Second Quarter Retail Revenue Increased 5.7%
to $39.2 Million
Company Raises Full Year 2018 Revenue
Guidance Range and Reiterates Operating Income Guidance
Nautilus, Inc. (NYSE: NLS) today reported its unaudited
operating results for the second quarter and six months ended
June 30, 2018. The Company raised its full year 2018 revenue
guidance range and reiterated full year operating income
guidance.
Net sales for the second quarter of 2018 totaled $75.5 million,
down 2.0% compared to $77.0 million in the same quarter of 2017.
The decrease in net sales was driven by lower Direct segment sales,
down 11.0%, reflecting expected declines in Bowflex TreadClimber®
sales, and weaker than projected Bowflex Max Trainer® sales. Strong
performance in the Retail segment, up 5.7% from the prior year
quarter, was driven by double-digit growth in the mass retail
channel, partially offset by lower sales in the specialty
commercial channel. Royalty revenue in the second quarter of 2018
was $1.5 million, compared to $0.8 million for the same quarter of
last year, reflecting payments related to a new royalty agreement,
with future sales-based royalties that are not expected to be
material. For the first six months of 2018, net sales were $190.3
million, flat to prior year. Gross margins for the second quarter
of 2018 totaled 44.6% versus 49.8% 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 second quarter of 2018 was $1.2
million, compared to $3.8 million in the same period last year, as
lower net sales and gross margins resulted in a decline in gross
profit dollars, partially offset by improved management of
operating expenses. Operating expenses for the second quarter were
43.0% of revenue versus 44.8% in the same period last year. For the
first six months of 2018, operating income was $11.9 million,
compared to $16.5 million in the same period last year.
Income from continuing operations for the second quarter of 2018
was $1.0 million, or $0.03 per diluted share, compared to $2.6
million, or $0.08 per diluted share, for the same period last year.
Income from continuing operations for the first six months of 2018
was $9.1 million, or $0.30 per diluted share, compared to income
from continuing operations of $10.8 million, or $0.35 per diluted
share for the same period last year. EBITDA from continuing
operations for the second quarter of 2018 totaled $3.3 million
compared to $6.2 million in the prior year period.
At June 30, 2018, cash and marketable securities increased
to $85.9 million and debt decreased to $40.0 million, compared to
$85.2 million and $48.0 million, respectively, at December 31,
2017.
Bruce M. Cazenave, Chief Executive Officer, stated, “Our overall
performance was in-line with our expectations for the second
quarter, historically the seasonally slowest quarter of the year.
We continued to see solid momentum in our Retail segment during the
second quarter, which achieved 5.7% year-over-year growth, driven
by double-digit expansion in our mass retail channel. Our Direct
segment remained challenged in the second quarter by the continued
phase-down of the mature TreadClimber® and softer than expected
results from Max Trainer®. We expect strong growth in the Direct
segment in the back-half of 2018 based on new product launches and
the introduction of our new digital platform, which will be
incorporated onto an upgraded and refreshed Max Trainer product
line.”
Mr. Cazenave continued, “Our year is unfolding as expected and
key initiatives such as new product launches and fall season order
plans for retail customers are tracking well. These positive
factors give us the confidence to increase our full year revenue
guidance range by $3 million. We are now expecting full year
revenues in 2018 to be in the range of $431 million to $440 million
and are reiterating operating income to be in the range of $42
million to $45 million. The Company has also taken pricing actions
and cost improvement measures to help mitigate the impact of
inflationary product cost pressures and unfavorable foreign
exchange trends that negatively impacted gross margins in the first
half of 2018. New product introductions slated for the third
quarter include two models of the Bowflex LateralX® trainer in the
Direct segment and the Octane MTX Max Trainer®, the commercial
version of our popular Max Trainer line designed for the specialty
and commercial channels of distribution. In addition, we plan to
launch upgraded versions of the Max Trainer that will support our
exciting new digital subscription platform in our Direct segment
during the fourth quarter. Our Retail segment is expected to
continue to perform well in the back-half of this year and achieve
growth in each quarter of 2018 versus the comparable quarters in
2017. Retail growth in the back-half of this year is anticipated to
come from expanded product offerings across our Octane, Nautilus,
and Bowflex brands, which will be sold in commercial, traditional
retail, and e-commerce channels this fall. We are also pleased with
the progress to date on several of the key strategic initiatives we
outlined earlier in the year. Specifically, we have ramped up
investments in the international channel, and key logistics and
systems integration initiatives have been completed. While there is
much we still need to do to accomplish the acceleration in future
top line and bottom line growth, we believe we are on track to
deliver on our stated objectives for 2018.”
For further information, see “Results of
Operations Information” attached hereto.
Segment Results
Net sales for the Direct segment were $34.8 million in the
second quarter of 2018, a decrease of 11.0% over the comparable
period last year due to a decline in Max Trainer® sales, coupled
with the expected decline in TreadClimber® sales, partially offset
by the growth of new products, including the Bowflex Results
SeriesTM treadmills and ellipticals. Operating income for the
Direct segment was $0.7 million for the second quarter of 2018,
compared to $2.5 million in the second quarter of last year.
Operating income was negatively impacted by the decline in sales
and gross margins, partially offset by reduced media spending and a
decrease in consumer financing fees. Gross margin for the Direct
segment declined by 370 basis points resulting from a shift in
product mix and higher product costs, due to rising material costs
and unfavorable changes in foreign currency exchange rates.
Net sales for the Retail segment were $39.2 million in the
second quarter of 2018, an increase of 5.7% when compared to $37.1
million in the second quarter last year. The increase reflected
robust growth across a variety of product lines, primarily in the
mass retail channel. Operating income for the Retail segment was
$3.6 million for the second quarter of 2018 compared to $6.1
million in the second quarter of last year. The decrease in Retail
segment operating income was primarily due to the lower gross
margin rate. Retail segment gross margin was 29.1% in the second
quarter of 2018, compared to 34.5% in the same quarter of the prior
year, reflecting increased product costs due to unfavorable changes
in foreign currency exchange rates.
For further information, see “Segment
Information” attached hereto.
Balance Sheet
As of June 30, 2018, the Company had cash and marketable
securities of $85.9 million and debt of $40.0 million, compared to
cash and marketable securities of $85.2 million and debt of $48.0
million at year end 2017. During the second quarter, the Company
purchased $0.4 million of stock in the open market as part of its
previously announced stock repurchase program. As of June 30,
2018, $23.9 million remained available for future repurchases under
the share repurchase program. Working capital of $90.1 million as
of June 30, 2018 was $1.1 million lower than the 2017 year-end
balance of $91.1 million. Inventory as of June 30, 2018 was
$42.3 million, compared to $53.4 million as of December 31,
2017 and $42.3 million at the end of the second 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 second quarter ended June 30, 2018
at 4:30 p.m. ET (1:30 p.m. PT) on Monday, July 30, 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) 239-9838 in North America and
international listeners may call (323) 794-2551. 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,
July 30, 2018, through 11:59 p.m. ET, August 13, 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 3415824.
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 six months ended June
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; 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; 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: 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 six months
ended June 30, 2018 and 2017 (unaudited and in thousands, except
per share amounts):
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018
2017 Net sales $ 75,498 $ 77,029 $ 190,311 $ 190,281
Cost of sales 41,850 38,651 97,792 90,158
Gross profit 33,648 38,378 92,519 100,123 Operating
expenses: Selling and marketing 22,084 23,628 58,847 61,293 General
and administrative 6,327 7,315 13,237 14,801 Research and
development 4,035 3,586 8,536 7,497
Total operating expenses 32,446 34,529 80,620 83,591
Operating income 1,202 3,849 11,899 16,532 Other income (expense),
net 57 (127 ) 23 (487 ) Income from continuing
operations before income taxes 1,259 3,722 11,922 16,045 Income tax
expense 252 1,156 2,775 5,294 Income
from continuing operations 1,007 2,566 9,147 10,751 Loss from
discontinued operations(1) (79 ) (77 ) (160 ) (1,169 ) Net income $
928 $ 2,489 $ 8,987 $ 9,582
Basic income per share from continuing operations $ 0.03 $ 0.08 $
0.30 $ 0.35 Basic loss per share from discontinued operations —
— (0.01 ) (0.04 ) Basic net income per share(2) $
0.03 $ 0.08 $ 0.30 $ 0.31
Diluted income per share from continuing operations $ 0.03 $ 0.08 $
0.30 $ 0.35 Diluted loss per share from discontinued operations —
— (0.01 ) (0.04 ) Diluted net income per share $ 0.03
$ 0.08 $ 0.29 $ 0.31 Shares used
in per share calculations: Basic 30,193 30,755 30,253 30,734
Diluted 30,476 31,095 30,533 31,110
Select Metrics:
Gross margin 44.6 % 49.8 % 48.6 % 52.6 % Selling and marketing % of
net sales 29.3 % 30.7 % 30.9 % 32.2 % General and administrative %
of net sales 8.4 % 9.5 % 7.0 % 7.8 % Research and development % of
net sales 5.3 % 4.7 % 4.5 % 3.9 % Operating income % of net sales
1.6 % 5.0 % 6.3 % 8.7 %
(1) The six months ended June 30, 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 and six months ended June 30, 2018 and 2017
(unaudited and in thousands):
Three Months EndedJune
30,
Change 2018 2017 $
% Net sales: Direct $ 34,824 $ 39,111 $ (4,287 )
(11.0 )% Retail 39,185 37,083 2,102 5.7 % Royalty 1,489 835
654 78.3 % $ 75,498 $ 77,029 $ (1,531 )
(2.0 )% Operating income (loss): Direct $ 739 $ 2,519 $
(1,780 ) (70.7 )% Retail 3,568 6,097 (2,529 ) (41.5 )% Unallocated
corporate (3,105 ) (4,767 ) 1,662 34.9 % $ 1,202 $
3,849 $ (2,647 ) (68.8 )%
Six Months EndedJune 30,
Change 2018 2017 $
% Net sales: Direct $ 106,025 $ 113,814 $ (7,789 )
(6.8 )% Retail 82,178 74,888 7,290 9.7 % Royalty 2,108 1,579
529 33.5 % $ 190,311 $ 190,281 $ 30
— % Operating income (loss): Direct $ 12,030 $ 17,852
$ (5,822 ) (32.6 )% Retail 7,489 8,309 (820 ) (9.9 )% Unallocated
corporate (7,620 ) (9,629 ) 2,009 20.9 % $ 11,899 $
16,532 $ (4,633 ) (28.0 )%
BALANCE SHEET INFORMATION
The following summary contains information from our condensed
consolidated balance sheets as of June 30, 2018 and
December 31, 2017 (unaudited and in thousands):
As of June 30, 2018
December 31, 2017 Assets Cash and cash
equivalents $ 25,929 $ 27,893 Available-for-sale securities 59,987
57,303 Trade receivables, net of allowances of $54 and $119 25,275
42,685 Inventories 42,262 53,354 Prepaids and other current assets
12,342 7,257 Total current assets 165,795 188,492
Property, plant and equipment, net 17,792 15,827 Goodwill 61,928
62,030 Other intangible assets, net 56,149 57,743 Deferred income
tax assets, non-current 78 — Other assets 614 684 Total
assets $ 302,356 $ 324,776
Liabilities and
Shareholders' Equity Trade payables $ 46,633 $ 66,899
Accrued liabilities 9,194 10,764 Warranty obligations, current
portion 3,915 3,718 Note payable, current portion 15,993
15,993 Total current liabilities 75,735 97,374 Warranty
obligations, non-current 1,787 2,399 Income taxes payable,
non-current 3,186 2,955 Deferred income tax liabilities,
non-current 9,978 8,558 Other non-current liabilities 2,091 2,315
Note payable, non-current 23,989 31,986 Shareholders' equity
185,590 179,189 Total liabilities and shareholders' equity $
302,356 $ 324,776
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table presents a reconciliation of EBITDA from
continuing operations for the three and six months ended June 30,
2018 and 2017 (unaudited and in thousands):
Three Months EndedJune
30,
Six Months EndedJune 30,
2018 2017 2018
2017 Income from continuing operations $ 1,007 $
2,566 $ 9,147 $ 10,751 Interest (income) expense, net (26 ) 237 (5
) 550 Income tax expense of continuing operations 252 1,156 2,775
5,294 Depreciation and amortization 2,029 2,274 4,468
4,518 Earnings before interest, taxes, depreciation and
amortization (EBITDA) from continuing operations $ 3,262 $
6,233 $ 16,385 $ 21,113
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Investor Relations Contact:ICR, LLCJohn Mills, 646-277-1254
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