Nutrisystem 2009 Annual Report Download - page 31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for the historical information contained herein, this Report on Form 10-K contains certain forward-
looking statements that involve substantial risks and uncertainties. Words such as “may,” “should,” “could,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “continue,” or similar words are
intended to identify forward-looking statements, although not all forward-looking statements contain these
words. Our actual results, performance or achievements could differ materially from the results expressed in, or
implied by, these forward-looking statements. Factors that could cause or contribute to such differences include
those set forth in “Risk Factors.” Accordingly, there is no assurance that the results in the forward-looking
statements will be achieved.
The following discussion should be read in conjunction with the financial information included elsewhere in
this Annual Report on Form 10-K.
Background
We provide weight management products and services. Our pre-packaged foods are sold to weight loss
program participants directly primarily via the Internet and telephone (including the redemption of prepaid
program cards), referred to as the direct channel and through QVC, a television shopping network. In 2007 and
prior, substantially all of our revenue was generated domestically. In January 2008, we expanded operations into
Canada and, in October 2009, announced our Nutrisystem J Diet in Japan.
Revenue consists primarily of food sales. For the year ended December 31, 2009, the direct channel
accounted for 94% of total revenue compared to 5% for QVC and 1% for the other channels. We incur
significant marketing expenditures to support our brand. We believe that our brand is continuing to gain
awareness as we continue to advertise across our media channels. New media channels are tested on a continual
basis and we consider our media mix to be diverse. We market our weight management system through
television, print, direct mail, Internet and public relations. We review and analyze a number of key operating and
financial metrics to manage our business, including the number of new customers, revenue per customer, total
revenues, marketing per new customer, operating margins and reactivation revenue.
While 2009 proved to be very challenging from an economic perspective and pressured revenue growth, we
continued our efforts to position ourselves for profitability and growth when the economy begins to recover.
During 2009, we launched Nutrisystem D and Nutrisystem Jumpstart, commenced a comprehensive cost
reduction program, including optimizing supply chain expenditures and right sizing general and administrative
expenses, expanded the retail channel and entered into a licensing agreement with House Foods Corporation in
Japan for the launch of the Nutrisystem J Diet. Additionally, nutrisystem.com was ranked #1 in Internet
Retailer’s Food/Drug Category and #46 in the top 500 retail websites. The prestigious #1 spot in each category is
awarded to the top performing website in its specialty and category. This is Nutrisystem’s first appearance in
Internet Retailer’s Annual Top 500 Guide.
During 2009, we began marketing our Nutrisystem D program, a low-glycemic program specifically
designed for those with type 2 diabetes who need to lose weight. Results from a clinical study conducted at the
Temple University School of Medicine and published in the Journal of Postgraduate Medicine shows that a
pre-packaged, portion controlled meal plan helped overweight individuals with type 2 diabetes lose up to 16
times more weight and experience greater reductions in their A1C levels as compared to the control group. This
weight loss was also associated with reductions in blood pressure, cholesterol and waist circumference. We
funded this research study.
We agreed to offer our program at Costco through the use of prepaid program cards. Expanding further in
the retail area, the Nutrisystem program is now offered at such large retailers as Walmart, Sam’s Club and
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