Nautilus, Inc. Reports Results for the Third Quarter 2017
Third Quarter Revenue Increased 9% to
Third Quarter Operating Income Increased 62% to
Company Updates Full Year 2017 Revenue and Operating Income Guidance
Q3 2017 Highlights
All comparisons relate to the third
quarter of 2016 unless otherwise indicated:
-
Revenues:
-
Total revenue increased 9.0% to
$88.1 million compared to prior year of$80.8 million . -
Direct segment sales increased 0.8% to
$34.0 million as sales growth of new products, including the Bowflex HVTTM, offset the expected decline in TreadClimber® sales. -
Retail segment sales increased 15.8% to
$53.5 million , reflecting strong seasonal sell-in with key traditional and e-commerce partners, partially offset by weakness in specialty and commercial customers.
-
Total revenue increased 9.0% to
-
Gross Margins:
- Total company gross margins decreased by 160 basis points to 46.9% primarily due to a shift in segment revenue mix from Direct to Retail.
- Direct margins decreased by 220 basis points due to a shift in product mix and increaseddiscounting of the TreadClimber® product line, coupled with select promotional offers on other products.
-
Retail margins increased by 60 basis points as stronger revenue
translated into improved absorption of fixed costs and benefited
from a
$0.6 million settlement related to an indemnification claim.
-
Operating Expenses:
-
Operating expenses decreased 9.9% to
$28.0 million due to lower finance fees related to a contract extension with a financing partner that provided a retroactive adjustment, coupled with ongoing lower costs in the Direct segment and a$1.0 million favorable settlement related to an indemnification claim.
-
Operating expenses decreased 9.9% to
-
Operating income increased 62.8% to
$13.4 million compared to prior year of$8.2 million , with operating margin of 15.2%, up 500 basis points versus prior year. -
Income from continuing operations for the third quarter of 2017 was
$8.3 million , or$0.27 per diluted share, compared to income from continuing operations of$7.8 million , or$0.25 per diluted share in the prior year quarter. -
The effective tax rate for the third quarter of 2017 was 36.8%
compared to 1.9% for the prior year period. The prior year period was
favorably impacted by the release of previously unrecognized tax
benefits associated with certain non-
U.S. filing positions. -
EBITDA from continuing operations totaled
$15.3 million compared to$10.2 million in the prior year period. -
At
September 30, 2017 , cash and marketable securities decreased to$77.8 million and debt decreased to$52.0 million , compared to$79.6 million and$64.0 million , respectively, atDecember 31, 2016 .
Q3 2017 YTD Highlights
All comparisons relate to the first
nine months of 2016 unless otherwise indicated:
-
Revenues:
-
Total revenue was
$278.4 million compared to prior year of$280.3 million . -
Direct segment sales decreased 7.6% to
$147.8 million primarily due to lower TreadClimber® sales slightly offset by the introduction of the new Bowflex HVTTM. -
Retail segment sales increased 8.9% to
$128.4 million , reflecting sales increases across a variety of product offerings and traditional and e-commerce partners, partially offset by weakness in sales to specialty and commercial customers.
-
Total revenue was
-
Gross Margins:
- Total company gross margins decreased by 180 basis points to 50.8% due to a shift in segment mix, and lower margins in the Direct segment, partially offset by higher Retail margins.
-
Operating income decreased by 12.3% to
$29.9 million and operating margin decreased by 150 basis points, from 12.2% to 10.7%. -
EBITDA from continuing operations decreased by 8.5% to
$36.4 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 third 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 third 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 nine 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; anticipated stock buybacks; 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 nine months ended
Three Months Ended |
Nine Months Ended |
|||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||
Net sales | $ | 88,132 | $ | 80,818 | $ | 278,413 | $ | 280,275 | ||||||||||||
Cost of sales | 46,817 | 41,601 | 136,975 | 132,852 | ||||||||||||||||
Gross profit | 41,315 | 39,217 | 141,438 | 147,423 | ||||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling and marketing | 18,028 | 21,394 | 79,321 | 81,284 | ||||||||||||||||
General and administrative | 6,305 | 6,177 | 21,106 | 21,611 | ||||||||||||||||
Research and development | 3,617 | 3,435 | 11,114 | 10,444 | ||||||||||||||||
Total operating expenses | 27,950 | 31,006 | 111,541 | 113,339 | ||||||||||||||||
Operating income | 13,365 | 8,211 | 29,897 | 34,084 | ||||||||||||||||
Other expense, net | (161 | ) | (218 | ) | (648 | ) | (1,336 | ) | ||||||||||||
Income from continuing operations before income taxes | 13,204 | 7,993 | 29,249 | 32,748 | ||||||||||||||||
Income tax expense | 4,862 | 148 | 10,156 | 9,621 | ||||||||||||||||
Income from continuing operations | 8,342 | 7,845 | 19,093 | 23,127 | ||||||||||||||||
Loss from discontinued operations(1) | (101 | ) | (251 | ) | (1,270 | ) | (559 | ) | ||||||||||||
Net income | $ | 8,241 | $ | 7,594 | $ | 17,823 | $ | 22,568 | ||||||||||||
Basic income per share from continuing operations | $ | 0.27 | $ | 0.25 | $ | 0.62 | $ | 0.74 | ||||||||||||
Basic loss per share from discontinued operations | — | (0.01 | ) | (0.04 | ) | (0.02 | ) | |||||||||||||
Basic net income per share(2) | $ | 0.27 | $ | 0.24 | $ | 0.58 | $ | 0.73 | ||||||||||||
Diluted income per share from continuing operations | $ | 0.27 | $ | 0.25 | $ | 0.61 | $ | 0.74 | ||||||||||||
Diluted loss per share from discontinued operations | — | (0.01 | ) | (0.04 | ) | (0.02 | ) | |||||||||||||
Diluted net income per share | $ | 0.27 | $ | 0.24 | $ | 0.57 | $ | 0.72 | ||||||||||||
Shares used in per share calculations: | ||||||||||||||||||||
Basic | 30,749 | 31,118 | 30,739 | 31,069 | ||||||||||||||||
Diluted | 31,075 | 31,385 | 31,098 | 31,340 | ||||||||||||||||
Select Metrics: | ||||||||||||||||||||
Gross margin | 46.9 | % | 48.5 | % | 50.8 | % | 52.6 | % | ||||||||||||
Selling and marketing % of net sales | 20.5 | % | 26.5 | % | 28.5 | % | 29.0 | % | ||||||||||||
General and administrative % of net sales | 7.2 | % | 7.6 | % | 7.6 | % | 7.7 | % | ||||||||||||
Research and development % of net sales | 4.1 | % | 4.3 | % | 4.0 | % | 3.7 | % | ||||||||||||
Operating income % of net sales | 15.2 | % | 10.2 | % | 10.7 | % | 12.2 | % |
(1) The nine months ended
(2) May not add due to rounding.
SEGMENT INFORMATION
The following tables present certain comparative information by segment
for the three and nine months ended
Three Months Ended |
Change | |||||||||||||||||||
2017 | 2016 | $ | % | |||||||||||||||||
Net sales: | ||||||||||||||||||||
Direct | $ | 33,986 | $ | 33,710 | $ | 276 | 0.8 | % | ||||||||||||
Retail | 53,505 | 46,223 | 7,282 | 15.8 | % | |||||||||||||||
Royalty | 641 | 885 | (244 | ) | (27.6 | )% | ||||||||||||||
$ | 88,132 | $ | 80,818 | $ | 7,314 | 9.0 | % | |||||||||||||
Operating income (loss): | ||||||||||||||||||||
Direct | $ | 5,289 | $ | 2,584 | $ | 2,705 | 104.7 | % | ||||||||||||
Retail | 12,118 | 9,164 | 2,954 | 32.2 | % | |||||||||||||||
Unallocated corporate | (4,042 | ) | (3,537 | ) | (505 | ) | (14.3 | )% | ||||||||||||
$ | 13,365 | $ | 8,211 | $ | 5,154 | 62.8 | % |
Nine Months Ended |
Change | ||||||||||||||||||
2017 | 2016 | $ | % | ||||||||||||||||
Net sales: | |||||||||||||||||||
Direct | $ | 147,800 | $ | 159,884 | $ | (12,084 | ) | (7.6 | )% | ||||||||||
Retail | 128,393 | 117,939 | 10,454 | 8.9 | % | ||||||||||||||
Royalty | 2,220 | 2,452 | (232 | ) | (9.5 | )% | |||||||||||||
$ | 278,413 | $ | 280,275 | $ | (1,862 | ) | (0.7 | )% | |||||||||||
Operating income (loss): | |||||||||||||||||||
Direct | $ | 23,141 | $ | 31,253 | $ | (8,112 | ) | (26.0 | )% | ||||||||||
Retail | 20,427 | 17,225 | 3,202 | 18.6 | % | ||||||||||||||
Unallocated corporate | (13,671 | ) | (14,394 | ) | 723 | 5.0 | % | ||||||||||||
$ | 29,897 | $ | 34,084 | $ | (4,187 | ) | (12.3 | )% | |||||||||||
BALANCE SHEET INFORMATION
The following summary contains information from our consolidated balance
sheets as of
As of | |||||||||
|
|
||||||||
Assets | |||||||||
Cash and cash equivalents | $ | 30,481 | $ | 47,874 | |||||
Available-for-sale securities | 47,295 | 31,743 | |||||||
Trade receivables, net of allowances of |
38,534 | 45,458 | |||||||
Inventories | 57,646 | 47,030 | |||||||
Prepaids and other current assets | 6,795 | 8,020 | |||||||
Income taxes receivable | 61 | 3,231 | |||||||
Total current assets | 180,812 | 183,356 | |||||||
Property, plant and equipment, net | 16,166 | 17,468 | |||||||
|
62,045 | 61,888 | |||||||
Other intangible assets, net | 67,354 | 69,800 | |||||||
Deferred income tax assets, non-current | — | 11 | |||||||
Other assets | 456 | 543 | |||||||
Total assets | $ | 326,833 | $ | 333,066 | |||||
Liabilities and Shareholders' Equity | |||||||||
Trade payables | $ | 62,146 | $ | 66,020 | |||||
Accrued liabilities | 8,056 | 12,892 | |||||||
Warranty obligations, current portion | 3,253 | 3,500 | |||||||
Note payable, current portion | 15,993 | 15,993 | |||||||
Total current liabilities | 89,448 | 98,405 | |||||||
Warranty obligations, non-current | 3,048 | 3,950 | |||||||
Income taxes payable, non-current | 2,646 | 2,403 | |||||||
Deferred income tax liabilities, non-current | 16,868 | 16,991 | |||||||
Other non-current liabilities | 2,365 | 2,481 | |||||||
Note payable, non-current | 35,984 | 47,979 | |||||||
Shareholders' equity | 176,474 | 160,857 | |||||||
Total liabilities and shareholders' equity | $ | 326,833 | $ | 333,066 | |||||
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
The following table presents a reconciliation of EBITDA from continuing
operations for the three and nine months ended
Three Months Ended |
Nine Months Ended |
||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||
Income from continuing operations | $ | 8,342 | $ | 7,845 | $ | 19,093 | $ | 23,127 | |||||||||||
Interest expense, net | 207 | 429 | 757 | 1,287 | |||||||||||||||
Income tax expense of continuing operations | 4,862 | 148 | 10,156 | 9,621 | |||||||||||||||
Depreciation and amortization | 1,868 | 1,784 | 6,386 | 5,748 | |||||||||||||||
Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations | $ | 15,279 | $ | 10,206 | $ | 36,392 | $ | 39,783 | |||||||||||
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