Nutrisystem 2003 Annual Report Download - page 7

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The Company operates an integrated order receipt, billing, picking, shipping and delivery tracking system
comprised of proprietary and third party components. This system integrates the front end, or web site customer
interface, with order processing and shipping, and allows Internet customers to access shippers order tracking numbers
online. The Companys computer-assisted picking system allows for virtually paperless order picking in the Horsham
facility. Management believes the integration of its shipping systems with the operations of its outsourced fulfillment
operations is satisfactory.
Except in days of unusually high demand, management believes that virtually all Direct customer orders
received by 5:00 p.m. weekdays are shipped on the day received. Direct customers are not charged for their orders until
the ordered product is shipped. The Company estimates that it can ship to 75% of the domestic population from the
Horsham fulfillment center within four business days using standard ground transportation and over 90% of the domestic
population within five business days. With the recent addition of outsourced fulfillment in Nevada, the Company has
reduced the time required to deliver most orders to the West Coast. The Company ships to its members using either
Federal Express or United Parcel Service. It does not currently charge customers for shipping and handling on autoship
food orders.
Technology
The Companys web site is hosted at a remote third party hosting facility with a backup at the Companys
headquarters in Horsham, PA. The hosting facility provides technologically advanced physical and fire security and
electric power back-up for the equipment on which the Companys web site operates. The facility also monitors the
Companys server and its network connections 24 hours a day, seven days a week. Servers at both sites are connected on
a continuous, real-time basis, which allows the Company move the website from primary to backup without any loss of
data.
Competition
The weight loss industry consists of pharmaceutical products and weight loss programs, as well as a wide
variety of diet foods and meal replacement bars and shakes, appetite suppressants and nutritional supplements. The
weight loss market is served by a diverse array of competitors. Potential customers seeking to manage their weight can
turn to traditional center-based competitors, medically supervised programs, online diet-oriented sites or other self-
administered products and programs.
The principal competitive factors in the weight loss market are:
• the ability to attract and retain customers through promotion and personal referral;
• the availability, convenience and effectiveness of the weight reduction program;
• brand recognition and trustworthiness; and
• program pricing.
Management believes it can compete effectively on these factors. However, it has no control over how
successful competitors will be in addressing these factors. By migrating a well-recognized center-based program to the
Direct channel, management believes it has gained a competitive advantage in that market.
Many current and potential competitors have larger customer bases, similar or greater brand recognition and
significantly greater financial, marketing and other resources than the Companys. Competitors have and are expected to
continue to adopt aggressive pricing schemes and innovative product and service offerings. Increased competition may
result in reduced operating margins, an inability to increase market share and a diminished brand franchise for
NutriSystem and its competitors.
Seasonality
Typically, revenues of weight loss business, including the Company and the Predecessor Businesses, are lowest
in the fourth calendar quarter and during the summer months.
Employees
As of March 22, 2004, the Company had 107 full-time employees. None of the Companys employees are
represented by a labor union and the Company considers its relations with its employees to be good.