NLS - Earnings call transcript Q3 2019

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Operator

Good day, and welcome to the Nautilus, Inc.

Third Quarter 2019 Earnings Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. John Mills of ICR. sir. ahead, go Please

John Mills

to afternoon, Senior Participants to Nautilus on Executive Engineering Special Barr, Good Vice Quatrochi, XXXX Innovation Finance. President are Third Conference Chief and Assistant McMahon, Bill Call. the Dave Officer; CEO; everyone. you. Chris Nautilus' Senior Wachsmuth, Welcome and Quarter Jim the Director, Thank call from

go release of the may our website today's call from nautilusinc.com and non-GAAP earnings was Investor our investor page. mentioned presentation to call Our Relations downloaded in slide will website release presentation we a the discuss the reconciliation measures. issued under directly to will section. be going now are earlier access on includes The measures webcast financial this referring the earnings nautilusinc.com the you events comparable to today on to a Also that if and and today's Jim be at at deck presentation GAAP be to please would most

Remarks operational results, product such and strategic call partnerships. will results anticipated targeted new and statements statements of introductions, our and capital of marketing securities operating initiatives product, and consumer demand and user impact campaign of market forward-looking on business profitability, expenditures timing of base, the new today's meaning and financial introductions of retail future of trends, our and the planned and planned laws. initiatives, include projections, financial anticipated product expected development growth products for results anticipated concerning on strategic acceptance conference growth within initiatives the and These and new the anticipated or investments include our

from uncertainties, risks a number differ results Forward-looking statements are statements. may of and and these actual to subject materially

new meets results and/or experiencing factors and that for Additional statements greater-than-anticipated timely could quality in connection including weaker-than-anticipated with sole-sourced foreign acceptable products, markets, include cause hire manner, marketplace. these costs, spending ability fitness to products, control to delays our timely unfavorable satisfy our demand launches in at effectiveness conditions of forward-looking manufacturers to advertising, consumption acquire from existing our strategic new trends into inventory actual consumers our preferences to standard habits new of in a consumer ability the initiatives, to media economic due differ ability in our from Nautilus' media entry management materially and consumer the offerings, target cost anticipate that personnel, a revenue in the changes retain and retail and and softness consumer of changes our decline in or our key recurring

to by and information more about quarterly our today's these For XX-Q. Form report please uncertainties, and most on our as Form on XX-K supplemented risks refer annual report earnings recent announcement

update publicly they or information, undertakes the made to release after Nautilus otherwise reflect pertain reflect and regarding no or or to circumstances to any our comments to events. events new operating continuing unless statements operations noted. of occurrence to our unanticipated forward-looking obligation information revision results were All

with CEO, pleasure call Jim Mr. that, is to the it Barr. turn Nautilus' over And my to

James Barr

today. call My well Good I afternoon, thank Nautilus and am XX time been energizing, and Thank our you our have been joining of I going spending days. onboarding for Nautilus learning you, has John. my everyone, to systematically now for CEO businesses. welcome

also into a am term I and term diving education holiday longer actions my continuing season while While review. execution balancing near decisive strategic

and encouraged have comeback for story. we convinced our about company am the very for opportunities am I I the right good materials raw that far So ahead

innovative great of We reputation brand over top sourcing and have behind design them. products standing industry earned decades of

As a brands strong result remain market. these the very in

choose of to their can budget and They the models. top technology from can choose In equipment. modalities addition, provide line conscious of features great latent with They customers points we price choice. multiple from

direct contrast at talent and with in the buy choice company is channel team through some omni the channels. The commercial an and As leading extends culture industry has best ways retailers to the even strong multiple resistance exciting is of to has manifesting little the digital many growth our in product I've platform witnessed change A been in firsthand. now to other differentiated offerings itself some to which transformations entering market. positive development even

of would When to improvement and experience a digital strong decided CEO, in my I knew fit and take value industries in legacy position of driving proposition I technological the several and confirmed brands that need background at significant changes in the my at transformations the that challenges. I've in growth we products areas face belief Nautilus. for is face disruption marketing the

indicative are work of of reclaim can in results position leadership but recent I'm a being industry. do the to lot there Our our convinced we fitness

being enough full share a not few though few a might I business assessment CEO especially to our it and months busiest to of be is time high-level our season. make for in Even helpful thought overall observations. proper a initial

do I changing recover First it to consumption accelerating pace. quarters. are business years to causes an several media been few for at a just shopping not our multiple including direct adjusting has are in which evolving and There and expect thus habits declining

We are to time. making to the right insights message at adjustments the right mining deliver actively the marketing right are from better audience consumers and

campaign positioning for the advertising for Recently better campaign a as flex every as we’ve on consumer where The a extensive today. insight both based launched is work stronger day. us well market positions new brand

these sense spots links a have this in TV of We our to materials to you positioning. provided give

campaign resonate meeting our beginning and believe will spending are challenge. We to step important this enter to be period heavier one and just the

We work profitable to do have return this to channel to growth.

companies. customers fitness their have goals. where their meeting fitness on longer. frequently our attainable to ways more mission healthier lives. people great and motivate assist can with to know We more Second, technology In to stick they in users them with so more to about they long-standing for now help industry direction is them we both short, we are a our live motivate it deliver in fitness driving make journeys. fitness engage can We for Through connected and in

fitness making and need is deserve innovation sustained for this spans messages while sure our times in that credit, and overall build brands entrants be difficult get strong for credit our software We at brands. our strongly now to for is it which when strive us challenge competition heard outspend their to more content these to attracted current experience connected machines. they fitness the making One

Ultimately that experience and price a and of choice to we deliver. intend continue to wide reliable attainable still centers across around modalities multiple points equipment which

fitness size product one Third, one spanning is price equipment. several all exercise so which or providing home not two one our brand points modalities is fit why or in brands, of portfolio many versus types choices comprehensive and does

popularity of equipment. us protect particular in product and type our offerings digital inevitable strong up-and-down of This any the against differentiated. helps Today also are

and We digitally space. are squarely connected fitness

the platform to I more broad we I sooner. fitness the will making our including However, products looking better in on fitness through and along this were wish be giving progress call portfolio. discuss on I'll getting recent several accelerate but choices We're further launches portfolio connected even connected customers

career Finally, great spent on also lot pleased I of am growth channel buy. my as has the driving someone consumers choices a we to give

Our base a improve and potential, direct been and profitable retail we economic while has has in channel our good correct meaningful should channel. provide growth particular

is mentioned. that some are initial These observations

have a our We initiated business. assessment full of overall

plan multi-year to during long-term vision insights create takes a and which plan A new and From this XXXX. durable it to vision TrueNorth time and transition right. driven plan strategic we we get unveil will

we for begin you plan in I to However, wait right the assure won't direction. move the to

then third I the will product I as call our a more call new overview would results, business our our quick few the opening in segments detail. turn questions. provide with now well discuss and offerings remarks like to of Dave quarter our review over a your to final before close XXXX to up as financials

quarter. decline of of our We the in third experienced declines The segments in both our

XX% Direct year. advertising our primarily expense the compared segment reduction to is related to in prior

quarter As in discussed this we advertising support offerings calls spend improved prior and fourth and increase to messaging. to new ad intend in the

sales Retail to the sales partial segment. fourth the max due in from same quarter delays from primarily weaknesses tariffs until the and beginning shipment in XX.X% quarter imposed prior recently down of the reflecting trainer were year some the

direct we results fourth looking pleased to first the season. a quarter It and its overall fitness been holiday XXXX product. quarter segments the have in have performance our we rollout recent disappointing, are new in MaxTotal season forward has and While well of our with been done

user This the in by company's in features the digital [indiscernible] learning new personalized features the as integrated powered our and capabilities. few with experience as customized AI body trainer built connected delivers driven to workout both of upper first upgraded MaxTotal connects XX a incorporating digital also screen a cardio that machine coaching fitness The minutes directly touch platform.

across The run. portfolio of accompany fitness easier leveraged pursuit. users reflects is them brand our platform new to under relaunched that Last makes new fitness enable for be digital It stay the portfolio. our platform and this also a goal is throughout fitness to our belief experience week and journey our to journey it we our lifelong with long a that one modalities into help brand, the expect the product on converging we brands name digital connected

engine with trainer. tell an core its vet, features and true personalization journey personal friendly driven adjust At suggests in coaching having levels AI that on-demand us fitness like a customers lot along feels individual to customized workouts one-on-one

automatically the improve goals. Journeys workouts adaptive input on based from much they Each user workout algorithms, tracking and performance. about fitness past the daily how initial is previous personalized and workouts their custom from an assessment is adjusted uses data create coaching technology on to how based user's feeling,

engine expect and explore Australia to locations proprietary the the addition this virtually workouts. featuring of features in Irish year. to journey high-definition to choices during to In and of launch world experience entertain will countryside users the true train be video. from with an the globe which array This via starts locations This our the across later allows we numerous beaches available it motivate to personalization

additional streaming Prime of It workouts users including running walking user's Amazon Journey also treadmill Netflix, for available fitness rewards Hulu. workout their and Bowflex, level, motivate trainer available users be library an and matching gives is will and an complete -- integrated workouts. onto for via expanded is on made their series Bowflex MaxTotal the music based video and and access result new and a Journey curated a celebrate more treadmills. Journey selected personalized on subscriptions Bowflex to app entertainment also users coaching achievements matching features their to led music

Schwinn and time. equipment Nautilus over

Before journey working I'm that out is which through I than our the technology. the platform more mission of achieve indicator early exciting great digital we noble non-subscribers excited can to a XX% subscribers report our leave discussion of are to ways

the we connected excellent an Bowflex fitness say that October for cycling category, to Moving bike debuted that proud experience. late the indoor delivers channel first-ever the in I'm to direct

well as CX third-party can connect as app bike Zwip. The our Bowflex platform and features including the users so explore open an cycling apps with world Peloton

We affordable are bike to a Bowflex excited offer attainable users brand. more now very and the under option

half In the connected Bowflex at than some CX competitors. fact, experience our great delivers the of of price fitness a less

are also the to launched also We platform our continuing of in both our new portfolio with Schwinn we expand the XXX ICX October. treadmill bike which and across digital

we the and increasing provide the in our of in to about a Dave? short-term While execute these We're more up an we strategy all have do our our months. for products. we to forward transformative the improve of to insights, and we inner meantime, this will shore to coming will business. still to digital are work the us give about to focus offerings overview and very runway innovation developing new actionable the can marketing the do transformation I lot quarter. now look performance financial speaking excited financials meaningful Dave In

Dave Wachsmuth

reflecting decline the Net like details third review XX.X% I Thank same the third in sales results in segment decrease of to direct would the the the compared quarter $XX.X period XX.X% XXXX. quarter prior sales to the XX.X% year in for our totaled of retail of a a you Jim. decrease segment. as and for financial million a

year. compared the first the nine were to same period $XXX.X million XX.X% last down XXXX months For of net sales

by retail the of quarter margins mix company basis year. lower growth XX.X% XX.X% direct segment over quarter XX.X% absorption XX.X% unfavorable the same coupled year to and versus to to Margins Third of same unfavorable impacted segment compared in quarter reflecting overall period compared XX.X% in in to the in margins gross were in segments. decreased statements were declined the third to both last quarter the with the same margins the prior XX.X% negatively the sales. of an both and related at product in total XXXX On for decline rate year last

a first nine XX.X% decline increased period sales operating as to the a reflecting of third months quarter from XX.X% in of The same last XX.X% at net XX.X% the were sales. of decrease Total for gross period primarily months last XXXX margins first year. of nine XXXX the in the percentage XX.X% the year expenses same from in

operating prior tangible period. nine and million as XXXX of impairments. percentage Total first first the same were a in expenses for goodwill months of XX.X% a the XXXX the included months to of nine compared as of Operating for sales $XX XX.X% expenses

quarter Sales and net period marketing the XXXX the of or to sales $XX.X net for or was of in as XX.X% third million expense compared same sales million $XX.X last year. XX.X%

as spending decrease reduction offset and sales increase in sales. partially advertising spent by sales a reflected the in percentage production media reflects The costs. in decrease dollar marketing increased The a of

or million or period increased sales million XX.X% being production financing net For the in partially the of year XXXX spend the same with compared months lower and $XX.X and prior media fees by sales net costs. $XX.X first totaled for offset to XX% sales expenses nine advertising marketing

expenses year. dollar administrative The for sales decreased lower compares period sales expense. the G&A XXXX in or X.X% and to spending or last million same in XX.X% litigation third $X.X General reflects quarter primarily net which million the were net $X.X of

filament and percentage in for the the X.X% expenses year. period. quarter as second the of percentage for increase of same nine to a reflects as litigation decrease the The a of administrative current first higher as sales prior as the well net as in and XX.X% months totaled expense sales General G&A sales XXXX in compared completed legal of

spending. Research costs reduction net the party in million of an net dollar X.X% and decrease were of in third or quarter The third period development year. primarily $X.X in sales X.X% internal of last development or compared XXXX capitalized to and reflects the $X.X million app percentage labor increase sales same

nine as of of prior Research and totaled period. XXXX sales development X.X% first net percentage expenses the months to a for same as the compared X.X% for

the $X.X was the rates in to advertising with costs third income year. loss reflects operating of quarter lower quarter in and Operating sales decline of last the partially margin expense. along compared production $X.X million offset XXXX by advertising million gross decrease as increases same The

months million in third versus $X.X XXXX of the of prior of same EBITDA the operations for loss nine from of continuing income first $X.X quarter million quarter the XXXX was year operating for compared as prior $XX same loss million of income and in was second operating loss intangible operating the goodwill includes of quarter. million the million impairments $XX.X $XXX.X to in period. Year-to-date the

was share income Loss for diluted from million continuing operations the per diluted third period quarter $X.XX or or compared to same for the year. of million last XXXX $XX.X per share as of X.X minus $X.XX

share or was share the diluted diluted as of loss same million to nine For compared $X.XX per or $XX.X of from months contained year. operations $X.XX last per $XX.X million first in income period the XXXX

year XX.X% Tax the compared included assets allowance current quarter rate anticipated the million value quarter against realizable reduce last on to to tax recent the based in was minus period in the financial performance. our same effective year. The assets for the $X.X XXXX tax deferred valuation to company's expense of third XX.X% a

income of a the net of quarter $X.XX million third operations. per or including versus of net when Year-to-date XXXX. which of taxes reported X.X for Total loss night nine $X.X loss share diluted or per X.X loss from million for XXXX $X.XX income a operations we million third million per share the includes $X.XX XX.X the or or total first months net XXXX which operations million. was operations million $X.XX net per diluted totaled $XX.X at for diluted minus discontinued includes discontinued share discontinued last including share loss $XX.X compares This net from year of quarter discontinued

the advertising campaign trainer on products reduction over a expense new of in Turning in increase now quarter compared business results prior max as to for the third lower XX% quarter and last of to decrease XXXX XXXX. a net the a to XX.X spend our direct primarily year company same decline The quarter sales year. for fourth the the was to was sales quarter related set of told prepared advertising from and million XX.X%

down in for the due of compared XXXX in quarter segment sales for of to unfavorable were the XXXX due year-to-date XX.X% Gross declined to with mix product unfavorable over the $XX.X XX.X% absorption last lower year-over-year. to XX% sales trainer million the business third quarter margin sales. direct same year relates lower to of coupled max to

million The year. by net of gross quarter third partially was impacted third of a the of expenses. quarter business of sales loss loss the in XXXX $X.X was offset margins advertising prior the our to direct $X.X by same lower negatively operating Operating in for in million the the loss compared and quarter XXXX reduced

for for year operating Year-to-date XXXX segment the period. of loss $XX.X to million $XX.X compared income the million same direct prior totaled

quarter and Net a $million compared last resulting decrease from segment until of sales sales. our of max $XX.X million imposed retail product tariffs decrease placements quarter as delays reflected of in third The trainer year. XX.X in primarily the quarter of of for beginning the third to recently product in decline XXXX fourth the well XX.X% a XXXX as the were

and points retail from XX.X% margins as third XX.X% prior for by quarter period related compared the to and lower business to to the of Gross unfavorable XXX for XXXX sales. basis overhead unfavorable the decreased product absorption mix mostly

down gross Year-to-date year margins XXX the were primarily points for by period driven prior similar basis the same factors. XX.X% versus XXXX retail in

million million Year-to-date rates. the $X.X same the compared the of operating XXXX margin business versus $XX.X quarter lower the decrease in third same totaled XXXX year. to of retail period sales million retail $XX.X for gross prior attributable the primarily the million for $X.X of and period income to year. for last The the income income operating is In business as in totaled

turning the of of $X.X for marketable available in Now borrowing December sheet on credit $XX.X cash with XX, securities balance debt line as million million company XX, September XX, cash $XX.X in had of debt. million million to as This consolidated $XX.X this September and totaled to at $XX million compares XXXX. XXXX The of XXXX. of

$XX.X at of decrease reflect at September Inventories compared XXXX. inventories XX reduce to million higher primarily and December of efforts December levels million of we $XX.X desired $XX.X XXXX September ended to XX, The our were is XX, at than in XXXX as the from million XXXX.

payables ended Trade of XXXX XX, We for million primarily September reflecting software to XXXX seasonality be systems anticipate $X end full in million expenditures compared XX, the totaled with months as spending million new purchases. primarily production $X.X on were $XX to and $XX.X year XXXX $XX.X September and at to of tooling of of the CapEx the range Capital and equipment. million. million nine

At the to comments. like this his we'd Jim? call back time Jim to turn final over for

James Barr

its multiple fitness our most with brands Nautilus, customers our combine our delivers world and the now Thank Dave. including the need brands and message contact. tremendous product the among Bowflex, to recognized strong is We company are with Schwinn Nautilus right is results. improving and you fitness at to which offerings known a advertising that messaging point the Octane equipment for right in of

and connected also platform. keep products, continue We launching to our need our fitness improving drive digital innovative portfolio across

cost workforce in right-size the are to Our and of we $X efforts in XXXX. save million progressing in announced reductions support approximately and business to shared July expect

EBITDA expect continuing quarter from This There's from positive of is occur fourth work and operations not operations. cash achieve to a overnight. the to we During do. lot positive turnaround to going flow

look to we quarter it will progress make expect about forward I However, you as each telling do. we I and good

belief fitness entire the leadership we will in Our that in is its Nautilus aligned goals and industry. restore company position the to our

questions. to the I'd up to your open now like call And Operator?

Operator

Instructions] [Operator you. Thank

of first go SunTrust. ahead. is The Michael question from Please Swartz

Michael Swartz

of that occurred wanted regard side Hey something good off with afternoon maybe of you to I quarter this much and just exactly between to tariffs? with shifted Was to the guess maybe I trying, orders in trying import direct the that guys. the how business start yourself just the understand retail the what to just in cancellation import quarters? or the to revenue us are related forced understand also help them

William McMahon

there new the Yes the so imposed to this the orders imposition of structure light not is biggest related and this. was hi, us Bill renegotiating to do really challenge of in impact runway much cancellation was time really cost was so the to no as allow tariff

that time increased to we the already the it was announced. fact the water was tariffs on In product subject at

which have I So it a impacted I X can tell QX. believe scrambling bit you Dave was shipped was shipments of in already that million those

the QX that renegotiation it still to of make to the was to hit So trying with hours to had really down literally happen. all deadline the

Michael Swartz

to any as in Okay. to and but we're product should part That's thought margin years like term you you great. ever Thank early put structure have days some know but thoughts connected this of I this that if what general targets there's and turnaround fitness of ago business new I were you out know see here then trying and that? the platform given look any longer on just need

William McMahon

really to think mean I strategic Obviously would of negative it impacts connected point take the our I anything have. and be TrueNorth to have planning a we No, are to a trade-offs at look there we share positive at fitness. part don't this

sold have the that revenue part streams original of screens that large constitute also of but goods larger the cost you model. got weren't then in You've a that

not view but any our of have would that. where We that point gotten to internal we the of own share we've

Michael Swartz

Okay. lot. a Thanks

Operator

The next go question is ahead. from Please Capital. of George Imperial Kelly

George Kelly

questions. my Hi guys taking for thanks

retail questions bit few segment the more on So That has quarters. for been a now side. a weak

you has So the to? depth of observations other if been I business. just or there's more know about seen several if retail that share much else a months what or sort you've loss there's for too more into category else pressure is here go you now about of talk wondering if as can the there's can retail it's don't just inventory know you if wondering any anything

Dave Wachsmuth

itself. the there aside in think inventory we talked high which of think Yes. from and previous have so is I Sure. year that has half Dave, about calls was level I the fixed the about I first This channel mean

max Aside is issue just the it's from the and bit other dynamic slower to first half sense as one the year. of our going a year some a last tariff channel little little in of ended the selling within just trainer on been think the I

I how to on inventory much think the want about they have take customers that. this more conservative being

George Kelly

max trainer a does still And business? represent your portion material pretty retail of

Dave Wachsmuth

I mean it's material.

George Kelly

Yes.

Okay.

Okay and so revenue I just in then, the look what's retail as fourth then I should a quarter more business? or kind too retail is you soon of expect in return the to guess to forward it mean outlook positive forward growth flat-ish your or

Dave Wachsmuth

We apply line the the think think the are actually not at rolled whether into on general didn't QX shipments well normal segment providing would definitely are but I guidance top that those seasonality in point mean as QX. happen this as I it in I

George Kelly

just Okay. was for on you balance the then And next sheet, me question that can helpful.

anything just I expected about positive just else yearend It think at in can would your I helpful. inventory heard operations cash fourth just or share Anything your you availability facility quarter. say the else? from flow on be

James Barr

working account year that generally [indiscernible] regard. we the to should so primarily receivable positive end up Sure the wise amount of at facility, regards in end of capital of amount availability accounts higher it's on in the the with based a inventory is we seasonality have the be that and

around million XX of we last year. as the goal fit our end we at know that we side by goal inventory year our and we finished and high to is the said this drop On

George Kelly

XX close million X. Okay. versus to the Drop that

the fourth come quarter? in back inventory up could So

Dave Wachsmuth

at because season still you guys so yes that continues support in QX saw them. position we on fitness to Correct the inventory remember haven't up we the December

George Kelly

Okay. All right. Thanks.

James Barr

Thanks George.

Operator

for would further over time. floor to the I comments. questions Jim back There Barr, to CEO this at are turn no like closing

James Barr

today day our forward in the our for fourth-quarter a call another providing and onwards Have months interest earnings rest a few call. update look on to on you and We great upwards. Nautilus. Thank your business the continued you joining in with of

Operator

concludes This teleconference. today's

disconnect may for great participation lines time. a Thank and day. at You your this have you your

John Mills	ICR
James Barr	CEO & Director
Dave Wachsmuth	Senior Director, Finance
William McMahon	Special Assistant to the CEO
Michael Kawamoto	D.A. Davidson & Co.
George Kelly	Imperial Capital
Ryan Sigdahl	Craig-Hallum Capital Group

Bowflex (BFXXQ) 8 Nov 192019 Q3 Earnings call transcript