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Despite First-Quarter Loss, Nautilus CEO Voices Optimism

Vancouver, WA — Several events in what has already been a busy 2008 for Nautilus Inc. factored into the company's first-quarter loss of $6.4 million, which the company announced last month.

Nautilus executives blamed the loss on two one-time charges — an $8 million charge for canceling the purchase of the Chinese company Land America Health and Fitness and the $2.4 million in severance paid to former CEO Robert Falcone in March. The $69.4 million earned by the company last month for the sale of its apparel business Pearl iZumi put Nautilus in a $7 million net cash position, but because the sale occurred in the second quarter, the revenue won't count until second-quarter financials are released.

“Our balance sheet is stronger than it was at the end of the [first] quarter because we've now sold Pearl iZumi and paid off our debt as a result,” Edward Bramson, the new chairman and CEO of Nautilus, said in a conference call with analysts after the release of the financials. “I think the earnings, while they're not good in the first quarter, might be a little better than had been expected if you make allowance for the two one-time items we've announced.”

As it stands, Nautilus lost $6.4 million, or 20 cents per share, in first quarter 2008 compared to a net income of $2.5 million, or 8 cents per share, in first quarter 2007. On a continuing operations basis, Nautilus lost $6.9 million, or 22 cents per share, in first quarter 2008 compared to a loss of $100,000, or less than a penny per share, in first quarter 2007.

Total operating expenses increased to $64.2 million from $61.8 million, and net sales fell to $129.6 million from $137 million. Bill Meadowcroft, Nautilus' chief financial officer, said on the call that the uncertain consumer environment will continue to affect the company in the second quarter, which he added is usually the company's weakest quarter.

Bramson, however, is encouraged by the company's retail business.

“The retail business is principally cardio. It's what the customers want,” said Bramson, a partner with Sherborne Investors, the group that owns 23.5 percent of Nautilus stock and won four of the seven board positions in the company's December board election. “We've been feeding more cardio product to them, and that's what is really driving the sales growth.”

Nautilus' board of directors has authorized a share repurchase program for the sale of up to $10 million of the company's common stock. Bramson was asked on the call if he was able to buy more Nautilus stock.

“I'd have to see if I have any money left,” Bramson joked before adding, “[Sherborne Investors] have to comply with the closed periods as any employee of the company would. We're free to [buy more stock], but whether we will or not is a different issue.”

Last month, Nautilus re-organized into three stand-alone business units: direct, commercial and retail. These business units and Nautilus International will report to Tim Joyce, senior vice president and general manager of Nautilus Inc. The direct business unit will be led by Vice President and General Manager Bill McMahon. The retail business unit will be led by Vice President and General Manager Jon Levin. The commercial business unit will be led by Vice President and General Manager Ken Fish.

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