Third Quarter Total Revenues Increased 3%
Fueled by 15% Growth in Retail Segment
Company Set to Unveil Major Digital Platform
with New Max Trainer Line in Q4
Nautilus, Inc. (NYSE: NLS) today reported its unaudited
operating results for the third quarter and nine months ended
September 30, 2018.
Net sales for the third quarter of 2018 totaled $91.1 million,
up 3.3% compared to $88.1 million in the same quarter of 2017. The
increase in net sales was driven by strong performance in the
Retail segment, up 14.9% from the prior year quarter, reflecting
double-digit growth in both the mass retail channel and the
specialty and commercial channel due to broad-based strength across
several product offerings including bikes, treadmills and Max
Trainer®. Overall sales growth was partially offset by lower Direct
segment sales, which were down 14.8% and reflect a reduction in
media spend of 17.7% versus the same period last year. All product
categories in the Direct segment declined with the exception of the
Bowflex LateralX® trainer which was soft launched during the
quarter. Royalty revenue in the third quarter of 2018 was $0.6
million, flat compared to the same quarter of last year. For the
first nine months of 2018, net sales were $281.4 million, up 1.1%
compared to the same prior year period. Gross margins for the third
quarter of 2018 totaled 42.3% versus 46.9% for the same period last
year, reflecting higher product costs across all channels, coupled
with a shift in segment revenue mix from Direct to Retail.
Operating income for the third quarter of 2018 was $6.2 million,
compared to $13.4 million in the same period last year, as lower
gross margins drove a decline in gross profit dollars, coupled with
higher operating expenses. The third quarter of 2017 operating
expense included a $2.1 million favorable retroactive adjustment to
finance fees related to a contract extension and a $1.0 million
favorable settlement related to an indemnification claim. Operating
expenses for the third quarter of 2018 were 35.5% of revenue versus
31.7% in the same period last year. Excluding the finance fee
adjustment and indemnification-related settlement from the prior
year, operating expenses in the quarter were essentially flat as a
percentage of revenue versus the same period in the prior year.
Through September 30, 2018, year-to-date operating expense as
percentage of revenue remained flat versus prior year at 40.1%,
even with additional investments made this year in support of
strategic initiatives. For the first nine months of 2018, operating
income was $18.1 million, compared to $29.9 million in the same
period last year.
Income from continuing operations for the third quarter of 2018
was $4.5 million, or $0.15 per diluted share, compared to $8.3
million, or $0.27 per diluted share, for the same period last year.
Income from continuing operations for the first nine months of 2018
was $13.7 million, or $0.45 per diluted share, compared to income
from continuing operations of $19.1 million, or $0.61 per diluted
share for the same period last year. EBITDA from continuing
operations for the third quarter of 2018 totaled $8.5 million
compared to $15.3 million in the prior year period.
At September 30, 2018, cash and marketable securities
decreased to $71.1 million and debt decreased to $36.0 million,
compared to $85.2 million and $48.0 million, respectively, at
December 31, 2017.
Bruce M. Cazenave, Chief Executive Officer, stated, “Our third
quarter performance was substantially in-line with our
expectations, driven by strong growth in the Retail segment,
reflecting double-digit increases in both our mass retail channel
as well as the specialty and commercial channel. During the
quarter, we successfully launched a number of new products
including the Bowflex LateralX® trainer in the Direct segment and
the Octane MTX Max Trainer®, the commercial grade version of our
popular Max Trainer® line. Media spending in the Direct segment was
reduced in the third quarter as we prepared to transition our media
and promotional support to the new upgraded and refreshed Max
Trainer line that is planned to launch in November. We anticipate a
reversal of recent sales trends in our Direct segment during the
fourth quarter based on these new products and the planned
marketing support behind the introduction of our exciting new
digital platform.”
Mr. Cazenave continued, “We are pleased with progress on our
strategic investment initiatives and are excited about our growth
opportunities in 2019. Specifically, we have ramped up investments
in the international channel and key logistics and systems
integration initiatives have been completed. The new products we
have introduced over the last 18 months give us a good base for
growth by themselves, but the new digital platform coming this
quarter provides an even broader foundation for near-term and
long-term growth. This upgraded platform will change the way we
engage with consumers, including new methods like offering value
added content rich subscriptions. We remain grounded as a company
focused on designing and marketing a broad range of high-quality
innovative products but will be layering on a new level of enhanced
customer experience with AI-driven technology that uniquely adapts
to individual user desires and needs as they progress through their
fitness journey. Although the initial launch leads within the
Direct segment with our most popular product line, ultimately, we
expect to offer it across many of our brands, product lines, and
channels of distribution.”
For further information, see
“Results of Operations Information” attached hereto.
Segment Results
Net sales for the Direct segment were $29.0 million in the third
quarter of 2018, a decrease of 14.8% over the comparable period
last year due to reduced media spend of 17.7% and a decline in Max
Trainer® sales, partially offset by the launch of the Bowflex
LateralX® trainer during the third quarter. Operating loss for the
Direct segment was $1.4 million for the third quarter of 2018,
compared to operating income of $5.3 million in the third quarter
of last year. Operating income was negatively impacted by the
decline in sales and gross margins, as well as an increase in
operating expense. The third quarter of 2017 operating expense
included a $2.1 million favorable retroactive adjustment to finance
fees related to a contract extension. Gross margin for the Direct
segment declined by 620 basis points, which resulted from higher
product costs due to rising material costs and inventory that was
purchased under unfavorable exchange rates, coupled with
unfavorable product mix due to lower Max Trainer® sales.
Net sales for the Retail segment were $61.5 million in the third
quarter of 2018, an increase of 14.9% when compared to $53.5
million in the third quarter last year. The increase reflected
robust growth across a variety of product lines, driven by
double-digit growth in both the mass retail channel and the
specialty and commercial channel. Operating income for the Retail
segment was $12.7 million for the third quarter of 2018 compared to
$12.1 million in the third quarter of last year. The increase in
Retail segment operating income was primarily due to the higher
revenue, partially offset by an increase in operating expense. The
third quarter of 2017 operating expense included a $1.0 million
favorable settlement related to an indemnification claim. Retail
segment gross margin was 34.7% in the third quarter of 2018,
compared to 35.7% in the same quarter of the prior year, reflecting
higher product costs due to unfavorable changes in foreign currency
exchange rates.
For further information, see “Segment
Information” attached hereto.
Balance Sheet
As of September 30, 2018, the Company had cash and
marketable securities of $71.1 million and debt of $36.0 million,
compared to cash and marketable securities of $85.2 million and
debt of $48.0 million at year end 2017. During the third quarter,
the Company purchased $1.9 million of stock in the open market as
part of its previously announced stock repurchase program. As of
September 30, 2018, $22.0 million remained available for
future repurchases under the share repurchase program. The Company
has repurchased an additional $4.7 million of stock between October
1, 2018 and October 26, 2018. Working capital of $88.5 million as
of September 30, 2018 was $2.6 million lower than the 2017
year-end balance of $91.1 million. Inventory as of
September 30, 2018 was $55.5 million, compared to $53.4
million as of December 31, 2017 and $57.6 million at the end
of the third quarter last year.
For further information, see “Balance Sheet
Information” attached hereto.
Conference Call
Nautilus will host a conference call to discuss the Company’s
operating results for the third quarter ended September 30,
2018 at 4:30 p.m. ET (1:30 p.m. PT) on Monday, October 29,
2018. 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) 289-0438 in North America and
international listeners may call (323) 794-2423. Participants from
the Company will include Bruce M. Cazenave, Chief Executive
Officer, Sid Nayar, Chief Financial Officer, and William B.
McMahon, Chief Operating Officer.
A telephonic playback will be available from 7:30 p.m. ET,
October 29, 2018, through 11:59 p.m. ET, November 12, 2018.
Participants can dial (844) 512-2921 in North America and
international participants can dial (412) 317-6671 to hear the
playback. The passcode for the playback is 3377136.
Non-GAAP Presentation
In addition to disclosing results determined in accordance with
GAAP, Nautilus has presented EBITDA from continuing operations, a
non-GAAP financial measure, for the three and nine months ended
September 30, 2018 and 2017.
The Company defines EBITDA from continuing operations as its
income from continuing operations, adjusted to exclude interest
expense (income), income tax expense of continuing operations, and
depreciation and amortization expense. The Company uses EBITDA from
continuing operations in evaluating its operating results and for
financial and operational decision-making purposes such as
budgeting and establishing operational goals. The Company believes
that EBITDA from continuing operations helps identify underlying
trends in its business that could otherwise be masked by the effect
of the items that are excluded from EBITDA from continuing
operations and enhances the overall understanding of the Company’s
past performance and future prospects. The Company presents EBITDA
from continuing operations 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" included with this release.
About Nautilus, Inc.
Headquartered in Vancouver, Washington, Nautilus, Inc. (NYSE:
NLS) is a global fitness solutions company that believes everyone
deserves a fit and healthy life. With a brand portfolio including
Bowflex®, Nautilus®, Octane Fitness®, Schwinn® and
Universal®, Nautilus, Inc. develops innovative products
to support healthy living through direct and retail channels, as
well as in commercial channels with Octane Fitness® products.
Nautilus, Inc. uses the investor relations page of its website
(www.nautilusinc.com/investors) to make information available to
its investors and the market.
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:
projected or forecasted financial and operating results, including
expectations for full year 2018 net revenue and operating income;
future plans for introduction of new products, anticipated demand
for the Company's new and existing products, and projected impact
of the new product launches on the Company’s operating results for
the fourth quarter of 2018 and future periods; statements regarding
the Company's prospects, resources or capabilities; current or
future financial and economic trends; planned investments and
strategic initiatives and the anticipated or targeted results of
such initiatives. Factors that could cause Nautilus, Inc.’s actual
results to differ materially from these forward-looking statements
include: weaker than expected demand for new or existing products;
our ability to timely acquire inventory that meets our quality
control standards from sole source foreign manufacturers at
acceptable costs; an inability to pass along or otherwise mitigate
the impact of raw material price increases and other cost
pressures, including unfavorable currency exchange rates;
experiencing delays and/or greater than anticipated costs in
connection with launch of new products, entry into new markets, or
strategic initiatives; our ability to hire and retain key
management personnel; changes in consumer fitness trends; changes
in the media consumption habits of our target consumers or the
effectiveness of our media advertising; a decline in consumer
spending due to unfavorable economic conditions; and softness in
the retail marketplace. 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 condensed
consolidated statements of operations for the three and nine months
ended September 30, 2018 and 2017 (unaudited and in thousands,
except per share amounts):
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2018 2017 2018
2017 Net sales $ 91,057 $ 88,132 $ 281,368 $ 278,413
Cost of sales 52,551 46,817 150,343 136,975
Gross profit 38,506 41,315 131,025 141,438 Operating
expenses: Selling and marketing 20,635 18,028 79,482 79,321 General
and administrative 7,503 6,305 20,740 21,106 Research and
development 4,208 3,617 12,744 11,114
Total operating expenses 32,346 27,950 112,966 111,541
Operating income 6,160 13,365 18,059 29,897 Other income (expense),
net 213 (161 ) 236 (648 ) Income from continuing
operations before income taxes 6,373 13,204 18,295 29,249 Income
tax expense 1,870 4,862 4,645 10,156
Income from continuing operations 4,503 8,342 13,650 19,093 Loss
from discontinued operations(1) (194 ) (101 ) (354 ) (1,270 ) Net
income $ 4,309 $ 8,241 $ 13,296 $ 17,823
Basic income per share from continuing operations $
0.15 $ 0.27 $ 0.45 $ 0.62 Basic loss per share from discontinued
operations (0.01 ) — (0.01 ) (0.04 ) Basic net income per
share $ 0.14 $ 0.27 $ 0.44 $ 0.58
Diluted income per share from continuing operations $ 0.15 $
0.27 $ 0.45 $ 0.61 Diluted loss per share from discontinued
operations (0.01 ) — (0.01 ) (0.04 ) Diluted net income per
share $ 0.14 $ 0.27 $ 0.44 $ 0.57
Shares used in per share calculations: Basic 30,185 30,749
30,230 30,739 Diluted 30,433 31,075 30,500 31,098
Select
Metrics: Gross margin 42.3 % 46.9 % 46.6 % 50.8 % Selling and
marketing % of net sales 22.7 % 20.5 % 28.2 % 28.5 % General and
administrative % of net sales 8.2 % 7.2 % 7.4 % 7.6 % Research and
development % of net sales 4.6 % 4.1 % 4.5 % 4.0 % Operating income
% of net sales 6.8 % 15.2 % 6.4 % 10.7 %
(1) The nine months ended September 30, 2017 include a $1.2
million expense related to a lawsuit settlement with Biosig
Instruments, Inc.
SEGMENT INFORMATION
The following table presents certain comparative information by
segment for the three and nine months ended September 30, 2018 and
2017 (unaudited and in thousands):
Three Months EndedSeptember
30,
Change 2018 2017 $
% Net sales: Direct $ 28,955 $ 33,986 $ (5,031 )
(14.8 )% Retail 61,490 53,505 7,985 14.9 % Royalty 612 641
(29 ) (4.5 )% $ 91,057 $ 88,132 $ 2,925
3.3 % Operating income (loss): Direct $ (1,363 ) $ 5,289 $
(6,652 ) (125.8 )% Retail 12,707 12,118 589 4.9 % Unallocated
corporate (5,184 ) (4,042 ) (1,142 ) (28.3 )% $ 6,160 $
13,365 $ (7,205 ) (53.9 )%
Nine Months EndedSeptember
30,
Change 2018 2017 $
% Net sales: Direct $ 134,980 $ 147,800 $ (12,820 )
(8.7 )% Retail 143,668 128,393 15,275 11.9 % Royalty 2,720
2,220 500 22.5 % $ 281,368 $ 278,413 $
2,955 1.1 % Operating income (loss): Direct $ 10,667
$ 23,141 $ (12,474 ) (53.9 )% Retail 20,196 20,427 (231 ) (1.1 )%
Unallocated corporate (12,804 ) (13,671 ) 867 6.3 % $ 18,059
$ 29,897 $ (11,838 ) (39.6 )%
BALANCE SHEET INFORMATION
The following summary contains information from our condensed
consolidated balance sheets as of September 30, 2018 and
December 31, 2017 (unaudited and in thousands):
As of September 30, 2018
December 31, 2017
Assets
Cash and cash equivalents $ 30,753 $ 27,893
Available-for-sale securities 40,352 57,303 Trade receivables, net
of allowances of $45 and $119 46,130 42,685 Inventories 55,549
53,354 Prepaids and other current assets 11,174 7,257 Total
current assets 183,958 188,492 Property, plant and
equipment, net 19,580 15,827 Goodwill 61,969 62,030 Other
intangible assets, net 55,364 57,743 Other assets 631 684
Total assets $ 321,502 $ 324,776
Liabilities and
Shareholders' Equity Trade payables $ 67,675 $ 66,899
Accrued liabilities 7,846 10,764 Warranty obligations, current
portion 3,904 3,718 Note payable, current portion 15,993
15,993 Total current liabilities 95,418 97,374 Warranty
obligations, non-current 1,802 2,399 Income taxes payable,
non-current 3,317 2,955 Deferred income tax liabilities,
non-current 10,141 8,558 Other non-current liabilities 1,967 2,315
Note payable, non-current 19,991 31,986 Shareholders' equity
188,866 179,189 Total liabilities and shareholders' equity $
321,502 $ 324,776
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table presents a reconciliation of EBITDA from
continuing operations for the three and nine months ended September
30, 2018 and 2017 (unaudited and in thousands):
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2018 2017 2018
2017 Income from continuing operations $ 4,503 $
8,342 $ 13,650 $ 19,093 Interest (income) expense, net (25 ) 207
(30 ) 757 Income tax expense from continuing operations 1,870 4,862
4,645 10,156 Depreciation and amortization 2,178 1,868
6,646 6,386 Earnings before interest, taxes,
depreciation and amortization (EBITDA) from continuing operations $
8,526 $ 15,279 $ 24,911 $ 36,392
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181029005170/en/
Investor Relations Contact:ICR, LLCJohn Mills, 646-277-1254
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