Nautilus, Inc. (NYSE: NLS) today reported its unaudited
operating results for the three months ended March 31,
2019.
Net sales for the first quarter of 2019 totaled $84.4 million, a
decrease of 26.5% compared to $114.8 million in the same quarter of
2018. The decrease in net sales was driven by weakness in the
Direct segment, down 34.4% from the prior year quarter, primarily
reflecting a decline in sales of the Bowflex Max Trainer® product.
Retail sales were down 14.4% from the prior year quarter, primarily
due to lower order volume from certain customers reducing their
inventory stocking levels. Royalty revenue in the first quarter of
2019 was $0.9 million, an increase of 39.7% compared to the same
quarter of last year, due to payment of royalties related to a new
agreement executed in late 2018. Gross margins for the first
quarter of 2019 were 42.5% versus 51.3% for the same period of last
year, reflecting unfavorable overhead absorption related to the
decline in sales and unfavorable product mix.
Operating loss for the first quarter of 2019 was $10.2 million,
compared to income of $10.7 million in the same period of last
year, as lower sales and gross margins resulted in a decline in
gross profit dollars, which was partially offset by a decrease in
operating expenses. Operating expenses for the first quarter of
2019 decreased by $2.2 million to $46.0 million compared to $48.2
million in the same period of last year as a result of lower
marketing costs. As a percentage of revenue, operating expenses
were 54.5% of revenue versus 42.0% in the same period of last year
due to the decrease in sales.
Loss from continuing operations for the first quarter of 2019
was $8.5 million, or $0.29 per diluted share, compared to income of
$8.1 million, or $0.27 per diluted share, for the same period of
last year. EBITDA loss from continuing operations for the first
quarter of 2019 totaled $8.1 million compared to income of $13.1
million in the prior year period.
Carl Johnson, Chairman and Interim Chief Executive Officer,
stated, “As anticipated, the primary factors impacting our first
quarter results continued to be softness in the Direct segment as
well as lower sales in our Retail segment due to certain strategic
partners carrying higher than normal inventory levels. In the
Direct segment, the refreshed Max Trainer product line with
connected home digital capabilities continued to experience a slow
ramp from its fourth quarter launch into the first quarter. Our
analysis has confirmed the root cause as sub-optimal advertising
creative resulting in low awareness and insufficient communication
of the product's differentiated digital capabilities. We are in the
midst of working to develop effective new positioning for Bowflex,
the Max Trainer line, and our digital platform, using leading edge
consumer insight techniques, in time for the important fourth
quarter 2019 season. In the immediate term, we have initiated a
broad range of tactical digital, social media and PR programs to
support the Bowflex Max Trainer, the digital platform and other
select Direct products. We remain confident that this new
positioning and advertising will return the Direct business to
profitability led by our digital platform and its personalized
fitness and performance capabilities. Turning to Retail, while
sales were soft in the first quarter due to the expected higher
inventory levels of certain strategic partners, we continue to see
solid sell-through and expect a healthy fall and holiday season for
this segment.”
Mr. Johnson continued, “Additionally, to fuel sales for the
balance of the year, we have a range of new product introductions
planned across all of our sales channels. These introductions
include, among others, the Max Trainer M10 with a built-in digital
screen and capabilities, Octane Commercial Max Trainer, and the
Octane XR6000S recumbent elliptical. Our focus remains on being a
differentiated player in the industry by continuing to bring new
innovations to market while also growing our top and bottom lines.
Improved earnings and margins will come through the implementation
of the initiatives discussed last quarter: broad cost containment,
workforce reduction, value engineering initiatives and
simplification of processes. Supporting all these measures is our
solid balance sheet. We refinanced our debt and paid down $11.5
million to end the quarter with $20.5 million of debt and $23.6
million of cash. In summary, we have a robust plan in place to work
through our temporary setbacks and to position Nautilus for growth
and success in the coming years. We will continue to provide
regular updates throughout the year on the status of these actions
and the expected improving health of the business.”
For further information, see “Results of
Operations Information” attached hereto.
Segment Results
Net sales for the Direct segment were $46.7 million in the first
quarter of 2019, a decrease of 34.4% over the comparable period
last year due to a decline in Max Trainer® product sales. Operating
loss for the Direct segment was $4.5 million for the first quarter
of 2019, compared to operating income of $11.3 million in the first
quarter of last year. Operating income was negatively impacted by
the decline in sales and gross margins. Gross margin for the Direct
segment declined by 650 basis points to 56.5%, which resulted from
unfavorable overhead absorption related to the decreased net sales
and unfavorable product mix.
Net sales for the Retail segment were $36.8 million in the first
quarter of 2019, a decrease of 14.4% when compared to $43.0 million
in the first quarter last year. The decrease was due to lower order
volume from certain customers reducing their inventory stocking
levels. Operating loss for the Retail segment was $0.7 million for
the first quarter of 2019 compared to income of $3.9 million in the
first quarter of last year. The decrease in Retail segment
operating income was primarily due to the lower revenue and gross
margins. Retail segment gross margin was 23.3% in the first quarter
of 2019, compared to 31.2% in the same quarter of the prior year,
which resulted from unfavorable overhead absorption related to the
lower sales coupled with unfavorable product mix.
For further information, see “Segment
Information” attached hereto.
Balance Sheet
As of March 31, 2019, the Company had cash and marketable
securities of $23.6 million and debt of $20.5 million, compared to
cash and marketable securities of $63.5 million and debt of $32.0
million at year end 2018. Working capital of $65.6 million as of
March 31, 2019 was $11.1 million lower than the 2018 year-end
balance of $76.6 million. Inventory as of March 31, 2019 was
$60.9 million, compared to $68.5 million as of December 31,
2018 and $37.7 million at the end of the first quarter of 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, 2019
at 4:30 p.m. ET (1:30 p.m. PT) on Monday, May 6, 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 (800) 239-9838 in North America and
international listeners may call (323) 794-2551. Participants from
the Company will include M. Carl Johnson, III, Chairman and Interim
Chief Executive Officer, Sid Nayar, Chief Financial Officer, and
William B. McMahon, Special Assistant to the Chief Executive
Officer.
A telephonic playback will be available from 7:30 p.m. ET,
May 6, 2019, through 11:59 p.m. ET, May 20, 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 8465804.
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,
2019 and 2018.
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®, Modern Movement®, 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. 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, 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 first quarter of 2019 and future periods;
statements regarding the Company's prospects, resources or
capabilities; current or future financial and economic trends;
planned investments, development partnerships 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 months ended
March 31, 2019 and 2018 (unaudited and in thousands, except per
share amounts):
Three Months EndedMarch
31,
2019 2018 Net sales $ 84,400 $
114,813 Cost of sales 48,558 55,942 Gross profit
35,842 58,871 Operating expenses: Selling and marketing
34,043 36,763 General and administrative 7,655 6,910 Research and
development 4,311 4,501 Total operating expenses
46,009 48,174 Operating (loss) income (10,167 ) 10,697 Other
expense, net (433 ) (34 ) (Loss) income from continuing operations
before income taxes (10,600 ) 10,663 Income tax (benefit) expense
(2,116 ) 2,523 (Loss) income from continuing operations
(8,484 ) 8,140 Loss from discontinued operations (91 ) (81 ) Net
(loss) income $ (8,575 ) $ 8,059 Basic (loss) income
per share from continuing operations $ (0.29 ) $ 0.27 Basic loss
per share from discontinued operations — — Basic net
(loss) income per share $ (0.29 ) $ 0.27 Diluted
(loss) income per share from continuing operations $ (0.29 ) $ 0.27
Diluted loss per share from discontinued operations — —
Diluted net (loss) income per share(1) $ (0.29 ) $ 0.26
Shares used in per share calculations: Basic 29,573
30,314 Diluted 29,573 30,591 (1) May not add due to
rounding.
SEGMENT INFORMATION
The following table presents certain comparative information by
segment for the three months ended March 31, 2019 and 2018
(unaudited and in thousands):
Three Months EndedMarch
31,
Change 2019 2018 $
% Net sales: Direct $ 46,714 $ 71,201 $ (24,487 )
(34.4 )% Retail 36,821 42,993 (6,172 ) (14.4 )% Royalty 865
619 246 39.7 % $ 84,400 $ 114,813 $
(30,413 ) (26.5 )% Operating income (loss): Direct $ (4,542
) $ 11,291 $ (15,833 ) (140.2 )% Retail (722 ) 3,921 (4,643 )
(118.4 )% Unallocated corporate (4,903 ) (4,515 ) (388 ) (8.6 )% $
(10,167 ) $ 10,697 $ (20,864 ) (195.0 )%
BALANCE SHEET INFORMATION
The following summary contains information from our condensed
consolidated balance sheets as of March 31, 2019 and
December 31, 2018 (unaudited and in thousands):
As of March 31, 2019
December 31, 2018 Assets Cash and cash
equivalents $ 11,060 $ 38,125 Available-for-sale securities 12,583
25,392 Trade receivables, net of allowances of $28 and $99 21,940
45,847 Inventories 60,892 68,465 Prepaids and other current assets
6,888 7,980 Income taxes receivable 5,761 5,653 Total
current assets 119,124 191,462 Property, plant and
equipment, net 21,823 22,216 Operating lease right of use assets
23,401 — Finance lease right of use assets 209 — Goodwill 63,499
63,452 Other intangible assets, net 54,430 55,240 Other assets
2,784 574 Total assets $ 285,270 $ 332,944
Liabilities and Shareholders' Equity Trade payables $
40,658 $ 87,265 Accrued liabilities 6,178 8,370 Operating lease
liabilities, current portion 3,561 — Finance lease liabilities,
current portion 121 — Warranty obligations, current portion 3,048
3,213 Note payable, current portion — 15,993 Total current
liabilities 53,566 114,841 Warranty
obligations, non-current 2,375 2,362 Operating lease liabilities,
non-current 21,836 — Finance lease liabilities, non-current 135 —
Income taxes payable, non-current 3,599 3,427 Deferred income tax
liabilities, non-current 9,638 11,888 Other non-current liabilities
— 1,837 Debt payable, non-current 20,490 15,993 Shareholders'
equity 173,631 182,596 Total liabilities and shareholders'
equity $ 285,270 $ 332,944
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table presents a reconciliation of EBITDA from
continuing operations for the three months ended March 31, 2019 and
2018 (unaudited and in thousands):
Three Months EndedMarch
31,
2019 2018 (Loss) income from
continuing operations $ (8,484 ) $ 8,140 Interest expense, net 40
21 Income tax (benefit) expense from continuing operations (2,116 )
2,523 Depreciation and amortization 2,485 2,439 (Loss)
earnings before interest, taxes, depreciation and amortization
(EBITDA) from continuing operations $ (8,075 ) $ 13,123
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version on businesswire.com: https://www.businesswire.com/news/home/20190506005114/en/
Investor Relations Contact:John Mills, ICR, LLCTelephone: (646)
277-1254
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