Nautilus, Inc. Starts 2020 with Encouraging First Quarter Results
First Quarter 2020 Net Sales Increased 11.0% Compared to Same Period Last Year
First Quarter 2020 Retail Segment Sales Increased 23.9% Compared to Same Period Last Year; Direct Segment Produced First Quarterly Sales Increase since Q4 2017
Company Generated Cash Flow from Operations of
First Quarter 2020 EPS from Continuing Operations Increased 127.6% to
First Quarter 2020 Highlights Compared to First Quarter 2019
-
Net sales were
$93.7 million , up 11.0% compared to$84.4 million , driven primarily by strong demand for strength and cardio products, particularly the Bowflex® SelectTech® weights and the new connected-fitness bikes. Additionally, the Company was able to capture the accelerated demand for home fitness resulting from COVID-19 stay-at-home orders in the last few weeks of March through strong omni-channel execution. -
Operating expenses decreased by 21.4% to
$36.2 million compared to$46.0 million , primarily due to increased expense discipline, particularly in advertising expenses which delivered strong ROI in Q1. -
Operating loss decreased by 94.5% to
$0.6 million compared to loss of$10.2 million . -
Income from continuing operations increased to
$2.3 million , or$0.08 per diluted share, compared to loss from continuing operations of$8.5 million , or$0.29 per diluted share, driven by higher revenue, expense discipline, and aided by the tax benefit related to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). -
EBITDA from continuing operations increased to
$2.3 million compared to an EBITDA loss of$8.1 million .
Management Comments
“In the first quarter of 2020, we achieved stronger than expected financial results, including revenue growth of 11%, our first positive sales comp since third quarter of 2018, and significantly exceeded our EBITDA estimates,” said
“As we enter the second quarter and prepare for the remainder of 2020, we know we will be navigating a rapidly changing environment. We experienced the ripple effects of the supply chain disruption caused by COVID-19 early in the first quarter and then experienced a strong spike in demand across the product portfolio as the virus hit world-wide. Although we’ve expanded production in response to continued strong demand, we carry over a significant level of back-orders into the second quarter and believe we may not be fully caught up until the beginning of the third quarter. Additionally, while the consumer side of our business is surging, the commercial side, represented by our Octane Fitness brand, is experiencing softness, as gym closures have resulted in sales declines. Lastly, like many companies, we are closely monitoring the longer-term impact the shelter-in-place orders are having on consumer sentiment and demand.”
First Quarter 2020 Segment Results Compared to First Quarter 2019
Direct Segment
-
Net sales were
$47.1 million , up 0.9%, from$46.7 million . Increased sales were driven primarily by strength products which grew 58.5% versus last year. Strength product sales were driven by Bowflex® SelectTech® weights and Bowflex® Home Gyms. Cardio product sales declined by 9.4% as strong demand for our connected-fitness bikes, the Bowflex® C6 and Schwinn® IC4, were not enough to fully offset declines in ourMax Trainer sales. -
As of
March 31, 2020 , estimated revenue expected to be recognized in the future totaled$8.0 million , which represents unfulfilled consumer orders and are net of current promotional programs and sales discounts. -
Gross margin rate was 51.5%, down from 56.5%, primarily driven by unfavorable product mix and higher landed product costs. Sales declines in the higher margin Max Trainers line continue to pressure margins, while landed product costs were driven higher by tariffs and expediting shipments from our factories in
Asia . -
Segment contribution income was
$1.8 million , up 139.8%, compared to segment contribution loss of$4.5 million . The improvement in segment contribution was primarily driven by$6.5 million reduction in media spend, as gross profit was below last year. Advertising expenses were$13.2 million in first quarter of 2020 compared to$19.7 million first quarter of 2019.
Retail Segment
-
Net sales were
$45.6 million , up 23.9%, from$36.8 million with strong growth coming from both strength and cardio product sales. Strength sales up 54.6%, driven primarily by strong demand for Bowflex SelectTech® weights and Bowflex® Home Gyms. Cardio sales were up 17.7% driven by the Schwinn® IC4 connected-fitness bikes and partially offset by declines in Octane Fitness® products as gym closures have begun to affect sales of commercial-grade equipment. Although numerous retailers have temporarily closed store locations due to COVID-19, Bowflex® and Schwinn® experienced strong year-over-year sales increases through retail partners’ e-commerce and curbside pick-up platforms. -
As of
March 31, 2020 , estimated revenue expected to be recognized in the future totaled$5.8 million , primarily related to customer order backlog and including firm orders for future shipments. The estimated future revenues are net of contractual rebates and consideration payable for applicable Retail customers. - We disclose retail customers whose sales are greater than 10% of total company net sales. Amazon.com accounted for 13.3% of total company net sales in the first quarter of 2020 and less than 10% of total company net sales in the first quarter of 2019.
-
Gross margin was 22.6%, down from 23.3%, primarily driven by unfavorable sales mix and higher landed product costs. Landed product costs were driven higher by tariffs and expediting shipments from our factories in
Asia . -
Segment contribution income was
$2.4 million , up 430.9%, compared to segment contribution loss of$0.7 million . The improvement in segment contribution was primarily driven by higher net sales and reductions in operating expenses, partially offset by lower gross margin rates.
Tax Rate
-
The tax rate for the first quarter was a positive 301.2%, primarily due to changes in the tax treatment of net operating losses as a result of the CARES Act. The Company anticipates carrying back 2019 and 2020 losses to the 2016 and 2017 tax years and recognized
$3.2 million of tax benefit, representing the 14 point tax rate differential between 2019 and 2020 and carryback tax periods, as income in the first quarter of 2020.
Balance Sheet
As of
-
Cash, cash equivalents and restricted cash were
$26.5 million , and debt was$28.1 million , compared to cash and cash equivalents of$11.1 million and debt of$14.1 million as ofDecember 31, 2019 . -
$18.0 million was available for borrowing under the Wells Fargo Asset Based Lending Revolving Facility. -
Inventory was
$34.9 million , compared to$54.8 million as ofDecember 31, 2019 . The decrease in inventory was primarily due to the seasonality of the business and to the surge in demand for home-fitness products. -
Working capital totaled
$60.7 million versus$40.5 million at year-end 2019 as a result of reductions in trade payables and receivables. -
Trade payables were
$34.2 million , compared to$74.3 million at year-end 2019 primarily due to the seasonality of the business. -
Capital expenditures totaled
$1.7 million as ofMarch 31, 2020 . We are reiterating our full year capital guidance range of$8 million to$10 million for 2020.
Conference Call
Nautilus will discuss first quarter 2020 operating results during a live conference call and webcast on
A telephonic playback will be available from
Non-GAAP Presentation
In addition to disclosing its financial results determined in accordance with GAAP, Nautilus has presented in this release certain non-GAAP financial measures, which exclude the impact of certain items (as further described below) and provide supplemental information regarding operating performance. Nautilus presents non-GAAP financial measures as a complement to results provided in accordance with GAAP, and the non-GAAP financial measures should not be regarded as a substitute for GAAP. By disclosing these non-GAAP financial measures, management intends to provide investors with a supplemental comparison of operating results and trends for the periods presented. Management believes these measures are also useful to investors as such measures allow investors to evaluate performance using the same metrics that management uses to evaluate past performance and prospects for future performance. Nautilus strongly encourages you to review all 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.
EBITDA from Continuing Operations
Nautilus defines EBITDA from continuing operations as its income from continuing operations, adjusted to exclude interest expense (income), income tax expense (benefit) of continuing operations, and depreciation and amortization expense. Nautilus 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. Nautilus 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. Management believes that EBITDA is frequently used by investors, securities analysts and other interested parties in their evaluation of companies, many of which present EBITDA when reporting their results. Other companies may calculate EBITDA differently, and it may not be comparable.
About
Headquartered in
Forward-Looking Statements
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, anticipated demand for the Company's new and existing products, statements regarding the Company's prospects, resources or capabilities; planned investments, strategic initiatives and the anticipated or targeted results of such initiatives; the effects of the COVID-19 pandemic on the Company’s business; and planned operational initiatives and the anticipated cost-saving 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; risks associated with current and potential delays, work stoppages, or supply chain disruptions caused by the COVID-19 pandemic; 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; risks related to the impact on our business of the COVID-19 pandemic or similar public health crises; 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 months ended
|
Three Months
|
||||||
|
2020 |
|
2019 |
||||
|
|
|
|
||||
Net sales |
$ |
93,722 |
|
|
$ |
84,400 |
|
Cost of sales |
58,125 |
|
|
48,558 |
|
||
Gross profit |
35,597 |
|
|
35,842 |
|
||
|
|
|
|
||||
Operating expenses: |
|
|
|
||||
Selling and marketing |
24,686 |
|
|
34,043 |
|
||
General and administrative |
7,656 |
|
|
7,655 |
|
||
Research and development |
3,815 |
|
|
4,311 |
|
||
Total operating expenses |
36,157 |
|
|
46,009 |
|
||
|
|
|
|
||||
Operating loss |
(560 |
) |
|
(10,167 |
) |
||
Other expense, net |
(584 |
) |
|
(433 |
) |
||
Loss from continuing operations before income taxes |
(1,144 |
) |
|
(10,600 |
) |
||
Income tax benefit |
(3,446 |
) |
|
(2,116 |
) |
||
Income (loss) from continuing operations |
2,302 |
|
|
(8,484 |
) |
||
Loss from discontinued operations, net of income taxes |
(118 |
) |
|
(91 |
) |
||
Net income (loss) |
$ |
2,184 |
|
|
$ |
(8,575 |
) |
|
|
|
|
||||
Basic income (loss) per share from continuing operations |
$ |
0.08 |
|
|
$ |
(0.29 |
) |
Basic loss per share from discontinued operations |
— |
|
|
— |
|
||
Basic net income (loss) per share(1) |
$ |
0.07 |
|
|
$ |
(0.29 |
) |
|
|
|
|
||||
Diluted income (loss) per share from continuing operations |
$ |
0.08 |
|
|
$ |
(0.29 |
) |
Diluted loss per share from discontinued operations |
— |
|
|
— |
|
||
Diluted net income (loss) per share(1) |
$ |
0.07 |
|
|
$ |
(0.29 |
) |
|
|
|
|
||||
Shares used in per share calculations: |
|
|
|
||||
Basic |
29,802 |
|
|
29,573 |
|
||
Diluted |
30,590 |
|
|
29,573 |
|
||
|
|
|
|
||||
(1) May not add due to rounding. |
|
|
|
SEGMENT INFORMATION
The following tables present certain comparative information by segment for the three months ended
|
Three Months
|
|
Change |
|||||||||||
|
2020 |
|
2019 |
|
$ |
|
% |
|||||||
Net sales: |
|
|
|
|
|
|
|
|||||||
Direct |
$ |
47,141 |
|
|
$ |
46,714 |
|
|
$ |
427 |
|
|
0.9 |
% |
Retail |
45,613 |
|
|
36,821 |
|
|
8,792 |
|
|
23.9 |
% |
|||
Royalty |
968 |
|
|
865 |
|
|
103 |
|
|
11.9 |
% |
|||
Consolidated net sales |
$ |
93,722 |
|
|
$ |
84,400 |
|
|
$ |
9,322 |
|
|
11.0 |
% |
|
|
|
|
|
|
|
|
|||||||
Contribution: |
|
|
|
|
|
|
|
|||||||
Direct |
$ |
1,809 |
|
|
$ |
(4,542 |
) |
|
$ |
6,351 |
|
|
139.8 |
% |
Retail |
2,389 |
|
|
(722 |
) |
|
3,111 |
|
|
430.9 |
% |
|||
Royalty |
968 |
|
|
865 |
|
|
103 |
|
|
11.9 |
% |
|||
Consolidated contribution |
$ |
5,166 |
|
|
$ |
(4,399 |
) |
|
$ |
9,565 |
|
|
217.4 |
% |
|
|
|
|
|
|
|
|
|||||||
Reconciliation of consolidated contribution to income (loss) from continuing operations: |
|
|
|
|
||||||||||
Consolidated contribution |
$ |
5,166 |
|
|
$ |
(4,399 |
) |
|
$ |
9,565 |
|
|
217.4 |
% |
Amounts not directly related to segments: |
|
|
|
|
|
|
|
|||||||
Operating expenses |
(5,725 |
) |
|
(5,768 |
) |
|
43 |
|
|
0.7 |
% |
|||
Other expense, net |
(585 |
) |
|
(433 |
) |
|
(152 |
) |
|
(35.1 |
)% |
|||
Income tax benefit |
3,446 |
|
|
2,116 |
|
|
1,330 |
|
|
62.9 |
% |
|||
Income (loss) from continuing operations |
$ |
2,302 |
|
|
$ |
(8,484 |
) |
|
$ |
10,786 |
|
|
127.1 |
% |
The following table compares the net sales of our major product lines within each business segment (dollars in thousands):
|
Three Months Ended
|
|
Change |
|||||||||||
|
2020 |
|
2019 |
|
$ |
|
% |
|||||||
Direct net sales: |
|
|
|
|
|
|
|
|||||||
Cardio products(1) |
$ |
35,876 |
|
|
$ |
39,607 |
|
|
$ |
(3,731 |
) |
|
(9.4 |
)% |
Strength products(2) |
11,265 |
|
|
7,107 |
|
|
4,158 |
|
|
58.5 |
% |
|||
|
47,141 |
|
|
46,714 |
|
|
427 |
|
|
0.9 |
% |
|||
Retail net sales: |
|
|
|
|
|
|
|
|||||||
Cardio products(1) |
36,143 |
|
|
30,696 |
|
|
5,447 |
|
|
17.7 |
% |
|||
Strength products(2) |
9,470 |
|
|
6,125 |
|
|
3,345 |
|
|
54.6 |
% |
|||
|
45,613 |
|
|
36,821 |
|
|
8,792 |
|
|
23.9 |
% |
|||
|
|
|
|
|
|
|
|
|||||||
Royalty |
968 |
|
|
865 |
|
|
103 |
|
|
11.9 |
% |
|||
|
$ |
93,722 |
|
|
$ |
84,400 |
|
|
$ |
9,322 |
|
|
11.0 |
% |
(1) |
Cardio products include: connected-fitness bikes like the Bowflex® C6 and Schwinn® IC4, Max Trainer®, TreadClimber®, Zero Runner®, LateralX®, treadmills, other exercise bikes, ellipticals, and subscription services. | |
(2) |
Strength products include: home gyms and Bowflex SelectTech® dumbbells, kettlebell weights and accessories. |
BALANCE SHEET INFORMATION
The following summary contains information from our consolidated balance sheets as of
|
As of |
||||||
|
|
|
|
||||
Assets |
|
|
|
||||
|
|
|
|
||||
Cash and cash equivalents |
$ |
23,024 |
|
|
$ |
11,070 |
|
Restricted cash |
3,432 |
|
|
— |
|
||
Trade receivables, net of allowances of |
34,260 |
|
|
54,600 |
|
||
Inventories |
34,927 |
|
|
54,768 |
|
||
Prepaids and other current assets |
7,281 |
|
|
8,283 |
|
||
Income taxes receivable |
10,149 |
|
|
472 |
|
||
Total current assets |
113,073 |
|
|
129,193 |
|
||
Property, plant and equipment, net |
23,143 |
|
|
22,755 |
|
||
Operating lease right-of-use assets |
19,882 |
|
|
20,778 |
|
||
Other intangible assets, net |
42,449 |
|
|
43,243 |
|
||
Other assets |
5,823 |
|
|
4,510 |
|
||
Total assets |
$ |
204,370 |
|
|
$ |
220,479 |
|
|
|
|
|
||||
Liabilities and Shareholders' Equity |
|
|
|
||||
|
|
|
|
||||
Trade payables |
$ |
34,210 |
|
|
$ |
74,255 |
|
Accrued liabilities |
9,445 |
|
|
7,633 |
|
||
Operating lease liabilities, current portion |
3,782 |
|
|
3,720 |
|
||
Warranty obligations, current portion |
3,366 |
|
|
3,100 |
|
||
Debt payable, current portion, net of unamortized debt issuance costs of |
1,555 |
|
|
— |
|
||
Total current liabilities |
52,358 |
|
|
88,708 |
|
||
Operating lease liabilities, non-current |
18,026 |
|
|
18,982 |
|
||
Warranty obligations, non-current |
2,884 |
|
|
2,617 |
|
||
Income taxes payable, non-current |
3,852 |
|
|
3,676 |
|
||
Deferred income tax liabilities, non-current |
7,788 |
|
|
1,783 |
|
||
Other non-current liabilities |
17 |
|
|
46 |
|
||
Debt payable, non-current, net of unamortized debt issuance costs of |
26,520 |
|
|
14,071 |
|
||
Shareholders' equity |
92,925 |
|
|
90,596 |
|
||
Total liabilities and shareholders' equity |
$ |
204,370 |
|
|
$ |
220,479 |
|
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table presents a reconciliation of EBITDA from continuing operations for the three months ended
|
Three Months Ended
|
||||||
|
2020 |
|
2019 |
||||
|
|
|
|
||||
Income (loss) from continuing operations |
$ |
2,302 |
|
|
$ |
(8,484 |
) |
Interest expense, net |
625 |
|
|
40 |
|
||
Income tax benefit from continuing operations |
(3,446 |
) |
|
(2,116 |
) |
||
Depreciation and amortization |
2,810 |
|
|
2,485 |
|
||
Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA) from continuing operations |
$ |
2,291 |
|
|
$ |
(8,075 |
) |
View source version on businesswire.com: https://www.businesswire.com/news/home/20200505005909/en/
Investor Relations:
646-277-1254
john.mills@ICRinc.com
Media:
360-859-5815
jfread@nautilus.com
The
503-754-7975
ckerns@hoffman.com
Source: