Nutrisystem 2010 Annual Report Download - page 19

The weight management industry is highly competitive. If any of our competitors or a new entrant into the
market with significant resources pursues a weight management program similar to ours, our business
could be significantly affected.
Competition is intense in the weight management industry and we must remain competitive in the areas of
program efficacy, price, taste, customer service and brand recognition. Some of our competitors are significantly
larger than we are and have substantially greater resources. Our business could be adversely affected if someone
with significant resources decided to imitate our weight management program. For example, if a major supplier
of pre-packaged foods decided to enter this market and made a substantial investment of resources in advertising
and training diet counselors, our business could be significantly affected. Any increased competition from new
entrants into our industry or any increased success by existing competition could result in reductions in our sales
or prices, or both, which could have an adverse effect on our business and results of operations.
We are dependent on certain third party agreements for a percentage of revenue.
We have contractual agreements with certain third party retailers. Under the agreements, these third parties
control when and how often our products and services are offered and we are not guaranteed any minimum level
of sales or transactions. Additionally some agreements contain exclusive rights in specified locations to promote
our products during the contract term and for specified years thereafter. If any third party elects not to renew their
agreement or reduces the promotion of our products, our operating profits will suffer. Additionally, in certain
instances, we could be prohibited from selling our products through competitors of these third parties for a
specified time after the termination of the agreements.
New weight loss products or services may put us at a competitive disadvantage.
On an ongoing basis, many existing and potential providers of weight loss solutions, including many
pharmaceutical firms with significantly greater financial and operating resources than we have, are developing
new products and services. The creation of a weight loss solution, such as a drug therapy, that is perceived to be
safe, effective and “easier” than a portion-controlled meal plan would put us at a disadvantage in the marketplace
and our results of operations could be negatively affected.
If we pursue competitive advertising, we may be subject to litigation from our competitors.
If we pursue competitive advertising, our competitors may pursue litigation regardless of its merit and
chances of success. Competitive advertising may include advertising that directly or indirectly mentions a
competitor or a competitor’s weight loss program in comparison to our program. Defending such litigation may
be lengthy and costly, strain our resources and divert management’s attention from their core responsibilities,
which would have a negative impact on our business.
Our business is subject to online security risks, including security breaches and identity theft.
To succeed, online commerce and communications must provide a secure transmission of confidential
information over public networks. Currently, a significant number of our customers authorize us to bill their
credit cards directly for all fees charged by us. We rely on third party software products to secure our credit card
transactions. Although we have developed systems and processes that are designed to protect consumer
information and prevent fraudulent payment transactions and other security breaches, failure to prevent or
mitigate such fraud or breaches may adversely affect our operating results.
We may experience fluctuations in our operating results which may cause our stock price to be volatile.
In view of the evolving nature of our business and the seasonality inherent in the weight loss industry, our
operating results may fluctuate significantly. The market price of our common stock is subject to fluctuations in
response to our operating results, general trends in the weight loss industry, announcements by our competitors,
15