NTRI Nutrisystem

Quarterly earnings of 15 cents per share up 50% from comparable year ago before one-time charges

Board of Directors declares dividend of 17.5 cents per share

Nutrisystem, Inc. (NASDAQ: NTRI), a leading provider of weight management products and services, today reported financial results for the third quarter 2013. The Company also announced that the Board of Directors has declared a quarterly dividend of $0.175 per share, payable November 18, 2013, to shareholders of record as of November 7, 2013.

The following are financial highlights for the third quarter ended September 30, 2013:

• Revenues for the quarter were $85.4 million, an increase of 5% from revenues of $81.3 million in the third quarter a year ago;
• Supplier dispute over a historical contract settled, resulting in a one-time charge reducing gross margin by $5.0 million and earnings per share by $0.14;
• Adjusted operating income, which is defined as operating income excluding the one-time supplier dispute charge, was $6.5 million, up 36% from $4.8 million in the third quarter of 2012. On a GAAP basis, operating income for the quarter was $1.5 million. A reconciliation of GAAP to non-GAAP measures is provided later in this press release;
• Adjusted EBITDA for the quarter was $9.6 million, an increase of 8% from $8.9 million in the third quarter of 2012. Adjusted EBITDA is defined as net income excluding non-cash employee compensation, other expense, interest, income taxes, depreciation and amortization, and one-time charges;
• Adjusted net income for the quarter was $4.3 million or $0.15 per share versus $2.9 million or $0.10 per share in the third quarter of 2012. Net income for the quarter was $356,000 or $0.01 per share; and
• Cash, cash equivalents, and short term investments were $41.1 million at September 30, 2013. The Company had no borrowings outstanding under its bank facility.

Dawn Zier, President and Chief Executive Officer, said, “We are pleased with the continued progress of our turnaround. The year-over-year growth in acquisition revenues and customer starts across all channels for the quarter is a strong sign that our strategy is beginning to take hold. The sophisticated segmentation and targeting methodologies implemented over the past year not only attracted and reactivated more customers in the third quarter, but also increased length of stay and the corresponding lifetime value. And, the bottom line continues to reflect adjusted gross margin improvement as well as increased operating leverage."

Ms. Zier continued, “Over the last year, we have researched and demonstrated that the Nutrisystem brand has strength and relevance across many platforms and configurations, as was seen with our expansion into retail. Consumers are giving us permission to do more with our brand. Consequently, based on our strategic wins and operational excellence over the past year, we are approaching this upcoming diet season with cautious optimism. Although there is still significant work that we need to do to realize our vision for the brand, with each quarter we grow increasingly confident that our plan will create both a strong Nutrisystem franchise and value for shareholders over the long term.”

Mike Monahan, Chief Financial Officer, said, “During the third quarter, the Company worked with a key supplier to settle a dispute connected to a legacy contract. Both companies worked diligently to resolve the matter, and ultimately we believe it was in the best interest of the Company and our shareholders to put the matter behind us so that we can continue to focus on executing our turnaround plan. As a result, the third quarter GAAP financials were impacted as we recorded a charge of $5 million, or $0.14 per share, in connection with the settlement of the dispute. There will be no impact on our financials going forward, and we will continue to work with the supplier in the future.”

Mr. Monahan continued, “Excluding the one-time charge, we achieved a number of important financial objectives in the quarter, including a 5% increase in revenues and a 400 basis point improvement in adjusted gross margins, generating nearly $10 million in adjusted EBITDA. These continued strong results are providing us with the resources to build the business and return cash to our shareholders. The upside in adjusted third quarter earnings per share has enabled us to increase our guidance for FY 2013. Adjusted earnings per share for nine months ended September 30, 2013 was $0.38. We are projecting fourth quarter earnings per share in the range of ($0.02) to $0.02, and expect year-over-year revenue growth in the mid-single digits in the fourth quarter.”

Conference Call and Webcast

Management will host a webcast to discuss third quarter 2013 financial results today at 4:30 PM Eastern time. The webcast will include remarks from President and Chief Executive Officer Dawn Zier, Chief Financial Officer Mike Monahan, and Chief Marketing Officer Keira Krausz. A webcast of the conference call will be available live on the Investor Relations section of the Nutrisystem website (www.nutrisystem.com) and a replay will be available for 30 days. Interested parties unable to access the conference call via the webcast may dial 913-312-0677, and reference conference ID 2112826.

Forward-Looking Statements

Information provided and statements contained in this press release that are not purely historical, such as fourth quarter and full year 2013 guidance, and the Company’s financial and operational outlook, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Such forward-looking statements only speak as of the date of this press release and the Company assumes no obligation to update the information included in this press release. Statements made in this press release that are forward-looking in nature may involve risks and uncertainties. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees and are subject to certain risks, uncertainties and assumptions that are difficult to predict, including, without limitation, specific factors discussed herein and in other releases and public filings made by the Company (including filings by the Company with the Securities and Exchange Commission). Although the Company believes that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made in this press release.

About Nutrisystem

Having helped Americans lose millions of pounds for over 40 years, Nutrisystem, Inc. (NASDAQ: NTRI) develops evidence-based programs for healthy weight management, and is the leading provider of home-delivered weight loss meal plans. Nutrisystem offers balanced nutrition in the form of low glycemic index meal plans designed for men and women, including seniors, vegetarians and the Nutrisystem® D® program for people with, or at risk for, type 2 diabetes. Nutrisystem® plans include a wide variety of pantry and frozen entrees and snacks to aid in program satisfaction and adherence, as well as transition plans to support long-term success. The Fort Washington, PA-based company also provides weight management support and counseling by trained weight-loss coaches and registered dietitians, as well as through an engaged online community, online tools and trackers, mobile apps, cookbooks and more. Healthcare professionals may learn more about the programs by visiting www.nutrisystem.com/hcp. Nutrisystem® weight loss plans are available directly to consumers through www.nutrisystem.com, by phone (1-800-435-4074) and at select retailers.

    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,

2013

 

2012

2013

 

2012

  REVENUE $ 85,360   $ 81,276   $ 288,213   $ 334,353     COSTS AND EXPENSES: Cost of revenue 47,627 43,835 147,696 180,783 Marketing 19,983 18,458 80,549 92,671 General and administrative 14,336 14,490 42,937 50,776 Depreciation and amortization   1,912     2,570     6,803     8,112   Total costs and expenses   83,858     79,353     277,985     332,342   Operating income 1,502 1,923 10,228 2,011 OTHER EXPENSE 0 0 0 (78 ) INTEREST EXPENSE, net   (41 )   (244 )   (123 )   (754 ) Income before income taxes 1,461 1,679 10,105 1,179

INCOME TAX EXPENSE (BENEFIT)

  1,105     (911 )   4,030     (1,045 ) Net income $ 356   $ 2,590   $ 6,075   $ 2,224     BASIC INCOME PER COMMON SHARE $ 0.01   $ 0.09   $ 0.21   $ 0.07   DILUTED INCOME PER COMMON SHARE $ 0.01   $ 0.09   $ 0.21   $ 0.07     WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 27,983 27,562 27,974 27,442 Diluted 28,261 27,801 28,160 27,642   DIVIDENDS DECLARED PER COMMON SHARE $ 0.175   $ 0.175   $ 0.525   $ 0.525         NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share and par value amounts)

  September 30, December 31, 2013 2012

ASSETS

CURRENT ASSETS: Cash and cash equivalents $ 18,353 $ 16,186 Short term investments 22,765 3,205 Receivables 9,281 8,487 Inventories 15,856 23,637 Prepaid income taxes 241 4,531 Deferred income taxes 2,158 2,969 Other current assets   4,251     7,160   Total current assets 72,905 66,175   FIXED ASSETS, net 27,195 28,003 OTHER ASSETS   5,100     4,228   Total assets $ 105,200   $ 98,406    

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES: Accounts payable $ 24,788 $ 23,192 Accrued payroll and related benefits 5,498 1,326 Deferred revenue 5,174 3,343 Accrued settlement 5,000 0 Other accrued expenses and current liabilities   7,298     6,911   Total current liabilities 47,758 34,772 NON-CURRENT LIABILITIES   3,243     3,525   Total liabilities   51,001     38,297     STOCKHOLDERS’ EQUITY: Preferred stock, $.001 par value (5,000,000 shares authorized, no shares issued and outstanding) 0 0

Common stock, $.001 par value (100,000,000 shares authorized; shares issued – 28,865,396 at September 30, 2013 and 28,631,464 at December 31, 2012)

29

29

Additional paid-in capital 22,011 18,466 Treasury stock, at cost, 141,342 shares at September 30, 2013 and 72,561 shares at December 31, 2012 (1,259 ) (636 ) Retained earnings 33,406 42,254 Accumulated other comprehensive income (loss)   12     (4 ) Total stockholders’ equity   54,199     60,109   Total liabilities and stockholders’ equity $ 105,200   $ 98,406       NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

 

Nine Months Ended

September 30,

2013   2012 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 6,075 $ 2,224 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,803 8,112 Loss on disposal of fixed assets 110 6 Share–based compensation expense 4,031 8,181 Deferred income tax benefit (642 ) (4,229 ) Other non-cash charges 43 57 Changes in operating assets and liabilities: Accrued interest 0 (11 ) Receivables (794 ) 6,221 Inventories 7,781 14,806 Other assets 2,952 5,207 Accounts payable 1,402 (11,052 ) Accrued payroll and related benefits 4,172 2,927 Deferred revenue 1,831 (630 ) Income taxes 4,264 3,063 Accrued settlement 5,000 0 Other accrued expenses and liabilities   517     288   Net cash provided by operating activities   43,545     35,170   CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short term investments (23,536 ) (10,298 ) Proceeds from sales of short term investments 3,952 245 Capital additions (6,351 ) (8,306 ) Proceeds from the sale of fixed assets   28     0   Net cash used in investing activities   (25,907 )   (18,359 ) CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options 0 10 Taxes related to equity compensation awards, net (548 ) (859 ) Payment of dividends   (14,923 )   (14,882 ) Net cash used in financing activities   (15,471 )   (15,731 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 2,167 1,080 CASH AND CASH EQUIVALENTS, beginning of period   16,186     47,594   CASH AND CASH EQUIVALENTS, end of period $ 18,353   $ 48,674         NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED EBITDA RECONCILIATION TO GAAP RESULTS

(Unaudited, in thousands)

 

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2013   2012 2013   2012   Adjusted EBITDA $ 9,555 $ 8,851 $ 26,982 $ 24,558 Non-cash employee compensation expense (1,141 ) (1,500 ) (3,510 ) (4,679 ) Other expense 0 0 0 (78 ) Interest expense, net (41 ) (244 ) (123 ) (754 ) Income tax (expense) benefit (1,105 ) 911 (4,030 ) 1,045 Depreciation and amortization (1,912 ) (2,570 ) (6,803 ) (8,112 ) One-time charges: Settlement with supplier (5,000 ) 0 (5,000 ) 0 Severance and related charges 0 (758 ) (1,441 ) (7,656 ) Impairment of supplier advance   0     (2,100 )   0     (2,100 ) Total one-time charges   (5,000 )   (2,858 )   (6,441 )   (9,756 ) Net income $ 356   $ 2,590   $ 6,075   $ 2,224    

Adjusted EBITDA is defined as net income excluding non-cash employee compensation, other expense, interest, income taxes, depreciation and amortization, and one-time charges.

    NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED OPERATING INCOME RECONCILIATION TO GAAP RESULTS

(Unaudited, in thousands)

  Three Months Ended

September 30,

Nine Months Ended

September 30,

2013   2012 2013   2012   Operating income as reported $ 1,502 $ 1,923 $ 10,228 $ 2,011 Adjustment for one-time charges   5,000   2,858   6,441   9,756 Adjusted operating income $ 6,502 $ 4,781 $ 16,669 $ 11,767       NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED NET INCOME RECONCILIATION TO GAAP RESULTS

(Unaudited, in thousands, except per share amounts)

  Three Months Ended

September 30,

Nine Months Ended

September 30,

2013   2012 2013   2012   Net income as reported $ 356 $ 2,590 $ 6,075 $ 2,224 Income tax expense (benefit) as

reported

  1,105   (911 ) 4,030   (1,045 ) Income before income taxes 1,461 1,679 10,105 1,179 Adjustment for one-time charges   5,000   2,858   6,441   9,756   Adjusted income before income taxes 6,461 4,537 16,546 10,935 Adjusted income tax expense   2,132   1,588   5,460   3,827   Adjusted net income $ 4,329 $ 2,949   $ 11,086 $ 7,108     Adjusted diluted income per common share $ 0.15 $ 0.10 $ 0.38 $ 0.25   Diluted weighted average shares outstanding as reported 28,261 27,801 28,160 27,642  

Adjusted income tax expense for the three and nine months ended September 30, 2013 has been calculated using a tax rate of 33%. For the three and nine months ended September 30, 2012, the adjusted income tax expense was calculated using a tax rate of 35%.

Statement Regarding Non-GAAP Financial Measures

We believe Adjusted EBITDA, Adjusted operating income and Adjusted net income are useful performance metrics for management and investors because they are indicative of the ongoing operations of the Company. These non-GAAP measures exclude 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.

Gregory FCAJoe Hassett, SVPDirect: 610-228-2110Mobile: 484-686-6600