Nutrisystem Announces Third Quarter 2016 Financial Results

Company Reports 19% Year-over-Year Revenue Growth

Company Exceeds Third Quarter Revenue Expectations and Raises Full Year Revenue and EPS Guidance

FORT WASHINGTON, Pa.--()--Nutrisystem, Inc. (NASDAQ: NTRI), a leading provider of weight management products and services, today reported financial results for the quarter and nine months ended September 30, 2016.

Dawn Zier, President and Chief Executive Officer, stated, “Our ongoing record of success underscores the health of the business and growing demand for our expanding portfolio of products. As we gear up for 2017, we’re excited about our Diet Season plans for our primary brand, Nutrisystem, and remain on track for the 2017 launch of the South Beach Diet program. We’re strongly positioned to achieve further long-term growth and value creation for our shareholders.”

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 2016 Compared to Third Quarter 2015

  • Revenue increased 19% to $124.6 million, compared to $104.9 million.
  • Net income increased 9% to $7.9 million, which reflects a $1.3 million pre-tax non-cash IT asset write-down, compared to $7.3 million.
  • Diluted income per common share increased 8% to $0.27, compared to $0.25.
  • Adjusted EBITDA increased 25% to $18.1 million, compared to $14.5 million.
  • The Board of Directors has declared a quarterly dividend of $0.175 per share, payable November 17, 2016 to stockholders of record as of November 7, 2016.

Mike Monahan, Chief Financial Officer, commented, “Our third quarter and year-to-date results reflected strong top-line growth and solid cash flow even as we continue to invest in new opportunities that we believe will propel the long-term expansion of our business. As a result of this performance, we are raising our guidance ranges for the full year.”

Fourth Quarter and Updated Full Year 2016 Guidance

The Company’s fourth 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.

  • Fourth quarter revenue is expected to be in the range of $96.5 to $101.5 million, net income between $6.1 and $7.5 million, diluted income per common share between $0.20 and $0.25, and adjusted EBITDA between $14.4 and $16.4 million. This guidance includes $0.8 million of net operating expense and $0.3 million of amortization expense, or $0.02 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 $533 to $538 million compared to previous range of $520 to $532 million, net income between $32.8 and $34.1 million compared to the previous range of $31.1 to $33.6 million, diluted income per common share between $1.10 and $1.15 compared to previous range of $1.05 and $1.13, and adjusted EBITDA between $70.5 and $72.5 million compared to previous range of $66.8 and $70.5 million. This updated guidance includes $1.3 million of a non-cash expense related to IT asset write-down (or $0.03 per common share expense), $5.5 million of net operating expense and $1.0 million of amortization expense (or $0.14 per common share expense) for the South Beach Diet and Shake360 initiatives.

Conference Call and Webcast

Management will host a conference call to discuss third 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 13647183.

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. 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 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® as well as multiple shake lines including NutriCrush® Shakes, Turbo Shakes® 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 September 30, Nine Months Ended

September 30,

2016   2015 2016     2015
REVENUE $ 124,571 $ 104,877 $ 436,504 $ 372,363
 
COSTS AND EXPENSES:
Cost of revenue 57,694 51,749 205,394 180,188
Marketing 33,499 25,566 128,441 103,880
General and administrative 16,707 14,228 51,744 47,536
Depreciation and amortization   4,332   2,304   10,160   6,761
Total costs and expenses   112,232   93,847   395,739   338,365
Operating income 12,339 11,030 40,765 33,998
INTEREST (INCOME) EXPENSE, net   (11 )   61   23   140
Income before income tax expense 12,350 10,969 40,742 33,858
INCOME TAX EXPENSE   4,401   3,660   14,123   11,521
Net income $ 7,949 $ 7,309 $ 26,619 $ 22,337
BASIC INCOME PER COMMON SHARE $ 0.27 $ 0.25 $ 0.90 $ 0.77
DILUTED INCOME PER COMMON SHARE $ 0.27 $ 0.25 $ 0.90 $ 0.76
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 29,320 28,831 29,162 28,618
Diluted 29,613 29,273 29,465 29,094
DIVIDENDS DECLARED PER COMMON SHARE $ 0.175 $ 0.175 $ 0.525 $ 0.525
 
 
NUTRISYSTEM, INC. AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 

(Unaudited, in thousands, except par value amounts)

   
September 30,

2016

December 31,

2015

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 27,017 $ 6,191
Short term investments 19,415 9,317
Receivables 11,723 18,385
Inventories 19,428 30,530
Prepaid income taxes 2,481 1,149
Deferred income taxes 1,068 1,192
Other current assets   6,875   10,118
Total current assets 88,007 76,882
FIXED ASSETS, net 32,006 30,849
INTANGIBLE ASSETS, net 14,334 15,084
DEFERRED INCOME TAXES 4,413 6,107
OTHER ASSETS   924   971
Total assets $ 139,684 $ 129,893
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES:
Accounts payable $ 31,813 $ 38,381
Accrued payroll and related benefits 7,283 7,556
Deferred revenue 5,811 5,618
Other accrued expenses and current liabilities   5,811   6,126
Total current liabilities 50,718 57,681
NON-CURRENT LIABILITIES   1,869   2,284
Total liabilities   52,587   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 30,098 at September 30, 2016 and 29,621 at December 31, 2015)

30 29
Additional paid-in capital 50,128 41,392

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

(8,324 ) (5,672 )
Retained earnings 45,223 34,191
Accumulated other comprehensive income (loss)   40   (12 )
Total stockholders’ equity   87,097   69,928
Total liabilities and stockholders’ equity $ 139,684 $ 129,893
 
 
NUTRISYSTEM, INC. AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 

(Unaudited, in thousands)

 
Nine Months Ended September 30,
2016   2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 26,619 $ 22,337

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 10,160 6,761
Loss on disposal of fixed assets 104 16
Share–based compensation expense 5,134 4,255
Deferred income tax expense 1,609 0
Other charges 2 24
Changes in operating assets and liabilities:
Receivables 6,662 1,813
Inventories 11,102 9,425
Other assets 3,290 1,257
Accounts payable (6,698 ) (6,628 )
Accrued payroll and related benefits (273 ) (275 )
Deferred revenue 193 1,445
Income taxes (1,153 ) (2,884 )
Other accrued expenses and liabilities   (827 )   (938 )
Net cash provided by operating activities   55,924   36,608
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short term investments (14,067 ) (12,117 )
Proceeds from sales of short term investments 4,047 9,574
Capital additions   (10,444 )   (6,302 )
Net cash used in investing activities   (20,464 )   (8,845 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options 1,839 2,762

Employee tax withholdings related to the vesting of equity awards

(2,652 ) (2,548 )
Excess tax benefits from share-based compensation 1,766 2,804
Payment of dividends   (15,587 )   (15,352 )
Net cash used in financing activities   (14,634 )   (12,334 )
NET INCREASE IN CASH AND CASH EQUIVALENTS 20,826 15,429
CASH AND CASH EQUIVALENTS, beginning of period   6,191   12,620
CASH AND CASH EQUIVALENTS, end of period $ 27,017 $ 28,049
 
 
NUTRISYSTEM, INC. AND SUBSIDIARIES
 
ADJUSTED EBITDA RECONCILIATION TO GAAP RESULTS
 

(Unaudited, in thousands)

     
Three Months Ended

September 30,

Nine Months Ended

September 30,

2016   2015 2016     2015
 
Net income $ 7,949 $ 7,309 $ 26,619 $ 22,337
Interest (income) expense, net (11 ) 61 23 140
Income tax expense 4,401 3,660 14,123 11,521
Depreciation and amortization   4,332   2,304   10,160   6,761
EBITDA 16,671 13,334 50,925 40,759
Non-cash employee compensation

expense

  1,468   1,209   5,134   4,255
Adjusted EBITDA $ 18,139 $ 14,543 $ 56,059 $ 45,014
 
 
NUTRISYSTEM, INC. AND SUBSIDIARIES
 
ADJUSTED EBITDA RECONCILIATION TO GAAP GUIDANCE
 

(Unaudited, in thousands)

     
Three Months Ending

December 31, 2016

Twelve Months Ending

December 31, 2016

Low     High Low     High
 
Net income $ 6,146 $ 7,453 $ 32,765 $ 34,072
Interest expense, net 37 37 60 60
Income tax expense 3,257 3,950 17,380 18,073
Depreciation and amortization   3,410   3,410   13,570   13,570
EBITDA 12,850 14,850 63,775 65,775
Non-cash employee compensation

expense

  1,551   1,551   6,685   6,685
Adjusted EBITDA $ 14,401 $ 16,401 $ 70,460 $ 72,460

Contacts

ICR, Inc.
John Mills, Partner
646-277-1254
ir@nutrisystem.com
John.Mills@Icrinc.com

Contacts

ICR, Inc.
John Mills, Partner
646-277-1254
ir@nutrisystem.com
John.Mills@Icrinc.com