NutriSystem CEO Discusses Q3 2010 Results - Earnings Call Transcript
NutriSystem, Inc. (
)
Q3 2010 Earnings Call
November 1, 2010 4:30 p.m. ET
Executives
Cindy Warner – IR
Joe Redling - CEO and Chairman of the Board
David Clark - CFO
Analysts
Colin Sebastian – Lazard
Greg Badishkanian - Citi Group
Mitchell Pinheiro - Janney Montgomery Scott
Jim Duffy – Stifel Nicolaus
Joseph Garner – Emerald Advisors
Bill Dezellem - Tieton Capital
Presentation
Operator
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NutriSystem Q3 2009 Earnings Call Transcript
Good afternoon. My name is LaTonya and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2010 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions)
I will now hand the floor to Cindy Warner, Investor Relations. Thank you. Ms. Warner, please go ahead.
Cindy Warner
Good afternoon, everyone. And thank you for joining us to discuss NutriSystem’ s third quarter 2010 financial results. With us today from management are Joe Redling, Chairman and Chief Executive Officer and David Clark, Chief Financial Officer.
Before we begin, I’d like to remind everyone that this announcement contains forward-looking statements that involve risks and uncertainties. Such information, including statements about NutriSystem’ s third quarter 2010 financial results, as well as statements that are preceded by, followed by, or includes the words believe, plans, intends, expects, anticipates or similar expression.
Statements regarding NutriSystem’ s plans and expectations for the fourth quarter of 2010, the full year 2010 and the outlook for 2011, and similar statements that are not statement of historical fact constitute forward-looking statements. For such statements, NutriSystem claims protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from the results predicted and the reported results should not be considered as an indication of future performance.
Factors that could cause actual results to differ from those contained in the forward-looking statements include, but are not limited to those factors set forth in NutriSystem’ s annual report on Form 10-K for the year ended December 31, 2009, which has been filed with the SEC.
NutriSystem is making these statements as of November 1, 2010 and assumes no obligation to publically update or revise any of the forward-looking information in this announcement.
And with that, I would like to turn the call over to Joe Redling, our Chairman and Chief Executive Officer.
Joe Redling
Thank you, Cindy. Good afternoon, and thank you for joining us on today’s conference call. I will review the company’s third quarter 2010 results, discuss key Q3 highlights, and update our full-year view. And David will provide more detail on the financials in a few minutes.
Third quarter revenues came in at $121 million. While this is down 4% as compared to $126 million a year ago, we remain encouraged by our underlying business trends given the tough year-over-year comparisons to last year’s diabetic program launch.
As we look at the detail underlying our quarterly year-over-year revenue results, the majority of our revenue shortfall in Q3 was related to underperformance of the QVC Channel. Our core business performed as expected and is consistent with seasonal trends.
We have been struggling this year to improve our QVC Channel performance and the business was disappointing to the quarter. I will provide some additional thoughts on this issue in a moment, but first let me spend a moment expanding on our quarterly revenue performance.
Important to note, the sequential revenue trend we experienced from Q2 to Q3 of this year is well within seasonal norms. As you know, this is a seasonal business with consumer demand reaching its peak in January. Typically, seasonal trends show a normal pattern of revenue declines from the first quarter, the highest demand period, to Q2, and those trends continue to seasonally decline for the remaining quarters with Q4 representing our lowest seasonal demand period.
The only time these trends were disrupted were during major new product launch periods such as the Men’s program launch in July of 2006, and the Diabetic program launch just last year that showed sequential business improvement from the second to third quarter.
Factoring out these two distinct product launch periods, the remaining years experienced sequential seasonal revenue declines of approximately 15% between the second quarter and third quarters of those operating years, which is right in line with our current performance in Q3, 2010.
With these points in mind, we are encouraged by our revenue performance for Q3, 2010. Our core business and core channels performed as expected as we saw new customer trends decline approximately 10% year over year in the quarter with the majority of the shortfall attributed to NutriSystem D.
As I just mentioned, we have a difficult year-over-year comparison due to our NutriSystem D launch last year. With that said, we experienced the similar year-over-year performance to our Men’s launch anniversary in Q3 2007 versus the launch period of Men the previous year of Q3 2006.
Of course, the macro conditions were far better during that period, so we feel good about our results given the more difficult consumer market we’re currently operating in.
In addition, Q3 of this year was coming off a strong new customer performance in Q2 where we saw a new customer growth of 30%.
Initially, we felt this performance may have shifted new customer starts from Q3 forward, which would have made the Q3 results even more challenged. But that was not the case as our core business remains stable in the quarter. The strong growth we experienced across the board in Q2 of this year was actually sustained as the sequential revenue decline from Q2 2010 to Q3 2010 was 14% including the QVC underperformance and still full well within normal seasonal patterns.
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