SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

NAUTILUS, INC.

~~NAUTILUS, INC.~~

(Exact name of Registrant as specified in its charter)

~~Washington~~	~~94-3002667~~
Washington		94-3002667
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Vancouver, Washington 98683

(Address of principal executive offices, including zip code)

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, no par value	NLS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ~~[ ]~~☐ No [x]

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

The number of shares outstanding of the registrant's common stock as of ~~October 31, 2017~~August 7, 2020 was ~~30,707,103~~ 29,967,125 shares.

NAUTILUS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2020

PART I

Item 1.

Financial Statements

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

1722

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

2636

Item 4.

Controls and Procedures

Item 1.

Item 1A.

~~Item 2.~~

~~Unregistered Sales of Equity Securities and Use of Proceeds~~

Item 6.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NAUTILUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited and in thousands)


	As of
	June 30, 2020		December 31, 2019
Assets
Cash and cash equivalents	$	45,656	$	11,070
Restricted cash	2,196		—

Trade receivables, net of allowances of $62 and $45	33,741		54,600
Inventories	21,310		54,768
Prepaids and other current assets	8,304		8,283
Income taxes receivable	5,326		472

Current assets held-for-sale	29,054		—
Total current assets	145,587		129,193
Property, plant and equipment, net	22,246		22,755
Operating lease right-of-use assets	21,513		20,778

Other intangible assets, net	9,601		43,243

Other assets	6,024		4,510
Total assets	$	204,971	$	220,479
Liabilities and Shareholders' Equity
Trade payables	$	45,207	$	74,255
Accrued liabilities	11,632		7,633
Operating lease liabilities, current portion	3,216		3,720
Warranty obligations, current portion	1,966		3,100

Debt payable, current portion, net of unamortized debt issuance costs of $83 and $0	1,917		—
Current liabilities held-for-sale	14,214		—
Total current liabilities	78,152		88,708
Operating lease liabilities, non-current	20,429		18,982
Warranty obligations, non-current	585		2,617
Income taxes payable, non-current	3,949		3,676
Deferred income tax liabilities, non-current	222		1,783
Other non-current liabilities	—		46
Debt payable, non-current, net of unamortized debt issuance costs of $298 and $230	12,518		14,071
Total liabilities	115,855		129,883
Commitments and contingencies (Note 16)
Shareholders' equity:
Common stock - no par value, 75,000 shares authorized, 29,967 and 29,781 shares issued and outstanding	2,729		1,261
Retained earnings	87,346		90,272
Accumulated other comprehensive loss	(959)		(937)
Total shareholders' equity	89,116		90,596
Total liabilities and shareholders' equity	$	204,971	$	220,479

As of
September 30, 2017    December 31, 2016
Assets
Cash and cash equivalents $ 30,481
   $ 47,874
Available-for-sale securities 47,295
31,743
Trade receivables, net of allowances of $472 and $170 38,534
   45,458
Inventories 57,646
   47,030
Prepaids and other current assets 6,795
   8,020
Income taxes receivable 61
   3,231
Total current assets 180,812
183,356
Property, plant and equipment, net 16,166
   17,468
Goodwill 62,045
   61,888
Other intangible assets, net 67,354
   69,800
Deferred income tax assets, non-current —
11
Other assets 456
   543
Total assets $ 326,833
$ 333,066
Liabilities and Shareholders' Equity
Trade payables $ 62,146
   $ 66,020
Accrued liabilities 8,056
   12,892
Warranty obligations, current portion 3,253
   3,500
Note payable, current portion, net of unamortized debt issuance costs
of $7 and $7
15,993
15,993
Total current liabilities 89,448
98,405
Warranty obligations, non-current 3,048

3,950
Income taxes payable, non-current 2,646
   2,403
Deferred income tax liabilities, non-current 16,868
16,991
Other non-current liabilities 2,365
   2,481
Note payable, non-current, net of unamortized debt issuance costs
of $16 and $21
35,984
47,979
Total liabilities 150,359
172,209
Commitments and contingencies (Note 14)

Shareholders' equity:
Common stock - no par value, 75,000 shares authorized, 30,707 and
30,825 shares issued and outstanding
826
   578
Retained earnings 175,969
   161,496
Accumulated other comprehensive loss (321 )    (1,217 )
Total shareholders' equity 176,474
   160,857
Total liabilities and shareholders' equity $ 326,833
   $ 333,066

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

NAUTILUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016				2020		2019		2020		2019
Net sales	$	88,132		$	80,818		$	278,413		$	280,275		Net sales	$	114,188	$	59,004	$	207,910	$	143,404
Cost of sales	46,817			41,601			136,975			132,852			Cost of sales	66,792		41,487		124,917		90,045
Gross profit	41,315			39,217			141,438			147,423			Gross profit	47,396		17,517		82,993		53,359
Operating expenses:													Operating expenses:
Selling and marketing	18,028			21,394			79,321			81,284			Selling and marketing	12,446		17,631		37,132		51,674
General and administrative	6,305			6,177			21,106			21,611			General and administrative	9,315		9,443		16,971		17,098
Research and development	3,617			3,435			11,114			10,444			Research and development	3,728		3,849		7,543		8,160
Loss on disposal group and goodwill and other intangible impairment charge													Loss on disposal group and goodwill and other intangible impairment charge	29,013		72,008		29,013		72,008

Total operating expenses	27,950			31,006			111,541			113,339			Total operating expenses	54,502		102,931		90,659		148,940
Operating income	13,365			8,211			29,897			34,084
Other income (expense):
Operating loss													Operating loss	(7,106)		(85,414)		(7,666)		(95,581)
Other expense:													Other expense:
Interest income	170			60			476			182			Interest income	1		(3)		3		162
Interest expense	(377		)	(489		)	(1,233		)	(1,469		)	Interest expense	(338)		(223)		(965)		(428)
Other, net	46			211			109			(49		)	Other, net	115		171		156		(222)
Total other expense, net	(161		)	(218		)	(648		)	(1,336		)	Total other expense, net	(222)		(55)		(806)		(488)
Income from continuing operations before income taxes	13,204			7,993			29,249			32,748
Income tax expense	4,862			148			10,156			9,621
Income from continuing operations	8,342			7,845			19,093			23,127
Loss from continuing operations before income taxes													Loss from continuing operations before income taxes	(7,328)		(85,469)		(8,472)		(96,069)
Income tax benefit													Income tax benefit	(2,342)		(6,725)		(5,788)		(8,841)
Loss from continuing operations													Loss from continuing operations	(4,986)		(78,744)		(2,684)		(87,228)
Discontinued operations:													Discontinued operations:
Loss from discontinued operations before income taxes	(40		)	(308		)	(1,695		)	(612		)	Loss from discontinued operations before income taxes	(29)		(51)		(63)		(65)
Income tax expense (benefit) of discontinued operations	61			(57		)	(425		)	(53		)
Income tax expense of discontinued operations													Income tax expense of discontinued operations	95		73		179		150
Loss from discontinued operations	(101		)	(251		)	(1,270		)	(559		)	Loss from discontinued operations	(124)		(124)		(242)		(215)
Net income	$	8,241		$	7,594		$	17,823		$	22,568
Net loss													Net loss	$	(5,110)	$	(78,868)	$	(2,926)	$	(87,443)

Basic income per share from continuing operations	$	0.27		$	0.25		$	0.62		$	0.74
Basic loss per share from continuing operations													Basic loss per share from continuing operations	$	(0.17)	$	(2.65)	$	(0.09)	$	(2.94)
Basic loss per share from discontinued operations	—			(0.01		)	(0.04		)	(0.02		)	Basic loss per share from discontinued operations	—		—		(0.01)		(0.01)
Basic net income per share⁽¹⁾	$	0.27		$	0.24		$	0.58		$	0.73
Basic net loss per share⁽¹⁾													Basic net loss per share⁽¹⁾	$	(0.17)	$	(2.66)	$	(0.10)	$	(2.95)

Diluted income per share from continuing operations	$	0.27		$	0.25		$	0.61		$	0.74
Diluted loss per share from continuing operations													Diluted loss per share from continuing operations	$	(0.17)	$	(2.65)	$	(0.09)	$	(2.94)
Diluted loss per share from discontinued operations	—			(0.01		)	(0.04		)	(0.02		)	Diluted loss per share from discontinued operations	—		—		(0.01)		(0.01)
Diluted net income per share	$	0.27		$	0.24		$	0.57		$	0.72
Diluted net loss per share⁽¹⁾													Diluted net loss per share⁽¹⁾	$	(0.17)	$	(2.66)	$	(0.10)	$	(2.95)
Shares used in per share calculations:													Shares used in per share calculations:
Basic	30,749			31,118			30,739			31,069			Basic	29,909		29,678		29,852		29,626
Diluted	31,075			31,385			31,098			31,340			Diluted	29,909		29,678		29,852		29,626

⁽¹⁾ May not add due to rounding.

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

NAUTILUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~LOSS

(Unaudited and in thousands)


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net loss	$	(5,110)	$	(78,868)	$	(2,926)	$	(87,443)
Other comprehensive income (loss):
Unrealized (loss) gain on available-for-sale securities, net of income tax expense of $0, $1, $0 and $6	—		(9)		—		6
Loss on derivative securities, effective portion, net of income tax expense (benefit) of $0, $(106), $0 and $(139)	—		(123)		—		(223)
Foreign currency translation, net of income tax benefit of $(15), $(9), ($47) and $(64)	353		72		(22)		200
Other comprehensive income (loss)	353		(60)		(22)		(17)
Comprehensive loss	$	(4,757)	$	(78,928)	$	(2,948)	$	(87,460)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net income $ 8,241
$ 7,594
$ 17,823
$ 22,568
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities, net of income tax expense (benefit) of $13, $0, $(4) and $16 22
—
(6 ) 26
Gain (loss) on derivative securities, effective portion, net of income tax expense (benefit) of $14, $150, $79 and $(326) 23
248
130
(539 )
Foreign currency translation, net of income tax expense (benefit) of $1, $(1), $3 and $(6) 371
(45 ) 772
397
Other comprehensive income (loss) 416
203
896
(116 )
Comprehensive income $ 8,657
$ 7,797
$ 18,719
$ 22,452

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

NAUTILUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(Unaudited and in thousands)


	Common Stock					Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
	Shares	Amount
Balances at December 31, 2019	29,781	$	1,261	$	90,272	$	(937)	$	90,596
Net income	—	—		2,184		—		2,184


Foreign currency translation adjustment, net of income tax benefit of $32	—	—		—		(375)		(375)
Stock-based compensation expense	—	564		—		—		564
Common stock issued under equity compensation plan, net of shares withheld for tax payments	36	(44)		—		—		(44)


Balances at March 31, 2020	29,817	1,781		92,456		(1,312)		92,925
Net loss	—	—		(5,110)		—		(5,110)


Foreign currency translation adjustment, net of income tax benefit of $15	—	—		—		353		353
Stock-based compensation expense	—	865		—		—		865
Common stock issued under equity compensation plan, net of shares withheld for tax payments	87			—		—		—
Common stock issued under employee stock purchase plan	63	83		—		—		83

Balances at June 30, 2020	29,967	$	2,729	$	87,346	$	(959)	$	89,116

Table of Contents


	Common Stock					Retained Earnings		Accumulated Other Comprehensive Loss		Total Shareholders' Equity
	Shares	Amount
Balances at December 31, 2018	29,545	$	215	$	183,290	$	(909)	$	182,596
Net loss	—	—		(8,575)		—		(8,575)
Unrealized gain on marketable securities, net of income tax expense of $5	—	—		—		15		15
Loss on derivative securities, effective portion, net of income tax benefit of $33	—	—		—		(100)		(100)
Foreign currency translation adjustment, net of income tax benefit of $55	—	—		—		128		128
Stock-based compensation benefit	—	(147)		(218)		—		(365)
Common stock issued under equity compensation plan, net of shares withheld for tax payments	48	(68)		—		—		(68)


Balances at March 31, 2019	29,593	—		174,497		(866)		173,631
Net loss	—	—		(78,868)		—		(78,868)
Unrealized loss on marketable securities, net of income tax expense of $1	—	—		—		(9)		(9)
Loss on derivative securities, effective portion, net of income tax benefit of $106	—	—		—		(123)		(123)
Foreign currency translation adjustment, net of income tax benefit of $9	—	—		—		72		72
Stock-based compensation expense	—	9		—		—		9
Common stock issued under equity compensation plan, net of shares withheld for tax payments	87	36		—		—		36
Common stock issued under employee stock purchase plan	48	168		—		—		168

Balances at June 30, 2019	29,728	$	213	$	95,629	$	(926)	$	94,916

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

NAUTILUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)


	Six Months Ended June 30,
	2020		2019
Cash flows from operating activities:
Loss from continuing operations	$	(2,684)	$	(87,228)
Loss from discontinued operations	(242)		(215)
Net loss	(2,926)		(87,443)
Adjustments to reconcile net loss to cash provided by (used in) operating activities
Depreciation and amortization	5,454		5,192
Provision for allowance for doubtful accounts	970		52
Inventory lower-of-cost-or-market/NRV adjustments	1,755		491
Stock-based compensation expense (benefit)	1,429		(356)
Loss on asset dispositions	184		536
Loss on debt extinguishment	230		—
Loss on disposal group, goodwill and other intangible impairment charge	29,013		72,008
Deferred income taxes, net of valuation allowance	(1,494)		(9,372)

Other	(630)		(108)
Changes in operating assets and liabilities:
Trade receivables	12,270		16,755
Inventories	20,451		16,457
Prepaids and other assets	1,323		2,329
Income taxes receivable	(4,855)		2,611
Trade payables	(20,529)		(56,234)
Accrued liabilities and other liabilities, including warranty obligations	3,893		(134)

Net cash provided by (used in) operating activities	46,538		(37,216)
Cash flows from investing activities:

Proceeds from sales and maturities of available-for-sale securities	—		25,271


Purchases of property, plant and equipment	(4,659)		(3,874)

Purchases of other investments in non-controlled affiliates	—		(3,500)
Net cash (used in) provided by investing activities	(4,659)		17,897
Cash flows from financing activities:
Proceeds from long-term debt	44,717		529
Payments on long-term debt	(43,453)		(11,667)

Payments of debt issuance costs	(1,823)		—


Proceeds from employee stock purchases	83		168
Proceeds from exercise of stock options	—		75
Tax payments related to stock award issuances	(44)		(107)

Net cash used in financing activities	(520)		(11,002)
Effect of exchange rate changes on cash and cash equivalents	(591)		117
Increase (decrease) in cash, cash equivalents and restricted cash	40,768		(30,204)
Less: Net change in cash balances classified as assets held-for-sale	(3,986)		—
Net change in cash, cash equivalents and restricted cash	36,782		(30,204)
Cash, cash equivalents and restricted cash:
Cash and cash equivalents at beginning of period	11,070		38,125
Cash, cash equivalents and restricted cash at end of period	$	47,852	$	7,921

Supplemental disclosure of cash flow information:
Cash paid for interest	$	450	$	677
Cash paid (received) for income taxes, net	490		(2,324)
Supplemental disclosure of non-cash investing activities:
Capital expenditures incurred but not yet paid	$	652	$	537

Table of Contents

Nine Months Ended September 30,
2017 2016
Cash flows from operating activities:
Income from continuing operations $ 19,093
$ 23,127
Loss from discontinued operations (1,270 ) (559 )
Net income 17,823
22,568
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization 6,386
5,748
Provision for allowance for doubtful accounts 375
183
Inventory lower-of-cost-or-market/NRV adjustments 294
72
Stock-based compensation expense 1,938
2,045
Loss on asset dispositions 58
107
Deferred income taxes, net of valuation allowance (193 ) 5,707
Excess tax benefit related to stock-based awards —
(1,852 )
Other (101 ) 6
Changes in operating assets and liabilities:
Trade receivables 6,532
13,633
Inventories (11,056 ) (4,716 )
Prepaids and other current assets 1,644
(413 )
Income taxes receivable 3,170
(5,397 )
Trade payables (4,275 ) (15,475 )
Accrued liabilities, including warranty obligations (5,875 ) (7,286 )
Net cash provided by operating activities 16,720
14,930
Cash flows from investing activities:
Purchases of available-for-sale securities (57,054 ) (22,972 )
Proceeds from maturities of available-for-sale securities 41,620
24,818
Proceeds from sales of available-for-sale securities —
71
Acquisition of business, net of cash acquired —
(3,468 )
Purchases of property, plant and equipment (2,726 ) (3,237 )
Net cash used in investing activities (18,160 ) (4,788 )
Cash flows from financing activities:
Payments on long-term debt (12,000 ) (12,000 )
Payments for stock repurchases (4,848 ) —
Proceeds from exercise of stock options and employee stock plan purchases 548
531
Tax payments related to stock award issuances (741 ) (221 )
Excess tax benefit related to stock-based awards —
1,852
Net cash used in financing activities (17,041 ) (9,838 )
Effect of exchange rate changes on cash and cash equivalents 1,088
87
Increase (decrease) in cash and cash equivalents (17,393 ) 391
Cash and cash equivalents:
Beginning of period 47,874
30,778
End of period $ 30,481
$ 31,169
Supplemental disclosure of cash flow information:
Cash paid for interest $ 1,228
$ 1,462
Cash paid for income taxes, net 5,686
11,331
Supplemental disclosure of non-cash investing activities:
Capital expenditures incurred but not yet paid $ 336
$ 922






The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Condensed Balance Sheets to the total of the same amounts shown above:
	Six Months Ended June 30,
	2020		2019
Cash and cash equivalents	$	45,656	$	7,921
Restricted cash	2,196		—
Total cash, cash equivalents and restricted cash	$	47,852	$	7,921

See accompanying Notes to Condensed Consolidated Financial Statements.

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NAUTILUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) GENERAL INFORMATION

Basis of Consolidation and Presentation

The accompanying condensed consolidated financial statements present the financial position, results of operations and cash flows of Nautilus, Inc. and its subsidiaries, all of which are wholly owned. Intercompany transactions and balances have been eliminated in consolidation.

The accompanying condensed consolidated financial statements have not been audited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes the disclosures contained herein are adequate to make the information presented not misleading. However, these condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 (the ~~“2016~~“2019 Form 10-K”).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. ~~Actual~~Uncertainties regarding such estimates and assumptions are inherent in the preparation of financial statements and actual results could differ from those estimates. These uncertainties will be heightened by the COVID-19 pandemic, as we may be unable to accurately predict the impact of COVID-19 going forward and as a result our estimates may change in the near term. Further information regarding significant estimates can be found in our ~~2016~~2019 Form 10-K.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, and our results of operations, comprehensive loss and ~~comprehensive income~~shareholders' equity for the three and ~~nine~~six months period ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~,2019 and our cash flows for the ~~nine~~six months period ended ~~September~~June 30, ~~2017~~2020 and ~~2016.~~2019. Interim results are not necessarily indicative of results for a full year. Our revenues typically vary seasonally, and this seasonality can have a significant effect on operating results, inventory levels and working capital needs.

Unless indicated otherwise, all information regarding our operating results pertain to our continuing operations.

~~New~~Updates to Significant Accounting ~~Pronouncements~~Policies

~~ASU 2017-12~~Restricted Cash

~~In August 2017,~~The Company is required by our banking partner to maintain a restricted bank account to cover for exposures on corporate credit cards and letters of credits. The use of these funds are restricted until the exposure with the banking partner is closed.

Long-Lived Assets

The Company applies the provisions of Financial Accounting Standards Board ~~("FASB"~~(“FASB”) ~~issued~~ Accounting Standards ~~Update ("ASU"~~Codification (“ASC”) ~~2017-12, "Derivatives~~360-10, Property, Plant and ~~Hedging (Topic 815) - Targeted Improvements~~Equipment, where applicable to ~~Accounting~~all long-lived assets. ASC 360 addresses accounting and reporting for ~~Hedging Activities". ASU 2017-12 provides better alignment~~impairment and disposal of ~~an entity's risk management activities~~long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and ~~financial reporting~~used in accordance with ASC 360. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of hedges through changes to both the designation and measurement guidance for qualifying hedging relationships. In addition, the amendments in ASU 2017-12 also simplify the recognition and presentation of the effects of the hedging instrumentimpairment are present and the ~~hedged item in~~undiscounted cash flows estimated to be generated by those assets are less than the ~~financial statements to increase the understandability of the results of an entity's intended hedging strategies. ASU 2017-12~~assets’ carrying amounts. In that event, a loss is effective for public companies' fiscal years, including interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted in any interim period after issuance of the new standard, with effect of adoption reflected as of the beginning of the fiscal year of adoption. For cash flow and net investment hedges existing as of the adoption date, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income and opening retaining earnings. Amended presentation and disclosure guidance is required only prospectively, and certain transition elections are available upon adoption. While we do not expect the adoption of ASU 2017-12 to have a material effectrecognized based on ~~our business, we are evaluating any potential impact that adoption of ASU 2017-12 may have on our financial position, results of operations or cash flows.~~

~~ASU 2017-09~~

In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718) - Scope in Modification Accounting". ASU 2017-09 provides clarity and reduces diversity in practice and cost and complexity when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. An entity should account for the effects of a modification unless all of certain criteria are met. Those criteria relate to fair value, vesting conditions and classification of the modified award. If all three conditions are the same for the modified award as for the original award, then the entity should not account for the effects of the modification. ASU 2017-09 is effective for all entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim

period, for public business entities for reporting periods for which financial statements have not yet been issued. We do not expect the adoption of ASU 2017-09 to have a material effect on our financial position, results of operations or cash flows.

~~ASU 2017-04~~

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment". ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment charge for the amount by which the carrying amount exceeds the ~~reporting unit's~~fair market value of the long-lived assets. For a long-lived assets or disposal group classified as held-for-sale to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost to sell. The assets and liabilities of a disposal group classified as held-for-sale should be presented separately in the asset and liability sections, respectively, of the balance sheet. The disposal group is expected to be structured as a sale of the subsidiary shares and we elected to not classify the deferred taxes associated with the individual assets and liabilities as part of the disposal group held-for-sale.

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Recent Accounting Pronouncements

Recently Adopted Pronouncements

ASU 2019-01

In March 2019, the FASB issued Accounting Standards Update ("ASU") 2019-01, "Leases (Topic 842): Codification Improvements." The amendments in ASU 2019-01 address three issues: (1) determining the fair value ~~if applicable. The loss recognized should~~of the underlying asset by lessors that are not ~~exceed~~manufactures or dealers; (2) presentation on the ~~total amount~~statement of ~~goodwill allocated~~cash flows of sales-type and direct financing leases; and (3) transition disclosures related to the reporting unit. The same impairment test also applies to any reporting unit with a zero or negative carrying amount. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary.Topic 250, Accounting Changes and Error Corrections. ASU ~~2017-04~~2019-01 is effective for public companies' fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019 ~~on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We do not expect the~~with early application permitted. Our adoption of ASU ~~2017-04 to have a~~2019-01 as of January 1, 2020 had no material ~~effect~~impact on our financial position, results of operations or cash flows.

ASU ~~2016-15~~2018-13

In August ~~2016,~~2018, the FASB issued ASU ~~2016-15, "Statement of Cash Flows~~2018-13, "Fair Value Measurement (Topic ~~230)~~820): Disclosure Framework - ~~Classification of Certain Cash Receipts and Cash Payments.~~Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in ASU ~~2016-15 are intended to add or clarify guidance~~2018-13 modify the disclosure requirements on fair value measurements in Topic 820 based on the ~~classification of certain cash receipts and payments~~concepts in the ~~statement~~FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements, which was finalized in August 2018. The main provisions include removals, modifications, and additions of specific disclosure requirements. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Certain amendments should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption, while all other amendments should be applied retrospectively to all periods presented upon their effective date. Our adoption of ASU 2018-13 as of January 1, 2020 had no material impact on our financial position, results of operations or cash ~~flows,~~flows.

Recently Issued Pronouncements Not Yet Adopted

ASU 2020-04

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)," which provides optional guidance related to reference rate reform and provides practical expedients for contract modifications and certain hedging relationships associated with the ~~intent~~transition from reference rates that are expected to be discontinued. This guidance is applicable for our borrowing instruments, which use London Inter-bank Offered Rate ("LIBOR") as a reference rate, and is effective immediately, but is only available through December 31, 2022. We are currently assessing the impact of adopting this standard but do not expect the adoption of this guidance to have a material impact on our financial position, results of operations and cash flows.

ASU 2020-01

In January 2020, the FASB issued ASU 2020-01, "Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)." The amendments in ASU 2020-01 clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. These amendments improve current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. ASU 2020-01 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We are currently assessing the ~~eight (8) types~~impact of adopting this standard but do not expect the adoption of this guidance would have a material impact on our financial position, results of operations and cash ~~flows identified.~~ flows.

ASU ~~2016-15~~2019-12

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The amendments in ASU 2019-12 introduce the following new guidance: (1) provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax; and (2) provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The amendments in ASU 2019-12 make changes to the following current guidance: (1) making an intraperiod allocation if there is a loss in continuing operations and a gain outside of continuing operations; (2) determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; (3) accounting for tax law changes and year-to-date losses in interim periods; and (4) determining how to apply the income tax guidance to franchise taxes that are partially based on income. ASU 2019-12 is effective for public ~~companies'~~business entities' fiscal years, including interim periods within those fiscal years, beginning after December 15, ~~2017. Early~~2020 with early adoption is

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permitted. ~~Entities must apply~~We are currently assessing the ~~guidance retrospectively to all periods presented,~~impact of adopting this standard but ~~may apply it prospectively if retrospective application would be impracticable. We~~ do not expect the adoption of ~~ASU 2016-15 to~~this guidance would have a material ~~effect~~impact on our financial position, results of operations orand cash flows.

ASU 2016-13

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments -– Credit Losses (Topic 326) -: Measurement of Credit Losses on Financial Instruments." ~~The amendments in~~ ASU 2016-13 ~~replace the incurred loss impairment methodology in current GAAP with~~requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2019, the FASB issued ASU ~~2016-13 is~~2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates for ~~public companies' annual periods,~~smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal ~~years, beginning after December 15, 2019, using a modified-retrospective approach, with certain exceptions. Early adoption is permitted. While we~~years. We are currently assessing the impact of adopting this standard but do not expect the adoption of ~~ASU 2016-13 to have a material effect on our business, we are evaluating any potential impact that adoption of ASU 2016-13 may have on our financial position, results of operations or cash flows.~~

~~ASU 2016-09~~

In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting." ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for public companies' annual periods, including interim periods within those fiscal years, beginning after December 15, 2016. Early adoption is permitted subject to certain requirements, and the method of application (i.e., retrospective, modified retrospective or prospective) depends on the transaction area that is being amended. Related to forfeitures, we changed our accounting treatment of forfeiture expense reversals from "at vest date" to "at forfeiture date." We applied thethis guidance on a modified retrospective basis, which resulted in a cumulative effective adjustment (in thousands) of $28 reduction to beginning retained earnings. In addition, related to excess tax benefits, we recognized all current period expense through the statement of operations and presented excess tax benefits as an operating cash flow, applied prospectively, with no adjustment to prior periods. The adoption of ASU 2016-09 in January 2017 did notwould have a material impact on our financial position, results of operations orand cash flows.

~~ASU 2016-02~~

~~In February 2016,~~(2) ASSETS AND LIABILITIES HELD-FOR-SALE

We met the ~~FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 replaces~~relevant criteria for reporting the ~~existing guidance~~assets and liabilities of Octane Fitness^® as held-for-sale as of June 30, 2020 and as a result assessed the disposal group for losses in ~~Accounting Standards Codification ("ASC") 840, Leases.~~accordance with ASC 360. The ~~new standard would require companies and other organizations~~net carrying value of Octane Fitness^® was compared to ~~include lease obligations~~its fair value less estimated costs to sell as of June 30, 2020. The fair value less estimated costs to sell for the Octane Fitness^® disposal group was $14.8 million resulting in a loss on their balance sheets, including a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use ("ROU")disposal group within continuing operations of $29.0 million. For additional information related to asset and ~~a corresponding lease liability. For finance leases~~liabilities held-for-sale, see Note 4.

As part of our strategic decision to refocus on the ~~lessee would recognize interest expense and amortization of~~home fitness market we are exploring the ~~ROU asset, and for operating leases the lessee would recognize a straight-line total lease expense. Lessees and lessors are required~~options to ~~recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02~~sell Octane Fitness^®. Our expectation is effective for public companies' annual periods, and interim periods within those fiscal years, beginning after December 15, 2018. We are currently assessing the impact that ASU 2016-02 will have on our consolidated financial statements,

~~and expect~~ that the ~~primary impact upon adoption~~sale of Octane Fitness^® will beoccur within the ~~recognition,~~next twelve months. The Octane Fitness disposal group is reported within our Retail segment.

The assets and liabilities of Octane Fitness^® disposal group were recorded on ~~a discounted basis, of our minimum commitments under non-cancellable operating leases on our~~the condensed consolidated balance sheets ~~resulting~~as current assets held-for-sale of $29.1 million and current liabilities held-for-sale of $14.2 million as follows (in thousands):


	As of
	June 30, 2020
Assets:
Cash and cash equivalents	$	3,986
Trade receivables	7,765
Inventories	11,538
Prepaids and other current assets	1,054
Property, plant and equipment, net	1,655
Other intangible assets	32,045
Loss on disposal group	(29,013)
Other assets	24
Total current assets held-for-sale	$	29,054
Liabilities:
Trade payables	$	8,997
Accrued liabilities	2,121
Warranty obligations	3,097
Income taxes payable	99
Other	(100)
Total current liabilities held-for-sale	$	14,214

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(3) REVENUES

Our revenues from contracts with customers disaggregated by revenue source, excluding sales-based taxes, were as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Product sales	$	110,595	$	56,326	$	200,477	$	136,458
Extended warranties and services	1,465		1,168		3,400		3,637
Other⁽¹⁾	2,128		1,510		4,033		3,309
Net sales	$	114,188	$	59,004	$	207,910	$	143,404

⁽¹⁾ Other revenue is primarily freight and delivery, royalty income and subscription revenue.

Our revenues disaggregated by geographic region, based on ship-to address, were as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
United States	$	97,363	$	48,897	$	177,313	$	119,085
Canada	6,248		3,557		12,497		11,486
All other	10,577		6,550		18,100		12,833
Net sales	$	114,188	$	59,004	$	207,910	$	143,404

As of June 30, 2020, estimated revenue expected to be recognized in the ~~recording~~future totaled $34.2 million, primarily related to customer order backlog, which includes firm orders for future shipment to our Retail customers, as well as unfulfilled consumer orders within the Direct channel. Direct orders of ~~right~~$20.6 million and Retail orders of ~~use assets~~$13.6 million comprised our backlog as of June 30, 2020, compared to Direct orders of $8.0 million and ~~lease liabilities.~~

~~ASU 2015-11~~

~~In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement~~Retail orders of ~~Inventory (Topic 330).” ASU 2015-11 simplifies the accounting~~$5.8 million as of March 31, 2020. The estimated future revenues are net of contractual rebates and consideration payable for ~~the valuation of all inventory not accounted for using the last-in, first-out (“LIFO”) method by prescribing inventory be valued at the lower of cost~~applicable Retail customers, and net ~~realizable value. ASU 2015-11~~of current promotional programs and sales discounts for our Direct customers.

The following table provides information about our liabilities from contracts with customers, primarily customer deposits and deferred revenue for which advance consideration is effective for public companies' annual periods, including interim periods within those fiscal years, beginning after December 15, 2016 on a prospective basis. Early adoption is permitted. Our adoption of ASU 2015-11 in January 2017 did not have a material effect on our financial position, results of operations or cash flows.

~~ASU 2014-09~~

~~In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers." ASU 2014-09 replaces most existing revenue recognition guidance, and requires companies~~received prior to ~~recognize revenue based upon~~ the transfer of ~~promised goods and/or services to customers~~control. Revenue is recognized when transfer of control occurs. All customer deposits and deferred revenue received are short-term in ~~an amount that reflects the consideration to which the entity expects to be entitled~~nature. Significant changes in ~~exchange for those goods and/or services. In addition, the new guidance requires enhanced disclosures,~~contract liabilities balances, including revenue ~~recognition policies to identify performance obligations to customers and significant judgments~~recognized in ~~measurement and recognition. ASU 2014-09 is effective, as amended, for annual and interim periods beginning on or after December 15, 2017, applied retrospectively to each prior~~the reporting period presented or retrospectively with a cumulative effect adjustment recognized as of the adoption date. We do not plan to early adopt this new standard, and accordingly, will adopt the new standard on January 1, 2018. Wethat was included in opening contract liabilities, are ~~planning to adopt using the full retrospective method.~~shown below (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Balance, beginning of period	$	2,050	$	479	$	1,225	$	816
Cash additions	2,371		351		4,470		512
Revenue recognition	(918)		(268)		(2,192)		(766)
Balance, end of period	$	3,503	$	562	$	3,503	$	562

We have identified and made substantial progress in analyzing our principal revenue streams by channel, including potential impacts on the timing of recognition of variable consideration and contract costs, primarily sales commissions, and on presentation of our installation and services revenue. In addition, we are nearing completion of our review of significant contracts and evaluation of the potential changes to our business processes, controls, systems and disclosures resulting from adoption of the new standard. We expect to finish these assessments during the fourth quarter of 2017. Based on our analyses to date, we have identified potential accounting and financial reporting impacts to our business processes, controls, systems and disclosures as a result of the new standard, and we are planning for those changes. Further, while we do not expect the adoption of ASU 2014-09, as amended, to have a material effect on our financial position, results of operations or cash flows, we do anticipate significant additional disclosure requirements upon adoption of the new standard.

~~(2) DISCONTINUED OPERATIONS~~

There was no revenue related to discontinued operations for the three and nine months ended September 30, 2017. However, we continue to have product liability expenses associated with product previously sold into the Commercial channel.

~~(3)~~(4) FAIR VALUE MEASUREMENTS

Factors used in determining the fair value of financial assets and liabilities are summarized into three broad categories:

•Level 1 - observable inputs such as quoted prices (unadjusted) in active liquid markets for identical securities as of the reporting date;

•Level 2 - other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; or observable market prices in markets with insufficient volume and/or infrequent transactions; and

•Level 3 - significant inputs that are generally unobservable inputs for which there is little or no market data available, including our own assumptions in determining fair value.

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Assets and liabilities measured at fair value on a recurring basis ~~as of September 30, 2017 and December 31, 2016~~ were as follows (in thousands):


	June 30, 2020
	Level 1		Level 2		Level 3		Total
Assets:













Derivatives

Foreign currency forward contracts	$	—	$	93	$	—	$	93

Total assets measured at fair value	$	—	$	93	$	—	$	93

Liabilities:
Derivatives

Foreign currency forward contracts	$	—	$	2	$	—	$	2
Total liabilities measured at fair value	$	—	$	2	$	—	$	2

September 30, 2017
Level 1 Level 2 Level 3 Total
Assets:
Cash Equivalents
Money market funds $ 6,848
$ —
$ —
$ 6,848
Commercial paper —
1,998
—
1,998
Total cash equivalents 6,848
1,998
—
8,846
Available-for-Sale Securities
Certificates of deposit⁽¹⁾
—
14,974
—
14,974
Commercial paper —
1,998
—
1,998
Corporate bonds —
25,313
—
25,313
U.S. government bonds —
5,010
—
5,010
Total available-for-sale securities —
47,295
—
47,295
Derivatives
Interest rate swap contract —
170
—
170
Total assets measured at fair value $ 6,848
$ 49,463
$ —
$ 56,311

Liabilities:
Derivatives
Foreign currency forward contracts $ —
$ (65 ) $ —
$ (65 )
Total liabilities measured at fair value $ —
$ (65 ) $ —
$ (65 )


	December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:












Derivatives

Foreign currency forward contracts	$	—	$	295	$	—	$	295

Total assets measured at fair value	$	—	$	295	$	—	$	295

Liabilities:
Derivatives

Foreign currency forward contracts	$	—	$	9	$	—	$	9
Total liabilities measured at fair value	$	—	$	9	$	—	$	9

December 31, 2016
Level 1 Level 2 Level 3 Total
Assets:
Cash Equivalents
Money market funds $ 9,635
$ —
$ —
$ 9,635
Commercial paper —
3,999
—
3,999
Total cash equivalents 9,635
3,999
—
13,634
Available-for-Sale Securities
Certificates of deposit⁽¹⁾
—
22,820
—
22,820
Corporate bonds —
6,922
—
6,922
U.S. government bonds —
2,001
—
2,001
Total available-for-sale securities —
31,743
—
31,743
Total assets measured at fair value $ 9,635
$ 35,742
$ —
$ 45,377

Liabilities:
Derivatives
Interest rate swap contract $ —
$ (38 ) $ —
$ (38 )
Total liabilities measured at fair value $ —
$ (38 ) $ —
$ (38 )

⁽¹⁾ ~~All certificates of deposit are within current FDIC insurance limits.~~

For our assets measured at fair value on a recurring basis, we recognize transfers between levels at the actual date of the event or change in circumstance that caused the transfer. There were no transfers between levels during the ~~nine~~six months period ended ~~September~~June 30, ~~2017,~~2020, nor for the year ended December 31, ~~2016.~~2019.

We did not have any changes to our valuation techniques during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, nor for the year ended December 31, ~~2016.~~2019.

We classify our marketable securities as available-for-sale and, accordingly, record them at fair value. Level 1 investment valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 investment valuations are obtained from inputs, other than quoted market prices in active markets for identical assets, that are directly or indirectly observable in the marketplace and quoted prices in markets with limited volume or infrequent transactions. The factors or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Unrealized holding gains and losses are excluded from earnings and are reported net of tax in comprehensive income until realized.

The fair values of ~~our interest rate swap contract and~~ our foreign currency forward contracts are calculated as the present value of estimated future cash flows using discount factors derived from relevant Level 2 market inputs, including forward curves and volatility levels.

We recognize or disclose the fair value of certain assets, such as non-financial assets, primarily property, plant and equipment, goodwill, other intangible assets and certain other long-lived assets in connection with impairment evaluations. All of our nonrecurring valuations use significant unobservable inputs and therefore fall under Level 3 of the fair value hierarchy. ~~We did not perform any valuations on~~

As of June 30, 2020, there were held-for-sale assets orof $29.1 million and liabilities of $14.2 million that are valued at fair value on a nonrecurring basis during the first nine months of 2017. During the fourth quarter of 2016, we performed our annual goodwill and indefinite-lived trade names impairment analyses effective as of October 1, 2016. During the nine months ended September 30, 2017 and the year ended December 31, 2016, we did not record any other-than-temporary impairments on our financial assets required to be measuredwere recorded at fair value on a nonrecurring basis.

In accordance with ASC 360 — Property, Plant and Equipment ("ASC 360"), we met the criteria for classification of held-for-sale for the Octane Fitness^® disposal group as of the reporting date. We performed an evaluation during the second quarter of 2020 to determine the held-for-sale fair values of assets and liabilities less related costs to sell, which resulted in a non-cash charge for loss on disposal group of $29.0 million. For additional information related to asset and liabilities held-for-sale, see Note 2.

The held-for-sale value evaluation was performed using a quantitative assessment of the disposal group and we determined the fair value less costs to sell of the disposal group was less than the carrying amount. We assigned assets and liabilities to the disposal group either by specific identification or assumptions for the assets and liabilities that are specific to the held-for-sale disposal group. We determined the fair value of the disposal group using the income approach and the market approach. In addition, we determined observed or recent transactions of comparable multiples from publicly traded companies in our

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industry to determine the reasonableness of assumptions and the fair values of the disposal group estimated. Significant unobservable inputs and assumptions inherent in the valuation methodologies from Level 3 inputs were employed and include, but were not limited to, prospective financial information, growth rates, terminal value and discount rates. We compared the carrying amount of the disposal group to its respective fair value. We reconciled the aggregate fair values of the disposal group determined (as described above) to the carrying value less related costs to sell.

As of December 31, 2019, there were no assets or liabilities that were recorded at fair value on a nonrecurring basis.

The carrying values of cash and cash equivalents, restricted cash, trade receivables, prepaids and other current assets, trade payables and accrued liabilities approximate fair value due to their short maturities. The carrying value of our ~~term loan~~debt approximates its fair value and falls under Level 2 of the fair value hierarchy, as the interest rate is variable and based on current market rates.

~~(4)~~(5) DERIVATIVES

From time to time, we enter into ~~interest rate swaps to fix a portion of our interest expense, and~~ foreign exchange forward contracts to offset the earnings impacts of exchange rate fluctuations on certain monetary assets and liabilities. We do not enter into derivative instruments for any purpose other than to manage ~~interest rate or~~ foreign currency exposure. That is, we do not engage in ~~interest rate or~~ currency exchange rate speculation using derivative instruments.

As of September 30, 2017, we had a $52.0 million interest rate swap outstanding with JPMorgan Chase Bank, N.A. This interest rate swap matures on December 31, 2020 and has a fixed rate of 1.42% per annum. The variable rate on the interest rate swap is the one-month LIBOR benchmark. At September 30, 2017, the one-month LIBOR rate was 1.24%.

We typically designate all interest rate swaps as cash flow hedges and, accordingly, record the change in fair value for the effective portion of these interest rate swaps in accumulated other comprehensive income rather than current period earnings until the underlying hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current earnings. For the three and nine months ended September 30, 2017 and 2016, there was no ineffectiveness. As of September 30, 2017, we expect to reclassify a gain of less than $0.1 million from accumulated other comprehensive income to earnings within the next twelve months.

We may hedge our net recognized foreign currency assets and liabilities with forward foreign exchange contracts to reduce the risk that our earnings and cash flows will be adversely affected by changes in foreign currency exchange rates. These derivative instruments hedge assets and liabilities that are denominated in foreign currencies and are carried at fair value with changes in the fair value recorded as other income. These derivative instruments do not subject us to material balance sheet risk due to exchange rate movements because gains and losses on these derivatives are intended to offset gains and losses on the assets and liabilities being hedged. As of ~~September~~June 30, ~~2017,~~2020, total outstanding contract notional amounts were ~~$18.3~~$35.8 million. ~~At September~~As of June 30, ~~2017,~~2020, these outstanding balance sheet hedging derivatives had maturities of 90107 days or less.

The fair value of our derivative instruments was included in our condensed consolidated balance sheets as follows (in thousands):


	Balance Sheet Classification	As of
				June 30, 2020			December 31, 2019






Derivative instruments not designated as cash flow hedges:
Foreign currency forward contracts	Prepaids and other current assets	$	93		$	295
	Accrued liabilities	2			9

Balance Sheet Classification As of
September 30, 2017 December 31, 2016
Derivative instruments designated as cash flow hedges:
Interest rate swap contract Prepaids and other current assets $ 170
$ —
Accrued liabilities —
38
$ 170
$ 38

Derivative instruments not designated as cash flow hedges:
Foreign currency forward contracts Accrued liabilities $ 65
$ —

The effect of derivative instruments on our condensed consolidated statements of operations was as follows (in thousands):


	Statement of Operations Classification	Three Months Ended June 30,									Six Months Ended June 30,
				2020			2019			2020			2019
Derivative instruments designated as cash flow hedges:
Loss recognized in other comprehensive loss before reclassifications	---	$	—		$	(93)		$	—		$	(128)
Gain reclassified from accumulated other comprehensive loss to earnings for the effective portion	Interest expense	—			44			—			125
Income tax expense	Income tax benefit	—			(14)			—			(30)

Derivative instruments not designated as cash flow hedges:
(Gain) loss recognized in earnings	Other, net	$	(141)		$	(218)		$	(154)		$	287
Income tax expense (benefit)	Income tax benefit	35			32			38			(69)

Statement of Operations Classification Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Derivative instruments designated as cash flow hedges:
Income (loss) recognized in other comprehensive income before reclassifications --- $ 8
$ 84
$ 6
$ (896 )
Loss reclassified from accumulated other comprehensive income to earnings for the effective portion Interest expense (26 ) (167 ) (189 ) (480 )
Income tax benefit Income tax expense 11
3
65
123

Derivative instruments not designated as cash flow hedges:
Loss recognized in earnings Other, net $ (53 ) $ —
$ (53 ) $ —
Income tax benefit Income tax expense 18
—
18
—

For additional information related to our derivatives, see Notes 34 and ~~10.~~11.

~~(5)~~

Table of Contents

(6) INVENTORIES

Inventories are stated at the lower of cost and net realizable value, with cost determined based on the first-in, first-out method. Our inventories consisted of the following (in thousands):


	As of
	June 30, 2020		December 31, 2019
Finished goods	$	19,283	$	49,853
Parts and components	2,027		4,915
Total inventories	$	21,310	$	54,768

As of
September 30, 2017 December 31, 2016
Finished goods $ 53,271
   $ 43,130
Parts and components 4,375
   3,900
Total inventories $ 57,646
   $ 47,030

For additional information related to asset and liabilities held-for-sale, see Notes 2 and 4.

Property, plant and equipment consisted of the following (in thousands):

Estimated
Useful Life
(in years)
As of
September 30, 2017 December 31, 2016
Automobiles 5 to 6 $ 23
$ 139
Leasehold improvements 4 to 20 3,426
3,388
Computer software and equipment 3 to 7 26,138
25,899
Machinery and equipment 3 to 5 14,732
13,085
Furniture and fixtures 5 to 20 2,230
2,238
Work in progress⁽¹⁾
N/A 1,647
768
Total cost 48,196
45,517
Accumulated depreciation (32,030 ) (28,049 )
Total property, plant and equipment, net $ 16,166
$ 17,468


	Estimated Useful Life (in years)					As of
								June 30, 2020			December 31, 2019
Automobiles	5					$	23		$	23
Leasehold improvements	4	to	20	3,055		3,830
Computer software and equipment	2	to	7	26,083		26,816
Machinery and equipment	3	to	5	14,450		18,551
Furniture and fixtures	5	to	20	2,557		2,808
Work in progress⁽¹⁾	N/A					6,994			2,747
Total cost				53,162		54,775
Accumulated depreciation				(30,916)		(32,020)
Total property, plant and equipment, net				$	22,246	$	22,755

⁽¹⁾ Work in progress includes ~~computer software~~information technology assets and production tooling.

For additional information related to asset and liabilities held-for-sale, see Notes 2 and 4.

~~(7) GOODWILL AND OTHER INTANGIBLE ASSETS~~

~~The rollforward of goodwill~~Depreciation expense was as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Depreciation expense	$	1,843	$	1,632	$	3,850	$	3,307

Direct Retail Total
Balance, January 1, 2016 $ 2,113
$ 58,357
$ 60,470
Currency exchange rate adjustment 67
3
70
Business acquisition - measurement period adjustments —
1,348
1,348
Balance, December 31, 2016 2,180
59,708
61,888
Currency exchange rate adjustment 168
(11 ) 157
Balance, September 30, 2017 $ 2,348
$ 59,697
$ 62,045

~~Other Intangible Assets~~

Other intangible assets consisted of the following (in thousands):


	Estimated Useful Life (in years)					As of
								June 30, 2020			December 31, 2019
Indefinite-lived trademarks	N/A					$	9,053		$	14,752
Definite-lived trademarks	5	to	15	250		2,850
Patents	7	to	24	1,443		14,243
Customer relationships	10	to	15	—		24,700
				10,746		56,545
Accumulated amortization - definite-lived intangible assets				(1,145)		(13,302)
Other intangible assets, net				$	9,601	$	43,243

Estimated
Useful Life
(in years)
As of
September 30, 2017 December 31, 2016
Indefinite-lived trademarks N/A $ 32,052
$ 32,052
Definite-lived trademarks 10 to 15 2,600
2,600
Patents 8 to 24 15,187
31,487
Customer relationships 10 to 15 24,700
24,700
74,539
90,839
Accumulated amortization - definite-lived intangible assets (7,185 ) (21,039 )
Other intangible assets, net $ 67,354
$ 69,800

For additional information related to asset and liabilities held-for-sale, see Notes 2 and 4.

Amortization expense was as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Amortization expense	$	803	$	1,074	$	1,604	$	1,884

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Amortization expense $ 812
$ 817
$ 2,446
$ 2,738

Future amortization of definite-lived intangible assets is as follows (in thousands):


Remainder of 2020	$	66
2021	111
2022	111
2023	111
2024	61
Thereafter	83
	$	543

Remainder of 2017 $ 810
2018 3,164
2019 3,134
2020 3,108
2021 3,078
Thereafter 22,008
$ 35,302

We have several non-cancellable operating leases, primarily for office space, that expire at various dates over the next nine years. These leases generally contain renewal options to extend for 1 lease term of five years. For leases that we are reasonably certain we will exercise the lease renewal options, the options were considered in determining the lease term, and associated potential option payments are included in the lease payments. The payments used in the renewal term were estimated using the percentage rate increase of historical rent payments for each location where the renewal will be exercised.

Payments due under the lease contracts include annual fixed payments for office space. Variable payments including payments for our proportionate share of the building’s property taxes, insurance, and common area maintenance are treated as non-lease components and are recognized in the period for which the costs occur.

Operating lease expense was as follows (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Operating lease expense	$	1,145	$	1,138	$	2,285	$	2,257

Leases with an initial term of 12 months or less ("short-term lease") are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term.

Other information related to leases was as follows:

As of

June 30, 2020

Supplemental cash flow information:

ROU assets obtained in exchange for operating lease obligations

3,358

Weighted average remaining operating lease term

4.1 years

Weighted average discount rate on operating leases

4.55%

We determined the discount rate for leases using a portfolio approach to determine an incremental borrowing rate to calculate the right-of-use assets and lease liabilities.

Maturities of operating lease liabilities under non-cancellable leases were as follows (in thousands):


	As of
	June 30, 2020
2020 - remaining	$	2,146
2021	4,337
2022	4,164
2023	3,408
2024	3,509
Thereafter	11,073
Total undiscounted lease payments	28,637
Less imputed interest	(4,992)
Total lease liabilities	$	23,645

Accrued liabilities consisted of the following (in thousands):


	As of
	June 30, 2020		December 31, 2019
Payroll and related liabilities	$	5,531	$	2,929

Other	6,101		4,704
Total accrued liabilities	$	11,632	$	7,633

As of
September 30, 2017 December 31, 2016
Payroll and related liabilities $ 2,199
$ 4,579
Other 5,857
8,313
Total accrued liabilities $ 8,056
$ 12,892

~~(9)~~(11) PRODUCT WARRANTIES

Our products carry defined warranties for defects in materials or workmanship which, according to their terms, generally obligate us to pay the costs of supplying and shipping replacement parts to customers and, in certain instances, pay for labor and other costs to service products. Outstanding product warranty periods range from thirty days to, in limited circumstances, the lifetime of certain product components. We record a liability at the time of sale for the estimated costs of fulfilling future warranty claims. If necessary, we adjust the liability for specific warranty-related matters when they become known and are reasonably estimable. Estimated warranty expense is included in cost of sales, based on historical warranty claim experience and available product quality data. Warranty expense is affected by the performance of new products, significant manufacturing or design defects not discovered until after the product is delivered to the customer, product failure rates, and higher or lower than expected repair costs. If warranty expense differs from previous estimates, or if circumstances change such that the assumptions inherent in previous estimates are no longer valid, the amount of product warranty obligations is adjusted accordingly.

Changes in our product warranty obligations were as follows (in thousands):


	Six Months Ended June 30,
	2020		2019
Balance, beginning of period	$	5,717	$	5,575
Accruals	(908)		2,703

Payments	(2,258)		(2,790)
Balance, end of period	$	2,551	$	5,488

Nine Months Ended September 30,
2017 2016
Balance, beginning of period $ 7,450
$ 8,545
Accruals 2,163
2,132
Payments (3,312 ) (2,857 )
Balance, end of period $ 6,301
$ 7,820

~~(10)~~(11) ACCUMULATED OTHER COMPREHENSIVE ~~INCOME (LOSS)~~LOSS

The following tables set forth the changes in accumulated other comprehensive ~~income (loss),~~loss, net of tax (in thousands) ~~for the periods presented:~~:


	Unrealized Gain (Loss) on Available-for-Sale Securities		Gain (Loss) on Derivative Securities		Foreign Currency Translation Adjustments		Accumulated Other Comprehensive (Loss) Income
Balance, January 1, 2020	$	—	$	—	(937)		$	(937)
Current period other comprehensive loss before reclassifications	—		—		(22)		(22)

Net other comprehensive loss during period	—		—		(22)		(22)
Balance, June 30, 2020	$	—	$	—	$	(959)	$	(959)

Unrealized Gain (Loss) on Available-for-Sale Securities Gain on Derivative Securities (Effective Portion) Foreign Currency Translation Adjustments Accumulated Other Comprehensive Income (Loss)
Balance, July 1, 2017 $ (36 ) $ 83
$ (784 ) $ (737 )
Current period other comprehensive income
before reclassifications
22
8
371
401
Reclassification of amounts to earnings —
15
—
15
Net other comprehensive income during period 22
23
371
416
Balance, September 30, 2017 $ (14 ) $ 106
$ (413 ) $ (321 )


	Unrealized Gain (Loss) on Available-for-Sale Securities		Gain (Loss) on Derivative Securities		Foreign Currency Translation Adjustments		Accumulated Other Comprehensive (Loss) Income
Balance, March 31, 2020	$	—	$	—	$	(1,312)	$	(1,312)
Current period other comprehensive loss before reclassifications	—		—		353		353

Net other comprehensive income during period	—		—		353		353
Balance, June 30, 2020	$	—	$	—	$	(959)	$	(959)

Unrealized Loss on Available-for-Sale Securities Gain (Loss) on Derivative Securities (Effective Portion) Foreign Currency Translation Adjustments Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2017 $ (8 ) $ (24 ) $ (1,185 ) $ (1,217 )
Current period other comprehensive income (loss) before reclassifications (6 ) 6
772
772
Reclassification of amounts to earnings —
124
—
124
Net other comprehensive income (loss) during period (6 ) 130
772
896
Balance, September 30, 2017 $ (14 ) $ 106
$ (413 ) $ (321 )

Unrealized Gain on Available-for-Sale Securities Gain (Loss) on Derivative Securities (Effective Portion) Foreign Currency Translation Adjustments Accumulated Other Comprehensive Income (Loss)
Balance, July 1, 2016 $ 10
$ (787 ) $ (869 ) $ (1,646 )
Current period other comprehensive income (loss) before reclassifications —
84
(45 ) 39
Reclassification of amounts to earnings —
164
—
164
Net other comprehensive income (loss) during period —
248
(45 ) 203
Balance, September 30, 2016 $ 10
$ (539 ) $ (914 ) $ (1,443 )

Unrealized Gain (Loss) on Available-for-Sale Securities Loss on Derivative Securities (Effective Portion) Foreign Currency Translation Adjustments Accumulated Other Comprehensive Loss
Balance, January 1, 2016 $ (16 ) $ —
$ (1,311 ) $ (1,327 )
Current period other comprehensive income (loss) before reclassifications 26
(896 ) 397
(473 )
Reclassification of amounts to earnings —
357
—
357
Net other comprehensive income (loss) during period 26
(539 ) 397
(116 )
Balance, September 30, 2016 $ 10
$ (539 ) $ (914 ) $ (1,443 )



	Unrealized (Loss) Gain on Available-for-Sale Securities		Gain (Loss) on Derivative Securities		Foreign Currency Translation Adjustments		Accumulated Other Comprehensive (Loss) Income
Balance, January 1, 2019	$	(6)	$	223	$	(1,126)	$	(909)
Current period other comprehensive income (loss) before reclassifications	19		(128)		200		91
Amounts reclassified from accumulated other comprehensive loss	(13)		(95)		—		(108)
Net other comprehensive income (loss) during period	6		(223)		200		(17)
Balance, June 30, 2019	$	—	$	—	$	(926)	$	(926)

~~(11) STOCK REPURCHASE PROGRAM~~

~~On May 4, 2016, our Board of Directors authorized the repurchase of up to $10.0 million of our outstanding common stock from time to time through May 4, 2018.~~

On April 25, 2017, our Board of Directors authorized an additional $15.0 million share repurchase program, bringing the total authorization under existing programs to $25.0 million. Under the new program, shares of our common stock may be repurchased from time to time through April 25, 2019. Repurchases may be made in open market transactions at prevailing prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. Share repurchases will be funded from existing cash balances, and repurchased shares will be retired and returned to unissued authorized shares.

~~As of September 30, 2017, there was $18.2 million remaining available for repurchases under the share repurchase programs.~~

~~Cumulative repurchases pursuant to the programs are as follows:~~

Quarter Ended Number of Shares Repurchased Amount Average Price Per Share
December 31, 2016 120,996 $1,957,882 $16.18
March 31, 2017 218,515 3,426,959 15.68
September 30, 2017 86,856 1,420,934 16.36
Totals-to-Date 426,367 $6,805,775 $15.96


	Unrealized Gain (Loss) on Available-for-Sale Securities		Gain (Loss) on Derivative Securities		Foreign Currency Translation Adjustments		Accumulated Other Comprehensive Loss
Balance, March 31, 2019	$	9	$	123	$	(998)	$	(866)
Current period other comprehensive income (loss) before reclassifications	3		(93)		72		(18)
Amounts reclassified from accumulated other comprehensive loss	(12)		(30)		—		(42)
Net other comprehensive (loss) income during period	(9)		(123)		72		(60)
Balance, June 30, 2019	$	—	$	—	$	(926)	$	(926)

Basic per share amounts were computed using the weighted average number of common shares outstanding. Diluted per share amounts were calculated using the number of basic weighted average shares outstanding increased by dilutive potential common shares related to stock-based awards, as determined by the treasury stock method. ~~The weighted average numbers of shares outstanding used to compute~~Basic income per share amounts were computed using the weighted average number of common shares outstanding. Diluted income per share amounts were calculated using the number of basic weighted average shares outstanding increased by dilutive potential common shares related to stock-based awards, as ~~follows (in thousands):~~determined by the treasury stock method. There were losses from continuing operations for the three and six months period ended June 30, 2020 and 2019, diluted earnings per share is the same as basic earnings per share.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Shares used to calculate basic income per share 30,749
31,118
30,739
31,069
Dilutive effect of outstanding stock options, performance stock units and restricted stock units 326
267
359
271
Shares used to calculate diluted income per share 31,075
31,385
31,098
31,340

The weighted average numbers of shares outstanding listed in the table below were anti-dilutive and excluded from the computation of diluted ~~income~~ per ~~share.~~share due to loss from continuing operations, as such, the exercise or conversion of any potential shares would increase the number of shares in the denominator and results in a lower loss per share

These shares may be anti-dilutive potential common shares in the future (in thousands):


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019

Restricted stock units	1,224	1	1,077	29
Stock options	432	7	321	17

In the case of restricted stock units, this is because unrecognized compensation expense exceeds the current value of the awards (i.e., grant date market value was higher than current average market price). In the case of stock options, this is because the average market price did not exceed the exercise price.

These shares may be dilutive potential common shares in the future (in thousands):


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
Performance stock units	—	—	—	—
Restricted stock units	580	305	303	227
Stock options	45	94	47	104

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Stock options 7
4
8
11

(13) SEGMENT AND ENTERPRISE-WIDE INFORMATION

~~In accordance with FASB ASC 280,~~ ~~Segment Reporting, we determined that we~~We have ~~two~~2 operating segments, - Direct and Retail. There ~~have been~~were no changes in our operating segments during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020.

We evaluate performance of the operating segments using several factors, of which the primary financial measures are net sales and reportable segment contribution.Contribution is the measure of profit or loss, defined as net sales less product costs and directly attributable expenses. Directly attributable expenses include selling and marketing expenses, general and administrative expenses, and research and development expenses that are directly related to segment operations. Segment assets are those directly assigned to an operating segment's operations, primarily accounts receivable, inventories ~~goodwill~~ and other intangible assets. Unallocated assets primarily include cash, ~~and~~ cash equivalents ~~available-for-sale securities,~~and restricted cash, derivative securities, shared information technology infrastructure,

distribution centers, corporate headquarters, prepaids and other current assets, deferred income tax assets and other assets. Capital expenditures directly attributable to the Direct and Retail segments were not significant in any period.

Following is summary information by reportable segment (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Net sales:
Direct	$	50,433	$	20,834	$	97,574	$	67,548
Retail	62,948		37,453		108,561		74,274
Royalty	807		717		1,775		1,582
Consolidated net sales	$	114,188	$	59,004	$	207,910	$	143,404
Contribution:
Direct	$	16,995	$	(6,334)	$	18,804	$	(10,876)
Retail	11,613		(247)		14,002		(969)
Royalty	807		717		1,775		1,582
Consolidated contribution	$	29,415	$	(5,864)	$	34,581	$	(10,263)

Reconciliation of consolidated contribution to loss from continuing operations:
Consolidated contribution	$	29,415	$	(5,864)	$	34,581	$	(10,263)
Amounts not directly related to segments:
Operating expenses	(36,521)		(79,550)		(42,247)		(85,318)
Other expense, net	(222)		(55)		(806)		(488)
Income tax benefit	2,342		6,725		5,788		8,841
Loss from continuing operations	$	(4,986)	$	(78,744)	$	(2,684)	$	(87,228)

	As of
	June 30,		December 31,
Assets:	2020		2019
Direct	$	29,829	$	47,377
Retail	87,912		148,965
Unallocated corporate	87,230		24,137
Total assets	$	204,971	$	220,479

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net sales:
Direct $ 33,986
$ 33,710
$ 147,800
$ 159,884
Retail 53,505
46,223
128,393
117,939
Royalty 641
885
2,220
2,452
Consolidated net sales $ 88,132
$ 80,818
$ 278,413
$ 280,275
Contribution:
Direct $ 5,289
$ 2,584
$ 23,141
$ 31,253
Retail 12,118
9,164
20,427
17,225
Royalty 638
871
2,206
2,419
Consolidated contribution $ 18,045
$ 12,619
$ 45,774
$ 50,897

Reconciliation of consolidated contribution to income from continuing operations:
Consolidated contribution $ 18,045
$ 12,619
$ 45,774
$ 50,897
Amounts not directly related to segments:
Operating expenses (4,680 ) (4,408 ) (15,877 ) (16,813 )
Other expense, net (161 ) (218 ) (648 ) (1,336 )
Income tax expense (4,862 ) (148 ) (10,156 ) (9,621 )
Income from continuing operations $ 8,342
$ 7,845
$ 19,093
$ 23,127

~~There was no material change in the allocation of assets by segment during the first nine months of 2017 and, accordingly, assets by segment are not presented.~~

~~Certain customers individually represented~~The following customer accounted for 10% or more of total net sales as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
Amazon.com	18.0	%	20.9	%	15.9	%	12.1	%

On January 31, 2020, we entered into a Credit Agreement with Wells Fargo Bank, National Association ("Wells Fargo") and lenders from time to time party thereto (collectively with Wells Fargo the "Lenders") ("Credit Agreement"), pursuant to which the Lenders have agreed, among other things, to make available to us an asset-based revolving loan facility in the aggregate principal amount of up to $55.0 million, subject to a borrowing base (the “ABL Revolving Facility”), and a term loan facility in the aggregate principal amount of $15.0 million (the “Term Loan Facility" and together with the ABL Revolving Facility, the "Wells Fargo Financing"), in each case, as such amounts may increase or decrease in accordance with the terms of the Credit Agreement. The Wells Fargo Financing expires and all outstanding amounts become due on January 31, 2025 unless the maturity is accelerated subject to the terms set forth in the Credit Agreement. The repayment of obligations under the Credit Agreement is secured by substantially all of our assets. Principal and interest amounts are required to be paid as scheduled.

We used the proceeds from the Wells Fargo Financing to extinguish our existing $40.0 million revolver with JPMorgan Chase Bank N.A. ("Chase Bank") ("2019 Chase Credit Agreement"), pay transaction expenses, and for general corporate purposes. Our previously existing credit facilities and agreements with Chase Bank and all guarantees and liens existing in connection

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Customer:
Customer #1 18.5 % 17.2 % 13.5 % 12.1 %
Customer #2 13.7 % *
*
*
with those facilities and agreements were terminated upon the closing of the Wells Fargo Financing. In connection with the termination of the 2019 Chase Credit Agreement we recorded a loss on debt extinguishment of $0.2 million as interest expense in our consolidated statements of operations.

Interest on the ABL Revolving Facility will accrue at LIBOR plus a margin of 1.75% to 2.25% (based on average quarterly availability) and interest on the Term Loan Facility will accrue at LIBOR plus 5.00%. As of June 30, 2020, our interest rate was 2.42% for the ABL Revolving Facility and 5.17% for the Term Loan Facility.

~~(14)~~As of June 30, 2020, outstanding borrowings totaled $14.8 million, with $14.4 million and $0.4 million under our Term Loan Facility and ABL Revolving Facility, respectively. As of June 30, 2020, we were in compliance with the financial covenants of the Wells Fargo Financing and $28.6 million was available for borrowing under the ABL Revolving Facility. Any outstanding balance is due and payable on January 31, 2025.

The Credit Agreement contains customary affirmative and negative covenants for financings of this type, including, among other terms and conditions, delivery of financial statements, reports and maintenance of existence, revolving availability subject to a calculated borrowing base, as well as limitations and conditions on our ability to: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of our property; make investments; or pay dividends or make distributions, in each case subject to certain exceptions. The financial covenants set forth in the Credit Agreement include a minimum liquidity covenant of $7.5 million. Beginning February 1, 2022, the minimum liquidity covenant will decrease to $5.0 million and only a minimum EBITDA covenant will apply. In addition, the Credit Agreement includes customary events of default, including but not limited to, the nonpayment of principal and interest when due thereunder, breaches of representations and warranties, noncompliance with covenants, acts of insolvency and default on indebtedness held by third parties (subject to certain limitations and cure periods).

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted and signed into law in response to coronavirus disease 2019 ("COVID-19"). The CARES Act, among other things, includes several significant provisions that could impact corporate taxpayers’ accounting for income taxes.

Prior to the enactment of the CARES Act, the 2017 Tax Cuts and Jobs Act generally eliminated the ability to carryback net operating losses ("NOL"), and permitted the NOL arising in tax years beginning after December 31, 2017 to be carried forward indefinitely, limited to 80% of the taxpayer’s income. The CARES Act amended the NOL rules suspending the 80% limitation on the utilization of NOLs generated after December 31, 2017 and before January 1, 2021. Additionally the CARES Act allows corporate NOLs arising in taxable years beginning after December 31, 2017 and before January 1, 2021, to be carried back to each of the five taxable years preceding the taxable year of the loss.

Accordingly, during the first quarter 2020, we performed various analyses and evaluated the potential impact to our financial statements as a result of the CARES Act. Based on our assessment, we determined that the modifications to the NOL carryback provision of the CARES Act would result in a tax benefit and cash inflow for us. We expect that taxable losses incurred in 2019 may be fully carried back and utilized against the taxable income generated and taxes paid in the previous tax years which were measured at 35%.

As a result of the CARES Act, we recorded a $3.2 million income tax benefit associated with the remeasurement to the NOL carryback at a 14% tax rate differential in the first quarter of 2020. Furthermore, a corresponding income tax receivable from the NOL carryback was recorded in the first quarter of 2020.

(16) COMMITMENTS AND CONTINGENCIES

Guarantees, Commitments and Off-Balance Sheet Arrangements

As of ~~September~~June 30, ~~2017~~,2020, we had no standby letters of credit.

We have long lead times for inventory purchases and, therefore, must secure factory capacity from our vendors in advance. As of ~~September~~June 30, ~~2017~~,2020, we had approximately ~~$37.5~~$127.7 million, compared to $28.4 million as of December 31, 2019 in ~~noncancelable~~non-cancelable market-based purchase obligations, primarily to secured additional factory capacity for inventory purchases ~~expected to be received within~~in the next twelve months. Purchase obligations can vary from quarter-to-quarter and versus the same period in prior years due to a number of factors, including the amount of products that are shipped directly to Retail customer warehouses versus through Nautilus warehouses.

use or sale of our products; real estate and equipment leases, under which we may indemnify lessors against third-party claims relating to the use of their property; agreements with licensees or licensors, under which we may indemnify the licensee or licensor against claims arising from their use of our intellectual property or our use of their intellectual property; and agreements with parties to debt arrangements, under which we may indemnify them against claims relating to their participation in the transactions.

The nature and terms of these indemnification obligations vary from contract to contract, and generally a maximum obligation is not stated within the agreements. We hold insurance policies that mitigate potential losses arising from certain types of indemnification obligations. Management does not deem these obligations to be significant to our financial position, results of operations or cash flows, and therefore, no related liabilities were recorded as of ~~September~~June 30, ~~2017.~~2020.

From time to time, in the ordinary course of business, we may be involved in various claims, lawsuits and other proceedings. These legal and tax proceedings involve uncertainty as to the eventual outcomes and losses which may be realized when one or more future events occur or fail to occur.

Litigation and jury verdicts are, to some degree, inherently unpredictable, and although we have determined that a loss is not probable in connection with any current legal proceeding, it is reasonably possible that a loss may be incurred in connection with proceedings to which we are a party. Assessment of whether incurrence of a loss is probable, or a reasonable possibility, in connection with a particular proceeding, and estimation of the loss, or a range of loss, involves complex judgments and numerous uncertainties. Management is unable to estimate a range of reasonably possible losses related to litigation in which the damages sought are indeterminate, or the legal and factual basis for the relevant claims have not been developed with specificity. As such, zero liability is recorded as of September 30, 2017.

We regularly monitor our estimated exposure to these contingencies and, as additional information becomes known, may change our estimates accordingly. We evaluate, on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would make a loss probable or reasonably possible, and whether the amount of a probable or reasonably possible loss is estimable. Among other factors, we evaluate the advice of internal and external counsel, the outcomes from similar litigation, the current status of the lawsuits (including settlement initiatives), legislative developments and other factors. Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties. Further, while we face contingencies that are reasonably possible to occur, we are unable to estimate the possible loss or range of loss at this time. As such, 0 liability is recorded as of June 30, 2020.

~~Indemnification Settlement~~

During the three months ended September 30, 2017, we received payment in settlement of an indemnification claim related to the December 31, 2015 purchase of Octane. The settlement totaled $1.5 million, and was related to excess royalty expense, obsolete inventory, duty on tooling equipment, and uncollectible accounts receivable. These amounts were credited to the condensed consolidated statement of operations for the third quarter of 2017 in the line items for selling and marketing and cost of sales in accordance with the accountingAs of the ~~original costs.~~date of filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is based upon our financial statements as of the dates and for the periods presented in this section. You should read this discussion and analysis in conjunction with the financial statements and notes thereto found in Part I, Item 1 of this Form 10-Q and our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 (the ~~“2016~~“2019 Form 10-K”). All references to the ~~third~~second quarter and first ~~nine~~six months of ~~2017~~2020 and ~~2016~~2019 mean the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Unless the context otherwise requires, “Nautilus,” “we,” “us” and “our” refer to Nautilus, Inc. and its subsidiaries. Unless indicated otherwise, all information regarding our operating results pertains to our continuing operations.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "plan," "expect," "aim," "believe," "project," "intend," "estimate," "will," "should," "could," and other terms of similar meaning typically identify forward-looking statements. We also may make forward-looking statements in our other documents filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”). In addition, our senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. Forward-looking statements include any statements related to our future business, financial performance or operating results; statements related to our exploration of the sale of Octane Fitness^® and the risks and uncertainties as to the terms, timing, structure, benefits and costs of any divestiture or separation transaction and whether one will be consummated at all, and the impact of any divestiture or separation transaction on our remaining business; anticipated fluctuations in net sales due to seasonality; plans and expectations regarding gross and operating margins; plans and expectations regarding research and development expenses and capital expenditures and anticipated results from such expenditures and other investments in our capabilities and resources; anticipated losses from discontinued operations; plans for new product introductions, strategic partnerships and anticipated demand for our new and existing products; and statements regarding our inventory and working capital requirements and the sufficiency of our financial resources. These forward-looking statements, and others we make from time-to-time, are subject to a number of risks and uncertainties. Many factors could cause actual results to differ materially from those projected in forward-looking statements, including our ability to timely acquire inventory that meets our quality control standards from sole source foreign manufacturers at acceptable costs, changes in consumer fitness trends, changes in the media consumption habits of our target consumers or the effectiveness, availability and price of media time consistent with our cost and audience profile parameters, greater than anticipated costs or delays associated with launch of new products, weaker than expected demand for new or existing products, a decline in consumer spending due to unfavorable economic conditions, softness in the retail marketplace or the availability from retailers of heavily discounted competitive products, an adverse change in the availability of credit for our customers who finance their purchases, our ability to pass along vendor raw material price increases and other cost pressures, including increased shipping costs and unfavorable foreign currency exchange rates, tariffs, risks associated with current and potential delays, work stoppages, or supply chain disruptions caused by the coronavirus pandemic, our ability to hire and retain key management personnel, our ability to effectively develop, market and sell future products, changes in the financial markets, including changes in credit markets and interest rates that affect our ability to access those markets on favorable terms, the impact of any future impairments, our ability to protect our intellectual property, the introduction of competing products, and our ability to get foreign-sourced product through customs in a timely manner. Additional assumptions, risks and uncertainties are described in Part I, Item 1A, "Risk Factors," in our 2019 Form 10-K as supplemented or modified in our quarterly reports on Form 10-Q. We do not undertake any duty to update forward-looking statements after the date they are made or conform them to actual results or to changes in circumstances or expectations.

We are committed to providing innovative, quality solutions to help people achieve a fit and healthy lifestyle. Our principal business activities include designing, developing, sourcing, and marketing high-quality cardio and strength fitness products, a connected-fitness digital platform, and related accessories for consumer use, primarily in the U.S., Canada, Europe and Asia. Our products are sold under some of the most-recognized brand names in the fitness industry: Nautilus^®, Bowflex^®, Octane Fitness^®and Schwinn^®.

We market our products through two distinct distribution channels, Direct and Retail, which we consider to be separate business segments. Our Direct business offers products directly to consumers through our websites and telephone sales and advertisements on television, social media and through print catalogs. Our Retail business offers our products through a network of independent retail companies and specialty retailers with stores and websites located in the U.S. and internationally. We also derive a portion of our revenue from the licensing of our brands and our intellectual property.

In the second quarter of 2020, we saw continued strong demand for our line of home-fitness products as stay-at-home orders related to the COVID-19 pandemic continued. Our strong operating results were a reflection of our team’s ability to quickly react to the unplanned customer demand. We increased production capacity in our suppliers in Asia, invested in faster transportation options to deliver products faster to our distribution centers, and hired additional resources in our distribution centers and headquarters to deliver second quarter 2020 sales results that were nearly double sales from second quarter 2019.

In addition to meeting the current demand of our customers, we have implemented several strategic measures designed to drive topline growth and improve our long-term profitability. We plan to introduce key new products in the next few quarters across the channels where we do business. We are continuing our digital transformation by integrating our digital JRNY^® platform into key new products and moving closer to our goal of having the majority of our portfolio equipped with digital experiences that are offered for an additional subscription fee.

Net sales for the three months ended June 30, 2020 were $114.2 million, reflecting a 93.5% increase as compared to net sales of $59.0 million for the three months ended June 30, 2019.

Gross profit for the three months ended June 30, 2020 was $47.4 million, reflecting a 170.6% increase as compared to gross profit of $17.5 million for the three months ended June 30, 2019.

In accordance with ASC 360, we met the criteria for classification of held-for-sale for the Octane Fitness^® disposal group as of the reporting date. We performed an evaluation during the second quarter of 2020 to determine the held-for-sale fair values of assets and liabilities less related costs to sell, which resulted in a non-cash charge for loss on disposal group of $29.0 million.

Operating loss for the three months ended June 30, 2020 was $7.1 million compared to loss of $85.4 million for the three months ended June 30, 2019.

Net loss was $5.1 million for the three months ended June 30, 2020, compared to net loss of $78.9 million for the three months ended June 30, 2019.

Net sales for the six month period ended June 30, 2020 were $207.9 million, reflecting a 45.0% increase as compared to net sales of $143.4 million for the six month period ended June 30, 2019.

Gross profit for the six month period ended June 30, 2020 was $83.0 million, reflecting a 55.5% increase as compared to gross profit of $53.4 million for the six month period ended June 30, 2019.

Operating loss for the six month period ended June 30, 2020 was $7.7 million compared to loss of $95.6 million for the six month period ended June 30, 2019.

Net loss was $2.9 million for the six month period ended June 30, 2020, compared to net loss of $87.4 million for the six month period ended June 30, 2019.

Forward Looking Guidance

Our second quarter results did not follow the typical seasonality in our business, and given the highly volatile environment, we believe historical relationships may not hold over the next few quarters.

Our perspective on continued consumer demand depends in part on the duration of the constraints placed on gyms by local governmental authorities and prevailing consumer comfort regarding returning to gyms. Given this uncertainty, we are not providing specific guidance for the remainder of the fiscal year 2020, but we are providing the following insight into factors that may affect our performance.

We believe that, in the near-term, demand for our products will continue to be elevated relative to pre-COVID levels, and that consumers will react favorably to the new products that we are launching later this year. However, structural production constraints in our asset-light model will likely limit our ability to fulfill all the demand. In addition, any unforeseen disruptions to our supply chain could further impede our ability to meet this demand and could also impact our sales in any particular quarter. Gross margins will be further pressured by increased logistics costs as demand for logistics services is currently outstripping supply. Lastly, we expect sales and marketing expenses for the remainder of the year to be higher than they were in the first half of the year, driven by launch marketing for our new JRNY^®-connected products.

We are reiterating our full year capital guidance range of $8 million to $10 million for 2020.

Factors Affecting Our Performance

Our results of operations may vary significantly from period-to-period. Our revenues typically fluctuate due to the seasonality of our industry, customer buying patterns, product innovation, the nature and level of competition for health and fitness products, our ability to procure products to meet customer demand, the level of spending on, and effectiveness of, our media and advertising programs and our ability to attract new customers and maintain existing sales relationships. In addition, our revenues are highly susceptible to economic factors, including, among other things, the overall condition of the economy and the availability of consumer credit in both the U.S. and Canada. The COVID-19 pandemic has created a heightened need for home-fitness products at an unplanned rate partially offset by declines in Octane Fitness^® equipment as gym closures have begun to affect sales of commercial-grade equipment. Short-term increases in demand for many of our home-fitness products continue to outpace supply and we are accelerating the manufacturing and delivery of key products. We cannot predict the longer-term impacts of COVID-19 and the impact on our results of operations is uncertain. Our financial results could also be impacted by our exploration of the sale of Octane Fitness^®, including the risks and uncertainties as to the terms, timing, structure, benefits and costs of any divestiture or separation transaction and whether one will be consummated at all, and the impact of any divestiture or separation transaction may have on our remaining business. Our profit margins may vary in response to the aforementioned factors and our ability to manage product costs. Profit margins may also be affected by fluctuations in the costs or availability of materials used to manufacture our products, tariffs, expedited shipping and transportation costs, costs associated with acquisition or license of products and technologies, product warranty costs, the cost of fuel, foreign currency exchange rates, and changes in costs of other distribution or manufacturing-related services. Our operating profits or losses may also be affected by the efficiency and effectiveness of our organization. Historically, our operating expenses have been influenced by media costs to produce and distribute advertisements of our products on television, the Internet and other media, facility costs, operating costs of our information and communications systems, product supply chain management, customer support and new product development activities. In addition, our operating expenses have been affected from time-to-time by asset impairment charges, restructuring charges and other significant unusual or infrequent expenses.

As a result of the above and other factors, our period-to-period operating results may not be indicative of future performance. You should not place undue reliance on our operating results and should consider our prospects in light of the risks, expenses and difficulties typically encountered by us and other companies, both within and outside our industry. We may not be able to successfully address these risks and difficulties and, consequently, we cannot assure you of any future growth or profitability. For more information, see our discussion of risk factors located at Part I, Item 1A of our ~~2016 Form 10-K.~~

~~Forward-Looking Statements~~

We are committed to providing innovative, quality solutions to help people achieve a fit and healthy lifestyle. Our principal business activities include designing, developing, sourcing and marketing high-quality cardio and strength fitness products and related accessories for consumer use, primarily in the U.S., Canada and Europe. Our products are sold under some of the most-recognized brand names in the fitness industry: Nautilus
^®~~, Bowflex~~^®~~, Octane Fitness~~^®~~, Schwinn~~^®~~and Universal~~^®.

~~We market our products through two distinct distribution channels, Direct and Retail, which we consider to be separate business segments. Our~~ ~~Direct~~ ~~business offers products directly to consumers through television advertising, catalogs and the Internet. Our~~ ~~Retail~~ business offers our products through a network of independent retail companies and specialty retailers with stores and websites located in the U.S. and internationally. We also derive a portion of our revenue from the licensing of our brands and intellectual property.

~~Net sales for the~~ ~~first nine months~~ of 2017 were $278.4 million, a decrease of $1.9 million, or 0.7%, as compared to net sales of $280.3 million for the first nine months of 2016. Net sales of our Direct segment decreased $12.1 million, or 7.6%, in the first nine months of 2017, compared to the first nine months of 2016, primarily due to a decline in TreadClimber^® sales. Net sales of our Retail segment increased by $10.5 million, or 8.9%, in the first nine months of 2017, compared to the first nine months of 2016, reflecting increases for both traditional and e-commerce customers across multiple product categories.

Gross profit for the first nine months of 2017 was $141.4 million, or 50.8% of net sales, a decrease of $6.0 million, or 4.1%, as compared to gross profit of $147.4 million, or 52.6% of net sales, for the first nine months of 2016. The decrease in gross profit dollars was primarily due to the decrease in net sales. Gross margin percentage points decreased 1.8%, due to a shift in segment mix, reflecting an increased percentage of Retail sales, and a decline in the Direct channel margin.

Operating expenses for the first nine months of 2017 were $111.5 million, a decrease of $1.8 million, or 1.6%, as compared to operating expenses of $113.3 million for the first nine months of 2016. The decrease in operating expenses was primarily related to decreased sales and marketing expense. The decrease in sales and marketing expense was due to a retroactive financing fees rebate of $2.1 million, and a $1.0 million settlement payment received in connection with an indemnification claim.

Operating income for the first nine months of 2017 was $29.9 million, a decrease of $4.2 million, or 12.3%, as compared to operating income of $34.1 million for the first nine months of 2016. The decrease in operating income for the first nine months of 2017 compared to the first nine months of 2016 was driven primarily by the lower net sales and gross margin dollars.

Income from continuing operations was $19.1 million for the first nine months of 2017, or $0.61 per diluted share, compared to income from continuing operations of $23.1 million, or $0.74 per diluted share, for the first nine months of 2016. The effective tax rates for the first nine months of 2017 and 2016 were 34.7% and 29.4%, respectively. The 5.3% year-over-year percentage rate increase was due to the release of previously unrecognized tax benefits associated with certain non-U.S. filing positions during the third quarter of 2016.

Net income for the first nine months of 2017 was $17.8 million, compared to net income of $22.6 million for the first nine months of 2016. Net income per diluted share was $0.57 for the first nine months of 2017, compared to $0.72 for the first nine months of 2016.

Discontinued Operations

Results from discontinued operations relate to the disposal of our former Commercial business, which was completed in April 2011. We reached substantial completion of asset liquidation atas of December 31, 2012. Although there was no revenue related to the former Commercial business in either the ~~2017~~2020 or ~~2016~~2019 periods, we continue to ~~have~~incur product liability and other legal expenses associated with product previously sold into the Commercial channel.

Table of Contents

RESULTS OF OPERATIONS

Results of operations information was as follows (dollars in thousands):


	Three Months Ended June 30,						Change
	2020		2019		$		%
Net sales	$	114,188	$	59,004	$	55,184	93.5	%
Cost of sales	66,792		41,487		25,305		61.0	%
Gross profit	47,396		17,517		29,879		170.6	%
Operating expenses:
Selling and marketing	12,446		17,631		(5,185)		(29.4)	%
General and administrative	9,315		9,443		(128)		(1.4)	%
Research and development	3,728		3,849		(121)		(3.1)	%
Loss on disposal group and goodwill and other intangible impairment charge	29,013		72,008		(42,995)		(59.7)	%
Total operating expenses	54,502		102,931		(48,429)		(47.0)	%
Operating loss	(7,106)		(85,414)		78,308		(91.7)	%
Other expense:
Interest income	1		(3)		4
Interest expense	(338)		(223)		(115)
Other, net	115		171		(56)
Total other expense, net	(222)		(55)		(167)
Loss from continuing operations before income taxes	(7,328)		(85,469)		78,141
Income tax benefit	(2,342)		(6,725)		4,383
Loss from continuing operations	(4,986)		(78,744)		73,758
Loss from discontinued operations, net of taxes	(124)		(124)		—
Net loss	$	(5,110)	$	(78,868)	$	73,758

Three Months Ended September 30, Change
2017 2016 $ %
Net sales $ 88,132
$ 80,818
$ 7,314
9.0 %
Cost of sales 46,817
41,601
5,216
12.5 %
Gross profit 41,315
39,217
2,098
5.3 %
Operating expenses:
Selling and marketing 18,028
21,394
(3,366 ) (15.7 )%
General and administrative 6,305
6,177
128
2.1 %
Research and development 3,617
3,435
182
5.3 %
Total operating expenses 27,950
31,006
(3,056 ) (9.9 )%
Operating income 13,365
8,211
5,154
62.8 %
Other income (expense):
Interest income 170
60
110

Interest expense (377 ) (489 ) 112

Other, net 46
211
(165 )
Total other expense, net (161 ) (218 ) 57

Income from continuing operations before income taxes 13,204
7,993
5,211

Income tax expense 4,862
148
4,714

Income from continuing operations 8,342
7,845
497

Loss from discontinued operations, net of taxes (101 ) (251 ) 150

Net income $ 8,241
$ 7,594
$ 647

Nine Months Ended September 30, Change
2017 2016 $ %
Net sales $ 278,413
$ 280,275
$ (1,862 ) (0.7 )%
Cost of sales 136,975
132,852
4,123
3.1 %
Gross profit 141,438
147,423
(5,985 ) (4.1 )%
Operating expenses:
Selling and marketing 79,321
81,284
(1,963 ) (2.4 )%
General and administrative 21,106
21,611
(505 ) (2.3 )%
Research and development 11,114
10,444
670
6.4 %
Total operating expenses 111,541
113,339
(1,798 ) (1.6 )%
Operating income 29,897
34,084
(4,187 ) (12.3 )%
Other income (expense):
Interest income 476
182
294

Interest expense (1,233 ) (1,469 ) 236

Other, net 109
(49 ) 158

Total other expense, net (648 ) (1,336 ) 688

Income from continuing operations before income taxes 29,249
32,748
(3,499 )
Income tax expense 10,156
9,621
535

Income from continuing operations 19,093
23,127
(4,034 )
Loss from discontinued operations, net of taxes (1,270 ) (559 ) (711 )
Net income $ 17,823
$ 22,568
$ (4,745 )

Table of Contents

Results of operations information by segment was as follows (dollars in thousands):


	Three Months Ended June 30,									Change
	2020			2019			$			%
Net sales:
Direct	$	50,433		$	20,834		$	29,599		142.1	%
Retail	62,948			37,453			25,495			68.1	%
Royalty	807			717			90			12.6	%
	$	114,188		$	59,004		$	55,184		93.5	%
Cost of sales:
Direct	$	22,910		$	11,807		$	11,103		94.0	%
Retail	43,882			29,680			14,202			47.9	%

	$	66,792		$	41,487		$	25,305		61.0	%
Gross profit:
Direct	$	27,523		$	9,027		$	18,496		204.9	%
Retail	19,066			7,773			11,293			145.3	%
Royalty	807			717			90			12.6	%
	$	47,396		$	17,517		$	29,879		170.6	%
Gross margin:
Direct	54.6		%	43.3		%	1,130		basis points
Retail	30.3		%	20.8		%	950		basis points

Contribution:
Direct	$	16,995		$	(6,334)		$	23,329		*
Retail	11,613			(247)			11,860			*

*Not meaningful


	Six Months Ended June 30,						Change
	2020		2019		$		%
Net sales	$	207,910	$	143,404	$	64,506	45.0	%
Cost of sales	124,917		90,045		34,872		38.7	%
Gross profit	82,993		53,359		29,634		55.5	%
Operating expenses:
Selling and marketing	37,132		51,674		(14,542)		(28.1)	%
General and administrative	16,971		17,098		(127)		(0.7)	%
Research and development	7,543		8,160		(617)		(7.6)	%
Loss on disposal group and goodwill and other intangible impairment charge	29,013		72,008		(42,995)		(59.7)	%
Total operating expenses	90,659		148,940		(58,281)		(39.1)	%
Operating loss	(7,666)		(95,581)		87,915		(92.0)	%
Other expense:
Interest income	3		162		(159)
Interest expense	(965)		(428)		(537)
Other, net	156		(222)		378
Total other expense, net	(806)		(488)		(318)
Loss from continuing operations before income taxes	(8,472)		(96,069)		87,597
Income tax benefit	(5,788)		(8,841)		3,053
Loss from continuing operations	(2,684)		(87,228)		84,544
Loss from discontinued operations, net of taxes	(242)		(215)		(27)
Net loss	$	(2,926)	$	(87,443)	$	84,517

Table of Contents

Three Months Ended September 30, Change
2017 2016 $ %
Net sales:
Direct $ 33,986
$ 33,710
$ 276
0.8 %
Retail 53,505
46,223
7,282
15.8 %
Royalty 641
885
(244 ) (27.6 )%
$ 88,132
$ 80,818
$ 7,314
9.0 %
Cost of sales:
Direct $ 12,401
$ 11,579
$ 822
7.1 %
Retail 34,413
30,008
4,405
14.7 %
Royalty 3
14
(11 ) (78.6 )%
$ 46,817
$ 41,601
$ 5,216
12.5 %
Gross profit:
Direct $ 21,585
$ 22,131
$ (546 ) (2.5 )%
Retail 19,092
16,215
2,877
17.7 %
Royalty 638
871
(233 ) (26.8 )%
$ 41,315
$ 39,217
$ 2,098
5.3 %
Gross margin:
Direct 63.5 % 65.7 % (220 ) basis points
Retail 35.7 % 35.1 % 60
basis points

Results of operations information by segment was as follows (dollars in thousands):


	Nine Months Ended September 30,						Change							Six Months Ended June 30,									Change
	2017			2016			$				%			2020			2019			$			%
Net sales:													Net sales:
Direct	$	147,800		$	159,884		$	(12,084	)		(7.6	)%	Direct	$	97,574		$	67,548		$	30,026		44.5	%
Retail	128,393			117,939			10,454				8.9	%	Retail	108,561			74,274			34,287			46.2	%
Royalty	2,220			2,452			(232		)		(9.5	)%	Royalty	1,775			1,582			193			12.2	%
	$	278,413		$	280,275		$	(1,862	)		(0.7	)%		$	207,910		$	143,404		$	64,506		45.0	%
Cost of sales:													Cost of sales:
Direct	$	52,525		$	53,732		$	(1,207	)		(2.2	)%	Direct	$	45,752		$	32,125		$	13,627		42.4	%
Retail	84,436			79,087			5,349				6.8	%	Retail	79,165			57,920			21,245			36.7	%
Royalty	14			33			(19		)		(57.6	)%

	$	136,975		$	132,852		$	4,123			3.1	%		$	124,917		$	90,045		$	34,872		38.7	%
Gross profit:													Gross profit:
Direct	$	95,275		$	106,152		$	(10,877	)		(10.2	)%	Direct	$	51,822		$	35,423		$	16,399		46.3	%
Retail	43,957			38,852			5,105				13.1	%	Retail	29,396			16,354			13,042			79.7	%
Royalty	2,206			2,419			(213		)		(8.8	)%	Royalty	1,775			1,582			193			12.2	%
	$	141,438		$	147,423		$	(5,985	)		(4.1	)%		$	82,993		$	53,359		$	29,634		55.5	%
Gross margin:													Gross margin:
Direct	64.5		%	66.4		%	(190		)	basis points			Direct	53.1		%	52.4		%	70		basis points
Retail	34.2		%	32.9		%	130			basis points			Retail	27.1		%	22.0		%	510		basis points

Contribution:													Contribution:
Direct													Direct	$	18,804		$	(10,876)		$	29,680		*
Retail													Retail	14,002			(969)			14,971			*

*Not meaningful

The following table compares the net sales of our major product lines within each business segment (dollars in thousands):


	Three Months Ended June 30,						Change
	2020		2019		$		%
Direct net sales:
Cardio products⁽¹⁾	$	45,585	$	16,083	$	29,502	183.4	%
Strength products⁽²⁾	4,848		4,751		97		2.0	%
	50,433		20,834		29,599		142.1	%
Retail net sales:
Cardio products⁽¹⁾	49,011		26,045		22,966		88.2	%
Strength products⁽²⁾	13,937		11,408		2,529		22.2	%
	62,948		37,453		25,495		68.1	%

Royalty	807		717		90		12.6	%
	$	114,188	$	59,004	$	55,184	93.5	%

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Three Months Ended September 30, Change
2017 2016 $ %
Direct net sales:
Cardio products⁽¹⁾
$ 30,087
$ 30,548
$ (461 ) (1.5 )%
Strength products⁽²⁾
3,899
3,162
737
23.3 %
33,986
33,710
276
0.8 %
Retail net sales:
Cardio products⁽¹⁾
39,389
33,280
6,109
18.4 %
Strength products⁽²⁾
14,116
12,943
1,173
9.1 %
53,505
46,223
7,282
15.8 %

Royalty 641
885
(244 ) (27.6 )%
$ 88,132
$ 80,818
$ 7,314
9.0 %

Nine Months Ended September 30, Change
2017 2016 $ %
Direct net sales:
Cardio products⁽¹⁾
$ 133,421
$ 149,074
$ (15,653 ) (10.5 )%
Strength products⁽²⁾
14,379
10,810
3,569
33.0 %
147,800
159,884
(12,084 ) (7.6 )%
Retail net sales:
Cardio products⁽¹⁾
96,249
86,739
9,510
11.0 %
Strength products⁽²⁾
32,144
31,200
944
3.0 %
128,393
117,939
10,454
8.9 %

Royalty 2,220
2,452
(232 ) (9.5 )%
$ 278,413
$ 280,275
$ (1,862 ) (0.7 )%

⁽¹⁾ Cardio products include: Max Trainer^®,TreadClimber^®, HVT™, Zero Runner^®, treadmills, exercise bikes and ellipticals.
⁽²⁾ Strength products include: home gyms, selectorized dumbbells, kettlebell weights and accessories.


	Six Months Ended June 30,						Change
	2020		2019		$		%
Direct net sales:
Cardio products⁽¹⁾	$	81,461	$	55,690	$	25,771	46.3	%
Strength products⁽²⁾	16,113		11,858		4,255		35.9	%
	97,574		67,548		30,026		44.5	%
Retail net sales:
Cardio products⁽¹⁾	85,154		56,741		28,413		50.1	%
Strength products⁽²⁾	23,407		17,533		5,874		33.5	%
	108,561		74,274		34,287		46.2	%

Royalty	1,775		1,582		193		12.2	%
	$	207,910	$	143,404	$	64,506	45.0	%

⁽¹⁾ Cardio products include: connected-fitness bikes like the Bowflex^® C6 and Schwinn^®IC4, Max Trainer^®,TreadClimber^®, Zero Runner^®, LateralX^®,treadmills, other exercise bikes, ellipticals and subscription services.
⁽²⁾ Strength products include: home gyms and Bowflex^® SelectTech^® dumbbells, kettlebell weights, and accessories.

~~Direct~~

Sales and Gross Profit

Direct ~~net~~Segment

Net sales ~~increased 0.8%~~ for the three month period ended ~~September~~June 30, ~~2017~~2020 were $50.4 million, up 142.1%, from $20.8 million for the three month period ended June 30, 2019, driven primarily by the company's cardio products which grew 183.4%, led by connected-fitness bikes, Bowflex^® C6 and Schwinn^® IC4, and the Max Trainer^®. This was the first quarter over quarter of Max Trainer^® positive sales growth for this segment since the fourth quarter of 2017. Strength product sales growth was limited by inventory scarcity, particularly of the popular SelectTech^® weights.

Net sales for the six month period ended June 30, 2020 were $97.6 million, reflecting a 44.5% increase as compared to $67.5 million for the same period ~~of 2016 as new~~in 2019. Increased sales were driven primarily by cardio products ~~including the Bowflex HVT~~^TM~~, offset a decline in TreadClimber~~^® ~~sales. For the nine months ended September 30, 2017, Direct net sales decreased 7.6% compared to~~which grew by 46.3% versus the same period ~~of 2016 due to a decline~~ in ~~TreadClimber~~2019 and were led by strong demand for our connected-fitness bikes, the Bowflex^® C6 and Schwinn^® IC4 ~~sales,~~, and partially offset by ~~a 33.0% increase~~declines in our Max Trainer^® sales. Strength product sales grew 35.9% versus the same period in ~~strength product sales.~~2019 which were driven by Bowflex^® SelectTech^® weights and Bowflex^® Home Gyms.

Gross margin rates for the three and six month periods ended June 30, 2020 and June 30, 2019were 54.6% and 53.1%, up from 43.3% and 52.4%, respectively, primarily driven by favorable product mix and partially offset by higher product landed costs. Higher product landed costs were due to increases in tariffs and shipping costs from our suppliers in Asia.

Segment contribution income for the three month period ended June 30, 2020 was $17.0 million, compared to loss of $6.3 million, for the three month period ended June 30, 2019. The $23.3 million improvement was primarily driven by higher net sales, expanded gross margin rates, and a $4.2 million reduction in media spend. Advertising expenses were $2.4 million for the second quarter of 2020 compared to $6.6 million for the same period in 2019.

Segment contribution income for the first six months of 2020 was $18.8 million compared to a loss of $10.9 million for the first six months of 2019. The $29.7 million improvement was primarily driven by higher gross profit.

Combined consumer credit approvals by our primary and secondary U.S. third-party financing providers for the ~~third~~second quarter of ~~2017~~2020 were ~~53.7%~~48.4%, compared to ~~47.9%~~53.2% in the same period of ~~2016. We continue to experience improved~~2019. The decrease in approvals reflects lower credit approval rates due to our media strategy, which focuses on generation of responses from consumers with relatively high credit quality. Additionally, our Tier 1 credit provider has noted strong performance from our account portfolio, and, due to that credit profile, has progressively expanded its approval standards. We remain focused on maintaining a healthy payment balance between cash and financed purchases.quality applications.

~~The $0.8 million increase in cost of~~Retail Segment

Net sales ~~of our Direct business~~ for the three month period ended ~~September~~June 30, ~~2017~~2020 were $62.9 million, up 68.1%, from $37.5 million. Cardio sales increased by88.2% driven by the Schwinn^® IC4 connected-fitness bikes and Max Trainer^®. This was the first quarter over quarter of Max Trainer^® positive sales growth for this segment since the fourth quarter of 2018. Strength product sales growth of 22.2% was limited by inventory scarcity of the popular SelectTech^® weights and benches. Excluding sales related to our Octane brand, second quarter of 2020 net sales for the Retail segment grew 95% versus the second quarter of 2019.

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Net sales for the six month period ended June 30, 2020 were $108.6 million, reflecting a 46.2% increase as compared to $74.3 million for the same period in 2019, with strong growth coming from both cardio and strength product sales. Cardio sales were up 50.1% compared with the same period in 2019, driven by the Schwinn^®IC4 connected-fitness bikes and partially offset by declines in Octane Fitness^® products as gym closures continued to affect sales of commercial-grade equipment. Strength sales were up 33.5% compared to the same period ~~of 2016 was due to the higher volume of sales. The $1.2 million decrease~~ in ~~cost of sales of our Direct business~~2019, driven primarily by strong demand for ~~the nine months ended September 30, 2017 compared to the same period of 2016 was due to lower net sales.~~

~~For the three~~Bowflex^®SelectTech^®weights and nine month periods ended September 30, 2017, Direct gross margins decreased 220 and 190 basis points, respectively, as compared to the same periods of 2016 primarily due to unfavorable product mix and higher discounting for older products.

Bowflex^® Home Gyms.

~~Retail~~

~~Retail net sales increased 15.8% and 8.9%~~Gross margin rates for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017 compared~~2020 and June 30, 2019 were 30.3% and 27.1%, up from 20.8% and 22.0% respectively, primarily driven by favorable sales mix and partially offset by higher product landed costs. Higher product landed costs were due to ~~the same periods of 2016. The~~ increases in ~~both periods reflected growth~~tariffs and shipping costs from our suppliers in ~~traditional and e-commerce customers across multiple product categories.~~Asia.

~~The increases in cost of sales of our Retail business~~Segment contribution income for ~~the three and nine month periods ended September 30, 2017 compared to the same periods of 2016 were primarily related to the increases in Retail net sales as discussed above.~~

For the three and nine month periods ended September 30, 2017, Retail gross margin increased by 60 and 130 basis points, respectively, compared to the same periods of 2016 due to favorable absorption of fixed costs over the increased sales volume and the one-time settlement of an indemnification claim.

~~Selling and Marketing~~

Dollars in thousands Three Months Ended September 30, Change
2017 2016 $ %
Selling and marketing $18,028 $21,394 $(3,366) (15.7)%
As % of net sales 20.5% 26.5%

Dollars in thousands Nine Months Ended September 30, Change
2017 2016 $ %
Selling and marketing $79,321 $81,284 $(1,963) (2.4)%
As % of net sales 28.5% 29.0%

~~The $3.4 million decrease in selling and marketing expense in~~ the three month period ended ~~September~~June 30, ~~2017~~2020 was $11.6 million compared to a loss of $0.2 million for the ~~same~~three month period ended June 30, 2019. The $11.8 million improvement was primarily driven by higher sales and leveraging of ~~2016~~fixed costs.

Segment contribution income for the first six months of 2020 was ~~due~~$14.0 million compared to ~~lower variable selling expenses of $2.6 million, primarily related to lower financing fees reflecting~~ a ~~retroactive contract adjustment of $2.1 million and receipt of a one-time settlement payment~~loss of $1.0 million for ~~an indemnification claim.~~the first six months of 2019. The $15.0 million improvement was primarily driven by higher gross profit.

~~The $2.0~~Royalty

Royalty income increased by $0.1 million, or 12.6%, for the three months of 2020 to $0.8 million, compared to the three months of 2019, primarily due to increased licensed sales.

Royalty income increased by $0.2 million, or 12.2%, for the first six months of 2020 to $1.8 million, compared to the first six months of 2019, primarily due to a royalty settlement.

Operating Expenses

Operating expenses for the three months ended June 30, 2020 were $54.5 million, a decrease ~~in selling and marketing expense in the nine month period ended September 30, 2017~~of $48.4 million, or 47.0%, as compared to operating expenses of $102.9 million for the ~~same period of 2016~~three months ended June 30, 2019. The decrease in operating expenses was primarily related to a ~~$4.7~~loss on disposal group of $29.0 million in 2020 compared to a goodwill and other intangible impairment charge of $72.0 million in 2019 and lower media spending.

Operating expenses for the first six months of 2020 were $90.7 million, a decrease of $58.3 million, or 39.1%, as compared to operating expenses of $148.9 million for the first six months of 2019. The decrease in ~~variable selling~~operating expenses was primarily related to a loss on disposal group of $29.0 million in 2020 compared to a goodwill and other intangible impairment charge of $72.0 million in 2019 as well as a $10.7 million reduction in media spending.

Loss on disposal group

In accordance with ASC 360, we met the criteria for classification of held-for-sale for the Octane Fitness^® disposal group as of the reporting date. We performed an evaluation during the second quarter of 2020 to determine the held-for-sale fair values of assets and liabilities less related costs ~~including~~to sell, which resulted in a non-cash charge for loss on disposal group of $29.0 million. For additional information related to assets and liabilities held-for-sale, see Note 2.

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Selling and Marketing

Selling and marketing expenses include payroll, employee benefits, and other headcount-related expenses associated with sales and marketing personnel, and the ~~factors noted above, and lower marketing program~~ costs of ~~$1.0 million, offset by increases of $2.9 million in~~ media advertising, promotions, trade shows, seminars, and ~~$0.8 million~~other programs.

Selling and marketing information was as follows (dollars in ~~photo and video production costs.~~thousands):


	Three Months Ended June 30,								Change
	2020			2019			$		%
Selling and marketing	$	12,446		$	17,631		$	(5,185)	(29.4)%
As % of net sales	10.9		%	29.9		%


	Six Months Ended June 30,								Change
	2020			2019			$		%
Selling and marketing	$	37,132		$	51,674		$	(14,542)	(28.1)%
As % of net sales	17.9		%	36.0		%

Media advertising expense of our Direct business is the largest component of selling and marketing and was as ~~follows:~~follows (dollars in thousands):


	Three Months Ended June 30,						Change
	2020		2019		$		%
Media advertising	$	2,385	$	6,553	$	(4,168)	(63.6)%

Dollars in thousands Three Months Ended September 30, Change
2017 2016 $ %
Media advertising $11,114 $10,790 $324 3.0%


	Six Months Ended June 30,						Change
	2020		2019		$		%
Media advertising	$	15,570	$	26,255	$	(10,685)	(40.7)%

Dollars in thousands Nine Months Ended September 30, Change
2017 2016 $ %
Media advertising $43,704 $40,804 $2,900 7.1%

The ~~increases~~decrease in selling and marketing expenses for the three and six month periods ended June 30, 2020 was primarily due to decreases in media advertising as the company pulled back on paid advertising, given strong organic demand and inventory scarcity. Additionally, COVID-19 shelter-in-place orders reduced travel costs related to selling and marketing.

General and Administrative

General and administrative expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with finance, legal, facilities, certain human resources and other administrative personnel, and other administrative fees.

General and administrative was as follows (dollars in thousands):


	Three Months Ended June 30,								Change
	2020			2019			$		%
General and administrative	$	9,315		$	9,443		$	(128)	(1.4)%
As % of net sales	8.2		%	16.0		%


	Six Months Ended June 30,								Change
	2020			2019			$		%
General and administrative	$	16,971		$	17,098		$	(127)	(0.7)%
As % of net sales	8.2		%	11.9		%

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Research and Development

Research and development expenses include payroll, employee benefits, other headcount-related expenses and information technology associated with product development.

Research and development was as follows (dollars in thousands):


	Three Months Ended June 30,								Change
	2020			2019			$		%
Research and development	$	3,728		$	3,849		$	(121)	(3.1)%
As % of net sales	3.3		%	6.5		%


	Six Months Ended June 30,								Change
	2020			2019			$		%
Research and development	$	7,543		$	8,160		$	(617)	(7.6)%
As % of net sales	3.6		%	5.7		%

The decreases in research and development for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2020 as compared to the same periods of ~~2016 reflected~~2019 were driven primarily by lower ~~response rates that drove the increased investments in advertising.~~maintenance expenses related to digital platforms and commercial grade products.

Operating Loss

~~General and Administrative~~

Dollars in thousands Three Months Ended September 30, Change
2017 2016 $ %
General and administrative $6,305 $6,177 $128 2.1%
As % of net sales 7.2% 7.6%

Dollars in thousands Nine Months Ended September 30, Change
2017 2016 $ %
General and administrative $21,106 $21,611 $(505) (2.3)%
As % of net sales 7.6% 7.7%

~~The increase in general and administrative~~Operating loss for the three months ended ~~September~~June 30, ~~2017~~2020 was $7.1 million, a decrease of $78.3 million, or 91.7%, as compared to operating loss of $85.4 million for the ~~same period of 2016~~three months ended June 30, 2019. The decrease in operating loss was primarily due to lower operating expenses, driven by the favorable variance between loss on disposal group versus the impairment, and higher ~~legal expenses~~gross profit.

Operating loss for the first six months of ~~$0.4~~2020 was $7.7 million, ~~offset by $0.4~~a decrease of $87.9 million, ~~lower integration costs and administrative cost savings related~~or 92.0%, as compared to ~~Octane incurred in~~operating loss of $95.6 million for the ~~same comparative period.~~

first six months of 2019. The decrease in ~~general and administrative for the nine months ended September 30, 2017 compared to the same period of 2016~~operating loss was primarily due to ~~$0.8 million savings related to~~ lower ~~integration costs~~operating expenses, driven by the favorable variance between the loss on disposal group versus the impairment, and ~~administrative cost savings related to Octane, and lower employee incentives and compensation costs of $0.9 million. These costs were partially offset by~~ higher ~~litigation-related expenses of $1.3 million for the same comparative period.~~gross profit.

~~Research and Development~~

Dollars in thousands Three Months Ended September 30, Change
2017 2016 $ %
Research and development $3,617 $3,435 $182 5.3%
As % of net sales 4.1% 4.3%

Dollars in thousands Nine Months Ended September 30, Change
2017 2016 $ %
Research and development $11,114 $10,444 $670 6.4%
As % of net sales 4.0% 3.7%

The increases in research and development in the three and nine month periods ended September 30, 2017 compared to the same periods of 2016 were primarily due to our investment in additional engineering and product development headcount as we continue to supplement our new product development resources required to innovate and broaden our product portfolio.

~~Interest Expense~~

~~Interest expense of $0.4 million and $1.2~~Loss from continuing operations was $5.0 million for the three ~~and nine month periods~~months ended ~~September~~June 30, ~~2017 decreased $0.1 million and $0.2 million, respectively,~~2020, or $0.17 per diluted share, compared to loss from continuing operations of $78.7 million, or $2.65 per diluted share, for the ~~same periods of 2016.~~three months ended June 30, 2019. The ~~decreases were~~decrease in loss from continuing operations was primarily due to ~~reductions~~lower operating expenses, driven by the favorable variance between the loss on disposal group versus the impairment, and higher gross profit.

Loss from continuing operations was $2.7 million for the first six months of 2020, or $0.09 per diluted share, compared to loss from continuing operations of $87.2 million, or $2.94 per diluted share, for the first six months of 2019. The decrease in ~~principal balance~~loss from continuing operations was primarily due to lower operating expenses, driven by the favorable variance between the loss on ~~our term loan.~~disposal group versus the impairment, and aided by the tax benefit related to the CARES Act.

Other, Net

Other, net relates to the effect of exchange rate fluctuations ~~between~~with the U.S. and our foreign ~~subsidiaries, primarily Canada, China and Europe.~~

subsidiaries.

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Income Tax Expense

Dollars in thousands Three Months Ended September 30, Change
2017 2016 $ %
Income tax expense $4,862 $148 $4,714 *
Effective tax rate 36.8% 1.9%
Income tax provision includes U.S. and international income taxes, and interest and penalties on uncertain tax positions.

Dollars in thousands Nine Months Ended September 30, Change
2017 2016 $ %
Income tax expense $10,156 $9,621 $535 5.6%
Effective tax rate 34.7% 29.4%

* Not meaningful.

Income tax expense was as follows (dollars in thousands):


	Three Months Ended June 30,								Change
	2020			2019			$		%
Income tax benefit	$	(2,342)		$	(6,725)		$	4,383	(65.2)%
Effective tax rate	32.0		%	7.9		%


	Six Months Ended June 30,								Change
	2020			2019			$		%
Income tax benefit	$	(5,788)		$	(8,841)		$	3,053	(34.5)%
Effective tax rate	68.3		%	9.2		%

The income tax benefit and effective tax ~~rates~~rate from continuing operations for the three months period ended June 30, 2020 were primarily due to the loss recorded as a result of the held-for-sale valuation of our Octane Fitness^® disposal group in the second quarter of 2020. The deferred tax assets and liabilities that result in future taxable or deductible amounts are not part of the disposal group.

The income tax benefit and effective tax rate from continuing operations for the six months period ended June 30, 2020 were primarily due to the 14% rate benefit of net operating loss carry-back as a result of the enactment of the CARES Act enactment combined with the aforementioned disposal.

The effective tax rate and income tax benefit from continuing operations for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2019 was primarily ~~related~~due to our ~~profitable U.S~~losses generated in the U.S. See Notes 1, 2 and ~~foreign operations. The reduced effective tax rates from continuing operations~~15 of Notes to Condensed Consolidated Financial Statements for additional information.

Net loss was $5.1 million for the three ~~and nine month periods~~months ended ~~September~~June 30, ~~2016 were primarily due~~2020, compared to ~~the release~~net loss of on a non-recurring basis, previously unrecognized tax benefits associated with certain non-U.S. filing positions. These resulted from completion of the deregistration process of a certain foreign entity. In addition, the effective tax rate$78.9 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017 included $0.7~~2019. Net loss per diluted share was $0.17 for the three months ended June 30, 2020, compared to net loss per diluted share of $2.66 for the three months ended June 30, 2019.

Net loss was $2.9 million for the first six months of ~~excess tax benefits related~~2020, compared to ~~stock-based compensation recognized as a current period benefit through~~net loss of $87.4 million for the ~~statement~~first six months of ~~operations, resulting from~~2019. Net loss per diluted share was $0.10 for the ~~adoption~~first six months of ~~ASU 2016-09 in January 2017.~~2020, compared to net loss per diluted share of $2.95 for the first six months of 2019.

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LIQUIDITY AND CAPITAL RESOURCES

As of ~~September~~June 30, ~~2017~~,2020, we had ~~$77.8~~$47.9 million of cash, cash equivalents and restricted cash, and $28.6 million was available for borrowing under the ABL Revolving Facility, compared to $11.1 million of cash and ~~investments compared to $79.6 million~~cash equivalents as of December 31, ~~2016. Cash provided by operating activities was $16.7 million for the nine months ended~~ ~~September 30, 2017, compared to $14.9 million for the~~ ~~nine months ended~~ ~~September 30, 2016.~~2019. We expect our cash and cash equivalents and ~~available-for-sale securities at September~~amounts available under our Wells Fargo Financing as of June 30, ~~2017,~~2020, along with cash expected to be generated from operations, to be sufficient to fund our operating and capital requirements for at least twelve months from ~~September~~June 30, ~~2017.~~2020. Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our levels of revenue, the timing and extent of spending on research and development efforts and other business initiatives, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products, and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations.

Cash provided by operating activities was $46.5 million for the six months period ended June 30, 2020, compared to cash used in operating activities of $37.2 million for the six month period ended June 30, 2019. The increase in cash flows from operating activities for the ~~nine months~~six month period ended ~~September~~June 30, ~~2017~~2020 as compared to the same period of ~~2016~~2019 was primarily due to the increase in operating income, along with the changes in our operating assets and liabilities as discussed ~~below, partially offset by the decline in operating performance.~~

below.

Trade receivables decreased ~~$6.9~~by $20.9 million to ~~$38.5~~$33.7 million as of ~~September~~June 30, ~~2017,~~2020, compared to ~~$45.5~~$54.6 million as of December 31, ~~2016,~~2019, primarily due to ~~seasonally lower net sales to specialty retail~~the timing of customer payments and ~~commercial customers.~~certain receivables included in held-for-sale. Trade receivables as of ~~September~~June 30, ~~2017~~2020 compared to ~~September~~June 30, ~~2016~~2019 increased ~~$7.3~~by $4.7 million due to the ~~increase~~higher net sales and the timing of receipts in ~~Retail net sales.~~the second quarter of 2020.

~~Inventories increased $10.6~~Inventory was $21.3 million, ~~to $57.6 million as of September 30, 2017,~~ compared to ~~$47.0~~$54.8 million as of December 31, ~~2016~~2019. The decrease in inventory was primarily due to ~~seasonal preparations~~the surge in demand for home-fitness products and certain inventory included in held-for-sale. Strong customer preference for our Bowflex^® and Scwhinn^® products drove record-setting traffic depleting our entire stock of consumer products. Our inventory turns this quarter were at historic highs and a growing portion of sales in our retail segment are being fulfilled directly from the ~~fourth quarter.~~supplier. Inventories as of ~~September~~June 30, ~~2017~~2020 compared to ~~September~~June 30, ~~2016 increased~~2019 decreased by ~~$8.4~~$30.7 million, primarily due to ~~increased in-transit inventory.~~

the surge in demand and certain inventory included in held-for-sale.

Prepaid and other current assets were flat at $8.3 million as of June 30, 2020 and December 31, 2019.

Trade payables decreased ~~$3.9~~by $29.0 million to ~~$62.1~~$45.2 million as of ~~September~~June 30, ~~2017,~~2020, compared to ~~$66.0~~$74.3 million as of December 31, ~~2016,~~2019, primarily due to ~~seasonality~~timing of ~~the business. Trade~~payments for inventory, reduced advertising related payments and certain payables ~~as of September 30, 2017 compared to September 30, 2016 increased $17.4 million. The higher amount outstanding as of September 30, 2017 was due to the increased inventory.~~included in held-for-sale.

Accrued liabilities ~~decreased $4.8~~increased by $4.0 million to ~~$8.1~~$11.6 million as of ~~September~~June 30, ~~2017,~~2020, compared to ~~$12.9~~$7.6 million as of December 31, ~~2016,~~2019, primarily due to ~~payout of accrued incentive compensation during the first quarter of 2017~~payroll related liabilities and ~~settlement of a royalty dispute in the second quarter of 2017.~~other accruals.

Cash used in investing activities of ~~$18.2~~$4.7 million for the first ~~nine~~six months of ~~2017~~2020 was ~~primarily related~~due to ~~net purchases of marketable securities of $15.4 million. In addition, $2.7 million was used for~~ capital expenditures ~~primarily related to production equipment tooling and~~for implementation of new software ~~systems.~~systems, production tooling and equipment. We anticipate spending between ~~$4.5~~$8.0 million and ~~$5.5~~$10.0 million in ~~2017~~2020 for ~~product tooling, computer equipment and software,~~digital platform enhancements, systems integration, and production ~~equipment.~~tooling.

Cash used in financing activities of ~~$17.0~~$0.5 million for the first ~~nine~~six months of ~~2017~~2020 was primarily related to loan principal repayments ~~on our term loan~~ of ~~$12.0~~$43.5 million and ~~share repurchases~~related debt issuance costs for Wells Fargo Financing agreements offset by loan proceeds of ~~$4.8~~$44.7 million.

Financing Arrangements

~~We have~~On January 31, 2020, we entered into a Credit Agreement with ~~JPMorgan Chase~~Wells Fargo Bank, ~~N.A.~~National Association (“~~Chase Bank”~~Wells Fargo”) ~~that provides for~~and lenders from time to time party thereto (collectively with Wells Fargo, the "Lenders"), pursuant to which the Lenders have agreed, among other things, to make available to us an ~~$80.0~~asset-based revolving loan facility in the aggregate principal amount of up to $55.0 million, subject to a borrowing base (the “ABL Revolving Facility”), and a term loan facility in the aggregate principal amount of $15.0 million (the “Term Loan Facility” and ~~a $20.0 million revolving line of credit. The term~~together with the ABL Revolving Facility, the "Wells Fargo Financing"), in each case, as such amounts may increase or decrease in accordance with the terms of the Credit ~~Agreement~~Agreement. The Wells Fargo Financing expires and all outstanding amounts become due on ~~December~~January 31, ~~2020 and~~2025 unless the maturity is accelerated

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subject to the terms set forth in the Credit Agreement. The repayment of obligations under the Credit Agreement is secured by substantially all of our assets. Principal and interest amounts are required to be paid as scheduled.

~~The~~We used the proceeds from the Wells Fargo Financing to extinguish our existing $40.0 million revolver with Chase Bank ("2019 Chase Credit Agreement"), pay transaction expenses, and for general corporate purposes. Our previously existing credit facilities and agreements with Chase Bank and all guarantees and liens existing in connection with those facilities and agreements were terminated upon the closing of the Wells Fargo Financing. In connection with the termination of the 2019 Chase Credit Agreement we recorded a loss on debt extinguishment of $0.2 million as amended, contains customary covenants, including minimum fixed charge coverage ratio and funded debt to EBITDA ratio, and limitations on capital expenditures, mergers and acquisitions, indebtedness, liens, dispositions, dividends and investments. The Credit Agreement also contains customary eventsinterest expense in our consolidated statement of ~~default. Upon an event of default, the lender may terminate its credit line commitment, accelerate all outstanding obligations and exercise its remedies under the continuing security agreement.~~operations.

Borrowing availability under the revolving line of credit is subject to our compliance with certain financial and operating covenants at the time borrowings are requested. Letters of credit under the Credit Agreement are treated as a reduction of the available borrowing amount and are subject to covenant testing.

The interest rate applicable to the term loan, as well as each advance under the revolving line of credit, is based on either Chase Bank's floating prime rate or adjusted LIBOR, plus an applicable margin. As of September 30, 2017, our borrowing rate for both the term loan and line of credit advances was 2.49%.

As of ~~September~~June 30, ~~2017, the balance on our term loan was $52.0~~2020, outstanding borrowings totaled $14.8 million with $14.4 million and ~~we had no outstanding borrowings~~$0.4 million under ~~the line of credit.~~our Wells Fargo Financing Term Loan Facility and ABL Revolving Facility, respectively. As of ~~September~~June 30, ~~2017,~~2020, we were in compliance with the financial covenants of the ~~Credit Agreement~~Wells Fargo Financing and ~~$20.0~~$28.6 million was available for borrowing under the ~~line~~ABL Revolving Facility. Any outstanding balance is due and payable on January 31, 2025, unless the maturity is accelerated subject to the terms set forth in the Credit Agreement.

The Credit Agreement contains customary affirmative and negative covenants for financings of ~~credit.~~

Asthis type, including, among other terms and conditions, delivery of ~~September 30, 2017, we had~~financial statements, reports and maintenance of existence, revolving availability subject to a ~~$52.0 million receive-variable, pay-fixed interest rate swap outstanding with Chase Bank. The interest rate swap amortizes monthly in line with the outstanding principal balance~~calculated borrowing base, as well as limitations and conditions on our ~~term loan~~ability to: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of its property; make investments; or pay dividends or make distributions, in each case subject to certain exceptions. The financial covenants set forth in the Credit Agreement include a minimum liquidity covenant of $7.5 million. Beginning February 1, 2022, the minimum liquidity covenant will decrease to $5.0 million and ~~is classified as~~only a ~~cash flow hedge. The swap matures~~minimum EBITDA covenant will apply. In addition, the Credit Agreement includes customary events of default, including but not limited to, the nonpayment of principal and interest when due thereunder, breaches of representations and warranties, noncompliance with covenants, acts of insolvency and default on ~~December 31, 2020~~indebtedness held by third parties (subject to certain limitations and ~~has a fixed rate of 1.42% per annum. The variable rate on the interest rate swap is the one-month LIBOR benchmark. At September 30, 2017, the one-month LIBOR rate was 1.24%~~cure periods).

~~Commitments and Contingencies~~

~~For a description of our commitments and contingencies, refer to Note 14 to our condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.~~

Off-Balance Sheet Arrangements

We have long lead times for inventory purchases and, therefore, must secure factory capacity from our vendors in advance. As of June 30, 2020, we had approximately $127.7 million, compared to $28.4 million as of December 31, 2019 in non-cancelable market-based purchase obligations, primarily to secured additional factory capacity for inventory purchases in the next twelve months. Purchase obligations can vary from quarter-to-quarter and versus the same period in prior years due to a number of factors, including the amount of products that are shipped directly to Retail customer warehouses versus through Nautilus warehouses.

In the ordinary course of business, we enter into agreements that require us to indemnify counterparties against third-party claims. These may include: agreements with vendors and suppliers, under which we may indemnify them against claims arising from our use of their products or services; agreements with customers, under which we may indemnify them against claims arising from their use or sale of our products; real estate and equipment leases, under which we may indemnify lessors against third-party claims relating to the use of their property; agreements with licensees or licensors, under which we may indemnify the licensee or licensor against claims arising from their use of our intellectual property or our use of their intellectual property; and agreements with parties to debt arrangements, under which we may indemnify them against claims relating to their participation in the transactions.

The nature and terms of these indemnifications vary from contract to contract, and generally a maximum obligation is not stated. We hold insurance policies that mitigate potential losses arising from certain types of indemnifications. Management does not deem these obligations to be significant to our financial position, results of operations or cash flows, and therefore, no liabilities were recorded at ~~September~~June 30, ~~2017.~~2020.

Stock Repurchase Program

~~On May 4, 2016, our Board~~As of ~~Directors authorized the repurchase of up to $10.0 million of our outstanding common stock from time to time through May 4, 2018.~~

~~On April 25, 2017, our Board of Directors authorized an additional $15.0 million~~February 21, 2020 all share repurchase ~~program, bringing the total authorization under existing~~ programs ~~to $25.0 million. Under the new program, shares~~expired.

Table of our common stock may be repurchased from time to time through April 25, 2019. Repurchases may be made in open market transactions at prevailing prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. Share repurchases will be funded from existing cash balances, and repurchased shares will be retired and returned to unissued authorized shares.Contents

For the nine months ended September 30, 2017, we had repurchased a total of 305,371 shares for $4.8 million. As of September 30, 2017, there was $18.2 million remaining available for repurchases under the share repurchase programs.

SEASONALITY

We expect our ~~sales~~revenue from fitness equipment products to vary seasonally. Sales are typically strongest in the ~~first and~~ fourth ~~quarters, followed by the third quarter, and are generally weakest in the second~~ quarter. We believe that ~~during the spring and summer months,~~ consumers tend to be involved in outdoor activities during the spring and summer months, including outdoor exercise, which impacts sales of indoor fitness ~~equipment.~~equipment, except that the current stay-at-home orders have impacted this typical seasonality. This seasonality can have a significant effect on our inventory levels, working capital needs and resource utilization.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our critical accounting policies have not changed from those discussed in our ~~2016~~2019 Form 10-K.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 1 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 for a discussion of new accounting pronouncements.

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~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate and Foreign Exchange Risk

Our exposure to market risk from changes in interest rates relates primarily to our cash equivalents, ~~marketable securities,~~ derivative assets and variable-rate debt obligations. As of September 30, 2017, we had cash equivalents of $8.8 million held in a combination of money market funds and commercial paper, and marketable securities of $47.3 million, held in a combination of certificates of deposit, commercial paper, corporate bonds, and U.S. government bonds. Our cash equivalents mature within three months or less from the date of purchase. Marketable securities with original maturities of greater than three months and remaining maturities of less than one year are classified as short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. We have classified our marketable securities as available-for-sale and, therefore, we may choose to sell or hold them as changes in the market occur. Because of the short-term nature of the instruments in our portfolio, a decline in interest rates would reduce our interest income over time, and an increase in interest rates may negatively affect the market price or liquidity of certain securities within the portfolio.

Our negotiated credit facilities generally charge interest based on a benchmark rate such as LIBOR. Fluctuations in short-term interest rates may cause interest payments on term loan principal and drawn amounts on the revolving line to increase or decrease. As of ~~September~~June 30, ~~2017,~~2020, the outstanding balances on our credit facilities totaled ~~$52.0~~$14.8 million.

As of September 30, 2017, we had a $52.0 million receive-variable, pay-fixed interest rate swap outstanding with Chase Bank, which amortizes monthly in line with the outstanding principal balance on our term loan. The swap is classified as a cash flow hedge and effectively fixes the interest rate on our variable-rate term loan. The interest rate swap matures on December 31, 2020 and has a fixed interest rate of 1.42% per annum. The variable rate on the interest rate swap is the one-month LIBOR benchmark, which was 1.24% at September 30, 2017.

The fair value of our interest rate swap agreement represents the estimated receipts or payments that would be made to terminate the agreement. The amounts related to our cash flow hedge are recorded as deferred gains or losses in our consolidated balance sheets with the offset recorded in accumulated other comprehensive income, net of tax. At September 30, 2017, the fair value of our interest rate swap agreement was an asset of $0.2 million. The estimated amount expected to be reclassified into earnings within the next twelve months was less than $0.1 million at September 30, 2017.

We enter into foreign exchange forward contracts to offset the earnings impacts of exchange rate fluctuations on certain monetary assets and liabilities. Total notional amounts outstanding ~~at September~~as of June 30, ~~2017~~2020 were ~~$18.3~~ $35.8 million.

A hypothetical 10% increase in interest rates, or a 10% movement in the currencies underlying our foreign currency derivative positions, would ~~not~~ have material impacts on our results of operations, financial position or cash flows. We do not enter into derivative instruments for any purpose other than to manage our interest rate or foreign currency exposure. That is, we do not engage in interest rate or currency exchange rate speculation using derivative instruments.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In accordance with Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q, our management evaluated, with the participation of our ~~Chief~~Principal Executive Officer and our ~~Chief~~Principal Financial and Accounting Officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based upon their evaluation of these disclosure controls and procedures, our management, including the ~~Chief~~Principal Executive Officer and ~~Chief~~Principal Financial and Accounting Officer, have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

We are implementing an enterprise resource planning ("ERP") system and complementary systems that support our Retail operations related to Octane. During the third quarter of 2017, the technical design was completed and development of features of the ERP and complementary systems were in progress. We expect to continue developing and deploying these features during the fourth quarter of 2017 with full implementation planned to be completed in the second quarter of 2018. As each phase of the implementation occurs, we are taking steps to monitor and maintain appropriate internal control over financial reporting and will continue to evaluate these controls for effectiveness.

There were no ~~other~~ changes in our internal control over financial reporting that occurred during the three months ended ~~September~~June 30, ~~2017,~~2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings~~

Item 1.Legal Proceedings

As of the date of filing of this Quarterly Report on Form 10-Q, we were not involved in any material legal proceedings.

Item 1A. Risk Factors

We operate in an environment that involves a number of risks and uncertainties. The risks described below update the risk factors in Part I, Item 1A. Risk Factors in our 2019 Form 10-K. The risks and uncertainties described below and in our ~~2016~~2019 Form 10-K are not the only risks and uncertainties that we face. Additional risks and uncertainties that presently are not considered material or are not known to us, and therefore are not mentioned herein, may impair our business operations. If any of the risks described below or in our ~~2016~~2019 Form 10-K actually occur, our business, operating results and financial position could be adversely affected. ~~There~~

Health epidemics, including the recent COVID-19 pandemic, have had, and could in the future have, an adverse impact on our operations, supply chains and distribution systems.

Our business and operations could be adversely affected by health epidemics, including the recent COVID-19 pandemic, impacting the markets and communities in which we and our partners, advertisers, and customers operate. The global spread of COVID-19 has ~~not been~~created significant worldwide operational and economic volatility, uncertainty and disruption, and the extent towhich COVID-19 will adversely impact our business is highly uncertain, rapidly changing, and cannot be accurately predicted. A continued slowdown or downturn in the economy has begun to have, and we expect will continue to have, a ~~material change~~negative impact on many of our customers.

Public health officials worldwide have recommended and mandated precautions to mitigate the ~~risk factors as set forth~~spread of COVID-19, including prohibitions on congregating in heavily populated areas and shelter-in-place orders or similar measures. As a result, we have temporarily closed our ~~2016 Form 10-K.~~offices and retailers have temporarily closed store locations with some allowing for on-line order pick-up. Our financial results could be adversely impacted by these retail store closures and other actions taken to contain or treat the impact of COVID-19, and the extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~Issuer Purchases of Equity Securities~~

The ~~following table provides information about~~COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our ~~repurchases~~operations, supply chains and distribution systems, we have experienced and expect to continue to experience unpredictable reductions in demand for certain of our ~~equity securities during~~products and services.

As a result of COVID-19, we have been unable to satisfy certain customer orders for our products. As a result, our customers have experienced delays in receiving our products. There is uncertainty around the ~~third quarter ended September 30, 2017:~~duration and breadth of the COVID-19 pandemic, as well as general economic uncertainty and macroeconomic conditions, and as a result the ultimate impact on our business, financial condition or operating results cannot be reasonably estimated at this time.

In addition, while the potential impact and duration of the COVID-19 pandemic on the global economy and our business in particular may be difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, potentially reducing our ability to access capital, which could negatively affect our liquidity in the future. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the global economy will recover, either of which could seriously harm our business.

Period
(a)


Total Number of Shares
Purchased

(b)

Average
Price Paid
per Share

(c)

Total Number of Shares Purchased
as Part of Publicly Announced Plans or Programs^(1),(2)

(d)

Approximate Dollar
Value of Shares that May Yet Be Purchased Under the Plans or Programs ^(1),(2)
July 1 - July 31 — $— — $19,615,159
August 1 - August 31 86,856 16.36 86,856 18,194,225
September 1 - September 30 — — — 18,194,225
Total 86,856 $16.36 86,856 $18,194,225

⁽¹⁾  On May 4, 2016, our Board of Directors authorized the repurchase of up to $10.0 million of our outstanding common stock from time to time through May 4, 2018.
⁽²⁾  On April 25, 2017, our Board of Directors authorized the repurchase of an additional $15.0 million of our outstanding common stock from time to time through April 25, 2019.

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Item 6. Exhibits

The following exhibits are filed herewith and this list is intended to constitute the exhibit index:


Exhibit No.						Description


~~Exhibit No.~~						~~Description~~

31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.

32.1						Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities and Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						XBRL Taxonomy Extension Schema Document

101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						XBRL Taxonomy Extension Label Linkbase Document

101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

NAUTILUS, INC.

(Registrant)

August 10, 2020

~~NAUTILUS, INC.~~

~~(Registrant)~~

~~November 2, 2017~~

By:

/S/ ~~Bruce M. Cazenave~~James Barr IV

Date

~~Bruce M. Cazenave~~James Barr IV

Chief Executive Officer

~~(Principal Executive Officer)~~

NAUTILUS, INC.

(Registrant)

August 10, 2020

~~NAUTILUS, INC.~~

~~(Registrant)~~

~~November 2, 2017~~

By:

/S/ ~~Sidharth Nayar~~Aina E. Konold

Date

~~Sidharth Nayar~~Aina E. Konold

Chief Financial Officer

~~(Principal Financial and Accounting Officer)~~



~~[ ]~~☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	As of
	September 30, 2017			December 31, 2016
Assets
Cash and cash equivalents	$	30,481		$	47,874
Available-for-sale securities	47,295			31,743
Trade receivables, net of allowances of $472 and $170	38,534			45,458
Inventories	57,646			47,030
Prepaids and other current assets	6,795			8,020
Income taxes receivable	61			3,231
Total current assets	180,812			183,356
Property, plant and equipment, net	16,166			17,468
Goodwill	62,045			61,888
Other intangible assets, net	67,354			69,800
Deferred income tax assets, non-current	—			11
Other assets	456			543
Total assets	$	326,833		$	333,066
Liabilities and Shareholders' Equity
Trade payables	$	62,146		$	66,020
Accrued liabilities	8,056			12,892
Warranty obligations, current portion	3,253			3,500
Note payable, current portion, net of unamortized debt issuance costs of $7 and $7	15,993			15,993
Total current liabilities	89,448			98,405
Warranty obligations, non-current	3,048			3,950
Income taxes payable, non-current	2,646			2,403
Deferred income tax liabilities, non-current	16,868			16,991
Other non-current liabilities	2,365			2,481
Note payable, non-current, net of unamortized debt issuance costs of $16 and $21	35,984			47,979
Total liabilities	150,359			172,209
Commitments and contingencies (Note 14)
Shareholders' equity:
Common stock - no par value, 75,000 shares authorized, 30,707 and 30,825 shares issued and outstanding	826			578
Retained earnings	175,969			161,496
Accumulated other comprehensive loss	(321		)	(1,217		)
Total shareholders' equity	176,474			160,857
Total liabilities and shareholders' equity	$	326,833		$	333,066



Remainder of 2017	$	810
2018	3,164
2019	3,134
2020	3,108
2021	3,078
Thereafter	22,008
	$	35,302



	Unrealized Gain (Loss) on Available-for-Sale Securities			Gain on Derivative Securities (Effective Portion)		Foreign Currency Translation Adjustments			Accumulated Other Comprehensive Income (Loss)
Balance, July 1, 2017	$	(36	)	$	83	$	(784	)	$	(737	)
Current period other comprehensive income before reclassifications	22			8		371			401
Reclassification of amounts to earnings	—			15		—			15
Net other comprehensive income during period	22			23		371			416
Balance, September 30, 2017	$	(14	)	$	106	$	(413	)	$	(321	)



	Unrealized Loss on Available-for-Sale Securities			Gain (Loss) on Derivative Securities (Effective Portion)			Foreign Currency Translation Adjustments			Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2017	$	(8	)	$	(24	)	$	(1,185	)	$	(1,217	)
Current period other comprehensive income (loss) before reclassifications	(6		)	6			772			772
Reclassification of amounts to earnings	—			124			—			124
Net other comprehensive income (loss) during period	(6		)	130			772			896
Balance, September 30, 2017	$	(14	)	$	106		$	(413	)	$	(321	)



	Unrealized Gain (Loss) on Available-for-Sale Securities			Loss on Derivative Securities (Effective Portion)			Foreign Currency Translation Adjustments			Accumulated Other Comprehensive Loss
Balance, January 1, 2016	$	(16	)	$	—		$	(1,311	)	$	(1,327	)
Current period other comprehensive income (loss) before reclassifications	26			(896		)	397			(473		)
Reclassification of amounts to earnings	—			357			—			357
Net other comprehensive income (loss) during period	26			(539		)	397			(116		)
Balance, September 30, 2016	$	10		$	(539	)	$	(914	)	$	(1,443	)



Quarter Ended	Number of Shares	Repurchased Amount	Average Price Per Share
December 31, 2016	120,996	$1,957,882	$16.18
March 31, 2017	218,515	3,426,959	15.68
September 30, 2017	86,856	1,420,934	16.36
Totals-to-Date	426,367	$6,805,775	$15.96



Dollars in thousands	Three Months Ended September 30,		Change
	2017	2016	$	%
Selling and marketing	$18,028	$21,394	$(3,366)	(15.7)%
As % of net sales	20.5%	26.5%



Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share	(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs^(1),(2)	(d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs ^(1),(2)
July 1 - July 31	—	$—	—	$19,615,159
August 1 - August 31	86,856	16.36	86,856	18,194,225
September 1 - September 30	—	—	—	18,194,225
Total	86,856	$16.36	86,856	$18,194,225

⁽¹⁾ On May 4, 2016, our Board of Directors authorized the repurchase of up to $10.0 million of our outstanding common stock from time to time through May 4, 2018.
⁽²⁾ On April 25, 2017, our Board of Directors authorized the repurchase of an additional $15.0 million of our outstanding common stock from time to time through April 25, 2019.



~~[x]~~FORM			10-Q