Company Expects to Achieve Positive Cash
Flow from Operations and EBITDA in Fourth Quarter 2019
Personalized Connected Fitness Offerings
Enhanced with Additions to Max Trainer, Treadmill, and Bike
Categories and Relaunch of Digital Platform
Nautilus, Inc. (NYSE: NLS) today reported its unaudited
operating results for the third quarter and nine months ended
September 30, 2019.
Net sales for the third quarter of 2019 totaled $61.7 million, a
decrease of 32.2% compared to $91.1 million in the same quarter of
2018. Direct segment sales were down by 44.1% from the prior year
quarter, primarily driven by lower Max Trainer® product sales and
related to a 37.0% reduction in advertising expense compared to the
prior year quarter as the Company prepared to increase spend on a
new advertising campaign in the fourth quarter of 2019. Retail
sales were down by 27.1% from the same quarter of the prior year,
primarily reflecting partial shipment delays to October 2019
related to recently imposed tariffs further discussed below, as
well as a decline in Bowflex Max Trainer® product sales. Royalty
revenue in the third quarter of 2019 was $0.7 million, an increase
of 12.4% compared to the same quarter of last year primarily due to
a new agreement. For the first nine months of 2019, net sales were
$205.1 million, a decrease of 27.1% compared to $281.4 million in
the same period in the prior year. Gross margins for the third
quarter of 2019 were 30.9% versus 42.3% for the same period of last
year, primarily due to unfavorable product mix and unfavorable
overhead absorption related to the decline in sales.
Total operating expenses for the third quarter of 2019 decreased
by $5.0 million to $27.3 million compared to $32.3 million in the
same period of last year, primarily due to lower advertising spend
and product development costs, partially offset by increased
advertising production costs. Operating loss for the third quarter
of 2019 was $8.3 million, compared to operating income of $6.2
million in the same period of last year, primarily due to lower
sales and unfavorable gross margins, partially offset by lower
operating expenses.
Loss from continuing operations for the third quarter of 2019
was $10.6 million, or $0.36 per diluted share, compared to income
of $4.5 million, or $0.15 per diluted share, for the same period of
last year. Tax expense in the third quarter of 2019 included a $3.9
million, or $0.13 per diluted share, valuation allowance against
the Company's deferred tax assets.
EBITDA loss from continuing operations for the third quarter of
2019 totaled $5.5 million compared to income of $8.5 million in the
same quarter of the prior year.
Jim Barr, Chief Executive Officer, stated, “Third quarter
results were impacted by declines in both of our segments. The
Direct segment results were related to a significant reduction in
advertising spend while we continued to fine-tune our refreshed
brand and advertising messaging and finalize our fourth quarter
advertising plan. The Retail segment experienced a partial shipping
delay to October 2019 related to recently imposed tariffs
implemented with a shortened notice period, as well as lower sales
of our existing Max Trainer products. In late August, we began the
Direct segment rollout of the new Max TotalTM product. This trainer
features our first integrated digital screen that directly connects
the user to the features of our upgraded AI-powered digital
platform. Our new advertising and brand campaign launched with
limited media weight to test messaging effectiveness and efficiency
across television, social media, PR, and other digital platforms.
The marketing spend during the third quarter included content
development costs that we do not expect to incur on a similar scale
in the fourth quarter. We anticipate ramping up a more robust
marketing campaign during the fourth quarter of 2019 and the first
quarter of 2020, incorporating learnings from the initial campaign
test launch.”
Mr. Barr continued, “Now that I've been at Nautilus for 90 days,
I am even more excited about the overall strength and potential of
our brands. We believe that the digital platform, combined with a
growing number of connected fitness offerings, is setting the stage
for future performance and positions Nautilus as a global
technology-driven fitness company. On October 30th, we relaunched
our digital platform under the new JRNYTM name, reflecting our
belief that fitness is a life-long pursuit and we continue to make
that pursuit more attainable for everyone through our products and
experiences. At its core, JRNYTM features an AI-driven true
personalization engine that suggests customized workouts and
adjusts to individual fitness levels, along with friendly coaching
that customers tell us feels like having an on-demand one-on-one
personal trainer. Accompanying these digital launches are our
multichannel introductions of the connected fitness experience with
the Bowflex 216 and 116 treadmills, the Schwinn IC4 bike, and the
Bowflex C6 bike. Our efforts to right-size the business that we
announced in July 2019 are progressing and we expect to save
approximately $6 million in workforce and shared support cost
reductions in 2020. In addition, we expect to have positive EBITDA
from continuing operations in the fourth quarter and generate
positive cash flow from operations in the fourth quarter.”
Segment Results
Net sales for the Direct segment were $16.2 million in the third
quarter of 2019, a decrease of 44.1% over the comparable period
last year driven primarily by lower Max Trainer® product sales and
related to a 37.0% reduction in advertising expense compared to the
prior year quarter. Operating loss for the Direct segment was $8.7
million for the third quarter of 2019, compared to an operating
loss of $1.4 million in the third quarter of the prior year.
Operating income was negatively impacted by the decline in sales
and gross margins, partially offset by a decrease in sales and
marketing expense. Gross margin for the Direct segment declined
from 57.3% in the third quarter of 2018 to 38.3% in the third
quarter of 2019, which resulted primarily from unfavorable overhead
absorption related to decreased net sales and unfavorable product
mix.
Net sales for the Retail segment were $44.8 million in the third
quarter of 2019, a decrease of 27.1% when compared to net sales of
$61.5 million in the third quarter of last year. The decrease
primarily reflected partial shipping delays resulting from recently
imposed tariffs, as well as a decline in Bowflex Max Trainer®
product sales. Operating income for the Retail segment was $4.8
million for the third quarter of 2019 compared to income of $12.7
million in the third quarter of last year. The decrease in Retail
segment operating income was primarily due to lower revenue and
gross margins. Retail segment gross margin was 27.1% in the third
quarter of 2019, compared to 34.7% in the same quarter of the prior
year, which resulted primarily from unfavorable product mix and
unfavorable overhead absorption related to the lower sales.
Balance Sheet
As of September 30, 2019, Nautilus had cash and cash equivalents
of $5.8 million and debt of $20.6 million, compared to cash, cash
equivalents and marketable securities of $63.5 million and debt of
$32.0 million at year end 2018. Working capital of $42.9 million as
of September 30, 2019 was $33.7 million lower than the 2018
year-end balance of $76.6 million. Inventory as of September 30,
2019 was $50.1 million, compared to $68.5 million as of December
31, 2018 and $55.5 million at the end of the third quarter of last
year. The Company had $12.7 million available for borrowing on its
line of credit as of September 30, 2019.
Conference Call
Nautilus will host a conference call to discuss its operating
results for the third quarter ended September 30, 2019 at 4:30 p.m.
ET (1:30 p.m. PT) on Thursday, November 7, 2019. 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 (877) 425-9470 in North America and
international listeners may call (201) 389-0878. Participants from
Nautilus will include Jim Barr, Chief Executive Officer, Bill
McMahon, Special Assistant to the CEO, and Dave Wachsmuth, Senior
Director of Finance.
A telephonic playback will be available from 7:30 p.m. ET,
November 7, 2019, through 11:59 p.m. ET, November 21, 2019.
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 13695883.
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. Nautilus 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
Nautilus 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. Nautilus 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. Nautilus 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. Management believes that
EBITDA is frequently used by investors, securities analysts and
other interested parties in their evaluation of companies, many of
which present EBITDA when reporting their results. Other companies
may calculate EBITDA differently, and it may not be comparable.
About Nautilus, Inc.
Headquartered in Vancouver, Washington, Nautilus, Inc. (NYSE:
NLS) is a global technology driven fitness solutions company that
believes everyone deserves a fit and healthy life. With a brand
portfolio including Bowflex®, Nautilus®, Octane Fitness® and
Schwinn®, Nautilus, Inc. develops innovative products to support
healthy living through direct and retail channels as well as in
commercial channels. 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
future plans for introduction of new products and marketing
campaigns, anticipated demand for the Company's new and existing
products, and projected impact of the new and continuing product
launches on the Company’s operating results for the fourth quarter
of 2019 and future periods; statements regarding the Company's
prospects, resources or capabilities; planned investments,
strategic initiatives and the anticipated or targeted results of
such initiatives; and planned operational initiatives and the
anticipated cost-saving 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, 2019 and 2018 (unaudited
and in thousands, except per share amounts):
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Net sales
$
61,708
$
91,057
$
205,112
$
281,368
Cost of sales
42,641
52,551
132,686
150,343
Gross profit
19,067
38,506
72,426
131,025
Operating expenses:
Selling and marketing
17,472
20,635
69,146
79,482
General and administrative
6,726
7,503
23,824
20,740
Research and development
3,122
4,208
11,282
12,744
Goodwill and intangible impairment
charge
—
—
72,008
—
Total operating expenses
27,320
32,346
176,260
112,966
Operating (loss) income
(8,253
)
6,160
(103,834
)
18,059
Other (expense) income, net
(422
)
213
(910
)
236
(Loss) income from continuing operations
before income taxes
(8,675
)
6,373
(104,744
)
18,295
Income tax expense (benefit)
1,900
1,870
(6,941
)
4,645
(Loss) income from continuing
operations
(10,575
)
4,503
(97,803
)
13,650
Loss from discontinued operations
(114
)
(194
)
(329
)
(354
)
Net (loss) income
$
(10,689
)
$
4,309
$
(98,132
)
$
13,296
Basic (loss) income per share from
continuing operations
$
(0.36
)
$
0.15
$
(3.30
)
$
0.45
Basic loss per share from discontinued
operations
—
(0.01
)
(0.01
)
(0.01
)
Basic net (loss) income per share
$
(0.36
)
$
0.14
$
(3.31
)
$
0.44
Diluted (loss) income per share from
continuing operations
$
(0.36
)
$
0.15
$
(3.30
)
$
0.45
Diluted loss per share from discontinued
operations
—
(0.01
)
(0.01
)
(0.01
)
Diluted net (loss) income per share
$
(0.36
)
$
0.14
$
(3.31
)
$
0.44
Shares used in per share calculations:
Basic
29,728
30,185
29,660
30,230
Diluted
29,728
30,433
29,660
30,500
SEGMENT INFORMATION
The following table presents certain
comparative information by segment for the three and nine months
ended September 30, 2019 and 2018 (unaudited and in thousands):
Three Months Ended September
30,
Change
2019
2018
$
%
Net sales:
Direct
$
16,197
$
28,955
$
(12,758
)
(44.1
)%
Retail
44,823
61,490
(16,667
)
(27.1
)%
Royalty
688
612
76
12.4
%
$
61,708
$
91,057
$
(29,349
)
(32.2
)%
Operating (loss) income:
Direct
$
(8,693
)
$
(1,363
)
$
(7,330
)
(537.8
)%
Retail
4,772
12,707
(7,935
)
(62.4
)%
Unallocated corporate
(4,332
)
(5,184
)
852
16.4
%
$
(8,253
)
$
6,160
$
(14,413
)
(234.0
)%
Nine Months Ended September
30,
Change
2019
2018
$
%
Net sales:
Direct
$
83,745
$
134,980
$
(51,235
)
(38.0
)%
Retail
119,097
143,668
(24,571
)
(17.1
)%
Royalty
2,270
2,720
(450
)
(16.5
)%
$
205,112
$
281,368
$
(76,256
)
(27.1
)%
Operating (loss) income:
Direct
$
(19,569
)
$
10,667
$
(30,236
)
(283.5
)%
Retail
3,803
20,196
(16,393
)
(81.2
)%
Unallocated corporate
(88,068
)
(12,804
)
(75,264
)
(587.8
)%
$
(103,834
)
$
18,059
$
(121,893
)
(675.0
)%
BALANCE SHEET INFORMATION
The following summary contains information
from our condensed consolidated balance sheets as of September 30,
2019 and December 31, 2018 (unaudited and in thousands):
As of
September 30, 2019
December 31, 2018
Assets
Cash and cash equivalents
$
5,756
$
38,125
Available-for-sale securities
—
25,392
Trade receivables, net of allowances of
$45 and $99
30,860
45,847
Inventories
50,066
68,465
Prepaids and other current assets
6,152
7,980
Income taxes receivable
2,747
5,653
Total current assets
95,581
191,462
Property, plant and equipment, net
22,366
22,216
Operating lease right-of-use assets
21,640
—
Goodwill
—
63,452
Other intangible assets, net
44,054
55,240
Other assets
4,498
574
Total assets
$
188,139
$
332,944
Liabilities and Shareholders'
Equity
Trade payables
$
38,497
$
87,265
Accrued liabilities
7,460
8,370
Operating lease liabilities, current
portion
3,695
—
Warranty obligations, current portion
2,982
3,213
Note payable, current portion
—
15,993
Total current liabilities
52,634
114,841
Operating lease liabilities,
non-current
19,926
—
Warranty obligations, non-current
2,391
2,362
Income taxes payable, non-current
3,695
3,427
Deferred income tax liabilities,
non-current
4,661
11,888
Other non-current liabilities
74
1,837
Debt payable, non-current
20,296
15,993
Shareholders' equity
84,462
182,596
Total liabilities and shareholders'
equity
$
188,139
$
332,944
RECONCILIATION OF NON-GAAP FINANCIAL
MEASURES
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
(Loss) income from continuing
operations
$
(10,575
)
$
4,503
$
(97,803
)
$
13,650
Interest expense (income), net
293
(25
)
559
(30
)
Income tax expense (benefit) from
continuing operations
1,900
1,870
(6,941
)
4,645
Depreciation and amortization
2,853
2,178
8,045
6,646
(Loss) earnings before interest, taxes,
depreciation and amortization (EBITDA) from continuing
operations
$
(5,529
)
$
8,526
$
(96,140
)
$
24,911
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191107005857/en/
Investor Relations: John Mills, ICR, LLC Telephone: (646)
277-1254
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