NTRI Nutrisystem

Diluted Income Per Share Increased 10% to $0.54 for Third Quarter 2018

Company Expects to Achieve Full Year 2018 Revenue, Diluted Income Per Share and Adjusted EBITDA Guidance Ranges

Board Authorizes New $75 Million Stock Repurchase Program

Nutrisystem, Inc. (Nasdaq: NTRI), a leading provider of health and wellness and weight management products and services including Nutrisystem® and South Beach Diet® brands, today reported financial results for the quarter and nine months ended September 30, 2018.

Dawn Zier, President and Chief Executive Officer, stated, “I’m pleased we delivered year-over-year growth in the third quarter and adjusted EBITDA and earnings per share are aligned with expectations. South Beach growth remains strong and, most importantly, we see a clear path to return the Nutrisystem brand to growth in 2019.”

Ms. Zier added, “During the second half of the year we’re focused on positioning our company for a return to meaningful growth in 2019. We’re doing this in three primary ways and have arrived at the proof points that give us confidence that our plans will deliver that. First, our innovation efforts are centered around personalized nutrition and flexibility to better engage with consumers both at the start and throughout their journey to optimal health. Second, our new creative for 2019 supports our evolving brand promise, resonates well with consumers, and we’re seeing early evidence that our creative approach will drive response and engagement. And finally, we’re actively refining our media deployment strategy to expand reach, grow digital, and increase marketing efficiency. We’re excited about our future.”

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

Third Quarter 2018 Compared to Third Quarter 2017

• Revenue was $159.3 million compared to $158.1 million.
• Gross margin was 52.3% compared to 54.2%.
• Net income was $16.0 million compared to $15.0 million.
• Diluted income per common share was $0.54 compared to $0.49.
• Adjusted EBITDA was $26.8 million compared to $27.7 million.
• Company repurchased $1.3 million of common stock during the third quarter of 2018 for a total of $26.3 million during the first nine months of 2018.
• The Board of Directors has declared a quarterly dividend of $0.25 per share, payable November 19, 2018 to stockholders of record as of November 9, 2018.

Mike Monahan, Chief Financial Officer, commented, “Our third quarter and year-to-date results demonstrate the strength of our business model as we continued to generate increased free cash flow. Our strong balance sheet has allowed us to repurchase $26.3 million of stock in the first nine months of this year, and as of September 30, 2018, we had approximately $92.6 million in cash and cash equivalents and short-term investments, and no long-term debt. The Board of Directors has authorized a new $75 million buyback program set to expire October 2020. We will continue to utilize our balance sheet to enhance the long-term value of our company.”

Fourth Quarter and Full Year 2018 Guidance

The Company’s fourth quarter and full year 2018 guidance is outlined below. In preparation of 2019, the Company has made some deliberate decisions around media deployment and media mix in the second half of the year that have had a small impact on current year revenue but position the Company more strongly for the new year. Reconciliations of certain GAAP to non-GAAP measures are provided later in this press release.

• Fourth quarter revenue is expected to be in the range of $129.5 to $134.5 million, net income between $17.3 and $18.9 million, diluted income per common share between $0.58 and $0.63, and adjusted EBITDA between $29.4 and $31.4 million.
• Full year 2018 revenue is expected to be in the range of $691 to $696 million, net income between $62.2 and $63.8 million, diluted income per common share between $2.08 and $2.13, and adjusted EBITDA between $105.1 and $107.1 million. The South Beach Diet brand is projected to be $66-$70 million in revenue in 2018.

Conference Call and Webcast

Management will host a conference call to discuss third quarter 2018 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’s website for 30 days following the event and can be accessed at 844-512-2921 using replay pin number 13683560.

Non-GAAP Financial Measures

Within this press release, the Company makes reference to a non-GAAP financial measure (adjusted EBITDA) which has a directly comparable GAAP financial measure (net income). EBITDA is defined as net income excluding interest, income taxes and depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding non-cash employee compensation expense and transaction costs related to stockholder cooperation agreement. The Company excludes non-cash employee compensation expense because it is a non-cash expense that is not reflective of the ongoing cash expense of the Company. The Company excludes the transaction costs as the matter was resolved and is not reflective of the ongoing operations of the Company. Adjusted EBITDA is provided so that investors have the same financial data that management uses to assess the Company’s operating results 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. 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 fourth quarter and updated full year 2018 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 advertising campaigns and marketing expenditures, including existing brands and the launch of new brands, 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. For further details and a discussion of these risks and uncertainties, see the Company's periodic reports, including the annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, filed with or furnished to the Securities and Exchange Commission and available at www.sec.gov. 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 results of any revisions to the forward-looking statements made in this press release.

About Nutrisystem, Inc.

Nutrisystem, Inc. (Nasdaq: NTRI) is a leading provider of health and wellness and weight management products and services and has helped millions of people lose weight over the course of more than 45 years. The Company’s multi-brand approach to weight loss includes multiple plans for 2018. For more information, go to NutrisystemNews.com and Newsroom.SouthBeachDiet.com.

 

NUTRISYSTEM, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited, in thousands, except per share amounts)

     

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2018   2017 2018   2017 REVENUE $ 159,255 $ 158,149 $ 561,496 $ 565,720   COSTS AND EXPENSES: Cost of revenue 76,010 72,357 263,032 259,684 Marketing 43,018 42,067 176,167 168,585 Selling, general and administrative 16,024 18,626 54,607 59,620 Depreciation and amortization   3,931   3,755   11,531   11,321 Total costs and expenses   138,983   136,805   505,337   499,210 Operating income 20,272 21,344 56,159 66,510 INTEREST INCOME, net   (314 )   (48 )   (512 )   (74 ) Income before income tax expense 20,586 21,392 56,671 66,584 INCOME TAX EXPENSE   4,592   6,365   11,738   19,638 Net income $ 15,994 $ 15,027 $ 44,933 $ 46,946 BASIC INCOME PER COMMON SHARE $ 0.54 $ 0.50 $ 1.51 $ 1.57 DILUTED INCOME PER COMMON SHARE $ 0.54 $ 0.49 $ 1.50 $ 1.54 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 29,208 29,799 29,466 29,685 Diluted 29,573 30,299 29,797 30,164 DIVIDENDS DECLARED PER COMMON SHARE $ 0.250 $ 0.175 $ 0.750 $ 0.525    

NUTRISYSTEM, INC. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS(Unaudited, in thousands, except par value amounts)

      September 30,2018   December 31,2017

ASSETS

CURRENT ASSETS: Cash and cash equivalents $ 38,158 $ 24,654 Short term investments 54,394 47,568 Receivables 19,125 17,871 Inventories 30,373 44,266 Prepaid income taxes 693 6,441 Prepaid expenses and other current assets   8,237   11,758 Total current assets 150,980 152,558 FIXED ASSETS, net 27,695 31,549 INTANGIBLE ASSETS, net 12,334 13,084 DEFERRED INCOME TAXES 3,177 3,202 OTHER ASSETS   1,199   1,150 Total assets $ 195,385 $ 201,543  

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES: Accounts payable $ 35,541 $ 34,816 Accrued payroll and related benefits 2,306 15,229 Deferred revenue 9,287 7,991 Other accrued expenses and current liabilities   5,883   6,068 Total current liabilities 53,017 64,104 NON-CURRENT LIABILITIES   1,801   1,636 Total liabilities   54,818   65,740   STOCKHOLDERS’ EQUITY:

Preferred stock, $.001 par value (5,000 shares authorized, no shares issuedand outstanding)

0 0

Common stock, $.001 par value (100,000 shares authorized; shares issued –30,977 at September 30, 2018 and 30,729 at December 31, 2017)

31 31 Additional paid-in capital 78,939 69,245

Treasury stock, at cost, 1,558 shares at September 30, 2018 and 679 shares atDecember 31, 2017

(44,579 ) (16,359 ) Retained earnings 106,436 83,035 Accumulated other comprehensive loss   (260 )   (149 ) Total stockholders’ equity   140,567   135,803 Total liabilities and stockholders’ equity $ 195,385 $ 201,543      

NUTRISYSTEM, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited, in thousands)

 

Nine Months EndedSeptember 30,

2018   2017 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 44,933 $ 46,946

Adjustments to reconcile net income to net cash provided byoperating activities:

 

Depreciation and amortization 11,531 11,321 Share–based compensation expense 7,755 7,899 Deferred income tax benefit (323 ) (1,015 ) Other charges 41 26 Changes in operating assets and liabilities: Receivables (1,254 ) (1,338 ) Inventories 13,893 14,670 Prepaid expenses and other assets 3,602 2,945 Accounts payable 733 599 Accrued payroll and related benefits (12,923 ) (373 ) Deferred revenue 2,633 1,891 Income taxes 5,794 (2,032 ) Other accrued expenses and liabilities   (811 )   (586 ) Net cash provided by operating activities   75,604   80,953 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of short term investments (18,651 ) (30,196 ) Proceeds from the sale and maturity of short term investments 11,643 12,080 Capital additions   (6,144 )   (9,088 ) Net cash used in investing activities   (13,152 )   (27,204 ) CASH FLOWS FROM FINANCING ACTIVITIES: Exercise of stock options 1,939 4,144 Employee tax withholdings related to the vesting of equity awards (1,916 ) (1,596 ) Repurchase of common shares for treasury (26,304 ) 0 Repurchase and retirement of common shares 0 (2,285 ) Payment of dividends   (22,667 )   (15,987 ) Net cash used in financing activities   (48,948 )   (15,724 ) NET INCREASE IN CASH AND CASH EQUIVALENTS 13,504 38,025 CASH AND CASH EQUIVALENTS, beginning of period   24,654   9,623 CASH AND CASH EQUIVALENTS, end of period $ 38,158 $ 47,648        

NUTRISYSTEM, INC. AND SUBSIDIARIESADJUSTED EBITDA RECONCILIATION TO GAAP RESULTS(Unaudited, in thousands)

 

Three Months EndedSeptember 30,

Nine Months EndedSeptember 30,

2018   2017 2018   2017   Net income $ 15,994 $ 15,027 $ 44,933 $ 46,946 Interest income, net (314 ) (48 ) (512 ) (74 ) Income tax expense 4,592 6,365 11,738 19,638 Depreciation and amortization   3,931   3,755   11,531   11,321 EBITDA 24,203 25,099 67,690 77,831 Non-cash employee compensation expense 2,318 2,625 7,755 7,899 Transaction costs related to stockholder

cooperation agreement

  273   0   273   0 Adjusted EBITDA $ 26,794 $ 27,724 $ 75,718 $ 85,730          

NUTRISYSTEM, INC. AND SUBSIDIARIESADJUSTED EBITDA RECONCILIATION TO GAAP GUIDANCE(Unaudited, in thousands)

 

Three Months EndingDecember 31, 2018

Twelve Months EndingDecember 31, 2018

Low     High Low     High   Net income $ 17,287 $ 18,863 $ 62,220 $ 63,796 Interest income, net (148) (148) (660) (660) Income tax expense 5,002 5,426 16,740 17,164 Depreciation and amortization   3,949   3,949   15,480   15,480 EBITDA 26,090 28,090 93,780 95,780 Non-cash employee compensation expense 2,435 2,435 10,190 10,190

Transaction costs related to stockholdercooperation agreement

  857   857   1,130   1,130 Adjusted EBITDA $ 29,382 $ 31,382 $ 105,100 $ 107,100  

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ICR, Inc.John Mills, 646-277-1254PartnerJohn.Mills@Icrinc.comorir@nutrisystem.com