Nutrisystem 2015 Annual Report Download - page 19

we may ultimately be unsuccessful in our defense. Also, defending ourselves against such claims, regardless of
their merit and ultimate outcome, would likely be lengthy and costly, and adversely affect our results of
operations. Further, our general liability insurance may not cover claims of these types.
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, digital tools and wearable trackers, 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 with us or reduces the promotion of our products, our revenue will suffer. In addition, our third-
party retailers may decide to stop selling our products upon written notice, which may result in an increased level
of reclamation claims as inventory held by the retailer is depleted. In the event any retailer terminates its
relationship with us and the level of reclamation claims exceeds the estimated amount reserved on our balance
sheet at the time of sale to the retailer, we will have to record an expense for the excess claims, which could
adversely impact our results of operations and financial condition. 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.
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