Nautilus, Inc. Continues Positive Momentum Reporting Profit from Continuing Operations for the Third Quarter of 2011

November 7, 2011 - Nautilus, Inc. (NYSE: NLS) reported today its unaudited operating results for the third quarter ended September 30, 2011. All information regarding the Company's operating results, unless otherwise noted, pertains to its continuing operations, which include the Direct and Retail fitness segments. The Company's former commercial fitness business is reported as a discontinued operation.

Net sales for the third quarter ended September 30, 2011 totaled $37.4 million, a decline of 2.8% as compared to net sales of $38.5 million for the same quarter in 2010. For the nine months ended September 30, 2011, net sales increased to $120.4 million, an increase of 4.9% as compared to net sales of $114.8 million for the same period in 2010.

Income from continuing operations for the third quarter ended September 30, 2011 was $0.3 million, compared to a loss from continuing operations of $2.4 million for the 2010 third quarter. Diluted income per share from continuing operations for the third quarter of 2011 was $0.01, compared to a diluted loss per share of $(0.08) for the same quarter a year ago. The significant improvement in results from continuing operations was primarily due to a 16.8% reduction in operating expenses achieved principally through more efficient advertising expenditures. Selling and marketing expenses for the 2011 third quarter, as a percent of net sales, declined to 30.8% from 37.3% for the comparable 2010 period.

Bruce M. Cazenave, Chief Executive Officer, stated, "Despite a continued challenging consumer sales environment, we are pleased that revenues in our direct business continue to grow, reflecting solid demand for our products. Improvement in overall profitability during the quarter resulted from achieving further operating expense efficiencies through disciplined cost controls and more efficient and effective media expenditures. Given our management team's refocused efforts to bring more new and innovative products to market, we made a number of moves during the quarter to expand our product development resources and capabilities."

The Company reported a net loss of $0.1 million for the third quarter ended September 30, 2011, compared to a net loss of $4.3 million for the third quarter of 2010. Diluted net loss per share for the third quarter of 2011 was breakeven $(0.00), compared to diluted net loss per share of $(0.14) for the same quarter a year ago. Net loss for the 2011 third quarter included a loss from discontinued operation of $0.4 million, or $(0.01) per diluted share, compared to a loss of $1.9 million, or $(0.06) per diluted share for the 2010 third quarter.

For the nine months ended September 30, 2011, loss from continuing operations was $0.8 million, compared to loss from continuing operations of $11.8 million for the same period in 2010. Diluted loss per share from continuing operations for the first nine months of 2011 was $(0.03), compared to $(0.38) for the same period a year ago.

The Company reported a net loss of $1.8 million for the nine months ended September 30, 2011 compared to a net loss of $22.8 million for the same period a year ago. Diluted net loss per share for the first nine months of 2011 was $(0.06), as compared to diluted net loss per share of $(0.74) for the same period a year ago. Net loss for the first nine months of 2011 included a loss from discontinued operation of $1.0 million, or $(0.03) per diluted share, compared to a loss of $11.0 million, or $(0.36) per diluted share, for the same period in 2010.

Net sales for the Direct segment increased 5.3% for the 2011 third quarter over the comparable period last year. This sales increase was largely driven by continued strong demand for the Company's TreadClimber® products, attributable partly to increased advertising effectiveness and higher consumer credit approval rates, which rose to 27% in the 2011 third quarter, from 21% for the same period last year. The improvement in Direct net sales, led by strong growth in TreadClimber® products, was partially offset by a decline in net sales of strength products due to sales promotions during the third quarter 2010 and the maturing product life cycle for home gyms.

Net sales in the Retail segment for the 2011 third quarter totaled $13.7 million, compared to $16.1 million for the same period last year, primarily due to a third quarter 2010 sales promotion of certain cardio products that was not repeated in the third quarter this year, as well as a shift in the timing of customer orders to the fourth quarter.

Third quarter 2011 operating results for the Direct segment improved by $2.8 million over the same quarter last year, primarily due to a 5.3% increase in sales and more effective media advertising content, which enabled more efficient ad spending. Gross margin percent for the Direct business was 52.0% of net sales for the third quarter of 2011, a decrease of 310 basis points compared to the comparable 2010 period, as improved product margins were more than offset by increased freight and warranty expenses.

Third quarter 2011 operating results for the Retail segment declined $0.7 million from the same quarter a year ago, primarily due to a decline of 14.9% in sales and lower gross margin, offset in part by lower selling and marketing expenses. Retail gross margin percent of 21.6% declined by approximately 280 basis points from the 2010 third quarter, primarily due to higher supply chain costs combined with lower sales volume, partially offset by improved product margins.

The following summary contains information from our unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010:

Results of Operations

Three months ended September 30,

Nine months ended September 30,

        
      
      
        
          (Unaudited and in thousands, except per share amounts)
        
        
        
        
          

2011

        
        
           
        
        
          2010
        
        
        
        
          

2011

        
        
           
        
        
          2010
        
      
      
        
          Net sales
        
        
        
        
          

$

37,402

        
        
        
        
        
        
          $
        
        
          38,474
        
        
        
        
        
        
          

$

120,427

        
        
        
        
        
        
          $
        
        
          114,760
        
        
        
      
      
        
          Cost of sales
        
        
        
        
          

21,605

        
        
           
        
        
        
        
          21,856
        
        
           
        
        
        
        
          

68,000

        
        
           
        
        
        
        
          61,708
        
        
           
        
      
      
        
          Gross margin
        
        
        
        
          

15,797

        
        
           
        
        
        
        
          16,618
        
        
           
        
        
        
        
          

52,427

        
        
           
        
        
        
        
          53,052
        
        
           
        
      
      
        
          Operating expenses:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Selling and marketing
        
        
        
        
          

11,517

        
        
        
        
        
        
          14,347
        
        
        
        
        
        
          

38,601

        
        
        
        
        
        
          47,935
        
        
        
      
      
        
          General and administrative
        
        
        
        
          

4,134

        
        
        
        
        
        
          4,797
        
        
        
        
        
        
          

13,103

        
        
        
        
        
        
          14,750
        
        
        
      
      
        
          Research and development
        
        
        
        
          

859

        
        
           
        
        
        
        
          699
        
        
           
        
        
        
        
          

2,336

        
        
           
        
        
        
        
          2,290
        
        
           
        
      
      
        
          Total operating expenses
        
        
        
        
          

16,510

        
        
           
        
        
        
        
          19,843
        
        
           
        
        
        
        
          

54,040

        
        
           
        
        
        
        
          64,975
        
        
           
        
      
      
        
          Operating loss
        
        
        
        
          

(713

)

        
        
        
        
          (3,225
        
        
          )
        
        
        
        
          

(1,613

)

        
        
        
        
          (11,923
        
        
          )
        
      
      
        
          Other expense, net
        
        
        
        
          

(176

)

        
        
        
        
          338
        
        
           
        
        
        
        
          

(317

)

        
        
        
        
          290
        
        
           
        
      
      
        
          Loss from continuing operations before income taxes
        
        
        
        
          

(889

)

        
        
        
        
          (2,887
        
        
          )
        
        
        
        
          

(1,930

)

        
        
        
        
          (11,633
        
        
          )
        
      
      
        
          Income tax (benefit) expense
        
        
        
        
          

(1,170

)

        
        
        
        
          (489
        
        
          )
        
        
        
        
          

(1,136

)

        
        
        
        
          130
        
        
           
        
      
      
        
          Income (loss) from continuing operations
        
        
        
        
          

281

        
        
           
        
        
        
        
          (2,398
        
        
          )
        
        
        
        
          

(794

)

        
        
        
        
          (11,763
        
        
          )
        
      
      
        
          Discontinued operation:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Loss from discontinued operation before income taxes
        
        
        
        
          

(19

)

        
        
        
        
          (1,728
        
        
          )
        
        
        
        
          

(509

)

        
        
        
        
          (10,778
        
        
          )
        
      
      
        
          Income tax expense of discontinued operation
        
        
        
        
          

354

        
        
           
        
        
        
        
          180
        
        
           
        
        
        
        
          

451

        
        
           
        
        
        
        
          261
        
        
           
        
      
      
        
          

Loss from discontinued operation

(373

)

        
        
        
        
          (1,908
        
        
          )
        
        
        
        
          

(960

)

        
        
        
        
          (11,039
        
        
          )
        
      
      
        
          Net loss
        
        
        
        
          

$

(92

)

        
        
        
        
          $
        
        
          (4,306
        
        
          )
        
        
        
        
          

$

(1,754

)

        
        
        
        
          $
        
        
          (22,802
        
        
          )
        
      
      
        
          

Income (loss) per share from continuing operations:

Basic and diluted

$

0.01

        
        
        
        
        
        
          $
        
        
          (0.08
        
        
          )
        
        
        
        
          

$

(0.03

)

        
        
        
        
          $
        
        
          (0.38
        
        
          )
        
      
      
        
          

Loss per share from discontinued operation:

Basic and diluted

$

(0.01

)

        
        
        
        
          $
        
        
          (0.06
        
        
          )
        
        
        
        
          

$

(0.03

)

        
        
        
        
          $
        
        
          (0.36
        
        
          )
        
      
      
        
          

Net loss per share:

Basic and diluted

$

(0.00

)

        
        
        
        
          $
        
        
          (0.14
        
        
          )
        
        
        
        
          

$

(0.06

)

        
        
        
        
          $
        
        
          (0.74
        
        
          )
        
      
      
        
          

Weighted average shares outstanding:

Basic and diluted

30,747

        
        
        
        
        
        
          30,744
        
        
        
        
        
        
          

30,746

        
        
        
        
        
        
          30,744
        
        
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    

The following table presents comparative net sales by segment for the third quarters ended September 30, 2011 and 2010:

Net Sales by Segment

Three months ended September 30,

        
        
           
        
        
          Change
        
      
      
        
          (Unaudited and in thousands)
        
        
        
        
          

2011

        
        
           
        
        
          2010
        
        
        
        
          $
        
        
           
        
        
          %
        
      
      
        
          Direct
        
        
        
        
          

$

22,645

        
        
        
        
        
        
          $
        
        
          21,504
        
        
        
        
        
        
          $
        
        
          1,141
        
        
        
        
        
        
          5.3
        
        
          %
        
      
      
        
          Retail
        
        
        
        
          

13,710

        
        
        
        
        
        
          16,118
        
        
        
        
        
        
          (2,408
        
        
          )
        
        
        
        
          (14.9
        
        
          )%
        
      
      
        
          Royalty income
        
        
        
        
          

1,047

        
        
           
        
        
        
        
          852
        
        
           
        
        
        
        
          195
        
        
           
        
        
        
        
          22.9
        
        
          %
        
      
      
        
        
        
        
        
          

$

37,402

        
        
           
        
        
        
        
          $
        
        
          38,474
        
        
           
        
        
        
        
          $
        
        
          (1,072
        
        
          )
        
        
        
        
          (2.8
        
        
          )%
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    

The following table presents comparative net sales by segment for the nine months ended September 30, 2011 and 2010:

Net Sales by Segment

Nine months ended September 30,

        
        
           
        
        
          Change
        
      
      
        
          (Unaudited and in thousands)
        
        
        
        
          

2011

        
        
           
        
        
          2010
        
        
        
        
          $
        
        
           
        
        
          %
        
      
      
        
          Direct
        
        
        
        
          $
        
        
          75,354
        
        
        
        
        
        
          $
        
        
          68,450
        
        
        
        
        
        
          $
        
        
          6,904
        
        
        
        
        
        
          10.1
        
        
          %
        
      
      
        
          Retail
        
        
        
        
          42,090
        
        
        
        
        
        
          43,869
        
        
        
        
        
        
          (1,779
        
        
          )
        
        
        
        
          (4.1
        
        
          )%
        
      
      
        
          Royalty income
        
        
        
        
          2,983
        
        
           
        
        
        
        
          2,441
        
        
           
        
        
        
        
          542
        
        
           
        
        
        
        
          22.2
        
        
          %
        
      
      
        
        
        
        
        
          $
        
        
          120,427
        
        
           
        
        
        
        
          $
        
        
          114,760
        
        
           
        
        
        
        
          $
        
        
          5,667
        
        
           
        
        
        
        
          4.9
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    

The following table presents comparative operating results by segment for the third quarters ended September 30, 2011 and 2010:

Operating Income (Loss) by Segment

Three months ended September 30,

        
        
           
        
        
          Change
        
      
      
        
          (Unaudited and in thousands)
        
        
        
        
          

2011

        
        
           
        
        
          2010
        
        
        
        
          $
        
        
           
        
        
          %
        
      
      
        
          Direct
        
        
        
        
          

$

161

        
        
        
        
        
        
          $
        
        
          (2,686
        
        
          )
        
        
        
        
          $
        
        
          2,847
        
        
        
        
        
        
          106.0
        
        
          %
        
      
      
        
          Retail
        
        
        
        
          

1,319

        
        
        
        
        
        
          2,001
        
        
        
        
        
        
          (682
        
        
          )
        
        
        
        
          (34.1
        
        
          )%
        
      
      
        
          Unallocated corporate
        
        
        
        
          

(2,193

)

        
        
        
        
          (2,540
        
        
          )
        
        
        
        
          347
        
        
           
        
        
        
        
          13.7
        
        
          %
        
      
      
        
        
        
        
        
          

$

(713

)

        
        
        
        
          $
        
        
          (3,225
        
        
          )
        
        
        
        
          $
        
        
          2,512
        
        
           
        
        
        
        
          77.9
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    

The following table presents comparative operating results by segment for the nine months ended September 30, 2011 and 2010:

Operating Income (Loss) by Segment

Nine months ended September 30,

        
        
           
        
        
          Change
        
      
      
        
          (Unaudited and in thousands)
        
        
        
        
          

2011

        
        
           
        
        
          2010
        
        
        
        
          $
        
        
           
        
        
          %
        
      
      
        
          Direct
        
        
        
        
          

$

1,339

        
        
        
        
        
        
          $
        
        
          (9,200
        
        
          )
        
        
        
        
          $
        
        
          10,539
        
        
        
        
        
        
          n.m.
        
      
      
        
          Retail
        
        
        
        
          

4,420

        
        
        
        
        
        
          5,594
        
        
        
        
        
        
          (1,174
        
        
          )
        
        
        
        
          (21.0
        
        
          )%
        
      
      
        
          Unallocated corporate
        
        
        
        
          

(7,372

)

        
        
        
        
          (8,317
        
        
          )
        
        
        
        
          945
        
        
           
        
        
        
        
          11.4
        
        
          %
        
      
      
        
        
        
        
        
          

$

(1,613

)

        
        
        
        
          $
        
        
          (11,923
        
        
          )
        
        
        
        
          $
        
        
          10,310
        
        
           
        
        
        
        
          86.5
        
        
          %
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
    
    

The following summary contains information from our unaudited condensed consolidated balance sheets as of September 30, 2011 and December 31, 2010:

Balance Sheet

As of

        
      
      
        
          (Unaudited and in thousands)
        
        
        
        
          

September 30, 2011

        
        
           
        
        
          December 31, 2010
        
      
      
        
          

Assets

        
        
        
        
        
        
        
        
        
      
      
        
          Current assets:
        
        
        
        
        
        
        
        
        
      
      
        
          Cash and cash equivalents
        
        
        
        
          

$

11,518

        
        
        
        
        
        
          $
        
        
          14,296
        
      
      
        
          Trade receivables, net
        
        
        
        
          

11,520

        
        
        
        
        
        
          19,633
        
      
      
        
          Inventories
        
        
        
        
          

13,492

        
        
        
        
        
        
          10,347
        
      
      
        
          Prepaids and other current assets
        
        
        
        
          

6,329

        
        
           
        
        
        
        
          7,319
        
      
      
        
          Total current assets
        
        
        
        
          

42,859

        
        
        
        
        
        
          51,595
        
      
      
        
          Property, plant and equipment, net
        
        
        
        
          

4,290

        
        
        
        
        
        
          3,795
        
      
      
        
          Goodwill
        
        
        
        
          

2,837

        
        
        
        
        
        
          2,931
        
      
      
        
          Other intangible assets, net
        
        
        
        
          

17,229

        
        
        
        
        
        
          18,774
        
      
      
        
          Other assets
        
        
        
        
          

715

        
        
           
        
        
        
        
          1,272
        
      
      
        
        
        
        
        
          

$

67,930

        
        
           
        
        
        
        
          $
        
        
          78,367
        
      
      
        
          

Liabilities and Stockholders' Equity

        
        
        
        
        
        
        
        
        
      
      
        
          Current liabilities:
        
        
        
        
        
        
        
        
        
      
      
        
          Trade payables
        
        
        
        
          

$

17,799

        
        
        
        
        
        
          $
        
        
          24,535
        
      
      
        
          Accrued liabilities
        
        
        
        
          

6,620

        
        
        
        
        
        
          7,045
        
      
      
        
          Warranty obligations, current portion
        
        
        
        
          

1,764

        
        
        
        
        
        
          3,539
        
      
      
        
          Deferred income tax liabilities
        
        
        
        
          

1,142

        
        
           
        
        
        
        
          1,160
        
      
      
        
          Total current liabilities
        
        
        
        
          

27,325

        
        
        
        
        
        
          36,279
        
      
      
        
          Long-term notes payable
        
        
        
        
          

5,480

        
        
        
        
        
        
          5,141
        
      
      
        
          Warranty obligations, non-current
        
        
        
        
          

408

        
        
        
        
        
        
          396
        
      
      
        
          Income taxes payable, non-current
        
        
        
        
          

3,293

        
        
        
        
        
        
          3,210
        
      
      
        
          Deferred income tax liabilities, non-current
        
        
        
        
          

1,354

        
        
        
        
        
        
          1,008
        
      
      
        
          Other long-term liabilities
        
        
        
        
          

1,427

        
        
        
        
        
        
          1,534
        
      
      
        
          Stockholders' equity
        
        
        
        
          

28,643

        
        
           
        
        
        
        
          30,799
        
      
      
        
        
        
        
        
          

$

67,930

        
        
           
        
        
        
        
          $
        
        
          78,367
        
      
    
    

Conference Call

Nautilus will host a conference call to discuss the Company's operating results for the third quarter at 4:30 p.m. ET (1:30 p.m. PT) on Monday, November 7, 2011. 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 [phone] in North America and international listeners may call [phone]. Participants from the Company will include Bruce M. Cazenave, Chief Executive Officer, William B. McMahon, Chief Operating Officer and Michael D. Mulholland, Chief Financial Officer.

A telephonic playback will be available from 6:30 p.m. ET, November 7, 2011, through 6:30 p.m. ET, November 21, 2011. Participants can dial [phone] in North America and international participants can dial [phone] to hear the playback. The passcode for the playback is 21543843.

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 FitnessTM and Universal®, Nautilus markets innovative fitness products through Direct and Retail channels. Websites: www.nautilusinc.com, www.bowflex.com, www.treadclimber.com and www.corebody.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, capabilities, current or future financial trends or operating results. Factors that could cause Nautilus, Inc.'s actual results to differ materially from these forward-looking statements include our ability to acquire inventory from sole source foreign manufacturers at acceptable costs, within timely delivery schedules and that meet our quality control standards, availability and price of media time consistent with our cost and audience profile parameters, a decline in consumer spending due to unfavorable economic conditions, 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 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 actual results or developments 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 events or circumstances.