Nautilus, Inc. (NYSE: NLS) today reported its unaudited operating
results for the three months ended March 31, 2019.
Net sales for the first quarter of 2019 totaled $84.4 million, a
decrease of 26.5% compared to $114.8 million in the same quarter of
2018. The decrease in net sales was driven by weakness in the Direct
segment, down 34.4% from the prior year quarter, primarily reflecting a
decline in sales of the Bowflex Max Trainer® product. Retail
sales were down 14.4% from the prior year quarter, primarily due to
lower order volume from certain customers reducing their inventory
stocking levels. Royalty revenue in the first quarter of 2019 was $0.9
million, an increase of 39.7% compared to the same quarter of last year,
due to payment of royalties related to a new agreement executed in late
2018. Gross margins for the first quarter of 2019 were 42.5% versus
51.3% for the same period of last year, reflecting unfavorable overhead
absorption related to the decline in sales and unfavorable product mix.
Operating loss for the first quarter of 2019 was $10.2 million, compared
to income of $10.7 million in the same period of last year, as lower
sales and gross margins resulted in a decline in gross profit dollars,
which was partially offset by a decrease in operating expenses.
Operating expenses for the first quarter of 2019 decreased by $2.2
million to $46.0 million compared to $48.2 million in the same period of
last year as a result of lower marketing costs. As a percentage of
revenue, operating expenses were 54.5% of revenue versus 42.0% in the
same period of last year due to the decrease in sales.
Loss from continuing operations for the first quarter of 2019 was $8.5
million, or $0.29 per diluted share, compared to income of $8.1 million,
or $0.27 per diluted share, for the same period of last year. EBITDA
loss from continuing operations for the first quarter of 2019 totaled
$8.1 million compared to income of $13.1 million in the prior year
period.
Carl Johnson, Chairman and Interim Chief Executive Officer, stated, “As
anticipated, the primary factors impacting our first quarter results
continued to be softness in the Direct segment as well as lower sales in
our Retail segment due to certain strategic partners carrying higher
than normal inventory levels. In the Direct segment, the refreshed Max
Trainer product line with connected home digital capabilities continued
to experience a slow ramp from its fourth quarter launch into the first
quarter. Our analysis has confirmed the root cause as sub-optimal
advertising creative resulting in low awareness and insufficient
communication of the product's differentiated digital capabilities. We
are in the midst of working to develop effective new positioning for
Bowflex, the Max Trainer line, and our digital platform, using leading
edge consumer insight techniques, in time for the important fourth
quarter 2019 season. In the immediate term, we have initiated a broad
range of tactical digital, social media and PR programs to support the
Bowflex Max Trainer, the digital platform and other select Direct
products. We remain confident that this new positioning and advertising
will return the Direct business to profitability led by our digital
platform and its personalized fitness and performance capabilities.
Turning to Retail, while sales were soft in the first quarter due to the
expected higher inventory levels of certain strategic partners, we
continue to see solid sell-through and expect a healthy fall and holiday
season for this segment.”
Mr. Johnson continued, “Additionally, to fuel sales for the balance of
the year, we have a range of new product introductions planned across
all of our sales channels. These introductions include, among others,
the Max Trainer M10 with a built-in digital screen and capabilities,
Octane Commercial Max Trainer, and the Octane XR6000S recumbent
elliptical. Our focus remains on being a differentiated player in the
industry by continuing to bring new innovations to market while also
growing our top and bottom lines. Improved earnings and margins will
come through the implementation of the initiatives discussed last
quarter: broad cost containment, workforce reduction, value engineering
initiatives and simplification of processes. Supporting all these
measures is our solid balance sheet. We refinanced our debt and paid
down $11.5 million to end the quarter with $20.5 million of debt and
$23.6 million of cash. In summary, we have a robust plan in place to
work through our temporary setbacks and to position Nautilus for growth
and success in the coming years. We will continue to provide regular
updates throughout the year on the status of these actions and the
expected improving health of the business.”
For further information, see “Results of Operations Information”
attached hereto.
Segment Results
Net sales for the Direct segment were $46.7 million in the first quarter
of 2019, a decrease of 34.4% over the comparable period last year due to
a decline in Max Trainer® product sales. Operating loss for
the Direct segment was $4.5 million for the first quarter of 2019,
compared to operating income of $11.3 million in the first quarter of
last year. Operating income was negatively impacted by the decline in
sales and gross margins. Gross margin for the Direct segment declined by
650 basis points to 56.5%, which resulted from unfavorable overhead
absorption related to the decreased net sales and unfavorable product
mix.
Net sales for the Retail segment were $36.8 million in the first quarter
of 2019, a decrease of 14.4% when compared to $43.0 million in the first
quarter last year. The decrease was due to lower order volume from
certain customers reducing their inventory stocking levels. Operating
loss for the Retail segment was $0.7 million for the first quarter of
2019 compared to income of $3.9 million in the first quarter of last
year. The decrease in Retail segment operating income was primarily due
to the lower revenue and gross margins. Retail segment gross margin was
23.3% in the first quarter of 2019, compared to 31.2% in the same
quarter of the prior year, which resulted from unfavorable overhead
absorption related to the lower sales coupled with unfavorable product
mix.
For further information, see “Segment Information” attached hereto.
Balance Sheet
As of March 31, 2019, the Company had cash and marketable securities of
$23.6 million and debt of $20.5 million, compared to cash and marketable
securities of $63.5 million and debt of $32.0 million at year end 2018.
Working capital of $65.6 million as of March 31, 2019 was $11.1 million
lower than the 2018 year-end balance of $76.6 million. Inventory as of
March 31, 2019 was $60.9 million, compared to $68.5 million as of
December 31, 2018 and $37.7 million at the end of the first quarter of
last year.
For further information, see “Balance Sheet Information” attached
hereto.
Conference Call
Nautilus will host a conference call to discuss the Company’s operating
results for the first quarter ended March 31, 2019 at 4:30 p.m. ET (1:30
p.m. PT) on Monday, May 6, 2019. The call will be broadcast live over
the Internet hosted at http://www.nautilusinc.com/events
and will be archived online within one hour after completion of the
call. In addition, listeners may call (800) 239-9838 in North America
and international listeners may call (323) 794-2551. Participants from
the Company will include M. Carl Johnson, III, Chairman and Interim
Chief Executive Officer, Sid Nayar, Chief Financial Officer, and William
B. McMahon, Special Assistant to the Chief Executive Officer.
A telephonic playback will be available from 7:30 p.m. ET, May 6, 2019,
through 11:59 p.m. ET, May 20, 2019. Participants can dial (844)
512-2921 in North America and international participants can dial (412)
317-6671 to hear the playback. The passcode for the playback is 8465804.
Non-GAAP Presentation
In addition to disclosing results determined in accordance with GAAP,
Nautilus has presented EBITDA from continuing operations, a non-GAAP
financial measure, for the three months ended March 31, 2019 and 2018.
The Company defines EBITDA from continuing operations as its income from
continuing operations, adjusted to exclude interest expense (income),
income tax expense of continuing operations, and depreciation and
amortization expense. The Company 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. The Company 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. The Company presents
EBITDA from continuing operations 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" included with this release.
About Nautilus, Inc.
Headquartered in Vancouver, Washington, Nautilus, Inc. (NYSE: NLS) is a
global fitness solutions company that believes everyone deserves a fit
and healthy life. With a brand portfolio including Bowflex®,
Modern Movement®, Nautilus®, Octane Fitness®,
Schwinn® and Universal®, Nautilus, Inc. develops
innovative products to support healthy living through direct and retail
channels, as well as in commercial channels. Nautilus, Inc. uses the
investor relations page of its website (www.nautilusinc.com/investors)
to make information available to its investors and the market.
This press release includes forward-looking statements (statements which
are not historical facts) within the meaning of the Private Securities
Litigation Reform Act of 1995, including: projected or forecasted
financial and operating results, including future plans for introduction
of new products, anticipated demand for the Company's new and existing
products, and projected impact of the new and continuing product
launches on the Company’s operating results for the first quarter of
2019 and future periods; statements regarding the Company's prospects,
resources or capabilities; current or future financial and economic
trends; planned investments, development partnerships and strategic
initiatives and the anticipated or targeted results of such initiatives.
Factors that could cause Nautilus, Inc.’s actual results to differ
materially from these forward-looking statements include: weaker than
expected demand for new or existing products; our ability to timely
acquire inventory that meets our quality control standards from sole
source foreign manufacturers at acceptable costs; an inability to pass
along or otherwise mitigate the impact of raw material price increases
and other cost pressures, including unfavorable currency exchange rates;
experiencing delays and/or greater than anticipated costs in connection
with launch of new products, entry into new markets, or strategic
initiatives; our ability to hire and retain key management personnel;
changes in consumer fitness trends; changes in the media consumption
habits of our target consumers or the effectiveness of our media
advertising; a decline in consumer spending due to unfavorable economic
conditions; and softness in the retail marketplace. Additional
assumptions, risks and uncertainties are described in detail in our
registration statements, reports and other filings with the Securities
and Exchange Commission, including the “Risk Factors” set forth in our
Annual Report on Form 10-K, as supplemented by our quarterly reports on
Form 10-Q. Such filings are available on our website or at www.sec.gov.
You are cautioned that such statements are not guarantees of future
performance and that our actual results may differ materially from those
set forth in the forward-looking statements. We undertake no obligation
to publicly update or revise forward-looking statements to reflect
subsequent developments, events or circumstances.
RESULTS OF OPERATIONS INFORMATION
The following summary contains information from our condensed
consolidated statements of operations for the three months ended March
31, 2019 and 2018 (unaudited and in thousands, except per share amounts):
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
84,400
|
|
|
|
$
|
114,813
|
|
Cost of sales
|
|
|
48,558
|
|
|
|
55,942
|
|
Gross profit
|
|
|
35,842
|
|
|
|
58,871
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
Selling and marketing
|
|
|
34,043
|
|
|
|
36,763
|
|
General and administrative
|
|
|
7,655
|
|
|
|
6,910
|
|
Research and development
|
|
|
4,311
|
|
|
|
4,501
|
|
Total operating expenses
|
|
|
46,009
|
|
|
|
48,174
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(10,167
|
)
|
|
|
10,697
|
|
Other expense, net
|
|
|
(433
|
)
|
|
|
(34
|
)
|
(Loss) income from continuing operations before income taxes
|
|
|
(10,600
|
)
|
|
|
10,663
|
|
Income tax (benefit) expense
|
|
|
(2,116
|
)
|
|
|
2,523
|
|
(Loss) income from continuing operations
|
|
|
(8,484
|
)
|
|
|
8,140
|
|
Loss from discontinued operations
|
|
|
(91
|
)
|
|
|
(81
|
)
|
Net (loss) income
|
|
|
$
|
(8,575
|
)
|
|
|
$
|
8,059
|
|
|
|
|
|
|
|
|
Basic (loss) income per share from continuing operations
|
|
|
$
|
(0.29
|
)
|
|
|
$
|
0.27
|
|
Basic loss per share from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
Basic net (loss) income per share
|
|
|
$
|
(0.29
|
)
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
Diluted (loss) income per share from continuing operations
|
|
|
$
|
(0.29
|
)
|
|
|
$
|
0.27
|
|
Diluted loss per share from discontinued operations
|
|
|
—
|
|
|
|
—
|
|
Diluted net (loss) income per share(1)
|
|
|
$
|
(0.29
|
)
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
Shares used in per share calculations:
|
|
|
|
|
|
|
Basic
|
|
|
29,573
|
|
|
|
30,314
|
|
Diluted
|
|
|
29,573
|
|
|
|
30,591
|
|
|
|
|
|
|
|
|
(1) May not add due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SEGMENT INFORMATION
The following table presents certain comparative information by segment
for the three months ended March 31, 2019 and 2018 (unaudited and in
thousands):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
Change
|
|
|
|
2019
|
|
|
2018
|
|
|
$
|
|
|
%
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
|
$
|
46,714
|
|
|
|
$
|
71,201
|
|
|
|
$
|
(24,487
|
)
|
|
|
(34.4
|
)%
|
Retail
|
|
|
36,821
|
|
|
|
42,993
|
|
|
|
(6,172
|
)
|
|
|
(14.4
|
)%
|
Royalty
|
|
|
865
|
|
|
|
619
|
|
|
|
246
|
|
|
|
39.7
|
%
|
|
|
|
$
|
84,400
|
|
|
|
$
|
114,813
|
|
|
|
$
|
(30,413
|
)
|
|
|
(26.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct
|
|
|
$
|
(4,542
|
)
|
|
|
$
|
11,291
|
|
|
|
$
|
(15,833
|
)
|
|
|
(140.2
|
)%
|
Retail
|
|
|
(722
|
)
|
|
|
3,921
|
|
|
|
(4,643
|
)
|
|
|
(118.4
|
)%
|
Unallocated corporate
|
|
|
(4,903
|
)
|
|
|
(4,515
|
)
|
|
|
(388
|
)
|
|
|
(8.6
|
)%
|
|
|
|
$
|
(10,167
|
)
|
|
|
$
|
10,697
|
|
|
|
$
|
(20,864
|
)
|
|
|
(195.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET INFORMATION
The following summary contains information from our condensed
consolidated balance sheets as of March 31, 2019 and December 31, 2018
(unaudited and in thousands):
|
|
|
|
|
|
|
As of
|
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
11,060
|
|
|
|
$
|
38,125
|
Available-for-sale securities
|
|
|
12,583
|
|
|
|
25,392
|
Trade receivables, net of allowances of $28 and $99
|
|
|
21,940
|
|
|
|
45,847
|
Inventories
|
|
|
60,892
|
|
|
|
68,465
|
Prepaids and other current assets
|
|
|
6,888
|
|
|
|
7,980
|
Income taxes receivable
|
|
|
5,761
|
|
|
|
5,653
|
Total current assets
|
|
|
119,124
|
|
|
|
191,462
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
21,823
|
|
|
|
22,216
|
Operating lease right of use assets
|
|
|
23,401
|
|
|
|
—
|
Finance lease right of use assets
|
|
|
209
|
|
|
|
—
|
Goodwill
|
|
|
63,499
|
|
|
|
63,452
|
Other intangible assets, net
|
|
|
54,430
|
|
|
|
55,240
|
Other assets
|
|
|
2,784
|
|
|
|
574
|
Total assets
|
|
|
$
|
285,270
|
|
|
|
$
|
332,944
|
|
|
|
|
|
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade payables
|
|
|
$
|
40,658
|
|
|
|
$
|
87,265
|
Accrued liabilities
|
|
|
6,178
|
|
|
|
8,370
|
Operating lease liabilities, current portion
|
|
|
3,561
|
|
|
|
—
|
Finance lease liabilities, current portion
|
|
|
121
|
|
|
|
—
|
Warranty obligations, current portion
|
|
|
3,048
|
|
|
|
3,213
|
Note payable, current portion
|
|
|
—
|
|
|
|
15,993
|
Total current liabilities
|
|
|
53,566
|
|
|
|
114,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty obligations, non-current
|
|
|
2,375
|
|
|
|
2,362
|
Operating lease liabilities, non-current
|
|
|
21,836
|
|
|
|
—
|
Finance lease liabilities, non-current
|
|
|
135
|
|
|
|
—
|
Income taxes payable, non-current
|
|
|
3,599
|
|
|
|
3,427
|
Deferred income tax liabilities, non-current
|
|
|
9,638
|
|
|
|
11,888
|
Other non-current liabilities
|
|
|
—
|
|
|
|
1,837
|
Debt payable, non-current
|
|
|
20,490
|
|
|
|
15,993
|
Shareholders' equity
|
|
|
173,631
|
|
|
|
182,596
|
Total liabilities and shareholders' equity
|
|
|
$
|
285,270
|
|
|
|
$
|
332,944
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table presents a reconciliation of EBITDA from continuing
operations for the three months ended March 31, 2019 and 2018 (unaudited
and in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
|
|
|
|
$
|
(8,484
|
)
|
|
|
$
|
8,140
|
Interest expense, net
|
|
|
|
40
|
|
|
|
21
|
Income tax (benefit) expense from continuing operations
|
|
|
|
(2,116
|
)
|
|
|
2,523
|
Depreciation and amortization
|
|
|
|
2,485
|
|
|
|
2,439
|
(Loss) earnings before interest, taxes, depreciation and
amortization (EBITDA) from continuing operations
|
|
|
|
$
|
(8,075
|
)
|
|
|
$
|
13,123
|
|
|
|
|
|
|
|
|
|
|
|
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