Fourth Quarter Revenue Increased 23% Over
Prior Year Driven by Continued Growth in Both Direct and Retail
Segments
Fourth Quarter Pretax Income from Continuing
Operations Increased 44% Over Prior Year
Full Year Revenue Increased 25% and Pretax
Income from Continuing Operations Increased 88% Over Prior
Year
February 23, 2015 - Nautilus, Inc. (NYSE: NLS) today reported
its unaudited operating results for the fourth quarter and full
year ended December 31, 2014.
Net sales for the fourth quarter of 2014 totaled $94.9 million,
a 23% increase compared to $77.1 million in the same quarter of
2013. The strong growth was driven by higher sales in both the
Direct and Retail segments. For the full year 2014, net sales were
$274.4 million, an increase of 25% over last year. Gross margins
for the fourth quarter improved by 350 basis points to 51.1%,
reflecting strong margin expansion in the Direct segment, partially
offset by lower Retail segment gross margins. Operating income from
continuing operations for the fourth quarter of 2014 was $14.5
million, a 43% increase compared to $10.1 million in the same
period last year. The increase in operating income reflects higher
sales in both the Direct and Retail segments and higher Direct
segment gross margins, as well as improved leverage of general and
administrative and product development costs across higher sales
volumes. For the full year 2014, operating income from continuing
operations was $30.2 million, compared to $15.7 million last year,
an increase of 92%.
Pretax income from continuing operations for the fourth quarter
of 2014 was $14.6 million, or $0.46 per diluted share, compared to
pretax income from continuing operations of $10.2 million, or $0.32
per diluted share, for the fourth quarter of the prior year. For
the full year 2014, pretax income from continuing operations was
$30.2 million, or $0.95 per diluted share, compared to pretax
income from continuing operations of $16.0 million, or $0.51 per
diluted share, the prior year.
Income from continuing operations for the fourth quarter of 2014
was $10.5 million, or $0.33 per diluted share, compared to income
from continuing operations of $8.4 million, or $0.27 per diluted
share, for the fourth quarter of 2013. For the full year 2014,
income from continuing operations was $20.4 million, or $0.64 per
diluted share, compared to $48.1 million, or $1.53 per diluted
share, the prior year. Full year 2013 net income includes an income
tax benefit of $33.0 million, or $1.05 per diluted share, due
primarily to the partial reversal 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 fourth quarter of 2014 was
28.3%, reflecting the reversal of certain state tax valuation
reserves. Cash payments related to income taxes were limited to
alternative minimum tax amounts as the Company continues to utilize
domestic net operating loss carryforwards to offset regular income
tax liabilities. As of December 31, 2014, the Company had a total
of $21.9 million of net deferred tax assets which are comprised
mostly of net operating loss carryforwards that can be utilized
against future income tax liabilities.
For the fourth quarter of 2014, the Company reported net income
(including discontinued operations) of $10.4 million, or $0.33 per
diluted share; this includes a loss from discontinued operations of
$0.1 million. In the fourth quarter of 2013, the Company reported
net income of $8.5 million, or $0.27 per diluted share; this
includes income from discontinued operations of $0.1 million.
Bruce M. Cazenave, Chief Executive Officer, stated, “We are
pleased to deliver another quarter of strong financial performance
that helped cement an outstanding year of sales and profit growth
for the Company. As we reflect back on our performance against
major initiatives for 2014, we clearly benefited from the
successful execution of our key strategies; namely, continued
product innovation, improving margins, and leveraging our
infrastructure. This is a continuation of the winning formula that
has worked well for us over the past several years. New products
had a significant impact for both our Direct and Retail businesses.
In its first year on the market, the Bowflex Max Trainer® product
line contributed significantly to revenue growth in our Direct
business, which increased 28% in 2014 compared to the prior year.
Our Retail segment revenues grew 21% in 2014, which underscores the
success of the new cardio line launched in the third quarter of
2013 and our ability to meet the evolving demands of our Retail
partners and their consumers.”
Mr. Cazenave continued, “As we begin 2015, we are excited about
the progress we have made in positioning our company for another
year of profitable growth. During this year we hope to further
diversify our revenue stream as we gain more traction with new
products, both those that were recently introduced as well as
others that are in the pipeline for 2015, and also in international
markets where the opportunities are still largely untapped.”
For further information, see "Results of
Operations Information" attached hereto.
Segment Results
Net sales for the Direct segment were $58.0 million in the
fourth quarter of 2014, an increase of 35% 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 sales of other products. For the full year
2014, net sales for the Direct segment were $175.6 million, an
increase of 28% over last year. U.S. credit approval rates rose to
43.5% in the fourth quarter of 2014, up from 39.7% 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 $11.0 million for
the fourth quarter of 2014, an increase of 96% compared to
operating income of $5.6 million in the fourth quarter of 2013.
Operating income benefited from higher gross margins as well as
improved leverage of selling and marketing expenses as a percentage
of sales in the fourth quarter of 2014. Gross margin for the Direct
business was 64.6% for the fourth quarter of 2014, compared to
60.2% in the fourth quarter of last year, benefiting from improved
overall overhead operating efficiency and improved product mix.
Net sales for the Retail segment were $34.6 million in the
fourth quarter 2014, an increase of 8% over the fourth quarter last
year. The improvement in Retail net sales reflects continued
retailer and consumer acceptance of the Company’s lineup of cardio
products including the recently launched treadmill line. For the
full year 2014, net sales for the Retail segment totaled $93.2
million, an increase of 21% over the prior year.
Operating income for the Retail segment was $5.7 million for the
fourth quarter of 2014, a decrease of 11% compared to operating
income of $6.5 million in the fourth quarter of 2013. Retail gross
margin was 25.2% in the fourth quarter of 2014, compared to 27.4%
in the same quarter of the prior year. Retail gross margins for the
fourth quarter of 2014 were negatively impacted by special
promotions on discontinued inventory and product mix.
Royalty revenue in the fourth quarter 2014 was $2.3 million, an
increase of 15% compared to $2.0 million for the same quarter last
year, reflecting higher sales-driven royalties for the quarter.
For further information, see "Segment
Information" attached hereto.
Balance Sheet
As of December 31, 2014, the Company had cash and investments of
$72.2 million and no debt, compared to cash of $41.0 million and no
debt as of December 31, 2013. Working capital of $83.1 million as
of December 31, 2014 was $37.4 million higher than the 2013
year-end balance of $45.7 million, primarily due to the cash flow
generated by operations, that resulted in a $31.2 million increase
in cash and investments. Inventory as of December 31, 2014 was
$24.9 million, compared to $15.8 million as of December 31, 2013.
The increase in inventory is due to higher revenues, new product
introductions, and the addition of a new distribution center.
For further information, see "Balance Sheet
Information" attached hereto.
Non-GAAP Presentation
In addition to disclosing results determined in accordance with
GAAP, the Company 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 fourth quarter and full year ended
December 31, 2014 at 4:30 p.m. ET (1:30 p.m. PT) on Monday,
February 23, 2015. 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,
February 23, 2015, through 6:30 p.m. ET, March 9, 2015.
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 21759738.
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;
utilization of net operating loss carryforwards to reduce future
income tax liabilities; future plans for introduction of new
products and anticipated demand for the Company's new and existing
products; maintenance of appropriate inventory levels; growth in
revenues and profits; initiatives to expand our business
internationally; 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 twelve months ended
December 31, 2014 and 2013 (unaudited and in thousands, except per
share amounts):
Three Months EndedDecember
31,
Twelve Months EndedDecember
31,
2014 2013 2014
2013 Net sales $ 94,931 $ 77,091 $ 274,447 $ 218,803
Cost of sales 46,412 40,414 133,872 112,326
Gross profit 48,519 36,677 140,575 106,477 Operating
expenses: Selling and marketing 26,509 19,940 81,059 66,486 General
and administrative 5,624 4,869 22,131 18,705 Research and
development 1,893 1,750 7,231 5,562
Total operating expenses 34,026 26,559 110,421
90,753 Operating income 14,493 10,118 30,154 15,724
Other income, net 122 43 70 315 Income
from continuing operations before income taxes 14,615 10,161 30,224
16,039 Income tax provision (benefit) 4,142 1,729
9,841 (32,085 ) Income from continuing operations 10,473
8,432 20,383 48,124 Income (loss) from discontinued operations, net
of income taxes (96 ) 116 (1,588 ) (170 ) Net income $
10,377 $ 8,548 $ 18,795 $ 47,954
Basic income per share from continuing operations $ 0.33 $ 0.27 $
0.65 $ 1.55 Basic loss per share from discontinued operations —
— (0.05 ) (0.01 ) Basic net income per share(1) $
0.33 $ 0.27 $ 0.60 $ 1.54
Diluted income per share from continuing operations $ 0.33 $ 0.27 $
0.64 $ 1.53 Diluted loss per share from discontinued operations —
— (0.05 ) (0.01 ) Diluted net income per share(1) $
0.33 $ 0.27 $ 0.59 $ 1.52 Shares
used in per share calculations: Basic 31,319 31,153 31,253 31,072
Diluted 31,760 31,509 31,688 31,457 (1) May not add due to
rounding.
SEGMENT INFORMATION
The following tables present certain comparative information by
segment for the three and twelve months ended December 31, 2014 and
2013 (unaudited and in thousands):
Three Months EndedDecember
31,
Change 2014 2013 $
% Net sales: Direct $ 58,005 $ 42,985 $ 15,020 34.9 %
Retail 34,614 32,097 2,517 7.8 % Royalty income 2,312 2,009
303 15.1 % $ 94,931 $ 77,091 $ 17,840
23.1 % Operating income (loss): Direct $ 10,970 $
5,593 $ 5,377 96.1 % Retail 5,742 6,456 (714 ) (11.1 )% Unallocated
corporate (2,219 ) (1,931 ) (288 ) (14.9 )% $ 14,493 $
10,118 $ 4,375 43.2 %
Twelve Months EndedDecember 31, Change
2014 2013 $
% Net sales: Direct $ 175,593 $ 136,663 $ 38,930 28.5 %
Retail 93,223 76,775 16,448 21.4 % Royalty income 5,631
5,365 266 5.0 % $ 274,447 $ 218,803 $
55,644 25.4 % Operating income (loss): Direct $
29,345 $ 14,126 $ 15,219 107.7 % Retail 13,279 11,431 1,848 16.2 %
Unallocated corporate (12,470 ) (9,833 ) (2,637 ) (26.8 )% $ 30,154
$ 15,724 $ 14,430 91.8 %
BALANCE SHEET INFORMATION
The following summary contains information from our consolidated
balance sheets as of December 31, 2014 and 2013 (unaudited and in
thousands):
December 31, 2014
2013 Assets Cash and cash equivalents $
45,206 $ 40,979 Available-for-sale securities 26,984 — Trade
receivables, net of allowances of $108 and $53 26,260 25,336
Inventories 24,896 15,824 Prepaids and other current assets 6,987
6,927 Income taxes receivable 50 80 Deferred income tax assets
12,368 4,441 Total current assets 142,751 93,587
Property, plant and equipment, net 9,634 8,499 Goodwill 2,520 2,740
Other intangible assets, net 10,575 12,615 Long-term deferred
income tax assets 9,546 25,725 Other assets 628 401 Total
assets $ 175,654 $ 143,567
Liabilities and
Shareholders' Equity Trade payables $ 47,574 $ 37,192
Accrued liabilities 9,851 9,123 Warranty obligations, current
portion 2,246 1,610 Total current liabilities 59,671 47,925
Warranty obligations, non-current — 28 Income taxes payable,
non-current 3,725 2,577 Other long-term liabilities 1,186 1,472
Shareholders' equity 111,072 91,565 Total liabilities and
shareholders' equity $ 175,654 $ 143,567
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Pretax Income per Diluted Share from Continuing Operations
(unaudited):
Three Months EndedDecember
31,
2014 2013 Pretax income per diluted
share from continuing operations $ 0.46 $ 0.32 Diluted loss per
share from income taxes (0.13 ) (0.05 ) Diluted income per share
from continuing operations $ 0.33 $ 0.27
Twelve Months EndedDecember
31,
2014 2013 Pretax income per diluted
share from continuing operations $ 0.95 $ 0.51 Diluted income
(loss) per share from income taxes (0.31 ) 1.02 Diluted income per
share from continuing operations $ 0.64 $ 1.53
Investor Relations:ICR, LLCJohn Mills, 310-954-1105
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