Nutrisystem 2015 Annual Report Download - page 30

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial information included elsewhere in this
Annual Report.
Background
We provide weight management products and services, including nutritionally balanced weight loss programs,
multi-day kits available at select retail locations and digital tools to support weight loss. The weight loss
programs are designed for women and men. Additionally, our Nutrisystem®D®program is designed specifically
to help people with Type 2 diabetes who want to lose weight and manage their diabetes. Our programs are based
on more than 40 years of nutrition research. Our food is created to be nutritious, delicious and portioned for
weight loss and management. Our pre-packaged foods are sold directly to weight loss program participants
primarily through the Internet and telephone (including the redemption of prepaid program cards), referred to as
the direct channel, through QVC, a television shopping network and select retailers.
Revenue consists primarily of food sales. For 2015, 2014 and 2013, the direct channel accounted for 90%, 91%
and 92%, respectively, of revenue compared to 8%, 7% and 5%, respectively, for retail and 2%, 2% and 3%,
respectively, for QVC. We incur significant marketing expenditures to support our brand as we continue to
advertise across various media channels. New media channels are tested on a continual basis and we consider our
media mix to be diverse. We market our weight management system through television, print, direct mail,
Internet, public relations and social media. We review and analyze a number of key operating and financial
metrics to manage our business, including the number of new customers, revenue per customer, total revenue,
marketing per new customer, operating margins and reactivation revenue.
Our mix of revenue for the direct channel can be divided into three categories. First, new customer revenue is all
revenue within a quarter from customers joining within that quarter. New customer revenue is the main driver of
revenue growth. Second, on-program revenue is all revenue from customers who joined in previous quarters but
who are still within their first nine months on the program. Third, reactivation revenue is all revenue generated
from customers who are more than nine months from their initial purchase.
Our ecommerce, direct-to-consumer business model provides flexibility which allows us to manage marketing
spend according to customer demand. We believe this flexibility is especially valuable as it allows us to react to
changing market conditions relatively quickly. Additionally, we are continuously looking to make investments to
improve lifetime customer economics, length of stay and overall customer satisfaction. We are able to test new
commercials, offers and website configurations to allow us to be more responsive to customer needs and attempt
to drive conversion.
We offer a customizable four-week program. In December 2015, we announced the launch of our Turbo10
program, a clinically tested program that could deliver up to a 10-pound weight loss and a reduction of five
inches overall in the first month of dieting. Previously, we offered our Fast 5+ kit, a one-week starter kit that
could help customers lose five pounds plus one inch off their waist in their first week of dieting. Customers are
given a meal plan, access to trackers and tools via NuMi, educational digital content and exercise suggestions
and are also encouraged to check in periodically with a Nutrisystem counselor as their needs change in response
to weight loss.
Additionally, our multi-day weight loss kits are available at select retailers and represent a significant departure
from our traditional four-week program. The retail channel provides us with great brand exposure, offering
consumers who may not be aware of our program an opportunity to sample Nutrisystem at an attractive price
point. Also, we continue to offer our program at Costco through the use of the prepaid program cards and gift
cards. We are actively developing our retail product pipeline and have multiple kits and single items available for
purchase.
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