NTRI Nutrisystem

Nutrisystem, Inc. (NASDAQ:NTRI), a leading provider of weight management products and services, today reported financial results for the second quarter of 2010. Highlights for the second quarter ended June 30, 2010 include:

• Revenues of $141.6 million, an increase of 8% as compared to $131.0 million for Q2 2009;
• Operating income from continuing operations of $20.0 million, an increase of 68% as compared to $11.9 million for Q2 2009;
• Net income of $12.6 million, an increase of 43% as compared to $8.8 million for Q2 2009;
• Adjusted EBITDA of $26.2 million, an increase of 57% as compared to $16.6 million for Q2 2009. Adjusted EBITDA is defined as income from continuing operations excluding non-cash employee compensation, other income (expense), equity and impairment loss, interest, income (taxes)benefit and depreciation and amortization;
• Fully diluted earnings per share of $0.40, an increase of 43% as compared to $0.28 in the second quarter of 2009; and
• Cash, cash equivalents and marketable securities of $88.9 million at June 30, 2010 with no debt and $200 million available under its credit agreement, as compared to $62.2 million in cash, cash equivalents and marketable securities at December 31, 2009 with no debt and $200 million available under its credit agreement.

“Strength in new customer growth coupled with continued improvements in marketing efficiency led the way, as we exceeded nearly all prior year metrics in the second quarter,” stated Chairman and Chief Executive Officer Joe Redling.

“We had a 240 basis point improvement in gross margin based on reductions in our cost of goods sold and we expect this margin to be sustainable for the remainder of the year,” said David Clark, Chief Financial Officer.

The Board of Directors declared a quarterly dividend of $0.175 per share, payable August 19, 2010, to shareholders of record as of August 9, 2010. 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.

“We remain committed to returning value to shareholders as evidenced by the continuation of our dividend. Furthermore, during the second quarter and through July 28, 2010 the Company utilized a portion of our cash balances to repurchase $69.5 million of our own stock, allowing us to retire approximately 10% of our outstanding shares,” added Clark. “We are very encouraged by our second quarter performance, however uncertainty in the macro environment and the seasonality of the business lead us to be cautious regarding the outlook for the balance of the year. Based on the share repurchases and current business trends we are raising the lower end of our full year diluted EPS guidance to $1.07 per share while maintaining the upper end of guidance at $1.12 per share.”

Conference Call and Webcast

Management will host a webcast to discuss second quarter 2010 financial results today at 4:30 PM Eastern time. The webcast will include remarks from Chairman and Chief Executive Officer Joe Redling and Chief Financial Officer David Clark.

The webcast will be available live under the Investor Relations section of Nutrisystem's website, www.nutrisystem.com. Please click on Investor Relations at the bottom of the home page and then click on the microphone icon on the Investor Relations home page. Interested parties unable to access the conference call via the webcast may dial 866-831-9862 (outside US/Canada 706-758-5226), the conference ID is 89173412. A replay of the conference call will be available on the Company website following the event.

About Nutrisystem, Inc.

Nutrisystem, Inc. (NASDAQ:NTRI) is a leading provider of weight management products and services. Nutrisystem is sold direct to the consumer through nutrisystem.com, by phone, and at select retailers, with convenient home delivery. The Company offers proven nutritionally balanced weight loss programs designed for women, men, and seniors, as well as the clinically tested Nutrisystem D plan, designed to help people with type 2 diabetes who want to lose weight. The Nutrisystem program is based on more than 35 years of nutrition research and the science of the low glycemic index, and offers a variety of great tasting, satisfying high-fiber, good carbohydrate meals that are heart healthy. Nutrisystem was named the "Best Value" of the six most popular commercial diet programs by SmartMoney magazine in January 2010. The program has no membership fees and provides 24/7 weight management support by trained weight loss coaches and online weight management tools free of charge. In 2010 Internet Retailer magazine recognized Nutrisystem as one of the top two overall online retailers in the Food and Drug category, and as number 56 of the top 500 online retailers overall. Nutrisystem proudly supports the American Diabetes Association in its Movement to Stop Diabetes and WomenHeart, The National Coalition for Women with Heart Disease, in its mission to bring about a greater awareness of the link between heart disease and obesity. For more information or to become a customer visit http://www.nutrisystem.com or call 1-800-435-4074.

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 plans and expectations for the third quarter of 2010 and the full year 2010, continuing to pay regular quarterly dividends 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   Six Months Ended June 30, June 30,  

2010

     

2009

   

2010

     

2009

    REVENUE $ 141,634   $ 131,000   $ 300,464   $ 292,779     COSTS AND EXPENSES: Cost of revenue 61,792 60,304 133,931 135,776 Marketing 37,223 35,372 93,828 82,216 General and administrative 19,662 20,923 38,917 42,476 Depreciation and amortization   2,940     2,499     5,931     4,950   Total costs and expenses   121,617     119,098     272,607     265,418   Operating income from continuing operations 20,017 11,902 27,857 27,361 OTHER INCOME (EXPENSE) — 281 (35 ) 190 EQUITY AND IMPAIRMENT LOSS — (3,610 ) — (4,000 ) INTEREST INCOME (EXPENSE), net   48     (47 )   104     (96 ) Income from continuing operations before income taxes 20,065 8,526 27,926 23,455

INCOME TAXES (BENEFIT)

  7,385     (591 )   10,347     5,019   Income from continuing operations 12,680 9,117 17,579 18,436 DISCONTINUED OPERATIONS: Loss on discontinued operations, net of income tax benefit   (89 )   (338 )   (187 )   (815 ) Net income $ 12,591   $ 8,779   $ 17,392   $ 17,621     BASIC INCOME PER COMMON SHARE: Income from continuing operations $ 0.41 $ 0.30 $ 0.56 $ 0.60 Loss on discontinued operations   (0.01 )   (0.01 )   (0.01 )   (0.03 ) Net income $ 0.40   $ 0.29   $ 0.55   $ 0.57   DILUTED INCOME PER COMMON SHARE: Income from continuing operations $ 0.40 $ 0.29 $ 0.56 $ 0.60 Loss on discontinued operations   —     (0.01 )   (0.01 )   (0.03 ) Net income $ 0.40   $ 0.28   $ 0.55   $ 0.57   WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 29,721 29,399 29,714 29,358 Diluted 30,105 29,648 30,070 29,590 Dividends declared per common share $ 0.18 $ 0.18 $ 0.35 $ 0.35     NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)     June 30,   December 31,   2010     2009   (Unaudited)

ASSETS

CURRENT ASSETS: Cash and cash equivalents $ 58,294 $ 31,864 Marketable securities 30,637 30,324 Receivables 12,874 12,932 Inventories, net 23,893 52,012 Prepaid income taxes 964 2,420 Deferred income taxes 2,479 2,756 Other current assets 6,686 10,659 Current assets of discontinued operations   266     648   Total current assets 136,093 143,615   FIXED ASSETS, net 33,868 20,984 OTHER ASSETS 6,241 5,752 NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS   350     436   $ 176,552   $ 170,787  

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES: Accounts payable $ 41,948 $ 32,246 Accrued payroll and related benefits 4,012 1,088 Deferred revenue 1,195 3,710 Other accrued expenses and current liabilities 5,493 2,653 Current liabilities of discontinued operations   317     577   Total current liabilities 52,965 40,274 NON-CURRENT LIABILITIES   5,389     1,550   Total liabilities   58,354     41,824     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 – 30,465,209 at June 30, 2010 and 30,949,784 at December 31, 2009) 28 29 Additional paid-in capital — 6,515 Retained earnings 118,254 122,503 Accumulated other comprehensive loss   (84 )   (84 ) Total stockholders’ equity   118,198     128,963   $ 176,552   $ 170,787       NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited, in thousands)  

Six Months Ended June 30,

  2010       2009   CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 17,392 $ 17,621 Adjustments to reconcile net income to net cash provided by operating activities: Loss on discontinued operations 187 815 Depreciation and amortization 5,931 4,950 Loss on disposal of fixed assets 65 29 Share–based expense 5,379 4,251 Deferred income tax benefit (329 ) (945 ) Equity and impairment loss — 4,000 Changes in operating assets and liabilities: Receivables 62 9,136 Inventories, net 28,119 21,084 Other assets 4,360 1,117 Accounts payable 7,558 (2,199 ) Accrued payroll and related benefits 2,924 881 Deferred revenue (2,515 ) (3,366 ) Income taxes 1,455 (4,792 ) Other accrued expenses and liabilities   1,207     887   Net cash provided by operating activities of continuing operations 71,795 53,469 Net cash used in operating activities of discontinued operations   (243 )   (505 ) Net cash provided by operating activities   71,552     52,964   CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (313 ) (10,000 ) Capital additions   (11,271 )   (5,105 ) Net cash used in investing activities of continuing operations (11,584 ) (15,105 ) Net cash used in investing activities of discontinued operations   (38 )   (74 ) Net cash used in investing activities   (11,622 )   (15,179 ) CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options 105 332 Equity compensation awards, net (1,793 ) (322 ) Payment of dividends (10,855 ) (10,656 ) Repurchase and retirement of common stock   (21,262 )   (1,939 ) Net cash used in financing activities   (33,805 )   (12,585 ) Effect of exchange rate changes on cash and cash equivalents   10     171   NET INCREASE IN CASH AND CASH EQUIVALENTS 26,135 25,371

CASH AND CASH EQUIVALENTS, beginning of period

  32,364     38,631  

CASH AND CASH EQUIVALENTS, end of period

58,499 64,002 LESS CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS, end of period   205     963  

CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS, end of period

$ 58,294   $ 63,039         NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED EBITDA RECONCILIATION TO GAAP RESULTS (in thousands)   Three Months Ended June 30, Six Months Ended June 30,   2010       2009     2010       2009     Adjusted EBITDA $ 26,152 $ 16,611 $ 39,084 $ 36,562

Non-cash employee compensation expense

(3,195 ) (2,210 ) (5,296 ) (4,251 ) Other income (expense) — 281 (35 ) 190 Equity and impairment loss — (3,610 ) — (4,000 ) Interest income (expense), net 48 (47 ) 104 (96 ) Income (taxes) benefit (7,385 ) 591 (10,347 ) (5,019 ) Depreciation and amortization   (2,940 )   (2,499 )   (5,931 )   (4,950 ) Income from continuing operations $ 12,680   $ 9,117   $ 17,579   $ 18,436    

Adjusted EBITDA is defined as income from continuing operations excluding non-cash employee compensation, other income (expense), equity and impairment loss, interest, income (taxes)benefit and depreciation and amortization. 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.