NTRI Nutrisystem

NutriSystem, Inc. (NASDAQ:NTRI), a leading provider of weight management and fitness products and services, today reported financial results for the second quarter ended June 30, 2008, including: Revenue of $194,029,000, compared to $213,384,000 in the second quarter of 2007; Income from continuing operations of $21,968,000, compared to $33,556,000 in the second quarter of 2007; Adjusted EBITDA, defined as income from continuing operations excluding non-cash employee compensation, other expense, equity loss, interest, income taxes and depreciation expense, of $39,375,000, compared to $55,399,000 in the second quarter 2007; Fully diluted earnings per share of $0.71, compared to $0.96 in the second quarter of 2007; Cash and cash equivalents of $61,980,000 at June 30, 2008, and no debt outstanding. �We are pleased with our results for the second quarter in light of the current economic environment. Our marketing efficiency for the quarter was on target at 21.6% of revenue, resulting in strong revenues and adjusted EBITDA,� stated President and Chief Executive Officer Joe Redling. �We are proud of our $72 million in cash generated by operating activities in the first half of 2008, combined with our debt free balance sheet, available credit facility and our flexible business model. We are well positioned to weather continued economic challenges while we invest in the business for long term growth,� continued Redling. The Board of Directors declared the Company�s quarterly dividend of $0.175 per share, payable August 15, 2008 to shareholders of record as of August 5, 2008. While the Company intends to continue to pay regular quarterly dividends; the declaration and payment of future dividends are discretionary and will be subject to determination by the Board of Directors each quarter following its review of the Company�s financial performance. Subsequent to the quarter end, the Company repurchased approximately 1.0 million shares of stock for $15.2 million. �We continue to use the excess cash flow generated after investment in growth initiatives to return capital to shareholders both in the form of dividends and share repurchase,� stated Chief Financial Officer David Clark. Third Quarter 2008 Outlook For the third quarter of 2008, the Company estimates revenues will be between $160 million and $170 million and Adjusted EBITDA will be between $25 million and $30 million. The Company defines Adjusted EBITDA as income from continuing operations excluding non-cash employee compensation, other expense, equity loss, interest, income taxes and depreciation expense. Further, the Company continues to expect full year 2008 revenues to be between $700 million and $720 million, and Adjusted EBITDA is now expected to be between $110 million and $120 million. �Our guidance reflects expected stability in revenues and continued pressure on gross margins, a cautious outlook on demand, and increased G&A expenses driven by investments in initiatives designed to enhance profitability in 2009,� commented Mr. Clark. Conference Call and Webcast Management will host a conference call at 4:30 PM Eastern Time Wednesday, July 23, 2008. The conference call will include remarks about the quarter and the Company�s outlook from President and Chief Executive Officer Joe Redling, and Chief Financial Officer David Clark. Live audio of the conference call will be simultaneously webcast over the Internet on the Company�s website, www.nutrisystem.com, please click through to the Investor Relations page at the bottom of the home page to locate the microphone icon. About NutriSystem, Inc. Founded in 1972, NutriSystem (NASDAQ:NTRI) is a leading provider of weight management and fitness products and services. The Company offers a weight loss program based on portion-controlled, lower Glycemic Index prepared meals. The program has no membership fees and provides free online and telephone counseling. Forward-Looking Statement Disclaimer This press release may contain forward-looking statements that are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements regarding NutriSystem�s outlook and guidance for the third quarter and full year 2008, its expectations regarding initiatives, its expectations regarding the effect of economic and competitive pressures, statements about the benefits to be achieved from investments made in 2007 and 2008, and from share repurchases, and other statements that are not statements of historical fact constitute forward-looking statements. These forward-looking statements involve a number of risks and uncertainties, which are described in NutriSystem, Inc.�s Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission. The actual results may differ materially from any forward-looking statements due to such risks and uncertainties. NutriSystem, Inc. undertakes no obligation to revise or update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release. � � � NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share amounts) � Three Months Ended June 30, Six Months Ended June 30, 2008 � 2007 2008 2007 � REVENUE $ 194,029 � $ 213,384 � $ 410,497 � $ 451,475 � � COSTS AND EXPENSES: Cost of revenue 96,318 96,189 203,533 207,729 Marketing 41,953 45,524 109,284 97,223 General and administrative 18,267 17,240 35,004 31,508 Depreciation and amortization � 1,925 � � 1,671 � � 3,686 � � 2,610 � Total costs and expenses � 158,463 � � 160,624 � � 351,507 � � 339,070 � Operating income from continuing operations 35,566 52,760 58,990 112,405 OTHER EXPENSE (4 ) � (44 ) � EQUITY LOSS (901 ) � (2,108 ) � INTEREST INCOME, net � 194 � � 930 � � 442 � � 1,889 � Income from continuing operations before income taxes 34,855 53,690 57,280 114,294 INCOME TAXES � 12,887 � � 20,134 � � 21,191 � � 42,860 � Income from continuing operations 21,968 33,556 36,089 71,434 DISCONTINUED OPERATION: Loss on discontinued operation, net of income tax benefit � (14 ) � (7 ) � (38 ) � (18 ) Net income $ 21,954 � $ 33,549 � $ 36,051 � $ 71,416 � � BASIC INCOME PER COMMON SHARE: Income from continuing operations $ 0.72 $ 0.98 $ 1.14 $ 2.05 Net loss from discontinued operation � � � � � � � � � � � � Net income $ 0.72 � $ 0.98 � $ 1.14 � $ 2.05 � DILUTED INCOME PER COMMON SHARE: Income from continuing operations $ 0.71 $ 0.96 $ 1.12 $ 2.00 Net loss from discontinued operation � � � � � � � � � � � � Net income $ 0.71 � $ 0.96 � $ 1.12 � $ 2.00 � WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 30,503 34,293 31,771 34,825 Diluted 30,996 35,111 32,283 35,690 � � NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) � � � June 30, � December 31, � 2008 2007 � (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 61,980 $ 40,679 Marketable securities � 1,769 Receivables 19,330 19,100 Inventories 45,481 82,491 Deferred income taxes 4,357 3,260 Other current assets 8,960 11,585 Current assets of discontinued operation � 502 � � 517 Total current assets 140,610 159,401 � FIXED ASSETS, net 23,484 21,872 EQUITY INVESTMENT 11,350 13,458 OTHER ASSETS 3,167 3,823 NON-CURRENT ASSETS OF DISCONTINUED OPERATION � 6 � � 6 � $ 178,617 � $ 198,560 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 32,193 $ 46,064 Accrued payroll and related benefits 4,075 1,907 Income taxes payable 176 2,482 Other accrued expenses and current liabilities 6,754 5,535 Current liabilities of discontinued operation � 61 � � 64 Total current liabilities 43,259 56,052 NON-CURRENT LIABILITIES � 1,180 � � 1,006 Total liabilities � 44,439 � � 57,058 � COMMITMENTS AND CONTINGENCIES STOCKHOLDERS� EQUITY: Preferred stock, $.001 par value (5,000,000 shares authorized, no shares issued and outstanding) � � Common stock, $.001 par value (100,000,000 shares authorized; shares issued � 31,403,224 at June 30, 2008 and 33,955,859 at December 31, 2007) 31 33 Additional paid-in capital 3,463 � Retained earnings 130,689 141,454 Accumulated other comprehensive income (loss) � (5 ) � 15 Total stockholders� equity � 134,178 � � 141,502 $ 178,617 � $ 198,560 � � NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) � Six Months Ended June 30, 2008 � 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 36,051 $ 71,416 Adjustments to reconcile net income to net cash provided by operating activities Loss on discontinued operation 38 18 Depreciation and amortization 3,686 2,610 Share�based expense 3,536 1,898 Deferred income tax benefit (633 ) (995 ) Equity loss 2,108 � Changes in operating assets and liabilities Accrued interest income 19 85 Receivables (232 ) 7 Inventories 36,978 24,813 Other assets 3,072 731 Accounts payable (13,826 ) (14,789 ) Accrued payroll and related benefits 2,169 4,637 Income taxes (2,302 ) 5,482 Other accrued expenses and liabilities � 1,635 � � 1,866 � Net cash provided by operating activities of continuing operations 72,299 97,779 Net cash (used in) provided by operating activities of discontinued operations � (38 ) � 18 � Net cash provided by operating activities � 72,261 � � 97,797 � CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities � (104,075 ) Sales of marketable securities 1,750 94,550 Capital additions � (5,328 ) � (7,496 ) Net cash used in investing activities � (3,578 ) � (17,021 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under credit facility 35,000 � Repayments of borrowings under credit facility (35,000 ) � Exercise of stock options 765 1,212 Tax benefit from stock option exercises 1,858 6,775 Tax benefit from dividends 46 � Repurchase and retirement of common stock (44,557 ) (97,756 ) Payment of dividends � (5,472 ) � � � Net cash used in financing activities of continuing operations � (47,360 ) � (89,769 ) Net cash used in financing activities of discontinued operations � � � � (150 ) Net cash used in financing activities � (47,360 ) � (89,919 ) Effect of exchange rate changes on cash and cash equivalents (33 ) � NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 21,290 (9,143 ) CASH AND CASH EQUIVALENTS, beginning of period 41,190 13,785 CASH AND CASH EQUIVALENTS, end of period � 62,480 � � 4,642 � LESS CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATION, end of period � 500 � � 309 � CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS, end of period $ 61,980 � $ 4,333 � � � � NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED EBITDA RECONCILIATION TO GAAP RESULTS (In thousands) � � Three Months Ended June 30, Six Months Ended June 30, 2008 � 2007 2008 � 2007 � Adjusted EBITDA $ 39,375 $ 55,399 $ 65,975 $ 116,657 Non-cash employee (1,884 ) (968 ) (3,299 ) (1,642 ) compensation expense � Other expense (4 ) � (44 ) � � Equity loss (901 ) � (2,108 ) � Interest income, net 194 930 442 1,889 Income taxes (12,887 ) (20,134 ) (21,191 ) (42,860 ) Depreciation and amortization � (1,925 ) � (1,671 ) � (3,686 ) � (2,610 ) Income from continuing operations $ 21,968 � $ 33,556 � $ 36,089 � $ 71,434 � � Adjusted EBITDA is defined as income from continuing operations excluding non-cash employee compensation, other expense, equity loss, interest, income taxes and depreciation expense. We believe adjusted EBITDA is a useful performance metric for management and investors because it is more indicative of the ongoing operations of the Company. � Adjusted EBITDA excludes certain non-cash and non-operating items to facilitate comparisons and provide a meaningful measurement that is focused on the performance of the ongoing operations of the Company.