Nutrisystem 2014 Annual Report Download - page 33

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Year Ended December 31,
2014 2013 $ Change % Change
(in thousands)
REVENUE ............................................. $403,083 $358,086 $44,997 13%
COSTS AND EXPENSES:
Cost of revenue ..................................... 199,053 184,210 14,843 8%
Marketing .......................................... 107,706 95,784 11,922 12%
General and administrative ............................ 59,231 58,227 1,004 2%
Depreciation and amortization .......................... 7,849 8,896 (1,047) (12)%
Total costs and expenses .......................... 373,839 347,117 26,722 8%
Operating income ................................ 29,244 10,969 18,275 167%
INTEREST EXPENSE, net ................................ 142 89 53 60%
Income before income tax expense .................. 29,102 10,880 18,222 167%
INCOME TAX EXPENSE ................................ 9,791 3,510 6,281 179%
Net income ..................................... $ 19,311 $ 7,370 $11,941 162%
% of revenue
Gross margin ........................................... 50.6% 48.6%
Marketing .............................................. 26.7% 26.7%
General and administrative ................................ 14.7% 16.3%
Operating income ........................................ 7.3% 3.1%
Revenue. Revenue increased to $403.1 million in 2014 from $358.1 million in 2013. The increase in revenue is
primarily attributable to an increase in new customers, retail and on-program revenue that was slightly offset by
decreased reactivation and QVC revenue. Additionally, we had a higher average selling price in 2014 as
compared to 2013. In 2014, direct revenue accounted for 91% of revenue compared to 7% for retail and 2% for
QVC. In 2013, direct revenue accounted for 92% of revenue compared to 5% for retail and 3% for QVC.
Costs and Expenses. Cost of revenue increased to $199.1 million in 2014 from $184.2 million in 2013. Gross
margin as a percent of revenue increased to 50.6% in 2014 from 48.6% in 2013. The increase in gross margin is
primarily attributable to selling price increases partially offset by an increase in certain promotional items.
Additionally, 2013 was negatively impacted by a $5.0 million charge recorded to settle certain disputes that had
arisen with a supplier over a legacy contract.
Marketing expense increased to $107.7 million in 2014 from $95.8 million in 2013. Marketing expense as a
percent of revenue was 26.7% in both 2014 and 2013. Substantially all of the marketing spending in 2014
promoted the direct business. The increase in marketing expense was attributable to increased spending for media
($11.9 million) and public relations ($368,000). Slightly offsetting these increases was a decrease in marketing
consulting ($352,000). In total, media spending was $89.3 million in 2014 and $77.4 million in 2013.
General and administrative expense increased to $59.2 million in 2014 from $58.2 million in 2013 and as a
percent of revenue decreased to 14.7% in 2014 from 16.3% in 2013. The increased spending is due to higher
compensation and benefits ($1.3 million) reflecting increased call center commissions and labor costs for key
initiatives and increased spending in miscellaneous taxes ($262,000). These increases were partially offset by
decreased professional, outside and computer services expenses ($390,000), decreased new packaging expense
($274,000).
Depreciation and amortization expense decreased to $7.8 million in 2014 from $8.9 million in 2013 as certain
fixed assets for our website and assets purchased when we relocated our corporate headquarters reached the end
of their useful lives.
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