Q2 2023 Nautilus Inc Earnings Call
Good day and welcome to the Nautilus, Inc. Second quarter 2023 earnings results Conference call.
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I would now like to turn the conference over to John Mills with ICR. Please go ahead Sir.
Thank you good afternoon, everyone welcome to Nautilus with fiscal 2023 second quarter ended September 30 conference call for.
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 will be happy to take your questions at the conclusion of our prepared remarks.
Our earnings press release was issued today at approximately 105 P. M Pacific time and May be downloaded from our website at Nautilus, Inc. Dot com on the investors page.
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, we'll be comparing results versus last year fiscal 2022 and versus fiscal 2020, as we believe comparing to the last brief endemic period. It is helpful and demonstrate.
Our growth and progress.
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.
We will ask everyone to read.
You can access the presentation now by going to the investors page on our website and click on events and Webcasts.
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.
Such forward looking statements are not guarantees of future performance and therefore, one should not place undue reliance on them.
Our actual results may be affected by known and unknown risks trends uncertainties and factors that are beyond our control and ability to predict.
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's my pleasure to turn the call over to Nautilus's CEO , Mr. Jim Barr.
Thank you John and thank you all joining us.
I'd like you to take away three things from today's call.
The profound and enduring shifts in consumer fitness habits post pandemic towards asphalt at home workouts continues to enhance the long term opportunity for our country Our company.
To Nautilus operating model is a strategic advantage to weather short term topline challenges.
Our asset light manufacturing diversified product portfolio.
Channel distribution and variable cost structure that enables tight management of margin operating expenses and inventory levels as a model built to flex with the variation of market conditions third we continue to enhance and scale, our differentiated digital offerings journey to <unk>.
<unk> serve our customers and capture our long term revenue and profit.
As proof points for this this quarter.
Spite the challenged top line, we grew journey members and manage down our inventory unplanned significantly improved our gross margins and reduced our operating expenses delivering a significant beat two analysts adjusted EBITDA consensus.
This resulted in cutting our quarterly loss in half sequentially trending towards our goal to breakeven in the back half.
Okay.
At home fitness like many other consumer focused industries is undergoing short term macroeconomic challenges.
But the long term profitable growth opportunity for our company remains intact.
Our research shows that consumers and particularly our recently defined high value target segments are sticking with home workouts, even as they tightened their belts and watch their budgets consumed.
Consumers long term habits have shifted and solidified in the past two plus years in favor of home fitness.
Over 60% of U S. Adults recently surveyed say they consistently worked out at home up from 43% who reported the same at the beginning of 'twenty one.
In our target segments. This trend is even more profound with nearly 90% working out at home.
This is a long term seismic shift and is well positioned to take advantage of this opportunity.
So whether the macro and retail challenges, we're staying grounded in our noble mission and unwavering in our dedication to build a healthier world one person at a time.
We also remain steadfast in our strategy to provide consumers a broad variety of superior products and a wide range of price points via our Omnichannel distribution model.
And we continue to enhance the portfolio with our differentiated journey connected fitness offering.
These advantages of a broad assortment of products and Omnichannel distribution allowed us to offset areas of weakness in the quarter.
Moving now to the second quarter financial results.
Even in this tough environment, we saw solid and consumer demand for our products.
Our journey digital offering.
We delivered net sales of $65 million in the second quarter with the direct channel up 51% compared to 2020, and the retail channel up 11% compared to 2021.
While we saw a moderate level of retail sell through the widely publicized over inventoried and conservative position of retailers across many categories and their continued focus on lowering these inventories resulted in sales for the quarter.
We added 40000 members in a seasonally soft quarter and have passed the key threshold of 400000 journey members.
An increase of over 116% compared to the same period last year.
Growth in our direct channel was driven by our strength portfolio S cardio, particularly IC bikes lag reinforcing another strategic advantage.
Having a broad portfolio offering both high quality strength and cardio modalities as one channel or modality of soft we can push the others.
Further 51% growth in our direct channel versus the same period in 2020 supports our belief that post pandemic exercise habits favoring home fitness are here to stay.
Retail channel growth was up 11% compared to the same pre pandemic quarter in fiscal 2020, excluding octane, yet retailers remain cautious about inventory levels across many categories, including home fitness.
We are tracking and assisting in the destocking of existing retail inventories as they sell through and while we are seeing reorders from some retailers and others still have additional stock to sell before being comfortable in placing significant reorders.
Given these conditions when we saw softened reorders in retail.
With a focus on our direct channel for this past quarter.
Driven by key actions, we took earlier this year to lower supply chain costs, we improved gross margins by 480 basis points sequentially from the first quarter and we expect continued improvement in the back half of the year and into fiscal 'twenty 'twenty four.
While top line grew about 19% sequentially, we reduced our adjusted operating expenses by 19%.
Our operating leverage and variable cost structure.
As a result, adjusted EBITDA loss for the quarter totaled $10 million cutting the loss from the first quarter and half delivering a significant beat to analysts' consensus.
We are demonstrating real improvement in adjusted EBITDA performance and expect continued improvement during the back half of the year.
Lastly, we remain comfortable with our liquidity position flexible nature of our cost structure and the fact that we're entering the seasonally stronger second half of the year, which we expect will deliver strong improvement in our adjusted EBITDA compared to the first half.
And it will provide more detail later in the call along with diving deeper into quarterly results.
Now I would like to discuss the other elements of our unique operating model as noted before our model is designed for agility was significant variability.
Some examples of the variable parts of our business are as follows.
And asset light model and with outsourced manufacturing.
Utilizing contractors for sprints in searches and software development.
Continuing to rationalize our product portfolio and focusing on fast moving top sellers SKU rationalization under northstar's resulted in over 80% of the volume in the quarter.
Products.
Our approach to marketing and embracing digital media allows us to be nimble and shift marketing investments as needed in the quarter, we focused advertising spend on transactional media to drive traffic with the best chance of converting to sales.
We also made the decision to shift marketing investments from the second quarter to our peak season in the third quarter and in January when more consumers are affected to shop and purchase in the category.
And last we continuously regulate non media operating expenses looking for efficiencies and savings.
An additional focus of our business model and an important pillar of northstar's, our supply chain, becoming a strategic advantage we.
We have made great progress here and are reaping the benefits with gross margins sequentially, improving by 480 basis points this quarter and we expect even greater improvement in the back half of the fiscal year based on the following.
We closed our Portland D C. At the end of October and have successfully transferred inventory to our Columbus, and Southern California D. CS both strategically placed to optimize expedited deliveries.
We renegotiated inbound freight rates as well as contract manufacturing costs for our top products. Once we sell through inventories, we will start to see the flow through of manufacturing and freight savings, possibly later this fiscal year.
Let me now move on to providing an update on journey as I said earlier, we are pleased to report that we added 40000 members in our seasonally soft second quarter and are now at 400000 total journey members, a 116% improvement year over year.
Let me highlight the important accomplishments that led to this crisis.
80% of our units sold our journey enabled now journey is now offered across the cardio portfolio, including treadmills and bikes and our proprietary Max trainers as well as available with bring your own device for our number one selling select tech dumbbells.
We have enhanced several important aspects of the journey platform, including usage analytics to help better understand what our members use and enjoy among our industry, leading variety of ways to work out.
We've also added an enhanced member communication platform that permits us to more easily conveying new features and benefits and coach and encourage members between workouts.
We continue to enhance our instructor led content library and added new explore the world immersive experience routes to give consumers nearly 400 places to visit while working out.
We are doubling down on our differentiated adaptive workouts that are unique to each individual number and expect to offer more features over the coming quarters.
We continue working to integrate journey with motion tracking with our leading 552 and 10 90 dumbbells and are on track to start a broad beta test in the third quarter.
Finally, we are excited that per typical early life cycles of subscription products. We are beginning to convert the very first step membership trial bundled with journey enabled cardio products.
As more trial memberships come up for renewal and as the data becomes more meaningful and useful we will share information on conversion and churn for now churn is embedded in the member numbers.
These advancements that have us well positioned to grow our base and engagement of journey members. We continue to expect to end the fiscal year with more than one half million journey members.
And they did.
The digital capabilities and journey, what do we have coming up for fitness season, well new products of course.
This week, we introduced the Schwinn 190 upright in the Schwinn 290, recumbent bikes. Both bikes are connected will to journey and feature terrain control technology, plus modern design elements and functionality suitable for all fitness levels.
We also recently launched a new value priced treadmill, the Bowflex VX T H J.
Which we believe is an import with which we believe is important as holidays as consumers shop with value in mind. This.
This treadmill pairs with a user's phone or tablet and offers our differentiated adaptive workouts explore the world routes journey radio and hundreds of trainer led workouts through the journey App.
It is available for online purchase at select retailers, including Amazon.
Dick's sporting goods, and Nebraska furniture Mart.
I would like to close with a few other important points.
Due to the current economic environment and the conservative position of our retail partners. We are lowering our previous revenue expectations for the back half of 2023.
Even with these lower expectations, we expect strong improvement in our top and bottom line results for the back half of 2023 due to third and fourth quarter seasonality increased advertising spend to drive more demand new products and leveraging the advantages of our operating models and it will provide more details on guidance and the <unk>.
Quiddity in a few months.
Yeah.
Over the last two plus years, we've made tangible lasting changes to our business, where we leverage the shift in consumer fitness trends and set our company up for long term growth, while we have temporarily slowed some elements of our Northstar investment as we responsibly balanced long term ambitions with short term objectives, we remain steadfast.
On our past and Nautilus digital transformation.
Given the dynamic market environment, and the tremendous long term growth potential in this sector as previously announced our board of directors launched a comprehensive review of strategic alternatives to identify opportunities to accelerate the company's strategic transformation and enhance shareholder value. We have engaged evercore a go.
Mobile investment bank adviser to assist in this effort.
At this time, we have no additional information to share regarding the process or timeline.
I will now turn it over to Idaho will give us more detail on our second quarter results and the guidance for the full year.
Thank you Jim and good afternoon, everyone.
Today I'll be speaking to total company results for Q2 fiscal year 'twenty, three and we will provide guidance for the full year. Please.
Please go to our website to view our press release and the slides accompanying this presentation for more information on Q2 and year to date results and for additional information on our segments.
Given the unique nature of last year's results will also be comparing this year's revenue to fiscal year 2020 to gauge our growth in all company improvements when compared to more normalized pre pandemic results.
Turning to slide 11, total company P&L for the quarter.
Comparisons primarily to last year.
Net sales for the second quarter were $65 million down 53% versus last year and up 24% versus the same quarter in fiscal year 'twenty excluding octane.
Our direct segment grew 51% versus the same quarter in fiscal year 'twenty, while the retail segment grew 11%.
Gross profit was 11 million and gross margins were 18% down 13 points from L y, but up sequentially nearly five point to last quarter.
I'll now go through the drivers of the gross margin declined from last year.
Four points due to increased discounting as we were still benefiting from pandemic tailwind last year.
Four points due to the deleveraging and logistics fixed costs given the decline in sales.
Two points.
Elyse, if a special warranty reserve.
Two points due to inventory adjustments related to continued progress in phasing out non risk branded inventory.
Three points related to increased journey investments.
These declines were partially offset by approximately two points of supply chain cost improvements like lower inbound freight and more favorable FX rates with the dollar strengthening against the renminbi.
If we exclude the impact of the inventory adjustments and last year's release of a special warranty reserve Q2 gross margins would have been 22%.
Turning now to adjusted operating expenses.
The next few lines of the P&L had been adjusted to exclude acquisition and other costs related to the purchase of way and last year's legal settlement.
Please see our press release for a reconciliation to GAAP.
Okay.
Answers for 25 million down 35% versus last year.
I'm married driver of the decrease was lower advertising, which was $3 million this year versus 12 million last year.
Adjusted operating expenses, excluding advertising for $22 million down 15% versus last year, even with continued investments in Germany.
The controller variable expenses across all functions to ensure that they remained in line with lower churn.
Adjusted operating loss was 14 million and adjusted EBITDA loss of $10 million.
I'd now like to walk through our waterfall chart on slide 13 that shows how we went from an adjusted EBITDA loss of nearly $20 million in Q1 to only $10 million in Q2.
Q2 sales were up 11 million or about 20% versus Q1.
We brought down inventory levels per our plan and we expanded our margins sequentially I nearly five points delivering 5 million more in gross profit on $11 million.
Much of this is due to the great progress we've made to transform our supply chain into a strategic advantage.
Another Northstar priority, we're shifting more of our advertising spend to digital media, which gives us flexibility to adjust marketing investments as needed.
We reduced marketing dollars in Q2 are seasonally low revenue quarter and shifted them to the fitness season.
This quarter's AD spend was primarily in transactional media to drive traffic with the best chance of conversion.
Because we have an asset like semi variable operating model, we have the ability and flexibility to ramp down expenses in line with sales.
Q2, Opex, excluding advertising was down 2 million versus two months.
As a result, we delivered nearly 10 million more in EBITA cutting our loss in half from here with $20 million down to 10.
Let me now turn to slide 14 for first half results with comparisons primarily to last year.
Net sales were 120 million down 63% versus last year and up 17% versus the same period in fiscal year 'twenty excluding octane.
Gross profit was 18 million and gross margins for 15% down 15 points versus last year.
The key drivers of the gross margin decline were seven points due to increased discounting.
Six points related to deleveraging logistics fixed costs.
Two points due to the Q2 inventory adjustment three.
Three points of the increase journey investments.
These declines were partially offset by three points of supply chain cost improvements.
Turning to adjusted operating expenses on the next slide.
As a reminder, please see our press release for a reconciliation to GAAP.
Adjusted Opex was 56 million down 27% versus last year.
Selling and marketing expenses were down, 48% or 21 million driven by lower AD spend which was $9 million. This first half versus 24 million last year.
Adjusted operating expenses, excluding advertising were $47 million down 10% versus last year.
Continued investments in journey.
Adjusted operating loss was 37 million and adjusted EBITDA loss was $29 million.
Turning now to the balance sheet as of September 30th.
Cash was $7 million per.
Our planned quarter, ending inventory was 99 million down 39% versus last year and down 11% versus year end at.
At 930 about 11% of our inventory was in transit and continues to be concentrated in our best selling skus with over a quarter of our inventory costs and select tech links.
<unk> was $34 million in trade payables were 37 million both down from year end.
Debt was $47 million, we had 22 million available for borrowing bringing our liquidity at the end of September to $29 million.
We remain comfortable with our liquidity.
Generally higher volume that have higher revenue combined with our expectations a sequentially higher gross margins and continued cost discipline will result in improved liquidity in the back half.
I'll now turn to guidance for the rest of the year.
We are lowering full year revenue guidance to between 315, and 365 million, which translates to second half revenue of between 195 and $245 million.
Given the adjustment to our full year revenue expectations. We are now guiding to full year adjusted EBITDA loss of between minus 30 million to minus $40 million, which implies a second half adjusted EBITDA of breakeven to a loss of $10 million.
The presentation contains a waterfall chart on slide 18 that demonstrates our path to second half breakeven adjusted EBITDA compared to first half EBITDA loss.
Similar to Q2 of the most impactful improvement will come from higher revenue supported by higher gross margins.
Now expect gross margins in the second half to be between 24, and 27% an improvement of nine to 12 points versus the first half gross margins.
Margin improvement is driven by lower logistics costs at least as we've closed the Portland D C.
Out of the storage locations be rented the house or excess inventory.
Net of FX as the dollar continues to strengthen versus the renminbi.
Lower product costs at least sold through older inventory and are getting more benefit from the newer inventory that reflects lower factory and inbound freight costs.
We expect to invest in more advertising versus the first half and expect variable costs to grow in line with sales, partially offset by continued cost discipline in other areas.
Our objective is break even adjusted EBITDA in the second half and we believe that we have enough levers given our asset light semi variable operating model to adjust or for a variety of sales outcomes.
Lastly, we continue to expect journey members to cross the half million Mark at year end 'twenty three.
With that I'll turn it over to Jim.
Thank you Ina.
The one takeaway from our earnings call today, it's that Nautilus is positioned for top and bottom line improvement for the remainder of this year and over the long term, despite the challenging macro and retail environment.
There is long term opportunity due to an enduring and profound shift of consumer behavior towards at home workouts. Our company is well positioned to meet these needs with our strong portfolio of product offerings and expanded channel go to market model and a differentiated digital platform.
I've seen this past quarter, the Nautilus operating model allows us to lean into one channel when the other is pressured.
And our broad product portfolio provides balanced when one category such as cardio or one modality for example, bikes maybe lagging.
Our operating model as a strategic advantage relative to competitors, who have lagged behind in adjusting their businesses in light of macroeconomic challenges and we and are just beginning to adjust theirs in key ways to more closely emulate ours.
Light manufacturing.
Broadening product portfolio, expanding omni channel distribution, and a more variable and agile cost structure.
We are making steady progress on the execution of our strategy and have already begun to see the fruits of our labor.
Despite the challenged top line, we grew journey members and manage down our inventory on plant significantly increased improved our gross margins and reduced our operating expenses. This resulted in cutting our quarterly loss in half sequentially and trending towards our goal to breakeven in the back half of the year.
Under our North Star strategy, we have streamlined our portfolio and divested the noncore parts of our business. We've hired the right leadership with a measured approach to recruiting talent in line with growth doubled.
Double down on our investment in digital and strengthened our supply chain and we did it all while riding at historic wave of demand and navigating unprecedented operational challenges.
Our liquidity the strength of our brands and our operating model I'll provide reasons to believe in the success of this company.
Two N.
And thank our employees and partners for focusing on what they can control balancing long term opportunity with near term pressures and for their tenacity resilience creative problem solving and tireless support of our mission.
And now I'd like to turn it over for questions. Operator, Thank you well now begin.
A question and answer session.
Ask a question you May press Star then one on your touch on phone.
The speaker phone could you.
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Your question. Please press Star then two.
Today's first question comes from Michael Swartz with Truest. Please go ahead.
Hey, yeah, good a good evening.
I understand you took down guidance for the full year. It sounds like most of that is related to the retail business. So I guess with the new number youre guiding two year I mean, how much comfort do you have and I guess, how much visibility do you have into that into the second half of the year.
Given everything I think everyone's hearing about retail and reduction of inventory.
Well first as I mentioned, it I'll start and Bill I know, who will tag on first we are getting some reorders it varies retailer to retailer it depends on where their stock position.
Okay.
And really their level of comfort as I mentioned in my remarks, there's a there's a risk aversion we haven't seen in recent years in retail in it and that's not just our categories that you'll see you'll you'll you'll see a lot of that going on we continue to monitor the.
The retail sell through and the retail levels and they are coming down and they are headed in the right direction. So we think we will see that I think it's important to point out that we continue to see and I mentioned it in my remarks, I called it and consumer demand in other words people are still <unk>.
Our products, so you're seeing that indirect the 51% versus the same period pre pandemic. So that that tells us that that's there as well we know the long term is there as well so it's just a matter of working through the inventory.
<unk> of that and we continue to monitor that and we don't just sit on the sidelines either we have ways to help our retailers.
Their problems are problems. So you know we do help them.
Try to try to sell through what they have we coordinate with our own channel to make sure. We're not undercutting each other with prices bidding on the same keywords et cetera. So we'll just continue to monitor that situation going forward, but we were we're optimistic we know this is a temporary problem right. This is this is a problem.
Problem, we've we've expanded our doors in retail they're there for a reason we're just a little clogged in this are in the retail channel.
For the short term anything you would add I just would agree that a lot of the downward guidance is driven by retail we're really pleased with how the direct has been doing and we're pleased to how they did in Q2.
Okay, Great that was my next question.
In terms of the clarification I mean did you take down.
Our lower your expectation for directors that kind of.
Similar to what you had expected before.
It's about similar most of the decline in retail.
Okay.
Perfect and then maybe I think last quarter, maybe the last few quarters, you've had appointed Jude slowing promotion maybe normalized promotion.
She'll be approaching normal maybe over the.
Relative to the Covid period I guess.
Sit here today in early November how would you classify promotion right right now.
Yeah, I'll start I mean, it's a fairly promotional environment out there right I mean, I think everybody is.
And the same thing I've never seen Black Friday deals start. So early we know consumers have limited discretionary income and where we're heading it early and hard in.
We're doing we're doing the same thing.
That said, we've got lots of things going the other way that we mentioned in terms of margin.
And and advertising spend to support that what would you add onto that I would add on that.
If you compare well how we're thinking about this back half versus last year.
The back half we were really over inventoried. So we wanted to use promotional lever to clear that inventory. This year, we wanted to be competitive, but we don't have an inventory hangover that we need to push through so we can be more we can be more selective in how we choose to be competitive so I'm.
Really I'm happy with their inventory position and I think we can be competitive and still deliver the margin expansion.
We're in the back half.
Okay, great. Thank you.
Thank you.
Thank you and our next question comes from Mark Smith of Lake Street Capital markets. Please go ahead.
Hi, guys.
You just hit on one of them one of my questions, but that was just you know retail and total channel inventory just kind of what you're seeing and then along with that just promotional environment, especially as we think about this kind of catamaran must keep selling season.
So when you ask about inventory are you thinking about our inventory or the retailer inventory.
You know I would love to hear kind of both and maybe even three.
Retail inventory of your product or the total kind of retail inventory of all competitors as well and then your inventory.
So I'll start with our inventory that the one that's showing up on our balance sheet I'm really proud of how well. The team has managed I mean, we were not pleased with how high it got last year and it's been a.
A pretty strong cross functional effort to make sure that we guided it down and still meet our objectives on topline and margin expansion. So really really pleased with that and as Jim said, we are watching we have.
Our inventory at the retailers and it's moving in the right direction as well.
The thing that's tricky and you asked that question and you're right how are they doing with all their other thing starts talking not just in fitness, but also in other categories. So what we're seeing is even if they're selling through our product and maybe they're getting close to lower more appropriate levels. They may still choose to be more cautious and just wait.
Till the rest of their inventory appropriately glides down before they reorder more like normal patterns. So we have a backlog in retail we had a back like last quarter, there reordering things that have stocked out but.
I think it will take a while for them to probably digest all the inventory they have across all other categories outside of fitness.
Okay.
Other question for me is you know we liked the cuts to the operating expenses and it sounds like some of that was very strategic just in this quarter.
But can you just speak broadly to the sustainability of these cuts and then you know how you balance not cutting too deeply.
That's a great question and one that we think about all the time and kind of Jim referred to it in his remarks about its a balancing act right we need to make sure that we can meet our near term objectives without cutting off our future.
So what I wanted to just remind everybody is when we were growing independent make was at its height and sales for Dublin quickly, we chosen intentionally not to hire as many full time equivalents that where our employees, we expanded our capabilities really reaching out to outside contractors outside resources.
So that when the demand went down as we predicted we knew there'd be a dip after the height that we could more easily shed some of these excess costs and then that's weird.
That kind of brings and closer and we need to start looking at maybe more closely to some things that are more fixed rather than variable for Boeing to make sure that we really balance and make sure that we don't cut off our opportunity to take advantage of the recovery when it comes.
I don't know, Jim if you'd want to add anything to that no I think you know the <unk>.
Number I'm not sure if you've said it before but as we doubled sales, we only increased our head count 20%.
And that was intentional.
And some people thought we should go faster, but we just thought it was a measured way to do that and so.
That's what we've done and we think we're in a pretty good position, we've done things like others have done in.
In freezing hiring for example.
And we did that early in the summer we've continued that so anytime someone wants to hire someone including a backfill. It requires my my personal approval and that has slowed things down and like I said look I'm. Both of US came here to really grow this company and make it into a into something fantastic.
And it's tough to pull back on some of these things when we want to go faster.
That is what she said, it's it's a it's a balancing act and we tried when we do make cuts than we do.
The line in certain cost areas, it's really kind of with the principle of when this turns back around where we are managing a dip that's what we're doing no. One thinks this is permanent the reasons for it are not permanent we're managing to step in on the other side of that if we want to be able to capture the full velocity of growth coming out of the dip we know that's the position Brendan.
Try to balance those things responsibly every day.
Maybe I'll sneak in one last accounting one I think did you close the Portland D. C. During this next quarter is that right was that October yes, we closed it we closed it in October at lease expiration.
Okay. So theres no lease expense or any one time things that we should look for in this next quarter.
No because we just close it or at least exploration I mean, theres a little bit of moving costs are very minor.
Like transferring the inventory, it's very minor.
Alright, perfect. Thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one at this time.
The next question comes from J P <unk> with Roth Capital Partners. Please go ahead.
Hi, Jim Hi, Thanks for taking my question.
If I could maybe step back for a minute.
Maybe one will focus more internally and then the other kind of more external environmental but.
If we start internally and I understand.
No one can control the macro.
As you said, Jim you're managing a dip right now if you could you just kind of maybe walk us through.
When the team meets internally what are kind of be.
Couple two to three things that are really top of mind that our priorities that you want everyone.
Really drilling down to come out the other side of this best positioned.
Yeah sure no. That's that's a great question.
I think first first and foremost.
Focusing on our long term opportunity right, we are managing a dip, but we're all here, we all chose not less because we wanted to build something great and we and we saw in the pandemic that the opportunity became here for expanded significantly in a permanently permanent way. So a lot of our discussion as you know how to make sure.
Sure that we're on track for capturing capturing that a big part of that of course is is his journey and making sure that because we see we see where the puck is going I mean, it's digital and equipment together reinforcing one another.
Over time, and it's already happening now people buy equipment because of the digital experience.
And the digital experience makes the equipment better every day. So it's it's this type of thing.
I'd say another thing is our is our consumer.
Pillar one of our of our strategy is to be consumer obsessed and so the data and insight that are coming out and trying to read both timing, but the long term needs of consumers and bake that into our product design and things like that is it is top of mind and then of course, the short term ways in here right.
We as <unk> said, we want to make sure that we're in a position.
After the death.
Moving forward as quickly as possible. So when we are given choices. Some things are hard choices summer easy one one journey invest I mean, I'm, sorry, Juan Northstar investment, we've taken down as our brand advertising. We spent a fair amount of money last year on brand advertising and moved our brand to a more modern place bowflex.
<unk> brand that is and we were excited about that.
Doing it but it didn't have the wherewithal to do it when we're managing the debt does that mean, we won't do it again no I think when we when we have the resources to do it we'll do it but I'm already really seeing the fact that we invested last year in brand and then when we take our advertising down to the lowest transactional level I remember for this past quarter, we can.
To generate sales at an amazing ROI why because we actually had invested in that had previously so we continue to balance that short short and long term as we as we go forward in the business anything you would add that I didnt come out I think its that balancing act don't lose sight of the long term, but do what we.
Need to do to manage through the stick.
Okay, Great and then maybe from the <unk>.
External perspective, as we head into the seasonally strong quarters, and I know I know or you know maybe a couple of months in already but.
Maybe if you could just talk about what you are looking forward to most.
Given the broader environment, maybe that marketing dollars going a little further than they used to people tightening wallets and it may be trading down out of expensive gym memberships anything that you can kind of point to that you are looking forward to and gives you confidence in the next couple of quarters.
Yeah, I mean, if some of the things I've already said and then you know I talked about the new products that are value price I think those are ready that came out at the right. Even though two of them are bikes and bikes are down they're different bikes. They're like for example, the recumbent is a category, we we pretty much own so we.
We think our products are well timed the new product.
We didn't go hog wild on it like we did a couple of years ago. When we're getting started in Germany. We just have the three that I that I talked about and then really one of our key advantages that's really fueled our growth over the last few years has been total cost of ownership relative to the competition. So we look at SKU by SKU comparisons of what our equipment.
Cost versus others cost and then build in the cost of the subscription what you get for that subscription and we have we had even before the.
The pandemic hit when when bikes were Super Hot we introduced a couple of bikes that we're half the price of peloton for example, and those did extremely well.
We continue to have that cost advantage across our portfolio and then when you add in the cost of our subscription and the digital experience, which is becoming so important to people. These days.
And that just enhances our total cost of ownership. So those are some of the things we feel really.
Uplifted about and really honestly with people just focusing as I said in my remarks, I am so proud of our people for focusing in on what you control. There are times during business cycles. There's some stuff you don't control, we don't see we don't control the macro are we concerned about it sure.
We don't control retailer inventories, but it's temporary right. We know this is on the other side because we see the demand we.
We see the demand for our products in the future. So compartmentalizing that keeping your spirits up and working through the dip that's what responsible operators do it may not it may mean, you have to slow down your ambition in the short term, but our long term is intact and that's what keeps us going.
Perfect really appreciate the time thank you.
Sure. Thank you good questions.
Ladies and gentlemen, this concludes our question and answer session I'd like to turn the conference back over to the management team for any final remarks.
Thank you everyone on the call today for your continued support of Nautilus, We look forward to talking to you again in our third quarter fiscal year 2023 earnings call in February have a great rest of the day onwards and upwards.
Thank you Sir This concludes today's conference call. Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful evening.
Okay.