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Nautilus Cuts Costs, Plans to Roll Out Four New Products

FALLBROOK, CA — The new owners of Nautilus Inc. aren't sitting still now that they have the licenses for many of Nautilus' commercial fitness and strength equipment brands. Med-Fit Inc., which bought most of the Nautilus commercial business — excluding Schwinn and Stairmaster — for $2.8 million, already has cut equipment costs and plans to roll out four new products this year, according to Dean Sbragia, CEO of Med-Fit Systems, Fallbrook, CA.

Last month, Nautilus announced that it reduced the price of its Nautilus One and C51-series commercial treadmills and ellipticals by $1,000 each.

“We want to procure the best pricing for our customers along with providing the most biomechanically superior equipment in the marketplace,” Sbragia says.

In addition to the price cuts, Sbragia says the company will release four products this year, but he did not offer specifics. However, he says the company is working on new patent-pending technology for weight resistance and an enhancement to the cardio line.

The introductions won't stop there, Sbragia says. He has an engineering priority list of about 12 items.

“We'll be making more equipment,” Sbragia says. “We have very ambitious engineering plans. We're close to some more patented technology in strength and cardio.”

Some of the new equipment came from the former owners of Nautilus, but some of it is new technology being put together by Med-Fit, he says.

“Nautilus has a very competent engineering department, and they were always working on things,” Sbragia says of the former owners. Nautilus will now manufacture and market retail and home products under the Nautilus name, while Med-Fit will manufacture and market commercial equipment under the Nautilus name. “Some of the things we're going to bring to fruition. Some, we're not.”

Med-Fit Systems is a 23-year-old physical therapy and senior care products provider that distributes nationwide. Sbragia wants to make equipment that pulls the senior market and the rehabilitation market into health clubs, he says, adding that the wellness continuum is not as separated as it once was.

Some people in the industry question whether Med-Fit has the experience and financial backing necessary to be successful. Sbragia has been in the business for 28 years, part of that time with manufacturer Sunrise Medical, and the last 23 years with Med-Fit.

Sbragia says having Mark Meussner as president of Nautilus will help the company be successful. Meussner served as Nautilus senior vice president of global manufacturing and operations for three years with responsibility for all domestic and international manufacturing and the global supply chain.

“It's no walk in the park on the manufacturing end,” Sbragia acknowledges. “I wouldn't have pursued this as much if we couldn't have gotten Mark Meussner.”

Meussner helped Sbragia do a cost and risk analysis on buying the company before Sbragia pursued the purchase. Getting the Independence, VA, manufacturing plant in the deal helped seal it.

Sbragia also will get help from two other former Nautilus staff members. Matt Braswell will serve as executive vice president of sales and marketing. Braswell was the rehabilitation and senior accounts manager for Nautilus until he came to Med-Fit in early 2008. Mary Suhr will be the director of marketing and trade shows. She also had worked for Nautilus and other fitness equipment manufacturers prior to coming to Med-Fit.

Sbragia says the company will have a lot of direct interface with its customers. He plans to implement interactive Webinars with customers to find out what they need.

“We want our customers to have some ownership of our developments as well,” he says. “Our customers are going to help us define those products.”

Sbragia also says that customer service will be a top priority for the company. Part of that service involves honoring the warranties of previously sold Nautilus commercial equipment.

“We've agreed to service the equipment per written warranty,” he says. “We will be providing the ongoing service for those parts and products.”

The purchase by Med-Fit included Nautilus' Nine Series cardio equipment (treadmills, ellipticals and bikes) and all the strength products, which include Nautilus One, Nitro, Nitro Plus, XPLoad Athletic and the free-weight line, Sbragia says.

Med-Fit did not get the Schwinn and Stairmaster brands. Those brands were sold in January for $10.9 million to Fit Dragon International.

During the five-month negotiation process to buy the company, Nautilus had some attrition in its workforce, and the market “softened” a bit for the company's products, Sbragia says, but he expects that softening to be temporary.

“The Nautilus name has enough cache and following that we'll fill the pipeline quickly,” Sbragia says.

Med-Fit paid $300,000 at closing for the Nautilus asset license. The remainder of the $2.8 million will be paid in installments through 2011.

Under the license agreement, Nautilus is entitled to royalties based on net sales of the licensed products by Med-Fit. Royalties are subject to minimum annual payments, ranging from $300,000 to $800,000, beginning in 2010 and subject to adjustment based on the consumer price index each year thereafter. The license agreement extends through Dec. 31, 2013, and is subject to a two-year extension term with respect to cardio products and a perpetual renewal term with respect to strength products.

The two companies also entered a lease agreement in which Med-Fit will lease Nautilus' manufacturing and warehouse facility in Independence, VA. The lease extends through Dec. 31, 2012. Med-Fit has the option until Aug. 31 to purchase the facility for $2.2 million. If Med-Fit does not purchase the facility, the lease agreement requires that Med-Fit pay a monthly rental of $40,000 through the remainder of the term.

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