First Quarter 2020 Net Sales Increased 11.0%
Compared to Same Period Last Year
First Quarter 2020 Retail Segment Sales
Increased 23.9% Compared to Same Period Last Year; Direct Segment
Produced First Quarterly Sales Increase since Q4 2017
Company Generated Cash Flow from Operations
of $6.3 million and EBITDA Grew to $2.3 million in the First
Quarter 2020
First Quarter 2020 EPS from Continuing
Operations Increased 127.6% to $0.08, Compared to Same Period Last
Year
Nautilus, Inc. (NYSE: NLS) today reported its unaudited
operating results for the first quarter of 2020.
First Quarter 2020 Highlights Compared to First Quarter
2019
- Net sales were $93.7 million, up 11.0% compared to $84.4
million, driven primarily by strong demand for strength and cardio
products, particularly the Bowflex® SelectTech® weights and the new
connected-fitness bikes. Additionally, the Company was able to
capture the accelerated demand for home fitness resulting from
COVID-19 stay-at-home orders in the last few weeks of March through
strong omni-channel execution.
- Operating expenses decreased by 21.4% to $36.2 million compared
to $46.0 million, primarily due to increased expense discipline,
particularly in advertising expenses which delivered strong ROI in
Q1.
- Operating loss decreased by 94.5% to $0.6 million compared to
loss of $10.2 million.
- Income from continuing operations increased to $2.3 million, or
$0.08 per diluted share, compared to loss from continuing
operations of $8.5 million, or $0.29 per diluted share, driven by
higher revenue, expense discipline, and aided by the tax benefit
related to the Coronavirus Aid, Relief, and Economic Security Act
(“CARES Act”).
- EBITDA from continuing operations increased to $2.3 million
compared to an EBITDA loss of $8.1 million.
Management Comments
“In the first quarter of 2020, we achieved stronger than
expected financial results, including revenue growth of 11%, our
first positive sales comp since third quarter of 2018, and
significantly exceeded our EBITDA estimates,” said Jim Barr,
Nautilus Inc. Chief Executive Officer. “The continued momentum of
our new connected fitness products and technology, as well as the
strategic and operational changes instituted in the latter half of
2019 put us on track to deliver year-over-year improvement.
However, when COVID-19 pandemic stay-at-home orders hit the last
few weeks of the quarter, it was the agility and strong execution
of the team that allowed us to maximize the opportunity provided by
the surge in demand for at-home fitness products. It was rewarding
to see the power of our brands, strength of our product portfolio,
and reach of our omnichannel model in action when our customers
needed us most. We delivered strong results across many of our
brands including our Bowflex® and Schwinn® lines, in both strength
and cardio products.”
“As we enter the second quarter and prepare for the remainder of
2020, we know we will be navigating a rapidly changing environment.
We experienced the ripple effects of the supply chain disruption
caused by COVID-19 early in the first quarter and then experienced
a strong spike in demand across the product portfolio as the virus
hit world-wide. Although we’ve expanded production in response to
continued strong demand, we carry over a significant level of
back-orders into the second quarter and believe we may not be fully
caught up until the beginning of the third quarter. Additionally,
while the consumer side of our business is surging, the commercial
side, represented by our Octane Fitness brand, is experiencing
softness, as gym closures have resulted in sales declines. Lastly,
like many companies, we are closely monitoring the longer-term
impact the shelter-in-place orders are having on consumer sentiment
and demand.”
Mr. Barr continued, “I want to thank our dedicated employees and
partners for how they’ve responded to the demands of the COVID-19
pandemic, rapidly changing our work model to remote work, dealing
with disruptions in their lives, but still remaining focused on
solutions to meet our customers’ needs. While delivering for
customers in the short-term, our team is also balancing focus on
longer-term challenges. It is important to remember that we are
early in the long-term transformation of our company. We are
actively gaining insights and continue to address the underlying
issues that caused our multi-year revenue decline. While we believe
we are making strong quarter-to-quarter progress, it is possible we
will not yet produce consistent linear quarterly improvements,
especially considering the array of uncertain outcomes from the
longer-term impact of COVID-19. However, we believe that the
company’s resolve, resilience, and agility are qualities that, when
coupled with well-known brands and a strong product portfolio, will
allow us to successfully implement the strategies that will return
Nautilus to long-term profitable growth.”
First Quarter 2020 Segment Results Compared to First Quarter
2019
Direct Segment
- Net sales were $47.1 million, up 0.9%, from $46.7 million.
Increased sales were driven primarily by strength products which
grew 58.5% versus last year. Strength product sales were driven by
Bowflex® SelectTech® weights and Bowflex® Home Gyms. Cardio product
sales declined by 9.4% as strong demand for our connected-fitness
bikes, the Bowflex® C6 and Schwinn® IC4, were not enough to fully
offset declines in our Max Trainer sales.
- As of March 31, 2020, estimated revenue expected to be
recognized in the future totaled $8.0 million, which represents
unfulfilled consumer orders and are net of current promotional
programs and sales discounts.
- Gross margin rate was 51.5%, down from 56.5%, primarily driven
by unfavorable product mix and higher landed product costs. Sales
declines in the higher margin Max Trainers line continue to
pressure margins, while landed product costs were driven higher by
tariffs and expediting shipments from our factories in Asia.
- Segment contribution income was $1.8 million, up 139.8%,
compared to segment contribution loss of $4.5 million. The
improvement in segment contribution was primarily driven by $6.5
million reduction in media spend, as gross profit was below last
year. Advertising expenses were $13.2 million in first quarter of
2020 compared to $19.7 million first quarter of 2019.
Retail Segment
- Net sales were $45.6 million, up 23.9%, from $36.8 million with
strong growth coming from both strength and cardio product sales.
Strength sales up 54.6%, driven primarily by strong demand for
Bowflex SelectTech® weights and Bowflex® Home Gyms. Cardio sales
were up 17.7% driven by the Schwinn® IC4 connected-fitness bikes
and partially offset by declines in Octane Fitness® products as gym
closures have begun to affect sales of commercial-grade equipment.
Although numerous retailers have temporarily closed store locations
due to COVID-19, Bowflex® and Schwinn® experienced strong
year-over-year sales increases through retail partners’ e-commerce
and curbside pick-up platforms.
- As of March 31, 2020, estimated revenue expected to be
recognized in the future totaled $5.8 million, primarily related to
customer order backlog and including firm orders for future
shipments. The estimated future revenues are net of contractual
rebates and consideration payable for applicable Retail
customers.
- We disclose retail customers whose sales are greater than 10%
of total company net sales. Amazon.com accounted for 13.3% of total
company net sales in the first quarter of 2020 and less than 10% of
total company net sales in the first quarter of 2019.
- Gross margin was 22.6%, down from 23.3%, primarily driven by
unfavorable sales mix and higher landed product costs. Landed
product costs were driven higher by tariffs and expediting
shipments from our factories in Asia.
- Segment contribution income was $2.4 million, up 430.9%,
compared to segment contribution loss of $0.7 million. The
improvement in segment contribution was primarily driven by higher
net sales and reductions in operating expenses, partially offset by
lower gross margin rates.
Tax Rate
- The tax rate for the first quarter was a positive 301.2%,
primarily due to changes in the tax treatment of net operating
losses as a result of the CARES Act. The Company anticipates
carrying back 2019 and 2020 losses to the 2016 and 2017 tax years
and recognized $3.2 million of tax benefit, representing the 14
point tax rate differential between 2019 and 2020 and carryback tax
periods, as income in the first quarter of 2020.
Balance Sheet
As of March 31, 2020:
- Cash, cash equivalents and restricted cash were $26.5 million,
and debt was $28.1 million, compared to cash and cash equivalents
of $11.1 million and debt of $14.1 million as of December 31,
2019.
- $18.0 million was available for borrowing under the Wells Fargo
Asset Based Lending Revolving Facility.
- Inventory was $34.9 million, compared to $54.8 million as of
December 31, 2019. The decrease in inventory was primarily due to
the seasonality of the business and to the surge in demand for
home-fitness products.
- Working capital totaled $60.7 million versus $40.5 million at
year-end 2019 as a result of reductions in trade payables and
receivables.
- Trade payables were $34.2 million, compared to $74.3 million at
year-end 2019 primarily due to the seasonality of the
business.
- Capital expenditures totaled $1.7 million as of March 31, 2020.
We are reiterating our full year capital guidance range of $8
million to $10 million for 2020.
Conference Call
Nautilus will discuss first quarter 2020 operating results
during a live conference call and webcast on Tuesday, May 5, 2020
at 1:30 p.m. Pacific Time. The conference call can be accessed by
calling (877) 425-9470 in North America. International callers may
dial (201) 389-0878. Please note that there will be presentation
slides accompanying the earnings call. The slides will be displayed
live on the webcast and will be available to download via the
webcast player or at http://www.nautilusinc.com/events. The webcast
will be archived online within two hours after completion of the
call and will be available for six months. Participants from the
Company will include Jim Barr, Chief Executive Officer, Aina
Konold, Chief Financial Officer and Bill McMahon, Special Assistant
to the CEO.
A telephonic playback will be available from 4:30 p.m. PT, May
5, 2020 through 8:59 p.m. PT, May 19, 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 13701186.
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
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,
anticipated demand for the Company's new and existing products,
statements regarding the Company's prospects, resources or
capabilities; planned investments, strategic initiatives and the
anticipated or targeted results of such initiatives; the effects of
the COVID-19 pandemic on the Company’s business; 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; risks associated with current and potential
delays, work stoppages, or supply chain disruptions caused by the
COVID-19 pandemic; 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; risks related to
the impact on our business of the COVID-19 pandemic or similar
public health crises; 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 months ended March 31, 2020
and 2019 (unaudited and in thousands, except per share
amounts):
Three Months Ended March
31,
2020
2019
Net sales
$
93,722
$
84,400
Cost of sales
58,125
48,558
Gross profit
35,597
35,842
Operating expenses:
Selling and marketing
24,686
34,043
General and administrative
7,656
7,655
Research and development
3,815
4,311
Total operating expenses
36,157
46,009
Operating loss
(560
)
(10,167
)
Other expense, net
(584
)
(433
)
Loss from continuing operations before
income taxes
(1,144
)
(10,600
)
Income tax benefit
(3,446
)
(2,116
)
Income (loss) from continuing
operations
2,302
(8,484
)
Loss from discontinued operations, net of
income taxes
(118
)
(91
)
Net income (loss)
$
2,184
$
(8,575
)
Basic income (loss) per share from
continuing operations
$
0.08
$
(0.29
)
Basic loss per share from discontinued
operations
—
—
Basic net income (loss) per share(1)
$
0.07
$
(0.29
)
Diluted income (loss) per share from
continuing operations
$
0.08
$
(0.29
)
Diluted loss per share from discontinued
operations
—
—
Diluted net income (loss) per share(1)
$
0.07
$
(0.29
)
Shares used in per share calculations:
Basic
29,802
29,573
Diluted
30,590
29,573
(1) May not add due to rounding.
SEGMENT INFORMATION
The following tables present certain comparative information by
segment for the three months ended March 31, 2020 and 2019
(unaudited and in thousands):
Three Months Ended March
31,
Change
2020
2019
$
%
Net sales:
Direct
$
47,141
$
46,714
$
427
0.9
%
Retail
45,613
36,821
8,792
23.9
%
Royalty
968
865
103
11.9
%
Consolidated net sales
$
93,722
$
84,400
$
9,322
11.0
%
Contribution:
Direct
$
1,809
$
(4,542
)
$
6,351
139.8
%
Retail
2,389
(722
)
3,111
430.9
%
Royalty
968
865
103
11.9
%
Consolidated contribution
$
5,166
$
(4,399
)
$
9,565
217.4
%
Reconciliation of consolidated
contribution to income (loss) from continuing operations:
Consolidated contribution
$
5,166
$
(4,399
)
$
9,565
217.4
%
Amounts not directly related to
segments:
Operating expenses
(5,725
)
(5,768
)
43
0.7
%
Other expense, net
(585
)
(433
)
(152
)
(35.1
)%
Income tax benefit
3,446
2,116
1,330
62.9
%
Income (loss) from continuing
operations
$
2,302
$
(8,484
)
$
10,786
127.1
%
The following table compares the net sales of our major product
lines within each business segment (dollars in thousands):
Three Months Ended March
31,
Change
2020
2019
$
%
Direct net sales:
Cardio products(1)
$
35,876
$
39,607
$
(3,731
)
(9.4
)%
Strength products(2)
11,265
7,107
4,158
58.5
%
47,141
46,714
427
0.9
%
Retail net sales:
Cardio products(1)
36,143
30,696
5,447
17.7
%
Strength products(2)
9,470
6,125
3,345
54.6
%
45,613
36,821
8,792
23.9
%
Royalty
968
865
103
11.9
%
$
93,722
$
84,400
$
9,322
11.0
%
(1)
Cardio products include: connected-fitness bikes like the
Bowflex® C6 and Schwinn® IC4, Max Trainer®, TreadClimber®, Zero
Runner®, LateralX®, treadmills, other exercise bikes, ellipticals,
and subscription services.
(2)
Strength products include: home gyms and Bowflex SelectTech®
dumbbells, kettlebell weights and accessories.
BALANCE SHEET INFORMATION
The following summary contains information from our consolidated
balance sheets as of March 31, 2020 and December 31, 2019
(unaudited and in thousands):
As of
March 31, 2020
December 31, 2019
Assets
Cash and cash equivalents
$
23,024
$
11,070
Restricted cash
3,432
—
Trade receivables, net of allowances of
$415 and $45
34,260
54,600
Inventories
34,927
54,768
Prepaids and other current assets
7,281
8,283
Income taxes receivable
10,149
472
Total current assets
113,073
129,193
Property, plant and equipment, net
23,143
22,755
Operating lease right-of-use assets
19,882
20,778
Other intangible assets,
net
42,449
43,243
Other assets
5,823
4,510
Total assets
$
204,370
$
220,479
Liabilities and Shareholders'
Equity
Trade payables
$
34,210
$
74,255
Accrued liabilities
9,445
7,633
Operating lease liabilities, current
portion
3,782
3,720
Warranty obligations, current portion
3,366
3,100
Debt payable, current portion, net of
unamortized debt issuance costs of $70 and $0
1,555
—
Total current liabilities
52,358
88,708
Operating lease liabilities,
non-current
18,026
18,982
Warranty obligations, non-current
2,884
2,617
Income taxes payable, non-current
3,852
3,676
Deferred income tax liabilities,
non-current
7,788
1,783
Other non-current liabilities
17
46
Debt payable, non-current, net of
unamortized debt issuance costs of $270 and $230
26,520
14,071
Shareholders' equity
92,925
90,596
Total liabilities and shareholders'
equity
$
204,370
$
220,479
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table presents a reconciliation of EBITDA from
continuing operations for the three months ended March 31, 2020 and
2019 (unaudited and in thousands):
Three Months Ended March
31,
2020
2019
Income (loss) from continuing
operations
$
2,302
$
(8,484
)
Interest expense, net
625
40
Income tax benefit from continuing
operations
(3,446
)
(2,116
)
Depreciation and amortization
2,810
2,485
Earnings (loss) before interest, taxes,
depreciation and amortization (EBITDA) from continuing
operations
$
2,291
$
(8,075
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200505005909/en/
Investor Relations: John Mills ICR, LLC 646-277-1254
john.mills@ICRinc.com Media: John Fread Nautilus, Inc. 360-859-5815
jfread@nautilus.com Carey Kerns The Hoffman Agency 503-754-7975
ckerns@hoffman.com
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