Nutrisystem 2009 Annual Report Download - page 3

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Dear Fellow Stockholders:
The health risks of obesity are serious and the number of people overweight or obese continues to grow both in the U.S. and around
the world. At Nutrisystem, we are committed to helping our customers achieve their goals while on their journeys to healthier lifestyles
through education, support and empowerment.
As we entered 2009, we remained focused on continuing to improve our offerings and service levels. In the face of a difficult
economy, we knew we must make the most out of each and every customer relationship to continue to build our brand and our business.
While maintaining a laser focus on serving our customers, we also improved our overall efficiency through a comprehensive cost
reduction and supply chain optimization effort. This effort enabled us to improve short-term results, and better position us for future
growth while also improving the overall quality of our products and services. While cost containment and efficiency were critical to
building a stronger and more resilient business, we remained committed to innovation and investing for growth.
In 2009, as part of that commitment, we launched Nutrisystem®D™, a program formulated to serve the diabetic community.
Nutrisystem D has been a significant contributor to the business and a great addition to our portfolio of products. We’ve also partnered
with the American Diabetes Association and WomenHeart and are proud to have their support.
Economic pressures continued to affect consumers’ discretionary spending in 2009. Revenues in 2009 were $528 million. While
these revenues represented a decline of 23% from 2008, we were able to generate operating income from continuing operations of $43
million and $58 million in cash flow from operating activities of continuing operations during 2009. Navigating through this difficult
period once again reinforces the sustainability of our business model, the enduring nature of our brand and the efficacy of our product.
We believe that the U.S. and global economies have bottomed out, and with minimal macro improvement, we saw signs of progress
in key fundamentals in the second half of the year, and stabilization of revenue trends.
• By the third quarter, we began to close the gap year-over-year in new customer counts and top-line revenues. The pace of our
new customer starts is a key indicator of the shift from stabilizing our business to growing our business.
• The business model continued to demonstrate financial strength. We continued to generate cash and remain debt free.
• And as mentioned earlier, we were able to reduce costs and optimize our operations that delivered savings of $17 million in
2009, witnessed through gross margin and general and administrative margin improvements and stability in reactivation
revenue.
• We also continued to return value to our shareholders in the form of the quarterly dividend and stock buyback, returning 41% of
our operating cash back to shareholders in 2009.
In 2009, we continued to invest in growth initiatives that we believe will better position us for longer-term growth.
• As mentioned above, we introduced Nutrisystem D in the spring of 2009. This represents an entirely new and unique
channel for commercial weight loss and we have seen a strong response from the diabetic community. This large
community includes over 24 million people with diabetes in the U.S., and an additional 57 million people who are
pre-diagnosed with the disease. There is a great need to be filled in this space and we are proud to be able to support this
community with a proven weight lose solution designed specifically to meet their unique needs.
• We continued to expand our quality food offerings with the introduction of Nutrisystem®Select®, a premium line of
fresh-frozen products that was launched through our innovative partnership with Schwan’s Home Service.
• 2009 represented the first full year of our partnership with Costco and our entry into the retail channel. Our Costco
results have been encouraging as we have seen strong results and view new customers acquired through this channel as
being very incremental. This successful collaboration led us to explore additional opportunities in the retail channel as
we looked ahead to 2010.
• Lastly, we continued to invest in our e-commerce platform throughout 2009. Investments in conversion improvements,
publishing applications and testing platforms enabled us to drive improved performance while making the site more
intuitive and appealing to our users.
At Nutrisystem, we strongly believe in our mission to support our customers, assist them in achieving success in weight loss
and improving the quality of their lives. We have a proven and efficacious product, a strong brand and unique business model, and
a great team. We remain committed to our customers and believe we are well-positioned to serve a large and expanding market as
the economy continues to stabilize and grow. I thank our employees, management team and our stockholders for their continued
support.
Sincerely,
Joseph M. Redling
Chairman, President and Chief Executive Officer