Nautilus Reports Flat 2017 Revenue, Plans Digital Offering

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In October 2017, Nautilus CEO Bruce Cazenave projected that fourth quarter sales would be unlikely to offset "the slow first half of the year" for the Washington-based company.(Photo courtesy Nautilus.)

Nautilus Inc., Vancouver, Washington, reported $406.2 million in 2017 net sales and $127.8 million in fourth quarter net sales, according to financials released March 5. The former is virtually unchanged from 2016's $406 million, while the latter represents an increase of 1.6 percent.

“Although we achieved our fourth quarter and full-year revenue and operating income guidance when excluding the non-cash trade name impairment charge, we came in considerably below the overall full-year performance targets we had established for 2017," CEO Bruce M. Cazenave said in the report. "Importantly, we managed through 2017's challenges, generating $54 million of adjusted EBITDA, while continuing to advance our long-term strategic initiatives. We also continued to strengthen our balance sheet during the year, generated $35 million of cash flow from operations, and repurchased $11 million of stock in the open market.”

Bowflex MaxTrainer and Bowflex HVT sales helped Nautilus' direct segment sales grow 9.9 percent during the quarter to $71.6 million. This also offset an anticipated decline in TreadClimber sales, according to the earnings report. For the year, direct segment sales decreased 2.5 percent to $219.4 million.

Retail segment sales dropped 7.5 percent during the quarter to $55.5 million, reflecting weaknesses in specialty and commercial customers. For the year, retail sales increased 3.3 percent to $183.9 million, reflecting product variety and a growth among traditional and e-commerce channels.

Operating income in 2017 decreased by 32 percent to $36.3 million, while income from continuing operations totaled $27.6 million or 89 cents per diluted share. EBITDA from continuing operations decreased 26 percent $45.2 million.

After the third quarter, Cazenave projected that fourth quarter sales would "not likely be enough to offset the slow first half of [2017]."

In the March 5 report, he said the brand will focus on its multifaceted growth plan in 2018 to achieve long-term goals.

"With 2017 financial performance coming in well below our expectations, we recognize that we needed to increase our focus and provide added investments in key strategic initiatives in order to drive the desired higher levels of revenue and operating growth," Cazenave said in a call with analysts.

Part of the plan to increase revenue in 2018 is to launch a digital platform, according to Bill McMahon, COO of Nautilus. In the analyst call, McMahon said that the company has been researching the growth of digital subscription models and online group exercise.

"In the past year, we have completed several iterations of research related to this space, and we have identified a new and unique to market approach to enable our customers to achieve success," McMahon said. "This approach will be digital based and will involve a core product as well as compelling paid subscription content. Further, this platform over time will be exportable across a variety of our products allowing our customers to use the product of their choice or even multiple products while remaining in our new ecosystem of coaching support. We are currently targeting Q4 to introduce this new digital platform, including our subscription model which will launch in the Direct channel."

The plan for 2018 is multifaceted and will involve approximately $3 million to $4 million in incremental expenses and $5 million to $6 million in additional capital expenditures, Cazenave said in the call. The investments will be mostly concentrated in four areas: rapidly building out the digital platform, restructuring the international sales and support teams with a goal of doubling international revenue by 2020 and consolidating the Nautilus and Octane teams under one leader, consolidating warehousing facilities and realigning its supply base, and completing the ERP integration of Octane Fitness.

"All of these changes and related investments, which will mostly occur during the first three quarters of 2018, are anticipated to position our company to better execute on a number of high-return growth opportunities, plus provide a more efficient cost structure to realize them," Cazenave said.

Cazenave said he expects all sales segments will return to "full year top-line growth" in 2018.

"On a full year basis for 2018, we are projecting company revenues of between $428 million to $437 million with operating income in the range of $42 million to $45 million," he said in the analyst call. "For the first quarter of 2018, we are projecting revenues between $110 million and $113 million and operating income in the range of $8.5 million to $9.5 million."



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