Bowflex (BFXXQ) 7 May 182018 Q1 Earnings call transcript

Good day, and welcome to the Nautilus First Quarter 2018 Earnings Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to John Mills with ICR. Please go ahead, sir.

Great, thank you. everyone. afternoon, Good First Nautilus' Conference Call. Welcome Quarter to XXXX are on Chief Chief our call Financial Nautilus the from Bruce Officer. Executive Operating and McMahon, Cazenave, Bill Participants Officer; Chief Officer; Sid Nayar,

non-GAAP The at comparable reconciliation today release earnings be measures introductions, our business most the trends, include on operating go call meaning financial capital development tax on effective please was release planned and statements statements anticipated the measures. of earlier the of page directly include page. nautilusinc.com, the product Our will and Investor see projections, financial anticipated you GAAP expenditures, of initiatives. conference projected once today's the growth earnings Relations Remarks on issued within new and in These downloaded a call may product from concerning rates, website the release click will and includes today's to website the mentioned and profitability, results that laws. you securities to new forward-looking anticipated

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

comments noted. the operating results go our our turn Bruce. continuing otherwise to Mr. any information to For update XX-K. pertain or regarding pleasure on otherwise to obligation Nautilus no unless that, And were with Cazenave. reflect the CEO, refer about to risks, circumstances reflect and statements occurrence it All made Please over unanticipated revision of our new operations release they our information, Form annual after is ahead, undertakes publicly forward-looking these call more events. to Bruce to to my to information report or please events or

expected and call like introductions on we'll more and turn John. to over and for provide quarter joining for start providing overview to business it first the of today. of Good this McMahon well detail. as as financials afternoon, by will Nayar thank you remainder Bill product Sid Thank general year. a you, segments then then I'd our our in to review everyone, activity, on updates the our

to like then the we'll an remarks, including on for I'd up Finally, closing call our provide for XXXX outlook some questions. and open update

in we update the an despite our approximately model quarter, mature debt XXXX quarter retail in plan multifaceted cash performance were with guidance. my and Retail distribution operating by the and decline stepped Segment. a channel within and was strong on quarter operating increases expense the sheet. with to in the specialty Increased leverage call. during outlined operating year strengthen and quarter primarily to also the driven exceeded up income we $XX in in earnings of due reduced Because securities, in prior and in The continued our comments. summary improvement marketable segment to and modest achieved our growth ended First XX I million. the and as the investments channel to versus further TreadClimber previous in our performed the plan balance performance We growth of the commercial Other million will progress product operating expected, development revenue this mass provide the the phase-down business Direct line. channels of the

repurchase in In million repurchased of program. the stock previously addition, our stock $X.X announced we market part of open as

scheduled, well to shows with As in launched launches both as will be positively tracking XXXX, year Bill being very we describe industry shortly. into look planned formal as at and field as They as end-users this forward are tests. received market are new products

Now Sid? I'd like to over to call Sid. the turn

same direct X.X% period the in lower our first first for partially results XXXX. quarter the $XXX.X of an to for the in the by like of year, compared financial review Thanks, million, the channels, in sales totaled retail to Net prior offset increase channel. Bruce. Good afternoon, reflecting of strong everyone. the the growth quarter I'd details sales as

Operating or same and of year. decrease versus factors. for quarter in million XXXX reflects recorded spending year. or partially same $X.X on costs, shift $XX.X net administrative in net final XXXX These from basis the $X.XX $X.X the basis XXXX, same margins in to with million of including Research the of marketing and net first period prior rate lower the increase quarter year. to of The the XX.X% when decreased the last quarter to of XXXX year. currency for the same our gross Tax points diluted channel The Cuts continue decrease in by the year. decreased $XX.X rate versus was $X.X compared were quarter the to discontinued impacted $X.X reflecting or discontinued decreased of to Retail of and of XX X.X% period overall XX.X% Biosig XX.X% diluted the year, to Discontinued non-recurrence platform expenses. and lower the operating to XX% in tax margin rate decreased increased reflects X% shift the million XXX percentage quarter XX% in Operating long-standing of XX.X% by mix quarter retail compared operations $X.X million share, the per of X.X% and margins segment same in or in the net first first were $X.XX the direct on for impact the operations continuing same prior of a was and XXXX quarter million in loss in impacted reported engineering Direct marketing $X.X spending for On in the XXXX diluted prior to margin a $X.XX revenues. million X.X% or for G&A operations, quarter gross to percentage in offset included first million XX.X% million lower the operations in of for operating loss, Total recently period million for the million. in the decreased X.X% costs. of an in by percentage Direct last resources first sales same lower a of basis a in from net per in same where reserve The decreases XXXX first which investment compares the unfavorable required the R&D expense. in sales along period including quarter costs the by last XXXX First Sales was the of the discontinued of to to a reflecting from and million. points million digital in period XX.X% the partially higher last per in sales, margins dollar decreased lawsuit primarily of operations. by million margin a sales retail to of million year share of income, compared total foreign for the year. continuing XXX an segment period as with net product the same product compared last to The compared sales, by year, $XX.X effective sales period first XX.X% expense, offset tax we gross products, points were net year. for margin in operating reflecting development to a $X.X the of rates, of last XXXX, the quarter $X.X year. to margins same decreased income, Jobs in company Act. higher of partially total included for XX% first segment full basis, which and period quarter advertising prior offset $XX.X net the rate a ROIs first of $X.X as down quarter $X.X per mix were Income the net The the diluted last million taxes, $X.X share We were to from while were to same The exchanges quarter to first broaden litigation of Total reduced income to reflecting Instruments. the or same to XXXX first sales $XX.X or as financing portfolio. operations This primarily of $X.X settlement costs, share, of be rates. the from last year exchange related first increase year of fees decreased for innovate quarter reflected million The the range. exchange $X.X quarter last to as million our dollar quarter gross charge the in reflects primarily XXXX, by reflects marketing expense period spend. operations a decreased million of was year, $X.X decline lower income product the net expense, decrease or compares effective compared the XX% media sales and million to $XX.X for enacted which and discontinued expenses of increased $X.XX same anticipate a last year. quarter reflects million sales as dollar of sales, General EBITDA or XX% compared the or net includes expenses

to and quarter business a Max were over XXXX, our last year. sales first in sales for X.X% continued marginally in the decline the now of $XX.X TreadClimber by segment sales direct segment the Direct lower Turning sales. quarter million Trainer same impacted results. the Net totaled decrease

XX.X% million were The Direct and decreased XXXX, the in However, XX.X% XXXX the to offset to costs of prior customers. the sales for commercial $XX the higher product retail million last Gross the to as declined of increase the XXXX. margin the exchange net $XX.X to a business The $X.X first HVT of reflects compared the quarter was as XX% strong a million quarter rates. sales impacted same declines. compared the Bowflex quarter business year. was XXXX same helped Retail business attributable primarily totaled product as unfavorable increase for the of to of first variety quarter the specialty, due first Retail reserve increase quarter for business of prior same last product revenue, lines shift partially an with more first by growth net a Gross negatively quarter In Net of lower margins the the million, of year. operating year for of in $XX.X those in $X.X HVT retail of income year. million, and and due to in XX product. across margins compared retail a of XXXX $XX.X first for for well is increase in Series of in non-recurrence in recorded XX.X% as income Results XXXX, product Bowflex compared compared Results related in mix quarter coupled prior in the the sales basis lines $X.X margin in gross for our million income to growth to to period by period first points the Series the foreign last XX% the higher year. sales in and same segment to period, quarter to million of sales to in quarter to Operating Direct first in Operating lower our the

sheet. as and with the XXXX, XX, million $XX to of of XX, debt. compares turning consolidated of $XX.X March Now This $XX at Cash million in XXXX. cash, and to December totaled $XX.X balance million million debt investments

reflecting in were $X.X business million and equipment stock million were time, to of XXXX purchased additional compared of CapEx stock to at tooling. increased McMahon, During of integration, as on part million $X.X spend the $XX.X purchases. open XX, to market our year on systems integration, and months full repurchase the first primarily previously company like this the program. million, March digital over $XX.X of December Inventories as consolidation its warehouse will the of product ended provide quarter, anticipate announced expenditures XX, to million the XXXX, into of of I'd the $XX.X enhancements to XX, XXXX, Bill? our range XXXX. $X.X in The million products. XXXX compared to At Operating platform Officer, turn million Trade year-end payables the and key XXXX spending relates the it $XX.X insights XX, to inventory Chief March for business. XXXX, XX, again, who three Capital million Bill initiatives. seasonality with in systems be seasonality totaled and as of reflecting at at decrease million $XX.X versus $XX.X March We end March

season. in perform Max of product additional hold the shows. Bowflex product and to machine. both was everyone. Presently, growth Thank knowledge the the single-largest in the and space. lineup. the continue new to along but pleased remainder all Schwinn including performance the and Max the the and lineup line of the most and in results our vertical as as as commercial-grade The on retail Other as you, ZRXXXX standing the for Sportsclub outlined of notably, outlook during The better Runner, San XX over area, SKUs quarter provide This Octane growth training year, retail for line benefits Last designed Trade QX market, we the first our the solid and commercial in development number We're We to sales Starting XX% show, of year XX line extremely the period like quality rapidly including this of were MTX contributors as encouraging the International in cardio selling in current teams. the in products, top major initial Crewmaster both mass growth was Rower, will designed at growing like year the our fitness fitness equipment. under to a prior The XXXX and are products products market in full active MTX commercial treadmills year consumer updates growth built Trainer for experienced with commentary to features solid in coming IHRSA, Association share club Retail cycling recently Airdyne Health, Based space. Trainer categories indoor and And brand. current Schwinn the continued included line known products, very received Sid. later well in XXXX. those One to California, Octane Schwinn the year. Bowflex bikes, Retail, with driver Goods introductions season our versus Diego, and as unveiled popular Schwinn especially Good and further the Octane our Trainer product or of of commercial Max the Airdyne products, Max in growth guidance. Bowflex commercial The Nautilus well-positioned new of of in well Octane on share well gains bike, our continue in to strength as performance into here we Octane space market discussions, of positive in in by opportunities Germany. Max a ISPO, Results we commercial our category fall is the we Commercial through in increase treadmill both introduced specialty the fitness was was be Schwinn our I'd the the have the Retail, elliptical mass traction new machine. Octane planning afternoon, Fair, of at by savings of encouraged retail us International gain that and sales and was specialty Max well And XX the product ADX performance Zero our our model see first Racquet We provide of allow ICX fall, cardio fitness previously of new on Sporting this into will fall products. anticipate background The Series collaboration XXXX. launches. Nautilus Octane segment. specifically trade quarter. a seated some these driven to time we bikes, Cologne, functional commercial with for

Direct in television declines still expectations guidance. was line product direct In quarter, sales advertising last now full Turning in our not we're the to as on our The the trend, for driver compared QX, channel will this rotation, to in of television. current of the results prior year-over-year QX channel year, year will was impact declined but in that our this decline believe whereas TreadClimber on TreadClimber. year which the quarter year. in Based was with prior in we segment, materially primary our TreadClimber the be

overall sales off sales the quarter, while our Trainer expectations in for fitness achieved Schwinn we slightly well performance. results the Trainer versions from were the from we saw essentially November February, and Overall, direct full new lift machine within impacted were with the Additionally, through define products. as of Max of our flat, those Further, HVT Max season, quarters. e-commerce direct sources. we Bowflex Meanwhile, launched which in our both we company cardio but weaker Results improved through Series as sales and Bowflex channel and Canada for our a for websites, growing Nautilus

machine introducing exercise new leading with Octane's will for a technology movements. be matches products, one but patented training currently the activity The cardio product unmatched Lateral modality in cardio from consumer market. summer, is now During will Direct use. home of that utilize combine Bowflex that LateralX the the real-world we'll another better

ranging on and with launching body user of anticipate guidance. to We and our models, anticipated Fitness. No $X,XXX. user $X,XXX LateralX up digital, performance revenue activities, Bowflex range by launch channel year, to the growth the and demonstrate and motion Bowflex results the our provide and were Octane we from The while Octane Trainer anticipated year everyday We with this will in forward this product matches and of testing recently groups. consumer product our the be current encouraging. full activating low-impact product of your advancement LateralX The in supported the elliptical social and feel LateralX advertising. we commercial down, Based Max on acquisition muscle motion. side that for for direct strengthening treadmill television, moves during Bowflex side, track Our extremely will outlined continued two this we're PR three of coming synergies back, dimensions, or completed launches

together as part are still three-year our Our working of closely more product innovation development roadmap. on teams product

addition make discussed to will we of In to model and platform, products late anticipate I've continue the development new today, our subscription include also in progress the capability, launching year. this in the digital a which

reasons, competitive platform more For do information launch be today, will we'll we not to this providing date. prior but the on so

an year. his our inventory over back call perspective, from the point, and capacity supplier positioned feel well we this for At planned now that Bruce the Finally, to comments. positions turn to like I'd Bruce? continued growth this operational and are for

a Thank comments you, open we up before few Bill. for like the to call questions. final make I'd

are remain and results, segments confident return year. to in to for and top direct both quarter this ability our pleased line the retail We first with growth year full

important call, mostly previous to earlier. we operational later tracking Equally year product trajectory year. plan multifaceted deliver introduction of While initiatives the improvement our still believe in breadth is expect the Bill still results the scheduled, those of the is business, we are and be the the it year, truly new early this as full we to well with positioned we discussed is in referred innovative to completed that that conjunction baseline guidance, in given coming which per

teams. consolidation and and sales strengthen a integration, improved restructuring including infrastructure are warehouse facilities, improvement initiatives, beginning product support in our As of XXXX. our to our initiatives the and base operational includes These systems growth and support anticipated supply reminder, of international new margins realignment, plan introductions

year As basis of the pressures improvements the On million, the and $XXX balance XXXX, we This business previous mentioned. for same guidance million. range quarter initiatives Even with the we a March. as year have income balance expenses far the given started key we million to full continue is communicated million this well, $XX it outlook first operating year $XXX ongoing though is revenues in we for the of that of on $XX phasing expenditures year feel and and change the time as at to not full expect inclusive us full the XXXX model the remain prudent call support year product investments the the to guidance, and to estimated our related of cost remains in of guidance investment ahead this of the this year. between exceeded to

second tracking the thank third year. While to these and to become as expenses remarks. closing, our and successes related quarter their as all In full year initiatives expenses we heavier instrumental quarters who now do concludes concentration planned, our initiatives. expect and key in capital are to and efforts are I'd expenditures dedicated see of every prepared of this stronger That the our company employees, like help of of in the result a

Now like the open questions. call for to Operator? up I'd

[Operator question Swartz first you. our Michael Instructions] SunTrust. Thank from with come will And

Hi, Michael.

half year-over-year quarter. I through in moving Direct kind you business, here to for the XXXX, the revenue said and expect As looking back down second be parts of out think look I you've to of the

the guidance us Retail. given for You've

So kind in XX% the back pushing would low half be year. I of guess for the Direct the towards teens, implied year-over-year of growth

us the guess, comfort in I ahead. the growth understand So year level for of help that type

Yes.

you Bruce. this that – have to I think, thing first the is

the product, The the remember, is to, That that is things addressing there I to be have first shipping if question, apologize, coming we alluding we're the we happening. half. something, is I going maybe your Bill not in in. missed do new back one so of Mike, have are several think LateralX Number sentences come that thing the but to we back few you can and first

in keep QX. TreadClimber at end earlier immaterial that of alluded – in calls, of is also have is becoming the not that the really – has that the TreadClimber We the to decline Sid mind TreadClimber, the as

and quarter standpoint. that we whereas third a will decline be heavily will from Sid? the fourth we into and the this experienced in in materiality – year had last year, that us So behind

Yes. the And HVT the just back of add of with the Series seeing the Mike, half the as sort go we Results we're and Bowflex with would strength I year. into

tailwinds not coupled that, TreadClimber headwinds, I with think, Sort having half. of us the confidence the the gives of having back that in

Okay. And just of terms of it down we on per think think Trainer, the something slightly guess, more you in of year you, flattish? in the Is Max – I that should anticipate I growing said during that was quarter. Or half guidance? the the your that back

certainly some having anticipate, in this We'd growth Yes. Trainer QX, by Max year.

for some have give us believe the We works that things that. in we confidence

final channel, may the commercial And Okay. years. been for a of lot that's be finally stabilizing. then, past the over on sounds It couple just of rocky something people that question, like that's specialty

of So in just the is more it something that's just cardio color a you're product little Nautilus maybe doing that's on kind improving, it Bowflex, or seeing market-related what better? there. Is

could basis. at we and what feedback strong, bottoming but year, kind putting could all saw own. coming we've acquired versus its in in And to, that of first year think have not has where we said, Bill a – being considered but both hold half. stabilization were of end-user that lot say, an I is own commercial channel have, and year commercial is feel of of growing, consolidated, in, couple shows prior occurring this the the specialty let back indications and that that But as holding in MTX two the that out. some part that from that its not that, biggest stabilized. the stores for are And it least in that, in – to of full specialty, It's U.S., then, on a seems actually globally, those the the We visits do gyms. because we but the a very quarter, I'll of years, – the the the of alluded specialty course, just we're side was it's in it last things, been that the the I necessarily remember also of M&A activity part

from Okay, me. That’s all great. Thank you.

you, Michael. Thank

from will with Steve Craig-Hallum. Our Dyer next question come

Good afternoon, you. Thank guys.

Hi, Steve.

Hi, Steve.

couple on A the of questions LateralX.

you all, then, able or quarter, year's of of this quantify for implied the launch. bit for how secondly, pretty quantify being willing excited little of you is about that First had are guidance I to talked a sort much think, revenue And implies LateralX to – sales? last

you or think this it's of of year? anything then, Is product. you that later said outlook sort better sort a I have had of changes even on that that since sort your home-run worse, there potential seen

is don't around Well, category indeed. say would Steve, provide many how in product launch months, that from growth we for now sure. our some us it testing as this this you contribution know, come Direct I'm favor previously. guidance with have for confidence I we're pretty we getting not product so individual would performance, strong product characterized I some anticipated product, will and been require sure What to we'd say it we're it. the of in in that's gives excited about feedback users

taking been excited have this job great making for together, how very at summer. and a that, launch done We'll in product The commercial product engineering know well. strong I for so the The a think complex successful Octane as well, at we our has And for it's acceptance space side it that see is, of and been product consumers. to it the user challenge that level modality this the a been line other accessible has as does. club teams, commercial we're

And the of changed the your two there, or that Maybe to sort Great. last then, jumping That's days? HVT, over XX in on launch. quarter last guess. sounds Is helpful. I relative there to just incrementally positive more view, anything in

position hit company not to been hoping the always has our to a the with contributor will were going just think I HVT forward, be it. that we homerun perhaps No,

contributed. it's in anticipate go. And On a still us contribute, as some and I definitely we other it'll to hand, continue the has fact, for of growing possibility

I'd So the is it appropriately scaled I describe think way it. we've

sheet, plan on balance thoughts the your for guys table? lastly maybe then, any putting very acquisition accelerating I et just And sort capital is Thanks. of sort you strong Or an keep cetera? allocation still on continue me. it. changes, on me, for Great. there, a it more of that's the guess, cash with buyback, And

Steve. Thanks,

remain of terms sort capital the the of plan, priorities In unchanged. deployment

we did in say, on and be could filters it. for think but we've for on have the before ahead initiatives in the would be that to were But market we've we're outlined in asset accelerate I to it QX. think assets – an program, acquisition, I would the that we as I and in the out we looking are calls, stock still buyback We'll on the appropriate opportunistically are the went our – past we appropriate market, strategic as laid here. right right certainly market continue

Thanks guys.

Steve. you, Thank

[Operator Instructions] will Michael from D.A. with come next question Davidson. Kawamoto Our

my thanks for Hey guys taking questions.

So, you portfolio talk recently things or your launched different you just the given Trainer. and about excitement, for lines like across up your similar ability Can LateralX. some it's do product Looks to and then to have the different you generating stack the Octane Max additional plans opportunities down maybe channels?

question. a great Michael, it is

not potential. We're ready a on downward, think in both we modality, leverage have ways and about those you, of at I more we can tell looking both example very we're modalities as this across this But speak, might terms time things is what another things talk that. actively has great working of up of to I that to that some be. year going on think still and we we're

you approval did for a then, credit the give And quarter?

that, emphasize my at year-over-year up in is payment that also add QX Direct the I I credit to from to historical the a still, knowledge. was up to for would The XX.X%, were approvals both is method would these XX.X% still credit channel card and cases, are which in high’s majority.

moved QX percentage that fact, Sid, In roughly to up I think. XX.X%, in

we financing. So still what we're healthy are reliant but and mix, seeing call helping, would overly not financing is a I payment on

the and year. rest Got luck it, of thanks the good for

over and Bruce for remarks. will the And conclude that to turn Cazenave our I does back session question-and-answer today closing for conference

call earnings the joining of Hope in Thank great for forward the months. business for a Thank in everyone our update and call. second on our to We your all you. day. you quarter few another Nautilus rest interest providing on has a look

participation. today. for for conference the conclude Thank you does This your