NTRI Nutrisystem

Company Reports 15% Top-Line Growth and 12th Consecutive Quarter of Year-over-Year Revenue Growth

Company Exceeds Earnings per Share and Adjusted EBITDA Expectations

Nutrisystem, Inc. (NASDAQ: NTRI), a leading provider of weight management products and services, today reported financial results for the quarter ended June 30, 2016.

Dawn Zier, President and Chief Executive Officer, stated, “We are pleased with the double-digit revenue growth, improved profitability, and gross margin expansion that we delivered in the second quarter. Demand for our products and revenue per customer continue to grow, demonstrating positive consumer reception to our premium products, flexible options, and shakes.”

Ms. Zier added, “We are on track to officially launch the South Beach Diet program for Diet Season 2017 and will continue to bring innovative new products to market in the coming year. These initiatives, coupled with the proven strength of the Nutrisystem brand and our award-winning customer experience, have us well-positioned to capture a larger share of the broader weight loss space and enhance long-term shareholder value.”

The following are key financial highlights for the period. Reconciliations of certain GAAP to non-GAAP measures are provided later in this press release.

Second Quarter 2016 Compared to Second Quarter 2015

• Revenue increased 15% to $149.8 million, compared to $130.3 million.
• Gross margin increased 190 basis points to 53.9%, compared to 52.0%.
• Net income increased 33% to $16.1 million, compared to $12.1 million.
• Diluted income per common share increased 32% to $0.54, compared to $0.41.
• Adjusted EBITDA increased 33% to $29.9 million, compared to $22.5 million.
• The Board of Directors has declared a quarterly dividend of $0.175 per share, payable August 18, 2016 to stockholders of record as of August 8, 2016.

Mike Monahan, Chief Financial Officer, commented, “Our second quarter results demonstrate our consistent ability to grow the business while we continue to invest in new longer-term product offerings and portfolio expansion opportunities. As a result of this performance, we are raising the bottom end of our guidance ranges for the full year.”

Third Quarter and Updated Full Year 2016 Guidance

The Company’s third quarter and updated full year 2016 guidance are outlined below. Reconciliations of certain GAAP to non-GAAP measures are provided later in this press release along with tables detailing the expected impact of the South Beach and Shake360 initiatives.

• Third quarter revenue is expected to be in the range of $113 to $118 million, net income between $7.0 and $8.3 million, diluted income per common share between $0.23 and $0.28, and adjusted EBITDA between $15.6 and $17.6 million. This guidance includes $1.8 million of cash operating expense and $0.3 million of amortization expense, or $0.05 per common share expense, for the South Beach Diet and Shake360 initiatives.
• Full year 2016 revenue is now expected to be in the range of $520 to $532 million compared to previous range of $517 to $532 million, net income between $31.1 and $33.6 million, diluted income per common share between $1.05 and $1.13 compared to previous range of $1.03 to $1.13, and adjusted EBITDA between $66.8 and $70.5 million compared to previous range of $66.0 to $70.5 million. This updated guidance includes $5.5 million of cash operating expense and $1.0 million of amortization expense, or $0.14 per common share expense, for the South Beach Diet and Shake360 initiatives. Nutrisystem’s adjusted diluted income per common share is expected to be $1.19 to $1.27 compared to previous range of $1.17 to $1.27, which excludes the expected impact of the South Beach Diet and Shake360 initiatives.

Conference Call and Webcast

Management will host a conference call to discuss second quarter 2016 financial results today at 5:00 PM Eastern time. The conference call 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 Nutrisystem's website at www.nutrisystem.com. Interested parties unable to access the conference call via the webcast may dial 877-407-3982. A replay of the conference call will be available on the Company website for 30 days following the event and can be accessed at 877-870-5176 using replay pin number 13640058.

Non-GAAP Financial Measures

Within this announcement, the Company makes reference to certain adjusted financial measures, which have directly comparable GAAP financial measures as identified in this press release. In this release, EBITDA is defined as net income excluding interest, income taxes and depreciation and amortization. EBITDA is provided so that investors have the same financial data that management uses with the belief that it will assist the investment community in properly assessing the ongoing performance of the Company for the periods being reported and future periods. Adjusted EBITDA is defined as EBITDA excluding non-cash employee compensation. The Company excludes non-cash employee compensation because it is a non-cash expense that is not reflective of the cash expenses of the Company. Adjusted diluted income per share is defined as diluted income per share excluding new program and product initiatives to provide investors with insight into the core operations of the Company. The presentation of this additional information is not meant to be considered a substitute for measures prepared in accordance with GAAP.

Forward-Looking Statements

Information provided and statements contained in this press release that are not purely historical, such as third quarter and full year 2016 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, risks relating to cybersecurity breaches, risks that consumer spending may decline or that U.S. and global macroeconomic conditions may worsen resulting in reduced demand for the Company’s products, risks relating to changes in consumer preferences away from the Company’s food offerings including its pre-packaged foods, risks relating to the effectiveness and efficiency of the Company’s marketing expenditures which may not result in increased revenue or generate sufficient levels of brand name and program awareness, risks if the Company is unable to obtain sufficient quantities, quality and variety of food products in a timely and low-cost manner from its food vendors, risks of exposure to product liability claims if the use of the Company’s products results in illness or injury, risks if the Company becomes subject to health or advertising related claims from its customers, competitors or governmental and regulatory bodies, and risks relating to increased competition from other weight management providers. 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, Inc.

Nutrisystem, Inc. (NASDAQ: NTRI) is a leader in the weight loss industry, having helped millions of people lose weight over the course of more than 40 years. The Company’s weight loss solutions include Nutrisystem® My Way®, Fast 5, and Turbo 10, all clinically tested, structured food delivery programs that come with the digital platform NuMi® by Nutrisystem. Additionally, the Company offers multi-day kits and individual products available at select retail outlets. The Company’s current product line offers customers the most meal choices, including more than 150 foods with no artificial colors, flavors or sweeteners. Nutrisystem provides customers the flexibility to align their diet with the US Healthy Eating Meal Pattern, as recommended by the USDA Dietary Guidelines. Plans include comprehensive counseling options from trained weight loss coaches, registered dietitians and certified diabetes educators and can be customized to specific dietary needs and preferences including the Nutrisystem® D® program for people with Type 2 diabetes or pre-diabetes. The Company also owns and operates the South Beach Diet® and Shake360™ brands. For more information, go to NutrisystemNews.com.

       

NUTRISYSTEM, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share amounts)

  Three Months Ended June 30, Six Months Ended June 30, 2016     2015 2016     2015 REVENUE $ 149,823 $ 130,261 $ 311,933 $ 267,486   COSTS AND EXPENSES: Cost of revenue 69,142 62,570 147,700 128,439 Marketing 35,588 30,651 94,942 78,314 General and administrative 17,475 16,363 35,037 33,308 Depreciation and amortization   2,978   2,233   5,828   4,457 Total costs and expenses   125,183   111,817   283,507   244,518 Operating income 24,640 18,444 28,426 22,968 INTEREST EXPENSE, net   21   30   34   79 Income before income tax expense 24,619 18,414 28,392 22,889 INCOME TAX EXPENSE   8,501   6,329   9,722   7,861 Net income $ 16,118 $ 12,085 $ 18,670 $ 15,028 BASIC INCOME PER COMMON SHARE $ 0.55 $ 0.42 $ 0.64 $ 0.52 DILUTED INCOME PER COMMON SHARE $ 0.54 $ 0.41 $ 0.63 $ 0.51 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 29,188 28,627 29,105 28,510 Diluted 29,461 29,072 29,414 29,003 DIVIDENDS DECLARED PER COMMON SHARE $ 0.175 $ 0.175 $ 0.35 $ 0.35           NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except par value amounts)

  June 30, December 31, 2016 2015

ASSETS

CURRENT ASSETS: Cash and cash equivalents $ 20,687 $ 6,191 Short term investments 17,274 9,317 Receivables 15,557 18,385 Inventories 22,156 30,530 Prepaid income taxes 0 1,149 Deferred income taxes 1,310 1,192 Other current assets   7,083     10,118   Total current assets 84,067 76,882 FIXED ASSETS, net 32,751 30,849 INTANGIBLE ASSETS, net 14,584 15,084 DEFERRED INCOME TAXES 5,809 6,107 OTHER ASSETS   945     971   Total assets $ 138,156   $ 129,893  

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES: Accounts payable $ 28,846 $ 38,381 Accrued payroll and related benefits 5,290 7,556 Income taxes payable 4,450 0 Deferred revenue 8,269 5,618 Other accrued expenses and current liabilities   7,549     6,126   Total current liabilities 54,404 57,681 NON-CURRENT LIABILITIES   1,910     2,284   Total liabilities   56,314     59,965     STOCKHOLDERS’ EQUITY: Preferred stock, $.001 par value (5,000 shares authorized, no shares issued and outstanding) 0 0 Common stock, $.001 par value (100,000 shares authorized; shares issued – 30,014 at June 30, 2016 and 29,621 at December 31, 2015) 30 29 Additional paid-in capital 47,553 41,392

Treasury stock, at cost, 517 shares at June 30, 2016 and 389 shares at December 31, 2015

(8,302 ) (5,672 ) Retained earnings 42,486 34,191 Accumulated other comprehensive income (loss)   75     (12 ) Total stockholders’ equity   81,842     69,928   Total liabilities and stockholders’ equity $ 138,156   $ 129,893         NUTRISYSTEM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

  Six Months Ended June 30, 2016     2015 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 18,670 $ 15,028 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,828 4,457 Loss on disposal of fixed assets 104 14 Share–based compensation expense 3,666 3,046 Deferred income tax expense 171 34 Other charges 1 3 Changes in operating assets and liabilities: Receivables 2,828 (1,841 ) Inventories 8,374 5,072 Other assets 3,061 830 Accounts payable (10,029 ) (1,091 ) Accrued payroll and related benefits (2,266 ) (1,122 ) Deferred revenue 2,651 2,820 Income taxes 5,558 2,443 Other accrued expenses and liabilities   778     (943 ) Net cash provided by operating activities   39,395     28,750   CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short term investments (10,998 ) (2,303 ) Proceeds from sales of short term investments 3,175 7,251 Capital additions   (6,569 )   (4,086 ) Net cash (used in) provided by investing activities   (14,392 )   862   CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options 1,102 1,390 Employee tax withholdings related to the vesting of equity awards (2,630 ) (2,371 ) Excess tax benefits from share-based compensation 1,396 1,852 Payment of dividends   (10,375 )   (10,208 ) Net cash used in financing activities   (10,507 )   (9,337 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 14,496 20,275

CASH AND CASH EQUIVALENTS, beginning of period

  6,191     12,620   CASH AND CASH EQUIVALENTS, end of period $ 20,687   $ 32,895             NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED EBITDA RECONCILIATION TO GAAP RESULTS

(Unaudited, in thousands)

  Three Months Ended June 30, Six Months Ended June 30, 2016     2015 2016     2015   Net income $ 16,118 $ 12,085 $ 18,670 $ 15,028 Interest expense, net 21 30 34 79 Income tax expense 8,501 6,329 9,722 7,861 Depreciation and amortization   2,978   2,233   5,828   4,457 EBITDA 27,618 20,677 34,254 27,425

Non-cash employee compensation expense

  2,319   1,838   3,666   3,046 Adjusted EBITDA $ 29,937 $ 22,515 $ 37,920 $ 30,471           NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED EBITDA RECONCILIATION TO GAAP RESULTS

(Unaudited, in thousands)

  Three Months Ended June 30, Six Months Ended June 30, 2016     2015 2016     2015   Nutrisystem core business $ 31,212 $ 22,515 $ 40,866 $ 30,471 South Beach Diet and Shake360(a)   (1,275 )   0   (2,946 )   0 Adjusted EBITDA $ 29,937   $ 22,515 $ 37,920   $ 30,471   (a)   Represents South Beach Diet and Shake360 expenses less depreciation and amortization.           NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED DILUTED INCOME PER COMMON SHARE RECONCILIATION TO GAAP GUIDANCE

(Unaudited)

  Three Months Ending Year Ending September 30, 2016 December 31, 2016 Low     High Low     High   Adjusted diluted income per share $ 0.28 $ 0.33 $ 1.19 $ 1.27 South Beach Diet and Shake360   (0.05 )   (0.05 )   (0.14 )   (0.14 ) Diluted income per common share $ 0.23   $ 0.28   $ 1.05   $ 1.13             NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED EBITDA RECONCILIATION TO GAAP GUIDANCE

(Unaudited, in thousands)

  Three Months Ending Year Ending September 30, 2016 December 31, 2016 Low     High Low     High   Net income $ 6,985 $ 8,294 $ 31,131 $ 33,560 Interest expense, net 35 35 100 100 Income tax expense 3,680 4,371 16,294 17,565 Depreciation and amortization   3,300   3,300   12,400   12,400 EBITDA 14,000 16,000 59,925 63,625 Non-cash employee compensation expense   1,600   1,600   6,875   6,875 Adjusted EBITDA $ 15,600 $ 17,600 $ 66,800 $ 70,500           NUTRISYSTEM, INC. AND SUBSIDIARIES ADJUSTED EBITDA RECONCILIATION TO GAAP GUIDANCE

(Unaudited, in thousands)

  Three Months Ending Year Ending September 30, 2016 December 31, 2016 Low     High Low     High   Nutrisystem core business $ 17,360 $ 19,360 $ 72,300 $ 76,000 South Beach Diet and Shake360   (1,760 )   (1,760 )   (5,500 )   (5,500 ) Adjusted EBITDA $ 15,600   $ 17,600   $ 66,800   $ 70,500    

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ICR, Inc.John Mills, Partner646-277-1254ir@nutrisystem.comJohn.Mills@Icrinc.com