Nutrisystem 2005 Annual Report Download - page 15

ITEM 1A. RISK FACTORS
You should consider carefully the following risks and uncertainties when reading this Annual Report on
Form 10-K. If any of the events described below actually occur, the Company’s business, financial condition and
operating results could be materially adversely affected.
Risks Related to Our Business
Our future growth and profitability will depend in large part upon the effectiveness and efficiency of our
marketing expenditures and our ability to select the right markets and media in which to advertise.
Our marketing expenditures were $47.8 million, $7.5 million and $3.5 million in 2005, 2004 and 2003,
respectively. Our future growth and profitability will depend in large part upon the effectiveness and efficiency
of our marketing expenditures, including our ability to:
• create greater awareness of our brand and our program;
• identify the most effective and efficient level of spending in each market, media and specific media
vehicle;
• determine the appropriate creative message and media mix for advertising, marketing and promotional
expenditures;
• effectively manage marketing costs (including creative and media) in order to maintain acceptable
customer acquisition costs;
• select the right market, media and specific media vehicle in which to advertise; and
• convert consumer inquiries into actual orders.
Our planned marketing expenditures may not result in increased revenue or generate sufficient levels of
brand name and program awareness. We may not be able to manage our marketing expenditures on a cost-
effective basis whereby our customer acquisition cost may exceed the contribution profit generated from each
additional customer.
If we are able to grow our business, we may not be able to manage our growth successfully.
If we are able to increase our customer base and grow our business, we will face business risks commonly
associated with rapidly growing companies, including the risk that existing management, information systems
and financial controls may be inadequate to support our growth. We cannot predict whether we will be able to
respond on a timely basis, or at all, to the changing demands that our growth may impose on our existing
management and infrastructure. For example, increasing demands on our infrastructure could cause any of the
following:
• delays in order intake time both on our website as well as through call centers;
• delays in order processing, packaging and shipping;
• failures to provide our customers with their specific food selections;
• inadequate numbers of telephone counselors, customer service representatives and other personnel; and
• an inability to route all calls during spikes to the appropriate personnel.
If we fail to adapt our management, information systems and financial controls to our growth, or if we
encounter other unexpected difficulties, our business, financial condition and operating results will suffer.
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