Bowflex (BFXXQ) 1 Aug 192019 Q2 Earnings call transcript

Good day, and welcome to the Nautilus, Inc.

Second 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

Executive afternoon, of Participants to Nautilus on of Dave Barr, Johnson, Good to Special XXXX CEO; the are Second Conference Chairman and Chief Jim Board; Call. the Senior the Bill everyone. you. McMahon, Nautilus' Assistant Director Welcome Wachsmuth, Quarter Carl Officer; Finance. Thank call from

includes the earnings was issued Relations downloaded financial at website our the in release to earlier Investor be today's of Our the comparable nautilusinc.com The page. a measures mentioned release most earnings from non-GAAP GAAP today and reconciliation on call may measures. directly

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

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

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of about on uncertainties, as please refer they undertakes statements forward-looking events and recent our comments Form made For to annual Nautilus risks and information to earnings on by our new to noted. unanticipated XX-K events. continuing these after our pertain circumstances information results XX-Q. or announcement more our or revision any update the regarding operating reflect today's and release report report quarterly were unless to no otherwise Form information, All supplemented occurrence reflect publicly or to otherwise obligation operations most to

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

you and you, me. Good thank been company for everyone, days Thank been few John. call as our a while. for I the have closely on Monday, joining today. CEO exciting for the company following but It's afternoon, an joined

a take the such to storied the why more results, iconic, brands and a my moments tell about platform. to to few background turn discuss eager I to and joining I'd over call operating Carl quarterly Before with company be to strong a like you I'm

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retailers, online to worked X Prior the I Ritchie Sears. of Bros., for OfficeMax largest and

before Office Digital from revenue with OfficeMax, at the Chief growth business for online to Officer declining we years company's and EVP Depot. went it As merged quarter X double-digit every

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later from experience came Microsoft's Microsoft's Bing Business experience powered and The where executive businesses technologies the search digital MSN as businesses, GM, my foundation and that Commerce online online and in years in e-commerce as the Services, ran Development, XX as platforms well an the engine. auction of shopping, advertising I classified as GM,

market provides before in-home technology, for with There's on enhanced, content a in as to us capabilities. leverage equipment, and tremendous our we out brand's excited ability people I better to consumers with with and consumers' our personalized, life. of customers because about assist and for and product fascinating joined know-how, is The to our and the I'm connect presence, build coupled portfolio, and consumers Nautilus, partners, strategic a a fitness, what going evolution strengths opportunity digital healthy can and our an do pursuit never experience deliver like right

over I'm to now to part the privileged And team. delighted and of be this I'll Carl. turn call

skills management of behalf we have you on very believe to when strength Nautilus. say excited and speak and our team enhance We at product service and and the your the of background, will helm. I our brands experience Jim. the offerings, fortunate are Board I overall our entire organization, you, Thank and

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

the to consumers this to nor business XXXX, address platform. quarters, it Trainer from the a past rolled year-over-year quarter few differentiated Direct of the capabilities of back we decline refreshed the primarily in with comprehensive half over noted have first effort on the did for did the Accordingly, properly Max of out a the that for of communicate XXXX undertaken profitable advertising not resonate Direct stems the Max in our As the The the to slow ramp-up fourth segment product. digital Trainer growth. goal have path with put trend, we

consumer agency, the this actions anticipate in-depth to in a for XXXX by The and major working new airing will also campaign whom include include new be campaign have which insights quarter platforms. in third year. been brand research, We motivation-to-buy and communications television, in this across and agency announced our FIG extensive enhanced advertising partner social Bowflex media website, incorporated a will Bowflex and leading begin of will several repositioning that months the of we July of other digital The with features. navigation created taken advertising as campaign the primary and officially

as new advertising during In and well will from to spend as initiating impact of will we our businesses as early the last media media future QX affordable commercial in spending rotations, markets our these August. both seasonal on us refine our as to and markets understand half Retail order select guide be tactics of traditionally Learnings efforts. allow to for strong heavy-up further the possible our in Direct the confirm

Direct; to expect many all key transformation with we products, of international. working experience XXXX: products our all launch of In the Additionally, offerings. our in our and platforms across new toward targeted commercial; updated goal experience will parallel, our we Retail; digital subscription-based channels specialty; compatible second products digital with continue be having of half new on digital

and X.X% In rates of to second some factors sales reducing June include stocking certain products periods anticipating lower same as Retail, of launched net order in Max and as compared due periods believe by The XXXX, levels. offset half X- other We primarily modalities. customers line, increases to XXXX. in customers X-month the inventory XX, that decline shipped decreases ended partially sales sales were from the and well X.X% the causative be a new the for in decreased Trainer to respectively, in by

in half We expect to customers and commercial of in merchandising second the America, and XXXX key North sales international in-store introductions product include channels. and new specialty

in results market these our circumstances pursuing a Included stock in second that decline improve the not and $XX in related more was We do and assets to intangible million are the was goodwill price will our charges the strategies this the detail impact to of impairment. expect cover business. to of Dave capitalization. we quarter impairment noncash

in margins due quarter gross factors. Margins year primarily materially a to the from want I XXXX. address our also to prior second of few the period, declined

in quarter, our in First, the revenue, resulted and fulfillment unfavorable seasonal weakness our absorption especially of fixed in expenses. distribution slowest

Additionally, product Trainer segments impacted in component this a sales lower Max higher-margin negatively became product as the margins of both mix. smaller

negatively a of reduce our were to part older impacted due initiative inventory discounted to as lesser margins extent, levels. our Finally, of sales to products

a million an Also, during in and the from are now quarter, million savings the fully basis. expected $X The July workforce XXXX other annual support company announced XXXX these is savings, previously in on $X reduction which shared initiatives, cost we reductions. cost cost for our implemented consistent with place, to

invest to its development. in As we late attachment for our adoption year. we last digital continue seen launch Encouragingly, increase in subscription an since rates our platform, have and

Store, using Platform, the the offering, over the digital has App users half iOS premium over Our app average Bowflex our Max X.X-star of a version. are rating Intelligence on and

that and research is achieve helping internal users Our success. digital the data show platform

most ongoing the half communication achieve from capabilities additional very and and received industry. continuously custom continued important coaching upgrades, more. our of as offering the contributions work online of key goal this in partners, the anticipate our and of workout year, customer advanced source improvement digital in video the excited the content our Samsung, an us feedback expected Direct for highly fitness enhancing digital experience board, we RunSocial, to we his user about introducing tracking with tool other more requested our from Jim to offering this to throughout of strategic will Obviously, be improve forward Bowflex expanded have home enhancements, features We offerings back experience. features digital for our to very expansion Vi look overall Working the area. engaged with and a include Feed.fm, received our our on individualized Radio, providing directly with feedback we users, of are new and now platform

workout upper-body August, to screen with complement a digital a with to the customized This product by new a machine new built-in digital cardio capabilities. and we both late our an providing built-in feature in MaxTotal. learning begin also upgraded product with users the rollout expect Starting platform, personalized driven approach will

We enhanced of be will motivation in and modalities, our starting XXXX, Bowflex next-generation runners. bring we moving to will new which QX with coaching digital both anticipate and walkers to treadmills, the platform

the next so connectivity We digital feature the as expect our to such that users favorite Peloton with spin generation award-winning Schwinn their launch and apps, ICX to IC Zwift, connect RideSocial. bikes of with can

market anticipate strength popular SelectTech selectable to expanding solution, Bowflex with the STK-XXX. we Kettlebell our Additionally, kettlebell SelectTech, the fast-growing

the for great commercial product already an receiving later chair, the Max year. launches planned overall Trainer XRXXXXS, the additional As elliptical with reviews, Octane our with market seated a in upgraded channel, Commercial swivel Octane this and are and

the to the company, introduce forefront of continue on to at a market is and regular our into our is Innovation differentiated basis. products it goal

quarter. Dave will an now, for the of Dave? overview And the financials provide

a in like Carl. Retail segment. second sales Direct decline financial XXXX. for year, our XX.X% the I segment you, quarter quarter of of totaled reflecting to as XX.X% second a of Thank million, in compared X.X% review and decrease a decrease of Net $XX quarter to details same the the sales the would for results last the

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

margins quarter the impacted unfavorable of in Retail compared same of negatively in to margins by margins in compared XX.X% both quarter percentage and last reflecting gross quarter segment absorption XX.X% XX.X% to a shift product decline quarter company decreased unfavorable in channel of in XXXX XX.X% overhead lower same XX.X% segment mix, the last gross were to in increased an decreased total the segments were the related a second gross and year. quarter the Retail an sales. Direct with On year, basis, both margin rate mix year, Margins of in to segments overall to versus for the of last Second coupled same for revenues. to XX.X%

XX.X% from gross XXXX, margins months of the of in the year. decline of a period six were first the XX.X%, same first For XX.X% months six last

quarter were last price Operating compared carrying $XX quarter impairments $XXX.X our same and intangible value XXXX and increased and $XX.X operating pretax, primarily to the capitalization, of expenses of included intangible second in million the of asset quarter triggered of which overall Total in the stock million. These noncash the by of million to the goodwill expenses review for during assets. market charges goodwill a our driven decline midyear year.

our As price We due we are asset the determined our turn part difference do pursuing these impact book charges impaired to capitalization. is of market and we to expect review, to the not and value business. the that around our of to material equity needed strategies between stock the be

severance litigation to second to of in the XXXX. of and during impairments, In incurred addition reductions third early million workforce to quarter occurred that a quarter related of we XXXX, related $X.X the charges million $X settlement of these

the marketing of in $XX.X as increase the for sales or of sales. decrease spending net million of was The and XX.X% a media last net XXXX a The sales in in as Sales to second sales marketing quarter reflects reduction compared or percentage reflected decreased $XX.X spend. of and dollar a XX.X% same year. expense million sales quarter in

million period media months creative six financing higher sales totaled first improving XX% last offset our of related to net marketing media to spend lower expenses compared being sales the $XX.X or year, For or for of by and $XX.X fees and XXXX, and strategy. same sales consultant the net of partially with XX.X% expenses million

General and The dollar of $X.X and year. quarter or spending were the $X of in last to administrative XXXX first $X.X primarily litigation net the totaled year. for G&A second compared in the as net administrative of of accelerated million million amortization. XX.X% legal settlement million million as six $X.X General XX% quarter or million and increased in sales the of increased reflects to expenses X.X% for sales a months a last percentage expenses same period compared $X.X XXXX sales and and patent expense net for of X% same

last in in million sales Research $X.X the $X to sales or quarter of of of to X.X% same million reflects in year. reduction costs net six or Research of and X.X% expenses dollar development totaled as second net year. were same a compared third-party decrease The the X.X% XXXX primarily of net as and development sales last a app first XXXX spending. X.X% the months period development for compared percentage the quarter for

as the for decrease last margin intangible loss in to decline million and of with and in sales goodwill of gross quarter quarter of The along same Operating the second mentioned XXXX was operating the year. the million impairment, previously compared $XX.X $X.X rates. income reflects

same was impairment, Excluding compared adjusted $X.X quarter operating loss year. the million income operating to $XX.X intangible the in XXXX in of of million the and second of goodwill last period

the year. same of months for million income to first $XX.X XXXX, million of operating period six the impairments, including For compared was of $XX.X loss, last

or to per operations $X.XX or share second the for year. quarter XXXX million as from quarter $X continuing for income to goodwill diluted diluted $X.X continuing loss Adjusted the per intangible million was per from XXXX was operations $XX.X impairments, or of compared of share the minus $X.XX exclude quarter million diluted last second $X.XX for share. of Loss the same

income $XX.X was $X.X from share $X.XX six diluted XXXX, $X.XX period operations year. of first or same diluted the million months for loss For compared continuing per the last of minus per share or to million

$XX.X for of the million last $X.X compared quarter XXXX intangible EBITDA loss, same Adjusted XXXX last from million continuing for quarter impairment, second quarter million was for versus EBITDA the was operations of million of year. year. of the goodwill of to second $X.X income and of excluding income in $XX.X loss same the the quarter

diluted driven XXXX or effective impairment, XXXX quarter of per XX% from discontinued was per Year-to-date period minus XXXX, tax goodwill by last lower or This to includes for was a we reported which a or loss, of income million loss XXXX had which year. share, operations year. discontinued the for million same in operations of $X.X which compared taxes $X.XX million second last $X.XX Total discontinued the million rate income, The net associated of the second net of totaled net of rate operations. benefit. of share of last quarter net year, quarter the was from share $X of $X.X second which quarter second or million. loss including only to the The tax diluted for discontinued for X.X% tax million net share, $XX.X the the a $X.XX in minus loss per compares of operations, $X.XX a $XX.X portion including diluted for total quarter $X.XX versus same per included an

down to to absorption sales same decline product totaled Turning of the Direct the our last compared compared XXXX, mix Trainer the were for to were sales in XX.X% XX.X% Direct now in the primarily Max unfavorable the to quarter segment for business Max a of by quarter to a last the business segment for results. to related with the the quarter impacted million Gross due Direct Net declined due margin $XX.X to XX.X% year coupled Year-to-date lower sales. million unfavorable sales in XX.X% sales, lower $XX.X same year. second decrease of year-over-year. overhead of second sales. Trainer XXXX quarter

second offset operating period Operating the million Year-to-date, compared the last of by partially $X.X of second of Direct segment impacted negatively reduced in of million by margins income XXXX lower compared year. in million quarter in quarter year. quarter our $X.X to for XXXX for the gross the last $XX.X net was to same was business XXXX, $XX loss same income income the in Direct loss Operating marketing million of totaled and the expenses. sales

due believe, Retail million, was from to this as shipped absorption in introduced unfavorable the Year-to-date, and rates, to compared basis second on prior the business totaled the quarter decreased XXX unfavorable primarily primarily the points and being of order of in segment we sales points basis decrease reflecting, versus the fourth margins Gross mix gross to for Net a X.X% XXX related for to mostly third year by transition our was of quarter new quarter year. XXXX the of margins down XX.X% product XXXX $XX.X second products lower period, XXXX decrease year. Retail overhead compared the of to XX.X% and in The the quarters the period the last same second to $XX.X for by was year, factors. Retail driven XX%, sales. lower last which for same million

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

consolidated from million progress reflects The million to had of our million in million and and XX, reduce the June at cash of with decrease we and sheet. debt. balance June Inventories and December the million at to to XXXX. of investments XX, debt higher XXXX Cash in the levels June of XX, $XX.X turning December as XX, Now $XX $XX.X million were totaled XXXX. $XX.X against cash million to compared $XX XXXX of XXXX, compares at inventory equivalents XXXX. end inventory at XX, This as $XX.X $X.X initiatives

of $XX the $X.X $X $XX.X production totaled was in systems, million end to XXXX of XXXX, on half. as Trade the anticipate expenditures during shipments a at seasonality equipment. inventory June June reflecting reduction tooling range X months first expenditures Capital and spending payables XX, million. the We to year for million new purchases XX, primarily of million in capital well XXXX, ended the software as as million compared were new to of full $XX.X be

final I'd back to Carl? to turn for comments. Carl the his At this time, like over call

work you, of the with to goal through this a To fiscal profitable Dave. path challenges, up, continuing sum we growth. year's Thank to of are returning

continually place we new a to of and this gives to that We a believe goal: have planned; strong this in product campaign now, new what a the Bowflex; advertising achieve leadership potential major us a introductions lineup platform; enhanced digital new be confidence company. of long-term for experience comprehensive in plan

and known Nautilus, brands is our Bowflex, we Octane including among its the recognized in fitness most tremendous Schwinn, Fitness brands, that world, Our results. and are for believe the equipment

Board welcome, excellent these during thank I In these to the CEO Interim family. as closing, again, Nautilus challenging work serve thank opportunity last to and for their the the And the I want to employees during times. X for Nautilus' support months. Nautilus Jim,

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

Instructions]. from [Operator Davidson. D.A. take Kawamoto We'll question Michael from our first

And welcome, Jim.

first can where off, the any insight you Bowflex repositioning What mentioned you're that give brand? you thinking efforts to about position Or look brand. those the does Just like? you're how and into

This is Carl, Michael.

it We from for we've the say going to competitive are rest before. with campaign seen thoroughly, of and do the but forward And the that not will I you've to ever looking we're it you copy that unlike world. sharing anything Bowflex and be very will tested reasons,

what like inventory guys? to little in in Or comfortable just the just Can Retail excited mass I'm over-inventoried? see. been they secondly, talk has channel, then in the about still sell-through you with channel? them? you good. for a that the pretty you levels Sounds Are And channel are

feel in is performance than We We Bill. categories many areas about good this Yes, Trainer. product in Retail. Retail, Max for point-of-sale in growth Michael, other saw

So we that. feel good about

to there us we are positions the some working well fall. some well inventory partners. set I you're with our for making of good through like As Retail feel we're up aware, progress

we to out of good say I'd see performance Retail. expect So

last it that of in just discounting about? of talked Got a looks what little it. a you couple reflection Is MX, the like months. there's

for preparation we're where that's through Yes, to sets. and hoping the work there fall challenge make that

Kelly take from [Operator next our question Instructions]. Imperial Capital. from George We'll

in the business, expectations on Retail back missed the to your questions you but remarks, talk this previous the about up I growth follow in prepared your just may revenue year? about gross So could of and about have maybe margins the just half

At we're George. any guidance that. to not Yes. this Hi, providing in point, forward-looking regard

Is mean I Would on it's -- a could more generally line, any the -- margin volatile you know expect some in I can anything of don't like was normalize should there quarter. it's been sounds there's Okay. -- year. third if if way -- you talk it in really provide, this especially such you -- discounting the gross it the about sort there it's

Just any helpful, you additional be information would if could.

say would terms introductions, to products higher-margin I product to formal in the of all remarks, goal X to And obviously as mentioned is have Well, I the certainly, across new improve are, do And channels. new a we here that out, coming range our overall margins. we of the opportunities. in wanting skew

are would quarter. these obviously the to expected one So -- occur sales and next during

So we, will situation. the as Bill said, we remain take hopeful that and they improve hold

Okay.

over And side. actually, Direct the to jump I'll Okay. then,

I that I sounds enhancements it month, coming later said. screen that think Are What of built major the is understand the Trainer, as into part Max -- there machine. any other out you new the So are this like machine? now

Yes, George.

hit So has built-in the touchscreen. MaxTotal, head, actually, you a it on it

had on built I that in product feedback believe upper body. having product. in it's better and that competitive level that biggest other board them piece this to our the aspects We So body emphasize lines. platform enhancements digital the product. But help some our not with involve that is user we've disadvantage the that. the to also Max around But a measurement the entertainment with we're major a of our also full we've really forward into of line -- full it and step think And everything integrated the introducing addresses body give is across screen to

bringing mentioned, also And treadmill. we as platform we're to the digital

be enhancement So in a our digital you're our rollouts. in further visible going to to begin product much more investments of see

Bill to This MaxTotal Yes. add upper-body I'll workout enhanced an just two said. what machine has actually things capability.

before. we've legitimately as never total can we about a body as had workout talk So it

on a the And in digital capability, exciting. have that's can quite begin go with then current time, So XX- can that very assesses to terms XX-minute goals that's we journey have. then built-in and customer it or of new fitness we then, their customized in as the along. capabilities gets the he and other really over machine their And the exciting, then time capabilities so workout they capability, adjust in she machine, steps as along a put period, that a learning with so machine very, they

So we virtual will, have, enhanced you coaching, coaching. if automated

have capability. music We

have you We anywhere video, very the really And in world. explore-the-world the told. all exciting it's to run a experience, want

question cool. me, -- position. own -- cool. for just in now? And sort still to your then out? where with Very comfortable of more last feel work do inventory Very your about do inventory How you do have that you clearing Is right stands

make It's This in an challenge is Bill, made. we've off-season George. been this. to on progress I'm environment the proud of the made progress a we've

purchases I hand, would for other say season. make the we will the On fall we the need

that's slightly I a But the we'd our so by the means long actually the seasonality go increasing like And will we inventory. think driven now. of we're performance. lot But lighter be where in at run, then from that QX, to

we we're we'll expected not, reasonable position I'd continue certainly as do the it if to in make to turnaround, a doing drive So needed. we're down more the to level, If to the say. purchase work bring

Dyer our Craig-Hallum take Capital from Group. next We'll question from Steve

Steve. for on Sigdahl Ryan

welcome, on off, the Jim, to yourself begin. and for thanks First added background

like HVT, as which which had it consumers. of a more hybrid-strength sound equipment, of sounds more troubles the piece question the it's to relates MaxTotal, cardio tends with First like resonating it to

what So you the expanding that right confidence gives the direction? strength capabilities is

we've that fear, and positioning you cardio. it positioned HVT, be new that we're our advertising is or which to It's element believe going but value-adder, an is get our headline, certainly, strength awesome And the that, product table. that's what out terms environment. elements see a compelling campaigns, as what's it we and like about a to when necessarily of will. we going talking the the to emphasize alleviate really a as We're is know digital AI unique Bowflex of individualized say, our It in think as resonate that with I is see to is Yes, way going talk isn't about but a using the our workout nice that you products. you positioning to do the will that, that and in question, not personalized, will as, learned the that to not brings experience

it's And full will Yes, the recognize of it Max the line. family body a as the Trainer workout. consumer in

will misconstrue would have no it misunderstand So worries people that we and it.

very As appropriately. be Bill said, will positioned it

gross relates as margin, was it. margin degradation, to versus mix it on just the unfavorable absorption? broadly Got gross Then much from overhead how speaking,

Yes.

think think, it -- I the channel. to factor I mix a overhead. general, the... extent, on the was think, depends than bigger Carl total, lesser on mean as than in you'd And I then mentioned, say a I in

Ryan? else, Anything

end I can Sorry, the there, I have you so follow cut But off-line. up out at it. might missed

Just the me, one was more for quarter? flow cash from in operations what

It minus $XX.X was a million.

And on to much then follow-up the as revolver now? a one that, is capacity right how available

$XX.X million quarter as end. of the

back Mr. closing like questions no remarks. further at this any are to Carl turn I'd you for to conference Johnson, time. There or the additional

months with call. look and in Thank joining in forward of your for good. rest our the great all business update to interest continued you you few another Nautilus. in third earnings very today call day. the a providing Well, We a our for quarter Have on

your call. today's for participation. you Thank This concludes

may disconnect. You now