EX-99.1 2 ex99103312016.htm EXHIBIT 99.1 Exhibit


EXHIBIT 99.1

NAUTILUS, INC. REPORTS STRONG RESULTS FOR THE FIRST QUARTER 2016

First Quarter Revenue Increased 25.7% Over Prior Year to $120.9 million

Organic Retail Segment Revenues Increased over 20%

Continued Double Digit Growth in Adjusted Operating Income and EBITDA

VANCOUVER, WASHINGTON, May 9, 2016 - Nautilus, Inc. (NYSE: NLS) today reported its unaudited operating results for the first quarter ended March 31, 2016.

Net sales for the first quarter of 2016 totaled $120.9 million, a 25.7% increase compared to $96.2 million in the same quarter of 2015. The increase in revenues was driven by incremental sales resulting from the recent acquisition of Octane Fitness, along with strong organic sales growth in both the Direct and Retail segments. Gross margins for both the Direct and Retail segments increased in the first quarter of 2016; however, consolidated company gross margins declined by 110 basis points to 54.9%, reflecting the shift in channel mix as a result of higher Retail sales growth, as well as a $0.7 million non-cash inventory step-up charge related to the Octane Fitness acquisition.

Operating income for the first quarter of 2016 was $19.3 million, a 9.6% increase over operating income of $17.6 million reported in the same quarter of 2015. The increase in operating income primarily reflects higher net sales and gross margins. Excluding the non-cash inventory step-up charge referenced above, operating income for the first quarter of 2016 was $20.0 million, a 13.7% increase over the same quarter in 2015. EBITDA from Continuing Operations in the first quarter of 2016 increased by 14.7% to $21.1 million, versus $18.4 million for the same quarter of the prior year.

Income from continuing operations for the first quarter of 2016 was $11.6 million, or $0.37 per diluted share, compared to income from continuing operations of $10.9 million, or $0.34 per diluted share, for the same period of last year. Excluding the non-cash inventory step-up charge, income from continuing operations for the first quarter of 2016 was $12.0 million, or $0.38 per diluted share.

For the first quarter of 2016, the Company reported net income of $11.4 million, or $0.37 per diluted share, which includes a loss from discontinued operations of $0.1 million. In the first quarter of 2015, the Company reported net income of $10.7 million, or $0.34 per diluted share, which included a $0.1 million loss from discontinued operations.

Bruce M. Cazenave, Chief Executive Officer, stated, “We are very pleased with our solid start to 2016 as revenue, operating income and EBITDA all improved significantly during the first quarter. Our organic Retail business delivered strong growth in excess of 20%, while our total Retail segment revenues including the incremental revenues from Octane Fitness increased by 82%. The Direct business also had a robust quarter with revenues growing 10% versus a challenging comparable period last year, in which revenues were up 46% year over year. Our overall performance reflects continued progress with our key initiatives across all aspects of our business as well as solid underlying demand for both cardio and strength products.”

Mr. Cazenave continued, “We are very encouraged by the continued strong momentum and outlook in our business. We are focused on the early stages of integrating the Octane Fitness acquisition to drive the anticipated benefits of revenue synergies and supply chain efficiencies over the coming quarters. Previews of Octane's new Zero Runner® ZR8000 at both the IHRSA and FIBO trade shows were well received, with customers looking forward to receiving initial shipments of this key new commercial product during the third quarter of 2016. We remain very excited about the additional opportunities that the Octane platform brings to our business, from new distribution channels to enhanced product development and innovation capabilities.”





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

Segment Results

Net sales for the Direct segment were $81.2 million in the first quarter of 2016, an increase of 9.7% over the comparable period last year. Direct segment sales benefited from continued strong demand for cardio products, especially the Bowflex Max Trainer® product line.

Operating income for the Direct segment was $21.1 million for the first quarter of 2016, an increase of 8.0% compared to the first quarter 2015. Operating income benefited from higher net sales and gross margins. Gross margin for the Direct business improved 110 basis points to 66.3% for the first quarter of 2016, compared to 65.2% in the first quarter of last year. Gross margin improvement reflected favorable product mix and leveraging of supply chain costs.

Net sales for the Retail segment were $38.8 million in the first quarter of 2016, an increase of 82.3% when compared to $21.3 million in the first quarter last year. The improvement in Retail net sales reflects the inclusion of Octane Fitness, as well as strong double digit organic growth across both the cardio and strength components of the business.

Operating income for the Retail segment was $3.9 million for the first quarter of 2016 compared to $1.5 million in the first quarter of last year. The increase in Retail operating income was primarily due to improvement in the organic Retail business revenue and margins, coupled with the addition of Octane Fitness. Retail gross margin was 29.9% in the first quarter of 2016, compared to 22.0% in the same quarter of the prior year. Retail gross margins were negatively impacted by a purchase price inventory step-up charge related to the Octane Fitness acquisition of $0.7 million. Excluding this charge, Retail gross margins would have been 31.8%, up 980 basis points versus prior year gross margin of 22.0%.

Royalty revenue in the first quarter 2016 was $0.9 million, compared to $0.9 million for the same quarter of last year.

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

Balance Sheet

As of March 31, 2016, the Company had cash of $72.8 million and debt of $76.0 million, compared to cash of $60.8 million and debt of $80.0 million at year end 2015. Working capital of $76.4 million as of March 31, 2016 was $7.0 million higher than the 2015 year-end balance of $69.4 million, primarily due to growth in cash of $12.0 million. Inventory as of March 31, 2016 was $36.8 million, compared to $42.7 million as of December 31, 2015 and $20.0 million at the end of the first quarter last year. The increase in inventory compared to the first quarter last year was primarily due to the acquisition of Octane Fitness.

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

Share Repurchase Program

The Company announced today that its Board of Directors has authorized a $10 million expansion of the Company’s share repurchase program. Under the expanded program, shares of the Company’s common stock may be repurchased from time to time over the next 24 months in open market transactions at prevailing prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. Share repurchases will be funded from existing cash balances and repurchased shares will be retired and returned to unissued authorized shares. More details on the share repurchase program are included in a separate press release issued today.

Conference Call
 
Nautilus will host a conference call to discuss the Company’s operating results for the first quarter ended March 31, 2016 at 4:30 p.m. ET (1:30 p.m. PT) on Monday, May 9, 2016. 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) 228-0603 in North America and international listeners may call (303) 223-4388. 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, May 9, 2016, through 6:30 p.m. ET, May 23, 2016. 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 21810252.





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, and certain non-GAAP financial results for the first quarter 2016, excluding the impact of a non-cash inventory step-up charge.

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. We present adjusted results because management believes that due to the nature of the excluded item, 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.

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 helps identify underlying trends in its business that could otherwise be masked by the effect of the items that are excluded from EBITDA and enhances the overall understanding of the Company’s past performance and future prospects.

For a quantitative reconciliation of our non-GAAP financial measures and adjusted financial results 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.

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; anticipated channel diversification, anticipated demand for the Company's new and existing products; growth in revenues and profits; and anticipated benefits of the acquisition of Octane Fitness. Factors that could cause Nautilus, Inc.’s actual results to differ materially from these forward-looking statements include costs associated with the acquisition, failure to successfully integrate the Octane Fitness business, achieve expected synergies or realize other anticipated benefits of the transaction, 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, incurrence of unanticipated obligations under licensing agreements and the impact of disputes regarding royalty obligations owed or owing to us, 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.

# # # #






SOURCE: Nautilus, Inc.
Investor Relations Contact:
John Mills, ICR, LLC
Telephone: (646) 277-1254





RESULTS OF OPERATIONS INFORMATION

The following summary contains information from our consolidated statements of operations for the three months ended March 31, 2016 and 2015 (unaudited and in thousands, except per share amounts):
 
Three Months Ended
March 31,
 
2016
 
2015
 
 
 
 
Net sales
$
120,928

 
$
96,239

Cost of sales
54,584

 
42,350

Gross profit
66,344

 
53,889

 
 
 
 
Operating expenses:
 
 
 
Selling and marketing
35,179

 
28,399

General and administrative
8,231

 
5,578

Research and development
3,634

 
2,307

Total operating expenses
47,044

 
36,284

 
 
 
 
Operating income
19,300

 
17,605

Other, net
(536
)
 
(77
)
Income from continuing operations before income taxes
18,764

 
17,528

Income tax expense
7,178

 
6,669

Income from continuing operations
11,586

 
10,859

   Loss from discontinued operations
(142
)
 
(127
)
Net income
$
11,444

 
$
10,732

 
 
 
 
Basic income per share from continuing operations
$
0.37

 
$
0.35

Basic loss per share from discontinued operations
—

 
—

Basic net income per share(1)
$
0.37

 
$
0.34

 
 
 
 
Diluted income per share from continuing operations
$
0.37

 
$
0.34

Diluted loss per share from discontinued operations
—

 
—

Diluted net income per share
$
0.37

 
$
0.34

 
 
 
 
Shares used in per share calculations:
 
 
 
Basic
31,016

 
31,396

Diluted
31,295

 
31,767

 
 
 
 
Select Metrics:
 
 
 
Gross margin
54.9
%
 
56.0
%
Selling and marketing % of net sales
29.1
%
 
29.5
%
General and administrative % of net sales
6.8
%
 
5.8
%
Research and development % of net sales
3.0
%
 
2.4
%
Operating income % of net sales
16.0
%
 
18.3
%
 
 
 
 
(1) May not add due to rounding.
 
 
 




SEGMENT INFORMATION

The following tables present certain comparative information by segment for the three months ended March 31, 2016 and 2015 (unaudited and in thousands):
 
 
 
 
 
 
 
 
 
Three Months Ended
March 31,
 
Change
 
2016
 
2015
 
$
 
%
Net sales:
 
 
 
 
 
 
 
  Direct
$
81,234

 
$
74,057

 
$
7,177

 
9.7
 %
  Retail
38,805

 
21,290

 
17,515

 
82.3
 %
  Royalty
889

 
892

 
(3
)
 
(0.3
)%
 
$
120,928

 
$
96,239

 
$
24,689

 
25.7
 %
 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
  Direct
$
21,144

 
$
19,571

 
$
1,573

 
8.0
 %
  Retail
3,944

 
1,500

 
2,444

 
162.9
 %
  Unallocated corporate
(5,788
)
 
(3,466
)
 
(2,322
)
 
(67.0
)%
 
$
19,300

 
$
17,605

 
$
1,695

 
9.6
 %





BALANCE SHEET INFORMATION

The following summary contains information from our consolidated balance sheets as of March 31, 2016 and December 31, 2015 (unaudited and in thousands):
 
As of
 
March 31, 2016
 
December 31, 2015
Assets
 
 
 
 
 
 
 
Cash and cash equivalents
$
44,027

 
$
30,778

Available-for-sale securities
28,788

 
29,998

Trade receivables, net of allowances of $1,015 and $918
24,386

 
45,155

Inventories
36,817

 
42,729

Prepaids and other current assets
7,917

 
6,888

Income taxes receivable
3,845

 
439

Deferred income tax assets
—

 
8,904

Total current assets
145,780

 
164,891

 
 
 
 
Property, plant and equipment, net
16,796

 
16,764

Goodwill
60,323

 
60,470

Other intangible assets, net
72,394

 
73,354

Long-term deferred income tax assets
99

 
—

Other assets
386

 
433

Total assets
$
295,778

 
$
315,912

 
 
 
 
Liabilities and Shareholders' Equity
 
 
 
 
 
 
 
Trade payables
$
38,456

 
$
61,745

Accrued liabilities
10,582

 
13,027

Warranty obligations
4,397

 
4,753

Note payable
15,993

 
15,993

Total current liabilities
69,428

 
95,518

 
 
 
 
Warranty obligations, non-current
4,315

 
3,792

Income taxes payable, non-current
5,053

 
4,116

Deferred income tax liabilities, non-current
13,251

 
18,380

Other long-term liabilities
3,569

 
3,144

Note payable, non-current
59,974

 
63,971

Shareholders' equity
140,188

 
126,991

Total liabilities and shareholders' equity
$
295,778

 
$
315,912






RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
 
Three Months Ended
March 31,
 
2016
 
2015
 
 
 
 
Income from continuing operations
$
11,586

 
$
10,859

Interest expense (income), net
412

 
(39
)
Income tax expense of continuing operations
7,178

 
6,669

Depreciation and amortization
1,935

 
910

Earnings before interest, taxes, depreciation, and amortization (EBITDA)
from continuing operations

$
21,111

 
$
18,399

 
Three Months Ended
March 31,
 
2016
 
2015
 
 
 
 
Operating income
$
19,300

 
$
17,605

Inventory step-up charge
716

 
—

Adjusted operating income
$
20,016

 
$
17,605

 
Three Months Ended
March 31,
 
2016
 
2015
 
 
 
 
Income from continuing operations
$
11,586

 
$
10,859

Inventory step-up charge
716

 
—

Related tax benefit
(269
)
 
—

Adjusted income from continuing operations
$
12,033

 
$
10,859

 
Three Months Ended
March 31,
 
2016
 
2015
 
 
 
 
Diluted income per share from continuing operations
$
0.37

 
$
0.34

Inventory step-up charge
0.02

 
—

Related tax benefit
(0.01
)
 
—

Adjusted diluted income per share from continuing operations
$
0.38

 
$
0.34

 
Three Months Ended
March 31,
 
2016
 
2015
 
 
 
 
Retail segment gross profit
$
11,612

 
$
4,687

Inventory step-up charge
716

 
—

Adjusted Retail segment gross profit
$
12,328

 
$
4,687

 
 
 
 
Retail segment gross margin
29.9
%
 
22.0
%
Inventory step-up charge
1.9
%
 
—

Adjusted Retail segment gross margin
31.8
%
 
22.0
%