Nutrisystem 2011 Annual Report Download - page 20

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. Our competitors include companies
selling 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. 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 a specified period 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.
We may be subject to litigation from our competitors.
Our competitors may pursue litigation against us based on our advertising or other marketing practices
regardless of its merit and chances of success, especially if we engage in competitive advertising, which includes
advertising that directly or indirectly mentions a competitor or a competitor’s weight loss program in comparison
to our program. While we would defend ourselves against any such claims, our defense may ultimately be
unsuccessful. Also, defending against such claims, regardless of their merit and ultimate outcome, 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.
Unauthorized users who penetrate our information security could misappropriate proprietary or customer
information or data or cause interruptions to the product offerings on our website. As a result, it may become
necessary to expend significant additional amounts of capital and resources to protect against, or to alleviate,
problems caused by unauthorized users. These expenditures, however, may not prove to be a timely remedy
against unauthorized users who are able to penetrate our information security. In addition to purposeful security
breaches, the inadvertent transmission of computer viruses could adversely affect our computer systems and, in
turn, harm our business.
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