Nautilus, Inc. Reports Results for the Second Quarter 2017
Company Reaffirms Full Year Guidance for 2017
Strong Growth in Retail with Revenues up 13% in the Segment
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.
-
Total revenue was
-
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, atDecember 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.
-
Total revenue was
-
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 .
For further information, see "Results of Operations Information" attached hereto.
Segment Results
Net sales for the Direct segment were
Net sales for the Retail segment were
Royalty revenue in the second quarter 2017 was
For further information, see "Segment Information" attached hereto.
Balance Sheet
As of
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
A telephonic playback will be available from
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
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
Headquartered in
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
RESULTS OF OPERATIONS INFORMATION
The following summary contains information from our consolidated
statements of operations for the three and six months ended
Three Months Ended |
Six Months Ended |
|||||||||||||||
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 |
||||||||||||||||
SEGMENT INFORMATION
The following tables present certain comparative information by segment
for the three and six months ended
Three Months Ended |
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 |
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
As of | |||||||
|
|
||||||
Assets | |||||||
Cash and cash equivalents | $ | 21,811 | $ | 47,874 | |||
Available-for-sale securities | 63,624 | 31,743 | |||||
Trade receivables, net of allowances of |
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 | |||||
|
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
Three Months Ended |
Six Months Ended |
||||||||||||||
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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