Nautilus, Inc.

Thank you. Good afternoon, everyone.

Welcome to Nautilus' fourth quarter 2020 conference call. Participants on the call from Nautilus are Jim Barr, Chief Executive Officer, and Ina Knold, 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 release was issued today at 1.05 p.m. Pacific time. and may be downloaded from our website at nautilusinc.com on the investor relations 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. For today's call, we will have a presentation accompanying the call that management will refer to during their prepared remarks, and on slide two is our full safe harbor statement, which we ask everyone to read. You can access the presentation by going to nautilusinc.com, then click on the Investors tab, and then click on the Events and Webcast, 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 current beliefs of management and information currently available to us. Such forward-looking statements are not guaranteed your future performance, and therefore one should not place under reliance on them. Our actual results will be affected by known and unknown risks, 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 is my pleasure to turn the call over to Nautilus' CEO, Mr. Jim Barr. Please go ahead, Jim.

Thank you, John. Good afternoon, everyone, and thank you for joining today's call. I'm delighted to speak with you today about our company's record-breaking performance in the fourth quarter that capped a game-changing year for Nautilus. I'll highlight our financial and operational performance, underscore the profound contribution from our people and partners, discuss our outlook for the future, and finish with a few words about Northstar and our upcoming investor day. We ended the year with a tremendous fourth quarter, executing on all fronts with growth across all brands, channels, and products. To achieve our record results, we met the continued strong demand with significant increases in supply. Our incredible growth was somewhat tempered short-term by disruptions in global logistics similar to what many other companies and industries have experienced. Let me start with our financial highlights, and they are truly remarkable. Our fourth quarter was not just good, it was the best quarter in the company's 35-year history by both top and bottom line measures. Full company revenue was over $189 million, up 82%. On an apples-to-apples basis, excluding the recently divested Octane business, revenue in the fourth quarter more than doubled versus the year-ago period, up 108%. Both our reporting segments also turned in their best quarter ever. Direct was up 129%, and retail, excluding Octane, was up 96%. For the year, the company generated $553 million in revenue, the highest sales year for Nautilus since 2006, and easily the best comp in our history as a public company, plus 79%, and plus 97% excluding Octane. This came in within our guidance and would have been even higher if it weren't for a severe shortage of shipping containers. At year end, we had over $16 million of completed and sold inventory sitting near our factories just waiting for retailers to pick them up. These so-called factory fulfilled orders are common in our business, but the magnitude of sold and unshipped inventory is far from typical. Under this FFO arrangement, retailers are responsible for arranging transportation, finding containers, and picking them up at our factory, at which point title passes and our revenue is recognized. When even leading retailers like Amazon are not able to take possession of product they badly want due to an inability to find shipping containers, it serves as a strong illustration of the global disruption that is occurring. All told, We entered 2021 with $91 million in backlog. Operating income for the quarter was $41 million, second only to third quarter 2020 in our history, an 1100% increase over fourth quarter 2019. Excluding the gain on octane we recognized one quarter earlier, fourth quarter 2020 is the highest ever for Nautilus. For the full year, operating income was $78 million, compared to a loss of $101 million in 2019. Excluding the octane net loss on disposal, operating income for the year was $98 million, and adjusted EBITDA was $107 million, exceeding the top end of our guidance by $7 million. This is a swing of $125 million versus last year's EBITDA loss of $18 million. That $125 million improvement in EBITDA resulted in a massive change in year-to-year cash and short-term investments. We ended the year with $94 million of cash and short-term investments, giving us additional resources to invest in our company's long-term growth. While our results were aided by the at-home fitness tailwind for much of the year, I want to emphasize that they were far from easy to achieve. In many ways, 2020 may have instead been our most challenging year in history. We faced many unprecedented and unanticipated obstacles and navigated through them to produce this outcome. We also had key learnings we can apply to the future to execute even better. These record results were driven by executional improvements we began implementing in late 2019, well before the pandemic hit. Our employees and partners agility and endurance in confronting adverse conditions in their professional and personal lives, and their grit, determination, and creative problem solving in the face of innumerable operational challenges. I'm very proud of our whole company for facing challenges and for delivering for customers and shareholders in a truly incredible performance. Underlying these financial results and the extraordinary efforts are some impressive operational achievements worthy of calling out. Working with our valued partners, we dramatically increased production and supply chain capacity. To accelerate connected fitness, we've launched seven new cardio products, including the debut of the industry's first unstationary dual-mode bike, Velacor, introduced the next generation of Bowflex Max Trainer, and expanded the Bowflex treadmill line. In addition, we launched our instantly popular Select Tech 2080 barbell set, updated Bowflex benches, and refreshed our Schwinn 30 bike series. All in all, our portfolio features strong consumer choice of strength and cardio, of modalities, and of price points. Our new products and a more modern go-to-market approach have gotten us into the conversation in connected fitness in a big way. As tangible examples, our earned media impressions through our public relations efforts were up over 4x year over year, and our social media influencer program produced eight times the reach compared to a year ago. Our products are not only in the conversation, but winning reviews and awards, such as Bellacor winning the prestigious award for innovation at this year's Consumer Electronics Show. We continue to rep Journey, our individualized connected fitness digital platform, with a new user interface, more features, many more classes, and on-demand workouts, including for the first time off-machine workouts such as yoga. Journey offers more choices for less. Other popular fitness platforms tend to focus mostly on trainer-led group classes where you follow along. Journey includes classes, but its focus is on each member individually, providing a one-to-one AI-driven personalized experience based on each individual's own progress and goals, providing a virtually unlimited number of suggested workouts. It also provides entertainment options and immersive experiences, which can be used standalone or at the same time as the adaptive workouts and individualized coaching. Our members value variety, and we deliver all of this for a fraction of the price of the nearly $40 per month fee that has been trending among Connected Fitness competitors. We continue to listen to consumers and observe usage, which guides our ongoing development efforts. We've also been able to accelerate our growth of journey memberships in tandem with the recent increase in connected fitness devices sold. We improved margins through select price increases on key products and decreasing the level of product promotions. We capitalized on the opportunity to introduce new customers to Bowflex and Schwinn high quality products. We added four times More new customers in 2020 versus 2019. Website traffic was up approximately 3x for Bowflex.com and 4x for SchwinnFitness.com for the full year. We stood by our retailer partners and allocated scarce inventory to them as we continued to build long-term relationships with our top partners such as Amazon and Dick's Sporting Goods. We continue our recent expansion with Best Buy as well as Costco US and Canada. and added shields to our key retailer partner list. And lastly, we completed the sale of Octane to reduce costs and focus on the at-home fitness market. Many of these operational accomplishments, such as new customers, new retail partners, our new products, manufacturing capacity are durable and have lasting impacts to our business. In addition to financial results and operational improvements, I'm proud of our enduring progress on people, capabilities, and culture. During 2020, for example, we pivoted to work from home within 72 hours and took explicit actions to support our people this past year. A few examples include giving HQ employees a stipend to outfit their home office, providing additional time off for refreshment, and to volunteer for causes that are important to them. and importantly, shared company success in the form of financial rewards commensurate with our accomplishments. We won best places to work for the eighth straight time. We significantly improved employee engagement and lowered turnover. We have implemented a new mission, vision, and values that build on the strong foundation, but strive to take us to the next level as we aim for our North Star. Since December 2019, we've built a stronger, more diverse, executive team to take us forward with a new chief financial officer, chief marketing officer, and chief digital officer. The executive team is a nice balance between experienced Nautilus veterans and outside perspectives. And we recently hired a new chief people officer, whom we will announce shortly, to help us continue building our talent, capabilities, and culture and develop our people for the road ahead. I'm inspired by the accomplishments of our leadership team in 2020 and, in particular, how they succeeded on multiple dimensions simultaneously, including executed on the day-to-day optimization of the business, produced record-breaking financial results, launched impressive new products, and improved journey, provided strong leadership and support to our teams as they dealt with the pandemic and other stressful events. completed the sale of Octane, and finally completed and rolled out our long-term strategy North Star to the entire company. Two or three of these would have made for a good year, but executing well on all of these levels to this degree made 2020 a year to be truly proud of. With that, let me bridge to our outlook for 2021 and the long-term. We continue to see strong demand for all products, especially bikes, new connected fitness cardio products, our Select Tech line, and home gyms. Demand and consumer sentiment for home fitness has not slowed with the availability of vaccines. Polling results remain stable with more than 20% of former gym goers saying they will never return to the gym. This sentiment is driven partly by feeling unsafe, but more durably that many have discovered or rediscovered the convenience of working out from home. now with the added ability to replicate much of what they got from the gym through connected fitness. Those who have or plan to return to gyms tell us they will balance their gym and at-home routines much differently than before COVID hit. When the pandemic is behind us, they do not see themselves going to their workplaces every day, which was a key driver of gym habits. All of this leads us to be optimistic that a large driver of the surge in demand will continue long-term to permanently. Hence, we continue to make significant investments in supply chain and inventory. We're coming closer to meeting demand with supply, but still have some more work to do. We still battle major challenges in global logistics, at least short term, and we continue to monitor leading indicators such as consumer sentiment, web traffic, and retail sell-through. Ina will cover our guidance for the quarter ended March 31st, 2021 in her remarks. Importantly, while we were striving to meet our customers' needs this year, we didn't lose sight of the long-term. We completed North Star, our insights-driven, long-term vision and strategic plan. We rolled it out to the full company in the fourth quarter and are now in full implementation mode. Our plan builds on the company's notable strengths, including well-known brands, reputation for quality and innovation, broad product portfolio, on-the-channel go-to-market, and customer-focused company culture. It also addresses the company's underlying issues and weaknesses, which I diagnosed when I arrived, some of which I previously shared with you. Under our plan, Nautilus will be a stronger, more resilient, and more digitally-focused company. Notably, our North Star vision is enduring. It would have been the same, COVID or not, but the resulting home fitness trend has added opportunity, a sense of urgency to meet the evolving needs and habits of gym goers, and provided fuel to accelerate our key initiatives. While 2021 is the first official year of our North Star plan, it's important to take stock of actions we've already taken and early wins. Our progress in accelerating connected fitness in the portfolio, our progress in improving Journey, our digital membership platform, we have a balanced product portfolio of strongly demanded products, our focusing decisions such as selling octane and skew rationalization work, and we've added top talent to our team in key areas. The entire team is embracing the direction. We will be holding a virtual investor day next month on March 18th, and I look forward to sharing more details about Northstar and many additional improvements we have made to our company at that time. Let me close by saying that 2020 has indeed been a game changer for our company. Operational improvements got us started. Strong execution permitted us to benefit profoundly from at-home fitness trends, which we believe are here to stay. Nautilus is already a more on-trend and a more digital version of itself, and our long-term vision and strategy will lead us to a sustainable industry leadership position. I could not be more excited about our long-term prospects and the steps we are already taking. With that, I'd like to turn it over to our CFO, Ina Knoll, who will go over our financial results in more detail. Ina?