Nautilus’ First Quarter Revenue Grows to $120.9 Million with Addition of Octane Fitness

Nautilus, Vancouver, Washington, reported a 25.7 percent year-over-year first quarter revenue increase to $120.9 million, according to financials released on Monday.

The revenue increase was driven by incremental sales resulting from the January acquisition of Octane Fitness, Brooklyn Park, Minnesota, along with “strong organic sales growth” in both the direct-to-consumer and retail segments, Nautilus said in Monday’s earnings release.

“We are very pleased with our solid start to 2016 as revenue, operating income and EBITDA all improved significantly during the first quarter,” Nautilus CEO Bruce Cazenave said in a statement. “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.”

Net sales for Nautilus’ retail segment including incremental revenues from Octane Fitness increased to $38.8 million in the first quarter, marking an 82.3 percent increase over the first quarter of 2015.  The company expected to “see a sizeable jump” in the retail segment in the first quarter with the addition of Octane Fitness, Cazanave told Club Industry at IHRSA 2016 in March. (For more of the conversation with Cazanave, read this blog.) Nautilus’ retail segment grew 22 percent in 2015.

“This [82.3 percent] improvement was primarily due to the addition of Octane sales to the channel,” William McMahon, chief operating officer, Nautilus, told analysts during Monday’s conference call. “However, our original retail sales categories, which include sporting goods and online sales, also delivered strong growth in revenue and profit.”

Octane’s new ZeroRunner ZR8000, which McMahon said was “received very well” at theIHRSA 2016 and FIBO 2016 trade shows, is expected to launch mid-year with shipments arriving to customers in the third quarter. Octane’s XT-One commercial elliptical cross trainer was added to the range of premium Octane products at the David Lloyd Leisure Clubs in Britain, McMahon noted.

“This is one of several examples of how the acquisition of Octane Fitness is diversifying our brand offerings and expanding our channel opportunities,” McMahon told analysts. “Octane sales in Q1 were impacted by some softness in the overall consumer specialty segment, but this was partially offset by stronger performance in commercial products.”

Operating income for Nautilus’ retail segment in the first quarter was $3.9 million, up $1.5 million from the first quarter of 2015. The growth in retail operating income was due to improvement in Nautilus’ organic retail business revenue and margins, coupled with the addition of Octane Fitness, according to the earnings release.

Nautilus retail gross margins in the first quarter increased to 29.9 percent, up from the 22 percent reported in the first quarter of 2015. The gross margins would have been 31.8 percent if a purchase price inventory step-up charge related to the Octane acquisition ($700,000) was excluded in the reporting. Retail gross margins prior to the Octane acquisitions were in the mid 20 percent range, Cazanave told Club Industry in March. Nautilus inventory as of March 31 was $36.8 million, up $20 million from the first quarter of 2015, which was primarily due to the Octane acquisition.

“We are very encouraged by the continued strong momentum and outlook in our business,” Cazenave said in a statement. “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…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.”

Nautilus’ direct-to-consumer segment sales in the first quarter increased 9.7 percent to $81.2 million, which was boosted by continued strong demand for cardio products highlighted by the Bowflex Max Trainer product line. Operating income for the direct segment increased 8 percent to $21.1 million due to favorable product mix and the leveraging of supply chain costs. Royalty revenue in the first quarter remained the same as it was in the first quarter 2015 ($900,000).

Nautilus (NYSE:NLS) stock was up over 15 percent in early trading on Tuesday at $20.07 per share. Nautilus stock is trading in a 52-week range between $13.82 and $22.95. Nautilus also announced on Monday that its board of directors 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