Company Reaffirms Full Year Guidance for
2017
Strong Growth in Retail with Revenues up 13%
in the Segment
Nautilus, Inc. (NYSE:NLS) today reported its unaudited operating
results for the second quarter and six months ended June 30,
2017.
Q2 2017 Highlights
All comparisons relate to the second quarter of 2016 unless
otherwise indicated:
- Revenues:
- Total revenue was $77.0 million
compared to prior year of $78.5 million.
- Direct segment sales decreased 13.0% to
$39.1 million primarily due to expected declines in TreadClimber®
sales.
- Retail segment sales increased 12.7% to
$37.1 million, reflecting robust growth across traditional and
e-commerce partners in multiple product categories.
- Gross Margins:
- Total company gross margins decreased
by 350 basis points to 49.8% due to a shift in segment mix, and
lower margins in the Direct segment, that more than offset higher
Retail segment margins.
- Direct margins decreased by 380 basis
points due to unfavorable overhead absorption related to lower
volumes and increased TreadClimber® discounting.
- Retail margins increased by 100 basis
points due to improved product mix and the reduction of certain
warranty reserves.
- Operating Expenses:
- Operating expenses were approximately
flat as a percentage of net sales due to expense management and the
reversal of a reserve related to a settled royalty dispute.
- Operating income of $3.8 million
compared to prior year of $6.6 million, with operating margin of
5.0%, down 340 basis points versus prior year.
- Income from continuing operations for
the second quarter of 2017 was $2.6 million, or $0.08 per diluted
share, compared to income from continuing operations of $3.7
million, or $0.12 per diluted share in the prior year quarter.
- EBITDA from continuing operations
totaled $6.2 million compared to $8.5 million in the prior year
period.
- At June 30, 2017, cash and
marketable securities increased to $85.4 million and debt decreased
to $56.0 million, compared to $79.6 million and $64.0 million,
respectively, at December 31, 2016.
Q2 2017 YTD Highlights
All comparisons relate to the first six months of 2016 unless
otherwise indicated:
- Revenues:
- Total revenue was $190.3 million
compared to prior year of $199.5 million.
- Direct segment sales decreased 9.8% to
$113.8 million primarily due to lower TreadClimber® sales.
- Retail segment sales increased 4.4% to
$74.9 million, reflecting sales increases across a variety of
accounts.
- Gross Margins:
- Total company gross margins decreased
by 170 basis points to 52.6% due to a shift in segment mix, and
lower margins in the Direct segment, partially offset by higher
Retail margins.
- Operating income decreased by 36.1% to
$16.5 million and operating margin decreased by 430 basis points,
from 13.0% to 8.7%.
- EBITDA from continuing operations
decreased by 28.6% to $21.1 million.
Bruce M. Cazenave, Chief Executive Officer, stated, “Second
quarter 2017 results were in-line with our expectations. Solid
double-digit revenue growth and increased gross margins in our
Retail segment were driven by strong performance in our traditional
retail and Octane Fitness businesses, and across several product
categories. In our Direct Segment, we saw increased sales of the
recently launched Bowflex Hybrid Velocity Trainer, 'HVT', and
continued gains in the Strength category, which were more than
offset by continued declines in TreadClimber sales despite
increased discounting.”
Mr. Cazenave continued, “Our second quarter performance gives us
the confidence to reiterate our 2017 full year guidance of 5%-7%
growth in revenues and operating income. We expect to return to
double-digit top line growth for the back half of 2017 due to a
number of factors. In our Direct segment, expected growth from
multiple product offerings, including our Bowflex Max Trainer and
the added new HVT offering, along with comparable quarter results
reflective of reduced TreadClimber sales, will enable us to return
to growth in this segment. In our Retail segment, we anticipate
continued solid results driven by expanded product offerings across
our Octane, Nautilus, and Bowflex brands, which are expected to
garner broad commercial, traditional retail, and e-commerce
placement this Fall.”
For further information, see “Results of
Operations Information” attached hereto.
Segment Results
Net sales for the Direct segment were $39.1 million in the
second quarter of 2017, a decrease of 13.0% over the comparable
period last year. Direct segment sales were impacted by a decline
in TreadClimber® product sales, coupled with difficult prior period
comps related to the launch of the Max Trainer M7 in late Q1 2016.
Operating income for the Direct segment was $2.5 million for the
second quarter of 2017, compared to $7.5 million in the second
quarter of last year. Operating income was impacted by the declines
in net sales and gross profits, coupled with higher creative costs
related to the HVT product launch. Gross margin for the Direct
business declined by 380 basis points due to increased discounting
for TreadClimber® products and lower volume resulting in lower
overhead absorption.
Net sales for the Retail segment were $37.1 million in the
second quarter of 2017, an increase of 12.7% when compared to $32.9
million in the second quarter last year. The increase reflected
robust growth across multiple products and several key customer
accounts. Operating income for the Retail segment was $6.1 million
for the second quarter of 2017 compared to $4.1 million in the
second quarter of last year. The increase in Retail operating
income was primarily due to the higher net sales and gross margins,
coupled with reversal of a $1.4 million reserve related to
settlement of a royalty dispute. Retail gross margin was 34.5% in
the second quarter of 2017, compared to 33.5% in the same quarter
of the prior year. The higher gross margin reflected improved
product mix, coupled with the experience-related reduction of
warranty reserves.
Royalty revenue in the second quarter 2017 was $0.8 million,
compared to $0.7 million for the same quarter of last year.
For further information, see “Segment
Information” attached hereto.
Balance Sheet
As of June 30, 2017, the Company had cash and marketable
securities of $85.4 million and debt of $56.0 million, compared to
cash and marketable securities of $79.6 million and debt of $64.0
million at year-end 2016. Working capital of $87.1 million as of
June 30, 2017 was $2.2 million higher than the 2016 year-end
balance of $85.0 million, as an increase in cash and marketable
securities offset a decline in other working capital accounts.
Inventory as of June 30, 2017 was $42.3 million, compared to
$47.0 million as of December 31, 2016 and $43.0 million at the
end of the second quarter 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 second quarter ended June 30, 2017
at 4:30 p.m. ET (1:30 p.m. PT) on Monday, July 31, 2017. 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 (888) 287-5563 in North America and
international listeners may call (719) 325-2495. 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 7:30 p.m. ET,
July 31, 2017, through 11:59 p.m. ET, August 14, 2017.
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 4396733.
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 and six months ended June
30, 2017 and 2016.
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®, 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 with Octane Fitness® products.
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
statements about projected or forecasted financial and operating
results, statements regarding the Company's prospects, resources or
capabilities; current or future financial and economic trends;
future operating results; future plans for introduction of new
products, channel diversification, anticipated response to media
advertising; or anticipated demand for the Company's new and
existing products. Factors that could cause Nautilus, Inc.’s actual
results to differ materially from these forward-looking statements
include failure to successfully integrate and realize anticipated
benefits of acquired businesses, our ability to timely acquire
inventory that meets our quality control standards from sole source
foreign manufacturers at acceptable costs, greater than anticipated
costs associated with launch of new products, 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 consolidated
statements of operations for the three and six months ended June
30, 2017 and 2016 (unaudited and in thousands, except per share
amounts):
Three Months Ended June
30,
Six Months Ended June
30,
2017 2016 2017 2016
Net sales $ 77,029 $ 78,529 $ 190,281 $ 199,457 Cost of
sales 38,651 36,667 90,158 91,251 Gross
profit 38,378 41,862 100,123 108,206 Operating expenses:
Selling and marketing 23,628 24,711 61,293 59,890 General and
administrative 7,315 7,203 14,801 15,434 Research and development
3,586 3,375 7,497 7,009 Total operating
expenses 34,529 35,289 83,591 82,333 Operating income 3,849
6,573 16,532 25,873 Other, net (127 ) (582 ) (487 ) (1,118 ) Income
from continuing operations before income taxes 3,722 5,991 16,045
24,755 Income tax expense 1,156 2,295 5,294
9,473 Income from continuing operations 2,566 3,696 10,751
15,282 Loss from discontinued operations(1) (77 ) (166 ) (1,169 )
(308 ) Net income $ 2,489 $ 3,530 $ 9,582 $
14,974 Basic income per share from continuing
operations $ 0.08 $ 0.12 $ 0.35 $ 0.49 Basic loss per share from
discontinued operations — (0.01 ) (0.04 ) (0.01 ) Basic net
income per share $ 0.08 $ 0.11 $ 0.31 $ 0.48
Diluted income per share from continuing operations $
0.08 $ 0.12 $ 0.35 $ 0.49 Diluted loss per share from discontinued
operations — (0.01 ) (0.04 ) (0.01 ) Diluted net income per
share $ 0.08 $ 0.11 $ 0.31 $ 0.48
Shares used in per share calculations: Basic 30,755 31,072
30,734 31,044 Diluted 31,095 31,335 31,110 31,315
Select
Metrics: Gross margin 49.8 % 53.3 % 52.6 % 54.3 % Selling and
marketing % of net sales 30.7 % 31.5 % 32.2 % 30.0 % General and
administrative % of net sales 9.5 % 9.2 % 7.8 % 7.7 % Research and
development % of net sales 4.7 % 4.3 % 3.9 % 3.5 % Operating income
% of net sales 5.0 % 8.4 % 8.7 % 13.0 %
(1) The six months ended June 30, 2017
includes a $1.2 million expense relatedto a lawsuit settlement with
Biosig Instruments, Inc.
SEGMENT INFORMATION
The following tables present certain comparative information by
segment for the three and six months ended June 30, 2017 and 2016
(unaudited and in thousands):
Three Months Ended June
30,
Change 2017 2016 $
% Net sales: Direct $ 39,111 $ 44,940 $ (5,829 ) (13.0 )%
Retail 37,083 32,911 4,172 12.7 % Royalty 835 678 157
23.2 % $ 77,029 $ 78,529 $ (1,500 ) (1.9 )%
Operating income (loss): Direct $ 2,519 $ 7,525 $ (5,006 )
(66.5 )% Retail 6,097 4,117 1,980 48.1 % Unallocated corporate
(4,767 ) (5,069 ) 302 6.0 % $ 3,849 $ 6,573 $
(2,724 ) (41.4 )%
Six Months Ended June
30,
Change 2017 2016 $
% Net sales: Direct $ 113,814 $ 126,174 $ (12,360 ) (9.8 )%
Retail 74,888 71,716 3,172 4.4 % Royalty 1,579 1,567
12 0.8 % $ 190,281 $ 199,457 $ (9,176 ) (4.6
)% Operating income (loss): Direct $ 17,852 $ 28,669 $
(10,817 ) (37.7 )% Retail 8,309 8,061 248 3.1 % Unallocated
corporate (9,629 ) (10,857 ) 1,228 11.3 % $ 16,532 $
25,873 $ (9,341 ) (36.1 )%
BALANCE SHEET INFORMATION
The following summary contains information from our consolidated
balance sheets as of June 30, 2017 and December 31, 2016
(unaudited and in thousands):
As of
June 30, 2017
December 31, 2016 Assets Cash and cash
equivalents $ 21,811 $ 47,874 Available-for-sale securities 63,624
31,743 Trade receivables, net of allowances of $290 and $170 24,220
45,458 Inventories 42,344 47,030 Prepaids and other current assets
6,020 8,020 Income taxes receivable 4,041 3,231 Total
current assets 162,060 183,356 Property, plant and
equipment, net 16,037 17,468 Goodwill 61,957 61,888 Other
intangible assets, net 68,166 69,800 Deferred income tax assets,
non-current — 11 Other assets 492 543 Total assets $ 308,712
$ 333,066
Liabilities and Shareholders' Equity
Trade payables $ 46,936 $ 66,020 Accrued liabilities 8,746
12,892 Warranty obligations, current portion 3,266 3,500 Note
payable, current portion 15,993 15,993
Total current liabilities
74,941 98,405 Warranty obligations, non-current 3,385 3,950
Income taxes payable, non-current 2,571 2,403 Deferred income tax
liabilities, non-current 17,103 16,991 Other long-term liabilities
2,358 2,481 Note payable, non-current 39,982 47,979 Shareholders'
equity 168,372 160,857 Total liabilities and shareholders'
equity $ 308,712 $ 333,066
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table presents a reconciliation of EBITDA from
continuing operations for the three and six months ended June 30,
2017 and 2016 (unaudited and in thousands):
Three Months Ended June
30,
Six Months Ended June
30,
2017 2016 2017
2016 Income from continuing operations $ 2,566 $
3,696 $ 10,751 $ 15,282 Interest expense 237 446 550 858 Income tax
expense of continuing operations 1,156 2,295 5,294 9,473
Depreciation and amortization 2,274 2,029 4,518
3,964 Earnings before interest, taxes, depreciation and
amortization (EBITDA) from continuing operations $ 6,233 $
8,466 $ 21,113 $ 29,577
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Investor Relations:ICR, LLCJohn Mills, 646-277-1254
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