Fourth Quarter 2019 Retail Segment Sales
Increased 4.8% Compared to Same Period Last Year
Company Generated Cash Flow from Operations
of $13.0 Million and EBITDA Grew to $5.9 Million in the Fourth
Quarter 2019
Fourth Quarter 2019 EPS from Continuing
Operations Increased 140% to $0.12, Compared to Same Period Last
Year
Company Provides First Quarter 2020 EBITDA
Guidance
Nautilus, Inc. (NYSE: NLS) today reported its unaudited
operating results for the fourth quarter and full year ended
December 31, 2019.
Fourth Quarter 2019 Highlights Compared to Fourth Quarter
2018
- Net Sales were $104.2 million, down 9.7% compared to $115.4
million. The 4.8% increase in the Retail Segment was offset by a
28.1% decline in the Direct Segment.
- Operating Expenses decreased by 27.4% to $34.9 million compared
to $48.0 million, primarily due to reductions in sales and
marketing expenses, general and administrative costs, and research
and development costs.
- Operating Income increased by 21.4% to $3.3 million compared to
$2.7 million.
- Income from Continuing Operations increased to $3.7 million, or
$0.12 per diluted share, compared to income from continuing
operations of $1.5 million, or $0.05 per diluted share.
- The tax rate for the fourth quarter was minus 25.8% primarily
due to a true-up of an income tax benefit in the prior
quarter.
- EBITDA from continuing operations increased to $5.9 million
compared to $5.0 million.
“We are seeing signs that the improvements made during the
latter half of 2019 are beginning to benefit our business. New
technology enhancements to our product offerings combined with more
efficient advertising and reduced overall operating expenses
resulted in overall improved results for the fourth quarter,” said
Jim Barr, Chief Executive Officer. “We enter 2020 in a stronger
financial position, having recently secured a new $70 million
Senior Secured Credit Facility. We are very encouraged by customer
reception of our new digital platform and new product offerings as
well as the improvements in our cost structure, but we are very
early in our transformation process. Throughout 2020, we will
continue to focus on unlocking the potential of our brands and
returning the company to sustainable profitable growth, but we do
not expect the changes we are making to our company will result in
immediate linear quarterly improvements.”
Fourth Quarter 2019 Segment Results Compared to Fourth
Quarter 2018
Direct
- Net Sales were $35.9 million, down 28.1% from $49.9 million.
Increased sales of Bowflex bikes and Max TotalTM were more than
offset by lower Max Trainer® product sales.
- Gross Margin was 49.9%, down from 58.7%, driven by unfavorable
product mix and unfavorable overhead absorption related to the
decrease in sales.
- Operating Loss was $5.0 million compared to operating loss of
$3.8 million. The increased loss primarily reflected lower net
sales and lower gross margin rates partially offset by reductions
in sales and marketing expenses. The Company optimized
fitness-season advertising spend and focused on higher-returning
media which resulted in a 42.7% reduction in advertising
expense.
Retail
- Net Sales were $67.5 million, up 4.8% from $64.4 million.
Higher sales were driven primarily by SelectTech weights and
Schwinn IC bikes as well as third quarter 2019 shipment delays that
were recognized in the fourth quarter of 2019.
- Gross Margin was 28.8%, down from 31.7%, driven primarily by
unfavorable sales mix and higher tariffs.
- Operating Income was $12.2 million, up 8.1% from $11.3 million.
Lower gross margin dollars were more than offset by more efficient
sales and marketing expenses, as well as reduced research and
development costs.
Balance Sheet
As of December 31, 2019, the Company had cash and cash
equivalents of $11.1 million and debt of $14.1 million, compared to
cash, cash equivalents and marketable securities of $63.5 million
and debt of $32.0 million as of December 31, 2018. Inventory as of
December 31, 2019 was $54.8 million, compared to $68.5 million as
of December 31, 2018. The decrease in inventory was primarily due
to Company efforts to align inventory levels more closely with
sales trends.
New Secured Credit Facility
In February 2020, the Company announced the closing of a new
five-year $70 million Senior Secured Credit Facility (“the Credit
Facility”), consisting of a new $55 million asset-based revolver
and a $15 million term loan with Wells Fargo Bank, NA (“Wells
Fargo”). Nautilus, Inc. will use proceeds from the Credit Facility
to refinance the existing $40 million asset-based facility, pay
transaction expenses, and for general corporate purposes. The
Credit Facility does not contain any financial performance
covenants for the first two years of the facility except for a
minimum liquidity covenant of $7.5 million. Beginning February 1,
2022, the minimum liquidity covenant shall decrease to $5 million
and only a minimum EBITDA covenant shall apply. Interest on the
asset-based revolver shall accrue at LIBOR plus a margin of 1.75% -
2.25% (based on average quarterly availability) and interest on the
term loan shall accrue at LIBOR plus 5.00%. The Credit Facility
will have a five-year term maturing on January 31, 2025 and the
term loan shall contain amortization as scheduled in the credit
agreement.
Guidance
The Company does not plan to provide specific guidance on an
ongoing basis but due to the timing of the fourth quarter 2019
release and the early stages of its business transformation, it is
providing the following commentary: The Company expects EBITDA from
continuing operations to be a loss in the range of $4.0 million to
$1.0 million. Capital expenditures for 2020 are anticipated to be
in the range of $8.0 million to $10.0 million.
These statements are forward-looking and actual results may
materially differ. Refer to the “Forward-Looking Statements”
section below for information on the factors that could cause our
actual results to materially differ from these forward-looking
statements.
Conference Call
Nautilus will host a conference call at 4:30 p.m. ET (1:30 p.m.
PT) on Monday, February 24, 2020 to discuss the Company’s operating
results for the fourth quarter and full year ended December 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 (877) 425-9470 in North America and
international listeners may call (201) 389-0878. Participants from
the Company will include Jim Barr, Chief Executive Officer, Aina
Konold, Chief Financial 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,
February 24, 2020 through 11:59 p.m. ET, March 9, 2020.
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 13698416.
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.
Forward-Looking Statements
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 first quarter
of 2020 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 consolidated
statements of operations for the three and twelve months ended
December 31, 2019 and 2018 (unaudited and in thousands, except per
share amounts):
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
2019
2018
Net sales
$
104,173
$
115,385
$
309,285
$
396,753
Cost of sales
66,016
64,670
198,702
215,013
Gross profit
38,157
50,715
110,583
181,740
Operating expenses:
Selling and marketing
25,449
36,438
94,595
115,920
General and administrative
6,418
7,486
30,242
28,226
Research and development
3,000
4,081
14,282
16,825
Goodwill and intangible impairment
charge
—
—
72,008
—
Total operating expenses
34,867
48,005
211,127
160,971
Operating income (loss)
3,290
2,710
(100,544
)
20,769
Other (expense) income, net
(378
)
(4
)
(1,288
)
232
Income (loss) from continuing operations
before income taxes
2,912
2,706
(101,832
)
21,001
Income tax (benefit) expense
(751
)
1,246
(9,537
)
5,891
Income (loss) from continuing
operations
3,663
1,460
(92,295
)
15,110
Loss from discontinued operations, net of
income taxes
(176
)
(98
)
(505
)
(452
)
Net income (loss)
$
3,487
$
1,362
$
(92,800
)
$
14,658
Basic income (loss) per share from
continuing operations
$
0.12
$
0.05
$
(3.11
)
$
0.50
Basic loss per share from discontinued
operations
(0.01
)
—
(0.02
)
(0.02
)
Basic net income (loss) per share(1)
$
0.12
$
0.05
$
(3.13
)
$
0.49
Diluted income (loss) per share from
continuing operations
$
0.12
$
0.05
$
(3.11
)
$
0.50
Diluted loss per share from discontinued
operations
(0.01
)
—
(0.02
)
(0.01
)
Diluted net income (loss) per share(1)
$
0.12
$
0.05
$
(3.13
)
$
0.48
Shares used in per share calculations:
Basic
29,756
29,708
29,684
30,099
Diluted
29,756
29,926
29,684
30,355
(1) May not add due to rounding.
SEGMENT INFORMATION
The following tables present certain comparative information by
segment for the three and twelve months ended December 31, 2019 and
2018 (unaudited and in thousands):
Three Months Ended December
31,
Change
2019
2018
$
%
Net sales:
Direct
$
35,906
$
49,945
$
(14,039
)
(28.1
)%
Retail
67,487
64,424
3,063
4.8
%
Royalty
780
1,016
(236
)
(23.2
)%
$
104,173
$
115,385
$
(11,212
)
(9.7
)%
Operating (loss) income:
Direct
$
(5,000
)
$
(3,802
)
$
(1,198
)
(31.5
)%
Retail
12,240
11,320
920
8.1
%
Unallocated corporate
(3,950
)
(4,808
)
858
17.8
%
$
3,290
$
2,710
$
580
21.4
%
Twelve Months Ended December
31,
Change
2019
2018
$
%
Net sales:
Direct
$
119,651
$
184,925
$
(65,274
)
(35.3
)%
Retail
186,584
208,092
(21,508
)
(10.3
)%
Royalty
3,050
3,736
(686
)
(18.4
)%
$
309,285
$
396,753
$
(87,468
)
(22.0
)%
Operating (loss) income:
Direct
$
(24,569
)
$
6,865
$
(31,434
)
(457.9
)%
Retail
16,043
31,516
(15,473
)
(49.1
)%
Unallocated corporate
(92,018
)
(17,612
)
(74,406
)
(422.5
)%
$
(100,544
)
$
20,769
$
(121,313
)
(584.1
)%
BALANCE SHEET INFORMATION
The following summary contains information from our consolidated
balance sheets as of December 31, 2019 and 2018 (unaudited and in
thousands):
As of December 31,
2019
2018
Assets
Cash and cash equivalents
$
11,070
$
38,125
Available-for-sale securities
—
25,392
Trade receivables, net of allowances of
$45 and $99
54,600
45,847
Inventories
54,768
68,465
Prepaids and other current assets
8,283
7,980
Income taxes receivable
472
5,653
Total current assets
129,193
191,462
Property, plant and equipment, net
22,755
22,216
Operating lease right-of-use assets
20,778
—
Goodwill
—
63,452
Other intangible assets, net
43,243
55,240
Other assets
4,510
574
Total assets
$
220,479
$
332,944
Liabilities and Shareholders'
Equity
Trade payables
$
74,255
$
87,265
Accrued liabilities
7,633
8,370
Operating lease liabilities, current
portion
3,720
—
Warranty obligations, current portion
3,100
3,213
Note payable, current portion, net of
unamortized debt issuance costs of $0 and $7
—
15,993
Total current liabilities
88,708
114,841
Operating lease liabilities,
non-current
18,982
—
Warranty obligations, non-current
2,617
2,362
Income taxes payable, non-current
3,676
3,427
Deferred income tax liabilities,
non-current
1,783
11,888
Other long-term liabilities
46
1,837
Debt payable, non-current, net of
unamortized debt issuance costs of $230 and $7
14,071
15,993
Shareholders' equity
90,596
182,596
Total liabilities and shareholders'
equity
$
220,479
$
332,944
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table presents a reconciliation of EBITDA from
continuing operations for the three and twelve months ended
December 31, 2019 and 2018 (unaudited and in thousands):
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
2019
2018
Income (loss) from continuing
operations
$
3,663
$
1,460
$
(92,295
)
$
15,110
Interest expense, net
259
37
818
7
Income tax (benefit) expense of continuing
operations
(751
)
1,246
(9,537
)
5,891
Depreciation and amortization
2,766
2,296
10,811
8,942
Earnings (loss) before interest, taxes,
depreciation and amortization (EBITDA) from continuing
operations
$
5,937
$
5,039
$
(90,203
)
$
29,950
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200224005846/en/
Investor Relations Contact: John Mills, ICR, LLC Telephone:
(646) 277-1254
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