Company Achieves Full Year 2017 Revenue
Guidance
Fourth Quarter Revenue Increased 2% Over
Prior Year as the Direct Segment Increased by 10%
Announces $15M Expansion of Share Repurchase
Program
Nautilus, Inc. (NYSE:NLS) today reported its unaudited operating
results for the fourth quarter and full year ended
December 31, 2017.
The Company is reporting certain results on an adjusted and
unadjusted basis where adjusted excludes a non-cash impairment
charge related to the carrying value of the Octane Fitness trade
name intangible asset, as well as a tax benefit related to recent
changes in the United States tax law.
Q4 2017 Highlights
All comparisons relate to the fourth quarter of 2016 unless
otherwise indicated:
- Revenues:
- Total revenue increased 1.6% to $127.8
million compared to the prior year quarter of $125.8 million.
- Direct segment sales increased 9.9% to
$71.6 million as sales growth across several product offerings,
including the Bowflex MaxTrainer® and the Bowflex HVT®, more than
offset the anticipated decline in TreadClimber® sales.
- Retail segment sales decreased 7.5% to
$55.5 million, reflecting the previously reported timing shift from
Q4 into Q3, coupled with continued weakness in specialty and
commercial customers.
- Gross Margins:
- Total company gross margins decreased
by 210 basis points to 48.9% primarily due to margin reductions in
both segments, partially offset by a shift in segment revenue mix
from Retail to higher margin Direct.
- Direct margins decreased by 340 basis
points due to a shift in product mix to lower margin HVT® and
treadmills, coupled with increases in product costs due to
unfavorable changes in foreign currency exchange rates.
- Retail segment gross margins decreased
380 basis points due to unfavorable product mix and increases in
product costs, coupled with higher seasonal discounting.
- Operating Expense:
- As a percent of revenue, operating
expenses increased 830 basis points to 43.9% versus 35.6% in the
fourth quarter last year, driven primarily by an $8.8 million
non-cash impairment charge related to the carrying value of the
Octane Fitness trade name intangible asset. Excluding the non-cash
impairment charge, operating expenses were 37.0% of revenue.
- Operating income decreased by 66.8% to
$6.4 million compared to $19.3 million in the prior period.
Adjusted operating income, excluding the non-cash impairment charge
of $8.8 million, decreased 21.3% to $15.2 million compared to the
prior year period reflecting the lower gross margins and increased
media spend.
- The effective income tax rate for
continuing operations in the fourth quarter of 2017 was a credit of
32.2% versus an expense of 36.4% in the prior year quarter. The
current year tax rate reflects the Company's net benefit related to
the reassessment of certain deferred tax assets and liabilities to
reflect the impact of recently modified United States tax law.
- Income from continuing operations was
$8.5 million, or $0.28 per diluted share, compared to income from
continuing operations of $12.0 million, or $0.38 per diluted share
in the prior year quarter. Adjusted income from continuing
operations, excluding the impairment charge and tax benefit related
to the tax law change, was $8.3 million or $0.27 per diluted
share.
- EBITDA from continuing operations
decreased by 58.6% to $8.9 million versus $21.4 million in the same
quarter of the prior year. Adjusted to exclude the impairment
charge, EBITDA from continuing operations decreased by 17.4% to
$17.7 million.
- At December 31, 2017, the Company
had cash and marketable securities of $85.2 million and debt of
$48.0 million, compared to $79.6 million and $64.0 million,
respectively, at December 31, 2016.
Full Year 2017 Highlights
All comparisons relate to the full year 2016 unless otherwise
indicated:
- Revenues:
- Total revenue was $406.2 million
compared to the prior year revenue of $406.0 million.
- Direct segment sales decreased 2.5% to
$219.4 million primarily due to lower TreadClimber® sales, slightly
offset by the introduction of the new Bowflex HVT® and higher sales
in the strength category.
- Retail segment sales increased 3.3%
from the prior year to $183.9 million, reflecting sales increases
across a variety of product offerings in the traditional and
e-commerce channels, partially offset by weakness in sales to
specialty and commercial customers.
- Gross Margins:
- Total company gross margins decreased
by 190 basis points to 50.2% due to lower margins in the Direct
channel and a shift to a higher Retail segment sales mix.
- Operating income decreased by 32.0% to
$36.3 million compared to $53.4 million in the prior year.
Excluding the fourth quarter impairment charge of $8.8 million,
adjusted operating income was $45.1 million, reflecting the impact
of lower gross margins and higher media spending.
- For the full year 2017, income from
continuing operations totaled $27.6 million, or $0.89 per diluted
share, compared to $35.1 million, or $1.12 per diluted share, for
the same period last year. Adjusted income from continuing
operations, excluding the impairment charge and tax benefit related
to the tax law change, was $27.4 million, or $0.88 per diluted
share.
- EBITDA from continuing operations
decreased by 26.0% to $45.2 million. Adjusted to exclude the
impairment charge, EBITDA from continuing operations decreased by
11.6% to $54.0 million.
Bruce M. Cazenave, Chief Executive Officer, stated, “Although we
achieved our fourth quarter and full year revenue and operating
income guidance when excluding the non-cash trade name impairment
charge, we came in considerably below the overall full year
performance targets we had established for 2017. Importantly, we
managed through 2017's challenges, generating $54M of Adjusted
EBITDA, while continuing to advance our long-term strategic
initiatives. We also continued to strengthen our balance sheet
during the year, generated $35 million of cash flow from
operations, and repurchased $11 million of stock in the open
market.”
Mr. Cazenave continued, “As previously communicated, in 2018 we
will continue executing our multifaceted plan to support
achievement of our long-term growth goals. This plan envisions
investment in resources including talent additions, repositioning
our supply chain and inventory to maximize efficiencies, and
upgrading and integrating systems to realize cost synergies. Also,
as always, stepping up the cadence of true product innovation and
developing advanced digital capabilities that resonate well with
all of our customer bases are front and center priorities, and
there will be significant incremental investment in this area. As
part of the plan, we recently restructured our international sales
and support teams under one leader to provide added focus on a
targeted doubling of international revenue by 2020. We also
anticipate additional expense related to the redeployment of
resources, consolidation of warehousing facilities, and supply base
realignment in order to support international growth. Despite these
added investments and other underlying activities which are all
designed to better align and position our business with key growth
initiatives, we do expect all segments to return to full year
top-line growth in 2018.”
For further information, see "Results of
Operations Information" attached hereto.
Segment Results
Net sales for the Direct segment were $71.6 million in the
fourth quarter of 2017, an increase of 9.9% over the comparable
period last year. The Direct segment sales grew across several
product offerings, including the Bowflex HVT®, but were partially
offset by the expected decline in TreadClimber® sales. For the full
year 2017, net sales for the Direct segment were $219.4 million, a
decrease of 2.5% over last year, reflecting the decline in
TreadClimber® sales.
Operating income for the Direct segment was $11.8 million for
the fourth quarter of 2017, a decrease of 1.7% compared to
operating income of $12.0 million in the fourth quarter of 2016.
The decrease reflected lower gross margin rates that were partially
offset by favorable consumer financing costs. Gross margin for the
Direct business was 63.4% for the fourth quarter of 2017, compared
to 66.8% in the fourth quarter of last year. The margin decline
reflected a shift in product mix, coupled with increases in product
costs due to unfavorable changes in foreign currency exchange
rates.
Net sales for the Retail segment were $55.5 million in the
fourth quarter of 2017, a decrease of 7.5% over the fourth quarter
last year. The decrease in sales reflected the year over year
timing shift of fall orders from Q4 into Q3 as stronger than usual
seasonal sell-in occurred in Q3 this year. Also, there was
continued weakness in the specialty and commercial channel. For the
full year 2017, net sales for the Retail segment totaled $183.9
million, an increase of 3.3% over the prior year, reflecting high
single-digit growth in mass retail accounts, partially offset by
sales declines in the specialty retail and commercial channel.
Operating income for the Retail segment was $7.1 million for the
fourth quarter of 2017, a decrease of 42.2% compared to operating
income of $12.2 million in the fourth quarter of 2016. Retail gross
margin was 29.5% in the fourth quarter of 2017, compared to 33.3%
in the same quarter of the prior year due to unfavorable product
mix and increases in product costs, coupled with higher seasonal
discounting.
Royalty revenue in the fourth quarter of 2017 was $0.6 million
compared to $0.6 million for the same quarter last year.
For further information, see "Segment
Information" attached hereto.
Balance Sheet
As of December 31, 2017, the Company had cash and
marketable securities of $85.2 million and debt of $48.0 million,
compared to cash and marketable securities of $79.6 million and
debt of $64.0 million at year end 2016. During the full year of
2017, the Company purchased $11.1 million of stock in the open
market as part of its previously announced stock repurchase
program, including $6.2 million of repurchases in the fourth
quarter of 2017. Working capital of $91.1 million as of
December 31, 2017 was $6.2 million higher than the 2016
year-end balance of $85.0 million, primarily due to a $5.6 million
increase in cash and marketable securities. Inventory as of
December 31, 2017 was $53.4 million, compared to $47.0 million
as of December 31, 2016. The increase in inventory is due to
the addition of several new products and timing of purchases.
For further information, see "Balance Sheet
Information" attached hereto.
Share Repurchase Program
The Company announced today that its Board of Directors has
authorized an additional $15 million share repurchase program,
bringing the total authorization under existing programs to $30
million. The Company has completed approximately $3.0 million in
total share repurchases under the $15 million program announced in
May 2017. The balance of approximately $12.0 million under that
program may be repurchased from time to time through April 25,
2019. Under the newly authorized program, shares of the
Company’s common stock may be repurchased from time to time through
February 21, 2020. Repurchases under the Company’s share repurchase
programs may be made in open market transactions at prevailing
prices, in privately negotiated transactions, or by other means in
accordance with federal securities laws. Share repurchases will be
funded from existing cash balances and repurchased shares will be
retired and returned to unissued authorized shares. More details on
the share repurchase program are included in a separate press
release issued today.
Conference Call
Nautilus will host a conference call at 4:30 p.m. ET (1:30 p.m.
PT) on Monday, March 5, 2018 to discuss the Company’s
operating results for the fourth quarter and full year ended
December 31, 2017 and will provide guidance for the first
quarter and full year 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) 281-7973 in North America and
international listeners may call (323) 794-2093. 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,
March 5, 2018 through 11:59 p.m. ET, March 19, 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 9600180.
Non-GAAP Presentation
In addition to disclosing its financial results determined in
accordance with GAAP, Nautilus has presented in this release
certain non-GAAP financial measures, which exclude the impact of
certain items (as further described below) and provide supplemental
information regarding operating performance. Nautilus presents
non-GAAP financial measures as a complement to results provided in
accordance with GAAP, and the non-GAAP financial measures should
not be regarded as a substitute for GAAP. By disclosing these
non-GAAP financial measures, management intends to provide
investors with a supplemental comparison of operating results and
trends for the periods presented. Management believes these
measures are also useful to investors as such measures allow
investors to evaluate performance using the same metrics that
management uses to evaluate past performance and prospects for
future performance. 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.
EBITDA from continuing operations
The Company defines EBITDA from continuing operations as its
income from continuing operations, adjusted to exclude interest
expense (income), income tax expense (benefit) 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.
Adjusted Results
In addition to disclosing the comparable GAAP results, Nautilus
has presented its operating income and income from continuing
operations on an adjusted basis. Adjusted operating income excludes
a non-cash impairment charge related to the carrying value of the
Octane Fitness trade name intangible asset. Adjusted income from
continuing operations excludes the impairment charge as well as a
tax benefit related to recent changes in the United States tax law.
In addition to presenting its EBITDA from continuing operations as
described above, Nautilus has also presented EBITDA from continuing
operations on an adjusted basis, excluding the aforementioned
impairment charge.
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; statements
regarding the Company's prospects, resources or capabilities;
current or future financial and economic trends; planned
investments, restructurings and similar initiatives and the
anticipated or targeted results therefrom; future plans for
introduction of new products; and anticipated demand for the
Company's new and existing products. 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; an inability to pass
along or otherwise mitigate the impact of raw material price
increases and other cost pressures; greater than anticipated costs
associated with launch of new products, entry into new markets, or
restructuring initiatives; 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 consolidated
statements of operations for the three and twelve months ended
December 31, 2017 and 2016 (unaudited and in thousands, except
per share amounts):
Three Months Ended December 31,
Twelve Months Ended December 31, 2017
2016 2017 2016 Net sales
$ 127,771 $ 125,764 $ 406,184 $ 406,039 Cost of sales 65,327
61,662 202,302 194,514 Gross profit 62,444
64,102 203,882 211,525 Operating expenses: Selling and
marketing 36,901 34,153 116,222 115,437 General and administrative
6,005 7,164 27,111 28,775 Research and development 4,332 3,475
15,446 13,919 Asset impairment charge 8,800 — 8,800
— Total operating expenses 56,038 44,792
167,579 158,131 Operating income 6,406
19,310 36,303 53,394 Other income (expense), net 50 (477 )
(598 ) (1,813 ) Income from continuing operations before income
taxes 6,456 18,833 35,705 51,581 Income tax expense (benefit)
(2,076 ) 6,859 8,080 16,480 Income from
continuing operations 8,532 11,974 27,625 35,101 Loss from
discontinued operations, net of income taxes(1) (88 ) (364 ) (1,358
) (923 ) Net income $ 8,444 $ 11,610 $ 26,267
$ 34,178 Basic income per share from continuing
operations $ 0.28 $ 0.39 $ 0.90 $ 1.13 Basic loss per share from
discontinued operations — (0.01 ) (0.04 ) (0.03 ) Basic net
income per share $ 0.28 $ 0.38 $ 0.86 $ 1.10
Diluted income per share from continuing operations $
0.28 $ 0.38 $ 0.89 $ 1.12 Diluted loss per share from discontinued
operations — (0.01 ) (0.04 ) (0.03 ) Diluted net income per
share(2) $ 0.27 $ 0.37 $ 0.85 $ 1.09
Shares used in per share calculations: Basic 30,470 30,924
30,671 31,032 Diluted 30,752 31,184 31,010 31,301
Select
Metrics: Gross margin 48.9 % 51.0 % 50.2 % 52.1 % Selling and
marketing % of net sales 28.9 % 27.2 % 28.6 % 28.4 % General and
administrative % of net sales 4.7 % 5.7 % 6.7 % 7.1 % Research and
development % of net sales 3.4 % 2.8 % 3.8 % 3.4 % Operating income
% of net sales 5.0 % 15.4 % 8.9 % 13.1 %
(1) The twelve months ended December 31, 2017 includes a $1.2
million expense related to a lawsuit settlement with Biosig
Instruments, Inc.(2) 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,
2017 and 2016 (unaudited and in thousands):
Three Months Ended December 31,
Change 2017 2016 $
% Net sales: Direct $ 71,640 $ 65,173 $ 6,467 9.9 %
Retail 55,482 59,981 (4,499 ) (7.5 )% Royalty 649 610
39 6.4 % $ 127,771 $ 125,764 $ 2,007
1.6 % Operating income (loss): Direct $ 11,759 $ 11,962 $
(203 ) (1.7 )% Retail 7,068 12,226 (5,158 ) (42.2 )% Unallocated
corporate (12,421 ) (4,878 ) (7,543 ) (154.6 )% $ 6,406 $
19,310 $ (12,904 ) (66.8 )%
Twelve Months Ended December 31, Change
2017 2016 $
% Net sales: Direct $ 219,440 $ 225,057 $ (5,617 ) (2.5 )%
Retail 183,875 177,920 5,955 3.3 % Royalty 2,869 3,062
(193 ) (6.3 )% $ 406,184 $ 406,039 $ 145
— % Operating income (loss): Direct $ 34,900 $ 43,215
$ (8,315 ) (19.2 )% Retail 27,495 29,451 (1,956 ) (6.6 )%
Unallocated corporate (26,092 ) (19,272 ) (6,820 ) (35.4 )% $
36,303 $ 53,394 $ (17,091 ) (32.0 )%
BALANCE SHEET INFORMATION
The following summary contains information from our consolidated
balance sheets as of December 31, 2017 and 2016 (unaudited and
in thousands):
As of December 31, 2017
2016 Assets Cash and cash equivalents $ 27,893
$ 47,874 Available-for-sale securities 57,303 31,743 Trade
receivables, net of allowances of $119 and $170 42,685 45,458
Inventories 53,354 47,030 Prepaids and other current assets 7,240
8,020 Income taxes receivable 17 3,231 Total current assets
188,492 183,356 Property, plant and equipment, net 15,827
17,468 Goodwill 62,030 61,888 Other intangible assets, net 57,743
69,800 Deferred income tax assets, non-current — 11 Other assets
684 543 Total assets $ 324,776 $ 333,066
Liabilities and Shareholders' Equity Trade payables $
66,899 $ 66,020 Accrued liabilities 10,764 12,892 Warranty
obligations, current portion 3,718 3,500 Note payable, current
portion, net of unamortized debt issuance costs of $7 and $7 15,993
15,993 Total current liabilities 97,374 98,405
Warranty obligations, non-current 2,399 3,950 Income taxes payable,
non-current 2,955 2,403 Deferred income tax liabilities,
non-current 8,558 16,991 Other long-term liabilities 2,315 2,481
Note payable, non-current, net of unamortized debt issuance costs
of $14 and $21 31,986 47,979 Shareholders' equity 179,189
160,857 Total liabilities and shareholders' equity $ 324,776
$ 333,066
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Three Months Ended December 31,
Twelve Months Ended December 31, 2017
2016 2017 2016
Operating income $ 6,406 $ 19,310 $ 36,303 $ 53,394 Asset
impairment charge 8,800 — 8,800 — Adjusted
operating income $ 15,206 $ 19,310 $ 45,103 $
53,394
Three Months Ended December 31, Twelve
Months Ended December 31, 2017 2016 2017
2016 Income from continuing operations $ 8,532 $
11,974 $ 27,625 $ 35,101 Asset impairment charge 8,800 — 8,800 —
Tax benefit of impairment (3,344 ) — (3,344 ) — Tax benefit related
to United States tax law change (5,646 ) — (5,646 ) —
Adjusted income from continuing operations $ 8,342 $ 11,974
$ 27,435 $ 35,101
Three Months Ended
December 31, Twelve Months Ended December 31,
2017 2016 2017 2016 Diluted
income per share from continuing operations $ 0.28 $ 0.38 $ 0.89 $
1.12 Asset impairment charge, net of tax 0.18 — 0.18 — Tax benefit
related to United States tax law change (0.18 ) — (0.18 ) —
Adjusted diluted income per share from continuing operations(1) $
0.27 $ 0.38 $ 0.88 $ 1.12 (1) May not add due
to rounding.
Three Months Ended December 31,
Twelve Months Ended December 31, 2017 2016
2017 2016 Income from continuing operations $
8,532 $ 11,974 $ 27,625 $ 35,101 Interest expense, net 142 407 899
1,694 Income tax expense (benefit) of continuing operations (2,076
) 6,859 8,080 16,480 Depreciation and amortization 2,257
2,126 8,643 7,874 Earnings before interest, taxes,
depreciation and amortization (EBITDA) from continuing operations $
8,855 $ 21,366 $ 45,247 $ 61,149
Three Months Ended December 31, Twelve Months Ended
December 31, 2017 2016 2017 2016
Income from continuing operations $ 8,532 $ 11,974 $ 27,625
$ 35,101 Interest expense, net 142 407 899 1,694 Income tax expense
(benefit) of continuing operations (2,076 ) 6,859 8,080 16,480
Depreciation and amortization 2,257 2,126 8,643 7,874 Asset
impairment charge 8,800 — 8,800 — Adjusted
earnings before interest, taxes, depreciation and amortization
(Adjusted EBITDA) from continuing operations $ 17,655 $
21,366 $ 54,047 $ 61,149
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Investor Relations:ICR, LLCJohn Mills, 646-277-1254
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