015 is contributing more to both our top-line revenue and gross profit as a result.
Additionally, we are seeing continued improvements in customer paid length of stay.
We plan for length of stay to be up two days from the first half of 2014 based on specific actions we took to improve, but are pleased that we are actually seeing closer to a three-day improvement.
Two, increased customer volumes: revenues from customers in their initial diet cycle were up 14% year-over-year within the quarter, primarily driven by increased customer starts coupled with the price increases we implemented in 2014.
Our reactivation rate of former customers has increased due to improved database mining and marketing.
Reactivation revenue in the first quarter was up 8% year-over-year, driven by improved conversion, longer length of stay, and a growing database of former customers.
We believe reactivating former customers will be a driver of growth in future years.
Three, improved gross margins: in Q1, gross margins improved year-over-year by 310 basis points to 52%, due to channel mix, price increases, and reduced promotional food.
For the full-year 2015, we expect continued year-over-year margin improvement in the first half of the year and comparable year-over-year margins in the second half of the year, as we annualize our 2014 price increases and promotion improvements.
Four, increased marketing spend driving increased profits: marketing expense for the first quarter of 2015 was $47.7 million, increasing nearly $6 million from the first quarter of 2014 and enabling us to attract more customers.
We front-load marketing expense, so this media buy will also support revenue streams into Q2 and Q3 this year.
We are pleased that we were able to increase our marketing spend while maintaining our profitability targets.
On a percentage basis, marketing expense was 34.7% of total revenue versus 34.2% in the first quarter of 2014.
This increase is largely due to marketing expenditures to support the retail channel and Simply Fresh.
For the full-year 2015, we expect marketing as a percentage of revenue to modestly increase as we continue to test new media outlets, to expand our customer reach in both the direct and retail channels.
Five, continued growth in retail: the retail channel is continuing to grow, and is in line with our previous expectations.
Q1 retail revenue grew 8% year-over-year primarily due to improved sell-through rates at Walmart and new product introductions.
We continue to partner with Walmart to introduce new SKUs and promote our 5-day kits.
As previously disclosed, we expect to achieve 20% year-over-year revenue growth in the retail channel in 2015.
Roughly two-thirds of this growth is driven from the Walmart channel, and one-third is from channel expansion.
Six, cost control efforts for G&A: on a percentage of revenue basis, general and administrative expenses improved 70 basis points year-over-year versus the first quarter last year.
On a dollar basis, general and administrative expenses were $16.9 million for the quarter as compared to $15.9 million in the prior year.
The increase in dollars is largely driven by increased commission and labor-related expenses, and research and development costs to support current and future top-line growth.
For fiscal year 2015, we expect G&A as a percentage of revenue to improve slightly year-over-year, as we realize scale efficiencies while investing in future growth.
As of March 31, 2015, we had cash and short-term investments of $36.6 million, up over $7 million from December 31, 2014.
For the 12 months ended March 31, we returned roughly $20 million to stockholders in the form of a quarterly dividend.
For Q1, the Board of Directors has declared a dividend of $0.175 per share, payable May 21, 2015, to stockholders of record as of May 11, 2015.
I will now turn the call over to <UNK>.
Thanks, <UNK>.
Our first-quarter results are strong evidence of the success our strategic initiatives are having on our overall business.
While we certainly operate in a competitive space, we are confident in our ability to differentiate Nutrisystem with our innovative products and marketing.
Operational excellence, rigor, and discipline around data are all part of our DNA.
We are committed to assessing the many levers we have to optimize pricing, promotions, and marketing strategies.
We will continue to be diligent in evaluating these interdependencies in order to maximize our performance.
We will continue to build our omni-channel presence.
And we will remain focused on the following innovation principles which we believe will result in continued and sustainable growth.
One, new product and program development will be based on what consumers tell us they need, and not our own biases.
Two, increased customization, such as differing combinations of structure and flexibility, will be essential in allowing us to expand into a larger part of the weight management category.
And three, given the breadth of opportunities available to us, we will look for scale and prioritize where there is both demand and a willingness to pay.
It's an exciting time at Nutrisystem.
Our continued strong performance in the first quarter is an early indicator of what we believe will be another successful year.
And we remain confident in our ability to deliver long-term, sustainable growth to our shareholders.
I would now like to open up the line for questions.
Right now, for Sam's, we're assuming diet season plans, and that's all we have assumed at this point.
We have a different program at Costco, which is a card program, which is more year-round.
But at Sam's, they prefer in-and-out sort of promotions around periods of high dieting seasonality.
No, that's separate from Sam's Club.
So, Sam's Club, the year-over-year will be about the same revenue as we booked last year in Q4, is what we have in our plan.
So most of the growth in retail is actually coming from the pure Walmart and new channels that we're entering.
For the year, in terms of total revenue, it's more in the mid-20s.
And that's a function of the growth we're seeing in bringing on new customers into the brand.
So the reactivation revenue growth tends to lag our ability to bring new customers in.
So a lot of the growth that you are seeing in reactivation revenue this year is a function of two things: one, the success we've had in bringing customers to the brand in 2014; and then, secondly, the ability for us to mine the database and really target those customers, and give them great offers to bring them back to the brand.
So our overall yield is improving, as well as the base of customers that we are marketing to.
Thanks, <UNK>.
We're doing a lot of different testing and research right now.
So, as we move from a test stage to a roll-out stage of different initiatives, we will be sure to communicate them.
Yes, so, ASP is driving a couple of points of growth over the course of the year.
The contribution from the average selling price is a bit heavier in the first half of the year than it is in the second.
The back half of the year, we start to annualize the price increases we implemented in 2014.
So it's contributed in Q1; in Q2, it's contributing a few points to our growth.
Thank you all for your time this afternoon.
I would like to thank our investors for their continued support of our plan and their confidence in this management team to lead and deliver results.
I am pleased by our Q1 performance, our continued momentum into Q2, and we believe we are well positioned for another successful year.
I look forward to seeing many of you at upcoming investor conferences and events over the next few months.
Thank you.
