BowFlex Inc (BFX) 2019 Q4 法說會逐字稿

Good day.

Welcome to Nautilus, Inc.'s Fourth Quarter 2019 Earnings Results Conference Call.

Today's conference is being recorded.

(Operator Instructions)

At this time, I would like to turn the conference over to Mr. John Mills of ICR.

Please go ahead, sir.

Thank you.

Good afternoon, everyone.

Welcome to Nautilus' Fourth Quarter 2019 Conference Call.

Participants on the call from Nautilus are Jim Barr, Chief Executive Officer; Aina Konold, Chief Financial Officer; Dave Wachsmuth, Senior Director of Finance; and Bill McMahon, special assistant to the CEO.

Our earnings release was issued today at 4:05 p.m.

Eastern 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.

Remarks on today's conference call will include forward-looking statements within the meaning of the securities laws.

These include statements concerning financial projections, operating trends, anticipated growth and profitability; anticipated timing and market acceptance of new product introductions; planned investments in strategic and operational initiatives and the anticipated or targeted results of such initiatives; expected growth of our user base; consumer and retail demand for our products; the impact of new product introductions, marketing campaigns and international health crisis and economic conditions on our future financial results; planned capital expenditures and anticipated results of new product, business development initiatives and strategic partnerships.

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

Additional factors that could cause Nautilus' actual results to differ materially from these forward-looking statements include weaker-than-anticipated demand for new or existing products; our ability to timely acquire inventory that meets our quality control standards from sole-sourced foreign manufacturers at acceptable cost; experiencing delays and/or greater-than-anticipated cost in connection with launches of new products; entering to new markets or strategic initiatives, including recurring revenue offerings; our ability to hire and retain key management personnel; changes in consumer fitness trends and our ability to anticipate and satisfy consumer preferences in a timely manner; changes in the media consumption habits of our target consumers or the effectiveness of our media advertising; a decline in consumer spending due to unfavorable economic conditions; and softness in the retail marketplace.

For more information about these risks and uncertainties, please refer to today's earnings announcement and our most recent annual report on Form 10-K as supplemented by our quarterly reports on Form 10-Q.

Nautilus undertakes no obligation to update or otherwise publicly release any revision to forward-looking statements to reflect new information, events or circumstances after they were made or to reflect the occurrence of unanticipated events.

All information and comments regarding our operating results pertain to our continuing operations unless otherwise noted.

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

Thank you, John.

Good afternoon, everyone, and thank you for joining today's call.

In the fourth quarter, we achieved sequential improvements in important areas, which we believe are reflective of disciplined execution and the initial strategic initiatives we began to implement during the second half of 2019.

Even though we are encouraged by these short-term results, we must be realistic that we still face considerable challenges.

We are fighting to reverse a multiyear revenue and profitability decline that culminated with losing more than 20% of our revenue base in 2019 driven largely by the decline in the Max line.

We missed early connected fitness trends, and despite recent acceleration, are continuing to catch up.

We are facing strong competition, some of which do not seem to have a profit motive at least in the short run.

Therefore, it is not reasonable to expect that our turnaround and full transformation is going to be a short-term exercise.

In my first few months here, the team and I have identified key issues, diagnosed root causes, put in place short-term actions, focused on execution in the fitness season and delivered sequential improvements at the most important time of the year.

Now that we have exited the key selling season, as planned and as discussed on previous calls, we now turn more attention toward a deep dive strategic assessment, which will feed into a durable, multiyear vision and insights-driven strategic plan that we plan to share with you later this year.

For our customers, employees and investors, I expect this to be a clear articulation of where we will focus and our path to restore long-term profitable growth.

In the meantime, we continue to make important decisions about 2020, our transition year, and beyond.

We are excited about our company's prospects and remain optimistic in the long run.

Our brands are well-known and strong.

Our products are increasingly fortified with robust technology based on our JRNY personalized connected fitness platform.

On both our products and in our go-to-market methods, we are becoming a more digital version of our former selves.

We have a talented and evolving team and a culture that is strong, resilient and not resistant to change.

With technology and connectedness, we have more ways to deliver on our noble mission.

Nautilus has been helping people reach their fitness goals for over 40 years, and we plan to be a leader in our industry for many more years to come.

With this context in mind, let me provide you with an overview of some notable accomplishments since our last call.

First, during the fourth quarter, we achieved a moderate but important change in trajectory at the most important time of year.

Retail restored its growth, achieving a nearly 5% year-over-year comp, resulting in its best sales quarter in history.

The increase was primarily driven by strong sales from our Schwinn IC bikes and SelectTech weights as well as partial shipment delays from the third quarter being recognized in the fourth quarter.

We are just beginning to address the long-term underlying issues that we have diagnosed in our Direct business, and it continued its multiyear decline.

However, we were pleased that Direct achieved a sequential quarterly change in trajectory, buoyed by the successful launches of our connected fitness products and by making changes in advertising spend levels, messaging and media mix, achieving strong increases in ROI on advertising spend, a major driver in this business.

Among the multiple causes of Direct's multiyear decline, which accelerated in 2018 and 2019, that we have diagnosed and begun to address: number one, losing track of customers' evolving purchase journey and media consumption habits; two, repeating a similar unsuccessful media mix strategy for several years; three, failing to introduce connected fitness and technology to our products rapidly enough; four, not keeping up with modern marketing techniques; and five, gaps in leadership.

We expect to make progress on these and other fronts to revitalize the channel.

However, it is unclear when this channel will return to profitable growth.

In the quarter, the increased sales of Bowflex bikes, Bowflex treadmills and Max Total were more than offset by lower Max Trainer product sales.

A portion of our direct sales decline was due to our decision to reduce advertising expense by 43%, focusing on return on this investment.

By reading our results, competitors' behaviors and adjusting media mix creatives and varying our levels of spend, we were able to achieve better sequential quarterly results and a better return on ad spend.

Overall, with these changes in trajectory, we generated approximately $6 million of EBITDA from continuing operations and reduced operational expenses by 27% in the fourth quarter of 2019 compared to the same period in 2018.

Second, we worked towards strengthening our balance sheet to provide more capital to fuel our future.

On February 4, we announced that we secured a $70 million senior secured credit facility, giving us the financial flexibility to refinance our debt and fund our key growth initiatives.

We were pleased to have strong interest from the banking community in our transformative direction and leverage this to select strong partners and secure what we consider to be favorable terms.

We believe the additional liquidity and the improved terms of this facility give us a much stronger financial foundation.

Third, we accelerated connected fitness further into our product portfolio with several new offerings.

At the end of October, we launched our digital platform under the JRNY brand, providing us with a single personalized connected fitness platform that we will leverage throughout our portfolio.

JRNY features an industry-leading AI-driven true personalization engine that suggests customized workouts and adjust to an individual's fitness levels, providing the feel of an on-demand personal trainer.

JRNY also gives users access to our proprietary Explore the World experience, allowing users to virtually train in numerous locations across the globe with -- via high-definition video as well as a library of trainer-led workouts.

Additionally, we offer curated music matching their workout and access to streaming entertainment options.

Over time, JRNY will be available extensively throughout our product portfolio.

We are early in building our membership base, so we will not be discussing specific numbers.

But I can say we achieved strong growth in overall members, paid members and revenue run rate for the quarter and the year.

In addition, in the fourth quarter driven by the popularity of indoor bikes, we introduced and aggressively marketed our first-ever Bowflex indoor cycling bike, the Bowflex C6.

The C6 offers a high-quality connected fitness bike at less than half the price of a popular competitor in the bike category.

C6 also features an open platform where users can also avoid a $39 a month subscription that comes embedded on that competitor's bike, and instead, can choose between our Explore the World experience or other popular third-party programs.

The C6 value proposition has resonated extremely well.

Sales have been very encouraging, and have temporarily outstripped supply.

We are working with our vendors to increase the supply and shorten lead times for this product.

We are pleased to offer such strong value, to have our products so highly demanded and to be breaking through in our marketing messages.

Along with these key personalized connected fitness launches, we continue to compete by giving customers choices in the types of equipment, price points, technology and ways to buy our products.

Finally, we strengthened our team with outstanding leaders.

Becky Alseth joins as VP, Marketing and Direct.

Becky is a world-class marketer of leading brands with experience across multiple industries and categories, including at Avis Budget, Diageo and Clorox.

Most recently, she headed marketing at Ritchie Bros.

where she led a digital transformation and an up-leveling of the marketing department function.

I believe our company needs to be more driven by customer needs and insights.

And Becky, myself and the rest of the team will partner to achieve this.

In December, we welcomed our new CFO, Aina Konold.

Aina comes to us with over 25 years of experience, 20 of which she served in various executive-level financial roles including founding CFO in China at Gap Inc.

Aina's financial background and deep knowledge of consumer goods are vital as we execute our strategic initiatives and move forward as a company.

Both additions bring strong functional expertise, and importantly, are strong strategic thinkers and passionate people leaders.

Reflective of the transformation ahead, our executive team is now a better mix of fresh perspective and longer-term Nautilus experience, with more than half of the team being at the company less than 3 years.

To recap, we are pleased with our change in trajectory and short-term results, our strengthened balance sheet, further acceleration of connected fitness and improvements in the team.

We continue to have much work to do but I am pleased and excited that we have begun to move forward.

Before I turn over the call, I want to address the coronavirus, as I suspect it's on everyone's mind and is an evolving situation.

Let me start by saying that our top priority is the health and welfare of our employees and partners.

We are pleased to report that we have taken strong precautions, and that no employees have been diagnosed with the virus.

As you know, many of our products are manufactured in factories in China, so there will be some impact on the supply side of our business.

We are working with our partners to understand working conditions and impacts to production and delays at ports.

All factories delayed post Chinese New Year opening 2 weeks due to the virus, but our most important factories are now open and producing product.

However, the infrastructure in China has not rebounded as quickly as our factories and has not returned to full capacity.

There are issues with ground transportation, and shipping has not returned to normal yet.

Shipping of some of our more popular products have experienced delays.

It is likely some sales of these products expected in Q1 may slip to Q2.

Our supply chain has been working hard over the past month on contingency plans in the event that we experience future additional delays.

That being said, it's too early to fully understand the ongoing impacts to our business.

Our first quarter guidance is based on our best current assessment at the moment.

We are continuing to monitor this rapidly evolving situation.

And now I'd like to introduce our new CFO, Aina Konold.

Aina will now provide an overview of the financials for the quarter.

Aina, welcome to Nautilus.

Thank you, Jim.

Good afternoon, everyone.

I'm excited to have joined the company at this pivotal time.

I've admired Nautilus and its portfolio of brands for a long time.

And having spent the majority of my career in the retail industry, I understand the importance of strong brands and a loyal customer base, which are 2 key strengths of the company.

I believe we have the right assets in place to return to a profitable growth trajectory.

We are addressing the issues that have caused our performance to falter and we are investing in the future.

However, investments take time to pay off, and as Jim mentioned, this transformation process will not be completed overnight.

I'd now like to review the fourth quarter 2019 and full year 2019 results in more detail.

I'll begin by speaking to total company P&L results.

Net sales for the fourth quarter were $104 million, down 10% compared to $115 million in Q4 last year.

Deep sales declines in the Direct segment were slightly offset by gains in Retail.

For the full year, net sales were $309 million, down 22% compared to $397 million last year.

Gross margins for the fourth quarter were down 7 percentage points to 37% versus 44% in Q4 last year.

Unfavorable product mix and higher tariffs were the primary drivers for the decline.

For the full year, total company gross margins were down 10 percentage points to 36% versus 46% last year.

Fourth quarter operating expenses decreased by 27% to $35 million or 34% of net sales compared to $48 million or 42% of net sales in Q4 last year.

For the full year, total operating expenses were $211 million or 68% of net sales compared to $161 million or 41% of net sales last year.

As a reminder, operating expenses for the full year 2019 include $72 million of goodwill and intangible impairments.

Excluding the $72 million impairment, total operating expenses were $139 million, down $22 million or 14% below last year.

I will now provide more detail on operating expenses excluding the $72 million of impairment.

Fourth quarter sales and marketing expenses were down 30% to $25 million or 24% of net sales compared to $36 million or 32% of net sales in Q4 last year.

For the full year, sales and marketing expenses were down 18% to $95 million or 31% of net sales compared to $116 million or 29% of net sales last year.

Expense reductions in this area for both the quarter and the full year were primarily in media spend.

Fourth quarter general and administrative expenses were down 14% to $6 million or 6% of net sales compared to $7 million or 7% of net sales in Q4 last year, driven by lower legal expenses.

For the full year, general and administrative expenses were up 7% to $30 million or 10% of net sales compared to $28 million or 7% of net sales last year, driven by higher legal settlements.

Fourth quarter research and development costs were down 26% to $3 million or 3% of net sales compared to $4 million or 4% of net sales last year.

For the full year 2019, research and development expenses were down 15% to $14 million or 5% of net sales compared to $17 million or 4% of net sales last year.

For the quarter and the year, the decrease was primarily due to higher investments in digital platforms that were capitalized.

Fourth quarter operating income improved by 21% to $3.3 million versus $2.7 million in Q4 last year.

For the full year 2019, operating loss was $101 million compared to operating income of $21 million last year.

Excluding impairments of $72 million related to goodwill and intangible assets, full year 2019 operating loss was $29 million.

Fourth quarter income from continuing operations increased to $3.7 million or $0.12 per diluted share compared to $1.5 million or $0.05 per diluted share for the same period last year.

For the full year 2019, loss from continuing operations totaled $92 million or minus $3.11 per diluted share compared to income of $15 million or $0.50 per diluted share last year.

Fourth quarter EBITDA from continuing operations was $6 million compared to $5 million for Q4 last year.

For the full year, EBITDA loss from continuing operations was $90 million versus income of $30 million last year.

The effective tax rate for the fourth quarter of 2019 was minus 26% compared to 46% in Q4 last year, primarily due to a true-up of an income tax benefit in Q3 2019.

I'd now like to discuss segment results and we'll start with fourth quarter 2019 performance for our Direct segment.

Net sales in Direct were $36 million, down 28% versus $50 million in Q4 last year.

The decrease was primarily due to lower Max Trainer product sales, partially offset by increased sales in Bowflex bikes, Bowflex treadmills and Max Total.

Gross margins declined to 50% versus 59% in Q4 last year driven by unfavorable product mix and higher tariffs.

Operating loss for Direct was $5 million compared to a loss of $4 million in Q4 last year.

The increased loss was driven by lower sales and margins, partially offset by reductions in sales and marketing expenses.

We optimized our fitness season advertising spend and focused on higher returning media, which resulted in a 43% reduction in advertising expense compared to the prior year quarter.

Turning now to the Retail segment's Q4 2019 results.

Net sales in our Retail segment were up 5% to $68 million versus $64 million in Q4 last year.

Higher sales were driven primarily by SelectTech weights and Schwinn IC bikes as well as third quarter 2019 shipment delays that were recognized in the fourth quarter of 2019.

Gross margins declined to 29% versus 32% in Q4 last year driven by unfavorable product mix and higher tariffs.

Operating income for the Retail segment grew 8% to $12 million compared to $11 million in Q4 last year.

Lower gross margin dollars were more than offset by reductions in operating expenses.

Turning now to the consolidated balance sheet as of December 31, 2019.

We ended 2019 with cash at $11 million and debt of $14 million.

This compares to $64 million in cash and marketable securities and debt of $32 million at year-end 2018.

Inventory was down 20% to $55 million compared to $69 million as of December 31, 2018.

We worked hard to reduce our inventory levels and align them more closely to our sales trends.

Working capital totaled $41 million versus $77 million at year-end 2018.

Trade payables were $74 million compared to $87 million at year-end 2018.

Capital expenditures were $9 million for the year ended December 31, 2019, in line with the company's guidance range of $8 million to $10 million.

And as Jim mentioned, we recently secured a new $70 million senior secured credit facility, which gives us increased liquidity and greater financial flexibility.

We're beginning 2020 with a stronger balance sheet and additional runway as we work to stabilize our business and invest in our long-term growth strategies.

Now I'd like to turn the call back over to Jim for his final comments.

Jim?

Thank you, Aina.

Aina's absolutely right, Nautilus is a company built on strong brands, and these brands will be one of our primary assets to leverage as we transition the business forward and unlock value for our shareholders.

We do not plan to provide quarterly or fiscal year guidance on an ongoing basis.

However, due to the early stages of our business transformation, and the timing of this call relative to the end of the quarter, we are providing the following Q1 commentary.

We expect an EBITDA loss in the range of $4 million to $1 million.

Additionally, we are providing capital expenditure guidance of between $8 million and $10 million for the year.

For those investors that are new to our company, welcome, and it's important to understand the seasonal nature of our business and our industry.

The fourth quarter is normally the strong quarter of the year and the second quarter is seasonally the softest quarter as people are spending more time outside instead of exercising indoors.

The first and third quarters will fluctuate as the next strongest quarter depending on new product introductions.

We exited 2019 with a quarter of solid EBITDA from continuing operations, positive cash flow, a strengthened balance sheet and reduced operating expenses.

We expect our momentum to continue throughout 2020.

But I want to remind everyone that this is a transformation our company is undertaking.

Long-term recovery and growth opportunities will be optimized over sequential incremental improvements.

Thus, we may not see linear progression each and every quarter.

We have a lot of work to do.

However, we have an improving and more competitive portfolio of leading products, very strong brands, a strengthened financial profile and a good team.

I'm more confident than ever as we transition to our long-term strategic direction setting that we have what it takes to return Nautilus to a position of leadership in the fitness industry.

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

Operator?

(Operator Instructions) Our first question is from Steve Dyer with Craig-Hallum Capital Group.

Appreciated the color on the virus, et cetera, and I just want to make sure that I sort of heard everything correctly.

It sounds like your manufacturing facilities are operational but there's sort of delays around other pieces of the supply chain, transportation and such as that.

First, is that fair?

And then secondly, is it possible, I guess, at this point to quantify impact?

Steve, it's Bill.

You have it down.

Think of it as a progressive set of hurdles.

So the delayed return, obviously, it takes some time to get the labor forces back in place.

We're fortunate to have some strong factory partnerships, and our factories are operational at this time, but also internal country transportation and the ports themselves might take a little bit of time to really get back to 100% operation.

And so that makes it really hard for us to make a firm call on what the end of the quarter looks like 5 weeks away.

We do know that we'll be able to produce the product that we want to make our numbers, but what we're still working on is making sure we can get the transportation at the right time and the right place for that product.

And we've made the best effort we can, as I mentioned in my remarks, to quantify that in our guidance.

It's one of the reasons why our guidance has a little bit of range in it, because it's unclear exactly what happens that last couple of weeks of the quarter, given where things are right now.

Sure.

That makes sense.

On your new bikes, both the C6 and the IC, I heard a lot of conversation and a lot of talk about the IC.

But just wondering sort of what you can say about its cousin, I guess.

I know you raised price on the C6 recently.

Any real differentiation as to how either one of those is being received?

Well, as we said in some of our comments, and I'll just expound upon it a little bit, the demand on both those bikes has been way more than what we thought.

I think that's part of the -- a part of it is a couple of very, very strong products.

Having a bike under the Bowflex brand is great.

Then our go-to-market and our differentiation on that relative to other bikes in the market has proved to be very, very strong.

So both of those bikes have tremendous volume, tremendous demand.

And I believe we've marketed exactly how I had hoped we would.

So we've got really good momentum on that.

Of course, the other side of that now is we're making them as fast as we can, we're shipping them across the ocean as quickly as we can, and we hope to fulfill all of our demand as quickly as possible.

Yes, that leads into my next question, I guess.

Do you have any sense as to -- has there been any cancellation?

Just I know one or both of those are backlog for quite some time.

IC is out of stock in a lot of the retailers.

Do you have any sense as to -- is any of that business sort of lost, do you think?

Or is everybody kind of hanging in there from what you can tell?

Well, we experienced some cancellations, of course, when you have an extended period like that.

However, we're trying to do everything we can to keep them in the fold.

We're communicating directly with our customers frequently, telling them -- giving them updates.

Like we were talking last week about just really being specific about the virus and the impact that's had.

And our customers are -- do appreciate that we're doing things right for our employees, and we're getting things back as quickly as we can.

So there's probably inevitably going to be a little bit of cancellation.

But given how strong the product sales have been, for every one canceled, we hope to find a new buyer for that.

And we hope to mitigate as much of that.

So in our minds, we're seeing this almost completely as a timing difference and slipping maybe from one quarter to the other.

But we don't see ourselves selling fewer bikes in any significant way.

Okay.

Got it.

Last one and then I'll jump back in the queue.

You cut expenses pretty significantly, primarily sales and marketing on more of a sort of an ROI, I guess, basis in terms of evaluating and thinking about things.

Is this sort of a more normalized level that we should kind of think about going forward, whether it's as a -- maybe a percentage of sales or something?

Just how do we sort of think about that spend going forward?

It's obviously the big swing factor in your model.

Yes.

I -- we can't really provide meaningful forward-looking guidance on what to expect at spend.

But I just will tell you, and I'll reiterate what we were saying, is that I think in prior periods, we would keep spending or doubling down on a bad hand.

Now we have a team that reads the results real time.

We have -- we pulled back the spend.

We move it to different media.

For example, we moved some more to digital channels this year.

We move more to what we would call high-vis TV from what we would call core TV, those are networks that more people watch.

And so we keep playing with those particular things.

But that -- the ROI on that spend is really such a big driver of the business.

And what we really proved this time is -- in fourth quarter is we know how to do that at an economically good outcome.

We didn't get the volume we'd like to have but that's the trade-off that we took inherently in the decisions that we made.

(Operator Instructions) And we do have a follow-up question from Steve.

How do you feel about sort of inventory mix exiting the quarter, maybe your new hotter selling products versus some legacy stuff?

Do you have sort of too much or too little of any of the categories?

No.

We feel pretty good about our inventory situation, Steve.

It's a good question, especially given what happened last year, where we exited 2018 with a lot of inventory and actually inventory that hasn't sold through in our retail channel as well, and that hurt us in the fourth quarter.

We not only reduced inventory in a meaningful way overall, we think it's a good mix of that.

Other than the stock-outs, I would probably say we wish we had more of those.

And the retail channel looks pretty clear to us.

So that won't be affecting us this year the way that it did last year.

So we're feeling good about that.

I'm looking at anyone else to comment.

No, I'd agree.

No, agree.

Our next question is from Mike Swartz with SunTrust Robinson Humphrey.

I just wanted to start off on Max Trainer.

That product is still a sizable portion of your sales and it's been declined for a couple of years.

I know you're kind of in the process of doing some things on the product side and it sounds like on the marketing side as well to be able to be a little more optimal there.

But maybe talk about your long-term plans with that product.

Is that something you're going to look to maybe refresh, reinvigorate going forward?

Or are you in the process of pivoting away from that product line?

Well, for competitive reasons, I don't want to disclose our plans in that direction.

But I will say that we see the Max as still a very viable product line.

And we can see ways that we could refresh it in a way that would hopefully rejuvenate parts of the portfolio.

It will probably never become what it once was.

Products have their own life cycles, up and down.

And this is really -- this year is probably going to be more of the year of the bikes no matter what we plan.

So we're fighting that a little bit.

But we're going to do everything we can to rejuvenate sales in that particular product.

And I don't know when we typically -- probably either the next call or the one after, we'll talk about our product portfolio for the year because in that way, we'll be able to tell you exactly what you're asking right now.

And I apologize, I just -- I can't disclose that at this point.

No, no, understood.

And then I think in your preamble, you made the comment, Jim, about the -- some of your competitors don't seem to have a real profit motive.

I guess maybe a little more color on what you're seeing there.

Is that more impacting the Direct side of the business?

Is that on the Retail side of the business or maybe both?

I'd say it's more of a long-term thing when we think about, when we're talking about strategic planning, that there's just a reality that there's going to be competitors like that probably every year, and that's kind of a new reality for our business that we hadn't faced before.

And so we're making sure we're prepared for that.

We want to make sure our products are competitive and we have a way to compete with each one of those as they occur, and we feel pretty strongly that we have.

We have a lot there, right?

We have kind of a -- it's a very large market opportunity.

There's not a winner-take-all situation.

We're transforming our company.

We've got great brands people already know.

We have a strong platform.

We've got an improved financial position.

And as we always have, we continue to compete on choice.

We have a wide variety of type of fitness equipment and a wide range of products and price points for each of those.

And that's a differentiator versus the known new competitor.

So we continue to use some of our old formula to compete, and then we're adding technology to compete in new ways.

But just to clarify, I mean, you weren't calling out anything specific to this year or anything getting materially worse, this is more of a broader comment around the competitor set.

Yes, yes.

I mean I have no internal view to the competitors.

At least one of them is public, so I'm just going off their public statements and where they're driving lots of growth, which we admire.

But they're not doing it profitably, and that's where the comments go.

Okay.

And then just maybe one more for me, just on the marketing front.

I mean it sounds like you guys are in the process of optimizing that.

But I guess, what's the long-term balance of marketing versus top line growth in the Direct business.

Because it sounds like you're getting the ROIs where you need to get them.

But obviously, when you're cutting back or pulling back on spend, there is some direct impact on that top line.

So maybe talk about the balance of that going forward.

Yes.

It's sort of as we described.

We're going to focus on ROI.

We're not going to double down on bad hands.

And we're really going to look, especially in Direct, at -- there's 8 causes that we've diagnosed.

I only shared the 5 of them because I thought that was enough.

But on each of those, we're going to really -- we're really going to address them.

And I won't list them again but we really looked at that.

We're going to find that -- as you said, balance is the right word.

We want to drive the growth but we really need to find a new model that works with the realities.

There are new realities, like for -- we talked about competition, but another big one is there have always been hero products for our Direct business, or most of the time have been hero products, whereas we're trying to create a new business model where we don't rely on that.

We'll take them when we get them.

But I think if you sit around and wait for -- and you hope to invent something that's never been invented before and then market it with exclusivity, it's just harder to do that.

So we're just trying to square up this model with the market realities of today.

We have reached the end of the question-and-answer session.

I would like to turn the floor back over to Jim Barr, CEO, for closing comments.

Thank you, everyone, for joining us on today's call.

I look forward to talking to you on the next call.

Onwards and upwards.

Thank you.

Thank you.

This concludes today's conference.

You may disconnect your lines at this time.

And thank you for your participation.