NTRI Nutrisystem

NutriSystem, Inc. (NASDAQ:NTRI), a leading provider of weight management and fitness products and services, today announced results for the third quarter ended September 30, 2006, including: An increase of 141% in revenue to $155,258,000 in the third quarter 2006 compared to $64,518,000 in revenue in the third quarter of 2005; Revenue in the first nine months of 2006 increased 204% to $434,640,000 compared to $142,889,000 in the first nine months of 2005; Growth in operating income to $36,678,000 (23.6% of revenues) in the third quarter of 2006 compared to operating income of $11,115,000 (17.2% of revenues) in the third quarter of 2005. Results in the third quarter 2006 reflect $677,000 of share-based expense which was not included in expense prior to 2006; Operating income in the first nine months of 2006 grew 335% to $102,887,000 compared to $23,635,000 in the same period in 2005; and An increase of 225% in net income to $23,398,000 or $0.63 per diluted share in the third quarter 2006 compared to net income of $7,195,000 or $0.19 per diluted share in the third quarter of 2005. �The third quarter results are a testament to the strength of the business and business model,� said Michael J. Hagan, Chairman, President and Chief Executive Officer. �NutriSystem delivered the best financial results of the year and we�re pleased with every important financial and operating metric in the business.� �In addition, the women�s market segment continues to deliver impressive numbers, and the men�s segment for the third quarter was almost 30% of total new customers acquired. The momentum we�ve already built in the men�s market is a clear signal to us that it will be a large business for us in the years to come,� continued Mr. Hagan. Direct channel revenue reached $143,547,000 in the third quarter of 2006, a 149% increase over the same period in 2005. The Company added approximately 235,000 Direct channel new customers, a 104% increase from approximately 115,000 new customers in the third quarter 2005. �In the third quarter, we advertised aggressively to increase our brand awareness and acceptance amongst men. As such, customer acquisition cost for the quarter was $145, which was in line with our expectations,� said James D. Brown, Executive Vice President and Chief Financial Officer. �We increased our overall marketing spend by $19,175,000 compared to third quarter last year while at the same time we maintained very attractive customer acquisition costs for both our men�s and women�s market segments.� �Profitability continues to strengthen. Year over year, third quarter gross margin increased by 3.2% percentage points and operating margin jumped by 6.4% percentage points,� continued Mr. Brown. �The operating leverage is particularly impressive in light of the level of media spending and high new customer growth.� �The business generated substantial operating cash flow as well. We repurchased 896,700 shares of common stock in the quarter for an aggregate purchase price of $45 million (average share price of $50.59), and we were still able to end the quarter with $5 million more than we started,� concluded Mr. Brown. Fourth Quarter and Full Year 2006 Outlook For the fourth quarter of 2006, the Company estimates that revenue will be between $123 and $128 million, an increase of at least 77% year over year. Diluted earnings per share are expected to be between $0.45 and $0.48, including an estimated $0.01 of share-based expense. Furthermore, the Company expects to add at least 155,000 new Direct channel customers in the fourth quarter of 2006. For the full year 2006, the Company estimates that revenue will be between $558 and $563 million, an increase of at least 163% from 2005. Diluted earnings per share are expected to be between $2.21 and $2.24 including an estimated $0.09 of share-based expense. �Our plans for 2007 include the introduction of a variety of new foods, a soon-to-be launched seniors marketing campaign and incessant focus on growing our women�s and men�s business. NutriSystem continues to be in high-growth mode and now with our proven ability to identify and penetrate new market segments, we�re excited about our prospects for 2007,� Mr. Hagan concluded. Conference Call and Webcast Management will host a conference call and simultaneous webcast to discuss third quarter 2006 financial results today at 5:00 PM Eastern time. The conference call will include remarks about the quarter and the Company�s outlook from members of the NutriSystem senior management team including Chairman, President and Chief Executive Officer Michael Hagan, Executive Vice President and Chief Marketing Officer Tom Connerty, and Executive Vice President and Chief Financial Officer James D. Brown. Interested parties may participate in the conference call by dialing 866-314 9013 (international: 617-213 8053) and entering access code 89906501, 5-10 minutes prior to the initiation of the call. A replay of the conference call will be available through November 24, 2006, by dialing 888-286-8010 (international: 617-801-6888) and entering access code 14535937. A webcast of the conference call will also be available for one year under the investor information section of NutriSystem�s website, www.nutrisystem.com. 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 fourth quarter of 2006 and the full year 2006, its expectations regarding its ability to continue its growth while maintaining costs, statements about momentum in its business 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 September 30, Nine Months Ended September 30, 2006� 2005� 2006� 2005� � REVENUE $ 155,258� $ 64,518� $ 434,640� $ 142,889� � COSTS AND EXPENSES: Cost of revenue 73,697� 32,697� 210,876� 74,021� Marketing 34,143� 14,968� 87,829� 31,870� General and administrative 10,025� 5,506� 31,215� 12,784� Depreciation and amortization � 715� � 232� � 1,833� � 579� Total costs and expenses � 118,580� � 53,403� � 331,753� � 119,254� Operating income 36,678� 11,115� 102,887� 23,635� INTEREST INCOME, net � 1,061� � 330� � 2,529� � 390� Income before income taxes 37,739� 11,445� 105,416� 24,025� INCOME TAXES � 14,341� � 4,250� � 39,893� � 9,282� Net income $ 23,398� $ 7,195� $ 65,523� $ 14,743� � BASIC INCOME PER SHARE $ 0.65� $ 0.21� $ 1.83� $ 0.46� DILUTED INCOME PER SHARE $ 0.63� $ 0.19� $ 1.76� $ 0.42� � WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 35,833� 34,309� 35,855� 32,196� Diluted 37,117� 36,957� 37,239� 35,045� NUTRISYSTEM, INC. AND SUBSIDIARIES � CONSOLIDATED BALANCE SHEETS � (Unaudited, in thousands except share and per share amounts) � � September 30, December 31, 2006� 2005� ASSETS CURRENT ASSETS: Cash and cash equivalents $ 5,637� $ 3,902� Marketable securities 96,080� 42,066� Trade receivables 11,314� 7,517� Inventories 26,691� 34,153� Deferred income taxes 2,786� 1,577� Other current assets � 3,157� � 4,281� Total current assets 145,665� 93,496� � FIXED ASSETS, net 8,670� 6,002� IDENTIFIABLE INTANGIBLE ASSETS, net 1,215� 1,351� GOODWILL 465� 465� DEFERRED INCOME TAXES 1,017� 5,787� OTHER ASSETS � 326� � 145� $ 157,358� $ 107,246� LIABILITIES AND STOCKHOLDERS� EQUITY CURRENT LIABILITIES: Current portion of note payable and capital lease obligation $ 178� $ 171� Accounts payable 30,068� 25,886� Accrued payroll and related benefits 4,743� 963� Accrued income taxes 6,246� ---� Other current liabilities � 980� � 1,006� Total current liabilities 42,215� 28,026� NON-CURRENT LIABILITIES � 425� � 254� Total liabilities � 42,640� � 28,280� � 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 and outstanding� 35,446,228 at September 30, 2006 and 35,432,055 at December 31, 2005) 35� 35� Additional paid-in capital 49,378� 79,149� Retained earnings (accumulated deficit) � 65,305� � (218) Total stockholders� equity � 114,718� � 78,966� $ 157,358� $ 107,246� NUTRISYSTEM, INC. AND SUBSIDIARIES � CONSOLIDATED STATEMENTS OF CASH FLOWS � (Unaudited, in thousands) � � Nine Months Ended September 30, 2006� 2005� CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 65,523� $ 14,743� Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 1,833� 579� Accrued interest income (614) (296) Imputed interest expense 11� 15� Loss on disposal of fixed assets 4� 8� Share-based expense 4,625� 109� Deferred tax expense 3,561� 2,652� Tax benefit from stock option exercises �� 3,518� Changes in operating assets and liabilities- Trade receivables (3,797) (5,297) Inventories 7,462� (7,962) Other assets 943� (197) Accounts payable 4,182� 12,317� Accrued payroll and related benefits 3,780� 2,496� Accrued income taxes 6,246� 2,747� Other liabilities � (327) � (170) Net cash provided by operating activities � 93,432� � 25,262� CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (102,000) (45,150) Sales of marketable securities 48,600� ---� Capital additions � (4,396) � (2,251) Net cash used in investing activities � (57,796) � (47,401) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common shares ---� 25,399� Purchase of common shares (45,368) ---� Tax benefit from stock option exercises 8,756� ---� Exercise of stock options � 2,711� � 1,762� Net cash (used in) provided by financing activities � (33,901) � 27,161� NET CHANGE IN CASH AND CASH EQUIVALENTS 1,735� 5,022� CASH AND CASH EQUIVALENTS, beginning of period � 3,902� � 4,201� CASH AND CASH EQUIVALENTS, end of period $ 5,637� $ 9,223� NutriSystem, Inc. (NASDAQ:NTRI), a leading provider of weight management and fitness products and services, today announced results for the third quarter ended September 30, 2006, including: -- An increase of 141% in revenue to $155,258,000 in the third quarter 2006 compared to $64,518,000 in revenue in the third quarter of 2005; -- Revenue in the first nine months of 2006 increased 204% to $434,640,000 compared to $142,889,000 in the first nine months of 2005; -- Growth in operating income to $36,678,000 (23.6% of revenues) in the third quarter of 2006 compared to operating income of $11,115,000 (17.2% of revenues) in the third quarter of 2005. Results in the third quarter 2006 reflect $677,000 of share-based expense which was not included in expense prior to 2006; -- Operating income in the first nine months of 2006 grew 335% to $102,887,000 compared to $23,635,000 in the same period in 2005; and -- An increase of 225% in net income to $23,398,000 or $0.63 per diluted share in the third quarter 2006 compared to net income of $7,195,000 or $0.19 per diluted share in the third quarter of 2005. "The third quarter results are a testament to the strength of the business and business model," said Michael J. Hagan, Chairman, President and Chief Executive Officer. "NutriSystem delivered the best financial results of the year and we're pleased with every important financial and operating metric in the business." "In addition, the women's market segment continues to deliver impressive numbers, and the men's segment for the third quarter was almost 30% of total new customers acquired. The momentum we've already built in the men's market is a clear signal to us that it will be a large business for us in the years to come," continued Mr. Hagan. Direct channel revenue reached $143,547,000 in the third quarter of 2006, a 149% increase over the same period in 2005. The Company added approximately 235,000 Direct channel new customers, a 104% increase from approximately 115,000 new customers in the third quarter 2005. "In the third quarter, we advertised aggressively to increase our brand awareness and acceptance amongst men. As such, customer acquisition cost for the quarter was $145, which was in line with our expectations," said James D. Brown, Executive Vice President and Chief Financial Officer. "We increased our overall marketing spend by $19,175,000 compared to third quarter last year while at the same time we maintained very attractive customer acquisition costs for both our men's and women's market segments." "Profitability continues to strengthen. Year over year, third quarter gross margin increased by 3.2% percentage points and operating margin jumped by 6.4% percentage points," continued Mr. Brown. "The operating leverage is particularly impressive in light of the level of media spending and high new customer growth." "The business generated substantial operating cash flow as well. We repurchased 896,700 shares of common stock in the quarter for an aggregate purchase price of $45 million (average share price of $50.59), and we were still able to end the quarter with $5 million more than we started," concluded Mr. Brown. Fourth Quarter and Full Year 2006 Outlook For the fourth quarter of 2006, the Company estimates that revenue will be between $123 and $128 million, an increase of at least 77% year over year. Diluted earnings per share are expected to be between $0.45 and $0.48, including an estimated $0.01 of share-based expense. Furthermore, the Company expects to add at least 155,000 new Direct channel customers in the fourth quarter of 2006. For the full year 2006, the Company estimates that revenue will be between $558 and $563 million, an increase of at least 163% from 2005. Diluted earnings per share are expected to be between $2.21 and $2.24 including an estimated $0.09 of share-based expense. "Our plans for 2007 include the introduction of a variety of new foods, a soon-to-be launched seniors marketing campaign and incessant focus on growing our women's and men's business. NutriSystem continues to be in high-growth mode and now with our proven ability to identify and penetrate new market segments, we're excited about our prospects for 2007," Mr. Hagan concluded. Conference Call and Webcast Management will host a conference call and simultaneous webcast to discuss third quarter 2006 financial results today at 5:00 PM Eastern time. The conference call will include remarks about the quarter and the Company's outlook from members of the NutriSystem senior management team including Chairman, President and Chief Executive Officer Michael Hagan, Executive Vice President and Chief Marketing Officer Tom Connerty, and Executive Vice President and Chief Financial Officer James D. Brown. Interested parties may participate in the conference call by dialing 866-314 9013 (international: 617-213 8053) and entering access code 89906501, 5-10 minutes prior to the initiation of the call. A replay of the conference call will be available through November 24, 2006, by dialing 888-286-8010 (international: 617-801-6888) and entering access code 14535937. A webcast of the conference call will also be available for one year under the investor information section of NutriSystem's website, www.nutrisystem.com. 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 fourth quarter of 2006 and the full year 2006, its expectations regarding its ability to continue its growth while maintaining costs, statements about momentum in its business 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. -0- *T NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, ------------------- ------------------- 2006 2005 2006 2005 --------- --------- --------- --------- REVENUE $155,258 $ 64,518 $434,640 $142,889 --------- --------- --------- --------- COSTS AND EXPENSES: Cost of revenue 73,697 32,697 210,876 74,021 Marketing 34,143 14,968 87,829 31,870 General and administrative 10,025 5,506 31,215 12,784 Depreciation and amortization 715 232 1,833 579 --------- --------- --------- --------- Total costs and expenses 118,580 53,403 331,753 119,254 --------- --------- --------- --------- Operating income 36,678 11,115 102,887 23,635 INTEREST INCOME, net 1,061 330 2,529 390 --------- --------- --------- --------- Income before income taxes 37,739 11,445 105,416 24,025 INCOME TAXES 14,341 4,250 39,893 9,282 --------- --------- --------- --------- Net income $ 23,398 $ 7,195 $ 65,523 $ 14,743 ========= ========= ========= ========= BASIC INCOME PER SHARE $ 0.65 $ 0.21 $ 1.83 $ 0.46 ========= ========= ========= ========= DILUTED INCOME PER SHARE $ 0.63 $ 0.19 $ 1.76 $ 0.42 ========= ========= ========= ========= WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 35,833 34,309 35,855 32,196 Diluted 37,117 36,957 37,239 35,045 *T -0- *T NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands except share and per share amounts) September 30, December 31, 2006 2005 ------------- ------------- ASSETS ------- CURRENT ASSETS: Cash and cash equivalents $ 5,637 $ 3,902 Marketable securities 96,080 42,066 Trade receivables 11,314 7,517 Inventories 26,691 34,153 Deferred income taxes 2,786 1,577 Other current assets 3,157 4,281 ------------- ------------- Total current assets 145,665 93,496 FIXED ASSETS, net 8,670 6,002 IDENTIFIABLE INTANGIBLE ASSETS, net 1,215 1,351 GOODWILL 465 465 DEFERRED INCOME TAXES 1,017 5,787 OTHER ASSETS 326 145 ------------- ------------- $ 157,358 $ 107,246 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------- CURRENT LIABILITIES: Current portion of note payable and capital lease obligation $ 178 $ 171 Accounts payable 30,068 25,886 Accrued payroll and related benefits 4,743 963 Accrued income taxes 6,246 --- Other current liabilities 980 1,006 ------------- ------------- Total current liabilities 42,215 28,026 NON-CURRENT LIABILITIES 425 254 ------------- ------------- Total liabilities 42,640 28,280 ------------- ------------- 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 and outstanding- 35,446,228 at September 30, 2006 and 35,432,055 at December 31, 2005) 35 35 Additional paid-in capital 49,378 79,149 Retained earnings (accumulated deficit) 65,305 (218) ------------- ------------- Total stockholders' equity 114,718 78,966 ------------- ------------- $ 157,358 $ 107,246 ============= ============= *T -0- *T NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) Nine Months Ended September 30, 2006 2005 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 65,523 $ 14,743 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 1,833 579 Accrued interest income (614) (296) Imputed interest expense 11 15 Loss on disposal of fixed assets 4 8 Share-based expense 4,625 109 Deferred tax expense 3,561 2,652 Tax benefit from stock option exercises -- 3,518 Changes in operating assets and liabilities- Trade receivables (3,797) (5,297) Inventories 7,462 (7,962) Other assets 943 (197) Accounts payable 4,182 12,317 Accrued payroll and related benefits 3,780 2,496 Accrued income taxes 6,246 2,747 Other liabilities (327) (170) ------------- ------------- Net cash provided by operating activities 93,432 25,262 ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (102,000) (45,150) Sales of marketable securities 48,600 --- Capital additions (4,396) (2,251) ------------- ------------- Net cash used in investing activities (57,796) (47,401) ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common shares --- 25,399 Purchase of common shares (45,368) --- Tax benefit from stock option exercises 8,756 --- Exercise of stock options 2,711 1,762 ------------- ------------- Net cash (used in) provided by financing activities (33,901) 27,161 ------------- ------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 1,735 5,022 CASH AND CASH EQUIVALENTS, beginning of period 3,902 4,201 ------------- ------------- CASH AND CASH EQUIVALENTS, end of period $ 5,637 $ 9,223 ============= ============= *T