Nutrisystem 2015 Annual Report Download - page 33

revenue increase in 2015 was attributable primarily to an increase in new customers, on-program revenue and
reactivation revenue. Additionally, we had a higher average selling price in 2015 as compared 2014. Critical to
increasing customer starts is our ability to deploy marketing dollars while maintaining marketing effectiveness.
Factors influencing our marketing effectiveness include the quality of the advertisements, promotional activity by
our competitors, as well as the price and availability of appropriate media.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Year Ended December 31,
2015 2014 $ Change % Change
(in thousands)
REVENUE ............................................. $462,609 $403,083 $59,526 15%
COSTS AND EXPENSES:
Cost of revenue ..................................... 224,581 199,053 25,528 13%
Marketing .......................................... 124,209 107,706 16,503 15%
General and administrative ............................ 64,651 59,231 5,420 9%
Depreciation and amortization .......................... 9,158 7,849 1,309 17%
Total costs and expenses .......................... 422,599 373,839 48,760 13%
Operating income ................................ 40,010 29,244 10,766 37%
INTEREST EXPENSE, net ................................ 169 142 27 19%
Income before income tax expense .................. 39,841 29,102 10,739 37%
INCOME TAX EXPENSE ................................ 13,698 9,791 3,907 40%
Net income ..................................... $ 26,143 $ 19,311 $ 6,832 35%
% of revenue
Gross margin ........................................... 51.5% 50.6%
Marketing .............................................. 26.8% 26.7%
General and administrative ................................ 14.0% 14.7%
Operating income ........................................ 8.6% 7.3%
Revenue. Revenue increased to $462.6 million in 2015 from $403.1 million in 2014. The increase in revenue is
primarily attributable to an increase in new customers, on-program revenue, retail revenue and reactivation
revenue. Additionally, we had a higher average selling price in 2015 as compared to 2014. In 2015, direct
revenue accounted for 90% of revenue compared to 8% for retail and 2% for QVC. In 2014, direct revenue
accounted for 91% of revenue compared to 7% for retail and 2% for QVC.
Costs and Expenses. Cost of revenue increased to $224.6 million in 2015 from $199.1 million in 2014. Gross
margin as a percent of revenue increased to 51.5% in 2015 from 50.6% in 2014. The increase in gross margin
was attributable primarily to selling price increases and the discontinuation of the promotional offer of a free
week of food. These increases were partially offset by increased product costs due to the package redesign and a
higher mix of lower margin products.
Marketing expense increased to $124.2 million in 2015 from $107.7 million in 2014. Marketing expense as a
percent of revenue increased to 26.8% in 2015 from 26.7% in 2014. Substantially all of the marketing spending
in 2015 promoted the direct business. The increase in marketing expense was attributable to increased spending
for media ($15.3 million) primarily for short form television media and Internet advertising, public relations
($751,000), marketing consulting ($643,000) and marketing compensation and benefits ($402,000). These
increases were slightly offset by decreased television production ($765,000). In total, media spending was $104.6
million in 2015 and $89.3 million in 2014.
29