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8-K - FORM 8-K - NAUTILUS, INC.d768598d8k.htm

Exhibit 99.1

 

LOGO

NAUTILUS, INC. REPORTS RESULTS FOR THE SECOND QUARTER 2014

Nautilus Delivers Another Quarter of Strong Top and Bottom Line Growth -

Revenues Increased 34% with Pretax EPS from Continuing Operations up 12 cents versus Prior Year

VANCOUVER, WASHINGTON, August 4, 2014 - Nautilus, Inc. (NYSE: NLS) today reported its unaudited operating results for the second quarter ended June 30, 2014.

Net sales for the second quarter of 2014 totaled $48.5 million, a 34% increase compared to $36.2 million in the same quarter of 2013. The strong growth was driven by higher sales in both the Direct and Retail segments. For the first six months of 2014, net sales were $120.5 million, an increase of 26% over the same period last year. Gross margins for the second quarter improved by 320 basis points to 51.0%, reflecting margin increases in both the Direct and Retail segments. Operating income from continuing operations for the second quarter of 2014 was $2.4 million, compared to an operating loss from continuing operations of $1.7 million reported in the same quarter of 2013. The increase in operating income reflects higher sales and gross margins in both the Direct and Retail segments combined with improved leverage of sales and marketing and general and administrative costs across higher sales volumes. For the first six months of 2014, operating income from continuing operations was $11.4 million, compared to $4.3 million in the same prior period, an increase of 167%.

Pretax income from continuing operations for the second quarter of 2014 was $2.3 million, or $0.07 per diluted share compared to a pretax loss from continuing operations of $1.6 million, or a $0.05 loss per diluted share for the second quarter of last year. For the first six months of 2014, pretax income from continuing operations was $11.3 million, or $0.36 per diluted share, compared to $4.3 million, or $0.14 per diluted share, compared to the prior year six month period.

Net income from continuing operations for the second quarter of 2014 was $1.5 million, or $0.05 per diluted share. Net income from continuing operations for the second quarter of 2013 was $32.7 million, or $1.04 per diluted share, which included a net income tax benefit of $34.3 million, or $1.09 per diluted share, due primarily to a partial reversal in the second quarter of 2013 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 second quarter of 2014 was 35.8%. The effective tax rate for the remainder of the year is expected to be between 35% and 40%. Cash payments related to income taxes were minimal due to the Company’s significant domestic net operating loss carry forwards.

For the second quarter of 2014, the Company reported net income (including discontinued operations) of $0.6 million, or $0.02 per diluted share; this includes a loss from discontinued operations of $0.9 million. In the second quarter of 2013, the Company reported net income of $32.9 million, or $1.05 per diluted share, including $0.2 million income from discontinued operations and the aforementioned income tax benefit of $1.09 per diluted share.

Bruce M. Cazenave, Chief Executive Officer, stated, “Our second quarter results reflect solid performances across the business, with double digit top line growth in our Direct and Retail segments along with continued gross margin improvements in all segments. In the Direct business, our sales benefitted from incremental sales of the new Bowflex MAX Trainerproduct line. We continue to be encouraged by MAX Trainer’s early contribution and the long-term potential for the product. We are pleased with the strong operating income performance from our Direct business of $3.9 million in our seasonally slowest quarter.”

 

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Mr. Cazenave continued, “Our Retail business also performed well in the second quarter, as we continue to receive positive feedback regarding our lineup of new cardio products launched last year including our elliptical and stationary bikes. This gives us encouragement as we prepare to introduce additional Retail products over the next several months. As we begin the back half of 2014, our team remains committed to execution on our key areas of focus of product innovation, margin improvement and achieving operating leverage.”

For further information, see “Results of Operations Information” attached hereto.

Segment Results

Net sales for the Direct segment were $32.4 million in the second quarter of 2014, an increase of 28% over the comparable period last year. Direct segment sales benefited from the strong performance of the new Bowflex MAX Trainerproduct line, partially offset by a decline in Direct sales of strength products, which continue to migrate to the Retail business. For the first six months of 2014, net sales for the Direct segment were $83.1 million, an increase of 22% over the same period last year. U.S. credit approval rates rose to 38.8% in the second quarter of 2014, up from 33.8% for the same period last year. The Company attributes the increase in U.S. credit approval rates to its media strategy focused on driving quality customer leads and an expanded consumer financing lender base.

Operating income for the Direct segment was $3.9 million for the second quarter 2014, compared to $0.5 million in the second quarter 2013. Operating income benefitted from higher gross margins and improved leverage of selling and marketing expenses as a percentage of sales in the second quarter of 2014. Gross margin for the Direct business was 61.7% for the second quarter of 2014, compared to 57.6% in the second quarter of last year, benefitting from improved overall overhead operating efficiency and favorable product mix.

Net sales for the Retail segment were $15.0 million in the second quarter 2014, an increase of 48% over the second quarter last year. The improvement in Retail net sales reflects strong retailer and consumer acceptance of the Company’s new lineup of cardio products launched last fall. For the first six months of 2014, net sales for the Retail segment totaled $35.1 million, an increase of 39% over the same period last year.

Operating income for the Retail segment was $1.3 million for the second quarter 2014, compared to $0.1 million in the second quarter last year. Retail gross margin was 24.4% in the second quarter of 2014, compared to 19.5% in the same quarter of last year.

Royalty revenue in the second quarter 2014 was $1.2 million, an increase of 53% compared to $0.8 million for the same quarter of last year, primarily reflecting higher revenue from licensed patents.

For further information, see “Segment Information” attached hereto.

Balance Sheet

As of June 30, 2014, the Company had cash, cash equivalents, and marketable securities of $57.3 million and no debt, compared to cash, cash equivalents, and marketable securities of $41.0 million and no debt at year end 2013. Working capital of $58.6 million as of June 30, 2014 was $12.9 million higher than the 2013 year-end balance of $45.7 million, primarily due to growth in cash equivalents and marketable securities of $16.3 million during the first half of the year. Inventory as of June 30, 2014 was $23.2 million, compared to $15.8 million as of December 31, 2013 and $13.3 million at the end of the second quarter last year. The increase in inventory reflected several factors including pre-buying to allow for production disruption related to a planned factory expansion by a supplier, the potential for work stoppage at certain West Coast ports, and alignment of inventory for the new distribution center which is expected to open shortly in Ohio.

For further information, see “Balance Sheet Information” attached hereto.

 

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Non-GAAP Presentation

In addition to disclosing results determined in accordance with GAAP, Nautilus 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 second quarter ended June 30, 2014 at 4:30 p.m. ET (1:30 p.m. PT) on Monday, August 4, 2014. 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) 667-8757 in North America and international listeners may call (303) 223-4383. 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, August 4, 2014, through 6:30 p.m. ET, August 18, 2014. 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 21728150.

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; future operating results; future plans for introduction of new products and the anticipated reception of such products; anticipated demand for the Company’s new and existing products; maintenance of appropriate inventory levels; growth in revenues and profits; 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

 

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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.

# # # #

SOURCE: Nautilus, Inc.

Investor Relations Contact:

John Mills, ICR, LLC

Telephone: (310) 954-1105

 

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RESULTS OF OPERATIONS INFORMATION

The following summary contains information from our consolidated statements of operations for the three and six months ended June 30, 2014 and 2013 (unaudited and in thousands, except per share amounts):

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  

Net sales

   $ 48,546      $ 36,242      $ 120,450      $ 95,456   

Cost of sales

     23,766        18,913        57,189        47,433   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     24,780        17,329        63,261        48,023   

Operating expenses:

        

Selling and marketing

     15,690        13,768        37,463        32,394   

General and administrative

     4,959        3,982        10,762        8,929   

Research and development

     1,752        1,303        3,655        2,430   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     22,401        19,053        51,880        43,753   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     2,379        (1,724     11,381        4,270   

Other income (expense), net

     (45     124        (105     7   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     2,334        (1,600     11,276        4,277   

Income tax provision (benefit)

     836        (34,268     4,030        (33,915
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from continuing operations

     1,498        32,668        7,246        38,192   

Income (loss) from discontinued operations, net of income taxes

     (941     195        (1,315     (170
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 557      $ 32,863      $ 5,931      $ 38,022   
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic income per share from continuing operations

   $ 0.05      $ 1.05      $ 0.23      $ 1.23   

Basic income (loss) per share from discontinued operations

     (0.03     0.01        (0.04     (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic net income per share(1)

   $ 0.02      $ 1.06      $ 0.19      $ 1.23   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted income per share from continuing operations

   $ 0.05      $ 1.04      $ 0.23      $ 1.22   

Diluted income (loss) per share from discontinued operations

     (0.03     0.01        (0.04     (0.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted net income per share

   $ 0.02      $ 1.05      $ 0.19      $ 1.21   
  

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculations:

        

Basic

     31,226        31,058        31,203        31,003   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     31,598        31,430        31,586        31,360   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)  May not add due to rounding.

 

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SEGMENT INFORMATION

The following tables present certain comparative information by segment for the three and six months ended June 30, 2014 and 2013 (unaudited and in thousands):

 

     Three Months Ended
June 30,
    Change  
     2014     2013     $     %  

Net sales:

        

Direct

   $ 32,355      $ 25,314      $ 7,041        27.8

Retail

     15,039        10,175        4,864        47.8

Royalty income

     1,152        753        399        53.0
  

 

 

   

 

 

   

 

 

   
   $ 48,546      $ 36,242      $ 12,304        33.9
  

 

 

   

 

 

   

 

 

   

Operating income (loss):

        

Direct

   $ 3,889      $ 508      $ 3,381        665.6

Retail

     1,325        140        1,185        846.4

Unallocated corporate

     (2,835     (2,372     (463     (19.5 )% 
  

 

 

   

 

 

   

 

 

   
   $ 2,379      $ (1,724   $ 4,103        238.0
  

 

 

   

 

 

   

 

 

   
     Six Months Ended
June 30,
    Change  
     2014     2013     $     %  

Net sales:

        

Direct

   $ 83,091      $ 67,949      $ 15,142        22.3

Retail

     35,142        25,309        9,833        38.9

Royalty income

     2,217        2,198        19        0.9
  

 

 

   

 

 

   

 

 

   
   $ 120,450      $ 95,456      $ 24,994        26.2
  

 

 

   

 

 

   

 

 

   

Operating income (loss):

        

Direct

   $ 14,242      $ 7,217      $ 7,025        97.3

Retail

     3,834        2,100        1,734        82.6

Unallocated corporate

     (6,695     (5,047     (1,648     (32.7 )% 
  

 

 

   

 

 

   

 

 

   
   $ 11,381      $ 4,270      $ 7,111        166.5
  

 

 

   

 

 

   

 

 

   

 

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BALANCE SHEET INFORMATION

The following summary contains information from our consolidated balance sheets as of June 30, 2014 and December 31, 2013 (unaudited and in thousands):

 

     June 30,      December 31,  
     2014      2013  
Assets      

Cash and cash equivalents

   $ 38,285       $ 40,979   

Marketable securities

     19,050         —     

Trade receivables, net of allowances of $34 and $53

     8,895         25,336   

Inventories, net

     23,229         15,824   

Prepaids and other current assets

     5,069         6,927   

Income taxes receivable

     73         80   

Deferred income tax assets

     6,204         4,441   
  

 

 

    

 

 

 

Total current assets

     100,805         93,587   

Property, plant and equipment, net

     8,680         8,499   

Goodwill

     2,746         2,740   

Other intangible assets, net

     11,595         12,615   

Long-term deferred income tax assets

     20,899         25,725   

Other assets

     311         401   
  

 

 

    

 

 

 

Total assets

   $ 145,036       $ 143,567   
  

 

 

    

 

 

 
Liabilities and Shareholders’ Equity      

Trade payables

   $ 31,997       $ 37,192   

Accrued liabilities

     8,122         9,123   

Warranty obligations, current portion

     2,075         1,610   
  

 

 

    

 

 

 

Total current liabilities

     42,194         47,925   

Warranty obligations, non-current

     —           28   

Income taxes payable, non-current

     3,533         2,577   

Other long-term liabilities

     1,232         1,472   

Shareholders’ equity

     98,077         91,565   
  

 

 

    

 

 

 

Total liabilities and shareholders’ equity

   $ 145,036       $ 143,567   
  

 

 

    

 

 

 

 

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RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

Pretax Income per Diluted Share from Continuing Operations (unaudited):

 

     Three Months Ended June 30,  
     2014     2013  

Pretax income (loss) per diluted share from continuing operations

   $ 0.07      $ (0.05

Diluted income (loss) per share from income taxes

     (0.03     1.09   
  

 

 

   

 

 

 

Diluted income per share from continuing operations(1)

   $ 0.05      $ 1.04   
  

 

 

   

 

 

 
     Six Months Ended June 30,  
     2014     2013  

Pretax income per diluted share from continuing operations

   $ 0.36      $ 0.14   

Diluted income (loss) per share from income taxes

     (0.13     1.08   
  

 

 

   

 

 

 

Diluted income per share from continuing operations

   $ 0.23      $ 1.22   
  

 

 

   

 

 

 

 

(1)  Amounts may not add due to rounding.

 

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