August 4, 2014 - Nautilus, Inc. (NYSE: NLS) today reported its unaudited
operating results for the second quarter ended June 30, 2014.
Net sales for the second quarter of 2014 totaled $48.5 million, a 34%
increase compared to $36.2 million in the same quarter of 2013. The
strong growth was driven by higher sales in both the Direct and Retail
segments. For the first six months of 2014, net sales were $120.5
million, an increase of 26% over the same period last year. Gross
margins for the second quarter improved by 320 basis points to 51.0%,
reflecting margin increases in both the Direct and Retail segments.
Operating income from continuing operations for the second quarter of
2014 was $2.4 million, compared to an operating loss from continuing
operations of $1.7 million reported in the same quarter of 2013. The
increase in operating income reflects higher sales and gross margins in
both the Direct and Retail segments combined with improved leverage of
sales and marketing and general and administrative costs across higher
sales volumes. For the first six months of 2014, operating income from
continuing operations was $11.4 million, compared to $4.3 million in the
same prior period, an increase of 167%.
Pretax income from continuing operations for the second quarter of 2014
was $2.3 million, or $0.07 per diluted share compared to a pretax loss
from continuing operations of $1.6 million, or a $0.05 loss per diluted
share for the second quarter of last year. For the first six months of
2014, pretax income from continuing operations was $11.3 million, or
$0.36 per diluted share, compared to $4.3 million, or $0.14 per diluted
share, compared to the prior year six month period.
Net income from continuing operations for the second quarter of 2014 was
$1.5 million, or $0.05 per diluted share. Net income from continuing
operations for the second quarter of 2013 was $32.7 million, or $1.04
per diluted share, which included a net income tax benefit of $34.3
million, or $1.09 per diluted share, due primarily to a partial reversal
in the second quarter of 2013 of a valuation allowance recorded against
the Company’s deferred tax assets.
As previously stated, beginning in the first quarter of 2014, the
Company started to record income taxes at a normalized rate following
the partial release, in 2013, of its valuation allowance recorded
against its deferred tax assets. The effective income tax rate for
continuing operations in the second quarter of 2014 was 35.8%. The
effective tax rate for the remainder of the year is expected to be
between 35% and 40%. Cash payments related to income taxes were minimal
due to the Company’s significant domestic net operating loss carry
forwards.
For the second quarter of 2014, the Company reported net income
(including discontinued operations) of $0.6 million, or $0.02 per
diluted share; this includes a loss from discontinued operations of $0.9
million. In the second quarter of 2013, the Company reported net income
of $32.9 million, or $1.05 per diluted share, including $0.2 million
income from discontinued operations and the aforementioned income tax
benefit of $1.09 per diluted share.
Bruce M. Cazenave, Chief Executive Officer, stated, “Our second quarter
results reflect solid performances across the business, with double
digit top line growth in our Direct and Retail segments along with
continued gross margin improvements in all segments. In the Direct
business, our sales benefitted from incremental sales of the new Bowflex
MAX Trainer™ product line. We continue to be encouraged by
MAX Trainer’s early contribution and the long-term potential for the
product. We are pleased with the strong operating income performance
from our Direct business of $3.9 million in our seasonally slowest
quarter.”
Mr. Cazenave continued, “Our Retail business also performed well in the
second quarter, as we continue to receive positive feedback regarding
our lineup of new cardio products launched last year including our
elliptical and stationary bikes. This gives us encouragement as we
prepare to introduce additional Retail products over the next several
months. As we begin the back half of 2014, our team remains committed to
execution on our key areas of focus of product innovation, margin
improvement and achieving operating leverage.”
For further information, see "Results of Operations Information"
attached hereto.
Segment Results
Net sales for the Direct segment were $32.4 million in the second
quarter of 2014, an increase of 28% over the comparable period last
year. Direct segment sales benefited from the strong performance of the
new Bowflex MAX Trainer™ product line, partially offset by a
decline in Direct sales of strength products, which continue to migrate
to the Retail business. For the first six months of 2014, net sales for
the Direct segment were $83.1 million, an increase of 22% over the same
period last year. U.S. credit approval rates rose to 38.8% in the second
quarter of 2014, up from 33.8% for the same period last year. The
Company attributes the increase in U.S. credit approval rates to its
media strategy focused on driving quality customer leads and an expanded
consumer financing lender base.
Operating income for the Direct segment was $3.9 million for the second
quarter 2014, compared to $0.5 million in the second quarter 2013.
Operating income benefitted from higher gross margins and improved
leverage of selling and marketing expenses as a percentage of sales in
the second quarter of 2014. Gross margin for the Direct business was
61.7% for the second quarter of 2014, compared to 57.6% in the second
quarter of last year, benefitting from improved overall overhead
operating efficiency and favorable product mix.
Net sales for the Retail segment were $15.0 million in the second
quarter 2014, an increase of 48% over the second quarter last year. The
improvement in Retail net sales reflects strong retailer and consumer
acceptance of the Company’s new lineup of cardio products launched last
fall. For the first six months of 2014, net sales for the Retail segment
totaled $35.1 million, an increase of 39% over the same period last year.
Operating income for the Retail segment was $1.3 million for the second
quarter 2014, compared to $0.1 million in the second quarter last year.
Retail gross margin was 24.4% in the second quarter of 2014, compared to
19.5% in the same quarter of last year.
Royalty revenue in the second quarter 2014 was $1.2 million, an increase
of 53% compared to $0.8 million for the same quarter of last year,
primarily reflecting higher revenue from licensed patents.
For further information, see "Segment Information" attached hereto.
Balance Sheet
As of June 30, 2014, the Company had cash, cash equivalents, and
marketable securities of $57.3 million and no debt, compared to cash,
cash equivalents, and marketable securities of $41.0 million and no debt
at year end 2013. Working capital of $58.6 million as of June 30, 2014
was $12.9 million higher than the 2013 year-end balance of $45.7
million, primarily due to growth in cash equivalents and marketable
securities of $16.3 million during the first half of the year. Inventory
as of June 30, 2014 was $23.2 million, compared to $15.8 million as of
December 31, 2013 and $13.3 million at the end of the second quarter
last year. The increase in inventory reflected several factors including
pre-buying to allow for production disruption related to a planned
factory expansion by a supplier, the potential for work stoppage at
certain West Coast ports, and alignment of inventory for the new
distribution center which is expected to open shortly in Ohio.
For further information, see "Balance Sheet Information" attached
hereto.
Non-GAAP Presentation
In addition to disclosing results determined in accordance with GAAP,
Nautilus discloses certain non-GAAP operating results that exclude
certain charges. In this news release, the Company has presented pretax
income per diluted share from continuing operations which is a non-GAAP
financial measure.
When presenting non-GAAP information, the Company includes a
reconciliation of the non-GAAP results to the most directly comparable
financial measure calculated and presented in accordance with GAAP. The
Company presents pretax income per diluted share from continuing
operations because management believes that the partial reversal of
valuation allowances in fiscal year 2013, resulting in significant
changes to the effective tax rate, makes meaningful comparisons between
periods difficult. Including the non-GAAP results assists investors in
assessing the Company's operational performance relative to its
competitors and its historical financial performance. The Company
presents these non-GAAP results as a complement to results provided in
accordance with GAAP, and these results should not be regarded as a
substitute for GAAP. The Company strongly encourages you to review all
of its financial statements and publicly-filed reports in their entirety
and to not rely on any single financial measure.
For a quantitative reconciliation of our non-GAAP financial measures to
the most comparable GAAP measures, see "Reconciliation of Non-GAAP
Financial Measures; Pretax Income per Diluted Share from Continuing
Operations" in the financial tables included with this release.
Conference Call
Nautilus will host a conference call to discuss the Company's operating
results for the second quarter ended June 30, 2014 at 4:30 p.m. ET (1:30
p.m. PT) on Monday, August 4, 2014. 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) 667-8757 in North America
and international listeners may call (303) 223-4383. Participants from
the Company will include Bruce M. Cazenave, Chief Executive Officer, Sid
Nayar, Chief Financial Officer, and William B. McMahon, Chief Operating
Officer.
A telephonic playback will be available from 6:30 p.m. ET, August 4,
2014, through 6:30 p.m. ET, August 18, 2014. Participants can dial (800)
633-8284 in North America and international participants can dial (402)
977-9140 to hear the playback. The passcode for the playback is 21728150.
About Nautilus, Inc.
Headquartered in Vancouver, Washington, Nautilus, Inc. (NYSE: NLS) is a
global fitness products company providing innovative, quality solutions
to help people achieve a healthy lifestyle. With a brand portfolio
including Nautilus®, Bowflex®, TreadClimber®,
Schwinn®, Schwinn Fitness™ and Universal®,
Nautilus markets innovative fitness products through Direct and Retail
channels. Websites: www.nautilusinc.com
and www.bowflex.com
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 statements concerning: the
Company's prospects, resources or capabilities; current or future
financial and economic trends; future operating results; future plans
for introduction of new products and the anticipated reception of such
products; anticipated demand for the Company's new and existing
products; maintenance of appropriate inventory levels; growth in
revenues and profits; leverage of operating expenses and the results of
marketing and media investments. Factors that could cause Nautilus,
Inc.'s actual results to differ materially from these forward-looking
statements include our ability to timely acquire inventory that meets
our quality control standards from sole source foreign manufacturers at
acceptable costs, the effectiveness, availability and price of media
time consistent with our cost and audience profile parameters, greater
than anticipated costs associated with launch of new products, a decline
in consumer spending due to unfavorable economic conditions, softness in
the retail marketplace, an adverse change in the availability of credit
for our customers who finance their purchases, our ability to pass along
vendor raw material price increases and increased shipping costs, our
ability to effectively develop, market and sell future products, our
ability to protect our intellectual property, the introduction of
competing products, and our ability to get foreign-sourced product
through customs in a timely manner. 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,
2014 and 2013 (unaudited and in thousands, except per share amounts):
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
48,546
|
|
$
|
36,242
|
|
$
|
120,450
|
|
$
|
95,456
|
|
|
Cost of sales
|
|
23,766
|
|
|
18,913
|
|
|
57,189
|
|
|
47,433
|
|
|
Gross profit
|
|
24,780
|
|
|
17,329
|
|
|
63,261
|
|
|
48,023
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Selling and marketing
|
|
15,690
|
|
|
13,768
|
|
|
37,463
|
|
|
32,394
|
|
|
General and administrative
|
|
4,959
|
|
|
3,982
|
|
|
10,762
|
|
|
8,929
|
|
|
Research and development
|
|
1,752
|
|
|
1,303
|
|
|
3,655
|
|
|
2,430
|
|
|
Total operating expenses
|
|
22,401
|
|
|
19,053
|
|
|
51,880
|
|
|
43,753
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
2,379
|
|
|
(1,724
|
)
|
|
11,381
|
|
|
4,270
|
|
|
Other income (expense), net
|
|
(45
|
)
|
|
124
|
|
|
(105
|
)
|
|
7
|
|
|
Income (loss) from continuing operations before income taxes
|
|
2,334
|
|
|
(1,600
|
)
|
|
11,276
|
|
|
4,277
|
|
|
Income tax provision (benefit)
|
|
836
|
|
|
(34,268
|
)
|
|
4,030
|
|
|
(33,915
|
)
|
|
Income from continuing operations
|
|
1,498
|
|
|
32,668
|
|
|
7,246
|
|
|
38,192
|
|
|
Income (loss) from discontinued operations, net of income taxes
|
|
(941
|
)
|
|
195
|
|
|
(1,315
|
)
|
|
(170
|
)
|
|
Net income
|
$
|
557
|
|
$
|
32,863
|
|
$
|
5,931
|
|
$
|
38,022
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share from continuing operations
|
$
|
0.05
|
|
$
|
1.05
|
|
$
|
0.23
|
|
$
|
1.23
|
|
|
Basic income (loss) per share from discontinued operations
|
|
(0.03
|
)
|
|
0.01
|
|
|
(0.04
|
)
|
|
(0.01
|
)
|
|
Basic net income per share(1)
|
$
|
0.02
|
|
$
|
1.06
|
|
$
|
0.19
|
|
$
|
1.23
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share from continuing operations
|
$
|
0.05
|
|
$
|
1.04
|
|
$
|
0.23
|
|
$
|
1.22
|
|
|
Diluted income (loss) per share from discontinued operations
|
|
(0.03
|
)
|
|
0.01
|
|
|
(0.04
|
)
|
|
(0.01
|
)
|
|
Diluted net income per share
|
$
|
0.02
|
|
$
|
1.05
|
|
$
|
0.19
|
|
$
|
1.21
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in per share calculations:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
31,226
|
|
|
31,058
|
|
|
31,203
|
|
|
31,003
|
|
|
Diluted
|
|
31,598
|
|
|
31,430
|
|
|
31,586
|
|
|
31,360
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2014 and 2013 (unaudited and
in thousands):
|
|
|
Three Months Ended
June 30,
|
|
Change
|
|
|
Net sales:
|
|
2014
|
|
|
2013
|
|
|
$
|
|
|
%
|
|
|
|
Direct
|
$
|
32,355
|
|
$
|
25,314
|
|
$
|
7,041
|
|
|
27.8
|
%
|
|
|
Retail
|
|
15,039
|
|
|
10,175
|
|
|
4,864
|
|
|
47.8
|
%
|
|
|
Royalty income
|
|
1,152
|
|
|
753
|
|
|
399
|
|
|
53.0
|
%
|
|
|
|
$
|
48,546
|
|
$
|
36,242
|
|
$
|
12,304
|
|
|
33.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
Direct
|
$
|
3,889
|
|
$
|
508
|
|
$
|
3,381
|
|
|
665.6
|
%
|
|
|
Retail
|
|
1,325
|
|
|
140
|
|
|
1,185
|
|
|
846.4
|
%
|
|
|
Unallocated corporate
|
|
(2,835
|
)
|
|
(2,372
|
)
|
|
(463
|
)
|
|
(19.5
|
)%
|
|
|
|
$
|
2,379
|
|
$
|
(1,724
|
)
|
$
|
4,103
|
|
|
238.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
Change
|
|
|
Net sales:
|
|
2014
|
|
|
2013
|
|
|
$
|
|
|
%
|
|
|
|
Direct
|
$
|
83,091
|
|
$
|
67,949
|
|
$
|
15,142
|
|
|
22.3
|
%
|
|
|
Retail
|
|
35,142
|
|
|
25,309
|
|
|
9,833
|
|
|
38.9
|
%
|
|
|
Royalty income
|
|
2,217
|
|
|
2,198
|
|
|
19
|
|
|
0.9
|
%
|
|
|
|
$
|
120,450
|
|
$
|
95,456
|
|
$
|
24,994
|
|
|
26.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
Direct
|
$
|
14,242
|
|
$
|
7,217
|
|
$
|
7,025
|
|
|
97.3
|
%
|
|
|
Retail
|
|
3,834
|
|
|
2,100
|
|
|
1,734
|
|
|
82.6
|
%
|
|
|
Unallocated corporate
|
|
(6,695
|
)
|
|
(5,047
|
)
|
|
(1,648
|
)
|
|
(32.7
|
)%
|
|
|
|
$
|
11,381
|
|
$
|
4,270
|
|
$
|
7,111
|
|
|
166.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET INFORMATION
The following summary contains information from our consolidated balance
sheets as of June 30, 2014 and December 31, 2013 (unaudited and in
thousands):
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
38,285
|
|
$
|
40,979
|
|
Marketable securities
|
|
19,050
|
|
|
-
|
|
Trade receivables, net of allowances of $34 and $53
|
|
8,895
|
|
|
25,336
|
|
Inventories, net
|
|
23,229
|
|
|
15,824
|
|
Prepaids and other current assets
|
|
5,069
|
|
|
6,927
|
|
Income taxes receivable
|
|
73
|
|
|
80
|
|
Deferred income tax assets
|
|
6,204
|
|
|
4,441
|
|
Total current assets
|
|
100,805
|
|
|
93,587
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
8,680
|
|
|
8,499
|
|
Goodwill
|
|
2,746
|
|
|
2,740
|
|
Other intangible assets, net
|
|
11,595
|
|
|
12,615
|
|
Long-term deferred income tax assets
|
|
20,899
|
|
|
25,725
|
|
Other assets
|
|
311
|
|
|
401
|
|
Total assets
|
$
|
145,036
|
|
$
|
143,567
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
$
|
31,997
|
|
$
|
37,192
|
|
Accrued liabilities
|
|
8,122
|
|
|
9,123
|
|
Warranty obligations, current portion
|
|
2,075
|
|
|
1,610
|
|
Total current liabilities
|
|
42,194
|
|
|
47,925
|
|
|
|
|
|
|
|
|
Warranty obligations, non-current
|
|
-
|
|
|
28
|
|
Income taxes payable, non-current
|
|
3,533
|
|
|
2,577
|
|
Other long-term liabilities
|
|
1,232
|
|
|
1,472
|
|
Shareholders' equity
|
|
98,077
|
|
|
91,565
|
|
Total liabilities and shareholders' equity
|
$
|
145,036
|
|
$
|
143,567
|
|
|
|
|
|
|
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Pretax Income per Diluted Share from Continuing Operations (unaudited):
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Pretax income (loss) per diluted share from continuing operations
|
|
$
|
0.07
|
|
$
|
(0.05
|
)
|
|
Diluted income (loss) per share from income taxes
|
(0.03
|
)
|
|
1.09
|
|
|
Diluted income per share from continuing operations(1)
|
|
$
|
0.05
|
|
$
|
1.04
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
Pretax income per diluted share from continuing operations
|
|
$
|
0.36
|
|
$
|
0.14
|
|
|
Diluted income (loss) per share from income taxes
|
(0.13
|
)
|
|
1.08
|
|
|
Diluted income per share from continuing operations
|
|
$
|
0.23
|
|
$
|
1.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amounts may not add due to rounding.
|
|
|
|
|
|
Copyright Business Wire 2014