NTRI Nutrisystem

NutriSystem, Inc. (NASDAQ:NTRI), a leading provider of weight management and fitness products and services, today reported financial results for the fourth quarter and full year 2007. Highlights for the full year and quarter ended December 31, 2007 include: Full Year 2007 An increase in revenue of 37% to $776,767,000, compared to $565,950,000 for full year 2006; An increase in operating income of 22% to $162,854,000, compared to $133,056,000 for full year 2006. Growth in net income of 22% to $104,152,000, or $2.96 per diluted share, which included a loss of $795,000, or $0.02 per diluted share, from the discontinuation of the Slim and Tone business. This compares to full year 2006 net income of $85,130,000, or $2.29 per diluted share, which included a loss of $548,000, or $0.01 per diluted share, from the Slim and Tone discontinued operations. Fourth Quarter 2007 An increase in revenue of 3% to $137,189,000, compared to $133,273,000 for the fourth quarter of 2006; A decrease in operating income to $15,942,000, including approximately $3,700,000 in transition costs related to the transition to the Company�s new Advanced product, compared to operating income of $29,809,000 in the fourth quarter of 2006. Fourth quarter results also reflect $1,410,000 of share-based expense in 2007 compared to $723,000 in 2006; and A decrease in net income to $10,487,000, or $0.31 per diluted share, which included a loss of $776,000, or $0.02 per diluted share, from the discontinuation of the Slim and Tone business. This compares to fourth quarter of 2006 net income of $19,607,000, or $0.53 per diluted share, which included a loss of $349,000, or $0.01 per diluted share, from the Slim and Tone discontinued operations. Earnings per share from continuing operations was $0.33 as compared to $0.54 in the prior year. �We are pleased with our 2007 financial performance, given the changing competitive and economic environment in the second half of the year,� stated Michael J. Hagan, Chairman and Chief Executive Officer. �The Company had many significant accomplishments in 2007: our Men�s weight loss business exceeded $200 million in revenue in its first full year, the reactivation of ex-customers was very strong with 150% revenue growth, and our Company served over 1.3 million total customers in 2007 across all of our channels. The Company also made some significant investments in 2007 and we expect to benefit from those investments in 2008, including a new e-commerce platform, the launch of our breakthrough new weight loss program called NutriSystem Advanced, and the start-up of our operations in Canada which represents our first international business.� Direct channel revenue reached $132,192,000 in the fourth quarter of 2007 as compared to $128,138,000 in the same period in 2006. The Company added approximately 131,000 Direct channel new customers as compared to 160,000 new customers in the fourth quarter of 2006. For the full year 2007, the Company generated $90 million in net cash from operations less capital expenditures and ended the year with $42 million in cash and marketable securities and $200 million availability under its credit agreement. �Our capital efficient business model enabled us to repurchase $122 million in stock, invest $19 million in capital expenditures, and invest $14 million in ZeroWater, while still supporting our growth in 2007,� said David Clark, Chief Financial Officer. �We ended the year with no debt and anticipate similar free cash flow generation in 2008.� Full Year 2008 Outlook For the full year 2008, the Company estimates that revenues will be in the range of $690 to $710 million, and adjusted earnings before interest, taxes, depreciation and amortization, or Adjusted EBITDA, between $125 million and $135 million. For the first quarter of 2008, the Company estimates revenues will be between $200 and $210 million and Adjusted EBITDA will be between $18 and $22 million. The Company defines Adjusted EBITDA as earnings before interest, taxes and depreciation plus non-cash expenses, including non-cash compensation. �The environment grew more challenging in January 2008 and we believe the economy is playing a role in consumer discretionary items such as weight loss programs. Given that uncertainty, we believe it�s prudent to be cautious with our outlook at this time,� concluded Hagan. �However, our optimism for our business and our point of view for the potential over the long term has not changed. Accordingly, we will continue to invest in marketing that makes our brand more relevant and also proceed with diversification of our business by launching new international businesses in both Japan and the United Kingdom, two markets that we expect to enter in 2009.� Conference Call and Webcast Management will host a conference call and simultaneous webcast to discuss fourth quarter and full year 2007 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 and Chief Executive Officer Michael Hagan, President and Chief Operating Officer Joseph Redling, Executive Vice President and Chief Marketing Officer Tom Connerty, and Chief Financial Officer David Clark. Interested parties may participate in the conference call by dialing 866-356-4279 (international: 617-597-5394) and entering access code 46274080, 5-10 minutes prior to the initiation of the call. A replay of the conference call will be available through March 19, 2008, by dialing 888-286-8010 (international: 617-801-6888) and entering access code 66746207. A webcast of the conference call will also be available for one year under the investor information section of NutriSystem�s website. 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 first quarter and full year 2008, its expectations regarding free cash flow generation and international expansion in 2008, its expectations regarding the effect of economic and competitive pressures, statements about the benefits to be achieved from investments made in 2007, 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 December 31, Year Ended December 31, � 2007 � � 2006 � � 2007 � � 2006 � � REVENUE $ 137,189 � $ 133,273 � $ 776,767 � $ 565,950 � COSTS AND EXPENSES: Cost of revenues 68,454 60,376 363,874 270,625 Marketing 33,963 30,569 178,700 118,150 General and administrative 17,148 11,740 65,527 41,655 Depreciation and amortization � 1,682 � � 779 � � 5,812 � � 2,464 � Total costs and expenses � 121,247 � � 103,464 � � 613,913 � � 432,894 � Operating income from continuing operations 15,942 29,809 162,854 133,056 OTHER EXPENSE (39 ) � (39 ) � EQUITY LOSS (800 ) � (800 ) � INTEREST INCOME, net � 817 � � 1,106 � � 3,803 � � 3,591 � Income from continuing operations before income taxes 15,920 30,915 165,818 136,647 INCOME TAXES � 4,657 � � 10,959 � � 60,871 � � 50,969 � Income from continuing operations � 11,263 � � 19,956 � � 104,947 � � 85,678 � DISCONTINUED OPERATIONS: Loss on discontinued operations, net of income tax benefit � (776 ) � (349 ) � (795 ) � (548 ) Net income $ 10,487 � $ 19,607 � $ 104,152 � $ 85,130 � BASIC INCOME PER COMMON SHARE: Income from continuing operations $ 0.33 $ 0.56 $ 3.05 $ 2.39 Net loss from discontinued operations � (0.02 ) � (0.01 ) � (0.02 ) � (0.01 ) Net income $ 0.31 � $ 0.55 � $ 3.03 � $ 2.38 � DILUTED INCOME PER COMMON SHARE: Income from continuing operations $ 0.33 $ 0.54 $ 2.98 $ 2.30 Net loss from discontinued operations � (0.02 ) � (0.01 ) � (0.02 ) � (0.01 ) Net income $ 0.31 � $ 0.53 � $ 2.96 � $ 2.29 � � WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 33,732 35,637 34,397 35,800 Diluted 34,376 36,773 35,171 37,122 NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) � December 31, 2007 � 2006 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 40,679 $ 13,469 Marketable securities 1,769 66,809 Receivables 19,100 17,214 Inventories 82,491 72,366 Deferred income taxes 3,260 2,743 Other current assets 11,585 11,136 Current assets of discontinued operation � 517 � 2,046 Total current assets 159,401 185,783 FIXED ASSETS, net 21,872 9,322 EQUITY INVESTMENT 13,458 � OTHER ASSETS 3,823 1,456 NON-CURRENT ASSETS OF DISCONTINUED OPERATION � 6 � 1,306 $ 198,560 $ 197,867 LIABILITIES AND STOCKHOLDERS� EQUITY CURRENT LIABILITIES: Accounts payable $ 46,064 $ 45,285 Accrued payroll and related benefits 1,907 1,360 Income taxes payable 2,482 � Other accrued expenses and current liabilities 5,535 4,809 Current liabilities of discontinued operation � 64 � 280 Total current liabilities 56,052 51,734 NON-CURRENT LIABILITIES 1,006 681 NON-CURRENT LIABILITIES OF DISCONTINUED OPERATION � � � 150 Total liabilities � 57,058 � 52,565 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 � 33,955,859 at December 31, 2007 and 35,918,506 at December 31, 2006) 33 35 Additional paid-in capital � 60,355 Retained earnings 141,454 84,912 Accumulated other comprehensive income � 15 � -- Total stockholders� equity � 141,502 � 145,302 $ 198,560 $ 197,867 NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) � Year Ended December 31, 2007 � 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 104,152 $ 85,130 Adjustments to reconcile net income to net cash provided by operating activities- Loss on discontinued operation 795 548 Depreciation and amortization 5,812 2,464 Loss on disposal of fixed assets 303 17 Share�based expense 4,270 5,507 Deferred income tax expense (benefit) expense (2,163 ) 3,488 Equity loss 800 � Changes in operating assets and liabilities Accrued interest income 590 (343 ) Receivables (1,886 ) (9,746 ) Inventories (10,110 ) (38,213 ) Other assets (3,878 ) (7,342 ) Accounts payable 779 19,637 Accrued payroll and related benefits 547 442 Income taxes payable 6,004 � Other accrued expenses and liabilities � 1,381 � � 4,725 � Net cash provided by operating activities of continuing operations 107,396 66,314 Net cash provided by operating activities of discontinued operations � 829 � � 526 � Net cash provided by operating activities � 108,225 � � 66,840 � CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities (178,800 ) (119,350 ) Sales of marketable securities 243,250 94,950 Capital additions (18,703 ) (5,881 ) Purchase of equity investment � (14,258 ) � � � Net cash provided by (used in) investing activities of continuing operations 31,489 (30,281 ) Net cash provided by (used in) investing activities of discontinued operations � 1,650 � � (1,679 ) Net cash provided by (used in) investing activities � 33,139 � � (31,960 ) CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options and warrants 1,931 3,632 Tax benefit from stock option exercises 7,317 17,939 Debt issuance costs (814 ) � Repurchase and retirement of common stock � (121,777 ) � (45,368 ) Net cash used in financing activities of continuing operations (113,343 ) (23,797 ) Net cash used in financing activities of discontinued operations � (300 ) � � � Net cash used in financing activities � (113,643 ) � (23,797 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 27,721 11,083 CASH AND CASH EQUIVALENTS, beginning of year 13,469 2,702 CASH AND CASH EQUIVALENTS, end of year � 41,190 � � 13,785 � LESS CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATION, end of year � 511 � � 316 � CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS, end of year $ 40,679 � $ 13,469 � NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED EBITDA RECONCILIATION TO GAAP RESULTS (in thousands) � � � � Three Months EndedDecember 31, Year EndedDecember 31, 2007 2006 2007 2006 � Adjusted EBITDA $ 19,034 $ 31,311 $ 172,653 $ 140,490 Non-cash employee compensation expense (1,410 ) (723 ) (3,987 ) (4,970 ) Other expense (39 ) - (39 ) - Equity loss (800 ) - (800 ) - Interest income, net 817 1,106 3,803 3,591 � Income taxes (4,657 ) (10,959 ) (60,871 ) (50,969 ) Depreciation expense (1,682 ) (779 ) (5,812 ) (2,464 ) � � � � Income from continuing operations $ 11,263 � $ 19,956 � $ 104,947 � $ 85,678 � 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.