NTRI Nutrisystem

NutriSystem, Inc. (NASDAQ:NTRI), a leading provider of weight management products and services, today reported financial results for the third quarter ended September 30, 2008, including: Revenue of $162,681,000, compared to $188,103,000 in the third quarter of 2007; Income from continuing operations after tax of $13,695,000 compared to $22,250,000 in the third quarter of 2007; Adjusted EBITDA, defined as income from continuing operations excluding non-cash employee compensation, foreign currency transaction gains (losses), equity loss, interest, income taxes and depreciation and amortization expense of $26,652,000, compared to $36,963,000 in the third quarter 2007; Fully diluted earnings per share of $0.45, compared to $0.64 in the third quarter of 2007; and Cash and cash equivalents of $58,049,000 at September 30, 2008, and no debt outstanding under its $200 million credit facility. �Even in turbulent economic conditions our flexible eCommerce, direct-to-consumer business model continues to generate solid levels of revenues, Adjusted EBITDA and cash while remaining debt free,� stated President and Chief Executive Officer Joe Redling. �With the sustained strength in our cash generation and balance sheet, we are announcing the continuation of our quarterly dividend to continue to return value to our shareholders,� added Redling. �So far this year we have generated $97 million of cash provided by operating activities which allowed us to fully fund capital expenditures for growth while returning over $70 million to our shareholders through dividends and buybacks,� stated Chief Financial Officer David Clark. The Board of Directors declared the Company's quarterly dividend of $0.175 per share, payable November 17, 2008 to shareholders of record as of November 7, 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. Full Year 2008 Outlook The Company now expects full year 2008 revenues to be between $690 million and $700 million, and Adjusted EBITDA is expected to be between $105 million and $110 million. The Company defines Adjusted EBITDA as income from continuing operations excluding non-cash employee compensation, foreign currency transaction gains (losses), equity loss, interest, income taxes and depreciation and amortization expense. �Our third quarter performance was impacted by weaker than anticipated demand in September which we expect to continue through October and the balance of 2008 given the difficult macroeconomic conditions. With an expanded product offering for 2009, our revised guidance provides us with flexibility to assess and react to the market going into first quarter of 2009,� commented Mr. Redling. Conference Call and Webcast Management will host a conference call at 4:30 PM Eastern Time Wednesday, October 22, 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 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 and full year 2008, its expectations regarding the effect of economic and competitive pressures, 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, 2008 2007 2008 2007 � REVENUE $ 162,681 � $ 188,103 � $ 573,178 � $ 639,578 � � COSTS AN EXPENSES: Cost of revenue 79,523 87,691 283,056 295,420 Marketing 39,165 47,514 148,449 144,737 General and administrative 19,471 16,871 54,475 48,379 Depreciation and amortization � 2,484 � � 1,520 � � 6,170 � � 4,130 � Total costs and expenses � 140,643 � � 153,596 � � 492,150 � � 492,666 � Operating income from continuing operations 22,038 34,507 81,028 146,912 FOREIGN CURRENCY TRANSACTION LOSS (40 ) � (84 ) � EQUITY LOSS (552 ) � (2,660 ) � INTEREST INCOME, net � 292 � � 1,097 � � 734 � � 2,986 � Income from continuing operations before income taxes 21,738 35,604 79,018 149,898 INCOME TAXES � 8,043 � � 13,354 � � 29,234 � � 56,214 � Income from continuing operations 13,695 22,250 49,784 93,684 DISCONTINUED OPERATION: Loss on discontinued operation, net of income tax benefit � (164 ) � (1 ) � (202 ) � (19 ) Net income $ 13,531 � $ 22,249 � $ 49,582 � $ 93,665 � � BASIC INCOME PER COMMON SHARE: Income from continuing operations $ 0.46 $ 0.65 $ 1.60 $ 2.71 Net loss from discontinued operation � � � � � � � � � � � � Net income $ 0.46 � $ 0.65 � $ 1.60 � $ 2.71 � DILUTED INCOME PER COMMON SHARE: Income from continuing operations $ 0.45 $ 0.64 $ 1.58 $ 2.64 Net loss from discontinued operation � � � � � � � (0.01 ) � � � Net income $ 0.45 � $ 0.64 � $ 1.57 � $ 2.64 � WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 29,709 34,219 31,076 34,621 Diluted 30,247 34,942 31,597 35,438 � � � NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) � September 30, December 31, 2008 2007 (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 58,049 $ 40,679 Marketable securities � 1,769 Receivables 16,074 19,100 Inventories 39,010 82,491 Prepaid income taxes 5,004 � Deferred income taxes 4,151 3,260 Other current assets 7,536 11,585 Current assets of discontinued operation � 375 � � 517 Total current assets 130,199 159,401 � FIXED ASSETS, net 24,336 21,872 EQUITY INVESTMENT 10,798 13,458 GOODWILL 2,717 � IDENTIFIABLE INTANGIBLE ASSETS, net 2,795 � OTHER ASSETS 3,031 3,823 NON-CURRENT ASSETS OF DISCONTINUED OPERATION � 6 � � 6 $ 173,882 � $ 198,560 LIABILITIES AND STOCKHOLDERS� EQUITY CURRENT LIABILITIES: Accounts payable $ 30,475 $ 46,064 Accrued payroll and related benefits 4,332 1,907 Income taxes payable � 2,482 Deferred revenue 2,420 � Other accrued expenses and current liabilities 6,965 5,535 Current liabilities of discontinued operation � 169 � � 64 Total current liabilities 44,361 56,052 NON-CURRENT LIABILITIES � 1,255 � � 1,006 Total liabilities � 45,616 � � 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 � 30,928,046 at September 30, 2008 and 33,955,859 at December 31, 2007) 30 33 Retained earnings 128,405 141,454 Accumulated other comprehensive (loss) income � (169 ) � 15 Total stockholders� equity � 128,266 � � 141,502 $ 173,882 � $ 198,560 � � NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) � Nine Months Ended September 30, 2008 � 2007 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 49,582 $ 93,665 Adjustments to reconcile net income to net cash provided by operating activities Loss on discontinued operation 202 19 Depreciation and amortization 6,170 4,130 Share�based expense 5,704 2,853 Deferred income tax benefit (336 ) (1,183 ) Loss on disposal of fixed assets 85 244 Equity loss 2,660 � Changes in operating assets and liabilities Accrued interest income 19 (235 ) Receivables 3,009 2,764 Inventories 43,426 33,455 Other assets 4,442 (976 ) Accounts payable (15,602 ) (13,038 ) Accrued payroll and related benefits 2,426 3,970 Deferred revenue 2,420 � Income taxes (7,483 ) 7,813 Other accrued expenses and liabilities � 403 � � 2,548 � Net cash provided by operating activities of continuing operations 97,127 136,029 Net cash (used in) provided by operating activities of discontinued operations � (95 ) � 14 � Net cash provided by operating activities � 97,032 � � 136,043 � CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities � (172,300 ) Sales of marketable securities 1,750 162,475 Cash paid for acquisition of a business (4,217 ) � Capital additions � (8,540 ) � (12,092 ) Net cash used in investing activities of continuing operations � (11,007 ) � (21,917 ) Net cash used in investing activities of discontinued operations � � � � (100 ) Net cash used in investing activities � (11,007 ) � (22,017 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under credit facility 35,000 � Repayments of borrowings under credit facility (35,000 ) � Exercise of stock options 819 1,623 Withholding of restricted stock for minimum tax obligations (246 ) � Tax benefit from stock option exercises 1,267 7,381 Tax benefit from dividends 112 � Repurchase and retirement of common stock (59,787 ) (97,756 ) Payment of dividends � (10,829 ) � � � Net cash used in financing activities of continuing operations � (68,664 ) � (88,752 ) Net cash used in financing activities of discontinued operations � � � � (150 ) Net cash used in financing activities � (68,664 ) � (88,902 ) Effect of exchange rate changes on cash and cash equivalents � (130 ) � � � NET INCREASE IN CASH AND CASH EQUIVALENTS � 17,231 � � 25,124 � CASH AND CASH EQUIVALENTS, beginning of period � 41,190 � � 13,785 � CASH AND CASH EQUIVALENTS, end of period � 58,421 � � 38,909 � LESS CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATION, end of period � 372 � � 216 � CASH AND CASH EQUIVALENTS OF CONTINUING OPERATIONS, end of period $ 58,049 � $ 38,693 � � � � NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED EBITDA RECONCILIATION TO GAAP RESULTS (In thousands) � � Three Months Ended September 30, � Nine Months Ended September 30, 2008 � 2007 2008 � 2007 � Adjusted EBITDA $ 26,652 $ 36,963 $ 92,628 $ 153,620 Non-cash employee compensation expense (2,130 ) (936 ) (5,430 ) (2,578 ) Foreign currency transaction loss (40 ) � (84 ) � Equity loss (552 ) � (2,660 ) � Interest income, net 292 1,097 734 2,986 Income taxes (8,043 ) (13,354 ) (29,234 ) (56,214 ) Depreciation and amortization � (2,484 ) � (1,520 ) � (6,170 ) � (4,130 ) Income from continuing operations $ 13,695 � $ 22,250 � $ 49,784 � $ 93,684 � � Adjusted EBITDA is defined as income from continuing operations excluding non-cash employee compensation, foreign currency transaction gains (losses), equity loss, interest, income taxes and depreciation and amortization 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. �