Nutrisystem First Quarter 2014 Revenue and Earnings Per Share Exceed Expectations

FORT WASHINGTON, Pa.--(BUSINESS WIRE)--

Nutrisystem, Inc. NTRI, a leading provider of weight management products and services, today reported financial results for the quarter ended March 31, 2014 that exceeded previous guidance. The following are key financial highlights for the period and a reconciliation of GAAP to non-GAAP measures is provided later in this press release.

First Quarter 2014

• Revenues of $122.2 million, an increase of 16% from revenues of $105.4 million in the first quarter of 2013, driven by growth in both the Direct and Retail channels;
• Gross Profit increased 13% to $59.8 million;
• Adjusted EBITDA was $3.2 million compared to $3.9 million in the first quarter of 2013 due to the planned increase of 2014 seasonal promotions;
• GAAP earnings per share of $0.01 exceeded GAAP loss per share of ($0.02) in the first quarter of 2013; and
• Cash, cash equivalents, and short term investments increased $3.2 million during the quarter to $29.5 million at March 31, 2014 from $26.3 million at December 31, 2013. The Company had no outstanding bank debt at quarter-end under its existing bank facility.

Dawn Zier, President and Chief Executive Officer, said, “We are off to a strong start this year and our performance during this diet season in the direct and retail channels enabled us to exceed our revenue and earnings per share expectations for the first quarter and achieve our third consecutive quarter of year-over-year revenue growth. New product innovation and effective benefit-driven advertising allowed us to achieve customer growth north of 20% and reduce discount messaging. We also implemented a mid-quarter price increase.”

Ms. Zier continued, “We believe that Nutrisystem leads the industry in meaningful product innovation. We are pleased with our launches of Nutrisystem® My Way® and the Fast 5™ kit, our Men's Protein Powered 5-day kit that just launched in retail, our Kickstart™ 7-day kit introduced yesterday, and our recently announced launch of NuMi, a new multi-platform digital product that addresses the needs of do-it-yourself dieters and also helps people transition from structured programs. Our channel expansion into retail and digital is enabling us to increase brand awareness and capture new customer segments. We expect to achieve full year revenue growth in 2014 for the first time in seven years and are just beginning to realize our brand potential.”

Mike Monahan, Chief Financial Officer, commented, “We continue to return capital to stockholders and improve our balance sheet as we execute on our strategic plan. In addition, because of the improvements we are seeing in many aspects of our business, we are increasing our revenue and earnings per share guidance range for the full year of 2014.”

The Company announced that the Board of Directors has declared a quarterly dividend of $0.175 per share, payable May 22, 2014 to stockholders of record as of May 12, 2014.

Second Quarter and Updated Full Year 2014 Guidance

For the second quarter of 2014, the Company expects revenues to be in the range of $106 million to $111 million. Going forward, the Company will begin providing adjusted EBITDA as a guidance metric to assist the investment community to better understand the Company's performance. The Company expects second quarter adjusted EBITDA to be in the range of $14.5 million to $16.5 million. The Company also expects second quarter of 2014 GAAP earnings per share to be in the range of $0.23 to $0.28.

For the full year of 2014, the Company is raising its revenue guidance from a previous range of $385 million to $405 million to now be in the range of $392 million to $407 million. The Company expects annual adjusted EBITDA to be in the range of $40.0 million to $44.0 million. In addition, the Company is raising its GAAP earnings per share guidance from a previous range of $0.51 to $0.61 to now be in the range of $0.57 to $0.67 for the full year of 2014.

Conference Call and Webcast

Management will host a webcast to discuss first quarter 2014 financial results today at 5:00 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 877-407-3982, and reference conference ID 13580476.

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. These adjusted measures are 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 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.

In this release, EBITDA is defined as net income (loss) excluding interest, income taxes and depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding non-cash employee compensation and severance and related charges.

Forward-Looking Statements

Information provided and statements contained in this press release that are not purely historical, such as second quarter and full year 2014 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 press 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, Inc.

Nutrisystem, Inc. NTRI is a leading provider of weight loss solutions and weight-related products and services including its structured food delivery program Nutrisystem® My Way® and its new digital platform NuMi™ by Nutrisystem. Nutrisystem has helped consumers lose weight for more than 40 years by providing quality foods and a nutritionally balanced meal program. Nutrisystem® meal plans feature more than 150 menu options, along with counseling options from trained weight-loss coaches, registered dietitians and certified diabetes educators. Customers are provided further support from the online community, tools, trackers, mobile apps and more. Nutrisystem® plans are consistent with national guidelines for dietary intake meeting targets for fat, sodium, sugar, cholesterol, fiber and physical activity. Additionally, plans can be customized to specific dietary needs and preferences including the Nutrisystem® D® program for people with diabetes or those at risk for type 2 diabetes. 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. The NuMi multi-platform system and downloadable App can be found at http://www.numi.com.

NUTRISYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
		Three Months Ended March 31,
			2014			2013
REVENUE		$	122,228		$	105,384
COSTS AND EXPENSES:
Cost of revenue			62,421			52,353
Marketing			41,744			36,316
General and administrative			15,918			15,251
Depreciation and amortization			1,758			2,549
Total costs and expenses			121,841			106,469
Operating income (loss)			387			(1,085	)
INTEREST EXPENSE, net			45			53
Income (loss) before income tax expense (benefit)			342			(1,138	)
INCOME TAX EXPENSE (BENEFIT)			118			(498	)
Net income (loss)		$	224		$	(640	)
BASIC INCOME (LOSS) PER COMMON SHARE		$	0.01		$	(0.02	)
DILUTED INCOME (LOSS) PER COMMON SHARE		$	0.01		$	(0.02	)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic			28,065			27,759
Diluted			28,489			27,759
DIVIDENDS DECLARED PER COMMON SHARE		$	0.175		$	0.175

NUTRISYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except par value amounts)
		March 31,				December 31,
			2014				2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	12,927			$	9,772
Short term investments			16,562				16,551
Receivables			17,876				7,738
Inventories			24,368				26,088
Prepaid income taxes			1,481				2,167
Deferred income taxes			1,277				931
Other current assets			6,391				6,034
Total current assets			80,882				69,281
FIXED ASSETS, net			25,576				26,029
DEFERRED INCOME TAXES			6,255				5,924
OTHER ASSETS			1,179				1,211
Total assets		$	113,892			$	102,445
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable		$	42,647			$	29,117
Accrued payroll and related benefits			4,260				6,723
Deferred revenue			8,273				4,228
Other accrued expenses and current liabilities			7,916				7,441
Total current liabilities			63,096				47,509
NON-CURRENT LIABILITIES			2,750				2,779
Total liabilities			65,846				50,288
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 – 28,976 at March 31, 2014 and 28,866 at December 31, 2013)			29				29
Additional paid-in capital			25,481				24,095
Treasury stock, at cost, 199 shares at March 31, 2014 and 158 shares at December 31, 2013			(2,202	)			(1,586	)
Retained earnings			24,725				29,611
Accumulated other comprehensive income			13				8
Total stockholders' equity			48,046				52,157
Total liabilities and stockholders' equity		$	113,892			$	102,445

NUTRISYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
		Three Months Ended March 31,
			2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	224			$	(640	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			1,758				2,549
Loss on disposal of fixed assets			0				42
Share–based compensation expense			1,093				1,502
Deferred income tax benefit			(491	)			(609	)
Other non-cash charges			12				29
Changes in operating assets and liabilities:
Receivables			(10,138	)			(3,988	)
Inventories			1,720				926
Other assets			(325	)			2,915
Accounts payable			13,533				13,995
Accrued payroll and related benefits			(2,463	)			1,943
Deferred revenue			4,045				2,568
Income taxes			437				71
Other accrued expenses and liabilities			450				1,094
Net cash provided by operating activities			9,855				22,397
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short term investments			(2,475	)			(14,524	)
Proceeds from sales of short term investments			2,459				3,371
Capital additions			(1,312	)			(1,555	)
Net cash used in investing activities			(1,328	)			(12,708	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options			91				0
Taxes related to equity compensation awards, net			(353	)			(297	)
Payment of dividends			(5,110	)			(4,871	)
Net cash used in financing activities			(5,372	)			(5,168	)
NET INCREASE IN CASH AND CASH EQUIVALENTS			3,155				4,521
CASH AND CASH EQUIVALENTS, beginning of period			9,772				16,186
CASH AND CASH EQUIVALENTS, end of period		$	12,927			$	20,707

NUTRISYSTEM, INC. AND SUBSIDIARIES
ADJUSTED EBITDA RECONCILIATION TO GAAP RESULTS
(Unaudited, in thousands)
		Three Months Ended
		March 31,
			2014			2013
Net income (loss)		$	224		$	(640	)
Interest expense, net			45			53
Income tax expense (benefit)			118			(498	)
Depreciation and amortization			1,758			2,549
EBITDA			2,145			1,464
Non-cash employee compensation
expense			1,093			981
Severance and related charges			0			1,441
Adjusted EBITDA		$	3,238		$	3,886

NUTRISYSTEM, INC. AND SUBSIDIARIES
ADJUSTED EBITDA GUIDANCE RECONCILIATION TO GAAP MEASURES
(Unaudited, in thousands)
		Three Months Ending						Twelve Months Ending
		June 30, 2014						December 31, 2014
		Low			High			Low			High
Net income		$	6,900		$	8,200		$	16,900		$	19,500
Interest expense, net			100			100			200			200
Income tax expense			3,600			4,300			9,000			10,400
Depreciation and amortization			2,100			2,100			8,400			8,400
EBITDA			12,700			14,700			34,500			38,500
Non-cash employee compensation
expense			1,800			1,800			5,500			5,500
Adjusted EBITDA		$	14,500		$	16,500		$	40,000		$	44,000

EBITDA is defined as net income (loss) excluding interest, income taxes and depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding non-cash employee compensation and severance and related charges.

NUTRISYSTEM, INC. AND SUBSIDIARIES
ADJUSTED NET INCOME RECONCILIATION TO GAAP RESULTS
(Unaudited, in thousands, except per share amounts)
		Three Months Ended March 31,
			2014			2013
Net income (loss) as reported		$	224		$	(640	)
Income tax expense (benefit) as reported			118			(498	)
Income (loss) before income tax expense			342			(1,138	)
Adjustment for one-time charges			0			1,441
Adjusted income before income tax expense			342			303
Adjusted income tax expense			118			106
Adjusted net income		$	224		$	197
Adjusted diluted income per common share		$	0.01		$	0.01
Adjusted diluted weighted average shares outstanding			28,489			27,933

Adjusted income tax expense for the three months ended March 31, 2013 has been calculated using a tax rate of 35%.

Statement Regarding Non-GAAP Financial Measures

We believe EBITDA, adjusted EBITDA 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.