First Quarter Revenue and Operating Income
Exceed Guidance
Retail Revenue Increased 13.7% to $43.0
Million
Company Reiterates Full Year 2018 Revenue
and Operating Income Guidance
Nautilus, Inc. (NYSE: NLS) today reported its unaudited
operating results for the first three months ended March 31,
2018.
Q1 2018 Highlights
All comparisons relate to the first quarter of 2017 unless
otherwise indicated:
- Revenues:
- Total revenue increased 1.4% to $114.8
million compared to prior year of $113.3 million and guidance range
of $110.0 to $113.0 million.
- Direct segment sales decreased 4.7% to
$71.2 million primarily from the expected decline in TreadClimber®
sales, partially offset by growth of new products, including the
Bowflex HVT® product.
- Retail segment sales increased 13.7% to
$43.0 million, reflecting strong growth across a variety of product
lines, as well as growth in specialty and commercial
customers.
- Gross Margins:
- Total company gross margins decreased
by 320 basis points to 51.3% primarily due to a reduction in Direct
gross margins, coupled with a shift in segment revenue mix from
Direct to Retail.
- Direct margins decreased by 250 basis
points due to a shift in product mix to lower margin HVT® products
and treadmills.
- Retail margins decreased by 80 basis
points due to increased product costs.
- Operating income decreased 15.7% to
$10.7 million compared to prior year of $12.7 million due to the
decline in gross margin and added investments in key strategic
initiatives.
- Income from continuing operations for
the first quarter of 2018 was $8.1 million, or $0.27 per diluted
share, compared to income from continuing operations of $8.2
million, or $0.26 per diluted share in the prior year quarter.
- EBITDA from continuing operations
decreased 11.8% to $13.1 million compared to $14.9 million in the
prior year period.
- At March 31, 2018, cash and
marketable securities increased to $92.7 million and debt decreased
to $44.0 million, compared to $85.2 million and $48.0 million,
respectively, at December 31, 2017.
- Repurchased $2.7 million of stock in
the open market as part of previously announced stock repurchase
program.
Bruce M. Cazenave, Chief Executive Officer, stated, “First
quarter 2018 revenue and operating income exceeded the guidance
range we provided and were driven by solid momentum in our Retail
segment. The Retail segment achieved 14% growth in the first
quarter as we experienced broad based sales growth across existing
and recently introduced products with several key partners and
improved performance in the specialty retail channel. As
anticipated, we experienced a decline in the Direct segment
revenues due to the phase-down of the mature TreadClimber® product
line but are well positioned to return to growth in this segment
beginning the third quarter of 2018. New products introduced during
the middle of last year such as the Bowflex Results Series™ and
HVT® products continued to meaningfully contribute during the first
quarter, and we are on track to launch additional Direct and Retail
segment products later this year. The introduction of the
Commercial Max Trainer® product at the recent IHRSA show has been
extremely well received, and we look forward to the anticipated
uplift in Octane sales when the product starts shipping during the
third quarter of this year.”
Mr. Cazenave continued, “Implementation of the multi-faceted
2018 plan we described in previous communications is proceeding as
planned and on schedule. This includes systems integration,
consolidation of warehousing facilities, supply base realignment
and restructuring of our international sales and support teams.
Progress in developing our new digital technology platform is also
advancing as planned. These initiatives are anticipated to enhance
and support our growth initiatives, including new product
introductions and improved margins, going forward. Based on our
first quarter results, planned rollout of new offerings and
operational improvements, we are well positioned to return to full
year top line growth in 2018, and reaffirm our full year guidance
range on revenue and operating income.”
For further information, see “Results of Operations Information”
attached hereto.
Segment Results
Net sales for the Direct segment were $71.2 million in the first
quarter of 2018, a decrease of 4.7% over the comparable period last
year as the expected decline in TreadClimber® sales, coupled with a
decline in Max Trainer® sales, was partially offset by the growth
of new products, including the Bowflex Results Series™ treadmills
and ellipticals. Operating income for the Direct segment was $11.3
million for the first quarter of 2018, compared to $15.3 million in
the first quarter of last year. Operating income was negatively
impacted by the decline in gross margins and lower media returns,
partially offset by a decrease in consumer financing fees. Gross
margin for the Direct segment declined by 250 basis points
resulting from a shift in product mix to lower margin HVT® products
and treadmills.
Net sales for the Retail segment were $43.0 million in the first
quarter of 2018, an increase of 13.7% when compared to $37.8
million in the first quarter last year. The increase reflected
robust growth across a variety of product lines and sales growth
with specialty and commercial customers. Operating income for the
Retail segment was $3.9 million for the first quarter of 2018
compared to $2.2 million in the first quarter of last year. The
increase in Retail segment operating income was primarily due to
the higher net sales, coupled with the non-recurrence of a $1.2
million reserve recorded in the same period of the prior year.
Retail segment gross margin was 31.2% in the first quarter of 2018,
compared to 32.0% in the same quarter of the prior year, reflecting
increased product costs due to unfavorable changes in foreign
currency exchange rates.
Royalty revenue in the first quarter 2018 was $0.6 million,
compared to $0.7 million for the same quarter of last year. The
reduction in royalty revenue reflects the renegotiation of a
certain license.
For further information, see “Segment Information” attached
hereto.
Balance Sheet
As of March 31, 2018, the Company had cash and marketable
securities of $92.7 million and debt of $44.0 million, compared to
cash and marketable securities of $85.2 million and debt of $48.0
million at year end 2017. During the first quarter, the Company
purchased $2.7 million of stock in the open market as part of its
previously announced stock repurchase program. Working capital of
$93.6 million as of March 31, 2018 was $2.4 million higher
than the 2017 year-end balance of $91.1 million. Inventory as of
March 31, 2018 was $37.7 million, compared to $53.4 million as
of December 31, 2017 and $34.3 million at the end of the first
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 first quarter ended March 31, 2018
at 4:30 p.m. ET (1:30 p.m. PT) on Monday, May 7, 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 (888) 394-8218 in North America and
international listeners may call (323) 701-0225. 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,
May 7, 2018, through 11:59 p.m. ET, May 21, 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 2770686.
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 months ended March 31,
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; 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; experiencing delays and/or
greater than anticipated costs in connection 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 condensed
consolidated statements of operations for the three months ended
March 31, 2018 and 2017 (unaudited and in thousands, except per
share amounts):
Three Months EndedMarch
31,
2018 2017 Net sales $ 114,813 $ 113,252
Cost of sales 55,942 51,507 Gross profit 58,871
61,745 Operating expenses: Selling and marketing 36,763
37,665 General and administrative 6,910 7,486 Research and
development 4,501 3,911 Total operating expenses
48,174 49,062 Operating income 10,697 12,683 Other expense,
net (34 ) (360 ) Income from continuing operations before income
taxes 10,663 12,323 Income tax expense 2,523 4,138
Income from continuing operations 8,140 8,185 Loss from
discontinued operations(1) (81 ) (1,092 ) Net income $ 8,059
$ 7,093 Basic income per share from continuing
operations $ 0.27 $ 0.27 Basic loss per share from discontinued
operations — (0.04 ) Basic net income per share $ 0.27
$ 0.23 Diluted income per share from
continuing operations $ 0.27 $ 0.26 Diluted loss per share from
discontinued operations — (0.04 ) Diluted net income per
share(2) $ 0.26 $ 0.23 Shares used in per
share calculations: Basic 30,314 30,713 Diluted 30,591 31,127
Select Metrics: Gross margin 51.3 % 54.5 % Selling
and marketing % of net sales 32.0 % 33.3 % General and
administrative % of net sales 6.0 % 6.6 % Research and development
% of net sales 3.9 % 3.5 % Operating income % of net sales 9.3 %
11.2 %
(1) The three months ended March 31, 2017 include 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 table presents certain comparative information by
segment for the three months ended March 31, 2018 and 2017
(unaudited and in thousands):
Three Months EndedMarch
31,
Change 2018 2017 $
% Net sales: Direct $ 71,201 $ 74,703 $ (3,502 ) (4.7 )%
Retail 42,993 37,805 5,188 13.7 % Royalty 619 744
(125 ) (16.8 )% $ 114,813 $ 113,252 $ 1,561
1.4 % Operating income (loss): Direct $ 11,291 $ 15,333 $
(4,042 ) (26.4 )% Retail 3,921 2,212 1,709 77.3 % Unallocated
corporate (4,515 ) (4,862 ) 347 7.1 % $ 10,697 $
12,683 $ (1,986 ) (15.7 )%
BALANCE SHEET INFORMATION
The following summary contains information from our condensed
consolidated balance sheets as of March 31, 2018 and
December 31, 2017 (unaudited and in thousands):
As of March 31, 2018 December
31, 2017 Assets Cash and cash equivalents $
23,747 $ 27,893 Available-for-sale securities 68,905 57,303 Trade
receivables, net of allowances of $133 and $119 29,796 42,685
Inventories 37,699 53,354 Prepaids and other current assets 7,132
7,240 Income taxes receivable 30 17 Total current assets
167,309 188,492 Property, plant and equipment, net 16,591
15,827 Goodwill 61,963 62,030 Other intangible assets, net 56,933
57,743 Deferred income tax assets, non-current 287 — Other assets
704 684 Total assets $ 303,787 $ 324,776
Liabilities and Shareholders' Equity Trade payables $
41,724 $ 66,899 Accrued liabilities 12,126 10,764 Warranty
obligations, current portion 3,900 3,718 Note payable, current
portion 15,993 15,993 Total current liabilities 73,743
97,374 Warranty obligations, non-current 2,158 2,399 Income
taxes payable, non-current 3,103 2,955 Deferred income tax
liabilities, non-current 9,687 8,558 Other non-current liabilities
2,208 2,315 Note payable, non-current 27,988 31,986 Shareholders'
equity 184,900 179,189 Total liabilities and shareholders'
equity $ 303,787 $ 324,776
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table presents a reconciliation of EBITDA from
continuing operations for the three months ended March 31, 2018 and
2017 (unaudited and in thousands):
Three Months EndedMarch
31,
2018 2017 Income from continuing
operations $ 8,140 $ 8,185 Interest expense, net 21 313 Income tax
expense of continuing operations 2,523 4,138 Depreciation and
amortization 2,439 2,244 Earnings before interest, taxes,
depreciation and amortization (EBITDA) from continuing operations $
13,123 $ 14,880
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version on businesswire.com: https://www.businesswire.com/news/home/20180507005721/en/
Investor Relations Contact:ICR, LLCJohn Mills, 646-277-1254
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