Nutrisystem's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Nutrisystem, Inc. (NTRI)

Q1 2012 Earnings Call

May 1, 2012 4:30 pm ET

Executives

Joseph Crivelli - IR

Joe Redling - President and CEO

David Clark - CFO

Mike Hagan - Chairman

Mike Amburgey - CMO

Analysts

Greg Badishkanian - Citi

Mitch Pinheiro - Janney Capital Markets

Gary Albanese - Auriga

Frank Camma - Sidoti

Anand Vankawala - Avondale Partners

Kurt Frederick - Wedbush Securities

Presentation

Operator

Good day, everyone, and welcome to the Nutrisystem first quarter 2012 earnings conference call. At this time, it is my pleasure to turn the call over to Mr. Joe Crivelli.

Joe Crivelli

Thank you. Good afternoon, everyone, and thanks you for joining us to discuss Nutrisystem's first quarter 2012 financial results. With the recently announced changes, we've added some additional people to join us on the call today. So in addition to Joe Redling, President and Chief Executive Officer; and David Clark, Chief Financial Officer; we're joined by Mike Hagan, Chairman of the Board of Directors; and Mike Amburgey, Chief Marketing 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 2012 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 May 1, 2012 and assumes no obligation to publicly update or revise any of the forward-looking information in this announcement.

I'll now turn the call over to Mike Hagan, Chairman of Nutrisystem's Board of Directors.

Mike Hagan

Thanks Joe, and thanks everyone for joining us. I appreciate the opportunity to say hello to the investment community and introduce myself, as it's been a while since I served in its capacity for Nutrisystem.

My main message to you today is that the Board is behind the company in its current strategic plan. Our company has been navigating through some challenging time, I believe and to my other fellow board members that we have a solid foundation in place to recapture positive momentum.

In particular, I'm excited about our first two launch into the retail channel. Joe will provide more detail on our retail plan in a moment that I've been impressed by the thoughtful process and planning that has led us to where we are today. This is simply one of the biggest growth opportunities we've attacked in our current incarnation. And one that we believe will significantly enhance revenues and earnings in the coming years.

We're disappointed to see Joe Redling leave the company. Unfortunately, Joe has added considerable debt to our management team over the past year. And we are well-positioned in staff to continue to execute on our current operating plan.

We are currently in the process of engaging a search front to identify our next company leader and we'll keep you informed of our progress. Joe continues to lead the day-to-day operations. And I look forward to once again working with Joe over the next several months to ensure a smooth transition and keep it focused on our critical growth initiative.

With the eventual resignation of Joe Redling from the Board as well as the pending departures of Board members, Ted Leonsis and Laura Lang, we are also working with a national search front to search an additional candidate for our Board of Directors.

In the meantime, I've taken a very active role on the company as Chairman. Together with my fellow Board members and the management team, we are committed to getting Nutrisystem business back on the growth trajectory and adding shareholder value. Nutrisystem has a strong balance sheet and the Board of Directors continues to remain focused on returning value to shareholders in the form of quarterly dividend.

With that, I'll turn the call over to Joe Redling.

Joe Redling

Thanks Mike. It's great to have you back. Good afternoon and thank you joining us on today's conference call. First quarter results were below our original forecast, but we believe that this is mainly a timing issue. And as David will discuss in a moment, we are reaffirming our full year guidance for both revenues and earnings.

During the year we are going to make investments, we believe will be accretive for the full year earnings, even if that result in a short-term hit for the quarter. New customer starts are the key driver of revenue growth and when our metrics indicate, we have the ability to lean into our immediate spend for extended programs that are producing results, we're going to do that for the benefit of the overall year.

Two examples that this happened in Q1. In Q1 we converted our Costco program from program cards to gift cards. This was a new element of our offering through the Costco channel this year. We tested and prepared sales velocity and profitability of shaping from a prepaid full program card purchase to a simple $100 gift card program. And the gift card program is the clear winner on all measures.

This change shifted about $2 million of revenue from March into Q2, related to cards purchased, but not redeemed. This is a direct result of different redemption patterns of gift cards compared to program cards.

In addition, the lower than anticipated Q1 earnings was directly attributable to our decision to aggressively invest in marketing to drive improved Q2 and full year topline revenue and earnings. While first quarter marketing spend was down year-over-year, the month-by-month spend told a different story.

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