Bowflex (BFXXQ) 9 Feb 232023 Q3 Earnings call transcript

Good day, and welcome to the Nautilus, Inc.

Third Quarter 2023 Earnings Results Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity ask questions. [Operator Instructions] Please note today's event is being recorded.

to conference like to now would turn over the Mr. I with ICR. Mills John Please go sir. ahead,

call XX Good Officer. will Paul. replay XXXX XXst on Aina webcast Jim ended you, everyone. and Officer; Executive this days. third December Nautilus the and the for call Barr, Participants being Chief call. Chief Thank for conference afternoon, note, quarter be fiscal Financial available Welcome Konold, from next are Please today to Nautilus' is

take your prepared to at the We our happy will questions conclusion of remarks. be

Please Our Pacific to XXXX, earnings and the of as period on release believe downloaded last website directly press will X:XX release year earnings was is demonstrating issued GAAP we call helpful reconciliation last nautilusinc.com Time versus from non-GAAP today the growth at financial most at be the PM we The fiscal XXXX a progress. results be comparable Investors and versus measures in pre-pandemic fiscal page. measures. and mentioned may note, comparing to also comparing includes the our today's our in

have to we X safe a is statement, full that ask refer to management call, during On their our today's For harbor we which Slide read. will prepared everyone remarks. presentation

by You Events website and Investors and going can clicking Webcasts. presentation access page the now on the to on our

undue information future forward-looking place should and I'd not guarantees like management are forward-looking These statements. therefore, statements today. performance, reliance certain available Nautilus to on beliefs Such and one are as make of of remind everyone on statements will that call, during to this of them. not management forward-looking based the us conference currently

and that beyond be and to our are and trends, will uncertainties risks, results unknown actual predict. affected control ability by known Our factors

our our these concerning on can filings, which Investor to found SEC additional the For and Relations factors, in please section the website. harbor be to statement safe refer information

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

all for joining you and John, you, us. thank Thank

Before three call. I will would like I highlight during performance, today's review to we topics on key our QX focus

on initiatives that drove we First, third implemented in our and excellence, the strategic focus quarter. have through operational significant profit improvement EBITDA gross margin management

are we to and positive return taken them and in have EBITDA to channel retail our actions Second, address in continuing to deliberate headwinds XXXX. face

are we the we confident are the because industry in side on trends. Third, of opportunity long-term right

Turning to results delivered. QX, I'm with pleased we the

our reinforcing both. to cardio were $XX strengthened sales net with XXXX. XX% sales, in fiscal up QX advantage QX by compared offer direct our products broad able being of offerings million Growth was of to strategic portfolio driven

actions strategic improvement. position supply improve and enhance inventory chain Our to our are margin yielding

As by such, gross inventory driven loss our largely adjusted our EBITDA, basis continue EBITDA quarter to driven levels. margins year-over-year. QX, by our year-over-year, advertising and XX% to to optimize QX improvement These spend. planned efforts with reducing operating lower third the points translated results In by we XXX expanded reduce adjusted our improvements in continued expenses for in

over XX,XXX these year. XX% QX, the in momentum period were members XXX,XXX total of members, an reaching subscribers, growth digital XXX% our members, We JRNY approximately continued compared JRNY than last see more added We year-over-year. XXX,XXX in representing Of increase offering. differentiated to same

have we've fiscal direct see persisted. the to XXXX with our up continue we in to discussing XX% momentum been business at that headwinds and demand retail sales While solid JRNY, QX on and length

environment. categories, This fitness, a including Retailers related sales XXXX, to brand. QX resulted near-term of Octane home of in inventory a to conservative approach excluding X% across fiscal retail compared positions many as net to the take decline the result in and continue sales uncertainty economic

half quarter and lower of is segment our fiscal to sale the which levels the in outlook progressing, are we retail through retail reorders, sell for first while our of So XXXX. fourth is seeing consumers at likely impacting into

of have the additional business having we important significantly steps retail over strong our the our will remain reflect current market number With business retail as to and channel our component taken an environment increased long-term years, share past of model the expectations. and believe couple to We macro retailers near-term rightsize our doors the stabilizes.

of commitment part management our our have operational chain, to excellence, across efficiencies As we advertising our optimization our supply improvements enhancements to to of driven business, including spent. ongoing inventory operational our and

an As expected persist, annualized taken additional on to an our cost we challenges business have proactive the basis. $XX retail in steps reduce million by

an asset-light, us this labor. also trends. to reduced the which of demand a model, reduction by priority driving to difficult, to workforce contracted cost continue and with implemented operating in are adjust profitability XX%. with flexibility model, cost operate we we improving semi are enables We Leveraging align in at our variable our our actions, operating structure our our align while revenue grounded about cash aimed to expectations our flow. structure These and Separately,

balance sheet. We are the our necessary strengthen steps also taking to

was improve our last we inventory million at end inventory to XXXX further to QX And continue fiscal versus levels inventory down $XX come the QX, XX% in position per year. quarters. down our plan, We of expect fiscal the coming

at We pull flow believe levers and aimed right reduction have we cost improving maintain balance are to our we cash sheet. to the implementing initiatives

remaining supply adopt on within key to organizational differentiated North digital our a consumer-first challenges up made be pillars: strategic maintaining win. We evolve our focus strategy, advantage core are a while chain actively build our is to to scale and mindset; business capabilities Star while a businesses; managing committed the which offering; five of near-term – investments

to traction business strong we firmly differentiated core, demand becoming by excel to have top made have foundation equipment, path in equipment continue and At the the these all sellers a We our we for see leader our connected at our moving and I fitness we scaling a pillars in our channel. fast over years, direct for set offer. leveraging on progress our past believe and two

points. range Our price with broad a of products focus remains on providing superior at of consumers variety a

At key our new to our innovative branding. back equipment better pipeline capture carrying money path equipment time, digital connected for Bowflex with of of exciting the an scale products XXXX updated strong year It's be that important differentiated have fitness make customers profitability. to we calendar continued lineup in new and this to digital stress serve long-term planned our We the to revenue and we've us to profit. our will enabling enhance and and business JRNY, offering same a

iOS This Bowflex and Android dumbbells SelectTech strength workout While that we tracking, XXXs and are our and rep and Bowflex with progress hyper can tablets. workouts SelectTech bringing experiences coaching recommendations. individualized JRNY personalized to motion XXXX JRNY used on counting have enhances form with and We recently made with feedback, offers tremendous debuted offerings use personalized in designed members. which to be

fiscal We continue end XX% fiscal year, of to which target approximately XXX,XXX members approximately growth by in implies year-over-year the XXXX. the

seeing reduce which investments progress to while to to enables also are members. to to paid on continuing which JRNY growing subscribers, us consumer faster our are The groundwork date, We near-term conversion late thanks is drive for spend adoption.

Moving forward, JRNY in around we adaptability. and in will a personalization investments with disciplined our quality, be focus

have long-term opportunity home fitness. conviction in We of the

same work advantage plus at Our the and U.S. Nautilus research in about at surveyed shows to pronounced recently from steady In even addressable XX% of is reported in of the is trend Over exercise say two well who more to demand out this markets. remains up adults continue shift now segments, at is beginning the our home positioned XXXX. out they increase target years. working to XX% of XX% home this take trends and with This home. a our sustainable long-term shift prevailing for

are the Due our partners, revenue which I on to we expound. would for Aina remainder position will profitability conservative of retail the on fiscal XXXX. also outlook previous like current of our lowering updated to environment and and expectations touch economic the our

best to progress more cash We towards consumption, return minimize profitability taking and XXXX. being positive efficiently, are our for position necessary to that the actions ultimately of goal fiscal operate EBITDA us will

will to give results now third year. will on for more Aina? the us the turn and it quarter I full detail over the who guidance Aina

investor more Thank results. to results guidance XXXX, you, press QX website full accompanying to Jim, the fiscal will and our good and year-to-date for information Please this on for visit our Today speaking year and relations I’ll and year fiscal company everyone. QX view total year slides call provide XXXX. for afternoon, release be

last company comparing to our to year’s Given gauge in this fiscal XXXX revenue of improvements year’s be versus overall more the results, we’ll nature normalized growth year unique results. pre-pandemic

for year XXXX, quarter in Turning results now P&L to X. comparisons Net sales the Total X% with the excluding XX% were quarter year. versus versus to third the $XX million, year quarter company same and up fiscal last primarily Slide for Octane. down last

and up were fiscal last percentage Direct $XX the declined million X versus profit were quarter. points segment XX.X%. points percentage same margins year X%. and Gross margins gross XXXX, the grew Our X quarter year was Gross segment last XX% from up Retail by in to sequentially while

initiatives earlier, efficiency. aimed several driving at we’ve As Jim mentioned executed operational on

In unfavorable pandemic-related addition, we’ve lapped chain supply costs.

our are margins We beginning equipment more return are gross that to levels. normalized pleased to

offset point of outbound logistics which I’ll this of basis points now improvements due JRNY points drivers last decreases X X X product deleverage overhead, inventory year-over-year. were margin to review in were the investments, adjustments. improvement by points dollars in These percentage from X higher gross due lower percentage XX and partially deleverage freight quarter’s and point Up of year. to to costs up related of improved in

purchase acquisition to adjusted the Turning and VAY of reconciliation few expenses. exclude last press legal lines Please to adjusted the of operating and costs settlement. now been The see GAAP. a to other for next release P&L our related have year’s to

decrease expenses $XX with year. XX% $XX $XX million. versus investments was The which expenses, the excluding of were down to year. spending, advertising operating were million was Adjusted JRNY, last versus spent primary down $XX even in $XX dollar slightly last year’s driver year versus lower media million XX% operating last which was continued last Adjusted million million, down

expenses was was adjusted million We Adjusted million million. ensure million line to $XX sales. all last And operating compared lower year. they $XX loss to year’s in from of $X loss operations to across million, continuing loss controlled improvement compared with EBITDA variable remained that $XX functions last a $XX

per XX% year inventory transit sheet to we in XX% the quarter last million. XX/XX payables inventory to versus now balance year year both end. fiscal versus December million ending from borrowing, was December for weighted million, $XX our and our of Cash available was best-selling bringing and end of AR to trade be at million Debt $XX at of continues Turning down $XX $XX was About $XX our was our liquidity down had the was to million, plan down XX% as XX. $XX XXXX. million, million end $XX and were SKUs.

last XX/XX our improvement an year. quarter, and was of flow introducing free versus At an We’re flow quarter, disclosures of cash sheet million balance in negative $X to around and last the million our $XX cash free enhance liquidity. improvement $X million versus

the recognize impacting we feel balance levers to continue to available about business, we support While the us headwinds to our our good sheet.

Consistent to As headwinds. Jim profitability reductions earlier, to market on our cost model flexibility take us realigning proactively advantage for are we in of market streamline keep our to business. we’ve We’ve current support to structured to cost additional dynamics, to respond operating demand softer implemented with give evolving the our said this expectations approach, us trends path to attracted and periods. structure despite

our labor we’ve a reduction reduced yesterday employees. our contracted As of which in about implemented affected and force, XX% such,

recognize QX a XXXX. fiscal annualized $XX result, savings beginning cost to approximately in expect As million of we year

We other segment, to XXXX. JRNY six growing believe to in while between months in position million the Nautilus restructuring QX Retail performance actions and manage direct continuing near-term one-time serve of members. fiscal better We next approximately base also through over incur and drive charges these XXXX our QX our headwinds and of $X fiscal to expect

the now year. of guidance Turning to the for rest

in guidance have our Retail expectations reflects positions uncertain partners amid conservative environment. the very segment revised taken Our an lower retail macro inventory as

implies result, revenue about full guidance of which about are to a $XXX we $XX lowering million. As revenue million, year QX

about adjustment million, to now million. we EBITDA loss expectations, of full EBITDA revenue loss adjusted approximately our to which $XX the implies of Given guiding are adjusted $XX year QX

of impact of million Our restructuring EBITDA the about costs. guidance excludes adjusted $X

continue we XXX,XXX at XXXX. approximately members JRNY Lastly, year target to end

returning for sales flexibility a navigate us XXXX, impact to actions us taken to path profitability. first give the half cash improving headwinds of we’ve on to already retail near-term and the expect we and While cost flow keep the to

now it Jim to his final turn for I’ll back comments.

Thank Aina. you,

and at on recognize For on one our are supporting person to for Nautilus’ We some while want to have on and I to near-term, current have actions done impacted. strategic employees cost world healthier that departing all employees those thank management build a a are time. actions to ongoing taking base, initiatives. our of the necessary realign margin impact these they noble both executing the advance we focused our mission

the differentiated trends Looking the right as further are continue side because execute being equipment industry are vision at to we a upside The excel we on time. over our home ahead, we scaling building see and of We for and confident digital on of leader remains connected long-term in to we fitness. solid an attractive in fitness a platform. shift are and strong opportunity

remains our opportunities accelerate Lastly, strategic enhance our comprehensive alternatives of to strategic is focused and review board partner identifying the ongoing, of transformation value. shareholder and on company’s

We have no this regarding information to process time. this share additional at

turn And that, to it Operator? with I’d for like over questions.

you. Thank Instructions] [Operator you. Thank

is with Blair. William with Please Our Sharon your Zackfia question question. first from proceed

then retailers for channel? this still if of or how you should between it question, in the clarity in think guess cautious? in mentioned as I we’re And Retail Retail they I to this, about give March Hi, with inventoried? good of revenue being you inventories Direct here quarter, look and, the the Is on kind and are as Retail hoping quarter? guess, channels we March delta afternoon. decline the I some that over mean, I dimensionalize a the how are was just I’m was but matter the sorry Or channel in

for Sure, the I’ll I’ll and Aina kick start then part, to Sharon. it second

I good think to Retailers sell down. question. it’s continue a

not So, continued end season. like we to it as way the sell-through Retail but the active the through that we’d all the to of as through are see channel seeing fitness be, we’ve much

to are down really kind optimizers. willing sales overall instead it stock acting their as, cautious where optimizers out They’re what acting several not I they of inventories, in margin call category, but categories. as of very normally our think nature order act seeing in – retailers just certain this is the on just I’ll and drive we’re in to products

inventory those and with to take choices, more not to levels much, inventory. drive So continue their much faced more choosing on when often they’re down

bit at the uncertain that changed and end from to And we of why that’s we we’ve probably January then that fitness cut. taken here know as next a outlook, continue season, a as that of actions to If we spoke. necessary somewhat are start we that, to and that to they the they’ve the And and tail you at quite low outlook come then get well the as kind to far, start so think into dramatically that. be our have when time this looked of to the you since realization been our to they’ll to kind period things takes of where off it’s you conservative baked year, address so is kind now of and probably reorder we going our between for are right long conservative last it that’s end no address matter back that how has not

It’s also; I’d structural been also changed. say anything there hasn’t

retailers the altogether. category retailers any the the have doors like dropped So it’s not dropped or number drop of product,

been conservative this just It’s up. then held And nature at is you of Aina here. maybe structurally could… that play So reordering that’s

Sharon, you, just primarily that I is to help reiterate maybe really in to expectations reduction the our one thing, QX by driven want The Retail.

you. Thank Okay.

Sharon. Thanks, Sure.

Thank you.

is with Our from MKM. proceed Roth next question. Wollam Please with question your JP

the buyers Hi, of Jim. the takeaways we the holiday equipment are kind are we from a biggest it’s of start on meeting question. first Aina. whether some holidays? into year. into could your Thanks the the last you the that’s and Hi, are next Maybe what here saw we whether move that’s as just maybe the follow-up high over but for selling quarter if takeaways where product, from What are question, little biggest level, the taking just perhaps season,

including QX Direct and Black period, start I mean, so really strong up up holiday the a Friday had we pre-pandemic. entire about quarter versus the mentioned held for XX% Yes, we talking as

us to We the statement inventory, down the definitely our be our continue burn. reduce to that allowed We that. able while gross we’re and things be to you income to so us products doing managed where also that. see down, discount both increase And allowed can competitive margins EBITDA other

to I I last mean, now a and end $XXX we highlight from, the million a lower the February. $XX of peak million quarter continues of think think as to I down this here in sit at be quarter. that’s early of even

that’s think part of it. I So,

make we to And JRNY. continue progress on

our And to are that. we’re that proactively of the reacting what kind season. that think is but what we did to think see happen get see I of will those of bit ahead holiday so then that, of forward, of little we start trying we highlights most to started we’re and down X%, to forecast, going Retail a

QX, QX in again, those retailers we think to taken Retail at think do and a that would normally regulate does kind the they now solid actions I of smart just we when look have that. not be but way we acting but and about like over right all So, really that time, we to act, address we’ve

So, Aina anything? Nope.

Nope.

it, covered Jim. You

don’t if I answered but your a hopefully I you question. know had follow-up,

as that’s a your relative market I company’s of think of share When maybe follow expectations sort share at-home to kind the helpful. how quantify to yes, the Yes, kind holidays, of up market without market there. guess your in would fitness, one your Maybe the best into of share, going you about categorize trying understanding any to season? over the we

now where and it XX% it’s about it’s as at XX%, ahead about we and as peak we double pre-pandemic. think, probably still alternatives a of and the market this for calculate It’s think well difficult science, and this our industry. number to was pandemic a trying other a before, talked know, we with great come you of time to talked numbers, think We think we very spend I We get question, of the tripled, lot it’s denominator the we’ve of – tripled, own the size that. down,

it’s performance if So as market share high. that as you relatively the declined. our given up buying when a pretty picked share everything. measure versus lower our we still take steadily And market had We competitors. everyone and was We

looking As our think, consumers the choiceful they that the points things then relative brands you trust, over fitness very experiences. start they and I come time, you connected portfolio, looking the a and price in is value know people at at down product which have offer being other at, options and JRNY and to look

share I believe, market but laps we how some of So market coming. knew – victory of regulation quite nobody’s taking mean, during knew kind up it. as picked that’s the was kind proud of there we’re And that we’ve was period. this we we’ve time. decreases, over We

unit times And to at number were so in number sales. speaking by We unit that’s timeframe. we’ve at as The it, we’re our pandemic. or dollar we know number pandemic number We think we’re that’s one. up I share during And as out lot a was XXX share now far the dumbbells. just in picked helped one one two share. either

Great. you. Thank

Thank you.

from [Operator question. Instructions] Our your next Please with Craig-Hallum. question Dyer Steve with proceed is

afternoon, cost respect of different of break sort With Great, out expect categories Aina. the could we savings, thanks. million you that should operating Jim to where $XX COGS and from, between Good the of expenses? to and see

you. Great question. Thank

a model to So proactive said, this revenue to expectations. as size right we lower our was choice

really enterprise-wide. the you’re to So, going cuts see

quarters costs. in in And it the incrementally, being down chain our are you’ll headwinds those coming functions in of highs. costs and lapping inbound, shared as to now coming will supply compared some of freight those input the but Now, costs from COGS, margin pandemic the through supply some lower see like also, benefit we tailwinds can of upcoming of then now COGS. And OpEx, most are part of expansion through result so them chain

Got it.

marketing largely there already quite expect, you’ve support, retail would probably selling the to, taken that, would and I selling down expect It’s for And I left a mean, and I bit. not that’s business. Direct going probably there’s Okay. by your much marketing. the

JRNY continue we that quarter, we’re remain the as drive to pleased with how members. last It’s make they tell sure I support our are you, will because the supported thing and performance that especially going Direct enterprise-wide and performed, but one to in they

Got you.

year, year. with hard of would near as to million a next the but you plan to Obviously EBITDA you breakeven. of some playing the imply, I revenue for the to that guys around sort you’re $XX pretty look or model, And fairly next sort just grow is So anywhere of profitable it’s chunk meaningful is get that guiding year, of year? know is part forward will next the EBITDA not assumption growth or meaningfully that, but next that

we’re to coming you from XXXX right chain margin reduction now, not expansion remind gross will revenue we have So, I in that costs. supply but guiding

with So a inbound fiscal happened lot and of supply market freight chain us like starting issues the those of what to part all demerged latter XXXX year costs, in high detention to that talked we longer standard expansion. our were, we’ve much lower in now about, really lapped that margin than costs and are that’s no costs drive and there, are going they

So taken the past and a we’ve these combination margin profitability continued then cost of cuts already expansion. is

or Okay. the or XX from XX any on expect, we products new all Got you your, months sort tightly it. pretty should look Or of JRNY? focused hardware next a perspective? your improvements for modalities as investment is And of to months then me, lastly at

back I be mentioned out some are say And business. hardware for to on No, have profitability continuing the to the we we exciting selling this really the coming new do centers calendar path holiday. contrary, I is and We know excel good our we XXXX. call, in as creating hardware great around fact products – it. at

brand taking across We’re we those visual for we and not branding And wearing And a changed competitive new internally also our the brand have equipment. come identity. which excited that. brand to new really a But externally, but they’re about are announce we very to to in and prepared language, what going really, know a lot this externally. taking we’ve Bowflex level know reasons, invested that’s than be the on you are more very, to going yet are the

are using the many of equipment, about how a are people it’s people how migrated learned house which the lot We’ve pieces buying. in to, rooms pandemic

profoundly. these changed of things All have

lineup see going continue products you’ll to very so And learnings. excited and around But keep calendar to the that, and XXXX very, year we’re same And of our XXXX beyond. our But connected our fitness offering. think what that’s target Connected JRNY. equipment JRNY is we continue paired fitness wants. digital we is portfolio, up connected things. what isn’t those yes, fitness reflecting for That’s deliver with center scale And look, and all play our then want. our those with differentiated we’ll in launch will and these to both consumers

Got it.

for the luck. time. Thanks Okay. Good

Thank time. Barr no like comments. you. There floor are the further to at over closing turn I’d to questions this back for Jim

results. And Paul. have again for you, Thank to good thank following forward us all speaking look quarter We upwards. you day, and onwards to a our joining fourth you today. Everyone

concludes today’s This conference.

time. at your You Thank lines you disconnect your for may participation. this