Q3 2022 Nautilus Inc Earnings Call

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Speaker 1: Greetings, ladies and gentlemen, and welcome to the Nautilus Incorporated third quarter 2022 earnings conference call. At this time, all participants

Greetings, ladies and gentlemen, and welcome to the Nautilus incorporated third quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.

Speaker 1: A question and answer session will follow the formal presentation. It is now my pleasure to introduce your host, Mr. John Mills. Thank you. you may begin

Question and answer session will follow the formula.

It is now my pleasure to introduce your host Mr. John Mills. Thank you you may begin.

Thank you good afternoon, everyone. Welcome to Nautilus is third quarter fiscal 2022 conference call.

Speaker 2: Thank you good afternoon everyone welcome to Nautilus's third quarter fiscal 2022.

Speaker 2: Participants on the call today from Nautilus are Jim Barr, Chief Executive Officer, and Ina Knold, Chief Financial Officer.

Participants on the call today from Nautilus are Jim Barr, Chief Executive Officer, and <unk> Chief Financial Officer.

Speaker 2: Please note this call is being webcast and will be available for replay for the next 14 days. We'll be happy to take your questions at the conclusion of our prepared remarks.

Please note this call is being webcast and will be available for replay for the next 14 days, we will be happy to take your questions at the conclusion of our prepared remarks.

Speaker 2: Our earnings press release is issued today at 1.05 PM Pacific time and may be downloaded from our website at Nautilusinc.com on the investor relations.

Our earnings press release was issued today at one O five PM Pacific time, and May be downloaded from our website at Nautilus, Inc. Dot com on the Investor Relations page.

Speaker 2: The earnings release includes a reconciliation of the non-GAAP financial measures mentioned in today's call to the most directly comparable GAAP measure ever futures.

The earnings release includes a reconciliation of the non-GAAP financial measures mentioned in today's call to the most directly comparable GAAP measures. Please note unless otherwise stated all comparisons in this call will be against our results for the comparable period of 2020.

Speaker 2: Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2020.

For today's call, we have a presentation that management will refer to during their prepared remarks.

Speaker 2: For today's call, we have a presentation that management will refer to during their prepared remarks. On slide 2 is our full safe harbor.

As our full safe Harbor statement, which we ask everyone to reach you.

Speaker 2: which we ask everyone to read. You can access the presentation by going to nautilusinc.com, then click on the investor tab, and then click on the events and webcast and the presentation will be there.

You can access the presentation by going to Nautilus, Inc.

Then click on the Investor Tab, and then click on the events and webcast and the presentation will be there.

Speaker 2: I would like to remind everyone that during this conference call, Nautilus Management will make certain we are looking to stay.

I would like to remind everyone that during this conference call Nautilus management will make certain forward looking statements.

Speaker 2: These four looking statements are based on the beliefs of management and information currently available to us as of today.

These forward looking statements are based on the beliefs of management and information currently available to us as of today.

Speaker 2: such forward-looking statements are not guaranteed for future performance, and therefore, once you're not placed under reliance on the

Such forward looking statements are not guarantees of future performance and therefore, once youre not place undue reliance on them.

Speaker 2: Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control and ability to predict.

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

Speaker 2: For additional information concerning these factors, please refer to the Safe Harbor Statement and to our SEC filings, which can be found in the investor relations section of our website. And with that, it is my pleasure to turn the call over to Donaldson's CEO , Jim Barr. Thank you, John .

For additional information concerning these factors please refer to the safe Harbor statement into our SEC filings, which can be found in the Investor Relations section of our website and with that it is my pleasure to turn the call over to Donaldson's CEO Jim Barr.

Thank you John and thank you all for joining us.

Speaker 3: Before I discuss our quarterly results, I'll begin with a look at the home fitness industry, the market dynamics at play, and our positioning within the industry. The at home fitness industry has been in this-

Before I discuss our quarterly results I'll begin with a look at the home fitness industry the market dynamics at play and our positioning within the industry.

The at home fitness industry has been in the news quite a bit recently.

Speaker 3: largely due to two issues, speculation about long-term demand.

Actually due to two issues speculation about long term demand.

And challenges some of our competitors are currently facing here is our take on the market and Nautilus is positioning.

Speaker 3: and challenges some of our competitors are currently facing. Here's our take on the market and Nautilus' position.

First we are confident that the at home fitness industry has grown rapidly over the last two years and that the overall opportunity will remain significantly elevated for the long run.

Speaker 3: First, we are confident that the at-home fitness industry has grown rapidly over the last two years, and that the overall opportunity will remain significantly elevated for the long run.

Speaker 3: Second, we were not surprised that the industry seems to have regulated from its peak and is trending to a new normal level. It's been impossible to be 100% correct in our planning and decisioning at each stage of the pandemic, but we believe we have generally read the market well and have managed our business with disciplined execution through all phases of the pandemic.

Second we were not surprised that the industry seems to have regulated from its peak and is trending to a new normal level, it's been impossible to be 100% correct in our planning and decisioning at each stage of the pandemic, but we believe we are generally read the market well and have managed our business with disciplined execution through all phases of the Panther.

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Third we have a long term strategy and a positioning that is quite different from others and over the past two years, we have built a stronger team with new capabilities to tackle emerging opportunities and challenges and then finally as a result, we're emerging as a much stronger company than pre pandemic.

Speaker 3: Third, we have a long-term strategy and a positioning that's quite different from others. And over the past two years, we've built a stronger team with new capabilities to tackle emerging opportunities and challenges. And then finally, as a result, we're emerging as a much stronger company than pre-pandemic. I'll now give you some...

I will now give you some flavor on each of these statements.

Speaker 3: Since the outset of the pandemic, there has been a renewed focus on health and overall well-being. And on a larger level, people have gravitated towards well-known brands with strong value proposition.

Since the outset of the pandemic there has been a renewed focus on health and overall, well being and on a larger level people have gravitated towards well known brands with strong value proposition.

Speaker 3: Nautilus fits squarely at the intersection of both these tailwinds.

Knowledge fifth fits squarely at the intersection of both these tailwind.

At the center of Health and Wellbeing is home fitness and the market has so far behaved largely as we expected.

Speaker 3: At the center of health and well-being is home fitness, and the market has so far behaved largely as we expect.

The market size more than doubled over the past two years is regulating from its peak to two more with more normal seasonality and will settle at a new normal significantly above pre pandemic levels based on profound evolution in consumers' habits.

Speaker 3: The market size more than doubled over the past two years is regulating from its peak to more normal seasonality and will settle at a new normal significantly above pre-pandemic levels based on profound evolution in consumers' habits.

Speaker 3: We've been telling you for several quarters that are surveying shows that about 25% of former Jim Goers say they do not ever intend to return to the gym. That figure actually ticked up to 29% during our third quarter and has held remarkably steady now for 18 months.

We've been telling you for several quarters that our survey shows that about 25% of former gym goers say, they do not ever intend to return to the gym.

That fixture that figure actually ticked up to 29% during our third quarter and has held remarkably steady now for 18 months.

Speaker 3: Those attitudes manifested themselves in the formation of new long-term habits that favor at home fit.

Those attitudes manifest manifested themselves in the formation of new long term habits that favor at home fitness.

Pre pandemic about 40% of people for whom fitness was important worked out at home.

Speaker 3: Pre-pandemic, about 40% of people for whom fitness was important worked out at home. Nearly two years later, that number is close to 70% and is holding steady. The evolution of the work model to working from home or a hybrid model is also a long-term driver of home fitness.

Nearly two years later that number is close to 70% and is holding steady.

The evolution of the work model to working from home or a hybrid model is also a long term driver of home fitness.

Speaker 3: Another important catalyst for the change in workout habits is the digital transformation that has been occurring over the past few years in home fitness and was accelerated by the pandemic. More people discovered that connected fitness not only can bring home many of the benefits of the gym, but the variety of programming such as in Journey fights boredom and keeps them at their fitness routine for longer.

Another important catalyst for the change in workout habits is the digital transformation that has been occurring over the past few years in home fitness and was accelerated by the pandemic.

More people discovered that connected fitness not only can bring home many of the benefits of the gym, but the variety, but the variety of programming such as in journey fight boredom and keeps them at their fitness routine for longer.

As a result of these changed habits and sediments. We continue to believe much of the industry growth opportunity will remain at elevated levels relative to pre pandemic. This results in stronger opportunity for our industry and for Nautilus.

Speaker 3: As a result of these changed habits and sentiments, we continue to believe much of the industry growth opportunity will remain at elevated levels relative to pre-pandemic. This results in stronger opportunity for our industry and for naught.

In the face of unprecedented challenges and uncertainty over the past two years I am proud of how we've managed our business through disciplined execution.

Speaker 3: In the face of unprecedented challenges and uncertainty over the past two years, I'm proud of how we've managed our business through disciplined execution. Some examples include inventory management, SKU rationalization, and regulating expense growth.

Some examples include inventory management, SKU rationalization and regulating expense growth.

Speaker 3: We have stayed true to our asset light manufacturing model. We built inventories then regulated our orders once we were ready for fitness season, but have not needed to close facilities or cease production.

We have stayed true to our asset light manufacturing model, we built inventories than regulated our orders once we are ready for fitness season, but have not needed to close facilities or ceased production.

We are in fact now reordering for the first half of fiscal 2023.

Speaker 3: We are in fact now reordering for the first half of fiscal 2023.

We focused on fewer skus that are largely our best sellers and work down that inventory during the third quarter as planned.

Speaker 3: We focused on fewer SKUs that are largely our best sellers and worked down that inventory during the third quarter at plant.

Utilizing our strong culture noble mission and our focus on improving the employee experience, we continue to attract and retain strong talent, even though even through the so called great resignation.

Speaker 3: Utilizing our strong culture, noble mission, and a focus on improving the employee experience, we continue to attract and retain strong talent even through the so-called great resignation. We have stayed true to our most important areas of strategic investment, such as Journey and the Bowflex brand, but have regulated our other expenses, such as G&A, until we see where demand normalizes.

We have stayed true to our most important areas of strategic investment such as journey and the Bowflex brand, but a regulated or other expenses such as G&A until we see where demand normalizes.

Just under a year ago, we shared our new long term strategic plan, our Northstar plan our strategy differs from other competitors and is built on our key strength well respected brands a portfolio of products that include multiple modalities and price points, making them more attainable.

Speaker 3: Just under a year ago, we shared our new long-term strategic plan, our North Star plan. Our strategy differs from other competitors and is built on our key strengths.

Speaker 3: well-respected brands, a portfolio of products that include multiple modalities and price points making them more attainable, and broad multi-channel distribution.

And broad multichannel distribution.

Speaker 3: Our strategy adds greater consumer centricity, a new target consumer, modernization of our Bowflex brand, and enhanced team with expanded long-term capability.

Our strategy adds greater consumer Centricity.

A new target consumer modernization of our Bowflex brand and enhanced team with expanded long term capabilities.

Speaker 3: It also improves and scales our differentiated journey platform.

It also improves and scales, our differentiated journey platform offering.

Speaker 3: Journey focuses on being your overall personal trainer, offering a variety of ways to work out on and off our products versus tilting towards any single use case such as predominantly one modality or trainer-led classes. Journey is also more affordable.

Bernie focuses on being your overall personal trainer offering a variety of ways to work out on and off our products versus tilting towards any single use case, such as predominantly one more modality or trainer led classes journey is also more affordable.

Speaker 3: We are focused on investing in our company for the long term and have continued to keep our foot on the accelerator through our investments in Journey, our brand, and our digital transformation.

We are focused on investing in our company for the long term and have continued to keep our foot on the accelerator through our investments in journey, our brands and our digital transformation or.

Our commitment to our strategy continues to strengthen as we began to see our strategic investments exceed our board and our management team, our United and maintaining our key investments as we continue to balance the long term and the short term.

Speaker 3: Our commitment to our strategy continues to strengthen as we begin to see our strategic investments succeed. Our board and our management team are united in maintaining our key investments as we continue to balance the long term and the short term.

We have also progressed during the pandemic by building enduring assets for the long term.

Speaker 3: We have also progressed during the pandemic by building enduring assets for the long term, including launching a complete suite of new multi-modality connected fitness cardio products, including Innovative Bikes, Treads, and Revitalize Max trainers.

Including launching a complete suite of new multi modality connected fitness cardio products, including innovative bikes treads and revitalized Max trainers.

Speaker 3: and we have a pipeline of strength products leveraging our way acquisition.

And we have a pipeline of strength products, leveraging our way acquisition.

Speaker 3: A new target customer base with nearly 500,000 new customers since the pandemic began introduced to our brand.

A new target customer base with nearly 500000, new customers since the pandemic began introduced to our brands.

Speaker 3: encouraging early progress on improving and scaling our Journey digital platform that makes our equipment even better. I'll share some exciting news about member growth shortly.

Encouraging early progress on improving and scaling our journey digital platform that makes our equipment, even better I'll share some exciting news about member growth shortly.

Significant expansion of our already strong multichannel distribution, including a vastly expanded and a more diversified set of retailers.

Speaker 3: significant expansion of our already strong multi-channel distribution, including a vastly expanded and a more diversified set of retail.

New talent and capabilities throughout our business, including software digital product supply chain financial analysis.

Speaker 3: new talent and capabilities throughout our business including software, digital product, supply chain, financial analysis, and customer care. And of course, we have a new transformational North Star strategy.

And customer care and of course, we have a new transformational norstar strategy.

Speaker 3: Pulling this all together by leveraging the enhanced long-term industry opportunity and through disciplined execution, by staying true to our North Star and by building enduring assets, I'm confident in saying that we are emerging from the pandemic as a much stronger company.

Pulling this altogether by leveraging the enhanced long term industry opportunity and through disciplined execution by staying true to our north star and by building enduring assets I am confident in saying that we are emerging from the pandemic as a much stronger company.

Next I'll speak to our third quarter results.

Speaker 3: In the third fiscal quarter of 2022, net sales were $147 million, which represents 63% growth versus two years ago, excluding October .

And the third fiscal quarter of 2022, net sales were $147 million, which represents 63% growth versus two years ago, excluding octane.

Speaker 3: While down from the pandemic-driven all-time high of $189 million in the same period last year, this quarter's sales performance remained historically strong.

While down from the pandemic driven all time high of $189 million in the same period last year.

This quarter's sales performance remain historically strong and.

Speaker 3: In fact, this was the second highest December quarter in the past 15 years for novel.

In fact this was the second highest December quarter in the past 15 years for Nautilus.

Our two largest sales channels direct and north American retail while down versus last year were both up over 60% compared to the same period of two years ago.

Speaker 3: our two largest sales channels direct in North American retail while down versus last year were both up over 60 percent compared to the same period two years ago.

Speaker 3: Notably, given our strong holiday performance, Direct had a $9 million backlog coming out of the quarter, stocking out on some of our more popular connected cardio products.

Notably given our strong holiday performance direct had a $9 million backlog coming out of the quarter stocking out on some of our more popular connected cardio products.

Speaker 3: One area that was softer than expected was international, which is about 10% of our overall business.

One area that was softer than expected was international which is about 10% of our overall business.

Speaker 3: We have a different operating model there. We work primarily through distributors. This model has an extra level of inventory and fewer levers for us to clear inventory. The UK and EU are our largest international markets and the shutdowns impact itself.

We have a different operating model there we work primarily through distributors. This model has an extra level of inventory and fewer levers for us to clear inventory, the UK and EU, our largest international markets and the shutdowns impacted sell through.

Speaker 3: We expect softness and international to continue through the end of this fiscal year.

We expect softness in international to continue through the end of this fiscal year.

Speaker 3: I would characterize our Q3 results to be relatively strong in dollar demand and fantastic from a unit sales perspective.

I would characterize our Q3 results to be relatively strong in dollar demand and fantastic from a unit sales perspective.

Speaker 3: As one response to the chip shortage, we pivoted to aggressively marketing and promoting strength products, specifically the incredibly popular SelectTech line, which also helped drive journey members.

As one response to the chip shortage, we pivoted to aggressively marketing and promoting strength products specifically the incredibly popular select Tech line, which also helped drive journey member growth impressively I'm proud to say that we shipped more units in the quarter than any other in Nautilus history, showing not only continued strong demand for our products.

Speaker 3: Impressively, I'm proud to say that we shift more units in the quarter than any other in Nautilus history, showing not only continued strong demand for our products, but demonstrating new capabilities in our supply chain.

But demonstrating new capabilities in our supply chain.

Speaker 3: We are pleased to report that for the first nine months of 2022, net sales were $470 million, a 7% increase over the same period last year and a 144% increase compared to the same period two years ago, excluding October .

We are pleased to report that for the first nine months of 2022 net sales were $470 million, a 7% increase over the same period last year and 144% increase compared to the same period of two years ago, excluding octane.

The team is proud to have positively comped the year to date through three quarters.

Speaker 3: The team is proud to have positively comped the year to date through three quarters.

Gross margin continued to be affected by the widely discussed elevated global supply chain costs.

Speaker 3: Gross margin continued to be affected by the widely discussed elevated global supply chain costs.

Speaker 3: In addition, this quarter's margins were impacted by lower net selling prices resulting from industry-wide discounting during a highly promotional holiday season.

In addition, this quarter's margins were impacted by lower net selling prices, resulting from industry wide discounting during a highly promotional holiday season.

Speaker 3: The bulk of the discounting that we observed during the fitness season, which typically runs through the end of January , have now concluded.

The bulk of the discounting that we observed during the fitness season, which typically runs through the end of January have now concluded.

Speaker 3: We believe this gross margin pressure is largely temporary in nature. I know we'll provide more details.

We believe this gross margin pressure is largely temporary in nature.

I know, we will provide more detail on margins in her section.

Speaker 3: Importantly, despite the lower gross margins in the third quarter, our Q3 operating margin results were in line with our guidance for the second half.

Importantly, despite the lower gross margins in the third quarter. Our Q3 operating margin results were in line with our guidance for the first for the second half.

Moving on to progress on our North Star strategy.

We have been working tirelessly to make journey of lead leading fitness digital service that enhances our incredible lineup of equipment creates an ongoing relationship with our members and provides a recurring revenue stream.

Speaker 3: We've been working tirelessly to make Journey a leading fitness digital service that enhances our incredible line-up of equipment, creates an ongoing relationship with our members, and provides a recurring revenue stream.

Speaker 3: As we communicated last quarter, we made the strategic decision to accelerate our investment in Journey. The manifestation of our year-to-date investments in Journey include a new Journey update which allows customers to track workouts across cardio, strength, and whole body exercises. That means Journey members can now track their workouts across all the products they own, cardio, and strength, and track whole body off machine workouts on one fitness platform.

As we communicated last quarter, we made the strategic decision to accelerate our investment in journey. The manifestation of our year to date investments in journey include a new journey update which allows customers to track workouts across cardio strength and whole body exercises that means journey members can now track their workouts across.

All the products, they own cardio and strength and track whole body off machine workouts.

<unk> fitness platform.

Speaker 3: We expanded the assortment of Journey-enabled products, building our connected fitness installed.

We expanded the assortment of journey enabled products building, our connected fitness installed base.

Speaker 3: We introduced the max total 16 in the US and Velocore 16 in Canada at the beginning of November and have attached Journey to our Bowflex SelectTech 552 and 1090 dumbbell purchases beginning in mid-October.

We introduced the Max total 16 in the U S and <unk> 16 in Canada at the beginning of November and if attached journey to our our Bowflex select text by $5, two and $10 90 dumbbell purchases beginning in mid October .

Speaker 3: In the third quarter, we shipped three and a half times the number of Journey-enabled products versus the same period two years ago when we launched our first connected bike.

In the third quarter, we shipped three five times the number of journey enabled products versus the same period of two years ago. When we launched our first connected bikes.

And 70% of our cardio units shipped this quarter where journey enabled.

Speaker 3: and 70% of our cardio units shipped this quarter for Journey Enables.

Select Tech is one of the strongest selling offerings and attaching journey to the strike modality has boosted our member base and it's the first time, we've combined a digital offering with our strength products the results and feedback from our members have been very encouraging.

Speaker 3: SelectTech is one of the strongest selling offerings and attaching Journey to the Strength modality has boosted our member base and is the first time we have combined a digital offering with our Strength products. The results and feedback from our members have been very encouraging.

We've expanded content, we continue to add more explore the world experiences with <unk> with over 150 locations around the world now available.

Speaker 3: We've expanded content. We continue to add more Explore the World experiences with over 150 locations around the world now available. Members love the immersive experience.

Members love, the immersive experience and the escapism.

Speaker 3: We continue to build our trainer-led video library, which now includes over 1,250 trainer-led videos, including new whole body work.

We continue to build our trainer led video library, which now includes over 250 trainer led videos, including new whole body workouts.

Speaker 3: We've added foundational advances such as Journey.com, powered by a new subscription management billing platform.

We've added foundational advances such as journey Dot com powered by a new subscription management and billing platform.

We began providing a 12 month complimentary trial for a limited time to ensure the maximum number of consumers can use the platform.

Speaker 3: We began providing a 12-month complementary trial for a limited time to ensure the maximum number of consumers can use the platform.

Speaker 3: Here's the punchline. We grew our journey member base to nearly 250,000 by the end of this quarter, and are tracking to cross 300,000 total members by year-end fiscal 22, above the midpoint of our previous guidance. We've grown members by nearly 3x year-over-year and by 700% versus two years.

Here is the punch line, we grew our journey member base by nearly two nearly 250000 by the end of this quarter and are tracking across 300000 total members by year end fiscal 'twenty two above the midpoint of our previous guidance. We've grown members by nearly three X year over year and by $700.

Sent versus two years ago.

Speaker 3: As you know, Nautilus got a late start in Connected Fitness, and while it is still early in our digital transformation with Journey, the strong growth we've experienced to date is exciting. As such, we continue to...

As you know Novelis got a late start in the connected fit in connected fitness and while it is still early in our digital transformation with journey. The strong growth we've experienced to date is exciting.

As such we continue to invest in the platform digital is a key component of the future of Nautilus and we're investing in investing here will allow us to best leverage our assets and will position us for long term profitable growth.

Speaker 3: Digital is a key component of the future of Nautilus and investing here will allow us to best leverage our assets and will position us for long-term profitability.

A second pillar of Northstar is putting the consumer at the center of our decision making.

Speaker 3: A second pillar of North Star is putting the consumer at the center of our decision making.

Speaker 3: We are working to transform Nautilus from a product-led hardware company to a consumer-led digital company.

We are working to transform novelist from a product led hardware company to a consumer led digital company.

Speaker 3: This consumer-led approach has permeated our business, including Bowflex advertising.

This consumer led approach has permeated our business, including Bowflex advertising.

Our focused approach to advertising has punched above its weight with measured share of voice nearly double our market share in the quarter.

Speaker 3: Our focused approach to advertising has punched above its weight with measured share of voice nearly double our market share in the court.

A few key highlights.

Speaker 3: A few key highlights. We ran the first ever Bowflex Select Tech dumbbell campaign that included Journey. This also helped drive more Journey membership.

We ran our first ever Bowflex select Tech Dumbbell campaign for that included journey. This also helped drive more journey memberships.

Speaker 3: We continued investments in the Bowflex brand with incremental advertising to drive purchase consideration and position the brand in a more modern and inclusive way.

We continued investments in the Bowflex brand with incremental advertising to drive purchase consideration and position the brand in a more modern and inclusive way.

Speaker 3: In addition to taking a more customer-led approach to advertising, we bolstered our team by hiring a new director of customer success, our first ever customer experience manager, and are adding critical staff in email and social marketing.

In addition to taking a more customer led approach to advertising, we bolstered our team by hiring a new director of customer success, our first ever customer experience manager and are adding critical staff in the email and social marketing.

Strength is another pivotal part of our consumer centric approach.

Speaker 3: Strength is another pivotal part of our consumer-centric approach.

<unk> has long been a leader in strength and we are working to elevate the consumer experience through our connected strength products.

Speaker 3: Bowflex has long been a leader in strength and we are working to elevate the consumer experience through our connected strength product.

In the second quarter, we completed the acquisition of way a leader in motion and vision technology in the third quarter, we focused on integrating ways motion tracking capabilities into journey to further advance and accelerate our highly personalized workout experiences, including automatic rep counting and form coaching on and off both.

Speaker 3: In the second quarter, we completed the acquisition of Way, a leader in motion and vision technology. In the third quarter, we focused on integrating Way's motion tracking capabilities into Journey to further advance and accelerate our highly personalized workout experiences, including automatic rep counting and form coaching on and off both Lex and twin products.

Flex and schwinn products.

Speaker 3: we expect to begin testing these features with select customers in the spring.

We expect to begin testing these features with select customers in the spring.

We also focused on hiring more developers two years ago, we had about a dozen software developers and UX Ftes and were mostly in mechanical engineering company, but today, we have more than 250 people engaged in software development, we are accelerating our software development capabilities, and adding new and innovative features to the journey platform.

Speaker 3: We also focused on hiring more developers. Two years ago, we had about a dozen software developers and UX FTEs, and we're mostly a mechanical engineering company. But today, we have more than 250 people engaged in software development.

Speaker 3: We are accelerating our software development capabilities and adding new and innovative features to the Journey platform, moving us closer to our vision for Journey as your highly personalized, one-to-one personal trainer.

Moving us closer to our vision for journey as Youre highly personalized one to one personal trainer.

And the last pillar of Northstar that I'd like to touch on today is our supply chain.

Speaker 3: And the last pillar of North Star that I'd like to touch on today is our supply chain.

We continue to battle unprecedented challenges from container and electronic components, Cape availability elevated commodity costs.

Speaker 3: We continue to battle unprecedented challenges from container and electronic components availability, elevated commodity costs.

Speaker 3: and cost of shipping and storing inventory. However, our investment and efforts have bolstered overall supply chain capabilities and are enabling us to successfully manage through this period.

And cost of shipping and storing inventory however, our investment and efforts have bolstered overall supply chain capabilities and are enabling us to successfully manage through this period.

Speaker 3: Earlier this year, we made a strategic decision in light of the global shipping issues to pre-order inventory in preparation for the seasonally strong third and fourth quarters to ensure that we, along with our retail partners, would be fully stocked. As mentioned previously, driven by strength products, we moved more units in the quarter than any other quarter in the company's long history.

Earlier this year, we made a strategic decision in light of the global shipping issues to preorder inventory in preparation for the seasonal seasonally strong third and fourth quarters to ensure that we along with our retail partners will be fully stocked as mentioned previously driven by strength products, we moved more units in the quarter than any other quarter in the <unk>.

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In summary, we are emerging from the pandemic as a stronger company, we have new leaders, new tools and new processes in place providing.

Speaker 3: In summary, we are emerging from the pandemic as a stronger company. We have new leaders, new tools, and new processes in place, providing us to make a much stronger and more agile company.

Providing us to make a much stronger and more agile company.

I'll now turn it over to Idaho give us more detail on the third quarter financials, and our guidance for the rest of the year Anna Thanks, Jim and good afternoon, everyone.

Speaker 3: I'll now turn it over to Ina who will give us more detail on the third quarter financials and our guidance for the rest of the year. Ina? Thanks Jim and good afternoon everyone.

Speaker 4: Today I'll talk to results for Q3 and year-to-date, and we'll provide guidance for the second half of fiscal year 2020.

Today I'll talk to results for Q3 and year to date, and we will provide guidance for the second half of fiscal year 'twenty two.

I'll start with slide 14 on the presentation total company results for Q3 dollars 22.

Speaker 4: I'll start with slide 14 on the presentation, total company results for Q320.

As discussed previously we delivered the two highest sales quarters in our company's history in the back half of fiscal year 'twenty one.

Speaker 4: As discussed previously, we delivered the two highest sales quarters in our company's history in the back half of fiscal year 21.

Yields in part by pandemic driven demand as expected demand has moderated in the second half as normal seasonality would begin to return.

Speaker 4: As expected, demand has moderated in the second half as normal seasonality begins to reach

Speaker 4: Given the unique nature of last year's results, we'll talk about sales growth versus LY and versus LLY to gauge our growth and overall company improvements when compared to more normal life.

Given the unique nature of last year's result will talk about sales growth versus alloy and versus L. L Y to gauge our growth in overall company improvement when compared to more normalized results.

Net sales for the third quarter were $147 million down, 22% versus ally and up 63% versus outweigh excluding octane.

Speaker 4: Net sales for the third quarter were $147 million, down 22% versus LY, and up 63% versus LLY, including…

Speaker 4: A strong holiday performance resulted in a $9 million backlog for Direct. The gross profit was $30 million and gross margins were 20%.

Holiday performance resulted in a $9 million backlog for direct.

Gross profit was $30 million and gross margins were 20% down 21 percentage points from ally.

Speaker 4: Eighteen points of the decline were related to higher logistics, product cost and effects, plus increased discounting in the quarter. The remaining three points are related to increased journey investments.

18 points of the decline was related to higher logistics product costs, and FX plus increased discounting in the quarter. The remaining three points it related to increased journey investments.

Turning to operating expenses.

Speaker 4: closed on the acquisition of way last quarter, the next few lines of the P&L have been adjusted to remove the impact of the deferred compensation related to that acquisition.

Close on the acquisition of way last quarter.

Next few lines of the P&L have been adjusted to remove the impact of the deferred compensation related to that acquisition.

Please see our press release for a reconciliation to GAAP.

Speaker 4: Adjusted operating expenses were $49 million or 33% of sales versus last year's $36 million or 19% of sales.

Adjusted operating expenses were $49 million or 33% of sales versus last year's $36 million or 19% of sales.

Selling and marketing expenses were $32 million or 22% of sales.

Speaker 4: marketing expenses for 32 million or 22% of sales. The 10 million increase to LY is primarily due to increase.

$10 million increase to our lives primarily due to increased advertising.

Adjusted G&A expenses were $11 million or 7% of sales up 400 K to ally.

Speaker 4: adjusted G&A expenses were 11 million or 7% of sales, up 400K to L1.

Speaker 4: R&D costs were 5 million or 4% of sales, up 1 million compared to LY, primarily driven by increased investments in...

R&D costs were $5 million or 4% of sales up $1 million compared to our wide primarily driven by increased investments in Germany.

Speaker 4: In fiscal Q3, advertising was $21 million versus $10 million last year, and journey off-backs was $6 million versus $3 million last year.

In fiscal Q3 advertising was $21 million versus $10 million last year and is there any opex was $6 million versus $3 million last year.

Adjusted operating loss was $19 million and adjusted operating margins were negative 13.

Speaker 4: Adjusted operating loss was $19 million and adjusted operating margins were negative.

Speaker 4: adjusted EBITDA loss from continuing ops was negative 15 or negative 10.

Adjusted EBITDA loss from continuing ops was negative 15 or negative 10% of sales.

Our presentation includes a waterfall chart on slide 16 that describe the year over year change in operating margin.

Speaker 4: Our presentation includes a waterfall chart in slide 16 that describes the year-over-year change in operating margin.

Speaker 4: The key drivers of the year-over-year change are lower gross margins as discussed earlier, and planned incremental investments in journey off-backs and in action.

The key drivers of the year over year change are lower gross margins as discussed earlier and planned incremental investments and journey opex and in advertising.

Let me now turn to year to date results for the nine months ended December 31, 2021 compared to the same period last year.

Speaker 4: Let me now turn to your date results for the nine months and December 31, 2021, compared

Speaker 4: Net sales are $470 million, up 2% on a gap.

Net sales are $470 million up 2% on a GAAP basis, excluding octane branded sales revenue was up 7% versus last year and up 144% versus alloy.

Speaker 4: including octane branded sales, revenue was up 7% versus last year, and now 144% versus LL.

Gross profit was $127 million compared to $193 million last year and gross margin rate was 27% versus 42% last year.

Speaker 4: Gross profit was $127 million compared to $193 million last year. Gross margin rate was 27% vs 42%

Speaker 4: Thirteen points of the gross margin decline was due to higher costs from logistics, product costs and effects, and increased discounting fiscal Q3.

13 points of the gross margin decline was due to higher costs.

Cost and FX.

Greece discounting fiscal Q3.

Two points of the decline was for increased investments in Germany.

Turning to adjusted operating expenses, which excludes the impact of <unk>.

Speaker 4: Turning to adjusted operating expenses, which just clues the impact of this year's legal settlement, the way acquisition and deferred compensation costs, and last year's law to disposal groups.

This year's legal settlement, the way acquisition and deferred compensation costs and last year's loss in disposal group.

Adjusted Opex was $125 million or 27% of sales versus last years $94 million or 21% of sales.

Speaker 4: Adjusted off-tax was $125 million or 27% of sales versus last year's 95% of sales.

Speaker 4: A 30 million increase was essentially driven by advertising and journey.

$30 million increase was essentially driven by advertising and journey investments.

Year to date advertising was $44 million versus $21 million last year year to date journey, Opex was $15 million versus $5 million last year.

Speaker 4: Year-to-date advertising was $44 million versus $21 million last year. Year-to-date journey off-tax was $15 million versus $5 million last year.

Adjusted operating income was $3 million or 1% of sales.

Speaker 4: Adjusted operating income is 3 million or 1% of sale.

Speaker 4: adjusted EBITDA from continuing offices 14 million or three per...

Adjusted EBITDA from continuing ops was $14 million or 3% of sales.

Speaker 4: Please see slide 19 in the presentation for a waterfall chart, walking through the year-over-year changes and operating markets.

Please see slide 19 in the presentation for a waterfall chart.

The year over year changes in operating margins.

Turning now to the balance sheet as of December 31.

Cash was $20 million.

Speaker 4: inventory was 128 million versus 68 million at year-

Inventory was $128 million versus $68 million at year end.

<unk> inventory levels at 12, 31 were down 21% versus 930 and came in better than planned.

Speaker 4: Inventory is concentrated in our best selling SKUs and about 15% of it was in transit at 12.

Inventory is concentrated in our best selling Skus and about 15% of it was in transit at 12 31.

AAR was $94 million versus $89 million at yearend.

Speaker 4: AR was 94 million versus 89 million at year end. The P62 million versus.

P $62 million versus $99 million at year end and debt was $56 million versus $13 million at year end, and we had $55 million available for borrowing in our facility.

Speaker 4: and debt was $56 million versus $13 million at year end. And we had $55 million available for borrowing in our facility. Turning now to our expectations for second half fiscal 22.

Turning now to our expectations for second half fiscal 'twenty two.

Please turn to slide 21 in the presentation to follow along.

To gauge growth and progress against more normalized pre pandemic results will be comparing this year's sales versus the same period of two years ago for the next few quarters.

In addition, because fitness season straddles the last two quarters of the year. We believe it's prudent to consider resulted in a six month basis from October one 2021 to March 31 2022.

Speaker 4: The company now expects total company net sales in the second half of this fiscal year to be between $260 million and $280 million, an increase of 31% to 41% versus the same period two years ago.

The company now expects total company net sales in the second half of this fiscal year to be between $260 million and $280 million, an increase of 31% to 41% versus the same period of two years ago.

Speaker 4: The decline versus previous guidance is driven by lower demand in international and increased discounting in the US and Canada this fitness season.

The decline versus previous guidance is driven by lower demand in international and increased discounting in the U S and Canada. This fitness season.

This year the fitness season was much more promotional driven in part by consumer expectations of good deals during this time period.

Speaker 4: driven in part by consumer expectations of good deals during this time.

Speaker 4: The deep promotional events have concluded and we are now back to more normal seasonal...

The deep promotional events have concluded and we are not back to more normal seasonal promotion.

On slide 22, we provided a waterfall includes a year over year change for operating margins at the bottom of the slide we noted the second quarter guidance provided three months ago in November 2021.

Speaker 4: slide 22 we provided a waterfall explaining the year-over-year change for operating model.

Speaker 4: The bottle on the slide we've noted the second slide we provided three months ago in November 20th.

We now expect the impact of logistics product costs and higher promotions to be 15 to 16 percentage points.

Speaker 4: We now expect the impact of logistics, product costs, and higher promotions to be 15 to 16 percent.

Speaker 4: higher than previous guidance of 12 points, primarily due to the increased discounting during...

Higher than previous guidance of 12 points, primarily due to the increased discounting during the fitness season.

As a rate of sales, we expect total journey investment to be 6% to nine percentage points higher versus last year.

Speaker 4: rate of sales we expect total journey investments to be six to nine percentage points higher.

Speaker 4: advertising to be 8 to 9% higher and off-ex to be 3 to 4% higher driven by North Star investment and the leveraging of fixed costs and low-ex.

Advertising to the 8% to nine percentage points higher than opex to be 3% to four percentage points higher driven by north star investments and deleveraging of fixed costs on lower sales.

Despite lower gross margins, we still expect operating margin loss in the mid teen.

Speaker 4: Despite lower gross margins, we still expect operating margin loss in the mid-team. And we're now guiding to a-

And we're now guiding to adjusted EBITDA loss in the low teens.

We are reiterating full year capex to be between 12 and $14 million with the majority earmarked for journey.

Speaker 4: We are reiterating full-year cap-backs to be between 12 and 14 million with the majority earmark.

Speaker 4: And we expect a number of journey members at year end to cross 300,000 above the midpoint of our

We expect the number of journey members at year end to cross 300000 above the midpoint of our previous guidance.

Speaker 4: but I'll keep lying. I'll just tell you ?, if our planning.

We continue to expect to return to positive adjusted EBITDA in fiscal 'twenty, three and because of our investments in the higher margin subscription business. We believe we're on track to achieving operating margins of 15% by fiscal year end 25 with margins expanding.

Speaker 4: And because of our investment in the higher margin subscription business, we believe we're on track to achieving operating margins of 15% by fiscal year and 25 with margins that are changing to high teams by year and 26. On the

High teens by year end 'twenty six.

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

Speaker 3: Thank you, Wynah. I'll end our prepared remarks by saying that we're in the process of transforming into a digital leader in connected fitness, and that transformation is already yielding tangible results.

Thank you Anna I'll end, our prepared remarks by saying that we are in the process of transforming into a digital leader in connected fitness and that transformation is already yielding tangible results. We continue to execute in a disciplined way as we capitalize on the long term opportunity and navigate the challenges.

Speaker 3: We continue to execute in a disciplined way as we capitalize on the long-term opportunity and navigate the challenge.

Speaker 3: Further, we're executing against our North Star Plan and we are succeeding.

Further we are executing against our North Star plan and we are succeeding these investments are paying off and we are on track to surpass our goal of 300000 members by the end of the fiscal year moving us closer to our long term goal of 2 million members in fiscal 2026.

Speaker 3: These investments are paying off and we are on track to surpass our goal of 300,000 members by the end of the fiscal year, moving us closer to our long-term goal of 2 million members in fiscal 2026.

Speaker 3: I would like to end by thanking all of our incredible employees and partners for their tireless dedication and support of our mission. And now I'd like to go open it up for questions, operator.

I would like to end by thanking all of our incredible employees and partners for their tireless dedication and support of our mission.

And now I'd like to go open it up for questions operator.

Yeah.

Thank you we will now be conducting a question and answer session.

Speaker 1: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press...

We would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.

Speaker 1: For participants using speaker equipment and may be necessary to pick up your hands step before pressing the start keys. One moment.

One moment, please while we poll for questions.

Okay.

Thank you. Our first question comes from Mike Swartz with <unk> Securities. Please proceed with your question.

Speaker 1: Thank you. Our first question comes from Mike Swartz with true of security. Please Please proceed with your question.

Hey, guys good evening.

Speaker 2: Hey guys, good evening. I might maybe just start starting off on the cardio side of the business. I mean, sounds like it was.

Hey, Mike maybe just starting.

Starting off on the cardio side of the business I mean, it sounds like it was maybe a little bit softer than you had anticipated. So I guess I'm just wondering how much of that is.

Speaker 5: maybe a little bit softer than you had anticipated. So I guess I'm just wondering how much of that is, you know, the discounting environment that we saw through the holiday season versus your commentary around international. And I think you would also mention that you pulled back on advertising around cardio given some of the supply limitations. So second part of that would just be when you expect advertising to return to more normal levels for cardio.

The discounting environment that we saw through the holiday season versus your commentary around international and I think you had also mentioned that you pulled back on advertising around cardio given some of the supply limitations. So second part of that it would just be when do you expect advertising to return to more normal levels for cardio.

Sure, Yes, great question.

Speaker 3: Sure. Yeah, great question. For sure, I think the first thing we have to think about is the fact that on cardio, we are comping a pretty good quarter last year, right, or all the time.

For sure I think the first thing we have to think about is the fact that on cardio, we're comping a pretty good quarter last year right. Our all time high quarter overall, and then we had just launched the Belo Corp. Bikes. So we had a lot of.

Speaker 3: high quarter overall and then we just launched the Velocord bike. So we had a lot of great bikes in the market and we were coming back into supply for that. So first of all, I think it's a tough comp on the cardio.

Great bikes in the market and we're coming back into supply for that so first of all I think it's a tough comp.

On the cardio side second thing is you're absolutely right. The ship the chip shortage forced us to pivot away from using the maximum number of chips and go into some of the strength products that don't require chips. So.

Speaker 3: Second thing is you're absolutely right. The chip shortage forced us to pivot.

Speaker 3: away from using the maximum number of chips.

Speaker 3: and go into some of the strength products that don't require chips. So that was one thing. So that was kind of a bit self-inflicted there. I wouldn't say self-inflicted. It's something we really wanted to do. So that's the key part of it. And by doing that and attaching journey to dumbbells, we got a lot of journey memberships that way. We got a lot of people trying the product, which

We wanted that was that was one thing so that was kind of kind of a bit self inflicted there I wouldn't say self inflicted it's something we really wanted to do so that's that's a key part of it and by doing that and attaching journey to.

Dumbbells, we got a lot of journey memberships that way and we've got a lot of people trying the product, which is what we really wanted to do I think part of it.

Speaker 3: what we really wanted to do. I think part of it is we were stocked out on a few of our best selling cardio products like one of the Velocores, I think maybe both of the Velocores at times during the quarter, the M9 and some of our tread. So we were stocked out and so a little bit more limited on those and we've made a ton of dumbbells.

As we were stocked out on a few of our best selling cardio products like.

One of the <unk> I think maybe both of the <unk> at times during the quarter.

Nine in some of our tread so.

We were stopped out in so a little bit more limited on those and we paid a ton of a ton of.

Dumbbells.

Speaker 3: And 60% of our cardio unit, our backlog is actually cardio units too, so you'll see more of that coming through going forward. So I think it's really a combination of confidence, tough quarter, some stockouts.

And 60% of our of our cardio unit of our backlog is actually cardio units too so you'll see more of that coming through going forward. So.

I think it's really a combination of <unk>.

Comp in a tough quarter some stock outs.

Speaker 3: then promoting strength on purpose and really pivoting towards.

Then promoting strength on.

On purpose and really pivoting towards.

A new mix of products that helped us deal with the chip shortage better now we hope that chip shortage goes away, we would like to just go straight up on consumer demand, but I was actually quite pleased with how the team.

Speaker 3: a new mix of products that helped us deal with the chip shortage better. Now we hope that chip shortage goes away. We would like to just go straight up on consumer demand. But I was actually quite pleased with how the team didn't take it lying down and just pivoted to the best way we could succeed this way. And in terms of advertising, yeah, I mean, we're still largely known for cardio. We're still running several valicore commercials. We were just kind of highlighting that we had never really...

Didnt take it lying down and just pivoted to the best way, we could succeed this way and then in terms of advertising, yes, I mean, we're still largely known for cardio were still running.

Several valid core commercials, we were just kind of highlighting that we had never really.

Speaker 3: done a sort of a select tech focus commercial before and we did that this time. So we're just kind of balancing it a little bit better and we'll probably see that going forward that we'll look at both strengths and cardio products in our advertising. So I'm really good question, hopefully that provides some color.

Done a <unk>.

Sort of a select tech focused commercial before and we did that this time. So we're just kind of balancing it a little bit better and we'll probably see that going forward that will we will look at both strength and cardio products and our advertising. So really good question hopefully that provides some color.

Yes, that's very helpful. Thanks, Jim and maybe a follow up question for <unk>. If we look at the guidance for the second half of the fiscal year it looks like the expectation.

Speaker 5: Yeah, that's very helpful. Thanks, Jim. And maybe a follow up question for Ina. If we look at the guidance for the second half of the fiscal year, it looks like the expectation just of the headwind from advertising is a little lower. The headwind from journey investments a little higher. I guess how should we read that?

Just a headwind from advertising is a little lower the headwind from journey of investments a little higher I guess, how should we read that.

Speaker 4: I think the way that I'd want you to read it is, as we navigate the changing environment, we're gonna pull all the levers available to us to achieve our strategic objectives but also meet our short-term target for operating marches. Thank you.

I think the way that I would want you to read it is as we navigate the changing environment, we're going to pull all the levers available to us to achieve our strategic objectives, but also meet a short term.

Target for operating margin.

Okay. Thank you.

Thanks, Mike.

Thank you. Our next question comes from Sharon Zackfia with William Blair. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from Sharon Zaxia with William Blair. Please consider.

Speaker 6: Hi, good afternoon. I appreciate the color. Hi, I appreciate the color on the international component. I guess I'm curious. Do you think their inventory is going to be relatively clean at the distributor level by the end of March? So you're kind of more set up to win overseas. We enter fiscal 23. And I'd also appreciate if you have any insight into retailer inventory levels. I mean, are those relatively clean? Are they still working through any kind of excess amount?

Hi, good afternoon, I share that color I appreciate the color on the international component I guess I'm curious.

Do you think their inventory is going to be relatively clean at the distributor level by the end of March so you're you're kind of more set up to win overseas as we enter fiscal 'twenty three and I'd also appreciate it if you have any insight into that.

Retailer inventory levels I mean are those relatively clean or are they still working through any kind of.

Excess inventory.

Sure.

Speaker 3: Sure, I'll start if you want to add anything.

I'll start and then if you want to add anything.

Let me just start with the retail inventory looks pretty clean to us the sell through looks like its going out. It did have a lot of inventory to start with right. So that's why.

Speaker 3: Let me just start with the retail inventory. It looks pretty clean to us. The cell through looks like it's going out. They did have a lot of inventory to start with.

Speaker 3: So that's why we promoted, and then of course our retailers have to, when you're on the channel, your retailers have to have the ability to promote to the same price you're promoting. So if we do it on one side, it gets done on the other. So they started out with a fair amount of inventory as did we. But the sell-through numbers we've seen are quite healthy in that channel.

We promoted and then of course, our retailers have to when your Omnichannel your retailers.

To have the ability to promote to the same price you are promoting so if we do it on one side that gets done on the other so they started out with a fair amount of inventory asset, but the sell through numbers, we've seen are quite healthy.

And that in that channel, we did want to call.

Speaker 3: uh... we did want to call do call out uh... international it's not a huge part of our business we don't talk about it too often but i don't think people understand structurally how it works

Call out international it's not a huge part of our business. We don't talk about it too often but I don't think people understand structurally how it works in that.

Speaker 3: Here in North America, the retail, for example, we can support our retailers with some discounts and other ways to have them lower the price and meet our price. So we have some levers here that they don't have over there. When you sell through a distributor, you've got inventory that's resident at the distributor level. And then there's also inventory at the retail level. So there's like an extra level.

Here in North American retail for example, we can we can support our retailers with some discounts.

Other ways to have them lower the price.

Meet our price. So we have some levers here that that they don't have over there when you when you sell through a distributor you have got inventory that's resident at the distributor level and then there is also inventory at the retail level. So there is like an extra.

Level there.

Speaker 3: I think in terms of calling the question, I mean we continue, we just say we expect it to be slow through the end of the quarter. I don't know where it will end at the end of the quarter. I think, I mean, we've seen it slow down over there. People are still buying it, but...

In terms of calling the question I mean, we continue we did we did say we expect it to be slow through the end of the quarter I don't know where it will end at the end of the quarter I think.

We've seen a slowdown over there as people are still buying it but lot more lockdowns and things like that so.

Speaker 3: a lot more lockdowns and things like that. So we're just not sure.

We're just not sure how long, it's going to take to clear through those two levels of inventory now Fortunately, that's only 10% of our business, but it's sort of pad.

Speaker 3: How long it's going to take to clear through those two levels of inventory? Now fortunately that's only 10% of our business, but it's sort of had maybe half of the impact this time as well. So hopefully that gives you a little color.

Maybe half of the impact this time as well so hopefully that gives you a little color yes.

Speaker 6: Yeah, that's helpful. And then on the discounting side, I appreciate the commentary year over year, but can you talk about kind of the December quarter, how it looked relative to maybe December of 2019, if there's any kind of comparisons there? And you know how that comparable period would look so far, kind of during New Year's resolution timeframe, relative to the like pre-COVID early 2020 time.

Yes, that's helpful and then on the discounting side I appreciate the commentary year over year, but can you talk about kind of the December quarter, how it looked relative to maybe December of 2019, if there's any kind of comparisons there and how.

How that comparable period with good luck, so far kind of during new year's resolution timeframe relative to that.

Pre COVID-19 early 2020 timeframe.

Speaker 4: So when you compare it to two years ago, so that will be the December 19 quarter, it's an interesting comparison because the company was in a much different place, but I would say that we intentionally chose to be very supportive of our retailers to allow them to clear the inventory kind of in concert with how we were clearing it on direct, because we wanted to make sure that we entered the first half of this clear 23 with cleaner inventory.

So when you compared to two years ago, so that'll be the December 19 quarter.

It's an interesting comparison because the company was in a much different place, but I would say that we intentionally chose to be very supportive of our retailers to allow them to clear the inventory kind of in concert with how we are zeroing in on direct because we wanted to make sure that we entered.

The first half of fiscal year 'twenty through 'twenty, three with cleaner inventory.

Yes, So and then I will just say look it starts out that of course that time of the year everybody promotes right. It didnt happen last year, but Tim.

Speaker 3: Yeah, so and then, you know, I'll just say, look, it starts out that, of course, that's the time of year everybody promotes, right? It didn't happen last year, but typically that's the way it was. And when I say we saw that, what we, what was a little bit, what we didn't expect maybe was our competition went deeper and longer than they typically do. And I guess if you kind of

Typically that's the way it was and when I say, we saw that what we what was a little bit while we didn't expect maybe was our competition went deeper and longer than they typically do and I guess, if you kind of.

Reed.

Speaker 3: read what you read what's out there. They have a lot of inventory, so they're trying to clear through a lot of inventory, so it's probably the smart thing for them to do in that period. If you don't sell it in fitness season, you might be holding it for a bit longer. So they did that around holiday season. You really got to...

Read what's out there they have a lot of inventory. So they are trying to clear through a lot of inventory. So it's probably the smart thing for them to do in that period. If you don't sell it in fitness season, you might be holding that for a bit longer so.

They did that in around holiday season.

Got it.

Speaker 3: I don't say if you have to match the complicate issue, but you certainly have to play.

Say, if you have to match the competition, but you certainly have to play.

Speaker 3: Once you get out of fitness season like where we are now, it will be more normal discounting. We can decide, hey, do we want to match this type of price or would we rather go for margin over top line for this particular period and when the volume's lower, you can sort of make that move. So I think more so than we've seen in a while, just because inventory positions at some of the competition, we're driving them.

Once you get out of fitness season, like where we are now it'll be more normal discounting. We can decide hey, do we want to match. This type of price war or would we rather go for margin over over top line for this particular period in winter. The volumes lower you can you can you can sort of make that move so I think more more so than <unk>.

You've seen in a while just because inventory positions at some of the competition, we're driving them to notably dropped their prices and.

Speaker 3: to notably drop their prices and we had to play a little bit. We mostly played with the journey, with the attaching journey, but we also did lower our prices and did quite a bit of discounting ourselves.

And we had to play a little bit.

We mostly played with.

With the journey.

Attaching journey, but we also did lower our prices and did quite a bit of discounting ourselves.

Okay, and then last question for me.

Speaker 6: And then last question for me, you know, the logistics and product cost when we've talked about that, I feel like every quarter of this year for every company I follow. But you didn't really, it doesn't seem like you really change your expectation for that component for the second half of this year. Does that mean or can I infer that you're starting to see that kind of at least level off? Or are you, I guess I'm just trying to get a sense of, is it more predictable now or is it still volatile or stagnant if you can give us any context that's there ain't it?

The logistics and product cost and I have talked about that I feel like every quarter of this year for every company I follow.

But you didn't really it doesn't seem like you really changed your expectation for that component for the second half of this year does that does that mean or can I infer that you're starting to see that kind of at least level off or are you I guess I'm just trying to get a sense of is it more predictable now or is it still volatile worsening and if you can give us any context, there that'd be helpful.

Speaker 4: Thanks Sharon, this is a great question. So I'll make sure I answer the three points. Yes, it's about similar to what, it's fairly similar to what we talked about last quarter and then in the guide.

Sharon This is a great question so.

I'll make sure I answered the three points, yes, it's about similar to what it's fairly similar to what we talked about last quarter and then in the guidance.

Speaker 4: So that does mean that we're starting to see some stabilization. We're no longer kind of getting rocked by surprises. And our intent, and this is the path to getting to physical year 23 positive EBITDA, is we're going to use that leverage.

That doesn't mean that we're starting to see some stabilization, we're no longer kind of getting rocked by surprises.

And our intent and this is the path to getting to fiscal year 'twenty three positive EBITDA as we're going to use that lever.

Speaker 4: get a positive territory next year for EBITDA and it's really gonna be about improving things like storage costs that will no longer be needing as we go into February of 2020.

To get us to positive territory next year for EBITDA, and it's really going to be about improving things like storage costs will no longer be meeting as we go into fiscal year 'twenty.

Awesome. Thank you thank.

Thanks Sharon.

Thank you. Our next question comes from Steve Dyer with Craig Hallum. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from Steve Dyer with Craig Hallum. Please proceed with the video.

Good afternoon, Ryan on for Steve.

Speaker 7: Good afternoon, Ryan on for Steve. Hi Steve. Oh, Ryan.

Hi, Seth.

Brian .

Okay.

Speaker 7: Very Sunday. I know you guys have been hesitant to give any paid subscriber metrics, but anything you can share at least qualitatively relative to your internal experts.

Hi, Jeremy.

I know you guys have been hesitant to give any paid subscriber metrics, but anything you can share at least qualitatively kind of relative to your internal expectations on the paid side within that total subscriber base.

Yes, I mean as you've alluded we've said for quite some time that starting next quarter and I think we really mean it next quarter.

Speaker 3: Yeah, I mean, as you've alluded, we've said for quite some time that starting next quarter and I think we really mean it next quarter, we'll provide a whole kind of a full sum set of

We will provide a host of kind of a fulsome set of.

Speaker 3: metrics to begin to Analyze the health of our subscription business. So we don't have that right now We we can say as we said in the script that We were at 250,000 members at year at year end. That's well 31. I can also add to that Since you asked me that today or as of Sunday we were 280,000

Metrics to begin to analyze the health of our subscription business. So we don't have that right now we can say as we said in the script that we were at 250000 members at at year at year end 12, 31, I can also add to that since you asked me.

That today or as of Sunday, We wrote 280000 on our way as we said in the script to eclipsing our 300000.

Speaker 3: on our way as we said in the script to um... a clippsing our three hundred thousand uh... goal of for the year so we're we're doing well there

Goal for the year. So we're doing well there engagement is strong I know thats, not a metric but but.

Speaker 3: engagement is strong. I know that's not a metric, but but we have metrics on that. We haven't provided. We wouldn't have context. I've told you anyway, but there's strong engagement. Churn is going down. The things you'd want to see still early, but but that's all that's all good. And yeah, so the subcomponent of that is paid subscribers.

But we have metrics on that we haven't provided so you wouldn't have context, if I told you anyway, but theres strong engagement churn is going down the things you'd want to see still early but but that's all that's all good and you.

Yes, it's a sub component of that is paid subscribers.

Speaker 3: for sure, but you know we're kind of in that stage where we're really just trying to get people to use it We're we relate to the game, you know, we're giving someone a reason especially people who love our equipment

For sure, but you know we're in kind of in that stage, where we're really just trying to get people to use it.

We relate to the game, we're giving someone a reason, especially people who love our equipment.

Speaker 3: the reason to try journey and we're making it really easy for them to do that. So I think that's the right strategy. We look at some of our competitors that have done that early in there. Growth of their subscription base and it has worked very, very well. So we'll continue to do that and I can't give you more of what you're exactly asking for, but hopefully that gives you a little bit of color.

The reason to try journey, and we're making it really easy for them.

To do that so I think thats the right strategy, we look at some of our competitors that have done that early in their growth or their subscription base and it has worked very very well. So we'll continue to do that and sorry, I can't give you more of what youre exactly asking for but hopefully that gives you.

A little bit of color.

Yes, that's helpful and look forward to those metrics next quarter.

Speaker 7: Yep, that's helpful. I look forward to those metrics next quarter. Two kind of clarification points, just so I'm clear, in that for the guidance for the second half, the company expects adjusted EBITDA loss from the low team.

Two clarification points.

Just so I'm clear.

For the guidance for the second half the company expects adjusted EBITDA loss from the low teens that reads like EBITDA dollars, but is that dollars or margin that you're talking about right.

Speaker 7: It's rate. I'm sorry. You're right. It's rate.

Great I'm, sorry, you are right its right okay.

Speaker 7: Thank you and then secondly Amazon had been a 10% customer full.

Okay.

Thank you and then secondly, Amazon had been a 10% customer for <unk>.

10 quarters in a row it did dip a little bit below that in the quarter anything to read through there or is it just yet.

Speaker 7: quarter center row, it did dip a little bit below that in the quarter. Anything to read through there or

Anything there.

Speaker 3: Yeah, no, I think it's less about Amazon and more about what I mentioned, one of those.

Yes, no I think it's less about about Amazon and more about what I mentioned one of those capabilities, we built during the pandemic and strengthened of ours as.

Speaker 3: Capabilities we've built during the pandemic and strengthened of ours is that retailer base. You know, we've talked before about that's by not even selling our stuff before this started and now they're at the top. We continue very strong with DICS.

Is that retailer base.

<unk> talked before about best buy not even selling our stuff before this started and now now they are at the top we continue very strong with Dick's, We continued strong with Amazon.

Speaker 3: We continue strong with Amazon. We've got a lot of Costco and Costco Canada and many other valuable retailers there. So we've really diversified that base and that's why you see a number like that. We're suddenly there or not.

We've got a lot of Costco in Costco, Canada, and many other valuable retailers. There. So we have really diversified that base and that's why you see a number like that we're suddenly they are not.

Speaker 3: you know, they're not a 10% anymore. But we think it's a healthy way to go, right? That just means there's more doors. I think I haven't looked at our doors lately, but I think in our last call, we talked about is that growing a fairly large percentage. So that just means you can get our products more places from us or from any of those great retailers that I mentioned in some that I didn't. Great, thanks.

They're not a 10% anymore, but we think it's a healthy way to go right that just means there's more doors I think.

Haven't looked at our doors lately, but I think in our last call we talked about that growing a fairly large percentage. So that just means you can get our products more places from us or from any of those great retailers that I mentioned and some that I did.

Great. Thanks, and good luck, thanks, Steve Thanks.

Speaker 1: As an reminder, if you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question.

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Formation to limit that Youre line is in the question queue.

Thank you. Our next question comes from Mark Smith with Lake Street Capital. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from Mark Smith with Lake Street, Capitol. Please continue to hear from us.

Hi, guys.

Speaker 8: Hi guys, for some of our questions from me, I just wanted to dig into the pricing trends, just a little bit more for you and the industry. Can you talk a little bit about what you're seeing today, as far as competitors pricing and maybe help promotion only have to be today to compete kind of post peak fitness season?

Most of my question for me just wanted to dig into the pricing trends just a little bit more for you and the industry can you talk a little bit about what you're seeing today as far as competitors pricing and maybe how promotional we have to be today to compete kind of post peak fitness season.

Yes, I mean, most of it was during fitness season.

Speaker 3: Yeah, I mean, most of it was during fitness season. And there's a few famous ones where people load a more expensive bike with lowered under $1,500. Pretty famous one stayed there for a while. That company has now gone back to more regular pricing. And they have also now charging for assembly and something like that. So I think you're sort of seeing there that it's going back to a more normalized

Theres a few famous one where people.

More expensive bike was lowered to under $500 pretty famous one stayed there for a while that.

That company is now gone back to more regular pricing and they are also now charging for assembly and some things like that so I think youre sort of seeing there that it's going back to a more normalized.

Speaker 3: way of going about it. I think some of the you know you'll still see some promotions as people try to squeeze the last little bit out of the season But you know pretty pretty soon. This is not on consumers minds the way that it's been in holiday season and you know New Year's resolution season. So it's coming down. I think the other thing we wanted you know the way we think about it is you don't always have to follow

Way of going about it I think some of it you will still see some promotions as people try to squeeze the last little bit out of the season, but.

Pretty soon this is not on consumers' minds the way that it's been in holiday season.

New year's resolution season, so it's coming down I think the other thing we want to the way. We think about it is you don't always have to follow and game theory, you don't always have to follow your competitors when the when the volumes at a lower level of the year, where you may not have a choice. When you are in holiday and fitness season. So even if there is some more discounting.

Speaker 3: In Game Theory, you don't always have to follow your competitors when the...

Speaker 3: when the volumes at a lower level of the year where you may not have a choice when you're in holiday and fitness season. So, you know, even if there is some more discounting, we can sit there and decide whether we'd rather...

We can we can sit there and decide whether we'd rather.

Speaker 3: you know promote and get more top line or we want to preserve margin and our units and you know especially when you run out of a few of our cardio units like I mentioned

Promote and get more top line or.

We want to preserve margin and and our units and especially with when you run out of a few of our cardio units like I mentioned you may you may want to not discount those so anyway, that's how it's going.

Speaker 3: You may want to not discount those. So anyway, that's how it's going. And it goes day to day, but generally, and I've been in this industry now for three years, generally, it regulates around this time of year and in February . And so most of our, we'll run maybe a president's day sale or something like that. And you'll see others doing that. But it won't be to the level that anybody was doing in our opinion most likely. It won't be to that level as we saw in holiday and today.

Day to day, but generally and I've been in this industry now for three three years generally it regulates <unk>.

Around this time of year end in February in some most of our well run maybe a presidents' day sale or something like that you will see others doing that but it won't be to the level that anybody was doing.

In our opinion, most likely it will be to that level as we saw in holiday and fitness season.

Okay.

Speaker 8: Okay, and then you guys talked about regulating GNA expense and looks like did a good job there. Would you call it fully regulated today in GNA or is there more places and maybe you can trim a little bit?

And then you guys talked about regulating G&A expense it looks like it did a good job there would you call. It fully regulated today in G&A or is there more places and maybe you can trim a little bit.

I'll take that.

Speaker 4: I'll take that. It's Ina. I think the way that our approach has remained consistent since Jim and I joined the company. It's, you know, have a really good

I think the way that and our approach has remained consistent since Jim and I joined the company.

Haven't really good visibility to what six how much variable in nature of the variable piece stays in line with revenue unexpected revenue. So we've maintained that and then as part of our Northstar, making sure that we don't waver from making the long term investments we need so that we can achieve this higher operating margin. So it's always a balancing act.

Speaker 4: visibility to what's fixed and what's variable and make sure the variable piece stays in line with revenue and expected revenue. So we've maintained that and then as part of our North Star, making sure that we don't waver from making the long-term investments we need so that we can achieve those higher operating margins. So it's always a balancing act. So I think the answer is it'll always be

I think the answer is it'll there'll always be.

Reacting to adjusting to topline environment, and maybe I'll just give an example, too so.

Speaker 3: reacting to adjusting to top line environment. Yeah, and maybe I'll just give an example too. So, you know over the period of the pandemic Our sales roughly doubled right so that's a lot more work. We move more units this past quarter than we've ever ever done before We've while doubling the revenue of the company we increased our head count 10% So that just gives you kind of an idea that

Over the period of the pandemic.

Our sales roughly doubled right. So that's a lot more work we moved more units this past quarter than we've ever ever done before.

We've while doubling the revenue of the company, we increased our head count 10%.

So that just gives you kind of an idea there now.

Speaker 3: You know, we still have a lot of contractors and things like that, especially in journey. So we have more FDA working and of course in our...

We still have a lot of a lot of contractors and things like that especially in journey. So we have more FTA working and of course in our asset light model. We don't have employees, we have people working on our behalf. So that's not a full thing, but but I think it is kind of a nice testament of how we've tried to keep this variable as as I said until we see.

Speaker 3: asset-like model, we don't have employees, we have people working on our behalf. So that's not a full thing, but I think it is kind of a nice testament to how we try to keep this variable as I'm said, until we see where that settle point is.

Where that settle point is and we try not to get too far out over our skis and things like that at the same time, we've added all those great capabilities I listed two so it's not like we're standing still we're just investing in the areas that we really really need to invest in and of course, staying true to both the journey and the Bowflex brand investments.

Speaker 3: And we try not to get too far out over our skis and things like that. At the same time, we've added all those great capabilities I listed too. So it's not like we're standing still. We're just investing in the areas that we really really need to invest in. And of course, staying true to both the journey and the both legs brand and best.

Speaker 8: So the last one for me, as you talk about investments, as we look at R&D, how much of this is maybe on the product side versus on the technology side in any insight into your pipeline for new product.

And the last one for me is you talked about investments as we look at R&D.

So this is maybe on the product side versus on the technology side and any insight into your pipeline for new products.

Speaker 4: So that's a really great question. So one of the things that we did as we were going through in our story, you know, we did a lot of focusing work.

So that's a really great question to one of the things that we did as we were going through and Northstar, we did a lot of focusing mark.

Can you do that.

Speaker 4: that and you narrow your shoes and you remove the commercial business, you decide to sense it, one of the brands, that kind of frees up some resources from maybe the more equipment side of the business and then allows you to invest them into journey. So what we've invested in journey, you don't necessarily see reflected as the true year or year increase because we were able to kind of be more optimized, cut some...

ROE your skus.

The commercial business.

Pfizer Center, one of the brands that kind of frees up some resources from maybe the more equipment side of the business and then allows us to invest in intelligence journey. So what we've invested in journey you don't necessarily see reflected as the true year over year increase because we were able to kind of.

The more optimized cut some costs and then reinvest them.

Sorry.

Speaker 3: And then in terms of the pipeline, I think what we said was, well, if we just did all the cardio, so we're gonna do some more stuff in cardio for sure. We haven't announced it, but you can expect that. But mostly we're looking at strength now. We mentioned dumbbells with way.

Okay, and then in terms of the pipeline I think what we said was well look we just did all the cardio. So we're going to we're going to do some some more stuff in cardio for sure we haven't announced it but you can expect that but mostly we're looking at strength now we mentioned dumbbells with way and.

Speaker 3: and some other strength products that will be coming out over the next year. And so that's a lot of our...

Some other strength products that will be coming out over the next year.

So that's.

That's a lot of our pipeline.

Speaker 3: I don't know if I could give you up. We used to be a completely mechanical engineering company and now you heard all the software engineers that we've hired. So it's definitely filtering more towards

I don't know if I could give you.

We used to be a completely mechanical engineering company and now you've heard all of the software engineers that we've hired so it's definitely tilting more towards <unk>.

Speaker 3: software engineering, you know, thinking that over time that's one of the main ways that we'll differentiate. We'll still be trying for strong mechanical differentiation like we have in Delacor and the new.

Software engineering thinking that that over time that.

One of the main ways that we will differentiate.

<unk> will still be trying for strong mechanical differentiation like we have in <unk> and the new <unk>.

Speaker 3: Max trainer and things like that when we get it it's fantastic

Max trainer and things like that and when we get it its fantastic, but we felt a bit more to the software and.

Speaker 3: But we still have a bit more to the software. And the way we think about it, it's not either, or the software actually makes the hardware better. So it's sort of the software's a feature, the hardware. And that's the way we've really driven the transformation. It's not like, oh, we don't value mechanical engineers anymore. We value them as much as we ever did if not more. And then we add this other capability on top of it. And so maybe you're tilting a little bit more that way. And some of it is, we're a week, we were a little late to the game, and we got some catch up to do.

The way, we think about it is not either or the software actually makes the hardware better. So it's sort of the software as a feature of the hardware in and that's the way we've really driven the transformation. It's not like we don't value mechanical engineers anymore, we value them as much as we ever did if not more and then we add the southern capability on top of it and so maybe you're tilting a little bit.

More of that way and some of it is.

We were a little late to the game and we've got some catch up to do.

Thanks, guys sure.

Thank you. Our next question comes from George Kelly with Roth Capital Partners. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from George Kelly with Rolf's Capital Partners. Please proceed to do...

Hi, everybody thanks for taking my questions.

Speaker 9: Hi everybody, thanks for taking my questions. Um, good bye.

George.

So just to start on inventory so came down sequentially, but it's still quite a bit above pre COVID-19 levels.

Speaker 9: So just to start on inventory. So came down sequentially, but it's still quite a bit above pre-COVID level.

Speaker 9: So just curious if you could talk about what is normalized inventory, or where do you expect it to move to, and how long do you think it'll take to get you there?

So just curious if you could talk about.

What is normalized inventory.

Or do you expect it to move to and how long do you think it will take to get you there.

Yeah. So thanks for the question. It's a great line. So we think about that a lot because what's the right level knowing that overall our company is a lot bigger than it was two years ago. So it's a little heavier now than I'd like it to be and we have a plan and I feel really confident into glide down to a lower number in the first.

Speaker 4: Yeah, so thanks for the questions. It's a great one. So we think about that a lot because what's the right level knowing that overall our company is a lot bigger than it was two years?

Speaker 4: So it's a little heavier now than I'd like it to be and we have a plan, I feel really confident and to glide it down to a lower number in the first half of 23, but obviously taking it up.

Half of 'twenty, three, but obviously, taking it up picking it back up again in preparation fitness season fiscal year 'twenty, three so slightly higher than I would like it to be but moving in the right direction and as a reminder, the reason it's high is because when you have this uncertainty in the supply chain environment, we really wanted to make sure that the inventory on hand.

Speaker 4: taking it back up again in preparation for fitness season, fiscal year 23. So, slightly higher than I'd like to be, but moving in the right direction. And as a reminder, the reason it ties, because when you have this uncertainty in the supply chain environment, we really wanted to make sure that the inventory was on hand in our hands in the DCs prior to the big fitness season, which is Q3 and Q4.

In our hands in the D C.

Two the big fitness season, which is Q3 and Q4 of this fiscal year and I do like the way we've worked it down I know the CFO once it lower than that.

Speaker 3: Yeah, and I do like the way we've worked it down. You know, I know the CFO wants it lower, and that's what she should. But, you know, we think we've got the right stuff to sell. We think it's in the right areas. Like I said, we had a couple stock outs. I'm not happy about that, but you can't be perfect in predicting this. And it tells us people really enjoy our product and demand them. So we've got that for sure, but I think generally we're in a good spot. Okay, okay, and then next question.

What she said but.

Where we think we've got the right stuff to sell we think it's in the right areas like I said, we had a couple of stock outs not happy about that but you can't be perfect in predicting this in and it tells us people really enjoy our products and demand them. So we've got we've got that for sure but.

I think generally we're in a we're in a good we're in a good spot.

Okay. Okay, and then next question on.

Speaker 9: Just trying to map out next year, fiscal year 23. And you mentioned in your prepared remarks, just a return to kind of normal seasonality. So if I play that through, does that, should we see a sort of summer dip versus the December and March quarters, like we saw normally before COVID? And then you would expect it to again climb again in the holiday season of fiscal year 23. Drivert

I'm just trying to map out next year fiscal year 'twenty three.

You mentioned in your prepared remarks, just a return to kind of normal seasonality. So if I play that through does that should we see a sort of summer dip versus the December and March quarters like like we saw normally before COVID-19 .

Then you would expect it to again climb again in <unk>.

The holiday season of fiscal year 'twenty three.

Speaker 4: if that's what we are planning for and execute it against for our direct segment. The retailers-

That's what we are planning for and executing against our direct segment. The retailer segment is.

Speaker 4: It's still kind of more volatile, again only related to the ability to ship things, FFO or to ship things from, you know.

It's still kind of more volatile again only related to the ability to ship things SSO or just shifting from.

But our <unk> in the EU into the UK, so theres a little bit of noise. When it comes to the retail side, but for the direct side. That's what we're executing until we thought kind of play out in the last few quarters. It was matching historical seasonality for direct so we.

Speaker 4: where our DCs are in the EU, into UK. So there's a little bit of noise when it comes to the retail side, but for the direct side, that's what we're executing to. And we saw it kind of play out in the last few quarters. It was matching historical seasonality for direct. So we are expecting that to continue.

Expecting that to continue in fiscal year, 'twenty, three yes, and I'll just jump on I'll add yes and two.

Speaker 3: Yeah, and I'll just jump on, I'll add yes and to, to hide it. Especially what is now our first quarter, you know, the quarter ending June . Do you remember last year, it's just all the retailers loaded in way earlier than they would normally do it. So that's going to be, it's going to be interesting to see.

Especially what we what is now our first quarter the quarter ending June if you remember last year. It just all the retailers loaded way earlier than they would normally do it so that's going to be as it would be interesting to see.

Speaker 3: They really didn't turn to normal seasonality while directed. So it'll be interesting to see if, because the supply chain shortages that they order that early, I would guess they won't. I would guess that, hey, if they see it the way that we're seeing it, that it's going to be kind of a normalization year, that they may go back to their normal order. And because you remember that the first quarter, the June quarter in retail was super, super high.

It really didn't turn to normal seasonality, while directed so it'll be interesting to see if because of supply chain shortages that they order that early I would guess they want I would guess that hey, if they see it the way that we're seeing is that it's going to be kind of a normal a normalization year that they may go back to them.

Their normal ordering because you remember that the first quarter the June quarter, and retail was Super Super High.

Speaker 3: And the second quarter was a little weaker because they had ordered pre-ordered in the first quarter. So I'd say maybe you're going to have some shifts there, but like I agree with everything I'm to set about direct and normal seasonality to the summer. OK. And then last question. Thanks for coming.

And the second quarter was a little weaker because they had ordered pre pre ordered in the first quarter. So I would say, maybe youre going to have some shifts there, but like like I agree with everything <unk> said about about direct and normal seasonality through the summer.

Okay and then last question for me what was.

Speaker 9: So I guess two advertising questions. What was the media spending the quarter? And then you've talked about reasons mostly supply chain related for kind of peeling back on some of your ad spending. But.

So I guess two advertising questions what was the media spend in the quarter and then you've talked about.

<unk>, mostly supply chain related for kind of peeling back on some of your AD spending, but when you look at what peers are doing I mean does it seem like folks are getting more rational as far as what the current environment is and not spending as much on direct advertising or just what does that look like so far that's good yeah I'll start I think it is going to be.

Speaker 9: When you look at what peers are doing, I mean does it seem like

Speaker 9: Folks are getting more rational as far as, you know, what the career environment is and not spending as much on direct.

Speaker 3: advertising or just what does that look like so far? It's good. Yeah, I'll start. I think it's going to be interesting just picking up your last part. I mean, we've obviously been outspent by several of our competitors for a sustained period of time. We've just had to be smart about it and when we did it and how much we spent and things like

Interesting just picking up your last part I mean, we've obviously been outspent by several of our competitors for a sustained period of time and we've just had to be smart about it and when we did it and how much we spent and things like that.

Speaker 3: I think you're probably right. I mean we can't speak for competitors, but I A lot of the things you hear about you know in the marketplace

I think youre, probably right I mean, we can't speak for our competitors, but I.

A lot of the things you hear about.

In the marketplace. It seems like it may go a little bit more rationale where you are you can justify your cost of customer acquisition and things like that so I would speculate but it would only be speculation that it would turn out that way, but I will say that.

Speaker 3: It seems like it may go a little bit more rational where you can justify your cost of customer acquisition and things like that. So I would speculate, but it would only be speculation that it would turn out that way. But I will say that, again, in my remarks,

Again.

My remarks.

Speaker 3: I was, we measured this thing where it's share of voice, which is how often you hear our name versus any of our compassion.

We measure this thing where its share of voice, which is how often you hear our name.

Versus any of our competitors and a good quarter for US is when our share of voice is above our market share and it was almost twice that this time, so I'll call the.

Speaker 3: And a good quarter for us is when our share of voice is above our market.

Speaker 3: and it was almost twice that this time. So I'll call the third quarter a good quarter. But it doesn't happen every quarter that says we're doing a good job. We'll hope that we continue to do that while at the same time and we are staying true to the brand spin.

The third quarter, a good quarter, but.

It doesn't happen every quarter that says we're doing a good job, we'll hope that we continue to do that.

While at the same time, and we are staying true to the brand spend now some of the brand spend does drive revenue. So that helps us too and we are spending more there but.

Speaker 3: Now some of the brand spend does drive revenue, so that helps us too, and we're spending more there. But the brand over time, you get a more modern view of both Lex and luckily, the way to do that is to use journey to make both Lex more modern. And that's the way the advertising is generally going. So I think it's going in the right direction, but it'll be interesting to see. And I think it's...

But the brand over time, you get a more modern view of a bowflex and Luckily the way to do that is to use journey to make bowflex more more modern and Thats. The way. This average advertising as is generally going so I think it is going in the right direction, but it will be interesting to see and I think it.

Speaker 3: It does call a little bit for speculation on what competitors will do, but maybe that will exactly happen that it'll be a little more rational. I think there weren't very many people even trying to make money in the space a while ago, and I think it's now turning into a market where that's becoming more rational and more important. And therefore, when you make all your decisions, whether it's inventory or advertising or whatnot, you're gonna be considering this.

It does call a little bit for speculation on what competitors will do but.

But maybe that will exactly happened that it'll be a little more rational I think.

There wasn't there weren't very many people even trying to make money in this space a while ago and I think it's now turning into a market, where that's that's becoming more rational and more important and therefore when you make all your decisions, whether it's inventory or advertising or whatnot.

Considering that.

Speaker 4: And then advertising from Q3 was 21 million versus 10 million last year.

And then advertising for Q3 was $21 million versus $10 million last year.

Okay. Thank you.

Awesome.

Thanks George.

Yeah.

Speaker 1: Thank you. There are no further questions at this time. I would like to turn the floor back over to Jim Barr for any closing.

Thank you there are no further questions at this time I would like to turn the floor back over to Jim Barr for any closing comments.

Thank you to everyone on the call today for your continued support of Nautilus, We look forward to talking to you again on our fourth quarter call fiscal year 'twenty to call in May have a great rest of your day onwards and upwards.

Speaker 3: Thank you to everyone on the call today for your continued support of Nautilus. We look forward to talking to you again on our fourth quarter fiscal year, 22 call in May. Have a great rest of your day. Onwards and upwards.

This concludes today's conference you may now disconnect. Thank you for your participation.

Speaker 1: This concludes today's conference. You may now disconnect. Thank you for your participation.

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Greetings, ladies and gentlemen, and welcome to the Nautilus incorporated third quarter 2022 earnings Conference call. At this time, all participants are in a listen only mode.

Speaker 1: Greetings ladies and gentlemen and welcome to the Nautilus in Corp. 3rd quarter 2022 earnings conference call. At this time, all participants...

Speaker 1: A question of answer session will follow the formal presentation. It is now my pleasure to introduce your host, Mr. John Mills. Thank you. You may begin.

And answer session will follow the format.

It is now my pleasure to introduce your host Mr. John Mills. Thank you you may begin.

Speaker 2: Thank you. Good afternoon, everyone. Welcome to Nautilus' Third Quarter, fiscal 2022 conference.

Thank you good afternoon, everyone welcome to <unk> third quarter fiscal 2022 conference call.

Speaker 2: Participants on the call today from Novelis are Jim Barr, Chief Executive Officer, and Ina Kanoel, Chief Financial Officer.

Participants on the call today from Nautilus are Jim Barr, Chief Executive Officer, and <unk> Chief Financial Officer.

Please note this call is being webcast and will be available for replay for the next 14 days we.

Speaker 2: Please note this call is being webcast and we'll be available for replay for the next 14 days. We'll be happy to take your questions at the conclusion of our prepared remarks.

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

Speaker 2: Our earns press release is issued today at 1.05 pm, specific time and may be downloaded from our website at nautilusink.com on the investor relations.

Our earnings press release was issued today at 105 P. M Pacific time and may be downloaded from our website at <unk> dot.

Dot com on the Investor Relations page.

Speaker 2: The earnings release includes a reconciliation of the non-gape financial measures mentioned in base call to the most directly comparable gap measure.

The earnings release includes a reconciliation of the non-GAAP financial measures mentioned in today's call to the most directly comparable GAAP measures.

Please note unless otherwise stated all comparisons in this call will be against our results for the comparable period of 2020.

Speaker 2: Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2020.

For today's call we have a presentation that management will refer to during their prepared remarks on slide two is our full safe Harbor statement, which we ask everyone to reach you can access the presentation by going to Nautilus, Inc. Dot com and click on the Investor Tab, and then click on the events and web.

Speaker 2: For today's call, we have a presentation that management will refer to during their prepared remarks. On slide two is our full safe harbor.

Speaker 2: which we ask everyone to read. We can access the presentation by going to nodalis.com, then click on the investor tab, and then click on the events and webcast, and the presentation will be there.

And the presentation will be there.

I would like to remind everyone that during this conference call Nautilus management will make certain forward looking statements. These forward looking statements are based on the beliefs of management and information currently available to us as of today.

Speaker 2: I would like to remind everyone that during this conference call, Nautilus Management will make certain board looks distinct.

Speaker 2: These four of the statements are based on the beliefs of management and information currently available to us as of today.

Such forward looking statements are not guarantees of future performance and therefore once you do not place undue reliance on them.

Speaker 2: Such for looking statements are not guarantees or future performance, and therefore, once you not place under relies on this.

Speaker 2: Our actual results will be affected by known in and on risk trends, uncertainties, and factors that are begun beyond our control and ability to predict.

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

Additional information concerning these factors please refer to the safe Harbor statement into our SEC filings, which can be found in the Investor Relations section of our website.

Speaker 2: for additional information concerning these factors. Please refer to the Safe Harbor Statement into our SEC filing, which can be found in the Investor Relations section of our website. And with that, it is my pleasure to turn the call over to Donald's CEO Jim Barnes. Thank you, John .

And with that it is my pleasure to turn the call over to Donaldson's CEO Jim Barr.

Thank you John and thank you all for joining us before I discuss our quarterly results I'll begin with a look at the home fitness industry the market dynamics at play and our positioning within the industry.

Speaker 3: Before I discuss our quarterly results, I'll begin with a look at the home fitness industry, the market dynamics at play, and our positioning within the industry. The at home fitness industry has been in the-

The at home fitness industry has been in the news quite a bit recently.

Speaker 3: largely due to two issues. Speculation about long-term demand.

Largely due to two issues speculation about long term demand.

Speaker 3: and challenges some of our competitors are currently facing. Here's our take on the market and not only is position.

And challenge in some of our competitors are currently facing here is our take on the market and <unk> positioning.

Speaker 3: First, we are confident that the at-home fitness industry has grown rapidly over the last two years and that the overall opportunity will remain significantly elevated for the long run.

We are confident that the at home fitness industry has grown rapidly over the last two years and that the overall opportunity will remain significantly elevated for the long run.

Speaker 3: Second, we were not surprised that the industry seems to have regulated from its peak and is trending to a new normal level. It's been impossible to be 100% correct in our planning and decisioning at each stage of the pandemic, but we believe we have generally read the market well and have managed our business with disciplined execution through all phases of the pandemic.

Second we were not surprised that the industry seems to have regulated from its peak and is trending to a new normal level, it's been impossible to be 100% correct in our planning and decisioning at each stage of the pandemic, but we believe we have generally read the market well and have managed our business with disciplined execution through all phases of the pant.

Dennis.

Third we have a long term strategy and our positioning that's quite different from others and over the past two years, we have built a stronger team with new capabilities to tackle emerging opportunities and challenges and then finally as a result, we are emerging as a much stronger company than pre pandemic.

Speaker 3: Third, we have a long-term strategy and a positioning that's quite different from others. And over the past two years, we've built a stronger team with new capabilities to tackle emerging opportunities and challenges. And then finally, as a result, we're emerging as a much stronger company than pre-pandemic. I'll now give you some place.

I will now give you some flavor on each of these statements.

Speaker 3: Since the outset of the pandemic, there has been a renewed focus on health and overall well-being. And, on a larger level, people have gravitated towards well-known brands with strong value proposition.

Since the outset of the pandemic there has been a renewed focus on health and overall, well being and on a larger level people have gravitated towards well known brands with strong value proposition.

Speaker 3: Nala fits squarely at the intersection of both these tailwinds.

<unk> fits squarely at the intersection of both these tailwind.

Speaker 3: at the center of health and well-being is home fitness and the market has so far behaved largely as we expect

At the center of health and well being is home fitness and the market has so far behaved largely as we expected.

Speaker 3: The market size more than doubled over the past two years is regulating from its peaks to more with more normal seasonality and will settle at a new normal significantly above pre-pandemic levels based on profound evolution in consumers' habits.

The market size more than doubled over the past two years is regulating from its peak to two more with more normal seasonality and will settle at a new normal significantly above pre pandemic levels based on profound evolution in consumers' habits.

We've been telling you for several quarters that our survey shows that about 25% of former gym goers say, they do not ever intend to return to the gym.

Speaker 3: We've been telling you for several quarters that are surveying shows that about 25% of former Jim Goers say they do not ever intend to return to the gym. That figure actually ticked up to 29% during our third quarter and has held remarkably steady now for 18 months.

That fixture that figure actually ticked up to 29% during our third quarter and has held remarkably steady now for 18 months.

Those attitudes manifest manifested themselves in the formation of new long term habits that favor at home fitness.

Speaker 3: Those attitudes manifested themselves in the formation of new long-term habits that favor at home fit.

Speaker 3: Pre-pandemic, about 40% of people for whom fitness was important, worked out at home. Nearly two years later, that number is close to 70% and is holding steady. The evolution of the work model to working from home or a hybrid model is also a long-term driver of home fitness.

Pre pandemic about 40% of people for whom fitness was important worked out at home.

Nearly two years later that number is close to 70% and is holding steady.

The evolution of the work model to working from home or a hybrid model is also a long term driver of home fitness.

Speaker 3: Another important catalyst for the change in workout habits is the digital transformation that has been occurring over the past few years in home fitness and was accelerated by the pandemic. More people discovered that connected fitness not only can bring home many of the benefits of the gym, but the variety of programming such as in journey, fights boredom and keeps them at their fitness routine for longer.

Another important catalyst for the change in workout habits is the digital transformation that has been occurring over the past few years in home fitness and was accelerated by the pandemic.

More people discovered that connected fitness not only can bring home many of the benefits of the gym, but the variety, but the variety of programming such as in journey fights boredom and keeps them at their fitness routines for longer.

As a result of these changed habits and sediments. We continue to believe much of the industry growth opportunity will remain at elevated levels relative to pre pandemic. This results in stronger opportunity for our industry and for Nautilus.

Speaker 3: As a result of these changed habits and sentiments, we continue to believe much of the industry growth opportunity will remain at elevated levels relative to pre-pandemic. This results in stronger opportunity for our industry and for naught.

In the face of unprecedented challenges and uncertainty over the past two years I am proud of how we've managed our business through disciplined execution.

Speaker 3: In the face of unprecedented challenges and uncertainty over the past two years, I'm proud of how we've managed our business through disciplined execution. Some examples include inventory management, skewer rationalization, and regulating expense growth.

Some examples include inventory management, SKU rationalization and regulating expense growth.

Speaker 3: We have stayed true to our asset-like manufacturing model. We built inventories, then regulated our orders, once we were ready for fitness season, but have not needed to close facilities or cease production.

We have stayed true to our asset light manufacturing model, we built inventories than regulated our orders once we're ready for fitness season, but have not needed to close facilities or cease production.

Speaker 3: We are in fact now reordering for the first half of fiscal 2023.

We are in fact now reordering for the first half of fiscal 2023.

Speaker 3: We focus on fewer skews that are largely our best sellers and work down that inventory during the third quarter as planned.

We focused on fewer skus that are largely our best sellers and work down that inventory during the third quarter as planned.

Speaker 3: Utilizing our strong culture, noble mission, and a focus on improving the employee experience, we continue to attract and retain strong talent even though the so- even through the so-called great resignation. We have stayed true to our most important areas of strategic investment, such as journey and the both-lex brand, but have regulated our other expenses such as GNA until we see where demand normalizes.

Utilizing our strong culture noble mission and our focus on improving the employee experience, we continue to attract and retain strong talent, even though even through the so called great resignation.

We have stayed true to our most important areas of strategic investment such as journey and the Bowflex brand, but a regulated or other expenses such as G&A until we see where demand normalizes.

Just under a year ago, we shared our new long term strategic plan, our Northstar plan our strategy differs from other competitors and is built on our key strengths well respected brands a portfolio of products that include multiple modalities and price points, making them more attainable.

Speaker 3: Just under a year ago, we shared our new long-term strategic plan, our North Star Plan, our strategy differs from other competitors and is built on our key strengths.

Speaker 3: Well-respected brands, a portfolio of products that include multiple modalities and price points, making them more attainable, and broad multi-channel distribution.

And broad multichannel distribution.

Speaker 3: Our strategy adds greater consumer centrality, a new target consumer, modernization of our both Lex brand, and enhanced team with expanded long-term capability.

Our strategy adds greater consumer Centricity.

A new target consumer modernization of our Bowflex brand and enhanced team with expanded long term capabilities.

Speaker 3: It also improves and scales are differentiated journey platform law.

It also improves and scales, our differentiated journey platform offering.

Speaker 3: Journey focuses on being your overall personal trainer, offering a variety of ways to work out on and off our products, versus tilting towards any single use case, such as predominantly one more modality or trainer-led classes. Journey is also more affordable.

Tourney focuses on being your overall personal trainer offering a variety of ways to work out on and off our products versus tilting towards any single use case, such as predominantly one modality or trainer led classes journey is also more affordable.

Speaker 3: We are focused on investing in our company for the long term and have continued to keep our foot on the accelerator through our investments in journey, our brand, and our digital transformation.

We are focused on investing in our company for the long term and have continued to keep our foot on the accelerator through our investments in journey, our brands and our digital transformation or.

Speaker 3: Our commitment to our strategy continues to strengthen as we begin to see our strategic investment succeed. Our board and our management team are united in maintaining our key investments as we continue to balance the long-term and the short-term.

Our commitment to our strategy continues to strengthen as we began to see our strategic investments exceed our board and our management team, our United and maintaining our key investments as we continue to balance the long term in the short term.

We have also progressed during the pandemic by building enduring assets for the long term.

Speaker 3: We have also progressed during the pandemic by building enduring assets for the long term, including launching a complete suite of multi-modality connected fitness products, including innovative bikes, treads, and revitalized max trainers.

Including launching a complete suite of new multi modality connected fitness cardio products, including innovative bikes treads and revitalized Max trainers.

And we have a pipeline of strength products, leveraging our way acquisition.

Speaker 3: And we have a pipeline strength product leveraging our way acquisition.

A new target customer base with nearly 500000, new customers since the pandemic began introduced to our brands.

Speaker 3: A new target customer base would nearly 500,000 new customers since the pandemic began, introduced to our brand.

Encouraging early progress on improving and scaling our journey digital platform that makes our equipment, even better I'll share some exciting news about member growth shortly.

Speaker 3: encouraging early progress on improving and scaling our journey digital platform that makes our equipment even better. I'll share some exciting news about Member Growth Short.

Significant expansion of our already strong multichannel distribution, including a vastly expanded in a more diversified set of retailers.

Speaker 3: Significant expansion of our already strong multi-channel distribution, including a vastly expanded and a more diversified set of retail.

Speaker 3: New talent and capabilities throughout our business, including software, digital product, supply chain, financial analysis, and customer care. And of course, we have a new transformational North Star strategy.

New talent and capabilities throughout our business, including software digital product supply chain financial analysis.

And customer care and of course, we have a new transformational norstar strategy.

Speaker 3: Pulling this all together by leveraging the enhanced long-term industry opportunity and through disciplined execution by staying true to our North Star and by building enduring assets, I'm confident in saying that we are emerging from the pandemic as a much stronger company.

Pulling this all together by leveraging the enhanced long term industry opportunity and through disciplined execution by staying true to our Northstar and by building enduring assets I am confident in saying that we are emerging from the pandemic as a much stronger company.

Next I'll speak to our third quarter results.

Speaker 3: In the third fiscal quarter of 2022, net sales were $147 million, which represents 63% growth versus two years ago, excluding on.

In the third fiscal quarter of 2022, net sales were $147 million, which represents 63% growth versus two years ago, excluding octane.

Speaker 3: While down from the pandemic driven all-time high of 189 million in the same period last year, this quarter's sales performance remained historically strong.

While down from the pandemic driven all time high of $189 million in the same period last year.

This quarter's sales performance remain historically strong and.

Speaker 3: In fact, this was the second highest December quarter in the past 15 years for NOV.

In fact this was the second highest December quarter in the past 15 years for Nautilus.

Speaker 3: Our two largest sales channels direct in North American retail. While down, versus last year, we're both up over 60% compared to the same period two years.

Our two largest sales channels direct and north American retail while down versus last year were both up over 60% compared to the same period of two years ago.

Speaker 3: Notably, given our strong holiday performance, direct heading $9 million backlog coming out of the quarter, stocking out on some of our more popular connected cardio products.

Notably given our strong holiday performance direct had a $9 million backlog coming out of the quarter stocking out on some of our more popular connected cardio products.

One area that was softer than expected was international which is about 10% of our overall business.

Speaker 3: One area that was softer than expected was international, which is about 10% of our overall business.

We have a different operating model there we work primarily through distributors. This model has an extra level of inventory and fewer levers for us to clear inventory the U K and EU are our largest international markets and the shutdowns impacted sell through.

Speaker 3: We have a different operating model there. We work primarily through distributors. This model has an extra level of inventory and fewer levers for us to clear inventory. The UK and EU are our largest international markets and the shutdowns impact itself.

We expect softness in international to continue through the end of this fiscal year.

Speaker 3: We expect softness in international to continue through the end of this fish.

I would characterize our Q3 results to be relatively strong in dollar demand and fantastic from a unit sales perspective.

Speaker 3: I would characterize our Q3 results to be relatively strong in dollar to man and fantastic from a unit sales perspective.

As one response to the chip shortage, we pivoted to aggressively marketing and promoting strength products specifically the incredibly popular select Tech line, which also helped drive journey member growth impressively I'm proud to say that we shipped more units in the quarter than any other in Nautilus history, showing not only continued strong demand for our products.

Speaker 3: As one response to the chip shortage, we pivoted to aggressively marketing and promoting strength products, specifically the incredibly popular select tech line, which also helped drive journey member.

Speaker 3: Impressively, I'm proud to say that we shift more units in the quarter than any other in Nautilus history. Showing not only continued strong demand for our products, but demonstrating new capabilities in our supply.

But demonstrating new capabilities in our supply chain.

We are pleased to report that for the first nine months of 2022 net sales were $470 million, a 7% increase over the same period last year and 144% increase compared to the same period of two years ago. Excluding octane. The team is proud to positively comp the year to date through three.

Speaker 3: We are pleased to report that for the first nine months of 2022, net sales were $470 million, a 7% increase over the same period last year, and a 144% increase compared to the same period two years ago, excluding us.

Speaker 3: The team is proud to appositively comp the year-to-date through three courts.

Quarters.

Speaker 3: Gross Mars and continue to be affected by the widely discussed elevated global supply chain costs.

Gross margin continued to be affected by the widely discussed elevated global supply chain costs.

Speaker 3: In addition, this quarter's margins were impacted by lower net selling prices, resulting from industry-wide discounting during a highly promotional holiday season.

In addition, this quarter's margins were impacted by lower net selling prices, resulting from industry wide discounting during a highly promotional holiday season.

The bulk of the discounting that we observed during the fitness season, which typically runs through the end of January have now concluded.

Speaker 3: The bulk of the discounting that we observed during the fitness season, which typically runs through the end of January , have now concluded.

We believe this gross margin pressure is largely temporary in nature.

Speaker 3: We believe this gross margin pressure is largely temporary in nature. I know we'll provide more deep...

I know, we'll provide more detail on margins in her section.

Importantly, despite the lower gross margins in the third quarter. Our Q3 operating margin results were in line with our guidance for the first for the second half.

Speaker 3: Importantly, despite the lower gross margins in the third quarter, our Q3 operating margin results were in line with our guidance for the first, for the second half.

Moving on to progress on our North Star strategy.

Speaker 3: We've been working tirelessly to make journey leading fitness digital service that enhances our incredible line of equipment. Creates an ongoing relationship with our members and provides a recurring revenue stream.

We have been working tirelessly to make journey of lead leading fitness digital service that enhances our incredible lineup of equipment creates an ongoing relationship with our members and provides a recurring revenue stream.

Speaker 3: As we communicated last quarter, we made the strategic decision to accelerate our investment journey. The manifestation of our year-to-date investments and journey include a new journey update, which allows customers to track workouts across cardio, strength, and whole body exercises. That means journey members can now track their workouts across all the products they own, cardio and strength, and track whole body off-machine workouts on one fitness platform.

As we communicated last quarter, we made the strategic decision to accelerate our investment in journey. The manifestation of our year to date investments in Germany include a new journey update which allows customers to track workouts across cardio strength and whole body exercises that means journey members can now track their workouts across.

All the products, they own cardio and strength and track whole body off machine workouts.

<unk> fitness platform.

We expanded the assortment of journey enabled products building, our connected fitness installed base.

Speaker 3: We expanded the assortment of journey-enabled products, building our connected fitness and spa...

Speaker 3: We introduced the Max Total 16 in the US and Velocore 16 in Canada at the beginning of November and have attached journey to our both legs Select Tech 552 and 1090 Dumbbell purchases beginning in mid-October.

We introduced the Max total 16 in the U S and <unk> in Canada at the beginning of November and have attached journey to our our Bowflex select text by $5, two and $10 90 dumbbell purchases beginning in mid October .

In the third quarter, we shipped three five times the number of journey enabled products versus the same period two years ago. When we launched our first connected bikes.

Speaker 3: In the third quarter, we shipped three and a half times the number of journey-enabled products versus the same period two years ago. When we launched our first connected bike.

Speaker 3: and 70% of our cardio unit shift this quarter were journey enabled.

And 70% of our cardio units shipped this quarter where journey enabled.

Speaker 3: Select Tech is one of the strongest selling offerings and attaching journey to the strength modality has boosted our member base and is the first time we have combined a digital offering with our strength products. The results and feedback from our members have been very encouraged.

Select Tech is one of the strongest selling offerings and attaching journey to the strike modality has boosted our member base and it's the first time, we've combined a digital offering with our strength products the results and feedback from our members have been very encouraging.

We've expanded content, we continue to add more explore the world experiences with <unk> with over 150 locations around the world now available.

Speaker 3: We've expanded content. We continue to add more, explore the world experiences with over 150 locations around the world now available. Members love the immersive experience.

Members love, the immersive experience and the escapism.

We continue to build our trainer led video library, which now includes over 250 trainer led videos, including new whole body workouts.

Speaker 3: We continue to build our trainer led video library, which now includes over 1,250 trainer led videos, including new whole body work.

We've added foundational advances such as journey Dot com powered by a new subscription management and billing platform.

Speaker 3: We've added foundational advances such as journey.com powered by a new subscription management billing platform.

Speaker 3: We began providing a 12-month complimentary trial for a limited time to ensure the maximum number of consumers can use the plan.

We began providing a 12 month complementary trial for a limited time to ensure the maximum number of consumers can use the platform.

Speaker 3: Here's the punchline. We grew our journey member-based by nearly 250,000 by the end of this quarter and are tracking to cross 300,000 total members by year and fiscal 22. Above the midpoint of our previous guidance. We've grown members by nearly 3x year over year and by 700% versus two years.

Here is the punch line, we grew our journey member base by nearly two nearly 250000 by the end of this quarter and are tracking to cross 300000 total members by year end fiscal 'twenty two above the midpoint of our previous guidance. We've grown members by nearly three <unk> year over year and by $700.

Sent versus two years ago.

As you know non lets got a late start in the connected fit in connected fitness and while it is still early in our digital transformation with journey. The strong growth we've experienced to date is exciting.

Speaker 3: As you know, Nautilus got a late start in the connected fitness and well it is still early in our digital transformation with Journey, the strong growth we've experienced today is exciting. As such, we continue to...

As such we continue to invest in the platform digital is a key component of the future of Nautilus and we are investing and investing here will allow us to best leverage our assets and will position us for long term profitable growth.

Speaker 3: Digital is a key component of the future of Nautilus, and we're investing here, we'll allow us to best leverage our assets and we'll position us for long-term profitable.

Speaker 3: A second pillar of Norstar is putting the consumer at the center of our decision.

A second pillar of Northstar is putting the consumer at the center of our decision making.

We are working to transform Nautilus from a product led a hardware company to a consumer led digital company.

Speaker 3: We are working to transform Nautilus from a product-led hardware company to a consumer-led digital.

Speaker 3: This consumer-led approach has permeated our business, including both Lex Avertife.

This consumer led approach has permeated our business, including Bowflex advertising.

Speaker 3: Our focused approach to advertising has punched above its weight with measured share of voice near and double our market share in the quarter.

Our focused approach to advertising has punched above its weight with measured share of voice nearly double our market share in the quarter.

A few key highlights.

Speaker 3: We ran the first ever both LEX Select Tech dumbbell campaign for that included journey. This also helped drive more journey members.

We ran the first ever Bowflex select Tech Dumbbell campaign for that included journey. This also helped drive more journey memberships.

Speaker 3: We continued investments in the both flex brand with incremental advertising to drive purchase consideration and positioned the brand in a more modern and inclusive way.

We continued investments in the Bowflex brand with incremental advertising to drive purchase consideration and position the brand in a more modern and inclusive way.

In addition to taking a more customer led approach to advertising, we bolstered our team by hiring a new director of customer success, our first ever customer experience manager and are adding critical staff in the email and social marketing.

Speaker 3: In addition to taking a more customer-led approach to advertising, we bolstered our team by hiring a new director of customer success, our first-ever customer experience manager, and are adding critical staff in the email and social markets.

Strength is another pivotal part of our consumer centric approach.

Speaker 3: Strength is another pivotal part of our consumer centric approach.

Speaker 3: Both Lexas long been a leader in strength, and we are working to elevate the consumer experience through our connected strength product.

<unk> has long been a leader in strength and we are working to elevate the consumer experience through our connected strength products.

Speaker 3: In the second quarter, we completed the acquisition of WAY, a leader in motion and vision technology. In the third quarter, we focused on integrating WAY's motion tracking capabilities into journey to further advance and accelerate our highly personalized workout experiences, including automatic rep counting and form coaching on and off both Lex and Twin Products.

In the second quarter, we completed the acquisition of way a leader in motion and vision technology in the third quarter, we focused on integrating ways motion tracking capabilities into journey to further advance and accelerate our highly personalized workout experiences, including automatic rep counting and form coaching on and off both.

<unk> products.

We expect to begin testing these features with select customers in the spring.

Speaker 3: We expect to begin testing these features with select customers in the spring.

We also focused on hiring more developers two years ago, we had about a dozen software developers and UX Ftes and were mostly in mechanical engineering company, but today, we have more than 250 people engaged in software development, we are accelerating our software development capabilities, and adding new and innovative features to the journey.

Speaker 3: We also focused on hiring more developers. Two years ago, we had about a dozen software developers in UXFTEs, and we're mostly in the Canegal Engineering Company, but today, we have more than 250 people engaged in software development.

Speaker 3: We are accelerating our software development capabilities and adding new and innovative features to the journey platform, moving us closer to our vision for journey as you're highly personalized one-to-one personal train.

I am moving us closer to our vision for journey as Youre highly personalized one to one personal trainer.

And the last pillar of Northstar that I'd like to touch on today is our supply chain.

Speaker 3: And the last pillar of North Star that I'd like to touch on today is our supply chain.

Speaker 3: We continue to battle unprecedented challenges from container and electronic components capability. Elevated commodity costs.

We continue to battle unprecedented challenges from container and electronic components, Cape availability elevated commodity costs.

Speaker 3: and cost the shipping and storing inventory. However, our investment in efforts have bolstered overall supply chain capabilities and are enabling us to successfully manage through this period.

And cost of shipping and storing inventory however, our investment and efforts are bolstered overall supply chain capabilities and are enabling us to successfully manage through this period.

Speaker 3: Earlier this year, we made a strategic decision in light of the global shipping issues to pre-order inventory and preparation for the seasonally strong third and fourth quarters to ensure that we, along with our retail partners, would be fully stocked. As mentioned previously, driven by strength products, we moved more units in the quarter than any other quarter in the company's long history.

Earlier this year, we made a strategic decision in light of the global shipping issues to preorder inventory in preparation for the seasonal seasonally strong third and fourth quarters to ensure that we along with our.

Our retail partners will be fully stocked as mentioned previously driven by strength products, we moved more units in the quarter than any other quarter in the company's long history.

Speaker 3: In summary, we are emerging from the pandemic as a stronger company. We have new leaders, new tools, and new processes in place, providing us to make a much stronger and more agile come.

In summary, we are emerging from the pandemic as a stronger company, we have new leaders, new tools and new processes in place, providing upfront providing us to make a much stronger and more agile company.

I'll now turn it over to Idaho give us more detail on the third quarter financials, and our guidance for the rest of the year Anna Thanks, Jim and good afternoon, everyone.

Speaker 3: I'll now turn it over to I Know Give Us More Detail on the Third Quarter Financials and our Guidance for the Rest of the Year. I Know. Thanks Jim and good afternoon everyone.

Speaker 4: Today I'll talk to results for Q3 and year to date, and we'll provide guidance for the second half of fiscal year 20.

Today, I will talk to your results for Q3 and year to date, and we will provide guidance for the second half of fiscal year 'twenty two.

Speaker 4: I'll start with slide 14 on the presentation. Total company results for Q3 2020.

I'll start with slide 14 in the presentation total company results for Q3 22.

Speaker 4: As discussed previously, we delivered the two highest sales quarters in our company's history in the back half of fiscal year 21. Fueled in part by pen-

As discussed previously we delivered the two highest sales quarters in our company's history in the back half of fiscal year 'twenty, one fueled in part by pandemic driven demand.

Speaker 4: As expected, demand has moderated in the second half, as normal seasonality begins to reach.

As expected demand has moderated in the second half as normal seasonality would begin to return.

Given the unique nature of last year's result will talk about sales growth versus alloy and versus L. L Y to gauge our growth in overall company improvement when compared to more normalized results.

Speaker 4: Given the unique nature of last year's results, we'll talk about sales growth versus LY and versus LLY. To gauge our growth and overall company improvements when compared to more normal Y.

Speaker 4: Next sales for the third quarter were 147 million down 22% versus LY, and up 63% versus LLY, splitting up...

Net sales for the third quarter were $147 million down, 22% versus outline and up 63% versus outlet excluding octane.

Speaker 4: A strong holiday performance resulted in a $9 million backlog for direct. Gross profit was $30 million, and those margins were 20%.

Around holiday performance resulted in a $9 million backlog for direct.

Gross profit was $30 million and gross margins were 20% down 21 percentage points from ally.

18 points of the decline related to higher logistics product costs, and FX plus increased discounting in the quarter. The remaining three points are related to increased journey investments.

Speaker 4: 18 points of the decline were related to higher logistics, product cost, and FX, plus increased discounting in the quarter. The remaining three points are related to increased journey investments.

Turning to operating expenses.

Speaker 4: close on the acquisition of way less quarter. The next few lines of the P&L have been adjusted to remove the impact of the deferred compensation related to that acquisition. Please.

Closed on the acquisition of way last quarter. The next few lines of the P&L had been adjusted to remove the impact of the deferred compensation related to that acquisition.

Please see our press release for a reconciliation to GAAP.

Adjusted operating expenses were $49 million or 33% of sales versus last year's $36 million or 19% of sales.

Speaker 4: Adjusted operating expenses for 49 million are 33% of sales versus last year's 36 million or 19% of

Speaker 4: So in marketing, that's just a 32 million or 22% of sales. The 10 million increase to LY is primarily due to increase at...

Selling and marketing expenses were $32 million or 22% of sales.

$10 million increase to our lines, primarily due to increased advertising.

Speaker 4: Adjusted DNA expenses for 11 million or 7% of sales. Up 400 K to L.

Adjusted G&A expenses were $11 million or 7% of sales up 400 K to ally.

R&D costs were $5 million or 4% of sales up $1 million compared to outline primarily driven by increased investments in journey.

Speaker 4: R&D costs were 5 million or 4% of sales, up 1 million compared to LY primarily driven by increased investment in drift.

In fiscal Q3 advertising was $21 million versus $10 million last year in Germany, Opex was $6 million versus $3 million last year.

Speaker 4: And if this goes Q3, advertising was 21 million versus 10 million last year, and journey op-ax was 6 million versus 3 million.

Adjusted operating loss was $19 million and adjusted operating margins were negative 13.

Speaker 4: operating loss was 19 million and adjusted operating margins for negative

Speaker 4: adjusted epitome loss from continuing ops was negative 15 or negative 15.

Adjusted EBITDA loss from continuing ops was negative 15 or negative 10% of sales.

Our presentation includes a waterfall chart on slide 16 that describe the year over year change in operating margin.

Speaker 4: Our presentation includes a waterfall chart in slide 16 that describes the Euro-Reyer change in operating marks.

The key drivers of the year over year change are lower gross margins as discussed earlier and planned incremental investments and journey opex and in advertising.

Speaker 4: key drivers of the year-over-year change are lower gross margins that discussed earlier and plant incremental investments in journey effects and in

Let me now turn to year to date results for the nine months ended December 31, 2021 compared to the same period last year.

Speaker 4: Let me now turn to your date results for the nine months and December 31, 2021, compared to...

Speaker 4: Net sales are 470 million, up 2% on a gap.

Net sales are $470 million up 2% on a GAAP basis, excluding octane branded sales revenue was up 7% versus last year and up 144% versus our outlook.

Speaker 4: including octane branded sales, revenue was up 7% versus last year, and now 144% versus LL.

Gross profit was $127 million compared to $193 million last year and gross margin rate was 27% versus 42% last year.

Speaker 4: Rose profit was 127 million compared to 193 million last year, and Rose margin rate was 27% versus 42%.

13 points of the gross margin decline was due to higher cost per visit.

Speaker 4: 13 points of the Gross Martian Declaim is due to higher cost for legal product costs and effects and increased discounting fiscal Q3.

Audit cost and FX.

Greece discounting fiscal Q3.

Two points of the decline was for increased investments in Germany.

Turning to adjusted operating expenses, which excludes the impact of <unk>.

Speaker 4: Turning to adjusted operating expenses which is clues the impact of this year's legal settlement, the way acquisition and deferred compensation costs, and last year's law through disposal groups.

This year's legal settlement.

The way acquisition and deferred compensation costs and last year's loss from disposal group platform.

Adjusted Opex was $125 million or 27% of sales versus last years $94 million or 21% of sales.

Speaker 4: Adjusted off-backs with 125 million or 27% of sales versus last year's 94%

$30 million increase was essentially driven by advertising and journey investments yet.

Speaker 4: 30 million increased was essentially driven by advertising and journey

Year to date advertising was $44 million versus $21 million last year.

Speaker 4: Year-to-day advertising was 44 million versus 21 million last year. Year-to-date journey off-axis was 15 million versus five million.

To date journey, Opex was $15 million versus $5 million last year.

Speaker 4: Adjusted operating income is 3 million or 1% of sale.

Adjusted operating income was $3 million or 1% of sales.

Adjusted EBITDA from continuing ops was $14 million or 3% of sales.

Speaker 4: If we are imp applies to 15 million.

Please see slide 19 in the presentation for our wonderful chart lumpy through the year over year changes in operating losses.

Speaker 4: Please cease slide 19 in the presentation for a water flow chart, losses for the euro-rear changes in operating market. Turning now to the balance.

Turning now to the balance sheet as of December 31.

Cash was $20 million.

Inventory was $128 million versus $68 million at yearend.

Speaker 4: Inventory with 128 million versus 68 million at your

The inventory levels at 12, 31 were down 21% versus 930 and came in better than plan.

Speaker 4: Please set inventory levels at 1231, we're down 21% versus 930.

Speaker 4: Inventory is concentrated in our best selling SKUs and about 15% of it was in transit at 12th.

Inventory is concentrated in our best selling skus in about 15% of it was in transit at 12 31.

Speaker 4: AR was 94 million versus 89 million at your end. EP 62 million versus...

AAR was $94 million versus $89 million at yearend.

P $62 million versus $99 million at year end and debt was $56 million versus $13 million at year end, and we had $55 million available for borrowing on our facility.

Speaker 4: and debt was 56 million versus 13 million at year end. And we had 55 million available for borrowing in our facility. Turning now to our expectations for second half fiscal 22.

Turning now to our expectations for second half fiscal 'twenty two.

Please turn to slide 21 in the presentation to follow along.

Speaker 4: The gaged growth and progress against more normalized pre-pandemic results will be comparing this year's sales versus the same period two years ago for the next.

To gauge growth and progress against more normalized pre pandemic results will be comparing this year's sales versus the same period two years ago for the next few quarters.

Speaker 4: In addition, because fitness season straddles the last two quarters of the year, we believe it's prudent to consider results in a six month basis from October 1, 2021 to March 31, 2021.

In addition, because fitness season straddles the last two quarters of the year. We believe it's prudent to consider resulted in a six month basis from October one 2021 to March 31 2022.

The company now expects total company net sales in the second half of this fiscal year to be between $260 million and $280 million, an increase of 31% to 41% versus the same period of two years ago.

Speaker 4: The company now expects total company net sales in the second half of this fiscal year to be between 260 million and 280 million. An increase of 31%, 41% versus the same period two years.

The decline versus previous guidance is driven by lower demand in international and increased discounting in the U S and Canada. This fitness season.

Speaker 4: The decline versus previous guidance is driven by lower demand and international and increased discounting in the US and Canada this fitness season.

This year the fitness season was much more promotional driven in part by consumer expectations of good deals during this time period.

Speaker 4: Driven in par by consumer expectations of good deals during this time.

The deep promotional events has concluded and we are now back to more normal seasonal promotion.

Speaker 4: The deep promotional events have concluded and we are now back to more normal seasonal.

On slide 22, we provided a waterfall and where the year over year change for operating margins at the bottom slide we noted the second type C provided three months ago in November 2021.

Speaker 4: Slide 22, who provided a waterfall way the year over-year change for operating.

Speaker 4: The bottom of the slide we noted the second slide be provided. Three months ago in November 20th.

We now expect the impact of logistics product costs, and higher promotions to be 15% to 16 percentage points.

Speaker 4: We now expect the impacts of logistics, product costs, and higher promotions to be 15 to 16% of

Higher than previous guidance of 12 points, primarily due to the increased discounting during the fitness season.

Speaker 4: higher than previous guidance of 12 points, primarily due to the increased discounting

As a rate of sales, we expect total journey investments would be 6% to nine percentage points higher versus last year.

Speaker 4: the rate of sales, we expect total journey investments to be 6 to 9 percentage points higher versus...

Advertising to the 8% to nine percentage points higher than opex to be 3% to four percentage points higher driven by north star investments and deleveraging of fixed costs on lower sales.

Speaker 4: advertising to be 8 to 9 percentage points higher, and off-ex to be 3 to 4 percentage points higher driven by North Star investments and V leveraging a fixed cost on low-

Despite lower gross margins, we still expect operating margin loss in the mid teens.

Speaker 4: Despite lower gross margins, we still expect operating margin loss in the mid-team. And we're now guiding to a

And we're now guiding to adjusted EBITDA loss in the low teens.

Speaker 4: We are reiterating full year cap acts to be between 12 and 14 million with the majority earmark.

We are reiterating full year capex to be between 12 and $14 million with the majority earmarked for journey and we expect the number of journey members at year end to cross 300000 above the midpoint of our previous guidance.

Speaker 4: And we expect a number of journey members at year end to cross 300,000 above the midpoint of our

We continue to expect to return to positive adjusted EBITDA in fiscal 'twenty, three and because of our investments in the higher margin subscription business. We believe we are on track to achieving operating margins of 15% by fiscal year end 25 with margins in the high teens by year end 'twenty six.

Speaker 4: Continue to expect to return to positive adjusted ebitd entist.

Speaker 4: And because of our investment in the higher margin subscription business, we believe we're on track to achieving operating margins of 15% by fiscal year and 25 with margins expanding to high teams by year and 26. I'm not.

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

Thank you Anna I'll end, our prepared remarks by saying that we are in the process of transforming into a digital leader in connected fitness and that transformation is already yielding tangible results.

Speaker 3: Thank you, Ina. I'll end our prepared remarks by saying that we're in the process of transforming into a digital leader in connected fitness, and that transformation is already yielding tangible results.

Speaker 3: We continue to execute in a disciplined way as we capitalize on the long-term opportunity and navigate the challenge.

We continue to execute in a disciplined way as we capitalize on the long term opportunity and navigate the challenges.

Speaker 3: Further, we're executing against our North Star Plan and we are succeeding.

Further we are executing against our North Star plan and we are succeeding.

Speaker 3: These investments are paying off and we are on track to surpass our goal of 300,000 members by the end of the fiscal year. Moving us closer to our long-term goal of 2 million members in fiscal 2026.

These investments are paying off and we are on track to surpass our goal of 300000 members by the end of the fiscal year moving us closer to our long term goal of 2 million members in fiscal 2026.

Speaker 3: I would like to end by thanking all of our incredible employees and partners for their tireless dedication and support of our mission. And now I'd like to go open it up for questions, operator.

Like to end by thanking all of our incredible employees and partners for their tireless dedication and support of our mission.

And now I'd like to go open it up for questions operator.

Yes.

Thank you we will now be conducting a question and answer session.

If you would like to ask a question. Please press star one on your telephone keypad.

Speaker 1: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 1.

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Press Star two if you would like to remove your question from the queue.

Speaker 1: For participants using speaker equipment, it may be necessary to pick up your hands step before pressing the start button. One moment. One moment.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.

One moment, please while we poll for questions.

Thank you. Our first question comes from Mike Swartz with <unk> Securities. Please proceed with your question.

Speaker 1: Thank you. Our first question comes from Mike Sporce with true of security. Please proceed with your question.

Hey, guys good evening.

Speaker 5: Hey guys, good evening. It might maybe just starting off on the cardio side of the business, I mean, sounds like it was...

Hey, Mike maybe just.

Starting off on the cardio side of the business I mean, it sounds like it was maybe a little bit softer than you had anticipated. So I guess I'm just wondering how much of that is.

Speaker 5: maybe a little bit softer than you had anticipated. So I guess I'm just wondering how much of that is, you know, the discounting environment that we saw through the holiday season versus your commentary around international. And I think you would also mention that you pulled back on advertising around cardio given some of the supply limitations. So second part of that would just be when you expect advertising to return to more normal levels for cardio.

The discounting environment that we saw through the holiday season versus your commentary around international and I think you had also mentioned that you pulled back on advertising around cardio given some of the supply limitations.

Second part of that it would just be when do you expect advertising to return to more normal levels for cardio.

Sure, Yes, great question.

Speaker 3: Sure, yeah, great question. For sure, like I think the first thing we have to think about is the fact that on cardio, we are comping a pretty good quarter last year, right, or all the time.

For sure I think the first thing we have to think about is the fact that on cardio. We are comping, a pretty good quarter last year right. Our all time high quarter overall, and then we have just launched <unk> bike. So we had a lot of.

Speaker 3: high quarter overall and then we just launched the Bellacorp bike. So we had a lot of great bikes in the market and we were coming back into supply for that. So first of all, I think it's a tough comp on the cardio.

Great bikes in the market and we are coming back into supply for that so first of all I think it's a tough comp on.

The cardio side second thing is youre, absolutely right. The ship the chip shortage forced us to pivot away from using the maximum number of chips and go into some of the strength products that don't require chips. So.

Speaker 3: Second thing is you're absolutely right. The chip shortage forced us to pivot.

Speaker 3: away from using the maximum number of chips.

Speaker 3: and go into some of the strength products that don't require chips. So that was one thing. So that was kind of a bit self-inflicted there. I wouldn't say self-inflicted. It's something we really wanted to do. So that's the key part of it. And by doing that and attaching journey to dumbbells, we got a lot of journey memberships that way. We got a lot of people trying the product, which is

We wanted that was that was one thing so that was kind of kind of a bit self inflicted there I wouldn't say self inflicted it's something we really wanted to do so that's that's a key part of it and by doing that and attaching journey to.

Dumbbells, we got a lot of journey memberships that way, we've got a lot of people trying the product, which is what we really wanted to do I think part of it.

Speaker 3: what we really wanted to do. I think part of it is we were stocked out on a few of our best selling cardio products like one of the Bell Accords. I think maybe both of the Bell Accords at times during the quarter, the M9 and some of our tread. So we were stocked out and so a little bit more limited on those and we've had a ton of dumbbells.

As we were stocked out on a few of our best selling cardio products like.

One of the <unk> I think maybe both of the <unk> at times during the quarter.

Nine in some of our tread so.

We were stopped out and so a little bit more limited on those and we've made a ton of a ton of.

Dumbbells.

Speaker 3: And 60% of our cardio unit, our backlog is actually cardio units, so you'll see more of that coming through going forward. So I think it's really a combination of, confidence off quarter, some stock outs.

And 60% of our of our cardio unit of our backlog is actually cardio units too so you'll see more of that coming through <unk>.

Going forward so.

I think it's really a combination of comp.

Comp in a tough quarter some stock outs.

Speaker 3: then promoting strength on purpose and really pivoting towards...

Then promoting strength.

Purpose and really pivoting towards.

Speaker 3: a new mix of products that help us deal with the chip shortage better. Now we hope that chip shortage goes away. We would like to just go straight up on consumer demand. But I was actually quite pleased with how the team didn't take it lying down and just pivoted to the best way we could succeed this way. And in terms of advertising, yeah, I mean, we're still largely known for cardio. We're still running several valicore commercials. We were just kind of highlighting that we had never really...

A new mix of products that helped us deal with the chip shortage better now we hope that chip shortage goes away, we would like to just go straight up on consumer demand, but I was actually quite pleased with how the team.

Didnt take it lying down and just pivoted to the best way, we could succeed this way and then in terms of advertising, yes, I mean, we're still largely known for cardio were still running.

Several valid core commercials, we were just kind of highlighting that we had never really done.

Speaker 3: done a sort of a select tech focus commercial before and we did that this time. So we're just kind of balancing it a little bit better and we'll probably see that going forward that we'll look at both strengths and cardio products in our advertising. So I'm really good question, hopefully that provides some color.

On a.

Sort of a select tech focused commercial before and we did that this time. So we're just kind of balancing it a little bit better and we'll probably see that going forward that will we will look at both strength and cardio products.

In our advertising so really good question hopefully that provides some color.

Yes, that's very helpful. Thanks, Jim and maybe a follow up question for <unk>. If we look at the guidance for the second half of the fiscal year it looks like the expectation.

Speaker 5: Yeah, that's very helpful. Thanks, Jim. And maybe a follow up question for Ina. If we look at the guidance for the second half of the fiscal year, it looks like the expectation just of the headwind from advertising is a little lower. The headwind from journey investments a little higher. I guess how should we read that?

Just as a headwind from advertising is a little lower the headwind from journey investments a little higher I guess, how should we read that.

Speaker 4: I think the way that I'd want you to read it is as we navigate the changing environment, we're gonna pull all the levers available to us to achieve our strategic objectives but also meet our short-term target for operating margins. See you next time yea.

I think the way that I would want you to read it is as we navigate the changing environment, we're going to pull all the levers available to us to achieve our strategic objectives, but also meet our short term target for operating margin.

Okay. Thank you.

Thanks, Mike.

Thank you. Our next question comes from Sharon Zackfia with William Blair. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from Sharon Zackfia with William Blair. Please specific to the...

Speaker 6: Hi, good afternoon. I appreciate the color. Hi, I appreciate the color on the international component. I guess I'm curious. Do you think their inventory is going to be relatively clean at the distributor level by the end of March? So you're kind of more set up to win overseas. We enter fiscal 23. And I'd also appreciate if you have any insight into retailer inventory levels. I mean, are those relatively clean? Are they still working through any kind of excess amount?

Hi, good afternoon.

The color I appreciate the color on the international component I guess I'm curious did.

Do you think their inventory is going to be relatively clean at the distributor level by the end of March so you're.

More set up to win overseas as we enter fiscal 'twenty three and I would also appreciate it if you have any insight into that.

Retailer inventory levels I mean are those relatively clean or are they still working through any kind of.

Excess inventory.

Sure.

Speaker 3: Sure. I'll start if you want to add anything.

I'll start and then if you want to add anything.

Speaker 3: Let me just start with the retail inventory. Looks pretty clean to us. The cell through looks like it's going out. They did have a lot of inventory to start with.

Let me just start with the retail inventory looks pretty clean to us the sell through looks like it's going now they did have a lot of inventory to start with right. So that's why.

Speaker 3: So that's why we promoted, and then of course our retailers have to, when you're on the channel, your retailers have to have the ability to promote to the same price you're promoting. So if we do it on one side, it gets done on the other. So they started out with a fair amount of inventory as did we. But the cell-through numbers we've seen are quite healthy in that channel.

We promoted then of course, our retailers have to when your Omnichannel your retailers.

To have the ability to promote at the same price you are promoting so if we do it on one side that gets done on the other so they started out with a fair amount of inventory acid wheat, but the sell through numbers, we've seen are quite healthy.

And that in that channel, we did want to call.

Speaker 3: uh... we did want to call do call out uh... international it's not a huge part of our business we don't talk about it too often but i don't think people understand structurally how it works

Call out international it's not a huge part of our business. We don't talk about it too often but I don't think people understand structurally how it works in that.

Speaker 3: Here in North American retail, for example, we can support our retailers with some discounts and other ways to have them lower the price and meet our price. So we have some levers here that they don't have over there. When you sell through a distributor, you've got inventory that's resident at the distributor level. And then there's also inventory at the retail level. So there's like an extra level.

Here in North American retail for example, we can we can support our retailers with some discounts.

Other ways to have them lower the price.

Meet our price. So we have some levers here that that they don't have over there when you when you sell through a distributor you have got inventory that's resident at the distributor level and then there is also inventory at the retail level. So there is like an extra.

Level there.

Speaker 3: I think in terms of calling the question, I mean we continue, we just say we expect it to be slow through the end of the quarter. I don't know where it will end at the end of the quarter. I think, I mean, we've seen it slow down over there. People are still buying it, but...

In terms of calling the question I mean, we continue we did we did say we expect it to be slow through the end of the quarter I don't know where it will end at the end of the quarter I think.

We've seen a slowdown over there people are still buying it but lot more lockdowns and things like that so.

Speaker 3: a lot more lockdowns and things like that. So we're just not sure.

We're just not sure how long, it's going to take to clear through those two levels of inventory now Fortunately, that's only 10% of our business, but it's sort of pad.

Speaker 3: how long it's going to take to clear through those two levels of inventory. Now fortunately that's only 10% of our business, but it's sort of had maybe half of the impact this time as well. So hopefully that gives you a little color.

Maybe half of the impact this time as well so hopefully that gives you a little color yes.

Yes, that's helpful and then on the discounting side I appreciate the commentary year over year, but can you talk about kind of the December quarter, how it looked relative to maybe December of 2019, if theres any kind of comparisons there and how.

Speaker 6: Yeah, that's helpful. And then on the discounting side, I appreciate the commentary year over year. But can you talk about kind of the December quarter, how it looked relative to maybe December of 2019, if there's any kind of comparisons there? And you know how that comparable period would look so far, kind of during New Year's resolution timeframe relative to the like pre-COVID early 2020 time.

How that comparable period with with luck, so far kind of during new year's resolution timeframe relative to that.

Pre COVID-19 early 2020 timeframe.

So when you compare to two years ago, so that'll be the December 19 quarter.

Speaker 4: So when you compare to two years ago, so that will be the December 19 quarter, it's an interesting comparison because the company was in a much different place, but I would say that we intentionally chose to be very supportive of our retailers to allow them to clear the inventory kind of in concert with how we were clearing it on direct, because we wanted to make sure that we entered the first half of this way, 23 with cleaner invasions.

It's an interesting comparison because the company was in a much different place, but I would say that we intentionally chose to be very supportive of our retailers to allow them to clear the inventory kind of in concert with how were your theory on direct because we wanted to make sure that we entered.

In the first half of fiscal year 'twenty through 'twenty, three with cleaner inventory.

Yes, So and then I'll just say look it starts out that of course that time of the year everybody promotes right. It didnt happen last year, but tip.

Speaker 3: Yeah, so and then, you know, I'll just say, look, it starts out that, of course, that's the time of year everybody promotes, right? It didn't happen last year, but typically that's the way it was. And when I say we saw that, what we, what was a little bit, what we didn't expect maybe was our competition went deeper and longer than they typically do. And I guess if you kind of

Typically that's the way it was I would say we saw that.

What was a little bit while we didn't expect maybe was our competition went deeper and longer than they typically do and I guess, if you kind of.

Speaker 3: read what you read what's out there. They have a lot of inventory, so they're trying to clear through a lot of inventory, so it's probably the smart thing for them to do in that period. If you don't sell it in fitness season, you might be holding it for a bit longer. So they did that around holiday season. You really got to...

<unk>.

Read what's out there they have a lot of inventory so they're trying to clear through a lot of inventory. So it's probably the smart thing for them to do in that period. If you don't sell it and fitness season, you might be holding that for a bit longer so.

They did that in around holiday season.

Speaker 3: I don't say if you have to match the competition, but you certainly have to play.

I don't say, if you have to match the competition, but you certainly have to play once you get out of fitness season, like where we are now it'll be more normal discounting. We can decide hey, do we want to match. This type of price war or would we rather go for margin over over topline for this particular period in winter the volumes lower you can.

Speaker 3: Once you get out of fitness season like where we are now, it'll be more normal discounting. We can decide, hey, do we want to match this type of price or would we rather go for margin over top line for this particular period and when the volume's lower, you can sort of make that move. So I think more so than we've seen in a while just because inventory positions at some of the competition we're driving then.

You can you can sort of make that move so I think more more so than we've seen in a while just because inventory positions at some of the competition, we're driving them to notably dropped their prices.

Speaker 3: to notably drop their prices and we had to play a little bit. We mostly played with the journey, with the attaching journey, but we also did lower our prices and did quite a bit of discounting ourselves.

And we had to play a little bit.

We mostly played with with the with the journey.

With attaching journey, but we also did lower our prices and did quite a bit of discounting ourselves.

Speaker 6: And then last question for me, you know, the logistics and product cost, when we've talked about that, I feel like every quarter of this year for every company I follow. But you didn't really, it doesn't seem like you really change your expectation for that component for the second half of this year. Does that mean or can I infer that you're starting to see that kind of at least level off? Or are you, I guess I'm just trying to get a sense of, is it more predictable now or is it still volatile or stagnant if you can give us any context if there ain't a sense?

Okay, and then last question for me.

The logistics and product cost and we've talked about that I feel like every quarter of this year for every company I follow.

But you didn't really it doesn't seem like you've really changed your expectation for that component for the second half of this year does that does that mean or can I infer that you're starting to see that kind of at least level off or are you I guess I'm just trying to get a sense of is it more predictable now or is it still volatile worsening and if you can give us any context, there would be helpful.

Thanks, Sharon Thats a great question, so I'll make sure I answered the three points, yes, it's about similar to what it's fairly similar to what we talked about last quarter and then in the guidance.

Speaker 4: Thanks Sharon, this is a great question. So I'll make sure I answer the three points. Yes, it's about similar to what, you know, it's fairly similar to what we talked about last quarter and then in the guide.

Speaker 4: So that does mean that we're starting to see some stabilization. We're no longer getting rocked by surprises. And our intent, and this is the path to getting to physical your 23 positive EBITDA, is we're going to use that leverage.

That doesn't mean that we're starting to see some stabilization, we're no longer kind of getting rocked by surprises.

And our intent and this is the path to getting to fiscal year 'twenty three positive EBITDA as we're going to use that lever.

To get us to positive territory next year for EBITDA, and it's really going to be about improving things like storage class that will no longer be meeting as we go independently of 'twenty.

Speaker 4: get a positive territory next year for EBITDA and it's really gonna be about improving things like storage costs that will no longer be needing as we go into February 20th.

Awesome. Thank you thank.

Thanks Sharon.

Thank you. Our next question comes from Steve Dyer with Craig Hallum. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from Steve Dyer with Craig Hallum. Please Please.

Speaker 7: Good afternoon, Ryan on for Steve. Hi Steve. Oh, Ryan.

Good afternoon, Ryan on for Steve.

Hi, Seth.

Brian .

Speaker 7: Very some German. I know you guys have been hesitant to give any paid subscriber metrics, but anything you can share at least qualitatively relative to your internal experts.

Yes.

Jeremy.

I know you guys have been hesitant to give any paid subscriber metrics, but anything you can share at least qualitatively kind of relative to your internal expectations on the paid side within that total subscriber base.

Yes, I mean as you've alluded we've said for quite some time that starting next quarter and I think we really mean it next quarter.

Speaker 3: Yeah, I mean, as you've alluded, we've said for quite some time that starting next quarter and I think we really mean it next quarter, we'll provide a whole kind of a full sum set of

Ill provide a host of kind of a fulsome set of.

Speaker 3: metrics to begin to Analyze the health of our subscription business. So we don't have that right now We we can say as we said in the script that We were at 250,000 members at at year at year end. That's well 31. I can also add to that Since you asked me that today or as of Sunday we were 280,000

Metrics to begin to analyze the health of our subscription business. So we don't have that right now we can say as we said in the script that we were at 250000 members at at year at year end 12, 31, I can also add to that since you asked me.

That today or as of Sunday, We wrote 280000 on our way as we said in the script to eclipsing our 300000.

Speaker 3: on our way as we said in the script to clipsing our 300,000 goal for the year. So we're doing well there.

Goal for the year. So we're doing well there engagement is strong I know thats, not a metric but but.

Speaker 3: Engagement is strong. I know that's not a metric, but we have metrics on that. We haven't provided, we wouldn't have context if I told you anyway, but there's strong engagement. Churn is going down. The things you'd want to see still early, but that's all good. So the subcomponent of that is paid subscribers.

But we have metrics on that we haven't provided that you wouldn't have context, if I told you anyway, but there's strong engagement churn is going down the things you'd want to see still early but but that's all that's all good and.

Yes, it's a sub component of that is paid subscribers.

Speaker 3: for sure, but you know we're kind of in that stage where we're really just trying to get people to use it Where we relate to the game, you know, we're giving someone a reason especially people who love our equipment

For sure, but you know we're kind of in that stage, where we're really just trying to get people to use it.

We relate to the game, we're giving someone a reason, especially people who love our equipment.

Speaker 3: the reason to try journey and we're making it really easy for them to do that. So I think that's the right strategy. We look at some of our competitors that have done that early in there. Growth of their subscription base and it has worked very, very well. So we'll continue to do that and sorry, I can't give you more of what you're exactly asking for, but hopefully that gives you a little bit of color.

The reason to try journey, and we're making it really easy for them.

To do that so I think thats the right strategy, we look at some of our competitors that have done that early in their growth.

<unk> growth of their subscription base and it has worked very very well. So we'll continue to do that and sorry, I can't give you more of what youre exactly asking for but hopefully that gives you.

A little bit of color.

Yes, that's helpful look forward to those metrics next quarter.

Speaker 7: Yep, that's helpful. I look forward to those metrics next quarter. Two kind of clarification points, just so I'm clear, in that for the guidance for the second half, the company expects adjusted EBITDA loss from the low team.

You kind of clarification points.

Just so I'm clear.

The guidance for the second half the company expects adjusted EBITDA loss from the low teens that reads like EBITDA dollars, but is that dollars or margin that youre talking about it.

Speaker 7: it's rate. I'm sorry. You're right. It's rate.

Right Im sorry, Youre right its right okay.

Speaker 7: Okay, thank you. And then secondly, Amazon had been a 10% customer full.

Okay.

Thank you and then secondly, Amazon had been a 10% customer for <unk>.

Speaker 7: center row. It did dip a little bit below that in the quarter. Anything to read through there or

Im 10 quarters in a row it did dip a little bit below that in the quarter anything to read through there or is it just yet.

Anything there.

Speaker 3: Yeah, no, I think it's less about Amazon and more about what I mentioned, one of those.

Yes, no I think it's less about about Amazon and more about what I mentioned one of those capabilities. We've built during the pandemic and strengthened of ours as.

Speaker 3: Capabilities we've built during the pandemic and strengthened of ours is that retailer base. You know, we've talked before about best buy not even selling our stuff before this started and now they're at the top. We continue very strong with DICS.

Is that retailer base.

<unk> talked before about best buy not even selling our stuff before this started and now now they are at the top we continue very strong with Dick's, We continued strong with Amazon.

Speaker 3: We continue strong with Amazon. We've got a lot of Costco and Costco Canada and many other valuable retailers there. So we've really diversified that base and that's why you see a number like that. We're suddenly there or not.

We've got a lot of Costco in Costco, Canada, and many other valuable retailers. There. So we've really diversified that base and that's why you see a number like that we're suddenly theyre not.

Speaker 3: you know, they're not a 10% anymore. But we think it's a healthy way to go, right? That just means there's more doors. I think I haven't looked at our doors lately, but I think in our last call, we talked about is that growing a fairly large percentage. So that just means you can get our products more places from us or from any of those great retailers that I mentioned in some that I didn't. Great. Thanks.

They're not a 10% anymore, but we think it's a healthy way to go right that just means there's more doors I think.

Haven't looked at our doors lately, but I think in our last call we talked about that growing a fairly large percentage. So that just means you can get our products in more places from us or from any of those great retailers that I mentioned and some that I did.

Great. Thanks, and good luck, thanks, Steve Thanks.

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Thank you. Our next question comes from Mark Smith with Lake Street Capital. Please proceed with your question.

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Speaker 8: Hi guys, for some of our questions from me, I just wanted to dig into the pricing trends, just a little bit more for you and the industry. Can you talk a little bit about what you're seeing today as far as competitors pricing and maybe help promotion only have to be today to compete kind of post peak fitness season?

Hi, guys.

So my question for me just wanted to dig into the pricing trends just a little bit more for you and the industry can you talk a little bit about what youre seeing today as far as competitors pricing and maybe how promotional we have to be today to compete kind of post peak fitness season.

Speaker 3: Yeah, I mean, most of it was during fitness season. And there's a few famous ones where people though a more expensive bike was lowered under $1,500. Pretty famous one stayed there for a while. That company has now gone back to more regular pricing. And they have also now charging for assembly and some things like that. So I think you're sort of seeing there that it's going back to a more normalized

Yes, I mean, most of it was during fitness season.

Theres a few famous one where people though.

More expensive bike was lowered to under $500 pretty famous one stayed there for a while that.

That company is now gone back to more regular pricing and they are also now charging for assembly and some things like that so I think youre sort of seeing there that it's going back to a more normalized.

Speaker 3: uh... way of going about it's something you know you'll still see some promotions as people try to squeeze the last little bit out of the season but you know pretty pretty soon this is not on consumers minds the way that it's been in holiday season you know yours resolution season so it's coming down i think the other thing we wanted you know the way we think about it is you don't always have to follow

Way of going about it I think some of that you'll still see some promotions as people try to squeeze the last little bit out of the season, but.

Pretty soon this is not on consumers' minds the way that it's been in holiday season.

New year's resolution season, so it's coming down I think the other thing we want to the way. We think about it is you don't always have to follow and game theory, you don't always have to follow your competitors when the when the volumes at a lower level of the year, where you may not have a choice. When you are in holiday and fitness season. So even if there is some more discounting.

Speaker 3: In Game Theory, you don't always have to follow your competitors when the...

Speaker 3: when the volumes at a lower level of the year where you may not have a choice when you're in holiday and fitness season. So, you know, even if there is some more discounting, we can sit there and decide whether we'd rather...

We can we can sit there and decide whether we'd rather.

Speaker 3: you know promote and get more top line or We want to preserve margin and and our units and you know especially with when you run out of a few of our cardio units like I mentioned

Promote and get more top line or.

We want to preserve margin and and our units and especially with when you run out of a few of our cardio units like I mentioned you may you may want to not discount those so anyway, that's how it's going.

Speaker 3: You may want to not discount those. So anyway, that's how it's going. And it goes day to day, but generally, and I've been in this industry now for three years, generally, it regulates around this time of year and in February . And so most of our, we'll run maybe a president's say, day sale or something like that. And you'll see others doing that. But it won't be to the level that anybody was doing in our opinion, most likely, will be to that level as we saw in holiday and to it.

Day to day, but generally and I've been in this industry now for three three years generally it regulates.

Around this time of year end in February and so most of our little run maybe a president's day sale or something like that and Youll see others doing that but it won't be to the level that anybody was doing.

In our opinion, most likely it will be to that level as we saw in holiday and fitness season.

Okay.

Speaker 8: Okay. And then you guys talked about regulating GNA expense and looks like did a good job there. Would you call it fully regulated today in GNA or is there more places and maybe you can trim a little bit?

And then you guys talked about regulated G&A expense it looks like.

Good job there.

You call it fully regulated today in G&A or is there more places it maybe you can trim a little bit.

Speaker 4: I'll take that. It's Ina. I think the way that our approach has remained consistent since Jim and I joined the company. It's, you know, have a really good

I'll take that.

The way that and our approach has remained consistent since Jim and I joined the company.

I have really good visibility to what's cyclical what's variable in nature of the variable piece stays in line with revenue and expected revenue. So we've.

Speaker 4: visibility to what's fixed and what's variable and make sure the variable piece stays in line with revenue and expected revenue. So we've maintained that and then as part of our north star, making sure that we don't waver from making the long-term investments we need so that we can achieve the higher operating margins. So it's always a balancing act. So I think the answer is it'll always be...

<unk> that and then as part of our Northstar, making sure that we don't waver from making the long term investments we need so that we can achieve this higher operating margin. So it's always a balancing act I think the answer is.

<unk> will always be.

Speaker 3: reacting to adjusting to top line environment and maybe I'll just give an example too So, you know over the period of the pandemic Our sales roughly doubled right so that's a lot more work. We move more units this past quarter than we've ever ever done before We've while doubling the revenue of the company we increased our head count 10% So that just gives you kind of an idea that

Reacting to adjusting to topline environment, yes, and maybe I'll just give an example, too so.

Over the period of the pandemic.

Our sales roughly doubled right. So that's a lot more work we moved more units this past quarter than we've ever ever done before.

While doubling the revenue of the company, we increased our head count 10%.

So that just gives you kind of an idea there now.

Speaker 3: You know, we still have a lot of contractors and things like that, especially in journey. So we have more FDA working and of course in our...

We still have a lot of a lot of contractors and things like that especially in journey. So we have more FTA working and of course in our asset light model. We don't have employees, we have people working on our behalf. So that's not a full thing, but but I think it is kind of a nice testament of how we've tried to keep this variable as as I said until we see where that is.

Speaker 3: asset-like model we don't have employees, we have people working on our behalf. So that's not a full thing, but I think it is kind of a nice testament to how we try to keep this variable as I'm said until we see where that settle point is.

Subtle point is and we try not to get too far out over our skis and and things like that at the same time, we've added all those great capabilities I listed two so it's not like we're standing still we're just investing in the areas that we really really need to invest in and of course, staying true to both the journey and the Bowflex brand investments.

Speaker 3: And we try not to get too far out over our skis and things like that. At the same time, we've added all those great capabilities I listed too. So it's not like we're standing still. We're just investing in the areas that we really really need to invest in. And of course, staying true to both the journey and the both legs brand and best.

Speaker 8: Perfect. And the last one for me, as you talk about investment, as we look at R&D, how much of this is maybe on the product side versus on the technology side in any insight into your pipeline for new product?

And the last one for me is you talked about investments as we look at R&D. How much of this is maybe on the product side versus on the technology side and any insight into your pipeline for new products.

Speaker 4: So that's a really great question. So one of the things that we did as we were going through in our star, you know, we did a lot of focusing work.

So that's a really great question to one of the things that we did as we were going through in our story, we did a lot of focusing mark.

Can you do that and you narrow your skus.

Speaker 4: you do that and you narrow your shoes and you remove the commercial business, you decide to sense it, one of the brands, that kind of frees up some resources from maybe the more equipment side of the business and then allows you to invest them into journey. So what we've invested in journey, you don't necessarily see reflected as the true year or year increase because we were able to kind of be more optimized, cut some clips.

The commercial business.

I had the sense at one of the brands that kind of frees up some resources from maybe the more equipment side of the business and that allows us to invest them into Germany. So.

What we've invested in journey, you don't necessarily see reflected as a true year over year increase because we were able to kind of.

Be more optimized cut some costs and then maintenance.

Northstar.

Okay, and then in terms of the pipeline I think what we said was well look we just did all the cardio. So we're going to we're going to do some some more stuff in cardio for sure we haven't announced it but you can expect that but mostly we're looking at strengthening we mentioned dumbbells with way.

Speaker 3: And then in terms of the pipeline, I think what we said, well, look, we just did all the cardio. So we're gonna do some more stuff in cardio for sure. We haven't announced it, but you can expect that. But mostly we're looking at strength now. We mentioned dumbbells with way.

Speaker 3: and some other strength products that will be coming out over the next year. And so that's a lot of our, our,

Some other strength products that will be coming out.

The next year and.

And so that's.

That's a lot of our pipeline.

Speaker 3: I don't know if I could give you up. We used to be a completely mechanical engineering company and now you heard all the software engineers that we've hired. So it's definitely filtering more towards...

I don't know if I could give you.

We used to be a completely mechanical engineering company and now you've heard all of the software engineers that we've hired so it's definitely tilting more towards <unk>.

Speaker 3: software engineering, you know, thinking that over time that's one of the main ways that we'll differentiate. We'll still be trying for strong mechanical differentiation like we have in a Delah Korra in the theaters.

Software engineering thinking that that over time that one of the main ways that will we will differentiate will still be trying for strong mechanical differentiation like we havent della <unk> and the new Max.

Speaker 3: Max trainer and things like that when we get it it's fantastic

Max trainer and things like that and when we get it its fantastic, but we felt as a bit more to the software and.

Speaker 3: But we've built a bit more to the software. And the way we think about it's not either or the software actually makes the hardware better. So it's sort of the software's a feature of the hardware. And that's the way we've really driven the transformation. It's not like, oh, we don't value mechanical engineers anymore. We value them as much as we ever did if not more. And then we add this other capability on top of it. And so maybe you're tilting a little bit more that way. And some of it is, you know, we're a week, we were a little late to the game and we got some catch up to do.

The way, we think about it's not either or the software actually makes the hardware better. So it's sort of the software as a feature of the hardware and that's the way we've really driven the transformation. It's not like we don't value mechanical engineers anymore, we value them as much as we ever did if not more and then we add the southern capability on top of it and so maybe you're tilting a little bit.

More of that way and some of it is.

Where we were a little late to the game and we've got some catch up to do.

Thanks, guys sure.

Thank you. Our next question comes from George Kelly with Roth Capital Partners. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from George Kelly with Rolf's Casual Partners. Please proceed to do

Hi, everybody thanks for taking my questions.

Speaker 9: Hi everybody, thanks for taking my questions. Good morning.

George.

Speaker 9: So just to start on inventory. So came down sequentially, but it's still quite a bit above pre-COVID level.

So just to start on inventory so came down sequentially, but it's still quite a bit above pre COVID-19 levels.

Speaker 9: So just curious if you could talk about what is normalized inventory, or were you expected to move to, and how long do you think it'll take to get you there?

So just curious if you could talk about.

What is normalized inventory.

Or do you expect it to move to and how long do you think it will take to get you there.

Speaker 4: Yeah, so thanks for the questions. It's a great one. So we think about that a lot because what's the right level knowing that overall our company is a lot bigger than it was two years?

Yeah. So thanks for the question, it's a great line. So when we think about that a lot because what's the right level knowing that overall our company is a lot bigger than it was two years ago. So it's a little heavier now than I'd like it to be and we have a plan and I feel really confident into glided down to a lower number in the first.

Speaker 4: So it's a little heavier now than I'd like it to be and we have a plan, I feel really confident and to glide it down to a lower number in the first half of 23, but obviously taking it up.

Half of 'twenty, three, but obviously, taking it up picking it back up again in preparation fitness season fiscal year 'twenty, three so slightly higher than I'd like it to be but moving in the right direction and as a reminder, the reason it's high is because when you have this uncertainty in the supply chain environment, we really wanted to make sure that the inventory on hand.

Speaker 4: taking it back up again in preparation for fitness season, fiscal year 23. So, slightly higher than I'd like to be, but moving in the right direction. And as a reminder, the reason it ties, because when you have this uncertainty in the supply chain environment, we really wanted to make sure that the inventory was on hand in our hands in the DCs.

In our hands in the DC prior to the peak fitness season, which is Q3 and Q4 of this fiscal year and as you like the way we've worked it down I know the CFO once it lower than that.

Speaker 4: prior to the big fitness season, which is Q3 and Q4.

Speaker 3: Yeah, and I do like the way we've worked it down. You know, I know the CFO wants it lower, and that's what she should. But, you know, we think we've got the right stuff to sell. We think it's in the right areas. Like I said, we had a couple stock outs. I'm not happy about that, but you can't be perfect in predicting this. And it tells us people really enjoy our products and demand them. So we've got that for sure. But I think generally we're in a good spot. Okay, okay, and then next question.

What she said but.

Where we think we've got the right stuff to sell we think it's in the right areas like I said, we had a couple of stock outs not happy about that but you can't be perfect in predicting this in and it tells us people really enjoy our products and demand them. So we've got we've got that for sure but.

I think generally we're in we're in a good we're in a good spot.

Okay. Okay, and then next question on.

I'm just trying to map out next year fiscal year 'twenty three.

Speaker 9: Just trying to map out next year, fiscal year 23.

Speaker 9: And you mentioned in your prepared remarks, just a return to kind of normal seasonality. So if I play that through, does that, should we see a sort of summer dip versus the December and March quarters, like we saw normally before COVID? And then you would expect it to again climb again in the holiday season of fiscal year 23. sweet.

You mentioned in your prepared remarks, just a return to kind of normal seasonality. So if I play that through does that should we see a sort of summer dip versus the December and March quarters like like we saw normally before COVID-19 .

Then you would expect it to again climb again in that.

Holiday season of fiscal year 'twenty three.

Speaker 4: If that's what we are planning for and executing against for our direct segment. The retailers.

That's what we are planning for and executing against our direct segment. The retailer segment is.

He is still kind of more volatile again only related to the ability to ship things <unk> just shifting from.

Speaker 4: It's still kind of more volatile, again only related to the ability to ship things, FFO or to ship things from, you know.

Speaker 4: where our DCs are in the EU into UK. So there's a little bit of noise when it comes to the retail side, but for the direct side, that's what we're executing. So when we saw it kind of play out in the last few quarters, it was matching historical seasonality for direct. So we are expecting that to continue.

<unk> in the EU into the UK, so theres a little bit of noise. When it comes to the retail side, but for the direct side. That's what we're executing until we thought kind of play out in the last few quarters. It was matching historical seasonality for direct so we.

Expecting that to continue in fiscal year 'twenty, three yes, and I'll just jump on all of that yes and to <unk>.

Speaker 3: Yeah, and I'll just jump on, I'll add yes and to, to hide it. Especially what is now our first quarter, you know, the quarter ending June . You remember last year, it's just all the retailers loaded in way earlier than they would normally do it. So that's gonna be, it's gonna be interesting to see.

Especially what we what is now our first quarter the quarter ending June you remember last year. It just all the retailers loaded way earlier than they would normally do it so that's going to be as it would be interesting to see.

Speaker 3: They really did in turn to normal seasonality while direct did. So it'll be interesting to see if, because the supply chain shortages that they order that early, I would guess they won't.

It really didn't turn to normal seasonality, while directed so it'll be interesting to see if because of supply chain shortages that they order that early I would guess they want I would guess that hey, if they see it the way that we're seeing is that it's going to be kind of a normal a normalization year that they may go back to there.

Speaker 3: I would guess that if they see it the way that we're seeing it, that it's going to be kind of a normal, a normalization year.

Speaker 3: that they may go back to their normal order. Because you remember that the first quarter, the June quarter in retail was super, super high.

Their normal ordering because you remember that.

The first quarter, the June quarter, and retail was Super Super High.

Speaker 3: And the second quarter was a little weaker because they had ordered pre-ordered in the first quarter. So I'd say maybe you're going to have some shifts there, but like I agree with everything I'm upset about direct and normal seasonality to the summer. OK. And then last question. Thanks for coming.

And the second quarter was a little weaker because they had ordered pre pre ordered in the first quarter. So I would say, maybe youre going to have some shifts there, but like like I agree with everything <unk> said about about direct and normal seasonality through the summer.

Okay and then last question for me what was.

Speaker 9: So I guess two advertising questions. What was the media spending the quarter? And then you've talked about reasons mostly supply chain related for kind of peeling back on some of your ad spending. But.

So I guess two advertising questions what was the media spend in the quarter and then you've talked about.

<unk>, mostly supply chain related for kind of peeling back on some of your AD spending, but when you look at what <unk>.

Speaker 9: But when you look at what peers are doing, I mean, does it seem like

<unk> are doing I mean does it seem like folks are getting more rational as far as what the current environment is and not spending as much on direct advertising or just what does that look like so far that's good yeah. I'll start I think it's going to be interesting just picking up your last part I mean, we've obviously been outspent by several of our competitors.

Speaker 9: Folks are getting more rational as far as you know what the career environment is and not spending as much on direct.

Speaker 3: Advertising or just what does that look like so far? It's good. Yeah, I'll start I think it's gonna be interesting just picking up your last part I mean we've obviously been outspent by several of our competitors For a sustained period of time and we've just had to be smart about it and when we did it and how much we spent and things like

For a sustained period of time and we've just had to be smart about it and when we did it and how much we spent and things like that.

Speaker 3: I think you're probably right. I mean we can't speak for competitors, but I A lot of the things you hear about you know in the marketplace

I think youre, probably right I mean, we can't speak for our competitors, but I.

A lot of the things you hear about.

In the marketplace. It seems like it may go a little bit more rational where you're you can justify your cost of customer acquisition and things like that so I would speculate but it would only be speculation that it would turn out that way, but I will say that.

Speaker 3: It seems like it may go a little bit more rational where you can justify your cost of customer acquisition and things like that. So I would speculate, but it would only be speculation that it would turn out that way. But I will say that, again, in my remarks,

Again.

My remarks I always.

Speaker 3: I was, we measured this thing where it's share of voice, which is how often you hear our name versus any of our competitors.

We measure this thing where its share of voice, which is how often you hear our name.

Versus any of our competitors and a good quarter for US is when our share of voice is above our market share and it was almost twice that this time, so I'll call the.

Speaker 3: And a good quarter for us is when our share of voice is above our market.

Speaker 3: and it was almost twice that this time. So I'll call the third quarter a good quarter. But it doesn't happen every quarter that says we're doing a good job. We'll hope that we continue to do that while at the same time. And we are staying true to the brand spin.

The third quarter, a good quarter, but it.

It doesn't happen every quarter that says we're doing a good job, we'll hope that we continue to do that.

At the same time, and we are staying true to the brand spend now some of the brand spend does drive revenue. So that helps us too and we are spending more there, but the brand over time, you get a more modern view of a both lax and Luckily the way to do that is to use journey to make bowflex more more modern and thats.

Speaker 3: Now some of the brand spend does drive revenue, so that helps us too, and we're spending more there. But the brand over time, you get a more modern view of both Lex and luckily, the way to do that is to use journey to make both Lex more modern. And that's the way this advertising is generally going. So I think it's going in the right direction, but it'll be interesting to see. And I think it's...

The way this average the advertising is.

Is generally going so I think it's going in the right direction, but it will be interesting to see and I think it's.

Speaker 3: It does call a little bit for speculation on what competitors will do, but maybe that will exactly happen that it'll be a little more rational. I think there weren't very many people even trying to make money in this space a while ago, and I think it's now turning into a market where that's becoming more rational and more important. And therefore, when you make all your decisions, whether it's inventory or advertising or whatnot, you're gonna be considering.

It does call a little bit for speculation on what competitors will do but.

But maybe that will exactly happened that it'll be a little more rational I think.

There wasn't there weren't very many people even trying to make money in this space a while ago and I think it's now turning into a market, where that's that's becoming more rational and more important and therefore when you make all your decisions, whether it's inventory or advertising or whatnot.

Going to be considering that.

And then advertising for Q3 was $21 million versus $10 million last year.

Speaker 4: And then advertising from Q3 was 21 million versus 10 million last year.

Okay. Thank you.

Awesome.

Thanks George.

Sure.

Thank you there are no further questions at this time I would like to turn the floor back over to Jim Barr for any closing comments.

Speaker 1: Thank you. There are no further questions at this time. I would like to turn the floor back over to Jim Barr for any closing.

Speaker 3: Thank you to everyone on the call today for your continued support of Nautilus. We look forward to talking to you again on our fourth quarter fiscal year, 22 call in May. Have a great rest of your day. Onwards and upwards.

Thank you to everyone on the call today for your continued support of Nautilus, We look forward to talking to you again on our fourth quarter call fiscal year 'twenty to call in May have a great rest of your day onwards and upwards.

Speaker 1: This concludes today's conference. You may now disconnect. Thank you for your participation.

This concludes today's conference you may now disconnect. Thank you for your participation.