Comprehensive Plan to Improve Direct
Business Ready for Q3 2019 Launch
Company Implements Initiatives with
Anticipated Annualized Cost Savings of $5 to $6 million
Nautilus, Inc. (NYSE: NLS) today reported its unaudited
operating results for the second quarter and six months ended June
30, 2019.
Net sales for the second quarter of 2019 totaled $59.0 million,
a decrease of 21.8% compared to $75.5 million in the same quarter
of 2018. The decrease in net sales was largely driven by shortfalls
in the Direct segment, down 40.2% from the prior year quarter,
primarily reflecting a decline in sales of the Bowflex Max Trainer®
product. Retail sales were down 4.4% from the same quarter prior
year, primarily due to lower order rates reflecting, we believe,
the anticipated transition to new products being introduced and
shipped during the third and fourth quarters of 2019. Royalty
revenue in the second quarter of 2019 was $0.7 million, a decrease
of 51.8% compared to the same quarter of last year which included
payments of royalties related to a new agreement. For the first six
months of 2019, net sales were $143.4 million, down 24.6% compared
to the same period in the prior year. Gross margins for the second
quarter of 2019 were 29.7% versus 44.6% for the same period of last
year, reflecting unfavorable product mix and unfavorable overhead
absorption related to the decline in sales.
Operating loss for the second quarter of 2019 was $85.4 million,
compared to operating income of $1.2 million in the same period of
last year, due to non-cash impairments along with lower sales and
gross margins which resulted in a decline in gross profit dollars.
Included in the second quarter 2019 operating loss were $72.0
million in non-cash goodwill and intangible impairments. Excluding
these impairments, adjusted operating loss in the second quarter of
2019 was $13.4 million, compared to operating income of $1.2
million in the same period of last year. In addition to these
impairments, operating expenses for the second quarter of 2019
included charges of $2.0 million related to a litigation settlement
and $0.3 million of severance related to workforce reductions
occurring early in the third quarter of 2019. Total operating
expenses for the second quarter of 2019 increased by $70.5 million
to $102.9 million compared to $32.4 million in the same period of
last year as a result of the impairments and charges listed above,
partially offset by lower marketing costs.
Loss from continuing operations for the second quarter of 2019
was $78.7 million, or $2.65 per diluted share, compared to income
of $1.0 million, or $0.03 per diluted share, for the same period of
last year. Adjusted to exclude the goodwill and intangible
impairments, loss from continuing operations for the second quarter
of 2019 was $9.8 million, or $0.33 per diluted share.
EBITDA loss from continuing operations for the second quarter of
2019 totaled $82.5 million compared to income of $3.3 million in
the same quarter of the prior year. Adjusted EBITDA loss, excluding
the goodwill and intangible impairments, was $10.5 million for the
second quarter of 2019.
Carl Johnson, Chairman of the Board and former Interim Chief
Executive Officer, stated, “As anticipated, our second quarter
results were impacted by continued softness in the Direct segment;
however, we believe the appropriate improvements are being
implemented into our overall business to address this trend. The
primary actions taken include extensive, in-depth consumer insights
research leading to a major repositioning of the Bowflex brand and
a new advertising and communication campaign, which we expect will
begin airing in the third quarter of 2019 across television, social
media, other digital platforms. Additionally, we expect to launch
many targeted new products across all our channels in the second
half of 2019. In parallel, we plan to continue our digital
transformation with updated digital experience platforms on key new
products, moving toward our goal of having all our products with
subscription-based digital experience offerings. Our second quarter
Retail segment sales were below prior year sales, tracing to
declines in the Max Trainer line, partially offset by growth in
other modalities. We expect sales in the second half of 2019 will
include planned new product introductions and in-store
merchandising in key customers. The lower revenues and unfavorable
product mix trends have impacted our gross margins through the
first half of 2019 and the financial results were also affected by
a non-cash impairment of goodwill and intangible assets related to
the decline in our market capitalization. Additionally, as part of
our ongoing efforts to right-size the business, we are implementing
a workforce reduction and other shared support cost reductions
expected to save the company $5 to $6 million on an annual
basis.”
Mr. Johnson continued, “While the past few quarters have been
challenging, we are excited about the future of Nautilus and the
new technology, product offerings, and improvements in our cost
structure. In addition, we are very fortunate to have Jim Barr join
us as our new CEO to lead Nautilus through its next phase. The
robust Direct and Retail pipeline of new product introductions
slated for the next few months is starting with the MaxTotalTM,
which is expected to launch in late August. This new product has a
built-in digital screen and includes the upgraded digital platform
in delivering a customized, personalized cardio and upper body
workout created by machine learning. Regarding our commercial
channel, the Octane Commercial Max Trainer and the Octane XR6000S,
a seated elliptical with a swivel seat, are already in the market
and receiving positive reviews. We also plan to have additional new
products launching later this year. We remain focused on being a
differentiated player in the industry by continuing to bring new
innovations to market on a regular basis with the goal of growing
our top and bottom lines.”
Segment Results
Net sales for the Direct segment were $20.8 million in the
second quarter of 2019, a decrease of 40.2% over the comparable
period last year primarily due to a decline in Max Trainer® product
sales. Operating loss for the Direct segment was $6.3 million for
the second quarter of 2019, compared to operating income of $0.7
million in the second quarter of prior year. Operating income was
negatively impacted by the decline in sales and gross margins.
Gross margin for the Direct segment declined from 59.6% in the
second quarter of 2018 to 43.3% in the second quarter of 2019,
which resulted from unfavorable overhead absorption related to
decreased net sales and unfavorable product mix.
Net sales for the Retail segment were $37.5 million in the
second quarter of 2019, a decrease of 4.4% when compared to $39.2
million in the second quarter of last year. The decrease was due to
lower order rates reflecting, we believe, the anticipation of new
products being introduced and shipped during the third and fourth
quarters of 2019. Operating loss for the Retail segment was $0.2
million for the second quarter of 2019 compared to income of $3.6
million in the second 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 20.8% in the second
quarter of 2019, compared to 29.1% in the same quarter of the prior
year, which resulted from unfavorable product mix and unfavorable
overhead absorption related to the lower sales.
Balance Sheet
As of June 30, 2019, Nautilus had cash and cash equivalents of
$7.9 million and debt of $20.6 million, compared to cash and
marketable securities of $63.5 million and debt of $32.0 million at
year end 2018. Working capital of $51.6 million as of June 30, 2019
was $25.0 million lower than the 2018 year-end balance of $76.6
million. Inventory as of June 30, 2019 was $52.0 million, compared
to $68.5 million as of December 31, 2018 and $42.3 million at the
end of the second quarter of last year.
Conference Call
Nautilus will host a conference call to discuss the its
operating results for the second quarter ended June 30, 2019 at
4:30 p.m. ET (1:30 p.m. PT) on Wednesday, July 31, 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) 263-0877 in North America and
international listeners may call (646) 828-8143. Participants from
Nautilus will include Jim Barr, Chief Executive Officer, M. Carl
Johnson III, Chairman of the Board and former Interim 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, July
31, 2019, through 11:59 p.m. ET, August 14, 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 2520619.
Goodwill and Intangible Impairment
In accordance with Accounting Standards Codification 350,
"Intangibles — Goodwill and Other," Nautilus is required to test
its goodwill and other indefinite-lived intangible assets for
impairment annually or when a triggering event has occurred that
would indicate that it is more likely than not that the fair value
of the reporting units are less than the book value, including
goodwill and intangibles. In our assessment, a triggering event
occurred during the second quarter of 2019 as a result of the
decline in our stock price and overall market capitalization. Based
on the initial assessment conducted, we estimated a $72.0 million
impairment. We are in the process of finalizing the impairment
analysis and expect to be completed in time for our second quarter
Form 10-Q filing.
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.
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
non-cash impairment charges related to the carrying value of
goodwill and the Octane Fitness trade name intangible asset.
Adjusted income from continuing operations excludes the impairment
charges as well as the associated tax benefit. We believe that the
adjustment of this charge and associated tax benefit, which are
inconsistent in amount and frequency, supplements the GAAP
information with a measure that can be used to assess the
sustainability of our operating performance. 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 for similar reasons.
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 third 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 six months
ended June 30, 2019 and 2018 (unaudited and in thousands, except
per share amounts):
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Net sales
$
59,004
$
75,498
$
143,404
$
190,311
Cost of sales
41,487
41,850
90,045
97,792
Gross profit
17,517
33,648
53,359
92,519
Operating expenses:
Selling and marketing
17,631
22,084
51,674
58,847
General and administrative
9,443
6,327
17,098
13,237
Research and development
3,849
4,035
8,160
8,536
Goodwill and intangible
impairment charge
72,008
—
72,008
—
Total operating expenses
102,931
32,446
148,940
80,620
Operating (loss) income
(85,414
)
1,202
(95,581
)
11,899
Other (expense) income, net
(55
)
57
(488
)
23
(Loss) income from continuing operations
before income taxes
(85,469
)
1,259
(96,069
)
11,922
Income tax (benefit) expense
(6,725
)
252
(8,841
)
2,775
(Loss) income from continuing
operations
(78,744
)
1,007
(87,228
)
9,147
Loss from discontinued operations
(124
)
(79
)
(215
)
(160
)
Net (loss) income
$
(78,868
)
$
928
$
(87,443
)
$
8,987
Basic (loss) income per share from
continuing operations
$
(2.65
)
$
0.03
$
(2.94
)
$
0.30
Basic loss per share from discontinued
operations
—
—
(0.01
)
(0.01
)
Basic net (loss) income per share(1)
$
(2.66
)
$
0.03
$
(2.95
)
$
0.30
Diluted (loss) income per share from
continuing operations
$
(2.65
)
$
0.03
$
(2.94
)
$
0.30
Diluted loss per share from discontinued
operations
—
—
(0.01
)
(0.01
)
Diluted net (loss) income per share(1)
$
(2.66
)
$
0.03
$
(2.95
)
$
0.29
Shares used in per share calculations:
Basic
29,676
30,193
29,625
30,253
Diluted
29,676
30,476
29,625
30,533
(1) 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, 2019 and 2018
(unaudited and in thousands):
Three Months Ended June
30,
Change
2019
2018
$
%
Net sales:
Direct
$
20,834
$
34,824
$
(13,990
)
(40.2
)%
Retail
37,453
39,185
(1,732
)
(4.4
)%
Royalty
717
1,489
(772
)
(51.8
)%
$
59,004
$
75,498
$
(16,494
)
(21.8
)%
Operating (loss) income:
Direct
$
(6,334
)
$
739
$
(7,073
)
(957.1
)%
Retail
(247
)
3,568
(3,815
)
(106.9
)%
Unallocated corporate
(78,833
)
(3,105
)
(75,728
)
(2,438.9
)%
$
(85,414
)
$
1,202
$
(86,616
)
(7,206.0
)%
Six Months Ended June
30,
Change
2019
2018
$
%
Net sales:
Direct
$
67,548
$
106,025
$
(38,477
)
(36.3
)%
Retail
74,274
82,178
(7,904
)
(9.6
)%
Royalty
1,582
2,108
(526
)
(25.0
)%
$
143,404
$
190,311
$
(46,907
)
(24.6
)%
Operating (loss) income:
Direct
$
(10,876
)
$
12,030
$
(22,906
)
(190.4
)%
Retail
(969
)
7,489
(8,458
)
(112.9
)%
Unallocated corporate
(83,736
)
(7,620
)
(76,116
)
(998.9
)%
$
(95,581
)
$
11,899
$
(107,480
)
(903.3
)%
BALANCE SHEET INFORMATION
The following summary contains information from our condensed
consolidated balance sheets as of June 30, 2019 and December 31,
2018 (unaudited and in thousands):
As of
June 30, 2019
December 31, 2018
Assets
Cash and cash equivalents
$
7,921
$
38,125
Available-for-sale securities
—
25,392
Trade receivables, net of allowances of
$47 and $99
29,039
45,847
Inventories
51,981
68,465
Prepaids and other current assets
7,158
7,980
Income taxes receivable
3,042
5,653
Total current assets
99,141
191,462
Property, plant and equipment, net
22,340
22,216
Operating lease right-of-use assets
22,524
—
Goodwill
—
63,452
Other intangible assets, net
44,856
55,240
Deferred income tax assets,
non-current
568
—
Other assets
3,838
574
Total assets
$
193,267
$
332,944
Liabilities and Shareholders'
Equity
Trade payables
$
31,540
$
87,265
Accrued liabilities
9,318
8,370
Operating lease liabilities, current
portion
3,657
—
Warranty obligations, current portion
3,045
3,213
Note payable, current portion
—
15,993
Total current liabilities
47,560
114,841
Warranty obligations, non-current
2,443
2,362
Operating lease liabilities,
non-current
20,860
—
Income taxes payable, non-current
3,677
3,427
Deferred income tax liabilities,
non-current
3,108
11,888
Other non-current liabilities
103
1,837
Debt payable, non-current
20,600
15,993
Shareholders' equity
94,916
182,596
Total liabilities and
shareholders' equity
$
193,267
$
332,944
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Operating (loss) income
$
(85,414
)
$
1,202
$
(95,581
)
$
11,899
Goodwill and intangible
impairment charge
72,008
—
72,008
—
Adjusted operating (loss) income
$
(13,406
)
$
1,202
$
(23,573
)
$
11,899
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
(Loss) income from continuing
operations
$
(78,744
)
$
1,007
$
(87,228
)
$
9,147
Goodwill and intangible
impairment charge
72,008
—
72,008
—
Income tax benefit for goodwill
and intangible impairment
(3,095
)
—
(3,095
)
—
Adjusted (loss) income from continuing
operations
$
(9,831
)
$
1,007
$
(18,315
)
$
9,147
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
Diluted (loss) income per share from
continuing operations
$
(2.65
)
$
0.03
$
(2.94
)
$
0.30
Goodwill and intangible
impairment charge, net of tax
2.32
—
2.32
—
Adjusted diluted (loss) income per share
from continuing operations
$
(0.33
)
$
0.03
$
(0.62
)
$
0.30
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
(Loss) income from continuing
operations
$
(78,744
)
$
1,007
$
(87,228
)
$
9,147
Interest expense (income),
net
226
(26
)
266
(5
)
Income tax (benefit) expense
from continuing operations
(6,725
)
252
(8,841
)
2,775
Depreciation and
amortization
2,706
2,029
5,192
4,468
(Loss) earnings before interest, taxes,
depreciation and amortization (EBITDA) from continuing
operations
$
(82,537
)
$
3,262
$
(90,611
)
$
16,385
Three Months Ended June
30,
Six Months Ended June
30,
2019
2018
2019
2018
(Loss) income from continuing
operations
$
(78,744
)
$
1,007
$
(87,228
)
$
9,147
Interest expense (income),
net
226
(26
)
266
(5
)
Income tax (benefit) expense
from continuing operations
(6,725
)
252
(8,841
)
2,775
Depreciation and
amortization
2,706
2,029
5,192
4,468
Goodwill and intangible
impairment charge
72,008
—
72,008
—
Adjusted (Loss) earnings before interest,
taxes, depreciation and amortization (Adjusted EBITDA) from
continuing operations
$
(10,529
)
$
3,262
$
(18,603
)
$
16,385
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190731005816/en/
Investor Relations Contact: John Mills, ICR, LLC Telephone:
(646) 277-1254
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