Nutrisystem 2008 Annual Report Download - page 3

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Dear Fellow Stockholders:
My first year as Chief Executive Officer was clearly a challenging one. As I stepped into my new role in May of
2008, I knew that the upcoming year would be one that would require a renewed focus on our customers and our
operating efficiencies. The 2008 economic downturn was unprecedented and consumer confidence fell significantly,
putting severe pressure on purchase behavior and requiring all companies serving consumers to quickly adapt and
respond to the new economic realities. It was more important than ever for us to continue to deliver value and results
for our customers and to challenge ourselves to improve our service levels across the board. We knew that, given
consumer concerns, we needed to make each and every customer contact count.
Fortunately, our business model is well suited to withstand this type of volatility due to our direct to consumer
focus, the efficiency and measurability of our marketing and the variability of our costs. Despite the challenges we
faced in 2008, we still delivered solid financial results. Revenues in 2008 were $688 million. While these revenues
represented a decline of 11% from our record year of 2007, it did reinforce the sustainability of our business model, the
enduring nature of our brand and the efficacy of our product. During 2008, we generated $90 million in operating
income from continuing operations and $92 million in cash flow provided by operations. Additionally, we returned
$83 million to our stockholders in the form of cash dividends and stock repurchases.
We navigated through a very difficult operating environment, remained very profitable and maintained a strong
balance sheet in 2008. Several key factors contributing to our 2008 financial results were:
1. We continued to leverage our marketing spend. In the face of lower consumer demand, we were able to
“Flex” our marketing investment to support our most profitable channels and maintain efficiency. In 2008,
marketing spend represented 25% of revenues compared to 23% in 2007. Our ability to maintain consistency
in marketing efficiency in 2008 again reinforces the uniqueness of our direct model.
2. We continued to see increases in reactivation revenues from our returning customers in 2008, which
represented 20% of our total revenues, or approximately $140 million. This revenue represented an increase
of 43% over 2007 and continues to be a growing contributor to our overall revenue.
3. As we continued to focus on our customer economics, an improvement in overall customer satisfaction led to
improvement in length of stay and revenue per customer in 2008.
While we remained focused on our short term financial performance, we also remained committed to investing in
longer term growth initiatives in 2008.
• We launched our new ecommerce platform and a newly redesigned website to better serve our customers and
optimize our web acquisition channel. With the majority of our transactions now occurring on the web, we
believe this new platform positions us well for future growth and improved efficiency.
• We expanded our product offering to include both fresh and frozen menu items with our acquisition of Power
Chow, LLC (d/b/a/ Nu-Kitchen) and a new strategic alliance with Schwan’s Home Service.
• We introduced NutriSystem Flex, our lower priced program that targets a less restrictive dieter and provides
the freedom for the customer to take “Weekends Off.”
• We entered the retail channel and announced a new national partnership with Costco to have our product
available at all Costco stores across the U.S.
At Nutrisystem, we remain committed to helping our customers achieve their goals and assisting them in their
journey to a healthier lifestyle. In 2008 alone, our customers reported losing over 9 million pounds using our programs.
All of us at Nutrisytem are excited about the future. While the current economic climate remains challenging, we
believe we have an enduring brand and a proven weight loss system and that we will emerge from this period a stronger
company.
I thank our employees, management team and our stockholders for their continued support.
Sincerely,
Joseph M. Redling
Chairman, President and Chief Executive Officer