Second Quarter 2020 Net Sales Increased
94% to $114 million Compared to Same Period Last Year
Second Quarter 2020 Direct Segment Sales
Increased 142% and Retail Segment Sales Increased 68%
Compared to Same Period Last Year
Operating Loss Was $7 million, driven by the
$29 million loss on disposal group, a non-cash charge
Adjusted EBITDA Was $25 million,
representing an Adjusted EBITDA improvement of $35 million
Nautilus, Inc. (NYSE:NLS) today reported its unaudited operating
results for the second quarter of 2020.
Second Quarter 2020 Highlights Compared to Second Quarter
2019
- Net sales were $114.2 million, up 93.5% compared to $59.0
million, driven primarily by strong demand for cardio and strength
products, particularly our connected-fitness bikes, Max Trainer®
and treadmills. Our ability to restart and then accelerate our
supply chain allowed us to better respond to the heightened demand
that began in March when COVID-19 shelter-in-place orders were
first put in place. However, despite increased supply capacity, we
entered Q3 with $34.2 million in backorders.
- Gross profit was $47.4 million, up 170.6% compared to $17.5
million last year. Gross margin rates expanded to 41.5% this year
compared to 29.7% last year, driven by favorable product and
customer mix and fixed costs leverage, partially offset by higher
product landed costs. As a reminder, our products are now subject
to 7.5% tariffs versus no tariff last year, and shipping costs from
Asia are higher due to constrained supply in logistics.
- In second quarter 2020, the company recognized a non-cash loss
on disposal group of $29.0 million related to the planned sale of
Octane Fitness®. In the second quarter of 2019, the company
recognized an impairment of $72.0 million for goodwill and other
intangible assets. As a result, operating expenses decreased by
47.0% to $54.5 million, compared to $102.9 million last year.
- Operating loss was $7.1 million, compared to a loss of $85.4
million last year. The $78 million improvement was driven by lower
operating expenses, sales growth, and expanded gross margin rates.
Net loss was $5.1 million, or -$0.17 cents per diluted share,
compared to last year's loss of $78.9 million, or -$2.66 per
diluted share.
- The following statements exclude the impact of the loss on
disposal group this year and the impairment last year1.
- Adjusted operating expenses decreased by 17.6% to $25.5 million
compared to $30.9 million last year, primarily due to continued
expense discipline and lower advertising expenses. Customer
acquisition costs were meaningfully lower this year as the company
pulled back on paid advertising, given strong organic demand and
inventory scarcity.
- Adjusted operating income improved to a record $21.9 million
compared to an operating loss of $13.4 million last year, driven by
sales growth, expanded gross margin rates, and lower operating
expenses.
- Adjusted income from continuing operations improved to $16.8
million, or $0.56 per diluted share, compared to a loss from
continuing operations of $9.8 million, or -$0.33 per diluted
share.
- Adjusted EBITDA from continuing operations improved to $24.7
million compared to an adjusted EBITDA loss of $10.5 million, an
improvement of $35 million.
1 See "Reconciliation of Non-GAAP Financial Measures" and "Loss
on Disposal Group" for more information
Management Comments
“The second quarter of 2020 was one of the strongest quarters
ever for our Company; highlighted by record sales, almost 1,200
basis point increase in gross margins, and a $78 million
improvement in operating loss, resulting in adjusted EBITDA of $25
million," said Jim Barr, Nautilus Inc. Chief Executive Officer.
“While we benefitted from the COVID-19 at-home fitness trend, our
team’s agility and strong execution were essential to our
outstanding results. The operational improvements we implemented in
the back half of 2019 changed our trajectory in the first quarter
of 2020 and were instrumental in record results in Q2. We
dramatically improved the flow of inventory in our supply chain by
increasing factory capacity for our leading products by as much as
500%. Our team worked quickly to find solutions to move product
from our manufacturers to the ports and then secured the quickest
vessels to get the product to our distribution centers. Even with
our expanded production and improved supply chain, demand still
outpaced supply and we are entering the third quarter with a $34
million backlog."
Mr. Barr continued, “Our strong second quarter performance was
driven by sales growth across both segments for all consumer
modalities and brands, slightly offset by declines in our
commercial business due to gym closures related to COVID-19. To
continue providing new and existing customers with products that
lead to a healthier lifestyle, we will be introducing several new
strength and cardio product offerings in the fall, including an
expansion of our JRNY® personalized connected fitness digital
platform with the rollout of next generation JRNY® that will
include an updated user interface, new content, integration of
Explore The World™ and Apple Health.”
Mr. Barr, concluded, “We are still in the early stages of our
long-term transformation, but we have made good progress in the
past 6 months in enhancing our digital capabilities, in our
products, our marketing, and our business operations. We remain
confident that the company’s resolve, resilience, and agility are
qualities that, when coupled with well-known brands, a strong
product portfolio, and a strengthening digital strategy should
allow us to successfully return Nautilus Inc. to long-term
profitable growth.”
Second Quarter 2020 Segment Results Compared to Second
Quarter 2019
Direct Segment
- Net sales were $50.4 million, up 142.1%, from $20.8 million
last year, driven primarily by the company's cardio products which
grew 183.4%, led by connected-fitness bikes, Bowflex® C6 and
Schwinn® IC4, and the Max Trainer®. This was the first quarter over
quarter of Max Trainer® positive sales growth for this segment
since the fourth quarter of 2017. Strength product sales growth was
limited by inventory scarcity, particularly of the popular
SelectTech® weights.
- As of June 30, 2020, backlog totaled $20.6 million compared to
$8.0 million as of March 31, 2020, which represents unfulfilled
consumer orders and is net of current promotional programs and
sales discounts.
- Gross margin rate was 54.6%, up from 43.3%, primarily driven by
favorable product mix and fixed costs leverage, partially offset by
higher product landed costs.
- Segment contribution income was $17.0 million, compared to loss
of $6.3 million, last year. The $23.3 million improvement was
primarily driven by higher net sales, expanded gross margin rates,
and $4.2 million reduction in media spend. Advertising expenses
were $2.4 million for the second quarter of 2020 compared to $6.6
million for the same period in 2019.
- Combined consumer credit approvals by our primary and secondary
U.S. third-party financing providers for the second quarter of 2020
were 48.4%, compared to 53.2% in the same period of 2019. The
decrease in approvals reflects lower credit quality
applications.
Retail Segment
- Net sales were $62.9 million, up 68.1%, from $37.5 million.
Cardio sales increased by 88.2% driven by the Schwinn® IC4
connected-fitness bikes and Max Trainer®. This was the first
quarter over quarter of Max Trainer® positive sales growth for this
segment since the fourth quarter of 2018. Strength product sales
growth of 22.2% was limited by inventory scarcity of the popular
SelectTech® weights and benches. Excluding sales related to our
Octane brand, second quarter of 2020 net sales for the Retail
segment grew 95% versus the second quarter of 2019.
- As of June 30, 2020, backlog totaled $13.6 million compared to
$5.8 million as of March 31, 2020, primarily related to customer
orders including firm orders for future shipments. The estimated
future revenues are net of contractual rebates and consideration
payable for applicable Retail customers.
- Retail customer, Amazon.com, had sales greater than 10% of
total company net sales. Amazon.com accounted for 18.0% of total
company net sales this year versus 20.9% last year.
- Gross margin rate was 30.3%, up from 20.8% last year, primarily
driven by favorable sales mix and fixed costs leverage, partially
offset by higher product landed costs due to increased tariffs and
shipping costs from our suppliers in Asia.
- Segment contribution income was $11.6 million compared to loss
of $0.2 million. The $11.8 million improvement was primarily driven
by higher sales and leveraging of fixed costs.
Balance Sheet and Other Key Highlights
As of June 30, 2020:
- Cash, cash equivalents and restricted cash were $47.9 million,
and debt was $14.8 million, compared to cash and cash equivalents
of $11.1 million and debt of $14.1 million as of December 31,
2019.
- $28.6 million was available for borrowing under the Wells Fargo
Asset Based Lending Revolving Facility.
- Accounts receivable was $33.7 million, compared to $54.6
million as of December 31, 2019. The decrease in accounts
receivable was primarily due to the timing of customer payments and
certain accounts receivable included in held-for-sale.
- Inventory was $21.3 million, compared to $54.8 million as of
December 31, 2019. The decrease in inventory was primarily due to
the surge in demand for home-fitness products and certain inventory
included in held-for-sale. Strong customer preference for our
Bowflex® and Schwinn® products drove record-setting traffic
depleting our entire stock of consumer products. Our inventory
turns this quarter were at historic highs and a growing portion of
sales in our retail segment are being fulfilled directly from the
supplier.
- To secure factory capacity, we routinely issue non-cancelable
purchase obligations for expected product deliveries in the next
twelve months. As of June 30, 2020, there were approximately $127.7
million of non-cancelable purchase obligations, compared to $20.4
million last year. As of March 31, 2020 and December 31, 2019, the
amounts were $34.6 million and $28.4 million, respectively.
- Trade payables were $45.2 million, 39.1% lower than compared to
$74.3 million as of December 31, 2019. The decrease in trade
payables was primarily due to timing of payments for inventory,
reduced advertising related payments and certain payables included
in held-for-sale.
- Capital expenditures totaled $4.7 million as of June 30,
2020.
Forward Looking Guidance
- Our second quarter results did not follow the typical
seasonality in our business, and given the highly volatile
environment, we believe historical relationships may not hold over
the next few quarters.
- Our perspective on continued consumer demand depends in part on
the duration of the constraints placed on gyms by local
governmental authorities and prevailing consumer comfort regarding
returning to gyms. Given this uncertainty, we are not providing
specific guidance for the remainder of the fiscal year 2020, but we
are providing the following insight into factors that may affect
our performance.
- We believe that, in the near-term, demand for our products will
continue to be elevated relative to pre-COVID levels, and that
consumers will react favorably to the new products that we are
launching later this year. However, structural production
constraints in our asset-light model will likely limit our ability
to fulfill all the demand. In addition, any unforeseen disruptions
to our supply chain could further impede our ability to meet this
demand and could also impact our sales in any particular quarter.
Gross margins will be further pressured by increased logistics
costs as demand for logistics services is currently outstripping
supply. Lastly, we expect sales and marketing expenses for the
remainder of the year to be higher than they were in the first half
of the year, driven by launch marketing for our new JRNY®-connected
products.
- We are reiterating our full year capital guidance range of $8
million to $10 million for 2020.
Conference Call
Nautilus will discuss second quarter 2020 operating results
during a live conference call and webcast on Monday, August 10,
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; Chris Quatrochi, SVP of Product
Development; and Bill McMahon, Special Assistant to the CEO.
A telephonic playback will be available from 4:30 p.m. PT,
August 10, 2020 through 8:59 p.m. PT, August 24, 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 13707084.
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. All of these forward-looking statements are
subject to risks and uncertainties that may change at any time,
including with respect to our exploration of the sale of Octane
Fitness and the risks and uncertainties as to the terms, timing,
structure, benefits and costs of any divestiture or separation
transaction and whether one will be consummated at all, and the
impact of any divestiture or separation transaction on our
remaining business. Factors that could cause Nautilus, Inc.’s
actual expectations to differ materially from these forward-looking
statements also 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; softness in the retail marketplace; risks
related to not completing, or not completely realizing the
anticipated benefits from a sale of Octane Fitness; changes in the
financial markets, including changes in credit markets and interest
rates and the impact of any future impairment. 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 six months ended June
30, 2020 and 2019 (unaudited and in thousands, except per share
amounts):
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Net sales
$
114,188
$
59,004
$
207,910
$
143,404
Cost of sales
66,792
41,487
124,917
90,045
Gross profit
47,396
17,517
82,993
53,359
Operating expenses:
Selling and marketing
12,446
17,631
37,132
51,674
General and administrative
9,315
9,443
16,971
17,098
Research and development
3,728
3,849
7,543
8,160
Loss on disposal group and goodwill and
other intangible impairment charge
29,013
72,008
29,013
72,008
Total operating expenses
54,502
102,931
90,659
148,940
Operating loss
(7,106
)
(85,414
)
(7,666
)
(95,581
)
Other expense, net
(222
)
(55
)
(806
)
(488
)
Loss from continuing operations before
income taxes
(7,328
)
(85,469
)
(8,472
)
(96,069
)
Income tax benefit
(2,342
)
(6,725
)
(5,788
)
(8,841
)
Loss from continuing operations
(4,986
)
(78,744
)
(2,684
)
(87,228
)
Loss from discontinued operations, net of
income taxes
(124
)
(124
)
(242
)
(215
)
Net loss
$
(5,110
)
$
(78,868
)
$
(2,926
)
$
(87,443
)
Basic loss per share from continuing
operations
$
(0.17
)
$
(2.65
)
$
(0.09
)
$
(2.94
)
Basic loss per share from discontinued
operations
—
—
(0.01
)
(0.01
)
Basic net loss per share(1)
$
(0.17
)
$
(2.66
)
$
(0.10
)
$
(2.95
)
Diluted loss per share from continuing
operations
$
(0.17
)
$
(2.65
)
$
(0.09
)
$
(2.94
)
Diluted loss per share from discontinued
operations
—
—
(0.01
)
(0.01
)
Diluted net loss per share(1)
$
(0.17
)
$
(2.66
)
$
(0.10
)
$
(2.95
)
Shares used in per share calculations:
Basic
29,909
29,678
29,852
29,626
Diluted
29,909
29,678
29,852
29,626
(1) May not add due to rounding.
SEGMENT INFORMATION
The following tables present certain comparative information by
segment for the three and six months ended June 30, 2020 and 2019
(unaudited and in thousands):
Three Months Ended June
30,
Change
2020
2019
$
%
Net sales:
Direct
$
50,433
$
20,834
$
29,599
142.1
%
Retail
62,948
37,453
25,495
68.1
%
Royalty
807
717
90
12.6
%
Consolidated net sales
$
114,188
$
59,004
$
55,184
93.5
%
Gross profit:
Direct
$
27,523
$
9,027
$
18,496
204.9
%
Retail
19,066
7,773
11,293
145.3
%
Royalty
807
717
90
12.6
%
Consolidated gross profit
$
47,396
$
17,517
$
29,879
170.6
%
Contribution:
Direct
$
16,995
$
(6,334
)
$
23,329
*
Retail
11,613
(247
)
11,860
*
Royalty
807
717
90
12.6
%
Consolidated contribution
$
29,415
$
(5,864
)
$
35,279
*
Reconciliation of consolidated
contribution to loss from continuing operations:
Consolidated contribution
$
29,415
$
(5,864
)
$
35,279
*
Amounts not directly related to
segments:
Operating expenses
(36,521
)
(79,550
)
43,029
54.1
%
Other expense, net
(222
)
(55
)
(167
)
(303.6
)%
Income tax benefit
2,342
6,725
(4,383
)
(65.2
)%
Loss from continuing operations
$
(4,986
)
$
(78,744
)
$
73,758
93.7
%
*Not meaningful
The following table compares the net sales of our major product
lines within each business segment (dollars in thousands):
Three Months Ended June
30,
Change
2020
2019
$
%
Direct net sales:
Cardio products(1)
$
45,585
$
16,083
$
29,502
183.4
%
Strength products(2)
4,848
4,751
97
2.0
%
50,433
20,834
29,599
142.1
%
Retail net sales:
Cardio products(1)
49,011
26,045
22,966
88.2
%
Strength products(2)
13,937
11,408
2,529
22.2
%
62,948
37,453
25,495
68.1
%
Royalty
807
717
90
12.6
%
$
114,188
$
59,004
$
55,184
93.5
%
(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.
Six Months Ended June
30,
Change
2020
2019
$
%
Net sales:
Direct
$
97,574
$
67,548
$
30,026
44.5
%
Retail
108,561
74,274
34,287
46.2
%
Royalty
1,775
1,582
193
12.2
%
Consolidated net sales
$
207,910
$
143,404
$
64,506
45.0
%
Gross profit:
Direct
$
51,822
$
35,423
$
16,399
46.3
%
Retail
29,396
16,354
13,042
79.7
%
Royalty
1,775
1,582
193
12.2
%
Consolidated gross profit
$
82,993
$
53,359
$
29,634
55.5
%
Contribution:
Direct
$
18,804
$
(10,876
)
$
29,680
*
Retail
14,002
(969
)
14,971
*
Royalty
1,775
1,582
193
12.2
%
Consolidated contribution
$
34,581
$
(10,263
)
$
44,844
436.9
%
Reconciliation of consolidated
contribution to loss from continuing operations:
Consolidated contribution
$
34,581
$
(10,263
)
$
44,844
*
Amounts not directly related to
segments:
Operating expenses
$
(42,247
)
$
(85,318
)
43,071
50.5
%
Other expense, net
(806
)
(488
)
(318
)
(65.2
)%
Income tax benefit
5,788
8,841
(3,053
)
(34.5
)%
Loss from continuing operations
$
(2,684
)
$
(87,228
)
$
84,544
96.9
%
*Not meaningful
The following table compares the net sales of our major product
lines within each business segment (dollars in thousands):
Six Months Ended June
30,
Change
2020
2019
$
%
Direct net sales:
Cardio products(1)
$
81,461
$
55,690
$
25,771
46.3
%
Strength products(2)
16,113
11,858
4,255
35.9
%
97,574
67,548
30,026
44.5
%
Retail net sales:
Cardio products(1)
85,154
56,741
28,413
50.1
%
Strength products(2)
23,407
17,533
5,874
33.5
%
108,561
74,274
34,287
46.2
%
Royalty
1,775
1,582
193
12.2
%
$
207,910
$
143,404
$
64,506
45.0
%
(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.
HELD-FOR-SALE DISPOSAL GROUP
The assets and liabilities of Octane Fitness® disposal group
were recorded on the condensed consolidated balance sheets as
current assets held-for-sale of $29.1 million and current
liabilities held-for-sale of $14.2 million as follows (in
thousands):
As of
June 30, 2020
Assets:
Cash and cash equivalents
$
3,986
Trade receivables
7,765
Inventories
11,538
Prepaids and other current assets
1,054
Property, plant and equipment, net
1,655
Other intangible assets
32,045
Loss on disposal group
(29,013
)
Other assets
24
Total current assets held-for-sale
$
29,054
Liabilities:
Trade payables
$
8,997
Accrued liabilities
2,121
Warranty obligations
3,097
Income taxes payable
99
Other
(100
)
Total current liabilities
held-for-sale
$
14,214
BALANCE SHEET INFORMATION
The following summary contains information from our consolidated
balance sheets as of June 30, 2020 and December 31, 2019 (unaudited
and in thousands):
As of
June 30, 2020
December 31, 2019
Assets
Cash and cash equivalents
$
45,656
$
11,070
Restricted cash
2,196
—
Trade receivables, net of allowances of
$62 and $45
33,741
54,600
Inventories
21,310
54,768
Prepaids and other current assets
8,304
8,283
Income taxes receivable
5,326
472
Current assets held-for-sale
29,054
—
Total current assets
145,587
129,193
Property, plant and equipment, net
22,246
22,755
Operating lease right-of-use assets
21,513
20,778
Other intangible assets, net
9,601
43,243
Other assets
6,024
4,510
Total assets
$
204,971
$
220,479
Liabilities and Shareholders'
Equity
Trade payables
$
45,207
$
74,255
Accrued liabilities
11,632
7,633
Operating lease liabilities, current
portion
3,216
3,720
Warranty obligations, current portion
1,966
3,100
Debt payable, current portion, net of
unamortized debt issuance costs of $83 and $0
1,917
—
Current liabilities held-for-sale
14,214
—
Total current liabilities
78,152
88,708
Operating lease liabilities,
non-current
20,429
18,982
Warranty obligations, non-current
585
2,617
Income taxes payable, non-current
3,949
3,676
Deferred income tax liabilities,
non-current
222
1,783
Other non-current liabilities
—
46
Debt payable, non-current, net of
unamortized debt issuance costs of $298 and $230
12,518
14,071
Shareholders' equity
89,116
90,596
Total liabilities and shareholders'
equity
$
204,971
$
220,479
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
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.
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 charges related to the disposal group held-for-sale and
goodwill and the Octane Fitness® trade name intangible asset
impairment. Adjusted income from continuing operations excludes the
loss and 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.
The following table presents a reconciliation of operating
expenses, the most directly comparable GAAP measure, to Adjusted
operating expenses is set forth below for the three and six months
ended June 30, 2020 and 2019 (unaudited and in thousands):
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Operating expenses
$
54,502
$
102,931
$
90,659
$
148,940
Loss on disposal group(1)
(29,013
)
—
(29,013
)
—
Goodwill and other intangible impairment
charge(2)
—
(72,008
)
—
(72,008
)
Adjusted operating expenses
$
25,489
$
30,923
$
61,646
$
76,932
The following table presents a reconciliation of operating loss,
the most directly comparable GAAP measure, to Adjusted operating
income (loss)is set forth below for the three and six months ended
June 30, 2020 and 2019 (unaudited and in thousands):
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Operating loss
$
(7,106
)
$
(85,414
)
$
(7,666
)
$
(95,581
)
Loss on disposal group(1)
29,013
—
29,013
—
Goodwill and other intangible impairment
charge(2)
—
72,008
—
72,008
Adjusted operating income (loss)
$
21,907
$
(13,406
)
$
21,347
$
(23,573
)
The following table presents a reconciliation of loss from
continuing operations, the most directly comparable GAAP measure,
to Adjusted income (loss) from continuing operations is set forth
below for the three and six months ended June 30, 2020 and 2019
(unaudited and in thousands):
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Loss from continuing operations
$
(4,986
)
$
(78,744
)
$
(2,684
)
$
(87,228
)
Loss on disposal group(1)
29,013
—
29,013
—
Goodwill and other intangible impairment
charge(2)
—
72,008
—
72,008
Income tax benefit for loss on disposal
group and goodwill and intangible impairment
(7,216
)
(3,095
)
(7,216
)
(3,095
)
Adjusted income (loss) from continuing
operations
$
16,811
$
(9,831
)
$
19,113
$
(18,315
)
The following table presents a reconciliation of loss from
continuing operations, the most directly comparable GAAP measure,
to EBITDA loss is set forth below for the three and six months
ended June 30, 2020 and 2019 (unaudited and in thousands):
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Loss from continuing operations
$
(4,986
)
$
(78,744
)
$
(2,684
)
$
(87,228
)
Interest expense, net
337
226
962
266
Income tax benefit from continuing
operations
(2,342
)
(6,725
)
(5,788
)
(8,841
)
Depreciation and amortization
2,644
2,706
5,454
5,192
Loss before interest, taxes, depreciation
and amortization (EBITDA) from continuing operations
$
(4,347
)
$
(82,537
)
$
(2,056
)
$
(90,611
)
The following table presents a reconciliation of loss from
continuing operations, the most directly comparable GAAP measure,
to Adjusted EBITDA is set forth below for the three and six months
ended June 30, 2020 and 2019 (unaudited and in thousands):
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Loss from continuing operations
$
(4,986
)
$
(78,744
)
$
(2,684
)
$
(87,228
)
Interest expense, net
337
226
962
266
Income tax benefit from continuing
operations
(2,342
)
(6,725
)
(5,788
)
(8,841
)
Depreciation and amortization
2,644
2,706
5,454
5,192
Loss on disposal group(1)
29,013
—
29,013
—
Goodwill and other intangible impairment
charge(2)
—
72,008
—
72,008
Adjusted earnings (loss) before interest,
taxes, depreciation and amortization (Adjusted EBITDA) from
continuing operations
$
24,666
$
(10,529
)
$
26,957
$
(18,603
)
The following table presents a reconciliation of diluted loss
per share from continuing operations, the most directly comparable
GAAP measure, to Adjusted diluted income (loss) per share from
continuing operations is set forth below for the three and six
months ended June 30, 2020 and 2019 (unaudited and in
thousands):
Three Months Ended June
30,
Six Months Ended June
30,
2020
2019
2020
2019
Diluted loss per share from continuing
operations
$
(0.17
)
$
(2.65
)
$
(0.09
)
$
(2.94
)
Loss on disposal group, net of tax(1)
0.73
—
0.73
—
Goodwill and other intangible impairment
charge, net of tax(2)
—
2.32
—
2.32
Adjusted diluted income (loss) per share
from continuing operations
$
0.56
$
(0.33
)
$
0.64
$
(0.62
)
(1) Loss on disposal group In accordance with Accounting
Standards Codification ("ASC") 360, Property, Plant and Equipment,
for a long-lived assets or disposal group classified as
held-for-sale, a loss is recognized for the carrying amount that
exceeds the fair market value of the long-lived assets less the
cost to sell. The loss on disposal group was determined to be $29.0
million and recorded in the second quarter of 2020. The assets and
liabilities of a disposal group classified as held-for-sale should
be presented separately in the asset and liability sections,
respectively, of the balance sheet. The disposal group is expected
to be structured as a sale of the subsidiary shares and we elected
to not classify the deferred taxes associated with the individual
assets and liabilities as part of the disposal group
held-for-sale.
(2) Goodwill and Other Intangible Impairment In
accordance with ASC 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 assessment conducted, we estimated a
$72.0 million impairment.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200810005680/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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