Revenue Increased 28% Over Prior Year Driven
by Strong Growth in Both Retail and Direct Segments
Pretax Income from Continuing Operations
Increased 171% Over Prior Year
Board of Directors Authorizes $15 Million
Share Repurchase Program
November 3, 2014 - Nautilus, Inc. (NYSE: NLS) today reported its
unaudited operating results for the third quarter ended September
30, 2014.
Net sales for the third quarter of 2014 totaled $59.1 million, a
28% increase compared to $46.3 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 nine months of 2014, net sales were
$179.5 million, an increase of 27% over the same period last year.
Gross margins for the third quarter improved by 170 basis points to
48.8%, reflecting margin increases in both the Direct and Retail
segments. Operating income from continuing operations for the third
quarter of 2014 was $4.3 million, a 220% increase compared to $1.3
million in the same period last year. 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, general and administrative, and product development
costs across higher sales volumes. For the first nine months of
2014, operating income from continuing operations was $15.7
million, compared to $5.6 million in the same period last year, an
increase of 179%.
Pretax income from continuing operations for the third quarter
of 2014 was $4.3 million, or $0.14 per diluted share, compared to
pretax income from continuing operations of $1.6 million, or $0.05
per diluted share, for the third quarter of last year. For the
first nine months of 2014, pretax income from continuing operations
was $15.6 million, or $0.49 per diluted share, compared to pretax
income of $5.9 million, or $0.19 per diluted share, for the same
period of last year.
Net income from continuing operations for the third quarter of
2014 was $2.7 million, or $0.08 per diluted share, compared to net
income from continuing operations of $1.5 million, or $0.05 per
diluted share, for the third quarter of 2013.
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 third quarter of 2014 was
38.5%. 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 third quarter of 2014, the Company reported net income
(including discontinued operations) of $2.5 million, or $0.08 per
diluted share; this includes a loss from discontinued operations of
$0.2 million. In the third quarter of 2013, the Company reported
net income of $1.4 million, or $0.04 per diluted share; this
includes a loss from discontinued operations of $0.1 million.
Bruce M. Cazenave, Chief Executive Officer, stated, “We are
pleased to report another strong quarter of financial growth and
improved profitability. Our business generated double digit top
line growth in both the Direct and Retail segments while continuing
to benefit from improved gross margins and our ability to leverage
operating costs across higher sales volumes. In the Direct
business, our results include strong contributions from our Bowflex
Max Trainer® product line. We are very pleased with the consumer
demand and positive response to this revolutionary cardio machine
in its first year on the market and remain encouraged about the
product’s long-term potential. Also, the Retail segment continued
to grow and perform well underscoring the success of last year’s
new product lineup combined with additional new products launched
in September.”
Mr. Cazenave continued, “As part of our key growth strategy to
further diversify and expand our product portfolio, we recently
announced the launch of new, innovative products that encompass
broad areas of fitness, including strength, cardio, and nutrition
in both our Direct and Retail channels. While it is very early, we
are excited about the positive initial consumer and industry
reaction to these new products. Continued focus and strong
execution on our three key priority initiatives of product
innovation, margin improvement and achieving operating leverage has
served our company well and we believe we are again well positioned
going into this year’s peak fitness season.”
For further information, see "Results of
Operations Information" attached hereto.
Segment Results
Net sales for the Direct segment were $34.5 million in the third
quarter of 2014, an increase of 34% 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 other products. For the first nine
months of 2014, net sales for the Direct segment were $117.6
million, an increase of 26% over the same period last year. U.S.
credit approval rates rose to 40.3% in the third quarter of 2014,
up from 34.3% for the same period last year. The Company attributes
the increase in approval rates to the launch of the Bowflex Max
Trainer®, which has thus far attracted consumers with better credit
scores, along with its media strategy focused on driving quality
consumer leads and an expanded lender base.
Operating income for the Direct segment was $4.1 million for the
third quarter 2014, an increase of 214% compared to operating
income of $1.3 million in the third quarter 2013. Operating income
benefitted from higher gross margins and improved leverage of
selling and marketing expenses as a percentage of sales in the
third quarter of 2014. Gross margin for the Direct business was
62.2% for the third quarter of 2014, compared to 61.0% in the third
quarter of last year, benefitting from improved overall overhead
operating efficiency and improved product margins.
Net sales for the Retail segment were $23.5 million in the third
quarter 2014, an increase of 21% over the third quarter last year.
The improvement in Retail net sales reflects continued strong
retailer and consumer acceptance of the Company’s lineup of cardio
products launched last fall, along with additional new products
introduced this fall. The Retail results also benefited from a few
customers accelerating some of their fourth quarter orders into the
third quarter to get their supply chains in desired position for
the upcoming peak selling season. For the first nine months of
2014, net sales for the Retail segment totaled $58.6 million, an
increase of 31% over the same period last year.
Operating income for the Retail segment was $3.7 million for the
third quarter 2014, an increase of 29% compared to operating income
of $2.9 million in the third quarter last year. Retail gross margin
was 26.5% in the third quarter of 2014, compared to 25.4% in the
same quarter of last year.
Royalty revenue in the third quarter 2014 was $1.1 million, a
decrease of 5% compared to $1.2 million for the same quarter of
last year.
For further information, see "Segment
Information" attached hereto.
Balance Sheet
As of September 30, 2014, the Company had cash, cash
equivalents, and marketable securities of $41.7 million and no
debt, compared to cash, cash equivalents, and marketable securities
of $41.0 million and $27.7 million with no debt as of December 31,
2013 and September 30, 2013, respectively. Working capital of $63.3
million as of September 30, 2014 was $17.7 million higher than the
2013 year-end balance of $45.7 million, primarily due to reduced
trade payables which are seasonally higher at year-end. Inventory
as of September 30, 2014 was $21.3 million, compared to $15.8
million as of December 31, 2013 and $17.5 million at the end of the
third quarter last year. The increase in inventory reflects
inventory stocking of an additional distribution center opened
during the third quarter of 2014, coupled with preparation for the
fourth quarter which is the seasonally largest quarter of the
year.
For further information, see "Balance Sheet
Information" attached hereto.
Share Repurchase Program
The Company announced today that its Board of Directors has
authorized the repurchase of up to $15 million of the Company’s
outstanding common stock. Shares may be repurchased from time to
time over the next 24 months in open market transactions at
prevailing prices, in privately negotiated transactions, or by
other means in accordance with federal securities laws. Share
repurchases will be funded from existing cash balances and
repurchased shares will be retired and returned to unissued
authorized shares. More details on this program are included in a
separate press release issued today.
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 third quarter ended September 30, 2014 at
4:30 p.m. ET (1:30 p.m. PT) on Monday, November 3, 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) 268-5851 in North America and
international listeners may call (303) 223-2687. 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,
November 3, 2014, through 6:30 p.m. ET, November 17, 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 21737083.
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 nine months ended
September 30, 2014 and 2013 (unaudited and in thousands, except per
share amounts):
Three Months EndedSeptember
30,
Nine Months EndedSeptember
30,
2014 2013 2014 2013
Net sales $ 59,067 $ 46,256 $
179,517
$
141,712
Cost of sales 30,272 24,479 87,461 71,912
Gross profit 28,795 21,777 92,056 69,800 Operating
expenses: Selling and marketing 17,086 14,152 54,549 46,546 General
and administrative 5,745 4,907 16,507 13,836 Research and
development 1,683 1,382 5,338 3,812
Total operating expenses 24,514 20,441 76,394
64,194 Operating income 4,281 1,336 15,662 5,606
Other income (expense), net 52 265
(53
)
272 Income from continuing operations before income taxes
4,333 1,601 15,609 5,878 Income tax provision (benefit) 1,669
101 5,699
(33,814
)
Income from continuing operations 2,664 1,500 9,910 39,692 Loss
from discontinued operations, net of income taxes
(177
)
(116
)
(1,492
)
(286
)
Net income $ 2,487 $ 1,384 $ 8,418 $ 39,406
Basic income per share from continuing operations $
0.09 $ 0.05 $ 0.32 $ 1.28 Basic loss per share from discontinued
operations
(0.01
)
-
(0.05
)
(0.01
)
Basic net income per share(1) $ 0.08 $ 0.04 $ 0.27
$ 1.27 Diluted income per share from
continuing operations $ 0.08 $ 0.05 $ 0.31 $ 1.26 Diluted loss per
share from discontinued operations
(0.01
)
-
(0.05
)
(0.01
)
Diluted net income per share(1) $ 0.08 $ 0.04 $ 0.27
$ 1.25 Shares used in per share calculations:
Basic 31,287 31,128 31,231 31,045
Diluted 31,655 31,488 31,641 31,419
(1) May not add due to rounding.
SEGMENT INFORMATION
The following tables present certain comparative information by
segment for the three and nine months ended September 30, 2014 and
2013 (unaudited and in thousands):
Three Months EndedSeptember
30,
Change Net sales:
2014 2013 $
% Direct $ 34,498 $ 25,729 $ 8,769 34.1%
Retail 23,467 19,369 4,098 21.2% Royalty income 1,102 1,158
(56
)
(4.8)% $ 59,067 $ 46,256 $ 12,811 27.7%
Operating income (loss): Direct $ 4,133 $ 1,316 $ 2,817 214.1%
Retail 3,703 2,875 828 28.8% Unallocated corporate
(3,555
)
(2,855
)
(700
)
(24.5)% $ 4,281 $ 1,336 $ 2,945 220.4%
Nine Months EndedSeptember
30,
Change Net sales:
2014 2013 $ %
Direct $ 117,589 $ 93,678 $ 23,911 25.5% Retail 58,609 44,678
13,931 31.2% Royalty income 3,319 3,356
(37
)
(1.1)% $ 179,517 $ 141,712 $ 37,805 26.7%
Operating income (loss): Direct $ 18,375 $ 8,533 $ 9,842
115.3% Retail 7,537 4,975 2,562 51.5% Unallocated corporate
(10,250
)
(7,902
)
(2,348
)
(29.7)% $ 15,662 $ 5,606 $ 10,056 179.4%
BALANCE SHEET INFORMATION
The following summary contains information from our consolidated
balance sheets as of September 30, 2014 and December 31, 2013
(unaudited and in thousands):
September 30, December 31,
2014 2013 Assets Cash and cash
equivalents $ 23,740 $ 40,979 Available-for-sale securities 17,993
- Trade receivables, net of allowances of $42 and $53 18,265 25,336
Inventories, net 21,349 15,824 Prepaids and other current assets
6,238 6,927 Income taxes receivable 23 80 Deferred income tax
assets 7,370 4,441 Total current assets 94,978 93,587
Property, plant and equipment, net 9,755 8,499 Goodwill 2,626 2,740
Other intangible assets, net 11,085 12,615 Long-term deferred
income tax assets 18,323 25,725 Other assets 349 401 Total assets $
137,116 $ 143,567
Liabilities and Shareholders'
Equity Trade payables $ 21,161 $ 37,192 Accrued
liabilities 8,383 9,123 Warranty obligations, current portion 2,121
1,610 Total current liabilities 31,665 47,925 Warranty
obligations, non-current - 28 Income taxes payable, non-current
3,627 2,577 Other long-term liabilities 1,219 1,472 Shareholders'
equity 100,605 91,565 Total liabilities and shareholders' equity $
137,116 $ 143,567
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Pretax Income per Diluted Share from Continuing Operations
(unaudited):
Three Months Ended September 30, 2014
2013 Pretax income per diluted share from continuing
operations $ 0.14 $ 0.05 Diluted loss per share from income taxes
(0.05
)
- Diluted income per share from continuing operations(1) $
0.08 $ 0.05
Nine Months Ended September
30, 2014 2013 Pretax income per diluted share
from continuing operations $ 0.49 $ 0.19 Diluted income (loss) per
share from income taxes
(0.18
)
1.08 Diluted income per share from continuing operations(1)
$ 0.31 $ 1.26 (1) Amounts may not add
due to rounding.
Investor Relations Contact:ICR, LLCJohn Mills, (310)
954-1105
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