NutriSystem Inc. (



Q4 2010 Earnings Conference Call

February 24, 2011, 4:30 pm ET


Joe Crivelli – SVP, IR

Joe Redling – CEO and Chairman

David Clark – CFO


Alvin Concepcion – Citi

Mitch Pinheiro – Janney Montgomery Scott

Kurt Frederick – Wedbush Securities

Greg Rashar – Lazard Capital Markets



Good day, and welcome to the NutriSystem’s fourth quarter 2010 earnings conference call. As a reminder, today’s conference is being recorded.

And this time I would like to turn the conference over to Mr. Joe Crivelli. Please go ahead, sir.

Joe Crivelli

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Good afternoon, everyone. Thank you for joining us to discuss NutriSystem’s fourth quarter and full year 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 during this conference call, NutriSystem management will make certain forward-looking statements about its outlook for 2011 and beyond that involve risks and uncertainties. Forward-looking statements are generally preceded by words such as, believes, plans, intends, expects, anticipates or similar expressions.

Forward-looking statements are protected by the safe harbor contained in the Private Securities Litigation Reform Act of 1995. Factors that could cause actual results to differ from expectations include, but are not limited to those factors set forth in NutriSystem’s filings with the SEC.

NutriSystem is making these statements as of February 24, 2011 and assumes no obligation to publicly update or revise any of the forward-looking information in this conference call.

I will now turn the call over to Joe Redling, NutriSystem’s Chairman and Chief Executive Officer.

Joe Redling

Thank you, Joe. Good afternoon everyone, and thanks for joining us on today’s conference call. We have a lot to talk about today, so let us get right into it. Today we announced our fourth quarter results, which were generally in line with our expectations and guidance for the year. David will review the financial results in more detail shortly and step through all of the puts and takes that got us to final 2010 figures.

So we ended the year with revenues of $509.5 million, operating profit of 53.2 million, and 12 months EPS of $1.12 per share. 2010 was challenging on a lot of levels. In the first-half of the year, many of the positive turns we saw in late 2009 carry over, and delivered sequential improvements in revenue and new customer trends. When we ended the June quarter it seemed the business was back on a growth trajectory. But in the second half of 2010, the tone of the business changed considerably with softness in customer starts and revenues, and we ended the year down 3% on the top line.

Focusing on Q4, its performance highlights, our ability to manage profitability at the top line was pressured. Revenues were in line with seasonal patterns as we continued to lag on year-over-year comparisons in revenue due to the strong performance of the NutriSystem D launch in 2009. Also noteworthy is the fourth quarter new product launch at a major competitor that created a great deal of interest, and also pressured our new customer starts in the last week of December. This is normally a strong week for us as we traditionally maintained a strong presence prior to the official start of the diet season in the first week of January. Despite this, we carefully managed expenses to drive a 33% increase in operating profit in the fourth quarter, and a 16% improvement in adjusted EBITDA. Full year results also improved as operating profits and adjusted EBITDA both increased 8%.

Margins were up across the board during the year, with solid increases in growth, operating, and adjusted EBITDA margin. Net income and EPS were up 17% and 22% respectively. This demonstrates the team’s ability to carefully control expenses and maximize profitability when the top line is under pressure. I am sure top of mind for all on the call today is the expectation for 2011.

As I mentioned, the relaunch of a major brand in the diet industry generating a lot of excitement with dieters beginning in the latter part of Q4, and continued to build momentum into January. This negatively impacted our start from the critically important first quarter diet season, and more specifically in the month of January. The foundation for our plan for the 2011 diet season was based on a comprehensive consumer insight study that was conducted in 2010. This quantitative study identified the key challenges and obstacles our brand and category faced with diet intenders and highlighted the key needs of important diet segments.

This effort was launched to gain additional insights and how to reposition our brand and increase penetration on this large and growing market. Out of that research we determined that food quality and variety, value and dieting motivation were the biggest obstacles for our brand and the category in general. Hence we leveraged our select program with our frozen food partner, Schwan, in order to dramatically increase the percentage of our customers receiving our highest quality food. And we launched a new campaign featuring real customers telling their motivational success stories in their own words.

While we still had creative in the market through our various channels highlighting our celebrity spokespeople, the new campaign was the main focus in our short form television advertising, as we proactively sought to expand our reach within the diet category. We reviewed the campaign using our quantitative testing process and the ads performed well resonating with customers and prospective customers, and enhancing our brand appeal.

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