NAUTILUS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2022



	PART I
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1721
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2634
Item 4.	Controls and Procedures	2734

	PART II
Item 1.	Legal Proceedings	2835
Item 1A.	Risk Factors	2835
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	28
Item 6.	Exhibits	2936
Signatures		2937

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

NAUTILUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(~~Unaudited and~~ in thousands)

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


	As of
	June 30, 2022		March 31, 2022
	(unaudited)
Assets
Cash and cash equivalents	$	7,311	$	12,872
Restricted cash	1,339		1,339

Trade receivables, net of allowances of $912 and $598	27,450		61,454
Inventories	103,932		111,190
Prepaids and other current assets	11,979		14,546
Other current assets - restricted, current	3,887		3,887
Income taxes receivable	1,721		1,998


Total current assets	157,619		207,286
Property, plant and equipment, net	33,185		32,129
Operating lease right-of-use assets	22,353		23,620
Goodwill	—		24,510
Other intangible assets, net	6,833		9,304
Deferred income tax assets, non-current	809		8,760
Income taxes receivable, non-current	5,673		5,673

Other assets	2,666		2,763
Total assets	$	229,138	$	314,045
Liabilities and Shareholders' Equity
Trade payables	$	26,764	$	53,165
Accrued liabilities	24,420		29,386
Operating lease liabilities, current portion	4,316		4,494
Financing lease liabilities, current portion	120		119
Warranty obligations, current portion	3,955		4,968
Income taxes payable, current portion	720		839
Debt payable, current portion, net of unamortized debt issuance costs of $57 and $57	2,243		2,243

Total current liabilities	62,538		95,214
Operating lease liabilities, non-current	19,778		20,926
Financing lease liabilities, non-current	367		395
Warranty obligations, non-current	1,041		1,248
Income taxes payable, non-current	4,054		4,029
Deferred income tax liabilities, non-current	500		—
Other non-current liabilities	1,270		1,071
Debt payable, non-current, net of unamortized debt issuance costs of $190 and $204	34,743		27,113
Total liabilities	124,291		149,996
Commitments and contingencies (Note 16)	0		0
Shareholders' equity:
Common stock - no par value, 75,000 shares authorized, 31,473 and 31,268 shares issued and outstanding	8,317		6,483
Retained earnings	97,916		158,093

Accumulated other comprehensive loss	(1,386)		(527)
Total shareholders' equity	104,847		164,049
Total liabilities and shareholders' equity	$	229,138	$	314,045

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 June 30,
	2022		2021
Net sales	$	54,817	$	184,593
Cost of sales	47,860		129,088
Gross profit	6,957		55,505
Operating expenses:
Selling and marketing	12,891		21,300
General and administrative	12,463		11,523
Research and development	5,823		4,815
Goodwill and intangible impairment charge	26,965		—


Total operating expenses	58,142		37,638
Operating (loss) income	(51,185)		17,867
Other expense:
Interest income	1		21
Interest expense	(376)		(314)
Other, net	(514)		(120)
Total other expense, net	(889)		(413)
(Loss) income from continuing operations before income taxes	(52,074)		17,454
Income tax expense	8,096		3,438
(Loss) income from continuing operations	(60,170)		14,016
Discontinued operations:
Loss from discontinued operations before income taxes	—		(126)
Income tax expense of discontinued operations	7		6
Loss from discontinued operations	(7)		(132)
Net (loss) income	$	(60,177)	$	13,884

Basic (loss) income per share from continuing operations	$	(1.92)	$	0.46
Basic loss per share from discontinued operations	—		(0.01)
Basic net (loss) income per share	$	(1.92)	$	0.45

Diluted (loss) income per share from continuing operations	$	(1.92)	$	0.43
Diluted loss per share from discontinued operations	—		—
Diluted net (loss) income per share	$	(1.92)	$	0.43

Shares used in per share calculations:
Basic	31,405		30,697
Diluted	31,405		32,508

See accompanying Notes to Condensed Consolidated Financial Statements.

Three Months Ended September 30, Nine Months Ended September 30,
2017
2016 2017 2016
Net sales $ 88,132

$ 80,818
$ 278,413
$ 280,275
Cost of sales 46,817

41,601
136,975
132,852
Gross profit 41,315

39,217
141,438
147,423
Operating expenses:

Selling and marketing 18,028

21,394
79,321
81,284
General and administrative 6,305

6,177
21,106
21,611
Research and development 3,617

3,435
11,114
10,444
Total operating expenses 27,950

31,006
111,541
113,339
Operating income 13,365

8,211
29,897
34,084
Other income (expense):
Interest income 170
60
476
182
Interest expense (377 ) (489 ) (1,233 ) (1,469 )
Other, net 46
211
109
(49 )
Total other expense, net (161 )
(218 ) (648 ) (1,336 )
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
Discontinued operations:
Loss from discontinued operations before income taxes (40 )
(308 ) (1,695 ) (612 )
Income tax expense (benefit) of discontinued operations 61

(57 ) (425 ) (53 )
Loss from discontinued operations (101 )
(251 ) (1,270 ) (559 )
Net income $ 8,241

$ 7,594
$ 17,823
$ 22,568

Basic income per share from continuing operations $ 0.27

$ 0.25
$ 0.62
$ 0.74
Basic loss per share from discontinued operations —

(0.01 ) (0.04 ) (0.02 )
Basic net income per share⁽¹⁾
$ 0.27

$ 0.24
$ 0.58
$ 0.73

Diluted income per share from continuing operations $ 0.27
$ 0.25
$ 0.61
$ 0.74
Diluted loss per share from discontinued operations —
(0.01 ) (0.04 ) (0.02 )
Diluted net income per share $ 0.27
$ 0.24
$ 0.57
$ 0.72
Shares used in per share calculations:
Basic 30,749

31,118
30,739
31,069
Diluted 31,075
31,385
31,098
31,340

Table of Contents

NAUTILUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited and in thousands)


	Three-Months Ended June 30,
	2022		2021
Net (loss) income	$	(60,177)	$	13,884
Other comprehensive (loss) income:


Foreign currency translation, net of income tax (expense) benefit of $(29) and $13	(859)		217
Other comprehensive (loss) income	(859)		217
Comprehensive (loss) income	$	(61,036)	$	14,101

⁽¹⁾ ~~May not add due to rounding.~~

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









Balance, March 31, 2022	31,268	$	6,483	$	158,093	$	(527)	$	164,049
Net loss	—	—		(60,177)		—		(60,177)


Foreign currency translation adjustment, net of income tax expense of $29	—	—		—		(859)		(859)
Stock-based compensation expense	—	1,979		—		—		1,979
Common stock issued under equity compensation plan, net of shares withheld for tax payments	205	(270)		—		—		(270)
Common stock issued under employee stock purchase plan	—	125		—		—		125

Balance, June 30, 2022	31,473	$	8,317	$	97,916	$	(1,386)	$	104,847


	Common Stock			Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Total Shareholders' Equity
	Shares	Amount









Balance, March 31, 2021	30,576	$	2,176	$	180,524	$	(155)	$	182,545
Net income	—	—		13,884		—		13,884


Foreign currency translation adjustment, net of income tax benefit of $13	—	—		—		217		217
Stock-based compensation expense	—	1,225		—		—		1,225
Common stock issued under equity compensation plan, net of shares withheld for tax payments	201	(1,259)		—		—		(1,259)
Common stock issued under employee stock purchase plan	17	269		—		—		269

Balance, June 30, 2021	30,794	$	2,411	$	194,408	$	62	$	196,881

See accompanying Notes to Condensed Consolidated Financial Statements.

~~NAUTILUS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~(Unaudited and in thousands)~~

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

Table of Contents

~~See accompanying Notes to Condensed Consolidated Financial Statements.~~

NAUTILUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in thousands)

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


	Three-Months Ended June 30,
	2022		2021
Cash flows from operating activities:
(Loss) income from continuing operations	$	(60,170)	$	14,016
Loss from discontinued operations	(7)		(132)
Net (loss) income	(60,177)		13,884
Adjustments to reconcile net (loss) income to cash used in operating activities:
Depreciation and amortization	2,306		2,054
Recovery (provision) for allowance for doubtful accounts	430		(156)
Inventory lower of cost or net realizable value	644		(134)
Stock-based compensation expense	1,979		1,225
Deferred income taxes, net of valuation allowances	8,354		(908)
Goodwill and intangible impairment change	26,965		—
Other	(666)		1,125





Changes in operating assets and liabilities:
Trade receivables	33,966		(9,638)
Inventories	8,320		(43,259)
Prepaids and other assets	4,012		3,706
Income taxes receivable	282		(9,512)
Trade payables	(25,368)		15,200
Accrued liabilities and other liabilities, including warranty obligations	(7,027)		(1,743)
Net cash used in operating activities	(5,980)		(28,156)
Cash flows from investing activities:
Proceeds from sales and maturities of available-for-sale securities	—		17,185

Purchases of property, plant and equipment	(3,381)		(1,850)




Net cash provided by (used in) investing activities	(3,381)		15,335
Cash flows from financing activities:
Proceeds from long-term debt	17,751		1,185
Payments on long-term debt	(10,446)		(1,337)



Payments on finance lease liabilities	(30)		—
Proceeds from employee stock purchases	125		269
Proceeds from exercise of stock options	—		63
Tax payments related to stock award issuances	(270)		(1,322)

Net cash provided by (used in) financing activities	7,130		(1,142)
Effect of exchange rate changes	(3,330)		740


Net decrease in cash, cash equivalents and restricted cash	(5,561)		(13,223)

Cash, cash equivalents and restricted cash at beginning of period	18,098		39,780
Cash, cash equivalents and restricted cash at end of period	$	12,537	$	26,557

Supplemental disclosure of cash flow information:
Cash paid for interest	$	176	$	60
Cash (received from) paid for income taxes, net	(514)		18,562
Supplemental disclosure of non-cash investing activities:
Capital expenditures incurred but not yet paid	$	1,335	$	786

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the total of the same amounts shown above:
	Three-Months Ended June 30,
	2022		2021
Cash and cash equivalents	$	7,311	$	25,218
Restricted cash	1,339		1,339
Other current assets - restricted, current	3,887		—
Total cash, cash equivalents and restricted cash	$	12,537	$	26,557

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

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 fiscal year ended ~~December~~March 31, ~~2016~~2022 (the ~~“2016~~“2022 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~~2022 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~~2022 and ~~December~~March 31, ~~2016,~~2022, and our results of operations, comprehensive (loss) income and ~~comprehensive income~~shareholders' equity for the ~~three~~three-month period ended June 30, 2022 and ~~nine months ended~~ ~~September 30, 2017~~2021 and ~~2016, and~~our cash flows for the ~~nine months~~three-month period ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. 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~~Recent Accounting Pronouncements

Recently Adopted Pronouncements

ASU ~~2017-12~~2020-01

In ~~August 2017,~~January 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") ~~2017-12, "Derivatives~~2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) ~~- Targeted Improvements to Accounting for Hedging Activities"~~. ASU 2017-12 provides better alignment of an entity's risk management activities and financial reporting of hedges through changes to both the designation and measurement guidance for qualifying hedging relationships. In addition, the” The amendments in ASU ~~2017-12 also simplify~~2020-01 clarify certain interactions between the ~~recognition~~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 ~~presentation~~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 ~~effects~~forward contract or exercise of the ~~hedging instrument~~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 ~~the hedged item in the financial statements to increase the understandability~~increasing comparability of the ~~results of an entity's intended hedging strategies.~~accounting for these interactions. ASU ~~2017-12~~2020-01 is effective for ~~public companies'~~ fiscal years beginning after December 15, 2021, including interim periods within those fiscal ~~years, beginning after December 15, 2018. Early application is permitted~~years. The adoption of ASU 2020-01 in ~~any interim period after issuance of~~ the ~~new standard, with effect of adoption reflected as of the beginning~~first quarter 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 doending March 31, 2023 ('fiscal 2023') did not ~~expect the adoption of ASU 2017-12 to~~ have ~~a material effect 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.

Table of Contents

ASU ~~2017-04~~2020-04 and ASU 2021-01

In ~~January 2017,~~March 2020, the FASB issued ASU ~~2017-04, "Intangibles - Goodwill~~2020-04, “Reference Rate Reform (Topic 848),” which provides optional guidance related to reference rate reform and ~~Other (Topic 350) - Simplifying~~provides practical expedients for contract modifications and certain hedging relationships associated with the ~~Test~~transition from reference rates that are expected to be discontinued. This guidance is applicable 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 ofour borrowing instruments, which use London Inter-bank Offered Rate (“LIBOR”) as a ~~reporting unit with its carrying amount, and recognize an impairment charge for the amount by~~reference rate, which the carrying amount exceeds the reporting unit's fair value, if applicable. The loss recognized should not exceed the total amount of goodwill allocated 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. ASU 2017-04 is effective ~~for public companies' fiscal years, including interim periods within those fiscal years,~~ beginning ~~after~~on March 12, 2020, and we may elect to apply the amendments prospectively through December ~~15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed after~~31, 2022. In January ~~1, 2017. We do not expect~~2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848),” which permits entities to apply optional expedients in Topic 848 to derivative instruments modified because of discounting transition resulting from reference rate reform. The adoption of ~~ASU 2017-04 to have a~~this guidance had no material ~~effect~~impact on our financial position, results of operations or cash flows.

~~ASU 2016-15~~Recently Issued Pronouncements Not Yet Adopted

In August 2016, the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments." The amendments in ASU 2016-15 are intended to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows, with the intent of reducing diversity in practice for the eight (8) types of cash flows identified. ASU 2016-15 is effective for public companies' fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. Entities must apply the guidance retrospectively to all periods presented, but may apply it prospectively if retrospective application would be impracticable. We do not expect the adoption of ASU 2016-15 to have a material effect on our financial position, results of operations or cash flows.

ASU 2016-13

In June 2016, the FASB issued ASU 2016-13, ~~"Financial~~“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 May 2019, the FASB issued ASU 2019-05, which provides entities to have certain instruments with an option to irrevocably elect the fair value option. In November 2019, the FASB issued ASU 2019-11, which provides clarification and addresses specific issues about certain aspects of ASU 2016-13. In March 2020, the FASB issued ASC 2020-03, which provides an update to clarify or address specific issues. ASU 2016-13 is effective for ~~public companies' annual periods, 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~~2022, including interim periods within those years. We 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) 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,
	2022		2021
Product sales	$	49,596	$	179,811
Extended warranties and services	1,042		1,756
Other(1)	4,179		3,026
Net sales	$	54,817	$	184,593

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

Subscriptions

Sales of our subscriptions are deemed to be one performance obligation and we recognize revenue from these arrangements ratably over the ~~FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 replaces~~subscription term as the ~~existing guidance~~performance obligation is satisfied. Revenue generated from subscriptions is recorded in ~~Accounting Standards Codification ("ASC") 840, Leases.~~our Direct segment.

We also offer free trials of subscriptions that are bundled with product offerings (e.g., subscription for premium content). For these types of transactions that involve multiple performance obligations, the transaction price requires allocations to the distinct performance obligation because the free trial provides a material right. The ~~new standard would require companies and other organizations~~transaction price is then allocated to ~~include lease obligations~~each performance obligation based on ~~their balance sheets, including~~stand-alone selling price. We determine stand-alone selling price based on prices charged to customers. Breakage is factored into the determination of the stand-alone selling price of a ~~dual approach for lessee accounting under which~~subscription. Breakage or activation rate, is defined as a ~~lessee would account for leases~~percentage of those purchases that never activate a free-trial offering.

Table of Contents

Our revenues disaggregated by geographic region, based on ship-to address, were as ~~finance leases or operating leases. Both finance leases and operating leases will result~~follows (in thousands):


	Three-Months Ended June 30,
	2022		2021
United States	$	46,081	$	147,149
Canada	5,807		19,362
Europe, the Middle East and Africa	1,839		14,442
All other	1,090		3,640
Net sales	$	54,817	$	184,593

As of June 30, 2022, estimated revenue expected to be recognized in the ~~lessee recognizing a right-of-use ("ROU") asset~~future totaled $48.4 million, primarily related to customer order backlog, which includes firm orders for future shipment and ~~a corresponding lease liability. For finance leases~~unfulfilled orders to our Retail customers, as well as unfulfilled consumer orders within the ~~lessee would recognize interest expense~~Direct channel. As of June 30, 2022, Retail orders were $48.0 million and ~~amortization~~Direct orders were $0.4 million. The estimated future revenues are net of ~~the ROU asset,~~contractual rebates and consideration payable for operating leases the lessee would recognize a straight-line total lease expense. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. ASU 2016-02 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 will be the recognition, on a discounted basis, of our minimum commitments under non-cancellable operating leases on our consolidated balance sheets resulting in the recording of right of use assets and lease liabilities.

~~ASU 2015-11~~

In July 2015, the FASB issued ASU 2015-11, “Simplifying the Measurement of Inventory (Topic 330).” ASU 2015-11 simplifies the accounting 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 costapplicable 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/~~control or ~~services to customers~~the performance obligation is not satisfied. Revenue is recognized when transfer of control occurs. All customer deposits and deferred revenue received are short-term in ~~an amount that reflects~~nature, recognized over the ~~consideration to which the entity expects to be entitled~~next twelve months. 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,
	2022		2021
Balance, beginning of period	$	6,285	$	5,551
Cash additions	2,531		1,089
Revenue recognition	(2,234)		(4,883)
Balance, end of period	$	6,582	$	1,757

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) 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;~~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.

Table of Contents

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, 2022
	Level 1		Level 2		Level 3		Total
Assets:













Derivatives

Foreign currency forward contracts	$	—	$	5	$	—	$	5

Total assets measured at fair value	$	—	$	5	$	—	$	5

Liabilities:
Derivatives

Foreign currency forward contracts	$	—	$	34	$	—	$	34
Total liabilities measured at fair value	$	—	$	34	$	—	$	34

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 )


	March 31, 2022
	Level 1		Level 2		Level 3		Total
Liabilities:
Derivatives

Foreign currency forward contracts	$	—	$	128	$	—	$	128
Total liabilities measured at fair value	$	—	$	128	$	—	$	128

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 months~~three-month period ended ~~September~~June 30, ~~2017,~~2022, nor for the fiscal year ended ~~December~~March 31, ~~2016.~~

We2022 ("fiscal 2022"). Additionally, we did not have any changes to our valuation techniques during ~~the nine months ended September 30, 2017, nor for the year ended December 31, 2016.~~either of these periods.

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 assets or liabilities 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 measured at fair value on a nonrecurring basis.

~~The carrying values of cash and cash equivalents, 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.

During the quarter ended June 30, 2022, we evaluated the fair value of our goodwill and intangible assets because triggering events were identified. See Note 7 for additional information.

(4) 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,~~2022, total outstanding contract notional amounts were ~~$18.3 million. At September 30, 2017, these outstanding balance sheet hedging derivatives~~$14.7 million and had maturities of 9078 days or less.

Table of Contents

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, 2022		March 31, 2022




Derivative instruments not designated as cash flow hedges:
Foreign currency forward contracts	Prepaids and other current assets	$	5	$	—
Foreign currency forward contracts	Accrued liabilities	34		128

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,
		2022		2021





Derivative instruments not designated as cash flow hedges:
Loss recognized in earnings	Other, net	$	(96)	$	(17)
Income tax expense	Income tax expense	(24)		(4)

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 3 and 10.~~

(5) 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, 2022		March 31, 2022
Finished goods	$	98,521	$	104,988
Parts and components	5,411		6,202
Total inventories	$	103,932	$	111,190

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

(6) PROPERTY, PLANT AND EQUIPMENT

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, 2022		March 31, 2022
Automobiles	5			$	23	$	23
Leasehold improvements	4	to	20	3,646		3,150
Computer software and equipment	2	to	7	44,682		44,852
Machinery and equipment	3	to	5	16,017		16,447
Furniture and fixtures	5	to	20	2,632		2,634
Work in progress(1)	N/A			10,034		6,678
Total cost				77,034		73,784
Accumulated depreciation				(43,849)		(41,655)
Total property, plant and equipment, net				$	33,185	$	32,129

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

Table of Contents

Depreciation expense was as follows (in thousands):


	Three-Months Ended June 30,
	2022		2021
Depreciation expense	$	2,291	$	2,039

(7) GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

The ~~rollforward~~roll forward of goodwill was as follows (in thousands):


	Total
Balance, March 31, 2022	$	24,510
Goodwill impairment	(24,510)

Balance, June 30, 2022	$	—

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
In accordance with ASC 350 — Intangibles — Goodwill and Other, we perform our goodwill and indefinite-lived trade names impairment valuations annually, on March 31, or sooner if triggering events are identified. While the fair value of our reporting units exceeded their respective carrying values as of March 31, 2022, we observed continued market volatility including significant declines in our market capitalization during the three-month period ended June 30, 2022, identified as a triggering event. Our trailing 30-day average market capitalization was approximately $137 million at March 31, 2022 compared to $66 million, the trailing 30-day average as of June 30, 2022. We performed an interim evaluation and a market capitalization reconciliation during the first quarter of fiscal 2023, which resulted in non-cash goodwill impairment charge of $24.5 million.

We assigned assets and liabilities to each reporting unit based on either specific identification or by using judgment for the remaining assets and liabilities that are not specific to a reporting unit. We determined the fair value of our reporting units in Step 1 of the ASC 350 analysis using the market approach. In addition, we determined the fair value by adding a control premium observed from recent transactions of comparable companies to determine the reasonableness of that assumption and the fair values of the reporting units estimated in Step 1. 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, royalty rates, discount rates, and comparable multiples from publicly traded companies in our industry. We compared the carrying amount of each reporting unit to its respective fair value. We reconciled the aggregate fair values of the reporting units determined in Step 1 (as described above) to the enterprise market capitalization plus a reasonable control premium. This total value was compared to a trailing 30-day average market capitalization of approximately $66 million as of June 30, 2022. As a result, the market capitalization reconciliation analysis identified that the Direct reporting unit's fair value was significantly lower than its carrying value, resulting in a non-cash goodwill impairment charge of $24.5 million.

Other Intangible Assets

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


	Estimated Useful Life (in years)			As of
				June 30, 2022		March 31, 2022
Indefinite-lived trademarks (1)	N/A			$	6,597	$	9,052

Patents	7	to	24	1,043		1,043

				7,640		10,095
Accumulated amortization - definite-lived intangible assets				(807)		(791)
Other intangible assets, net				$	6,833	$	9,304

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

Table of ~~sales in accordance with the accounting of the original costs.~~Contents

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 fiscal year ended ~~December~~March 31, ~~2016~~2022 (the ~~“2016~~“2022 Form 10-K”). All references to the ~~third quarter~~first quarters of fiscal 2023 and ~~first nine months of 2017~~fiscal 2022 mean for the three-month period ended June 30, 2022 and ~~2016 mean the three and nine-month periods ended September 30, 2017 and 2016,~~2021, 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.

Cautionary Notice About 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; 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, the availability and timing of capital for financing our strategic initiatives, including being able to raise capital on favorable terms or at all; 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 2022 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.

Overview

We empower healthier living through individualized connected fitness experiences and are committed to building a healthier world, one person at a time. Our principal business activities include designing, developing, sourcing and marketing high-quality cardio and strength fitness products, related accessories and digital platform 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: Bowflex®, Schwinn®, JRNY® and Nautilus®.

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 primarily through websites. Our Retail business offers our products through a network of independent retail companies to reach consumers in the home use markets in the U.S. and internationally. We also derive a portion of our revenue from the licensing of our brands and intellectual property.

Table of Contents

Our results for the three-months ended June 30, 2022, are driven by the actions outlined in our North Star strategy. The five strategic pillars of our North Star strategy are: (1) Adopt a consumer first mindset; (2) Scale a differentiated digital offering; (3) Focus investments on core businesses; (4) Evolve supply chain to be a strategic advantage; and (5) Build organizational capabilities to win by unleashing the power of our team. We intend to leverage our many strengths to transform into a company that empowers healthier living through individualized connected fitness experiences. Our transformation will properly leverage our leading brands, products, innovation, distribution and digital assets to build a healthier world, one person at a time.

At the center of health and well-being is fitness and the market has so far behaved largely as we expected. The market size more than doubled over the past 2 years, is regulating from its peak with more normal seasonality, and we expect will settle at a “new normal” significantly above pre-pandemic levels based on a profound evolution in consumers’ workouts and workplace habits. As a result of these changed habits and sentiments, we continue to believe much of the industry growth opportunity will remain at elevated levels relative to pre-pandemic. This results in stronger opportunity for our industry and Nautilus.

For fiscal 2023, we expect to return to a more typical pre-pandemic seasonality, with the second half of the fiscal year contributing more of the full year's revenue. Additionally, to gauge sales growth and progress against more "normalized," or pre-pandemic results, we will rely more heavily on measuring performance of fiscal 2023 sales growth versus the pre-pandemic twelve-month period ended March 31, 2020 ("fiscal 2020") to guide business strategy, rather than measuring performance against the atypical, outsized results that occurred during the pandemic.

Comparison for the Three-Months Ended June 30, 2022 to the Three-Months ended June 30, 2021

•Net sales were $54.8 million, compared to $184.6 million, a decline of 70.3% versus last year. Net sales are up 11%, or 3% CAGR, when compared to the same period in fiscal 2020, excluding sales related to the Octane brand, which was sold in October 2020. The sales decline versus last year is driven primarily by the return to pre-pandemic seasonal demand.

•Net sales of our Direct segment decreased by $36.9 million, or 58.2%, for the three-months ended June 30, 2022, compared to the three-months ended June 30, 2021. The net sales decrease was primarily driven by higher sales discounting and the return to pre-pandemic seasonal demand.

•Net sales of our Retail segment decreased by $93.0 million, or 77.2%, for the three-months ended June 30, 2022, compared to the three-months ended June 30, 2021. Excluding sales related to the Octane brand, which was sold in 2020, net sales were down 2%, or a -1% CAGR, compared to the same period in fiscal 2020. The decrease in sales compared to last year is primarily driven by lower cardio sales and higher sales discounting as Retailers work through higher-than-normal inventory levels.

•Royalty income for the three-months ended June 30, 2022 increased by $0.2 million compared to the three-months ended June 30, 2021.

•Gross profit was $7.0 million, compared to $55.5 million last year. Gross profit margins were 12.7% compared to 30.1% last year. The 17.4 ppt decrease in gross margins was primarily due to increased discounting (-8 ppts), unfavorable logistics overhead absorption (-8 ppts) and increased investments in JRNY® (-4 ppts), offset by improvements in other costs (3 ppts).

•Operating expenses were $58.1 million, an increase of $20.5 million, or 54.5%, compared to last year, primarily due to a goodwill and intangible impairment charge of $27.0 million and a $3.6 million increase in JRNY® investments, partially offset by $5.7 million lower media spending and $2.7 million lower other variable selling and marketing expenses due to decreased sales. Total advertising expenses were $5.1 millionversus $10.8 million last year.

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•Operating loss was $51.2 million or negative 93.4% operating margin, compared to operating income of $17.9 million last year, primarily driven by a goodwill and intangible impairment charge of $27.0 million and lower gross profit associated with lower sales demand during the period.

•Loss from continuing operations was $60.2 million, or $(1.92) per diluted share, compared to income of $14.0 million, or $0.43 per diluted share, last year.

•Net loss was $60.2 million, or $(1.92) per diluted share, compared to net income of $13.9 million or $0.43 per diluted share, last year.

•The income tax expense was $8.1 million this year compared to $3.4 million last year. The income tax expense this year was primarily a result of a U.S. deferred tax asset valuation allowance in the amount of $14.2 million recorded this quarter.

North Star Strategy Update

JRNY® Digital Platform

•Nautilus is continuing to enhance the JRNY® platform through many unique features including the expansion of differentiated visual connected-fitness experiences for JRNY® Members.

•As of June 30, 2022, Members of JRNY®, Nautilus’ personalized connected fitness platform, exceeded 360k representing approximately 133% growth versus the same quarter last year. Of these members, 127k were Subscribers, representing approximately 290% growth over the same period. We define JRNY® Members as all individuals who have a JRNY® account and/or subscription, which includes Subscribers, their respective associated users and users who consume free content. We define Subscribers as a person or household who paid for a Subscription, are in a trial, or have requested a "pause"' to their subscriptions for up to three months.

•Additionally, the Company has made great strides over the last two years expanding the number of products featuring JRNY® connectivity. In FY 2022, approximately 80% of total units sold were JRNY® compatible, compared to only 22% in the pre-pandemic FY 2020. The trend of approximately 80% of total units sold being JRNY® compatible continued in Q1 FY 2023.

•Nautilus' integration of VAY's motion-tracking capabilities into JRNY® will further advance and accelerate personalized strength workout options, including the addition of rep counting and form coaching for SelectTech® users, which we believe will drive JRNY® membership growth during FY 2023.

Forward Looking Guidance

The following forward-looking statements reflect the Company's full fiscal year 2023 expectations as of August 9, 2022, and are subject to risks and uncertainties.

•The Company is reiterating Second Half and Full Year 2023 Guidance.

Second Half and Fiscal 2023

•The Company expects full year revenue of between $380 million and $460 million.

•Given the impact of elevated inventory levels at the Company’s retail partners, the Company expects the 2nd half of the year to represent between 65% and 70% of full year sales, slightly higher than pre-pandemic 2nd half seasonality of approximately 60%.

•Gross margins for the second half of the year are expected to be in the range of 27% to 30%. Improvements versus last year are driven by lower in-bound freight and demurrage fees, and the reduction in logistics facilities footprint. The Company is closing one of its distribution centers when the associated lease expires in the Fall of 2022 and will not be renewing the leases of some storage locations.

•We expect JRNY® members to exceed 500,000 at March 31, 2023.

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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 created a heightened need for home-fitness products at an unprecedented rate and as the pandemic lessened there was a return to a more normal seasonality. We cannot predict with certainty the longer-term impacts of the COVID-19 pandemic and the change to consumer habits and sentiments and therefore, the impact on our results of operations is uncertain.

Our ~~profit~~gross margins ~~may vary~~are being impacted by, among other things:

•Increased product costs, primarily driven by our increasing use of more expensive components in ~~response to the aforementioned factors and~~ our ~~ability to manage product costs. Profit margins may also be affected by fluctuations~~products, which now include our connected fitness JRNY® platform.

•Fluctuations in the availability, and as a result the costs, ~~or availability~~ of materials used to manufacture our ~~products, costs~~products.

•Tariffs and expedited shipping and transportation costs.

•Fluctuations in cost associated with the acquisition or license of products and technologies, product warranty ~~costs, the cost of~~claims, fuel, foreign currency exchange rates, and changes in costs of other distribution or manufacturing-related services.

•Costs relating to the addition of a new distribution facility in Southern California prior to the anticipated exit from our Portland DC facility.

•The efficiency and effectiveness of our organization and operations.

•A return to product discounting practices in place prior to the pandemic, which were temporarily suspended in part during the pandemic.

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~~websites 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~~

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. Forward-looking statements include any statements related to our future business and financial performance; 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; anticipated losses from discontinued operations; results of media investment in the Direct segment; plans for new product introductions 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, the effectiveness, availability and price of media time consistent with our cost and audience profile parameters, greater than anticipated costs associated with launch of new products, our ability to successfully integrate acquired businesses, a decline in consumer spending due to unfavorable economic conditions, softness in the retail marketplace, 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 increased shipping costs, our ability to effectively develop, market and sell future products, 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 20162022 Form 10-K as supplemented ~~or modified in~~by 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.~~

~~Overview~~

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~~fiscal 2022 or ~~2016~~year-to-date fiscal 2023 periods, we continue to ~~have~~incur product liability and other legal expenses associated with product previously sold into the Commercial channel.

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RESULTS OF OPERATIONS

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


	Three-Months Ended June 30,				Change
	2022		2021		$		%
Net sales	$	54,817	$	184,593	$	(129,776)	(70.3)	%
Cost of sales	47,860		129,088		(81,228)		(62.9)	%
Gross profit	6,957		55,505		(48,548)		(87.5)	%
Operating expenses:
Selling and marketing	12,891		21,300		(8,409)		(39.5)	%
General and administrative	12,463		11,523		940		8.2	%
Research and development	5,823		4,815		1,008		20.9	%

Goodwill and intangible impairment charge	26,965		—		26,965		NM
Total operating expenses	58,142		37,638		20,504		54.5	%
Operating (loss) income	(51,185)		17,867		(69,052)		(386.5)	%
Other expense:
Interest income	1		21		(20)
Interest expense	(376)		(314)		(62)
Other, net	(514)		(120)		(394)
Total other expense, net	(889)		(413)		(476)
(Loss) income from continuing operations before income taxes	(52,074)		17,454		(69,528)
Income tax expense	8,096		3,438		4,658
(Loss) income from continuing operations	(60,170)		14,016		(74,186)
Loss from discontinued operations, net of taxes	(7)		(132)		125
Net (loss) income	$	(60,177)	$	13,884	$	(74,061)
NM = Not meaningful

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 )

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Results of operations information by segment and major product lines was as follows (dollars in thousands):


	Three-Months Ended June 30,						Change
	2022			2021			$			%
Net sales:
Direct net sales:
Cardio products(1)	$	17,133		$	31,430		$	(14,297)		(45.5)	%
Strength products(2)	9,343			31,966			(22,623)			(70.8)	%
Direct	26,476			63,396			(36,920)			(58.2)	%

Retail net sales:
Cardio products(1)	$	11,843		$	89,924		$	(78,081)		(86.8)	%
Strength products(2)	15,601			30,560			(14,959)			(48.9)	%
Retail	27,444			120,484			(93,040)			(77.2)	%



Royalty	897			713			184			25.8	%
	$	54,817		$	184,593		$	(129,776)		(70.3)	%

Cost of sales:
Direct	$	21,914		$	38,882		$	(16,968)		(43.6)	%
Retail	25,946			90,206			(64,260)			(71.2)	%

	$	47,860		$	129,088		$	(81,228)		(62.9)	%

Gross profit:
Direct	$	4,562		$	24,514		$	(19,952)		(81.4)	%
Retail	1,498			30,278			(28,780)			(95.1)	%
Royalty	897			713			184			25.8	%
	$	6,957		$	55,505		$	(48,548)		(87.5)	%
Gross profit margin:
Direct	17.2		%	38.7		%	(2,150)		basis points
Retail	5.5		%	25.1		%	(1,960)		basis points

Contribution:
Direct	$	(9,893)		$	6,759		$	(16,652)		(246.4)	%
Retail	(5,408)			22,090			(27,498)			(124.5)	%

Contribution rate:
Direct	(37.4)		%	10.7		%	(4,810)		basis points
Retail	(19.7)		%	18.3		%	(3,800)		basis points

(1) Cardio products include: connected-fitness bikes, the Bowflex® C6, VeloCore®, Schwinn® IC4, Max Trainer®,connected-fitness treadmills, other exercise bikes, ellipticals andsubscription services.

(2) Strength products include: Bowflex® Home Gyms, Bowflex® SelectTech® dumbbells, kettlebell and barbell weights, and accessories.

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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

Nine Months Ended September 30, Change
2017 2016 $ %
Net sales:
Direct $ 147,800
$ 159,884
$ (12,084 ) (7.6 )%
Retail 128,393
117,939
10,454
8.9 %
Royalty 2,220
2,452
(232 ) (9.5 )%
$ 278,413
$ 280,275
$ (1,862 ) (0.7 )%
Cost of sales:
Direct $ 52,525
$ 53,732
$ (1,207 ) (2.2 )%
Retail 84,436
79,087
5,349
6.8 %
Royalty 14
33
(19 ) (57.6 )%
$ 136,975
$ 132,852
$ 4,123
3.1 %
Gross profit:
Direct $ 95,275
$ 106,152
$ (10,877 ) (10.2 )%
Retail 43,957
38,852
5,105
13.1 %
Royalty 2,206
2,419
(213 ) (8.8 )%
$ 141,438
$ 147,423
$ (5,985 ) (4.1 )%
Gross margin:
Direct 64.5 % 66.4 % (190 ) basis points
Retail 34.2 % 32.9 % 130
basis points

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

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.

Sales and Gross Profit

~~Direct~~

Direct Segment

~~Direct net sales increased 0.8%~~

Comparison of Segment Results for the ~~three month~~Three-Month Period Ended June 30, 2022 to the Three-Month Period Ended June 30, 2021

Net sales were $26.5 million for the three-month period ended ~~September~~June 30, ~~2017~~2022, compared to $63.4 million, a decline of 58.2%, versus the same period in 2021, and up 27.1% compared to the same period ~~of 2016 as new products, including~~in fiscal 2020. Net sales decrease was primarily driven by the ~~Bowflex HVT~~return to pre-pandemic seasonal demand and higher sales discounting.

^TM~~, offset a decline~~Cardio sales declined 45.5% versus the same period in ~~TreadClimber~~^® ~~sales. For the nine months ended September 30, 2017, Direct net sales decreased 7.6%~~2021, and were up 6.5% compared to the same period ~~of 2016 due~~in fiscal 2020. Lower cardio sales this quarter were primarily driven by lower bike demand. Strength product sales declined 70.8% versus the same period in 2021, and increased 96.7% compared to ~~a decline~~the same period in ~~TreadClimber~~fiscal 2020. Lower strength sales this quarter were primarily driven by lower demand for SelectTech^® weights.

The Direct segment ended the quarter with $0.4 million of backlog as of June 30, 2022, as product demand has declined compared the same period last year. These amounts represent unfulfilled consumer orders net of current promotional programs and sales ~~partially~~discounts.

Gross profit margin was 17.2% for the three-month period ended June 30, 2022 versus 38.7% for the same period in 2021. The 21.5 ppt decrease in gross margin was primarily driven by: increased discounting (-8 ppts), unfavorable logistics overhead absorption (-7 ppts), and increased investments in JRNY® (-7 ppts). Gross profit was $4.6 million, down 81.4% versus the same period in 2021.

Segment contribution loss was $9.9 million for the three-month period ended June 30, 2022, compared to segment contribution income of $6.8 million for the same period in 2021. The decline was primarily driven by lower gross profit, as explained above, offset by ~~a 33.0% increase~~decreased media spend. Advertising expenses were $5.2 million compared to $8.0 million for the same period in ~~strength product sales.~~2021.

Combined consumer credit approvals by our primary and secondary U.S. third-party financing providers for the ~~third quarter of 2017~~three-month period ended June 30, 2022 were ~~53.7%~~53.8%, compared to ~~47.9% in~~53.0% for the same period of 2016. We continue to experience improved 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.

in 2021. The ~~$0.8 million~~ increase in ~~cost~~approvals reflects higher credit quality applications.

Retail Segment

Comparison of Segment Results for the Three-Month Period Ended June 30, 2022 to the Three-Month Period Ended June 30, 2021

Net sales for the three-month period ended June 30, 2022 were $27.4 million, down 77.2%, from $120.5 million for the same period in 2021. Excluding sales related to Octane, net sales were down 2% compared to the same period in fiscal 2020. Retail segment sales outside the United States and Canada were down 83.4% versus last year. The decrease in sales compared to last year is primarily driven by lower cardio sales and higher sales discounting as Retailers work through higher than normal inventory levels.

Cardio sales for the three-month period ended June 30, 2022 decreased by 86.8%. Excluding sales related to Octane, cardio sales were down 28.7% compared to the same period in fiscal 2020. Strength product sales declined by 48.9% versus last year. Strength sales were up 36.8% compared to the same period in fiscal 2020, led by the popular SelectTech® weights. The decrease in sales compared to last year is primarily driven by lower bike sales and higher sales discounting as Retailers work through higher than normal inventory levels.

As of June 30,2022, the Retail segment's backlog totaled $48.0 million, as retailers are now ordering closer to time of need compared to the same period last year. These amounts represent customer orders for future shipments and are net of contractual rebates and consideration payable to applicable Retail customers.

Gross profit margins were 5.5% for the three-month period ended June 30, 2022, down from 25.1% for the same period in 2021. The 19.6 ppt decrease in gross margin was primarily driven by: increased discounting (-11 ppts) and unfavorable logistics overhead absorption (-9 ppts). Gross profit was $1.5 million, a decrease of 95.1% versus the same period in 2021.

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Segment contribution loss for the three-month period ended June 30, 2022 was $5.4 million, or 19.7% of sales, compared to segment contribution income of ~~our Direct business~~$22.1 million, or 18.3% of sales for the ~~three month~~same period in 2021, primarily driven by lower gross profit as explained above.

Royalty

Royalty income increased by $0.2 million, or 25.8%, to $0.9 million for the three-month period ended ~~September~~June 30, ~~2017~~2022, compared to the same period of ~~2016 was~~2021, primarily due to royalty settlements.

Selling and Marketing

Selling and marketing expenses include payroll, employee benefits, and other headcount-related expenses associated with sales and marketing personnel, and the ~~higher volume~~costs of ~~sales.~~ media advertising, promotions, trade shows, seminars, sales incentives related to our JRNY® platform and other programs.

Selling and marketing information was as follows (dollars in thousands):


	Three-Months Ended June 30,						Change
	2022			2021			$		%
Selling and marketing	$	12,891		$	21,300		$	(8,409)	(39.5)%
As % of net sales	23.5		%	11.5		%

The ~~$1.2 million~~ decrease in ~~cost of sales of our Direct business~~selling and marketing expenses for the ~~nine months~~three-month period ended ~~September~~June 30, ~~2017~~2022 compared to the same period of ~~2016~~2021 was ~~due to lower net sales.~~

For the three 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.

~~Retail~~

Retail net sales increased 15.8% and 8.9% for the three and nine month periods ended September 30, 2017 compared to the same periods of 2016. The increases in both periods reflected growth in traditional and e-commerce customers across multiple product categories.

~~The increases in cost of sales of our Retail business for the three and nine month periods ended September 30, 2017 compared to the same periods of 2016 were~~ primarily related to ~~the increases~~a decrease of $5.7 million in ~~Retail net sales as discussed above.~~

~~For the three~~media spend and ~~nine month periods ended September 30, 2017, Retail gross margin increased by 60 and 130 basis points, respectively, compared to the same periods~~a decrease 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~~$2.7 million ~~decrease~~ in other variable selling and marketing ~~expense in the three month period ended September 30, 2017 compared to the same period of 2016 was~~expenses due to ~~lower~~decreased sales. We expect 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 of $1.0 million for an indemnification claim.

~~The $2.0 million decrease in~~ selling and marketing ~~expense in the nine month period ended September 30, 2017 as compared~~expenses to ~~the same period of 2016 was related~~continue to a $4.7 million decrease in variable selling costs, including the factors noted above, and lower marketing program costs of $1.0 million, offset by increases of $2.9 million in media advertising and $0.8 million in photo and video production costs.flex with sales.

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
	2022		2021		$		%


Total advertising	$	5,120	$	10,824	$	(5,704)	(52.7)%

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

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

The ~~increases~~$5.7 million decrease in media advertising inexpense for the ~~three and nine month periods~~three-month period ended ~~September~~June 30, ~~2017~~2022, as compared to the same ~~periods~~period of ~~2016 reflected lower response rates that drove~~2021 reflects a return to more historical, pre-pandemic levels of advertising support to preserve market share and control costs. Advertising as a percentage of selling and marketing for the ~~increased investments~~three-month period ended June 30, 2022 was 39.7% as compared to 50.8% for the same quarter last year and 37.2% for the same period in ~~advertising.~~fiscal 2020.

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.

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%

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


	Three-Months Ended June 30,						Change
	2022			2021			$		%
General and administrative	$	12,463		$	11,523		$	940	8.2%
As % of net sales	22.7		%	6.2		%

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%

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The increase in general and administrative expenses for the ~~three months~~three-month period ended ~~September~~June 30, ~~2017~~2022 compared to the same period of ~~2016~~2021 was primarily due to ~~higher legal~~increases in personnel costs.

Research and Development

Research and development expenses ~~of $0.4 million, offset by $0.4 million lower integration costs~~include payroll, employee benefits, other headcount-related expenses and ~~administrative cost savings related to Octane incurred~~information technology associated with product development.

Research and development was as follows (dollars in ~~the same comparative period.~~thousands):


	Three-Months Ended June 30,						Change
	2022			2021			$		%
Research and development	$	5,823		$	4,815		$	1,008	20.9%
As % of net sales	10.6		%	2.6		%

The ~~decrease~~increase in ~~general~~research and ~~administrative~~development expenses for the ~~nine months~~three-month period ended ~~September~~June 30, ~~2017~~2022, as compared to the same period of ~~2016~~2021, was driven primarily ~~due~~by increased investments in JRNY®, our digital platform.

Goodwill and Intangible Impairment Charge

In accordance with ASC 350 — Intangibles — Goodwill and Other, we perform a goodwill and indefinite-lived asset impairment evaluation during the fourth quarter of each year. However, as a result of the decline in our market value relative to ~~$0.8 million savings~~the market and our industry, which was identified as a triggering event, we performed an interim evaluation and a market capitalization reconciliation during the first quarter of fiscal 2023, which resulted in a non-cash goodwill and indefinite-lived intangible assets impairment charge of $27.0 million.

ASC 350 requires us to make significant assumptions and estimates about the extent and timing of future cash flows, discount rates, growth rates and terminal value. The cash flows are estimated over a significant future period of time, which makes those estimates and assumptions subject to an even higher degree of uncertainty. We also use market valuation models and other financial ratios, which require us to make certain assumptions and estimates regarding the applicability of those models to our assets and businesses.

In accordance with ASC 360 — Property, Plant, and Equipment and other long-lived assets, we perform a test for recoverability when triggering events occur. No impairment was recognized in the quarter ended June 30, 2022.

For additional information related to ~~lower integration costs~~our goodwill and ~~administrative cost savings related~~intangible impairment charge, see Note 7

Operating (Loss) Income

Operating loss for the three-months ended June 30, 2022 was $51.2 million, a decrease of $69.1 million, or 386.5%, as compared to ~~Octane, and lower employee incentives and compensation costs~~an operating income of ~~$0.9 million. These costs were partially offset by higher litigation-related expenses of $1.3~~$17.9 million for the same ~~comparative~~period of 2021. The decrease was primarily driven by a goodwill and intangible impairment charge of $27.0 million and lower gross profit associated with lower sales and lower gross margins during the period.

~~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 million for the three and nine month periods ended September 30, 2017 decreased $0.1 million and $0.2 million, respectively, compared to the same periods of 2016. The decreases were due to reductions in principal balance on our term loan.

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.

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%

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 includes U.S. and international income taxes, and interest and penalties on uncertain tax positions.

Income tax expense was as follows (in thousands):

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	Three-Months Ended June 30,						Change
	2022			2021			$		%
Income tax expense	$	8,096		$	3,438		$	4,658	135.5%
Effective tax rate	(15.5)		%	19.7		%

Income tax expense for the three-months ended June 30, 2022 was primarily a result of the U.S. deferred tax asset valuation allowance in the amount of $14.2 million recorded during the period. Income tax expense for the three-months ended June 30, 2021 was primarily driven by the profit generated in the U.S.

The effective tax ~~rates~~rate from continuing operations for the ~~three and nine month periods~~three-month period ended ~~September~~June 30, ~~2017~~2022, was primarily ~~related~~as a result of the aforementioned U.S deferred tax asset valuation allowance to ~~our profitable~~reduce the existing U.S ~~and foreign operations.~~ domestic deferred tax assets to their anticipated realizable value.

The ~~reduced~~ effective tax ~~rates~~rate from continuing operations for the ~~three and nine month periods~~three-month period ended ~~September~~June 30, ~~2016 were~~2021 was a result of the profit generated in the U.S offset by the excess tax benefit related to stock-based compensation.

(Loss) Income from Continuing Operations

Loss from continuing operations was $60.2 million for the three-months ended June 30, 2022, or $(1.92) per diluted share, compared to income from continuing operations of $14.0 million, or $0.43 per diluted share, for the three-months ended June 30, 2021. The decrease in income from continuing operations was primarily due to the release 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 ratelower gross profit and higher operating expenses as discussed in more detail above.

Net (Loss) Income

Net loss was $60.2 million for the ~~nine months~~three-months ended ~~September~~June 30, ~~2017 included $0.7~~2022, compared to net income of $13.9 million for the three-months ended June 30, 2021. Net loss per diluted share was $(1.92) for the three-months ended June 30, 2022, compared to net income per diluted share of ~~excess tax benefits related to stock-based compensation recognized as a current period benefit through~~$0.43 for the ~~statement~~three-months ended June 30, 2021.

Table of ~~operations, resulting from the adoption of ASU 2016-09 in January 2017.~~Contents

LIQUIDITY AND CAPITAL RESOURCES

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 shareholders. 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.

As of ~~September~~June 30, ~~2017~~,2022, we had ~~$77.8~~$8.7 million of cash, cash equivalents and ~~investments~~restricted cash, and $35.1 million was available for borrowing under the ABL Revolving Facility, compared to ~~$79.6~~$14.2 million of cash, cash equivalents and restricted cash, and $65.8 million available for borrowing under the ABL Revolving Facility as of ~~December~~March 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.~~2022. We expect our cash, cash equivalents, restricted cash and ~~available-for-sale securities at September~~amounts available for borrowing under our Credit Facility as of June 30, ~~2017,~~2022, 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.~~2022.

Cash used in operating activities was $6.0 million for the three-month period ended June 30, 2022, compared to cash used in operating activities of $28.2 million for the three-month period ended June 30, 2021. The ~~increase~~decrease in cash flows from operating activities for the ~~nine months~~three-month period ended ~~September~~June 30, ~~2017~~2022 as compared to the same period of ~~2016~~2021 was primarily due to ~~the~~ changes in our operating assets and liabilities as discussed below, ~~partially~~ offset by the ~~decline~~decrease in ~~operating performance.~~

net income.

Trade receivables decreased ~~$6.9 million~~ to ~~$38.5 million~~ ~~as of September 30, 2017, compared to $45.5~~$27.5 million as of ~~December 31, 2016, due to seasonally lower net sales to specialty retail and commercial customers. Trade receivables as of September~~June 30, ~~2017~~2022, compared to ~~September 30, 2016 increased $7.3 million due to the increase in Retail net sales.~~

~~Inventories increased $10.6 million to $57.6~~$61.5 million as of ~~September 30, 2017, compared~~March 31, 2022, primarily was due to ~~$47.0~~lower sales and the timing of customer payments.

Inventory was $103.9 million as of ~~December~~June 30, 2022, compared to $111.2 million as of March 31, ~~2016~~2022. The decrease in inventory was driven by sell-through and strategic demand planning as we balance on-hand inventory levels ahead of the fitness season. About 8% of inventory as of June 30, 2022 was in-transit.

Prepaid and other current assets decreased by $2.6 million to $12.0 million, compared to $14.5 million as of March 31, 2022, primarily due to ~~seasonal preparations for the fourth quarter. Inventories as of September 30, 2017 compared to September 30, 2016 increased by $8.4 million due to increased in-transit inventory.~~

decreases in prepaid marketing and prepaid insurance.

Trade payables decreased ~~$3.9~~by $26.4 million to ~~$62.1 million~~ ~~as of September 30, 2017, compared to $66.0~~$26.8 million as of ~~December~~June 30, 2022, compared to $53.2 million as of March 31, ~~2016,~~2022, primarily due to ~~seasonality~~timing of ~~the business. Trade 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~~payments for inventory.

Accrued liabilities decreased ~~$4.8~~by $5.0 million to ~~$8.1~~$24.4 million as of ~~September~~June 30, ~~2017,~~2022, compared to ~~$12.9~~$29.4 million as of ~~December~~March 31, ~~2016,~~2022, primarily due to ~~payout~~decreases in accrued off-site materials of $2.8 million and decreases in accrued ~~incentive compensation during the first quarter~~personnel expenses of ~~2017 and settlement of a royalty dispute in the second quarter of 2017.~~$1.2 million.

Cash used in investing activities of ~~$18.2~~$3.4 million for the ~~first nine months~~three-month period ended June 30, 2022 was primarily due to capital purchases related to our digital platform. We anticipate spending between $12.0 million and $14.0 million in fiscal 2023 for digital platform enhancements, systems integration, and production tooling.

Cash provided by financing activities of ~~2017~~$7.1 million for the three-month period ended June 30, 2022 was primarily related to ~~net purchases~~proceeds from long-term debt offset by payments on long-term debt.

Table of marketable securities of $15.4 million. In addition, $2.7 million was used for capital expenditures primarily related to production equipment tooling and implementation of new software systems. We anticipate spending between $4.5 million and $5.5 million in 2017 for product tooling, computer equipment and software, and production equipment.Contents

Cash used in financing activities of $17.0 million for the first nine months of 2017 was primarily related to principal repayments on our term loan of $12.0 million and share repurchases of $4.8 million.

Financing Arrangements

~~We have a~~

On October 29, 2021, we amended our Credit Agreement dated January 31, 2020, with ~~JPMorgan Chase~~Wells Fargo Bank, ~~N.A. (“Chase Bank”~~National Association and lenders from time to time party thereto ("the Lenders”) ~~that provides for~~. The Lenders agreed, among other things, to make available to us an ~~$80.0 million~~asset-based revolving loan facility, subject to a borrowing base (the “ABL Revolving Facility”), and a term loan facility (the “Term Loan Facility” and together with the ABL Revolving Facility, the “Credit Facility”). The aggregate principal amount available under the ABL Revolving Facility is $100.0 million (the “Revolver”), subject to a ~~$20.0 million revolving line of credit.~~borrowing base. The ~~term of~~unamortized balance on the Term Loan was $11.5 million. The Credit Facility matures on October 29, 2026 and repayment obligations under the Credit Agreement ~~expires on December 31, 2020 and~~ is secured by substantially all of our ~~assets.~~assets, with principal and interest amounts required to be paid as scheduled.

The Credit Agreement, 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 events 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.

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~~2022, outstanding borrowings totaled $37.2 million, with $9.8 million and ~~we had no outstanding borrowings~~$27.4 million under ~~the line of credit.~~our Term Loan Facility and Revolver, respectively. As of ~~September~~June 30, ~~2017,~~2022, we were in compliance with the financial covenants of the Credit Agreement and ~~$20.0~~$35.1 million was available for borrowing under the ~~line~~ABL Revolving Facility.

Interest on the Revolver will accrue at the Secured Overnight Financing Rate ("SOFR") plus a margin of ~~credit.~~

1.86% to 2.36% (based on average quarterly availability) and interest on the Term Loan Facility will accrue at SOFR plus 4.61%. As of ~~September~~June 30, ~~2017, we had a $52.0 million receive-variable, pay-fixed~~2022, our interest rate ~~swap outstanding~~was 3.65% for the Revolver and 6.40% for the Term Loan Facility.

The balance sheet classification of the borrowings under the revolving loan credit facility has been determined in accordance with Chase Bank. The interest rate swap amortizes monthly in line with the outstanding principal balance on our term loan and is classified as a cash flow hedge. The 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%ASC 470, Debt.

~~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, 2022, we had approximately $34.5 million, compared to $39.8 million as of March 31, 2022 in non-cancellable market-based purchase obligations, primarily to secure 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. The decrease in purchase obligations was primarily due to seasonality.

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.~~2022.

~~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.

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~~our fiscal third quarter ending December and fiscal fourth ~~quarters, followed by the third~~ quarter ending March and are generally weakest in ~~the~~our fiscal first quarter ending June and fiscal second ~~quarter.~~quarter ending September. 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. 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 other than goodwill from those discussed in our ~~2016~~fiscal 2022 Form 10-K.

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NEW ACCOUNTING PRONOUNCEMENTS

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

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

~~Interest Rate and Foreign Exchange~~ Risk

~~Our exposure to~~

There have been no material changes in our market risk ~~from changes~~as compared to the disclosures 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 instrumentsPart II, Item 7A in our ~~portfolio, a decline in interest rates would reduce our interest income over time, and an increase in interest rates may negatively affect~~Annual Report on Form 10-K for 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 30, 2017, the outstanding balances on our credit facilities totaled $52.0 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~~year ended March 31, 2022, filed with the ~~outstanding principal balance~~SEC 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.June 3, 2022.

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 30, 2017 were $18.3 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~~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, Principal Financial Officer and ~~our Chief Financial~~Principal 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, Principal Financial Officer, and ~~Chief Financial~~Principal Accounting Officer, have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this ~~report.~~report, our disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods specified in the applicable Securities and Exchange Commission rules and forms, and that it is accumulated and communicated to our management, including our Principal Executive Officer Principal Financial Officer, and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

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~~three-months ended ~~September~~June 30, ~~2017,~~2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II. OTHER INFORMATION


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

Item 1.Legal Proceedings

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.

During the quarter ended September 30, 2022, we recorded a $4.7 million loss contingency related to a legal settlement involving a class action lawsuit related to advertisement of our treadmills. The settlement includes damages, a one-year free membership to JRNY, and administrative fees and was included as a component of General and administrative on our Condensed Consolidated Statements of Operations for the fiscal year ended March 31, 2022. As of June 30, 2022, $4.6 million remained accrued and was reflected in Accrued liabilities on our Condensed Consolidated Balance Sheets. We expect to pay the settlement damages and related administrative fees during the second fiscal quarter of fiscal 2023.

On June 27, 2022, the Court approved the settlement and no appeals were filed. We expect to fund the common fund prior to our next quarter ending September 30, 2022.

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 and uncertainties described in our ~~2016~~2022 Form 10-K are not the only risks and uncertainties ~~that~~to which we ~~face. Additional risks~~are subject, and there may be other risk and uncertainties that ~~presently~~ are not currently considered material or are not known to us ~~and therefore are not mentioned herein, may~~that could impair our business or operations. If any of the risks described in our ~~2016~~2022 Form 10-K actually occur, our business, operating results and financial position could be adversely affected. There ~~has not~~have been ano material ~~change~~changes to the risk factors as set forth in our ~~2016~~2022 Form 10-K.

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

~~Issuer Purchases of Equity Securities~~

~~The following table provides information about our repurchases of our equity securities during the third quarter ended September 30, 2017:~~

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.

Table of Contents

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~~3.1		Amended and Restated Articles of Incorporation - Incorporated by reference to Exhibit A to Schedule 14A, as filed with the Commission on April 22, 2008.

3.2		Amended and Restated Bylaws - Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K, as filed with the Commission on April 5, 2005.

3.3		Amendment to Amended and Restated Bylaws of the Company - Incorporated by reference to Exhibit 3.1 of our Current Report on Form 8-K, as filed with the Commission on January 31, 2007.




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

* Indicates management contract, compensatory agreement or arrangement, in which our directors or executive officers may participate.

Table of Contents

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 9, 2022			~~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 9, 2022			~~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)~~

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


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



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


	Three-Months Ended June 30,
	2022		2021
Operating lease expense	$	1,533	$	1,466
Amortization of finance lease assets	28		—

Total lease expense	$	1,561	$	1,466


	As of
	June 30, 2022		March 31, 2022
Supplemental cash flow information related to leases was as follows:

Operating leases:
Operating lease right-of-use-assets	$	22,353	$	23,620

Operating lease liabilities, non-current	$	19,778	$	20,926
Operating lease liabilities, current portion	4,316		4,494
Total operating lease liabilities	$	24,094	$	25,420

Finance leases:
Property, plant and equipment, at cost	$	512	$	569
Accumulated depreciation	(28)		(57)
Property, plant and equipment, net	$	484	$	512

Finance lease obligations, non-current	$	367	$	395
Finance lease obligations, current portion	120		119
Total finance lease liabilities	$	487	$	514

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating leases	$	1,940	$	6,485
Finance cash flows from finance leases	30		60

Additional lease information:
ROU assets obtained in exchange for operating lease obligations	$	—	$	10,323
ROU assets obtained in exchange for finance lease obligations	—		569
Reductions to ROU assets resulting from reductions to operating lease obligations	316		1,358


Weighted Average Remaining Lease Term:
Operating leases	2.8 years		3.1 years
Finance leases	4.3 years		4.5 years

Weighted Average Discount Rate:
Operating leases	4.65%		4.65%
Finance leases	2.14%		2.14%


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



~~[ ]~~☐			TRANSITION 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)



	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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net sales	$	88,132		$	80,818		$	278,413		$	280,275
Cost of sales	46,817			41,601			136,975			132,852
Gross profit	41,315			39,217			141,438			147,423
Operating expenses:
Selling and marketing	18,028			21,394			79,321			81,284
General and administrative	6,305			6,177			21,106			21,611
Research and development	3,617			3,435			11,114			10,444
Total operating expenses	27,950			31,006			111,541			113,339
Operating income	13,365			8,211			29,897			34,084
Other income (expense):
Interest income	170			60			476			182
Interest expense	(377		)	(489		)	(1,233		)	(1,469		)
Other, net	46			211			109			(49		)
Total other expense, net	(161		)	(218		)	(648		)	(1,336		)
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
Discontinued operations:
Loss from discontinued operations before income taxes	(40		)	(308		)	(1,695		)	(612		)
Income tax expense (benefit) of discontinued operations	61			(57		)	(425		)	(53		)
Loss from discontinued operations	(101		)	(251		)	(1,270		)	(559		)
Net income	$	8,241		$	7,594		$	17,823		$	22,568

Basic income per share from continuing operations	$	0.27		$	0.25		$	0.62		$	0.74
Basic loss per share from discontinued operations	—			(0.01		)	(0.04		)	(0.02		)
Basic net income per share⁽¹⁾	$	0.27		$	0.24		$	0.58		$	0.73

Diluted income per share from continuing operations	$	0.27		$	0.25		$	0.61		$	0.74
Diluted loss per share from discontinued operations	—			(0.01		)	(0.04		)	(0.02		)
Diluted net income per share	$	0.27		$	0.24		$	0.57		$	0.72
Shares used in per share calculations:
Basic	30,749			31,118			30,739			31,069
Diluted	31,075			31,385			31,098			31,340


Remainder of fiscal 2023	$	46
2024	61
2025	61
2026	47
2027	3
Thereafter	18
	$	236



	As of June 30, 2022
	Operating leases		Finance leases
Remainder of fiscal 2023	$	4,060	$	89
2024	5,528		120
2025	5,592		120
2026	4,509		120
2027	2,353		60
Thereafter	5,796		—
Total undiscounted lease payments	27,838		509
Less imputed interest	(3,744)		(22)
Total lease liabilities	$	24,094	$	487


	Foreign Currency Translation Adjustments		Accumulated Other Comprehensive Loss
Balance, March 31, 2022	$	(527)	$	(527)
Current period other comprehensive loss before reclassifications	(859)		(859)

Net other comprehensive loss during period	(859)		(859)
Balance, June 30, 2022	$	(1,386)	$	(1,386)



	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	)



~~[x]~~FORM			10-Q



	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	)



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.