Fourth Quarter Revenue Increased 19% Driven By
a 47% Increase in Retail and Continued Growth in Direct Segment
Fourth Quarter Operating Income from Continuing
Operations Increased 32% to $10.1 Million
Full Year Revenue Increased 13% and Operating
Income Increased 49%
February 24, 2014 - Nautilus, Inc. (NYSE: NLS) today reported
its unaudited operating results for the fourth quarter and full
year ended December 31, 2013.
Net sales for the fourth quarter of 2013 totaled $77.1 million,
a 19% increase compared to $65.0 million in the same quarter of
2012. The result was driven by strong growth in the Company’s
Retail segment, combined with continued gains in the Direct
segment. For the full year 2013, net sales were $218.8 million, an
increase of 13% over last year. Gross margins for the fourth
quarter improved in both the Direct and Retail segments, by 130 and
330 basis points respectively, compared to the same period last
year; however fourth quarter consolidated gross margin declined 70
basis points to 47.6% due to a greater percentage of sales coming
from the Company's lower gross margin Retail segment. For the full
year, consolidated gross margin increased 180 basis points from the
prior year to 48.7%. Operating income for the fourth quarter of
2013 was $10.1 million, a 32% increase over operating income of
$7.7 million reported in the same quarter of 2012. The increase in
operating income reflects higher sales and gross margins in both
the Direct and Retail Segments combined with improved operating
leverage of sales and marketing and general and administrative
expenses. Full year 2013 operating income was $15.7 million, an
increase of 49% over last year.
Net income from continuing operations for the fourth quarter of
2013 was $8.4 million, or $0.27 per diluted share, compared to $7.3
million, or $0.23 per diluted share for the same period last year.
Adjusted net income from continuing operations for the fourth
quarter of 2013 was $9.6 million, or $0.30 per diluted share,
compared to $7.3 million, or $0.23 in the same period last year.
Adjusted net income figures exclude nonrecurring income tax
benefits and expenses. In the second quarter of 2013 the Company
recognized an income tax benefit of $1.09 per share as a result of
the partial reversal of the valuation allowance recorded against
the Company's deferred tax assets. During the fourth quarter of
2013 it was determined that this reversal underestimated the
Company's full year profitability and the Company reestablished a
portion of the reversal, resulting in recognition of income tax
expense of approximately $1.1 million, or $0.04 per share, in the
fourth quarter of 2013.
For the full year 2013, net income from continuing operations
was $48.1 million, or $1.53 per diluted share, compared to $10.6
million, or $0.34 per diluted share, last year. Full year 2013 net
income includes income tax benefit of $33.0 million, or $1.05 per
share, due primarily to the aforementioned partial reversal of a
valuation allowance. Excluding the tax benefit, 2013 net income
from continuing operations was $15.1 million, or $0.48 per diluted
share, compared to $10.6 million, or $0.34 per diluted share, last
year.
For the fourth quarter of 2013, the Company reported net income
(including discontinued operations) of $8.5 million, or $0.27 per
diluted share. In the fourth quarter of 2012, the Company reported
net income (including discontinued operations) of $13.6 million, or
$0.44 per diluted share. Net income for the fourth quarter of 2013
included income from discontinued operations of $0.1 million. Net
income for the fourth quarter of 2012 included income from
discontinued operations of $6.3 million, or $0.20 per diluted
share, which primarily represents a currency translation adjustment
gain related to the liquidation of European subsidiaries.
Bruce M. Cazenave, Chief Executive Officer, stated, “We are
pleased to report strong financial results for both the fourth
quarter and full year 2013. Our operating performance reflects
meaningful improvements in our Retail business, underscoring the
early customer acceptance of the new Retail product line, and our
ability to continue to grow the Direct business. Initiatives to
improve gross margins across both business segments have also been
successful. We continued to make strategic investments in marketing
and advertising in order to drive consumer awareness of our
expanding product line, while tightly managing operating costs. We
ended the year in a strong financial position which provides us the
financial flexibility to invest in our growth initiatives to
enhance long-term shareholder value.”
Mr. Cazenave continued, “As we begin 2014, we believe we are
well positioned to build upon the strong momentum of our business
and expect to deliver another year of positive revenue and
operating income growth. We expect to benefit from the recently
expanded portfolio of Retail and Direct products as well as
additional introductions that we are planning in 2014. Most
recently, we announced the launch of the Bowflex MAX Trainer™, a
one-of-a-kind cardio machine that leverages the strength of our
Bowflex® brand and complements our other cardio offerings. We
remain intensely focused on continuing to introduce new products to
market on a regular cadence.”
For further information, see
"Results of Operations Information" attached hereto.
Segment Results
Net sales for the Direct segment were $43.0 million in the
fourth quarter of 2013, an increase of 4% over the comparable
period last year. Direct segment sales benefitted from continued
strong demand for cardio products, especially the Bowflex®
TreadClimber® product line, partially offset by a decline in Direct
sales of strength products. Full year 2013 sales for the Direct
segment were $136.7 million, an increase of 9% over last year. U.S.
credit approval rates rose to 39.7% in the fourth quarter of 2013,
up from 37.4% for the same period last year.
Operating income for the Direct segment was $5.6 million for the
fourth quarter 2013, compared to $6.5 million for the fourth
quarter 2012. Higher sales and higher gross margins for the Direct
segment were offset by higher media and advertising investment
designed to help drive new product awareness and expand sales
leads. Gross margin for the Direct business was 60.2% for the
fourth quarter of 2013, compared to 58.9% in the fourth quarter of
last year. Direct business gross margin benefited from improved
overall overhead operating efficiency and cost improvements.
Net sales for the Retail segment were $32.1 million in the
fourth quarter 2013, an increase of 47% when compared to $21.8
million in the fourth quarter last year. The Company's Retail
segment sales in the fourth quarter of 2012 were adversely affected
as a result of some Retail customers accelerating a portion of
their purchases into the second quarter from the third and fourth
quarters, compared to their typical buying patterns, in
anticipation of the price increases implemented in the second half
of last year. Net sales for the full year 2013 for the Retail
segment were $76.8 million, an increase of 20% compared to last
year. The improvement in Retail net sales is due primarily to
growth in strength products and strong retailer acceptance of the
Company’s new lineup of cardio products.
Operating income for the Retail segment was $6.5 million for the
fourth quarter 2013, compared to $3.7 million in the fourth quarter
last year. Retail gross margin was 27.4% in the fourth quarter of
2013, compared to 24.1% in the same quarter of last year. Gross
margin benefited from a combination of the mix of new products,
higher sales volume, and improved overall overhead operational
efficiency.
Royalty revenue in the fourth quarter 2013 was $2.0 million,
compared to $1.8 million for the same quarter of last year. Royalty
revenue for the full year 2013 was $5.4 million, compared to $5.1
million in 2012.
For further information, see
"Segment Information" attached hereto.
Balance Sheet
As of December 31, 2013, the Company had cash and cash
equivalents of $41.0 million and no debt, compared to cash and cash
equivalents of $23.2 million and no debt at year end 2012. Working
capital of $45.7 million as of December 31, 2013 was a $20.3
million increase as compared to $25.4 million at year end 2012,
primarily due to higher cash and cash equivalents. Inventory as of
December 31, 2013 was $15.8 million, compared to $18.8 million as
of December 31, 2012. The Company tightly manages inventory levels
and believes that inventory is at the proper levels, when combined
with planned purchases, to support sales in the first quarter of
2014.
For further information, see "Balance Sheet
Information" attached hereto.
Non-GAAP Presentation
In addition to disclosing results determined in accordance with
GAAP, Nautilus discloses certain non-GAAP operating results that
excludes certain charges. In this news release, the Company has
presented certain of its results of operations, including its
income from continuing operations and income from continuing
operations per diluted share, excluding the net income tax benefit,
each of which is a non-GAAP financial measure.
When presenting non-GAAP information, the Company includes a
reconciliation of the non-GAAP results to the most directly
comparable financial measure calculated and presented in accordance
with GAAP. We present adjusted results because management believes
that due to the non-recurring nature of the partial reversal of a
valuation allowance recorded against the Company's deferred tax
assets resulting in an income tax benefit, including the non-GAAP
results assists investors in assessing the Company's operational
performance relative to its competitors and its historical
financial performance. The Company presents these non-GAAP results
as a complement to results provided in accordance with GAAP, and
these results should not be regarded as a substitute for GAAP. The
Company strongly encourages you to review all of its financial
statements and publicly-filed reports in their entirety and to not
rely on any single financial measure.
For a quantitative reconciliation of our non-GAAP financial
measures to the most comparable GAAP measures, see "Reconciliation
of Non-GAAP Financial Measures; Operating Income and Diluted EPS"
in the financial tables included with this release.
Conference Call
Nautilus will host a conference call to discuss the Company's
operating results for the fourth quarter and full year ended
December 31, 2013 at 4:30 p.m. ET (1:30 p.m. PT) on Monday,
February 24, 2014. The call will be broadcast live over the
Internet hosted at http://www.nautilusinc.com/events and will be
archived online within one hour after completion of the call. In
addition, listeners may call (800) 404-5245 in North America and
international listeners may call (303) 223-2681. Participants from
the Company will include Bruce M. Cazenave, Chief Executive
Officer, William B. McMahon, Chief Operating Officer, and Sid
Nayar, Senior Vice President-Finance.
A telephonic playback will be available from 6:30 p.m. ET,
February 24, 2014, through 6:30 p.m. ET, March 10, 2014.
Participants can dial (800) 633-8284 in North America and
international participants can dial (402) 977-9140 to hear the
playback. The passcode for the playback is 21705095.
About Nautilus, Inc.
Headquartered in Vancouver, Washington, Nautilus, Inc. (NYSE:
NLS) is a global fitness products company providing innovative,
quality solutions to help people achieve a healthy lifestyle. With
a brand portfolio including Nautilus®, Bowflex®, TreadClimber®,
Schwinn®, Schwinn Fitness™ and Universal®, Nautilus markets
innovative fitness products through Direct and Retail channels.
Websites: www.nautilusinc.com and www.bowflex.com
This press release includes forward-looking statements
(statements which are not historical facts) within the meaning of
the Private Securities Litigation Reform Act of 1995, including
statements concerning: the Company's prospects, resources or
capabilities; current or future financial and economic trends;
future operating results; forecasts of positive revenue and
operating income growth; future plans for introduction of new
products and the anticipated reception of such products;
anticipated demand for the Company's new and existing products;
maintenance of appropriate inventory levels; growth in revenues and
profits; leverage of operating expenses and the results of
marketing and media investments. Factors that could cause Nautilus,
Inc.'s actual results to differ materially from these
forward-looking statements include our ability to timely acquire
inventory that meets our quality control standards from sole source
foreign manufacturers at acceptable costs, the effectiveness,
availability and price of media time consistent with our cost and
audience profile parameters, greater than anticipated costs
associated with launch of new products, a decline in consumer
spending due to unfavorable economic conditions, softness in the
retail marketplace, an adverse change in the availability of credit
for our customers who finance their purchases, our ability to pass
along vendor raw material price increases and increased shipping
costs, our ability to effectively develop, market and sell future
products, our ability to protect our intellectual property, the
introduction of competing products, and our ability to get
foreign-sourced product through customs in a timely manner.
Additional assumptions, risks and uncertainties are described in
detail in our registration statements, reports and other filings
with the Securities and Exchange Commission, including the "Risk
Factors" set forth in our Annual Report on Form 10-K, as
supplemented by our quarterly reports on Form 10-Q. Such filings
are available on our website or at www.sec.gov. You are cautioned
that such statements are not guarantees of future performance and
that our actual results may differ materially from those set forth
in the forward-looking statements. We undertake no obligation to
publicly update or revise forward-looking statements to reflect
subsequent developments, events or circumstances.
RESULTS OF OPERATIONS INFORMATION
The following summary contains information from our consolidated
statements of operations for the three and twelve months ended
December 31, 2013 and 2012 (unaudited and in thousands, except per
share amounts):
Three Months Ended December 31, Twelve
Months Ended December 31, 2013 2012 2013
2012 Net sales $ 77,091 $ 65,029 $
218,803 $ 193,926 Cost of sales 40,414 33,606 112,326
102,889 Gross profit 36,677 31,423 106,477 91,037
Operating expenses: Selling and marketing 19,940 17,560 66,486
58,617 General and administrative 4,869 4,997 18,705 17,669
Research and development 1,750 1,206 5,562 4,163
Total operating expenses 26,559 23,763 90,753
80,449 Operating income
10,118
7,660 15,724 10,588 Other income (expense), net 43 (67 ) 315
(172 ) Income from continuing operations before income taxes 10,161
7,593 16,039 10,416 Income tax provision (benefit) 1,729 328
(32,085 ) (226 ) Income from continuing operations 8,432 7,265
48,124 10,642 Income (loss) from discontinued operations, net of
income taxes 116 6,309 (170 ) 6,241 Net income $
8,548 $ 13,574 $ 47,954 $ 16,883 Basic
income per share from continuing operations $ 0.27 $ 0.23 $ 1.55 $
0.34 Basic income (loss) per share from discontinued operations -
0.20 (0.01 ) 0.21 Basic net income per share(1) $
0.27 $ 0.44 $ 1.54 $ 0.55 Diluted
income per share from continuing operations $ 0.27 $ 0.23 $ 1.53 $
0.34 Diluted income (loss) per share from discontinued operations -
0.20 (0.01 ) 0.21 Diluted net income per share(1) $
0.27 $ 0.44 $ 1.52 $ 0.55 Shares used
in per share calculations: Basic 31,153 30,916 31,072
30,851 Diluted 31,509 30,996 31,457 30,974
(1) May not add due to rounding.
SEGMENT INFORMATION
The following tables present certain comparative information by
segment for the three and twelve months ended December 31, 2013 and
2012 (unaudited and in thousands):
Three Months Ended December
31, Change Net sales:
2013 2012 $
% Direct $ 42,985 $ 41,434 $ 1,551 3.7 % Retail
32,097 21,834 10,263 47.0 % Royalty income 2,009 1,761
248 14.1 % $ 77,091 $ 65,029 $ 12,062
18.5 % Operating income (loss): Direct $ 5,593 $
6,511 $ (918 ) (14.1 )% Retail 6,456 3,673 2,783 75.8 % Unallocated
corporate (1,931 ) (2,524 ) 593 23.5 % $ 10,118 $
7,660 $ 2,458 32.1 %
Twelve
Months Ended December 31, Change Net sales:
2013
2012 $ % Direct $ 136,663 $ 124,978 $
11,685 9.3 % Retail 76,775 63,891 12,884 20.2 % Royalty income
5,365 5,057 308 6.1 % $ 218,803 $
193,926 $ 24,877 12.8 % Operating income
(loss): Direct $ 14,126 $ 12,479 $ 1,647 13.2 % Retail 11,431 7,855
3,576 45.5 % Unallocated corporate (9,833 ) (9,746 ) (87 ) (0.9 )%
$ 15,724 $ 10,588 $ 5,136 48.5 %
BALANCE SHEET INFORMATION
The following summary contains information from our consolidated
balance sheets as of December 31, 2013 and December 31, 2012
(unaudited and in thousands):
December 31, 2013 2012
Assets Cash and cash equivalents $ 40,979 $
23,207 Trade receivables, net of allowances of $53 and $93 25,336
21,767 Inventories, net 15,824 18,787 Prepaids and other current
assets 6,927 5,750 Income taxes receivable 80 101 Short-term notes
receivable - 82 Deferred income tax assets 4,441 193 Total current
assets 93,587 69,887 Property, plant and equipment, net
8,499 6,138 Goodwill 2,740 2,940 Other intangible assets, net
12,615 14,666 Long-term deferred income tax assets 25,725 239 Other
assets 401 441 Total assets $ 143,567 $ 94,311
Liabilities and Stockholders' Equity Trade payables $
37,192 $ 32,753 Accrued liabilities 9,123 8,171 Warranty
obligations, current portion 1,610 2,278 Deferred income tax
liabilities - 1,275 Total current liabilities 47,925 44,477
Warranty obligations, non-current 28 214 Income taxes payable,
non-current 2,577 2,812 Deferred income tax liabilities,
non-current - 1,484 Other long-term liabilities 1,472 1,998
Stockholders' equity 91,565 43,326 Total liabilities and
stockholders' equity $ 143,567 $ 94,311
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Continuing Operations Income and Diluted EPS (as reported and
excluding non-recurring items)(unaudited and in millions, except
per share amounts):
Three Months Ended December 31, 2013
As Less non- Excluding non- reported recurring items(1)
recurring items(2) Income from continuing operations $ 8.4 $ (1.1 )
$ 9.6 Diluted net income per share $ 0.27 $ (0.04 ) $ 0.30
Twelve Months Ended December 31, 2013
As Less non- Excluding non- reported recurring items(1) recurring
items Income from continuing operations $ 48.1 $ 33.0 $ 15.1
Diluted net income per share $ 1.53 $ 1.05 $ 0.48
(1) Income tax benefit (expense) related to a partial reversal
of a valuation allowance recorded against the Company’s deferred
tax assets.
(2) May not add due to rounding.
Investor Relations Contact:John Mills, ICR, LLCTelephone: (310)
954-1105
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