UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
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[x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2017December 31, 2023
or
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☐ | |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-31321
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BOWFLEX INC. |
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NAUTILUS, INC. |
(Exact name of Registrant as specified in its charter) |
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Washington | | 94-3002667 |
| | |
Washington | | 94-3002667 |
(State or other jurisdiction of incorporation or organization)
| | (I.R.S. Employer Identification No.)
|
17750 S.E. 6th Way
Vancouver, Washington 98683
(Address of principal executive offices, including zip code)
(360) 859-2900
(Registrant's telephone number, including area code)
N/ANautilus, Inc.
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, no par value | BFX | |
| | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [x] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer [ ] | ☐ | Accelerated filer [x]Filer | ☐ | Non-accelerated filer [ ] | ☒ | Smaller reporting company [ ] | ☒ | Emerging growth company [ ] | ☐ |
| | | | | (Do not check if a smaller reporting company) | | | If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ]☐ No [x]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
The number of shares outstanding of the registrant's common stock as of October 31, 2017February 16, 2024 was 30,707,103 shares.
NAUTILUS,BOWFLEX INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017DECEMBER 31, 2023
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Item 1. | | | |
Item 1. | | | |
Item 2. | | | |
Item 3. | | | |
Item 4. | | | |
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Item 1. | | | |
Item 1. | | | |
Item 1A. | | | |
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Item 2.6. | | | |
Item 6. | | | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NAUTILUS,BOWFLEX 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 |
| December 31, 2023 | | March 31, 2023 | | |
Assets | | | | | |
Cash and cash equivalents | $ | 15,943 | | | $ | 17,362 | | | |
Restricted cash | 2,247 | | | 950 | | | |
| | | | | |
Trade receivables, net of allowances of $385 and $618 | 26,076 | | | 21,489 | | | |
Inventories | 54,327 | | | 46,599 | | | |
Prepaids and other current assets | 8,518 | | | 8,033 | | | |
| | | | | |
Income taxes receivable | 6,903 | | | 1,789 | | | |
| | | | | |
| | | | | |
Total current assets | 114,014 | | | 96,222 | | | |
Property, plant and equipment, net | 14,288 | | | 32,789 | | | |
Operating lease right-of-use assets | 7,020 | | | 19,078 | | | |
| | | | | |
Other intangible assets, net | 2,964 | | | 6,787 | | | |
Deferred income tax assets, non-current | 583 | | | 554 | | | |
Income taxes receivable, non-current | — | | | 5,673 | | | |
| | | | | |
Other assets | 1,248 | | | 2,429 | | | |
Total assets | $ | 140,117 | | | $ | 163,532 | | | |
Liabilities and Shareholders' Equity | | | | | |
Trade payables | $ | 59,948 | | | $ | 29,378 | | | |
Accrued liabilities | 11,982 | | | 15,575 | | | |
Operating lease liabilities, current portion | 4,667 | | | 4,427 | | | |
Financing lease liabilities, current portion | 124 | | | 122 | | | |
Warranty obligations, current portion | 2,520 | | | 2,564 | | | |
Income taxes payable, current portion | 1,077 | | | 328 | | | |
Debt payable, current portion, net of unamortized debt issuance costs of $454 and $586 | 1,796 | | | 1,642 | | | |
| | | | | |
Total current liabilities | 82,114 | | | 54,036 | | | |
Operating lease liabilities, non-current | 12,746 | | | 16,380 | | | |
Financing lease liabilities, non-current | 196 | | | 282 | | | |
Warranty obligations, non-current | 882 | | | 703 | | | |
Income taxes payable, non-current | 2,071 | | | 2,316 | | | |
Deferred income tax liabilities, non-current | 104 | | | 253 | | | |
Other non-current liabilities | 4,247 | | | 1,978 | | | |
Debt payable, non-current, net of unamortized debt issuance costs of $833 and $1,513 | 23,596 | | | 26,284 | | | |
Total liabilities | 125,956 | | | 102,232 | | | |
Commitments and contingencies (Note 21) | | | | | |
Shareholders' equity: | | | | | |
Common stock - no par value, 75,000 shares authorized, 36,405 and 31,845 shares issued and outstanding | 14,390 | | | 10,084 | | | |
Retained earnings | 888 | | | 52,694 | | | |
| | | | | |
Accumulated other comprehensive loss | (1,117) | | | (1,478) | | | |
Total shareholders' equity | 14,161 | | | 61,300 | | | |
Total liabilities and shareholders' equity | $ | 140,117 | | | $ | 163,532 | | | |
See accompanying Notes to Condensed Consolidated Financial Statements.
NAUTILUS,BOWFLEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share amounts)
|
| | | | | | | | | | | | | | | |
| 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 |
|
(1) May not add due to rounding.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net sales | $ | 67,566 | | | $ | 98,079 | | | $ | 157,975 | | | $ | 218,354 | |
Cost of sales | 50,177 | | | 75,219 | | | 121,982 | | | 177,078 | |
Gross profit | 17,389 | | | 22,860 | | | 35,993 | | | 41,276 | |
Operating expenses: | | | | | | | |
Selling and marketing | 15,129 | | | 17,203 | | | 28,153 | | | 39,493 | |
General and administrative | 9,382 | | | 10,859 | | | 27,256 | | | 34,317 | |
Research and development | 4,049 | | | 5,086 | | | 11,734 | | | 16,315 | |
Restructuring and exit charges | 765 | | | — | | | 2,527 | | | — | |
Goodwill and asset impairment charge | 20,881 | | | — | | | 20,881 | | | 26,965 | |
| | | | | | | |
| | | | | | | |
Total operating expenses | 50,206 | | | 33,148 | | | 90,551 | | | 117,090 | |
Operating loss | (32,817) | | | (10,288) | | | (54,558) | | | (75,814) | |
Other (expense) income | | | | | | | |
Interest income | 4 | | | 1 | | | 21 | | | 6 | |
Interest expense | (1,075) | | | (1,187) | | | (4,679) | | | (2,158) | |
Other, net | (334) | | | 715 | | | 8,484 | | | (23) | |
Total other (expense) income, net | (1,405) | | | (471) | | | 3,826 | | | (2,175) | |
Loss from continuing operations before income taxes | (34,222) | | | (10,759) | | | (50,732) | | | (77,989) | |
Income tax expense | 117 | | | 322 | | | 1,074 | | | 8,573 | |
Loss from continuing operations | (34,339) | | | (11,081) | | | (51,806) | | | (86,562) | |
Discontinued operations: | | | | | | | |
Loss from discontinued operations before income taxes | — | | | (2) | | | — | | | (34) | |
Income tax benefit of discontinued operations | — | | | (1) | | | — | | | (2,135) | |
Loss (gain) from discontinued operations | — | | | (1) | | | — | | | 2,101 | |
Net loss | $ | (34,339) | | | $ | (11,082) | | | $ | (51,806) | | | $ | (84,461) | |
| | | | | | | |
Basic loss per share from continuing operations | $ | (0.94) | | | $ | (0.35) | | | $ | (1.48) | | | $ | (2.75) | |
Basic income per share from discontinued operations | — | | | — | | | — | | | 0.07 | |
Basic net loss per share | $ | (0.94) | | | $ | (0.35) | | | $ | (1.48) | | | $ | (2.68) | |
| | | | | | | |
Diluted loss per share from continuing operations | $ | (0.94) | | | $ | (0.35) | | | $ | (1.48) | | | $ | (2.75) | |
Diluted income per share from discontinued operations | — | | | — | | | — | | | 0.07 | |
Diluted net loss per share | $ | (0.94) | | | $ | (0.35) | | | $ | (1.48) | | | $ | (2.68) | |
| | | | | | | |
Shares used in per share calculations: | | | | | | | |
Basic | 36,382 | | | 31,514 | | | 34,924 | | | 31,502 | |
Diluted | 36,382 | | | 31,514 | | | 34,924 | | | 31,502 | |
| | | | |
See accompanying Notes to Condensed Consolidated Financial Statements.
NAUTILUS,BOWFLEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMELOSS
(Unaudited and in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net loss | $ | (34,339) | | | $ | (11,082) | | | $ | (51,806) | | | $ | (84,461) | |
Other comprehensive loss: | | | | | | | |
| | | | | | | |
| | | | | | | |
Foreign currency translation, net of income tax benefit (expense) of $14, $29, $7, and $(56) | 599 | | | 923 | | | 361 | | | (1,157) | |
| | | | | | | |
Comprehensive loss | $ | (33,740) | | | $ | (10,159) | | | $ | (51,445) | | | $ | (85,618) | |
See accompanying Notes to Condensed Consolidated Financial Statements.
|
| | | | | | | | | | | | | | | |
| 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 |
|
BOWFLEX INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited and in thousands)
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| Common Stock | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | Total Shareholders' Equity |
| Shares | | Amount | | APIC | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
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| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Balance, March 31, 2023 | 31,845 | | | $ | 10,084 | | | $ | — | | | $ | 52,694 | | | $ | (1,478) | | | $ | 61,300 | |
Net loss | — | | | — | | | — | | | (4,924) | | | — | | | (4,924) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Foreign currency translation adjustment, net of income tax benefit of $8 | — | | | — | | | — | | | — | | | 178 | | | 178 | |
Issuance of common stock and pre-funded warrants, net | 3,525 | | | 1,335 | | | 217 | | | — | | | — | | | 1,552 | |
Stock-based compensation expense | 34 | | | 1,050 | | | — | | | — | | | — | | | 1,050 | |
Common stock issued under equity compensation plan, net of shares withheld for tax payments | (69) | | | (85) | | | — | | | — | | | — | | | (85) | |
Common stock issued under employee stock purchase plan | 180 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
Balance, June 30, 2023 | 35,515 | | | 12,384 | | | 217 | | | 47,770 | | | (1,300) | | | 59,071 | |
Net loss | — | | | — | | | — | | | (12,543) | | | — | | | (12,543) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Foreign currency translation adjustment, net of income tax expense of $15 | — | | | — | | | — | | | — | | | (416) | | | (416) | |
Issuance of common stock upon exercise of pre-funded warrants | 573 | | | 336 | | | (217) | | | | | | | 119 | |
Stock-based compensation expense | — | | | 926 | | | — | | | — | | | — | | | 926 | |
Common stock issued under equity compensation plan, net of shares withheld for tax payments | (58) | | | (34) | | | — | | | — | | | — | | | (34) | |
Common stock issued under employee stock purchase plan | 317 | | | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | |
Balance, September 30, 2023 | 36,347 | | | 13,612 | | | — | | | 35,227 | | | (1,716) | | | 47,123 | |
Net loss | — | | | — | | | — | | | (34,339) | | | — | | | (34,339) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Foreign currency translation adjustment, net of income tax benefit of $14 | — | | | — | | | — | | | — | | | 599 | | | 599 | |
Stock-based compensation expense | 42 | | | 753 | | | — | | | — | | | — | | | 753 | |
Common stock issued under equity compensation plan, net of shares withheld for tax payments | (4) | | | (3) | | | — | | | — | | | — | | | (3) | |
Common stock issued under employee stock purchase plan | 20 | | | 28 | | | — | | | — | | | — | | | 28 | |
| | | | | | | | | | | |
Balance, December 31, 2023 | 36,405 | | | $ | 14,390 | | | $ | — | | | $ | 888 | | | $ | (1,117) | | | $ | 14,161 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Retained Earnings | | Accumulated Other Comprehensive (Loss) Income | | 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 | |
Net loss | — | | | — | | | (13,203) | | | — | | | (13,203) | |
| | | | | | | | | |
| | | | | | | | | |
Foreign currency translation adjustment, net of income tax expense of $56 | — | | | — | | | — | | | (1,221) | | | (1,221) | |
Stock-based compensation expense | — | | | 1,367 | | | — | | | — | | | 1,367 | |
Common stock issued under equity compensation plan, net of shares withheld for tax payments | 241 | | | (171) | | | — | | | — | | | (171) | |
| | | | | | | | | |
| | | | | | | | | |
Balance, September 30, 2022 | 31,714 | | | 9,513 | | | 84,713 | | | (2,607) | | | 91,619 | |
Net loss | — | | | — | | | (11,082) | | | — | | | (11,082) | |
| | | | | | | | | |
| | | | | | | | | |
Foreign currency translation adjustment, net of income tax benefit of $29 | — | | | — | | | — | | | 923 | | | 923 | |
Stock-based compensation expense | — | | | 1,495 | | | — | | | — | | | 1,495 | |
Common stock issued under equity compensation plan, net of shares withheld for tax payments | 118 | | | (50) | | | — | | | — | | | (50) | |
Common stock issued under employee stock purchase plan | — | | | 88 | | | — | | | — | | | 88 | |
| | | | | | | | | |
Balance, December 31, 2022 | 31,832 | | | $ | 11,046 | | | $ | 73,631 | | | $ | (1,684) | | | $ | 82,993 | |
See accompanying Notes to Condensed Consolidated Financial Statements.
NAUTILUS,BOWFLEX 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 |
|
| | | | | | | | | | | |
| Nine-Months Ended December 31, |
| 2023 | | 2022 |
Cash flows from operating activities: | | | |
Loss from continuing operations | $ | (51,806) | | | $ | (86,562) | |
Gain from discontinued operations | — | | | 2,101 | |
Net loss | (51,806) | | | (84,461) | |
Adjustments to reconcile net loss to cash used in operating activities: |
Depreciation and amortization | 9,307 | | | 7,956 | |
Provision for allowance for doubtful accounts | 527 | | | 549 | |
Inventory lower-of-cost-or net realizable value adjustments | — | | | 1,196 | |
Stock-based compensation expense | 2,694 | | | 4,830 | |
Gain on asset dispositions | (9,021) | | | (2) | |
Loss on debt extinguishment | 352 | | | 228 | |
| | | |
Deferred income taxes, net of valuation allowances | 91 | | | 8,200 | |
Goodwill and asset impairment charge | 20,881 | | | 26,965 | |
Other | 888 | | | (122) | |
| | | |
| | | |
| | | |
Changes in operating assets and liabilities: | | | |
Trade receivables | (5,680) | | | 18,537 | |
Inventories | (7,391) | | | 34,118 | |
Prepaids and other assets | 3,766 | | | 5,569 | |
Income taxes receivable | 563 | | | 300 | |
Trade payables | 30,575 | | | (16,499) | |
Liability classified stock-based compensation expense | 5 | | | 42 | |
Accrued liabilities and other liabilities, including warranty obligations | (6,539) | | | (19,186) | |
Net cash used in operating activities | (10,788) | | | (11,780) | |
Cash flows from investing activities: | | | |
Proceeds from sale of equity investment | 2,350 | | | — | |
Proceeds from sale of intellectual property | 10,500 | | | — | |
| | | |
| | | |
Purchases of property, plant and equipment | (2,663) | | | (10,697) | |
| | | |
| | | |
| | | |
| | | |
Net cash provided by (used in) investing activities | 10,187 | | | (10,697) | |
Cash flows from financing activities: | | | |
Proceeds from long-term debt | 17,200 | | | 88,107 | |
Payments on long-term debt | (21,045) | | | (58,064) | |
| | | |
Payments of debt issuance costs | (942) | | | (2,094) | |
| | | |
Early termination of debt | (353) | | | — | |
Payments on finance lease liabilities | (90) | | | (90) | |
Proceeds from public offering net of transaction costs | 4,547 | | | — | |
Proceeds from employee stock purchases | 64 | | | 213 | |
| | | |
Tax payments related to stock award issuances | (122) | | | (480) | |
| | | |
Net cash (used in) provided by financing activities | (741) | | | 27,592 | |
Effect of exchange rate changes | 1,220 | | | (2,847) | |
| | | |
| | | |
Net (decrease) increase in cash, cash equivalents and restricted cash | (122) | | | 2,268 | |
| | | |
Cash, cash equivalents and restricted cash at beginning of period | 18,312 | | | 18,098 | |
Cash, cash equivalents and restricted cash at end of period | $ | 18,190 | | | $ | 20,366 | |
| | | |
Supplemental disclosure of cash flow information: | | | |
Cash paid for interest | $ | 1,915 | | | $ | 954 | |
Cash paid (received) for income taxes, net | (57) | | | 277 | |
Supplemental disclosure of non-cash investing activities: | | | |
Capital expenditures incurred but not yet paid | $ | 239 | | | $ | 368 | |
| | | |
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: |
| December 31, |
| 2023 | | 2022 |
Cash and cash equivalents | $ | 15,943 | | | $ | 15,532 | |
Restricted cash | 2,247 | | | 947 | |
Other current assets - restricted, current | — | | | 3,887 | |
Total cash, cash equivalents and restricted cash | $ | 18,190 | | | $ | 20,366 | |
| | | |
| | | |
| | | |
See accompanying Notes to Condensed Consolidated Financial Statements.
NAUTILUS,BOWFLEX 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,BowFlex 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 DecemberMarch 31, 20162023 (the “2016“2023 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. ActualUncertainties regarding such estimates and assumptions are inherent in the preparation of financial statements and actual results could differ from those estimates. Further information regarding significant estimates can be found in our 20162023 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 30, 2017 and December 31, 2016,2023 and March 31, 2023, and our results of operations, comprehensive loss and comprehensive incomeshareholders' equity for the three and nine monthsnine-month periods ended September 30, 2017December 31, 2023 and 2016,2022 and our cash flows for the nine monthsthree and nine-month periods ended September 30, 2017December 31, 2023 and 2016.2022. 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.
NewGoing Concern
As a result of the continued challenging retail operating environment, deteriorating macroeconomic conditions, and decline in customer demand, we experienced a significant year over year decline in our revenue for the three and nine months ended December 31, 2023. Additionally, we now believe that conditions will not improve in the next several quarters, which is negatively affecting our liquidity projections. We have been actively pursuing alternatives to access liquidity or sell the Company or its assets, which may include making a voluntary filing under federal bankruptcy laws. If we are not able to promptly consummate a transaction or access additional sources of liquidity, we will not be able to maintain compliance with debt covenants in our credit facilities and may not be able to continue to operate our business.
Management has determined that under these circumstances, there is substantial doubt about our ability to continue as a going concern for twelve months from the issuance date of this report. Our assessment of going concern was completed in accordance with FASB ASC Topic 205-40, “Basis of Presentation—Going Concern.” For the three and nine months ended December 31, 2023, we incurred a net loss of $34.3 million and $51.8 million, respectively, and for the three and nine months ended December 31, 2022, we incurred a net loss of $11.1 million and $84.5 million, respectively. As of December 31, 2023, we had $15.9 million of cash, working capital of $31.9 million and $24.4 million available for future borrowings under our ABL Credit Facility.
The consolidated financial statements have been prepared on a “going concern” basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern. This also means that the condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. For example, these consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from this uncertainty. Such adjustments could be material.
Recent Accounting Pronouncements
Recently Adopted Pronouncements
ASU 2017-122016-13
In August 2017,June 2016, the Financial Accounting Standards Board ("FASB")FASB issued Accounting Standards Update ("ASU") 2017-12, "Derivatives2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and Hedging (Topic 815) - Targeted Improvementsrequires a consideration of a broader range of reasonable and supportable information to Accounting for Hedging Activities".inform credit loss estimates. In May 2019, the FASB issued ASU 2017-122019-05, which provides better alignmententities 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 entity's risk management activities and financial reporting of hedges through changesupdate to both the designation and measurement guidance for qualifying hedging relationships. In addition, the amendments inclarify or address specific issues. ASU 2017-12 also simplify the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements to increase the understandability of the results of an entity's intended hedging strategies. ASU 2017-122016-13 is effective for public companies' fiscal years, including interim periods within those fiscal years beginning after December 15, 2018. Early application is permitted in any2022, including interim period after issuance of the new standard, with effect of adoption reflected as of the beginning of the fiscal year of adoption. For cash flowperiods within those years. We adopted ASU 2016-13 on April 1, 2023 and net investment hedges existing as of the adoption date, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income and opening retaining earnings. Amended presentation and disclosure guidance is required only prospectively, and certain transition elections are available upon adoption. While we do not expect the adoption of ASU 2017-12 to have ait had no 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 2017-092020-06
In May 2017,August 2020, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718) - ScopeNo. 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20)" and "Derivatives and Hedging—Contracts in Modification Accounting". ASU 2017-09 provides clarityEntity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and reduces diversityContracts in practice and cost and complexity when applying the guidance in Topic 718 toan Entity’s Own Equity," which address issues identified as 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 classificationresult of the modified award. If all three conditions are the samecomplexity associated with applying generally accepted accounting principles for the modified award as for the original award, then the entity should not account for the effectscertain financial instruments with characteristics of the modification.liabilities and equity. ASU 2017-09 isNo. 2020-06 will become effective for all entities for annual periods,us on January 1, 2024. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. FASB specified that an entity should adopt the guidance as of the beginning of its annual periods,fiscal year. We early adopted ASU No. 2020-06 on April 1, 2023 and it had no material impact on our financial position, results of operations or cash flows.
Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU 2023-07, "Improvements to Reportable Segment Disclosures." The amendments in this ASU are effective for fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in any2023, and interim
period, for public business entities for reporting periods for which financial statements have not yet been issued. Wewithin fiscal years beginning after December 15, 2024. This ASU requires additional disclosures and, accordingly, we do not expect the adoption of ASU 2017-092023-07 to have a material effect on our financial position, results of operations or cash flows.
ASU 2017-04
In January 2017,December 2023, the FASB issued ASU 2017-04, "Intangibles - Goodwill2023-09, "Improvements to Income Tax Disclosures." This ASU requires enhanced jurisdictional and Other (Topic 350) - Simplifying the Test for Goodwill Impairment". ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. An entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and recognize an impairment chargeother disaggregated disclosures for the amount by 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 2017-04effective tax rate reconciliation and income taxes paid and is effective for public companies' fiscal years, including interim periods within those fiscal years beginning after December 15, 2019, on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. We2024. This ASU requires additional disclosures and, accordingly, we do not expect the adoption of ASU 2017-042023-09 to have a material effect on our financial position, results of operations or cash flows.
ASU 2016-15
In August 2016,(2) NYSE DELISTING NOTIFICATION
On September 21, 2023, we received notice from the FASB issued ASU 2016-15, "Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments." The amendmentsNew York Stock Exchange (the “NYSE”) that we were not 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,compliance with the intent of reducing diversitycontinued listing standard set forth 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 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 a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. 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 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 aspectsSection 802.01C of the accounting for share-based payment transactions, includingNYSE’s Listed Company Manual because the incomeaverage closing price of our common stock was less than $1.00 per share over a consecutive 30 trading-day period. On November 27, 2023, we received written notice from the NYSE that we were not in compliance with the continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual because our average global market capitalization over a consecutive 30 trading-day period was less than $50.0 million and, at the same time, our last reported stockholders’ equity was less than $50.0 million.
We submitted our compliance plan (the "Plan") to the NYSE, and if that Plan is accepted by NYSE, we would have up to 18 months to cure the global market capitalization deficiency and to return to compliance with Sections 802.01B and 802.01C of the NYSE continued listing standards.
(3) DISCONTINUED OPERATIONS
Results from discontinued operations relate to the disposal of our former Commercial business, which was completed in April 2011. Although we reached substantial completion of asset liquidation at December 31, 2012, we
continued to accrue interest associated with an uncertain tax consequences, classification of awards as either equity or liabilities, and classificationposition 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 the 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 ofdiscontinued international operations, and presented excess tax benefits asincurred an operating cash flow, applied prospectively, with no adjustment to prior periods. The adoptionimmaterial amount of ASU 2016-09 in January 2017 did not have a material impact on our financial position, results of operations or cash flows.
ASU 2016-02
In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." ASU 2016-02 replaces the existing guidance in Accounting Standards Codification ("ASC") 840, Leases. The new standard would require companies and other organizations to include lease obligations on their balance sheets, including a dual approach for lessee accounting under which a lessee would account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use ("ROU") asset and a corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the ROU asset, and 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 cost and net realizable value. ASU 2015-11 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 to recognize revenue based upon the transfer of promised goods and/or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and/or services. In addition, the new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments 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 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. We are planning to adopt using the full retrospective method.
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 productproducts previously sold into the Commercial channel.channel through fiscal 2023. Expenses related to discontinued operations were immaterial for the first nine months of fiscal 2024.
(3)(4) RESTRUCTURING AND EXIT CHARGES
In February 2023, we announced and began implementing a restructuring plan that included a reduction in workforce and other exit costs.
The following table summarizes restructuring reserve activity (in thousands):
| | | | | | | | | | | | | | | | | |
| Employee Severance and Benefits | | Third-Party Costs | | Total |
Accrued liability as of March 31, 2023 | $ | 1,110 | | | $ | 123 | | | $ | 1,233 | |
Charges / Accruals | — | | | 2,527 | | | 2,527 | |
Payments | (1,045) | | | (2,558) | | | (3,603) | |
Accrued Liability as of December 31, 2023 | $ | 65 | | | $ | 92 | | | $ | 157 | |
The charges incurred due to the restructuring plan are included within Restructuring and exit charges in the Condensed Consolidated Statements of Operations and the accrued restructuring charges as of December 31, 2023 are included in Accrued Liabilities on our Condensed Consolidated Balance Sheets.
(5) REVENUES
Our revenues from contracts with customers disaggregated by revenue source, excluding sales-based taxes, were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Product sales | $ | 62,373 | | | $ | 92,304 | | | $ | 143,569 | | | $ | 202,007 | |
Extended warranties and services | 1,251 | | | 1,453 | | | 2,777 | | | 3,433 | |
Royalty income | 236 | | | 741 | | | 806 | | | 2,691 | |
Other(1) | 3,706 | | | 3,581 | | | 10,823 | | | 10,223 | |
Net sales | $ | 67,566 | | | $ | 98,079 | | | $ | 157,975 | | | $ | 218,354 | |
(1) Other revenue is primarily subscription revenue and freight and delivery.
Subscriptions
Sales of our subscriptions are deemed to be one performance obligation and we recognize revenue from these arrangements ratably over the subscription term as the performance obligation is satisfied. Revenue generated from subscriptions is recorded in 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 transaction price is then allocated to each performance obligation based on 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 subscription. Breakage or activation rate is defined as a percentage of those purchasers that never activate a free-trial offering.
Our revenues disaggregated by geographic region, based on ship-to address, were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
United States | $ | 53,872 | | | $ | 75,627 | | | $ | 124,879 | | | $ | 175,148 | |
Canada | 7,329 | | | 17,657 | | | 16,695 | | | 31,852 | |
Europe, the Middle East and Africa | 5,448 | | | 3,859 | | | 14,112 | | | 8,038 | |
All other | 917 | | | 936 | | | 2,289 | | | 3,316 | |
Net sales | $ | 67,566 | | | $ | 98,079 | | | $ | 157,975 | | | $ | 218,354 | |
The following table provides information about our liabilities from contracts with customers, primarily customer deposits and deferred revenue for which advance consideration is received prior to the transfer of control or 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 nature, recognized over the next twelve months. Significant changes in contract liabilities balances, including revenue recognized in the reporting period that was included in opening contract liabilities, are shown below (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Balance, beginning of period | $ | 3,008 | | | $ | 4,194 | | | $ | 5,075 | | | $ | 6,285 | |
Cash changes | 100 | | | 565 | | | 248 | | | 1,142 | |
Deferred Revenue | 2,298 | | | 2,750 | | | 3,827 | | | 4,970 | |
Revenue recognition | (1,449) | | | (2,361) | | | (5,193) | | | (7,249) | |
Balance, end of period | $ | 3,957 | | | $ | 5,148 | | | $ | 3,957 | | | $ | 5,148 | |
(6) ASSET IMPAIRMENT CHARGE
Fixed assets and other long-lived assets are evaluated for impairment periodically whenever events or changes in circumstances indicate that related carrying amounts may not be recoverable from undiscounted cash flows in accordance with the FASB guidance. These events include, but are not limited to, significant declines in our market capitalization, history of losses and adverse market conditions. During the quarter ended December 31, 2023, we determined that a triggering event occurred and performed an impairment asset test, which resulted in a $20.9 million impairment charge allocated pro-rata to the asset group impacted, including $12.0 million allocated to property plant and equipment, $0.1 million to definite lived intangible assets, and $8.8 million to Right of Use Assets related to operating leases. In determining this allocation, we considered fair value, if determinable without undue cost or effort, for each long-lived asset category to be equal to book value.
(7) 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.
Assets and liabilitiesWe did not have any assets measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 were as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | September 30, 2017 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | |
Cash Equivalents | | | | | | | | |
Money market funds | | $ | 6,848 |
| | $ | — |
| | $ | — |
| | $ | 6,848 |
|
Commercial paper | | — |
| | 1,998 |
| | — |
| | 1,998 |
|
Total cash equivalents | | 6,848 |
| | 1,998 |
| | — |
| | 8,846 |
|
Available-for-Sale Securities | | | | | | | | |
Certificates of deposit(1) | | — |
| | 14,974 |
| | — |
| | 14,974 |
|
Commercial paper | | — |
| | 1,998 |
| | — |
| | 1,998 |
|
Corporate bonds | | — |
| | 25,313 |
| | — |
| | 25,313 |
|
U.S. government bonds | | — |
| | 5,010 |
| | — |
| | 5,010 |
|
Total available-for-sale securities | | — |
| | 47,295 |
| | — |
| | 47,295 |
|
Derivatives | | | | | | | | |
Interest rate swap contract | | — |
| | 170 |
| | — |
| | 170 |
|
Total assets measured at fair value | | $ | 6,848 |
| | $ | 49,463 |
| | $ | — |
| | $ | 56,311 |
|
| | | | | | | | |
Liabilities: | | | | | | | | |
Derivatives | | | | | | | | |
Foreign currency forward contracts | | $ | — |
| | $ | (65 | ) | | $ | — |
| | $ | (65 | ) |
Total liabilities measured at fair value | | $ | — |
| | $ | (65 | ) | | $ | — |
| | $ | (65 | ) |
|
| | | | | | | | | | | | | | | | |
| | December 31, 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 assets2023, or March 31, 2023. Liabilities 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 ended September 30, 2017, nor for the year ended December 31, 2016.as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Common Warrants | | $ | — | | | $ | — | | | $ | 1,455 | | | $ | 1,455 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total liabilities measured at fair value | | $ | — | | | $ | — | | | $ | 1,455 | | | $ | 1,455 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
Liabilities: | | | | | | | | |
Derivatives | | | | | | | | |
| | | | | | | | |
Foreign currency forward contracts | | $ | — | | | $ | 141 | | | $ | — | | | $ | 141 | |
Total liabilities measured at fair value | | $ | — | | | $ | 141 | | | $ | — | | | $ | 141 | |
| | | | | | | | |
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.any periods presented.
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 valuesvalue of our interest rate swap contract and our foreign currency forward contracts areis 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 loandebt 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.
We determined the fair value of the Common Warrants liability using the Black Scholes Option Pricing methodology with Level 3 inputs. (4)
The following table presents the change in the fair value of Common Warrants for the periods indicated below (in thousands):
| | | | | | | | | | | | | |
| | | | | |
| | | | | Total | | |
Liability balance as of March 31, 2023 | | | | | $ | — | | | |
Additions of common warrant liability | | | | | 2,994 | | | |
Liability balance as of June 30, 2023 | | | | | 2,994 | | | |
Change in fair value of common warrant liability | | | | | (1,376) | | | |
Liability balance as of September 30, 2023 | | | | | 1,618 | | | |
Change in fair value of common warrant liability | | | | | (163) | | | |
Liability balance as of December 31, 2023 | | | | | $ | 1,455 | | | |
Inherent in a Black Scholes valuation model are assumptions related to expected stock price, exercise price, stock-price volatility derived using our historical volatility, expected term, risk-free interest rate and dividend yield. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected term of the Common Warrants. The dividend yield percentage is zero based on our current expectations related to the payment of dividends during the expected term of the Common Warrants.
The key inputs into the Black Scholes pricing model were as follows:
| | | | | |
| Nine-Months Ended December 31, 2023 |
Stock Price | $0.77 |
Exercise Price | $1.35 |
Expected Life (years) | 4.97 |
Expected Volatility | 67.22% |
| | | | | |
Expected Dividend Yield | —% |
Risk Free Rate | 3.80% |
See Note 6 - Asset Impairment Charge for a discussion of assets measured at fair value on a non-recurring basis.
(8) 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 30, 2017, totalDecember 31, 2023, we did not any have outstanding contract notional amounts were $18.3 million. At September 30, 2017, these outstanding balance sheet hedging derivatives had maturities of 90 days or less.amounts.
The fair value of our derivative instruments was included in our condensed consolidated balance sheetsCondensed Consolidated Balance Sheets as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | Balance Sheet Classification | | As of | | |
| | | December 31, 2023 | | March 31, 2023 | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Derivative instruments not designated as cash flow hedges: | | | | | | | | |
| | | | | | | | |
Foreign currency forward contracts | | Accrued liabilities | | $ | — | | | $ | 141 | | | |
| | | | | | | | |
|
| | | | | | | | | | |
| | 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 statementsCondensed Consolidated Statements of operationsOperations was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Statement of Operations Classification | | Three-Months ended December 31, | | Nine-Months Ended December 31, |
| | | 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Derivative instruments not designated as cash flow hedges: | | | | | | | | | | |
Income recognized in earnings | | Other, net | | $ | 178 | | | $ | 993 | | | $ | 336 | | | $ | 404 | |
Income tax benefit | | Income tax benefit | | 44 | | | 249 | | | 83 | | | 101 | |
|
| | | | | | | | | | | | | | | | | | |
| | 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)(9) 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 | | |
| December 31, 2023 | | March 31, 2023 | | |
Finished goods | $ | 50,924 | | | $ | 42,463 | | | |
Parts and components | 3,403 | | | 4,136 | | | |
Total inventories | $ | 54,327 | | | $ | 46,599 | | | |
|
| | | | | | | |
| 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)(10) 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 |
| | December 31, 2023 | | March 31, 2023 | | |
Automobiles | 5 | | $ | 23 | | | $ | 23 | | | |
Leasehold improvements | 4 | to | 20 | | 3,465 | | | 3,426 | | | |
Computer software and equipment | 2 | to | 7 | | 48,861 | | | 57,223 | | | |
Machinery and equipment | 3 | to | 5 | | 15,333 | | | 14,953 | | | |
Furniture and fixtures | 5 | to | 20 | | 2,022 | | | 2,034 | | | |
Work in progress(1) | N/A | | 2,604 | | | 4,061 | | | |
Total cost | | | | | 72,308 | | | 81,720 | | | |
Accumulated depreciation | | | | | (58,020) | | | (48,931) | | | |
Total property, plant and equipment, net | | | | | $ | 14,288 | | | $ | 32,789 | | | |
(1) Work in progress includes computer softwareinformation technology assets and production tooling.
See Note 6 - Asset Impairment Charge for a discussion of an impairment charge recognized during the quarter ended December 31, 2023. (7) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
The rollforward of goodwillDepreciation expense was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Depreciation expense | $ | 3,035 | | | $ | 3,155 | | | $ | 9,261 | | | $ | 7,910 | |
(11) OTHER INTANGIBLE ASSETS
|
| | | | | | | | | | | |
| Direct | | Retail | | Total |
Balance, January 1, 2016 | $ | 2,113 |
| | $ | 58,357 |
| | $ | 60,470 |
|
Currency exchange rate adjustment | 67 |
| | 3 |
| | 70 |
|
Business acquisition - measurement period adjustments | — |
| | 1,348 |
| | 1,348 |
|
Balance, December 31, 2016 | 2,180 |
| | 59,708 |
| | 61,888 |
|
Currency exchange rate adjustment | 168 |
| | (11 | ) | | 157 |
|
Balance, September 30, 2017 | $ | 2,348 |
| | $ | 59,697 |
| | $ | 62,045 |
|
Other Intangible Assets
Other intangible assets consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Estimated Useful Life (in years) | | As of |
| | December 31, 2023 | | March 31, 2023 | | |
Indefinite-lived trademarks | N/A | | $ | 2,900 | | | $ | 6,597 | | | |
| | | | | | | | | |
Patents | 7 | to | 24 | | 963 | | | 1,043 | | | |
| | | | | | | | | |
| | | | | 3,863 | | | 7,640 | | | |
Accumulated amortization - definite-lived intangible assets | | | | | (899) | | | (853) | | | |
Other intangible assets, net | | | | | $ | 2,964 | | | $ | 6,787 | | | |
|
| | | | | | | | | | | |
| 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 |
|
During the quarter ended June 30, 2023, we completed the sale of indefinite-lived intellectual property for $10.5 million as part of our ongoing comprehensive strategic review. The sale of these assets, which included the Nautilus® brand trademark assets and related licenses, will continue to streamline our brand focus and enhance our financial flexibility. The carrying value of the intangible assets sold was $3.7 million and the resulting gain, net of transaction costs, was recorded the Consolidated Statement of Operations as Other, net.
See Note 6 - Asset Impairment Charge for a discussion of an impairment charge recognized during the quarter ended December 31, 2023.
Amortization expense was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Amortization expense | $ | 15 | | | $ | 15 | | | $ | 46 | | | $ | 46 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Amortization expense | $ | 812 |
| | $ | 817 |
| | $ | 2,446 |
| | $ | 2,738 |
|
Future amortization of definite-lived intangible assets is as follows (in thousands):
|
| | | |
Remainder of 2017 | $ | 810 |
|
2018 | 3,164 |
|
2019 | 3,134 |
|
2020 | 3,108 |
|
2021 | 3,078 |
|
Thereafter | 22,008 |
|
| $ | 35,302 |
|
| | | | | |
Remainder of fiscal 2024 | $ | 8 | |
2025 | 28 | |
2026 | 19 | |
2027 | 1 | |
2028 | 1 | |
Thereafter | 7 | |
| $ | 64 | |
(8)
(12) SALE OF SHARES IN EQUITY INVESTMENTS
On May 1, 2023, we completed the sale of Vi Labs for $2.3 million as part of our ongoing comprehensive strategic review. The sale of this equity investment will continue to streamline our brand focus and enhance our financial flexibility. The was no carrying value related to the assets sold and transaction costs of the sale were $0.1 million. The resulting gain of $2.2 million was recorded in the Condensed Consolidated Statements of Operations as Other, net and in the Condensed Consolidated Statements of Cash Flows as Proceeds from sale of equity investment for the quarter ended June 30, 2023.
(13) LEASES
We have several non-cancellable operating leases, primarily for office space, that expire at various dates over the next six years. These leases generally contain renewal options to extend for one lease term of five years. For leases that we are reasonably certain we will exercise the lease renewal options, the options were considered in determining the lease term, and associated potential option payments are included in the lease payments. The payments used in the renewal term were estimated using the percentage rate increase of historical rent payments for each location where the renewal will be exercised.
Payments due under the lease contracts include annual fixed payments for office space. Variable payments including payments for our proportionate share of the building’s property taxes, insurance, and common area maintenance are treated as non-lease components and are recognized in the period for which the costs occur.
Lease expense was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Operating lease expense | $ | 1,339 | | | $ | 1,406 | | | $ | 4,017 | | | $ | 4,466 | |
Amortization of finance lease assets | 29 | | | 28 | | | 85 | | | 85 | |
| | | | | | | |
Total lease expense | $ | 1,368 | | | $ | 1,434 | | | $ | 4,102 | | | $ | 4,551 | |
| | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Leases with an initial term of 12 months or less (“short-term leases”) are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term.
Other information related to leases was as follows (dollars in thousands): | | | | | | | | | | | | | | | | | | | |
| | | As of |
| | | December 31, 2023 | | March 31, 2023 | | |
Supplemental cash flow information related to leases was as follows: | | | | | | |
| | | | | | | |
Operating leases: | | | | | | | |
Operating lease right-of-use-assets | | $ | 7,020 | | | $ | 19,078 | | | |
| | | | | | | |
Operating lease liabilities, non-current | | $ | 12,746 | | | $ | 16,380 | | | |
Operating lease liabilities, current portion | | 4,667 | | | 4,427 | | | |
Total operating lease liabilities | | $ | 17,413 | | | $ | 20,807 | | | |
| | | | | | | |
Finance leases: | | | | | | | |
Property, plant and equipment, at cost | | $ | 569 | | | $ | 569 | | | |
Accumulated depreciation | | (256) | | | (171) | | | |
Property, plant and equipment, net | | $ | 313 | | | $ | 398 | | | |
| | | | | | | |
Finance lease obligations, non-current | | $ | 196 | | | $ | 282 | | | |
Finance lease obligations, current portion | | 124 | | | 122 | | | |
Total finance lease liabilities | | $ | 320 | | | $ | 404 | | | |
| | | | | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | |
Operating cash flow from operating leases | | $ | 4,412 | | | $ | 6,226 | | | |
Finance cash flows from finance leases | | 90 | | | 119 | | | |
| | | | | | | |
Additional lease information: | | | | | | |
ROU assets obtained in exchange for operating lease obligations | | $ | — | | | $ | 100 | | | |
| | | | | | |
Reductions to ROU assets resulting from reductions to operating lease obligations | | 740 | | | 1,175 | | | |
Reductions to ROU assets resulting from impairment of operating leases | | 8,850 | | | — | | | |
| | | | | | | |
| | | | | | | |
Weighted Average Remaining Lease Term: | | | | | | | |
Operating leases | | 4.4 years | | 5.0 years | | |
Finance leases | | | 2.8 years | | 3.5 years | | |
| | | | | | | |
Weighted Average Discount Rate: | | | | | | | |
Operating leases | | 5.06% | | 5.05% | | |
Finance leases | | | 2.08% | | 2.08% | | |
We determined the discount rate for leases using a portfolio approach to determine an incremental borrowing rate to calculate the right-of-use assets and lease liabilities.
See Note 6 - Asset Impairment Charge for a discussion of an impairment charge recognized during the quarter ended December 31, 2023.
Maturities of lease liabilities under non-cancellable leases were as follows (in thousands):
| | | | | | | | | | | | | | | |
| | | | | |
| As of December 31, 2023 | | | | |
| Operating leases | | Finance leases | | | | |
Remainder of fiscal 2024 | $ | 1,195 | | | $ | 30 | | | | | |
2025 | 5,668 | | | 120 | | | | | |
2026 | 4,542 | | | 120 | | | | | |
2027 | 2,378 | | | 60 | | | | | |
| | | | | | | |
Thereafter | 5,796 | | | — | | | | | |
Total undiscounted lease payments | 19,579 | | | 330 | | | | | |
Less imputed interest | (2,166) | | | (10) | | | | | |
Total lease liabilities | $ | 17,413 | | | $ | 320 | | | | | |
(14) CAPITAL STOCK
Issuance of Common Stock
On June 15, 2023, we entered into a securities purchase agreement (“Securities Purchase Agreement”) with an institutional investor (“Purchaser”). Pursuant to the Securities Purchase Agreement, we sold in a registered direct offering (“Registered Direct Offering”) 3,525,000 shares ("Shares") of our common stock, no par value ("Common Stock") at $1.22 per share and purchase contracts issued as pre-funded warrants ("Pre-Funded Warrants" and together with the Shares, the "Securities") to purchase up to 573,362 shares of Common Stock for $1.2199 per share. The Pre-Funded Warrants were to be issued to the extent that the Purchaser determined, in its sole discretion, that such Purchaser would beneficially own in excess of 4.99% (or at the Purchaser’s election, 9.99%) of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of the Securities. The Pre-Funded Warrants had an exercise price of $0.0001 per share, were immediately exercisable and could be exercised at any time after their original issuance date until such Pre-Funded Warrants were exercised in full. On July 28, 2023, all 573,362 Pre-Funded Warrants were exercised, resulting in the issuance of 573,362 shares of Common Stock.
Pursuant to the Securities Purchase Agreement, in a concurrent private placement (together with the Registered Direct Offering, the "Offerings"), we also issued to the Purchaser unregistered warrants (“Common Warrants”) to purchase up to 4,098,362 shares of Common Stock. Each Common Warrant has an exercise price of $1.35 per share, is exercisable at any time beginning six months following their original issuance date of June 15, 2023 and will expire five and a half years from the original issuance date. As of December 31, 2023, the Common Warrants had not been exercised.
In the event of any Fundamental Transaction (as such term is defined in the Securities Purchase Agreement), including any merger or consolidation, sale of substantially all of our assets, tender or exchange offer for 50% or more of our outstanding common stock, reclassification, reorganization or recapitalization of our shares of common stock, or purchase of 50% or more of our outstanding shares of common stock, then upon any subsequent exercise of a Common Warrant, the holder thereof will have the right to receive as alternative consideration, for each share of common stock that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, the number of shares of common stock of the successor or acquiring corporation of our company, if it is the surviving corporation, and any additional consideration receivable upon or as a result of such transaction by a holder of the number of shares of common stock for which the Common Warrant is exercisable immediately prior to such event. Notwithstanding the foregoing, in the event of a Fundamental Transaction, the holders of the Common Warrants have the right to require us or a successor entity to redeem the Common Warrants for cash in the amount of the Black Scholes Value (as such term is defined in the Securities Purchase Agreement) of the unexercised portion of the Common Warrants concurrently with or within 30 days following the consummation of such Fundamental Transaction.
We account for our Common Warrants in accordance with the guidance contained in ASC 815-40, Derivatives and Hedging - Contracts on an Entity’s Own Equity, and determined that the Common Warrants do not meet the criteria for equity treatment thereunder. As such, each Common Warrant must be recorded as a liability and is subject to re-
measurement at each balance sheet date. Refer to Note 7 - Fair Value Measurements for further details. Changes in fair value are recognized in Other, net in our Condensed Consolidated Statements of Operations.
Roth Capital Partners, LLC (the “Placement Agent”) acted as the exclusive placement agent for the Offerings, pursuant to a Placement Agency Agreement, dated June 15, 2023 (the “Placement Agreement”).
Pursuant to the Placement Agreement, we paid the Placement Agent a cash placement fee equal to 7.0% of the aggregate gross proceeds raised in the Offerings from sales arranged for by the Placement Agent. Subject to certain conditions, we also agreed to reimburse all reasonable travel and other out-of-pocket expenses of the Placement Agent in connection with the Offerings, including but not limited to legal fees, up to a maximum of $75,000. The Placement Agreement contains customary representations, warranties and agreements by us and customary conditions to closing. We agreed to indemnify the Placement Agent against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”), and liabilities arising from breaches of representations and warranties contained in the Placement Agreement, or to contribute to payments that the Placement Agent may be required to make in respect of those liabilities.
We received net proceeds of $4.6 million from the Offerings, net of offering expenses paid to the Placement Agent totaling $0.4 million, which proceeds will be used for general corporate purposes.
The closing of the Offerings took place on June 20, 2023. The Securities were offered and sold pursuant to our shelf registration statement on Form S-3 (File No. 333-249979) initially filed with the Securities and Exchange Commission (the “Commission”) on November 9, 2020 and declared effective on October 28, 2021. A prospectus supplement relating to the Registered Direct Offering was filed with the Commission on June 15, 2023. None of the Common Warrants or the shares of Common Stock issuable upon the exercise of the Common Warrants are registered under the Securities Act. The Common Warrants and the shares of Common Stock issuable upon exercise thereof will be issued in reliance on the exemptions from registration provided by Section 4(a)(2) under the Securities Act and Regulation D promulgated thereunder for transactions not involving a public offering.
(15) ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
| | | | | | | | | | | | | |
| As of |
| December 31, 2023 | | March 31, 2023 | | |
Payroll and related liabilities | $ | 2,785 | | | $ | 5,220 | | | |
Deferred revenue | 3,957 | | | 5,075 | | | |
Reserves (1) | 2,091 | | | 1,200 | | | |
Accrued Tariffs | 1,031 | | | 1,167 | | | |
Legal settlement | 430 | | | 5 | | | |
Other | 1,688 | | | 2,908 | | | |
Total accrued liabilities | $ | 11,982 | | | $ | 15,575 | | | |
|
| | | | | | | |
| As of |
| September 30, 2017 | | December 31, 2016 |
Payroll and related liabilities | $ | 2,199 |
| | $ | 4,579 |
|
Other | 5,857 |
| | 8,313 |
|
Total accrued liabilities | $ | 8,056 |
| | $ | 12,892 |
|
(1) Reserves primarily consists of inventory, sales return, sales tax and product liability reserves.
(9)(16) PRODUCT WARRANTIES
Our products carry defined warranties for defects in materials or workmanship which, according to their terms, generally obligate us to pay the costs of supplying and shipping replacement parts to customers and, in certain instances, pay for labor and other costs to service products. Outstanding product warranty periods range from thirty days to, in limited circumstances, the lifetime of certain product components. We record a liability at the time of sale for the estimated costs of fulfilling future warranty claims. If necessary, we adjust the liability for specific warranty-related matters when they become known and are reasonably estimable. Estimated warranty expense is included in cost of sales, based on historical warranty claim experience and available product quality data. Warranty expense is affected by the performance of new products, significant manufacturing or design defects not discovered until after the product is delivered to the customer, product failure rates, and higher or lower than expected repair costs. If warranty expense differs from previous estimates, or if circumstances change such that the assumptions inherent in previous estimates are no longer valid, the amount of product warranty obligations is adjusted accordingly.
Changes in our product warranty obligations were as follows (in thousands):
| | | | | | | | | | | | | | |
| | Nine-Months Ended December 31, |
| | 2023 | | 2022 |
Balance, beginning of period | | $ | 3,267 | | | $ | 6,216 | |
Accruals | | 4,025 | | | 1,882 | |
| | | | |
Payments | | (3,890) | | | (3,748) | |
Balance, end of period | | $ | 3,402 | | | $ | 4,350 | |
|
|
| | | | | | | | |
| | Nine Months Ended September 30, |
| | 2017 | | 2016 |
Balance, beginning of period | | $ | 7,450 |
| | $ | 8,545 |
|
Accruals | | 2,163 |
| | 2,132 |
|
Payments | | (3,312 | ) | | (2,857 | ) |
Balance, end of period | | $ | 6,301 |
| | $ | 7,820 |
|
(10)(17) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)LOSS
The following tables set forth the changes in accumulated other comprehensive income (loss),loss, net of tax (in thousands) for the periods presented::
| | | | | | | | | | | | | | | |
| | | | | Foreign Currency Translation Adjustments | | Accumulated Other Comprehensive Loss |
Balance, March 31, 2023 | | | | | $ | (1,478) | | | $ | (1,478) | |
Current period other comprehensive income before reclassifications | | | | | 361 | | | 361 | |
| | | | | | | |
| | | | | | | |
Balance, December 31, 2023 | | | | | $ | (1,117) | | | $ | (1,117) | |
|
| | | | | | | | | | | | | | | |
| 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 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | Foreign Currency Translation Adjustments | | Accumulated Other Comprehensive Loss |
Balance, September 30, 2023 | | | | | $ | (1,716) | | | $ | (1,716) | |
Current period other comprehensive loss before reclassifications | | | | | 599 | | | 599 | |
| | | | | | | |
| | | | | | | |
Balance, December 31, 2023 | | | | | $ | (1,117) | | | $ | (1,117) | |
| | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | Foreign Currency Translation Adjustments | | Accumulated Other Comprehensive Loss |
Balance, March 31, 2022 | | | | | $ | (527) | | | $ | (527) | |
Current period other comprehensive loss before reclassifications | | | | | (1,157) | | | (1,157) | |
| | | | | | | |
| | | | | | | |
Balance, December 31, 2022 | | | | | $ | (1,684) | | | $ | (1,684) | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| 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 | ) |
| | | | | | | | | | | | | | | |
| | | | | | | |
| | | | | Foreign Currency Translation Adjustments | | Accumulated Other Comprehensive Loss |
Balance, September 30, 2022 | | | | | $ | (2,607) | | | $ | (2,607) | |
Current period other comprehensive loss before reclassifications | | | | | 923 | | | 923 | |
| | | | | | | |
| | | | | | | |
Balance, December 31, 2022 | | | | | $ | (1,684) | | | $ | (1,684) | |
|
| | | | | | | | | | | | | | | |
| 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 | ) |
(11) STOCK REPURCHASE PROGRAM
On May 4, 2016, our Board of Directors authorized the repurchase of up to $10.0 million of our outstanding common stock from time to time through May 4, 2018.
On April 25, 2017, our Board of Directors authorized an additional $15.0 million share repurchase program, bringing the total authorization under existing programs to $25.0 million. Under the new program, shares of our common stock may be repurchased from time to time through April 25, 2019. Repurchases may be made in open market transactions at prevailing prices, in privately negotiated transactions, or by other means in accordance with federal securities laws. Share repurchases will be funded from existing cash balances, and repurchased shares will be retired and returned to unissued authorized shares.
As of September 30, 2017, there was $18.2 million remaining available for repurchases under the share repurchase programs.
Cumulative repurchases pursuant to the programs are as follows:
|
| | | | | | |
Quarter Ended | | Number of Shares | | Repurchased Amount | | Average Price Per Share |
December 31, 2016 | | 120,996 | | $1,957,882 | | $16.18 |
March 31, 2017 | | 218,515 | | 3,426,959 | | 15.68 |
September 30, 2017 | | 86,856 | | 1,420,934 | | 16.36 |
Totals-to-Date | | 426,367 | | $6,805,775 | | $15.96 |
(12) INCOME(18) LOSS PER SHARE
Basic per share amounts were computed using the weighted average number of common shares outstanding. Diluted per share amounts were calculated using the number of basic weighted average shares outstanding increased by dilutive potential common shares related to stock-based awards, as determined by the treasury stock method. Basic income per share amounts were computed using the weighted average number of common shares outstanding. Diluted income per share amounts were calculated using the number of basic weighted average shares outstanding increased by dilutive potential common shares related to stock-based awards, as determined by the treasury stock method.
The weighted average numbers of shares outstanding used to compute incomeloss per share were as follows (in thousands):
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Shares used to calculate basic income per share | 30,749 |
| | 31,118 |
| | 30,739 |
| | 31,069 |
|
Dilutive effect of outstanding stock options, performance stock units and restricted stock units | 326 |
| | 267 |
| | 359 |
| | 271 |
|
Shares used to calculate diluted income per share | 31,075 |
| | 31,385 |
| | 31,098 |
| | 31,340 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Shares used to calculate basic income per share | 36,382 | | | 31,514 | | | 34,924 | | | 31,502 | |
Dilutive effect of outstanding stock options, performance stock units and restricted stock units | — | | | — | | | — | | | — | |
Shares used to calculate diluted income per share | 36,382 | | | 31,514 | | | 34,924 | | | 31,502 | |
Potentially Dilutive Shares
The weighted average number of potentially dilutive shares outstanding listed in the table below were excluded from the computation of diluted per share amounts since we had a loss from continuing operations in both periods, as such, the exercise or conversion of any potentially dilutive shares would increase the number of shares in the denominator and result in a lower loss per diluted share.
The weighted average number of potentially dilutive shares outstanding were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Performance stock units | 28 | | | — | | | 10 | | | — | |
Restricted stock units | — | | | 102 | | | 15 | | | 201 | |
Stock options | — | | | 44 | | | — | | | 104 | |
Total potentially dilutive shares excluded due to net loss | 28 | | | 146 | | | 25 | | | 305 | |
Anti-Dilutive Shares
The weighted average numbers of shares outstanding listed in the table below were anti-dilutive and excluded from the computation of diluted incomeloss per share. In the case of restricted stock units, this is because unrecognized compensation expense exceeds the current value of the awards (i.e., grant date market value was higher than current average market price). In the case of stock options, this is because the average market price did not exceed the exercise price.
These shares may be dilutiveanti-dilutive potential common shares in the future (in thousands):
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Stock options | 7 |
| | 4 |
| | 8 |
| | 11 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
Stock options | 2,718 | | | 1,849 | | | 2,410 | | | 1,391 | |
RSUs | 1,268 | | | 855 | | | 1,206 | | | 193 | |
| | | | | | | |
Total anti-dilutive shares excluded | 3,986 | | | 2,704 | | | 3,616 | | | 1,584 | |
(13)
(19) SEGMENT AND ENTERPRISE-WIDE INFORMATION
In accordance with FASB ASC 280, Segment Reporting, we determined that weWe have two operating segments, - Direct and Retail. There have beenwere no changes in our operating segments during the nine monthsnine-months ended September 30, 2017.December 31, 2023.
We evaluate performance of the operating segments using several factors, of which the primary financial measures are net sales and reportable segment contribution. Contribution is the measure of profit or loss, defined as net sales less product costs and directly attributable expenses. Directly attributable expenses include selling and marketing expenses, general and administrative expenses, and research and development expenses that are directly related to segment operations. Segment assets are those directly assigned to an operating segment's operations, primarily accounts receivable, inventories, goodwill and other intangible assets. Unallocated assets primarily include cash, and
cash equivalents available-for-sale securities,and restricted cash, derivative securities, shared information technology infrastructure,
distribution centers, corporate headquarters, prepaids and other current assets, deferred income tax assets and other assets. Capital expenditures directly attributable to the Direct and Retail segments were not significant in any period.
Following is summary information by reportable segment (in thousands):
| | Three-Months Ended December 31, | |
| Three-Months Ended December 31, | |
| Three-Months Ended December 31, | |
| 2023 | |
| 2023 | |
| 2023 | |
Net sales: | |
Net sales: | |
Net sales: | |
Direct | |
Direct | |
Direct | |
Retail | |
Retail | |
Retail | |
Royalty | |
Royalty | |
Royalty | |
Consolidated net sales | |
Consolidated net sales | |
Consolidated net sales | |
| Contribution: | |
| Contribution: | |
| Contribution: | |
Direct | |
Direct | |
Direct | |
Retail | |
Retail | |
Retail | |
Royalty | |
Royalty | |
Royalty | |
Consolidated contribution | |
Consolidated contribution | |
Consolidated contribution | |
| Reconciliation of consolidated contribution to loss from continuing operations: | |
| Reconciliation of consolidated contribution to loss from continuing operations: | |
| Reconciliation of consolidated contribution to loss from continuing operations: | |
Consolidated contribution | |
Consolidated contribution | |
Consolidated contribution | |
Amounts not directly related to segments: | |
Amounts not directly related to segments: | |
Amounts not directly related to segments: | |
Operating expenses(1)(2) | |
Operating expenses(1)(2) | |
Operating expenses(1)(2) | |
Other (expense) income, net | |
Other (expense) income, net | |
Other (expense) income, net | |
Income tax expense | |
Income tax expense | |
Income tax expense | |
Loss from continuing operations | |
Loss from continuing operations | |
Loss from continuing operations | |
(1) Included in unallocated Operating expenses for the three and nine months ended December 31, 2023 is an asset impairment charge of $20.9 million, $17.2 million of which related to the Direct segment and $3.7 million of which related to the Retail segment. See Note 6 - Asset Impairment Charge for additional information. | |
(1) Included in unallocated Operating expenses for the three and nine months ended December 31, 2023 is an asset impairment charge of $20.9 million, $17.2 million of which related to the Direct segment and $3.7 million of which related to the Retail segment. See Note 6 - Asset Impairment Charge for additional information. | |
(1) Included in unallocated Operating expenses for the three and nine months ended December 31, 2023 is an asset impairment charge of $20.9 million, $17.2 million of which related to the Direct segment and $3.7 million of which related to the Retail segment. See Note 6 - Asset Impairment Charge for additional information. | |
(2) Included in unallocated Operating expenses for the nine months ended December 31, 2022 is $24.5 million of Goodwill and intangible impairment charge related to the Direct segment and $1.6 million of intangible impairment charge related to the Retail segment that is not included in the contribution performance measured by the chief operating decision maker. | |
(2) Included in unallocated Operating expenses for the nine months ended December 31, 2022 is $24.5 million of Goodwill and intangible impairment charge related to the Direct segment and $1.6 million of intangible impairment charge related to the Retail segment that is not included in the contribution performance measured by the chief operating decision maker. | |
(2) Included in unallocated Operating expenses for the nine months ended December 31, 2022 is $24.5 million of Goodwill and intangible impairment charge related to the Direct segment and $1.6 million of intangible impairment charge related to the Retail segment that is not included in the contribution performance measured by the chief operating decision maker. | |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Net sales: | | | | | | | |
Direct | $ | 33,986 |
| | $ | 33,710 |
| | $ | 147,800 |
| | $ | 159,884 |
|
Retail | 53,505 |
| | 46,223 |
| | 128,393 |
| | 117,939 |
|
Royalty | 641 |
| | 885 |
| | 2,220 |
| | 2,452 |
|
Consolidated net sales | $ | 88,132 |
| | $ | 80,818 |
| | $ | 278,413 |
| | $ | 280,275 |
|
Contribution: | | | | | | | |
Direct | $ | 5,289 |
| | $ | 2,584 |
| | $ | 23,141 |
| | $ | 31,253 |
|
Retail | 12,118 |
| | 9,164 |
| | 20,427 |
| | 17,225 |
|
Royalty | 638 |
| | 871 |
| | 2,206 |
| | 2,419 |
|
Consolidated contribution | $ | 18,045 |
| | $ | 12,619 |
| | $ | 45,774 |
| | $ | 50,897 |
|
| | | | | | | |
Reconciliation of consolidated contribution to income from continuing operations: | | | | | | | |
Consolidated contribution | $ | 18,045 |
| | $ | 12,619 |
| | $ | 45,774 |
| | $ | 50,897 |
|
Amounts not directly related to segments: | | | | | | | |
Operating expenses | (4,680 | ) | | (4,408 | ) | | (15,877 | ) | | (16,813 | ) |
Other expense, net | (161 | ) | | (218 | ) | | (648 | ) | | (1,336 | ) |
Income tax expense | (4,862 | ) | | (148 | ) | | (10,156 | ) | | (9,621 | ) |
Income from continuing operations | $ | 8,342 |
| | $ | 7,845 |
| | $ | 19,093 |
| | $ | 23,127 |
|
|
There was no material change in the allocation of assets by segment during the first nine months of 2017 and, accordingly, assets by segment are not presented. | | | | | | | | | | | | | |
| As of |
| December 31, 2023 | | March 31, 2023 | | |
Assets: | | | | | |
Direct | $ | 37,129 | | | $ | 50,493 | | | |
Retail | 48,604 | | | 58,214 | | | |
Unallocated corporate | 54,384 | | | 54,825 | | | |
Total assets | $ | 140,117 | | | $ | 163,532 | | | |
Certain customers individually representedThe following customer accounted for 10% or more of total net sales as follows:
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2017 | | 2016 | | 2017 | | 2016 |
Customer: | | | | | | | |
Customer #1 | 18.5 | % | | 17.2 | % | | 13.5 | % | | 12.1 | % |
Customer #2 | 13.7 | % | | * |
| | * |
| | * |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Nine-Months Ended December 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Amazon.com | 11.2% | | 10.0% | | 14.2% | | 22.0% |
| | | | | | | |
Costco | * | | 11.0% | | * | | * |
| | | | | | | |
*Less than 10% of total net sales. | | | | | | | |
*
(20) BORROWINGS
Amendment to Existing Term Loan Credit Agreement
On July 28, 2023, we entered into an amendment (the “Term Loan Amendment”) to our existing SLR Term Loan with Crystal Financial LLC, d/b/a SLR Credit Solutions ("SLR") dated as of November 30, 2022 (as amended, the "SLR Term Loan").
The Term Loan Amendment provides us with an increased borrowing advance rate for certain eligible accounts owed to us by Amazon.com, Inc. and its affiliates, and allows for certain compliance reports to be delivered to SLR under the SLR Term Loan on a monthly (rather than weekly) basis as long as specified conditions are satisfied.
Amendment to Existing ABL Credit Agreement
On July 28, 2023, we entered into an amendment (the “ABL Amendment”) to our existing Credit Agreement with Wells Fargo Bank, National Association ("Wells Fargo") dated as of January 31, 2020 (as amended, the "ABL Credit Facility").
The ABL Amendment provides us with an increased borrowing advance rate for certain eligible accounts owed to us by Amazon.com, Inc. and its affiliates and allows for certain compliance reports to be delivered on a monthly (rather than weekly) basis as long as specified conditions are satisfied. Less than 10%In addition, the ABL Amendment reduced the maximum revolving loan commitment amount under the ABL Credit Facility from $60.0 million to $40.0 million.
In connection with the amendment of the SLR Term Loan and ABL Credit Facility, we recorded a total loss of $0.3 million, as a component of Other, net in our Condensed Consolidated Statements of Operations. (14)
As of December 31, 2023, outstanding principal and accrued and unpaid interest totaled $26.7 million, with $16.6 million and $10.1 million under our SLR Term Loan and ABL Credit Facility, respectively. As of December 31, 2023, we were in compliance with the financial covenants contained in the agreements governing both the SLR Term Loan and ABL Credit Facility, and $24.4 million was available for borrowing under ABL Credit Facility.
As of December 31, 2023, our interest rate was 10.36% for the ABL Credit Facility and 13.89% for the SLR Term Loan. Interest on the ABL Credit Facility accrues at the Secured Overnight Financing Rate ("SOFR") plus a margin of 5.00% to 5.50% (based on average quarterly availability) and interest on the SLR Term Loan accrues at SOFR plus a margin of 7.75% to 8.25% (based on fixed charge coverage ratio).
The balance sheet classification of the borrowings under the loan facilities has been determined in accordance with ASC 470, Debt.
See Note 1 - General Information for a discussion of our ability to continue as a going concern and maintain compliance with our debt covenants in future periods.
(21) COMMITMENTS AND CONTINGENCIES
Operating leases
We lease property and equipment under non-cancellable operating leases which, in the aggregate, extend through 2029. Many of these leases contain renewal options and provide for rent escalations and payment of real estate taxes, maintenance, insurance and certain other operating expenses of the properties.
For additional information related to leases, see Note 13 - Leases.
Guarantees, Commitments and Off-Balance Sheet Arrangements
As of September 30, 2017,December 31, 2023, we had no standby letters of credit.credit of $2.1 million.
We have long lead times for inventory purchases and, therefore, must secure factory capacity from our vendors in advance. As of September 30, 2017,December 31, 2023, we had approximately $37.5$2.6 million, compared to $12.1 million as of March 31, 2023, in noncancelablenon-cancellable market-based purchase obligations, primarily to secure additional factory capacity for inventory purchases expected to be received withinin 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 NautilusBowFlex warehouses.
In the ordinary course of business, we enter into agreements that require us to indemnify counterparties against third-party claims. These may include: agreements with vendors and suppliers, under which we may indemnify them against claims arising from 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 indemnification obligations vary from contract to contract, and generally a maximum obligation is not stated within the agreements. We hold insurance policies that mitigate potential losses arising from certain types of indemnification obligations. Management does not deem these obligations to be significant to our financial position, results of operations or cash flows, and therefore, no related liabilities were recorded as of September 30, 2017.December 31, 2023.
Legal Matters
From time to time, in the ordinary course of business, we may be involved in various claims, lawsuits and other proceedings. These legal and tax proceedings involve uncertainty as to the eventual outcomes and losses which may be realized when one or more future events occur or fail to occur.
Litigation and jury verdicts are, to some degree, inherently unpredictable, and although we have determined that a loss is not probable in connection with any current legal proceeding, it is reasonably possible that a loss may be incurred in connection with proceedings to which we are a party. Assessment of whether incurrence of a loss is probable, or a reasonable possibility, in connection with a particular proceeding, and estimation of the loss, or a range of loss, involves complex judgments and numerous uncertainties. Management is unable to estimate a range of reasonably possible losses related to litigation in which the damages sought are indeterminate, or the legal and factual basis for the relevant claims have not been developed with specificity. As such, zero liability is recorded as of September 30, 2017.
We regularly monitor our estimated exposure to these contingencies and, as additional information becomes known, may change our estimates accordingly. We evaluate, on a quarterly basis, developments in legal proceedings, investigations or claims that could affect the amount of any accrual, as well as any developments that would make a loss probable or reasonably possible, and whether the amount of a probable or reasonably possible loss is estimable. Among other factors, we evaluate the advice of internal and external counsel, the outcomes from similar litigation, the current status of the lawsuits (including settlement initiatives), legislative developments and other factors. Due to the numerous variables associated with these judgments and assumptions, both the precision and reliability of the resulting estimates of the related loss contingencies are subject to substantial uncertainties. Further, while we face contingencies that are reasonably possible to occur, we are unable to estimate the possible loss or range of loss at this time.
Indemnification SettlementDuring the three months ended September 30, 2017, we received payment in settlement
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 DecemberMarch 31, 20162023 (the “2016“2023 Form 10-K”). All references to the third quarter and first nine monthsnine-months ended of 2017fiscal 2024 and 2016fiscal 2023 mean for the three and nine-month periods ended September 30, 2017December 31, 2023 and 2016,2022, respectively. Unless the context otherwise requires, “Nautilus,“BowFlex,” “we,” “us” and “our” refer to Nautilus,BowFlex Inc. and its subsidiaries. Unless indicated otherwise, all information regarding our operating results pertains to our continuing operations.
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. Our profit margins may vary in response to the aforementioned factors and our ability to manage product costs. Profit margins may also be affected by fluctuations in the costs or availability of materials used to manufacture our products, costs associated with acquisition or license of products and technologies, product warranty costs, the cost of fuel, and changes in costs of other distribution or manufacturing-related services. Our operating profits or losses may also be affected by the efficiency and effectiveness of our organization. Historically, our operating expenses have been influenced by media costs to produce and distribute advertisements of our products on television, the Internet and other media, facility costs, operating costs of our information and communications systems, product supply chain management, customer support and new product development activities. In addition, our operating expenses have been affected from time-to-time by asset impairment charges, restructuring charges and other significant unusual or infrequent expenses.
As a result of the above and other factors, our period-to-period operating results may not be indicative of future performance. You should not place undue reliance on our operating results and should consider our prospects in light of the risks, expenses and difficulties typically encountered by us and other companies, both within and outside our industry. We may not be able to successfully address these risks and difficulties and, consequently, we cannot assure you of any future growth or profitability. For more information, see our discussion of risk factors located at Part I, Item 1A of our 2016 Form 10-K.
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,"“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; our ability to continue as a going concern; our ability to maintain compliance with debt covenants; potential strategic, financing and financial performance;restructuring transactions, including making voluntary petitions under federal bankruptcy laws; our ability to maintain the listing of our securities on the NYSE or another securities exchange; 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;expenditures and anticipated results from such expenditures and other investments in our capabilities and resources; anticipated losses from discontinued operations; results of media investment in the Direct segment; 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, our ability to successfully integrate acquired businesses,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, 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 or at all, the impact of any current or 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“Risk Factors,"” in our 20162023 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.
Going Concern
See Note 1 – General Information of Notes to Condensed Consolidated Financial Statements for a discussion of our ability to continue as a going concern.
NYSE Delisting Notification
See Note 2 – NYSE Delisting Notification for a discussion of our ability to maintain our NYSE listing status.
Overview
We empower healthier living through individualized connected fitness experiences and are committed to providing innovative, quality solutions to help people achievebuilding a fit and healthy lifestyle.healthier world, one person at a time. Our principal business activities include designing, developing, sourcing and marketing high-quality cardio and strength fitness products, and related accessories and a digital platform for consumer use, primarily in the U.S., Canada, Europe and Europe.Asia. Our products are sold under some of the most-recognized brand names in the fitness industry: NautilusBowFlex®, Bowflex®, Octane Fitness®, Schwinn®, JRNY® and Universalpreviously the Nautilus®.brand. Consistent with our North Star strategy, in fiscal 2024 we sold the Nautilus® brand trademark assets and related licenses, which we view as non-core assets. In connection with the sale of the Nautilus® assets, effective November 1, 2023, our corporate name was changed to “BowFlex Inc.” and our common stock began trading on the New York Stock Exchange under the ticker symbol “BFX.”
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 television advertising, catalogs and the Internet.websites. Our Retail business offers our products through a network of independent retail companies and specialty retailers with stores and websites locatedto 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.
Our results for the three and nine-months ended December 31, 2023 were 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 have made strong progress on all these pillars over the past two years and we believe that we have set the foundation for becoming a leader in connected fitness by leveraging our equipment business and scaling a differentiated offering.
Our transformation will build on our leading brands, products, innovation, distribution and digital assets. Our operating model is a strategic advantage. Our asset-light manufacturing, diversified product portfolio, omni-channel distribution and variable cost structure, which enables tight management of margin, operating expenses and inventory levels, is a model built to flex with variability in market conditions.
The profound and enduring shift in consumer fitness habits post-pandemic toward at-home workouts continues to enhance our long-term opportunities. We believe this is a long-term shift and we are well-positioned to take advantage of this opportunity.
To weather the macro-economic and retail challenges that we currently face, we are staying grounded in our mission and unwavering dedication to build a healthier world, one person at a time. We also remain steadfast in our strategy to provide consumers a broad variety of superior products at a range of price points via our omni-channel distribution model. We continue to enhance our product portfolio with our differentiated JRNY® connected fitness offering. We believe that the advantages associated with a broad assortment of products and omni-channel distribution model allow us to offset areas of weakness.
Comparison for the Three-Month Period Ended December 31, 2023to the Three-Month Period Ended December 31, 2022
•Net sales for the first nine months of 2017 were $278.4$67.6 million, compared to $98.1 million, a decreasedecline of $1.9 million, or 0.7%, as compared to net31.1% versus last year. The sales of $280.3 million for the first nine months of 2016. decline versus last year was driven primarily by lower customer demand.
•Net sales of our Direct segment decreased $12.1by $8.1 million, or 7.6%17.4%, infor the first nine months of 2017,three-months ended December 31, 2023, compared to the first nine months of 2016,three-months ended December 31, 2022. The net sales decrease compared to last year was primarily due to a decline in TreadClimberdriven by lower customer demand.
•® sales. Net sales of our Retail segment increaseddecreased by $10.5$21.9 million, or 8.9%43.2%, infor the first nine months of 2017,three-months ended December 31, 2023, 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.three-months ended December 31, 2022. The decrease in gross profit dollarsnet sales compared to last year was primarily driven by lower demand from retailers.
•Royalty income for the three-months ended December 31, 2023 decreased by $0.5 million compared to the three-months ended December 31, 2022. The decrease in Royalty income was primarily due to the sale of the Nautilus® brand trademarks and related royalty licenses.
•Gross profit was $17.4 million, compared to $22.9 million last year, a decrease of 23.9%. Gross profit margin was 25.7% compared to 23.3% last year. The 2 ppt increase in net sales. Grossgross profit margin percentage points decreased 1.8%was primarily due to lower landed product costs (+12 ppts), partially offset by unfavorable absorption of JRNY COGs (-3 ppts), higher outbound freight (-2 ppts), increased discounting (-1 ppt), increased inventory adjustments (-1 ppt), unfavorable logistics overhead absorption (-1 ppt) and increased warranty costs (-1 ppt).
•Operating expenses were $50.2 million compared to $33.1 million last year. The increase of $17.1 million, or 51.5%, was primarily due to a shift$20.9 million asset impairment charge in segment mix, reflecting an increased percentage of Retail sales,the current quarter, a $0.8 million increase in other marketing expenses and a decline$0.5 million increase in the Direct channel margin.
Operating expenses for the first nine months of 2017 were $111.5bad debt expense, partially offset by a $1.5 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. Themedia spending, a $1.2 million decrease in sales and marketing expense was due toinformation technology costs, a retroactive financing fees rebate of $2.1$1.0 million decrease in personnel expenses, and a $1.0 million settlement payment receiveddecrease in connection with an indemnification claim.product development expenses. Total advertising expenses were $8.0 million this year versus $9.5 million last year.
•Operating income for the first nine months of 2017loss was $29.9$32.8 million a decrease of $4.2 million, or 12.3%, as compared to an operating incomeloss of $34.1$10.3 million for the first nine monthslast year, primarily driven by lower sales and an asset impairment charge included in our operating expenses, partially offset by lower cost of 2016.sales.
•Income tax expense was $0.1 million this year compared to $0.3 million last year. The decrease in operating income for the first nine months of 2017tax expense compared to last year was primarily driven by higher foreign related taxes in the first nine months of 2016 was driven primarily by the lower net sales and gross margin dollars.prior year period.
Income•Loss from continuing operations was $19.1$34.3 million, for the first nine months of 2017, or $0.61$0.94 per diluted share, compared to a loss of $11.1 million, or $0.35 per diluted share, last year.
•Net loss was $34.3 million, or $0.94 per diluted share, compared to a net loss of $11.1 million, or $0.35 per diluted share, last year.
Comparison for the Nine-Month Period Ended December 31, 2023 to the Nine-Month Period Ended December 31, 2022
•Net sales were $158.0 million, compared to $218.4 million, a decline of 27.7% versus last year. The net sales decline versus last year was driven primarily by lower customer demand.
•Net sales of our Direct segment decreased by $16.5 million, or 16.9%, for the nine-months ended December 31, 2023, compared to the nine-months ended December 31, 2022. The net sales decrease compared to last year was primarily driven by lower customer demand.
•Net sales of our Retail segment decreased by $42.0 million, or 35.6%, for the nine-months ended December 31, 2023, compared to the nine-months ended December 31, 2022. The net sales decrease compared to last year was primarily driven by lower demand from retailers.
•Royalty income for the nine-months ended December 31, 2023 decreased by $1.9 million compared to the nine-months ended December 31, 2022. The decrease in Royalty income was primarily due to the sale of the Nautilus® brand trademarks and related royalty licenses.
•Gross profit was $36.0 million, compared to $41.3 million last year. Gross profit margin was 22.8% compared to 18.9% last year. The 4 ppt increase in gross profit margin was primarily due to lower landed product costs (+11 ppts), partially offset by unfavorable absorption of JRNY COGS (-4 ppts), increased discounting (-1 ppt), increased outbound freight (-1 ppt) and increased warranty costs (-1 ppt).
•Operating expenses were $90.6 million compared to $117.1 million last year. The decrease of $26.5 million, or 22.7%, was primarily due to an asset impairment charge in the current period that is $6.1 million less than the goodwill and asset impairment charge incurred in the prior period, a $9.5 million decrease in personnel expenses, a $6.9 million decrease in media spending, a $1.2 million decrease in
third-party logistics expenses, a $1.1 million decrease in other variable general and administrative expenses due to decreased sales, a $0.9 million decrease in product development costs, a $0.7 million decrease in finance fees, a $0.5 million decrease in information technology expenses, a $0.5 million decrease in legal expenses, and a $0.4 million decrease related to fitness equipment sample expenses, partially offset by a $0.8 million increase in facility fees and a $0.2 million increase in other marketing expenses. Total advertising expenses were $11.4 million versus $18.3 million last year.
•Operating loss was $54.6 million or a negative 34.5% operating margin, compared to an operating loss of $75.8 million last year, primarily driven by lower cost of sales and lower operating expenses, partially offset by lower sales.
•Income tax expense was $1.1 million this year compared to $8.6 million last year. Income tax expense in the current period was primarily driven by foreign related taxes and reserves related to an income tax audit. The decrease in income tax expense compared to last year was primarily the result of the U.S. deferred tax asset valuation allowance recognized in fiscal 2023.
•Loss from continuing operations of $23.1was $51.8 million, or $0.74$1.48 per diluted share, compared to a loss of $86.6 million, or $2.75 per diluted share, last year.
•Net loss was $51.8 million, or $1.48 per diluted share, compared to a net loss of $84.5 million or $2.68 per diluted share, last year.
North Star Strategy Update
JRNY® Digital Platform
•BowFlex continues to enhance and refine existing JRNY® features that are popular with customers, including its personalized recommendations and differentiated, adaptive workouts.
•As of December 31, 2023, JRNY® Members reached 651,000, representing approximately 45% growth versus the same quarter last year. Of these Members,127,000 were Subscribers, representing a decrease of approximately 18% compared to the same period last year. BowFlex defines 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. A Subscriber is a person or household who paid for a subscription, is in a trial subscription period, or has requested a "pause"' to their subscription for up to three months.
•In fiscal 2023, BowFlex introduced JRNY® with Motion Tracking offering personalized coaching and feedback, automatic rep tracking, form guidance, and adaptive weight targets to all JRNY® memberships. Accessible via iOS or Android tablets and mobile devices, these embedded features are available to all JRNY® members with their existing membership and without the first nine monthsneed for additional equipment. Thousands of 2016. The effective tax rates forusers have completed Motion Tracking workouts in the first nine monthspast year and we continue to enhance key features within the JRNY® platform to deliver value to existing Members and drive membership growth. Today, new customers can take advantage of 2017a two-month free trial of JRNY®, with no credit card required at sign up.
•A JRNY® Mobile-Only subscription, priced at $11.99 per month or $99, per year gives Members access to hundreds of trainer-led and 2016 were 34.7%Explore the World cardio workouts, as well as adaptive strength, whole body, yoga, and 29.4%, respectively. The 5.3% year-over-year percentage rate increase wasmobility workouts, through their mobile device or tablet and a compatible BowFlex® or Schwinn® connectable product.
•A JRNY® All-Access subscription, priced at $19.99 per month or $149 per year, expands a Member's usage to access workouts through any of our BowFlex® built-in touchscreen cardio products, including our Velocore® indoor cycling bike, Max Trainers, and treadmills.
Factors Affecting Our Performance
Our results of operations may vary significantly from period-to-period.
Our revenues typically fluctuate due to the releaseseasonality of previously unrecognized tax benefitsour 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.
Our gross margins are being impacted by, among other things:
•Increased product costs, primarily driven by our increasing use of more expensive components in our products, which now include our connected fitness JRNY® platform.
•Fluctuations in the availability, and as a result the costs, of materials used to manufacture our products.
•Tariffs and expedited shipping and transportation costs.
•Fluctuations in cost associated with certain non-U.S. filing positions during the third quarteracquisition or license of 2016.products and technologies, product warranty claims, fuel, foreign currency exchange rates, and changes in costs of other distribution or manufacturing-related services.
•The efficiency and effectiveness of our organization and operations.
Net income
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, 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.
Forecasting for our business has proven to be challenging. Despite solid demand for our products as demonstrated in our Direct segment, headwinds in Retail re-orders persist as our retail partners continue to act conservatively in light of uncertainty in the first nine monthseconomic environment. We have had significant difficulty in forecasting near-term demand and, as a result, our expected near-term operating performance. We are taking decisive actions to reduce our costs and realign our business with the short-term revenue outlook. See "Risk Factors - Strategic and Operational Risks - Our operating results could be adversely affected if we are unable to accurately forecast consumer demand for our products and services and adequately manage our inventory" in our 2023 Form 10-K.
As a result of 2017 was $17.8 million, comparedthe 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 net incomesuccessfully address these risks and difficulties and, consequently, we cannot assure you any future growth or profitability. For more information, see our discussion of $22.6 million for the first nine monthsRisk Factors located at Part I, Item 1A 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.our 2023 Form 10-K.
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 relatedIn fiscal 2023, we continued to the Commercial business in either the 2017 or 2016 periods, we continue to haveincur product liability and other legal expenses associated with product previously sold into the Commercial channel.
In the second quarter of fiscal 2023, we completed the tax deregistration of a foreign entity which was part of the discontinued operations. As a result, the previously unrecognized tax benefit and associated accrued interest and penalties in the amount of $2.1 million was released and recorded as a component of income taxes from discontinued operations in the second quarter of fiscal 2023. Year to date expenses related to discontinued operations were immaterial.
RESULTS OF OPERATIONS
Results of operations information was as follows (dollars in(in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
Net sales | $ | 67,566 | | | $ | 98,079 | | | $ | (30,513) | | | (31.1) | % |
Cost of sales | 50,177 | | | 75,219 | | | (25,042) | | | (33.3) | % |
Gross profit | 17,389 | | | 22,860 | | | (5,471) | | | (23.9) | % |
Operating expenses: | | | | | | | |
Selling and marketing | 15,129 | | | 17,203 | | | (2,074) | | | (12.1) | % |
General and administrative | 9,382 | | | 10,859 | | | (1,477) | | | (13.6) | % |
Research and development | 4,049 | | | 5,086 | | | (1,037) | | | (20.4) | % |
Restructuring and exit charges | 765 | | | — | | | 765 | | | NM |
Goodwill and asset impairment charge | 20,881 | | | — | | | 20,881 | | | NM |
| | | | | | | |
| | | | | | | |
Total operating expenses | 50,206 | | | 33,148 | | | 17,058 | | | 51.5 | % |
Operating loss | (32,817) | | | (10,288) | | | (22,529) | | | (219.0) | % |
Other expense: | | | | | | | |
Interest income | 4 | | | 1 | | | 3 | | | |
Interest expense | (1,075) | | | (1,187) | | | 112 | | | |
Other, net | (334) | | | 715 | | | (1,049) | | | |
Total other expense, net | (1,405) | | | (471) | | | (934) | | | |
Loss from continuing operations before income taxes | (34,222) | | | (10,759) | | | (23,463) | | | |
Income tax expense | 117 | | | 322 | | | (205) | | | |
Loss from continuing operations | (34,339) | | | (11,081) | | | (23,258) | | | |
Loss from discontinued operations | — | | | (1) | | | 1 | | | |
Net loss | $ | (34,339) | | | $ | (11,082) | | | $ | (23,257) | | | |
NM = Not meaningful | | | | | | | |
|
| | | | | | | | | | | | | | Nine-Months Ended December 31, | | Change |
| Three Months Ended September 30, | | Change |
| 2017 | | 2016 | | $ | | % |
| 2023 | | | 2023 | | 2022 | | $ | | % |
Net sales | $ | 88,132 |
| | $ | 80,818 |
| | $ | 7,314 |
| | 9.0 | % | Net sales | $ | 157,975 | | | $ | | $ | 218,354 | | | $ | | $ | (60,379) | | | (27.7) | | (27.7) | % |
Cost of sales | 46,817 |
| | 41,601 |
| | 5,216 |
| | 12.5 | % | Cost of sales | 121,982 | | | 177,078 | | 177,078 | | | (55,096) | | (55,096) | | | (31.1) | | (31.1) | % |
Gross profit | 41,315 |
| | 39,217 |
| | 2,098 |
| | 5.3 | % | Gross profit | 35,993 | | | 41,276 | | 41,276 | | | (5,283) | | (5,283) | | | (12.8) | | (12.8) | % |
Operating expenses: | | | | | | | |
Selling and marketing | 18,028 |
| | 21,394 |
| | (3,366 | ) | | (15.7 | )% |
Selling and marketing | |
Selling and marketing | | 28,153 | | | 39,493 | | | (11,340) | | | (28.7) | % |
General and administrative | 6,305 |
| | 6,177 |
| | 128 |
| | 2.1 | % | General and administrative | 27,256 | | | 34,317 | | 34,317 | | | (7,061) | | (7,061) | | | (20.6) | | (20.6) | % |
Research and development | 3,617 |
| | 3,435 |
| | 182 |
| | 5.3 | % | Research and development | 11,734 | | | 16,315 | | 16,315 | | | (4,581) | | (4,581) | | | (28.1) | | (28.1) | % |
Restructuring and exit charges | | Restructuring and exit charges | 2,527 | | | — | | | 2,527 | | | NM |
Goodwill and intangible impairment charge | | Goodwill and intangible impairment charge | 20,881 | | | 26,965 | | | (6,084) | | | (22.6) | % |
| Total operating expenses | 27,950 |
| | 31,006 |
| | (3,056 | ) | | (9.9 | )% |
Operating income | 13,365 |
| | 8,211 |
| | 5,154 |
| | 62.8 | % |
Total operating expenses | |
Total operating expenses | | 90,551 | | | 117,090 | | | (26,539) | | | (22.7) | % |
Operating loss | | Operating loss | (54,558) | | | (75,814) | | | 21,256 | | | 28.0 | % |
Other income (expense): | | | | | | | |
Interest income | 170 |
| | 60 |
| | 110 |
| | |
Interest income | |
Interest income | |
Interest expense | |
Interest expense | |
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 |
| | |
Other, net | |
Other, net | |
Total other income (expense), net | |
Total other income (expense), net | |
Total other income (expense), net | |
Loss from continuing operations before income taxes | |
Loss from continuing operations before income taxes | |
Loss from continuing operations before income taxes | |
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 |
| | |
Income tax expense | |
Income tax expense | |
Loss from continuing operations | |
Loss from continuing operations | |
Loss from continuing operations | |
Income from discontinued operations, net of taxes | |
Income from discontinued operations, net of taxes | |
Income from discontinued operations, net of taxes | |
Net loss | |
Net loss | |
Net loss | |
NM = Not meaningful | |
NM = Not meaningful | |
NM = Not meaningful | |
|
|
| | | | | | | | | | | | | | |
| 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 | ) | | |
Results of operations information by segment and major product lines was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
Net sales: | | | | | | | |
Direct net sales: | | | | | | | |
Cardio products(1) | $ | 23,120 | | | $ | 32,403 | | | $ | (9,283) | | | (28.6) | % |
Strength products(2) | 15,488 | | | 14,326 | | | 1,162 | | | 8.1 | % |
Direct | 38,608 | | | 46,729 | | | (8,121) | | | (17.4) | % |
| | | | | | | |
Retail net sales: | | | | | | | |
Cardio products(1) | $ | 15,762 | | | $ | 20,949 | | | $ | (5,187) | | | (24.8) | % |
Strength products(2) | 12,960 | | | 29,652 | | | (16,692) | | | (56.3) | % |
Retail | 28,722 | | | 50,601 | | | (21,879) | | | (43.2) | % |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Royalty | 236 | | | 749 | | | (513) | | | (68.5) | % |
| $ | 67,566 | | | $ | 98,079 | | | $ | (30,513) | | | (31.1) | % |
| | | | | | | |
Cost of sales: | | | | | | | |
Direct | $ | 27,894 | | | $ | 34,458 | | | $ | (6,564) | | | (19.0) | % |
Retail | 22,283 | | | 40,761 | | | (18,478) | | | (45.3) | % |
| | | | | | | |
| $ | 50,177 | | | $ | 75,219 | | | $ | (25,042) | | | (33.3) | % |
| | | | | | | |
Gross profit: | | | | | | | |
Direct | $ | 10,714 | | | $ | 12,271 | | | $ | (1,557) | | | (12.7) | % |
Retail | 6,439 | | | 9,840 | | | (3,401) | | | (34.6) | % |
Royalty | 236 | | | 749 | | | (513) | | | (68.5) | % |
| $ | 17,389 | | | $ | 22,860 | | | $ | (5,471) | | | (23.9) | % |
Gross profit margin: | | | | | | | |
Direct | 27.8 | % | | 26.3 | % | | 150 | | basis points |
Retail | 22.4 | % | | 19.4 | % | | 300 | | basis points |
| | | | | | | |
Contribution: | | | | | | | |
Direct | $ | (7,654) | | | $ | (6,463) | | | $ | (1,191) | | | 18.4 | % |
Retail | 1,992 | | | 3,447 | | | (1,455) | | | (42.2) | % |
| | | | | | | |
Contribution rate: | | | | | | | |
Direct | (19.8) | % | | (13.8) | % | | (600) | | basis points |
Retail | 6.9 | % | | 6.8 | % | | 10 | | 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 (applicable to Direct only). |
(2) Strength products include: Bowflex® Home Gyms, BowFlex® SelectTech® dumbbells, kettlebell and barbell weights, and accessories. |
| | | | Nine-Months Ended December 31, | | Change |
| 2023 | | | 2023 | | 2022 | | $ | | % |
Net sales: | |
Direct net sales: | |
Direct net sales: | |
Direct net sales: | |
Cardio products(1) | |
Cardio products(1) | |
Cardio products(1) | | $ | 47,199 | | | $ | 66,029 | | | $ | (18,830) | | | (28.5) | % |
Strength products(2) | | Strength products(2) | 33,991 | | | 31,657 | | | 2,334 | | | 7.4 | % |
Direct | | Direct | 81,190 | | | 97,686 | | | (16,496) | | | (16.9) | % |
| Retail net sales: | |
Retail net sales: | |
Retail net sales: | |
Cardio products(1) | |
Cardio products(1) | |
Cardio products(1) | | $ | 36,085 | | | $ | 47,345 | | | $ | (11,260) | | | (23.8) | % |
Strength products(2) | | Strength products(2) | 39,894 | | | 70,604 | | | (30,710) | | | (43.5) | % |
Retail | | Retail | 75,979 | | | 117,949 | | | (41,970) | | | (35.6) | % |
| | | Three Months Ended September 30, | | Change |
Royalty | |
| 2017 | | 2016 | | $ | | % |
Net sales: | | | | | | | |
| Royalty | |
| Royalty | | 806 | | | 2,719 | | | (1,913) | | | (70.4) | % |
| $ | | | $ | 157,975 | | | $ | 218,354 | | | $ | (60,379) | | | (27.7) | % |
| Cost of sales: | |
Cost of sales: | |
Cost of sales: | |
Direct | |
Direct | |
Direct | | $ | 64,161 | | | $ | 77,751 | | | $ | (13,590) | | | (17.5) | % |
Retail | | Retail | 57,821 | | | 99,327 | | | (41,506) | | | (41.8) | % |
| | $ | |
| $ | |
| $ | | 121,982 | | | $ | 177,078 | | | $ | (55,096) | | | (31.1) | % |
| Gross profit: | |
Gross profit: | |
Gross profit: | |
Direct | |
Direct | |
Direct | $ | 33,986 |
| | $ | 33,710 |
| | $ | 276 |
| | 0.8 | % | $ | 17,029 | | | $ | | $ | 19,935 | | | | $ | (2,906) | | | | (14.6) | % |
Retail | 53,505 |
| | 46,223 |
| | 7,282 |
| | 15.8 | % | Retail | 18,158 | | | 18,622 | | 18,622 | | | | (464) | | | | (2.5) | % |
Royalty | 641 |
| | 885 |
| | (244 | ) | | (27.6 | )% | Royalty | 806 | | | 2,719 | | 2,719 | | | | (1,913) | | | | (70.4) | % |
| $ | 88,132 |
| | $ | 80,818 |
| | $ | 7,314 |
| | 9.0 | % |
Cost of sales: | | | | | | | |
| $ | | | $ | 35,993 | | | $ | 41,276 | | | $ | (5,283) | | | (12.8) | % |
Gross profit margin: | |
Direct | |
Direct | |
Direct | $ | 12,401 |
| | $ | 11,579 |
| | $ | 822 |
| | 7.1 | % | 21.0 | % | | 20.4 | % | | 60 | | basis points | basis points |
Retail | 34,413 |
| | 30,008 |
| | 4,405 |
| | 14.7 | % | Retail | 23.9 | % | | 15.8 | % | | 810 | | basis points | basis points |
Royalty | 3 |
| | 14 |
| | (11 | ) | | (78.6 | )% |
| $ | 46,817 |
| | $ | 41,601 |
| | $ | 5,216 |
| | 12.5 | % |
Gross profit: | | | | | | | |
Contribution: | |
Contribution: | |
Contribution: | |
Direct | |
Direct | |
Direct | $ | 21,585 |
| | $ | 22,131 |
| | $ | (546 | ) | | (2.5 | )% | $ | (20,030) | | | $ | | $ | (24,244) | | | $ | | $ | 4,214 | | | 17.4 | | 17.4 | % |
Retail | 19,092 |
| | 16,215 |
| | 2,877 |
| | 17.7 | % | Retail | 6,037 | | | (994) | | (994) | | | 7,031 | | 7,031 | | | 707.3 | | 707.3 | % |
Royalty | 638 |
| | 871 |
| | (233 | ) | | (26.8 | )% |
| $ | 41,315 |
| | $ | 39,217 |
| | $ | 2,098 |
| | 5.3 | % |
Gross margin: | | | | | | | |
Contribution rate: | |
Contribution rate: | |
Contribution rate: | |
Direct | |
Direct | |
Direct | 63.5 | % | | 65.7 | % | | (220 | ) | basis points | (24.7) | % | | (24.8) | % | | 10 | | basis points | basis points |
Retail | 35.7 | % | | 35.1 | % | | 60 |
| basis points | Retail | 7.9 | % | | (0.8) | % | | 870 | | basis points | 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. |
| | | | | | | |
|
| | | | | | | | | | | | | | |
| 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 monthThree-Month Period Ended December 31, 2023 to the Three-Month Period Ended December 31, 2022
Direct segment sales were $38.6 million for the three-month period ended September 30, 2017December 31, 2023, compared to $46.7 million, a decline of 17.4%, versus the same period of 2016 as new products, including the Bowflex HVTTM, offset a decline in TreadClimber® sales. For the nine months ended September 30, 2017, Direct2022. The net sales decreased 7.6% compared todecrease was primarily driven by lower customer demand.
Cardio sales declined 28.6% versus the same period of 2016in 2022 primarily driven by lower demand for bikes. Strength product sales increased 8.1% versus the same period last year primarily driven by higher demand for home gyms.
Gross profit margin was 27.8% for the three-month period ended December 31, 2023 versus 26.3% for the same period in 2022. Gross profit margin improved by 1.5 ppts due to gains from lower landed product costs (+9 ppts) which were offset by unfavorable absorption of JRNY COGs (-5 ppts), an increase in inventory adjustments (-1 ppt), higher outbound freight (-1 ppt) and unfavorable logistics overhead absorption (-1 ppt). Gross profit was $10.7 million, a declinedecrease of 12.7% versus the same period in TreadClimber2022.
®
Segment contribution loss was $7.7 million for the three-month period ended December 31, 2023, or 19.8% of sales, compared to segment contribution loss of $6.5 million, or 13.8% of sales, for the same period in 2022. The increase in segment contribution loss was primarily driven by lower gross profit, partially offset by a 33.0% increasedecreased media spend. Advertising expenses were $7.0 million compared to $8.9 million for the same period in strength product sales.2022.
Combined consumer credit approvals by our primary and secondary U.S. third-party financing providers for the third quarter of 2017fiscal 2023 were 53.7%57.0%, compared to 47.9% in52.8% 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 2022. The $0.8 million increase in costapprovals reflects higher credit quality applications.
Retail Segment
Comparison of sales of our Direct businessSegment Results for the three monthThree-Month Period Ended December 31, 2023 to the Three-Month Period Ended December 31, 2022
Retail net segment sales for the three-month period ended September 30, 2017December 31, 2023 were $28.7 million, compared to $50.6 million, a decline of 43.2% from the same period in 2022. Retail segment sales outside the United States and Canada were up 32.5% versus the same period in 2022. The overall net sales decrease compared to last year was primarily driven by lower demand from retailers.
Cardio sales for the three-month period ended December 31, 2023 decreased by 24.8% compared to the same period of 2016last year primarily driven by lower demand for bikes. Strength product sales declined by 56.3% versus last year primarily driven by lower demand for SelectTech® weights.
Gross profit margin was 22.4% for the three-month period ended December 31, 2023, up from 19.4% for the same period in 2022. The 3 ppt increase in gross profit margin was primarily due to lower landed product costs (+12 ppts) partially offset by unfavorable logistics overhead absorption (-3 ppts), increased discounting (-3 ppts), an increase in inventory adjustments (-2 ppts), an increase in warranty costs (-1 ppt), and higher outbound freight (-1 ppt).Gross profit was $6.4 million, a decrease of 34.6% versus the higher volume of sales. The $1.2same period in 2022.
Segment contribution income for the three-month period ended December 31, 2023 was $2.0 million, decrease in costor 6.9% of sales, compared to segment contribution income of our Direct business$3.4 million, or 6.8% of sales for the nine monthssame period in 2022. The decline was primarily driven by lower gross profit, partially offset by lower operating expenses.
Royalty
Royalty income decreased by $0.5 million, or 68.5%, to $0.2 million for the three-month period ended September 30, 2017December 31, 2023, compared to the same period of 20162022, primarily due to the sale of the Nautilus® brand trademarks and related royalty licenses.
Sales and Gross Profit
Direct Segment
Comparison of Segment Results for the Nine-Month Period Ended December 31, 2023 to the Nine-Month Period Ended December 31, 2022
Direct segment sales were $81.2 million for the nine-month period ended December 31, 2023, compared to $97.7 million, a decline of 16.9%, versus the same period in 2022. The net sales decrease compared to last year was primarily driven by lower customer demand.
Cardio sales declined 28.5% versus the same period in 2022 primarily driven by lower bike demand. Strength product sales grew 7.4% versus the same period in 2022 primarily driven by higher demand for home gyms.
Gross profit margin was 21.0% for the nine-month period ended December 31, 2023 versus 20.4% for the same period in 2022. Gross profit margin was flat as gains from lower landed product costs (+8 ppts) and favorable logistics overhead absorption (+1 ppt) were offset by unfavorable absorption of JRNY COGS (-7 ppts) and increased discounting (-2 ppts). Gross profit was $17.0 million, down 14.6% versus the same period in 2022.
Segment contribution loss was $20.0 million for the nine-month period ended December 31, 2023, compared to segment contribution loss of $24.2 million for the same period in 2022. The improvement was primarily driven by decreased media spend and lower operating expenses, partially offset by lower gross profit. Advertising expenses were $9.9 million compared to $16.7 million for the same period in 2022.
Retail Segment
Comparison of Segment Results for the Nine-Month Period Ended December 31, 2023 to the Nine-Month Period Ended December 31, 2022
Retail segment sales for the nine-month period ended December 31, 2023 were $76.0 million, down 35.6%, from $117.9 million for the same period in 2022. Retail segment sales outside the United States and Canada were up 44.9% versus last year. The overall net sales decrease compared to last year was primarily driven by lower demand from retailers.
Cardio sales declined by 23.8% versus the same period in 2022 primarily driven by lower bike demand. Strength product sales declined by 43.5% versus the same period in 2022 primarily driven by lower demand for SelectTech® weights.
Gross profit margin was 23.9% for the nine-month period ended December 31, 2023, up from 15.8% for the same period in 2022. The 8 ppt increase in gross profit margin was primarily due to lower net sales.landed product costs (+12 ppts) and a decrease in inventory adjustments (+1 ppt), partially offset by an increase in warranty costs (-2 ppts), unfavorable logistics overhead absorption (-2 ppts) and higher outbound freight (-1 ppt). Gross profit was $18.2 million, a decrease of 2.5% versus the same period in 2022.
Segment contribution income for the nine-month period ended December 31, 2023 was $6.0 million, or 7.9% of sales, compared to segment contribution loss of $1.0 million, or 0.8% of sales for the same period in 2022, primarily driven by lower operating expenses in the current period.
For
Royalty
Royalty income decreased by $1.9 million, or 70.4%, to $0.8 million for the three and nine month periodsnine-month period ended September 30, 2017, Direct gross margins decreased 220 and 190 basis points, respectively, asDecember 31, 2023, compared to the same periodsperiod of 20162022, primarily due to unfavorable product mixthe sale of Nautilus® brand trademarks and higher discounting for older products.related royalty licenses.
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 in Retail net sales as discussed above.
For the three and nine month periods ended September 30, 2017, Retail gross margin increased by 60 and 130 basis points, respectively, compared to the same periods of 2016 due to favorable absorption of fixed costs over the increased sales volume and the one-time settlement of an indemnification claim.
Selling and Marketing
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| | | | | | | |
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% | | | | |
Selling and marketing expenses include payroll, employee benefits, and other headcount-related expenses associated with sales and marketing personnel, and the costs of media advertising, promotions, trade shows, seminars, sales incentives related to our JRNY® platform and other programs. |
| | | | | | | |
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% | | | | |
Selling and marketing information was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
Selling and marketing | $ | 15,129 | | | $ | 17,203 | | | $ | (2,074) | | | (12.1)% |
As % of net sales | 22.4 | % | | 17.5 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Nine-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
Selling and marketing | $ | 28,153 | | | $ | 39,493 | | | $ | (11,340) | | | (28.7)% |
As % of net sales | 17.8 | % | | 18.1 | % | | | | |
The $3.4$2.1 million decrease in selling and marketing expense inexpenses for the three monththree-month period ended September 30, 2017 compared to the same period of 2016 was due to lower variable selling expenses of $2.6 million, primarily related to lower financing fees reflecting a retroactive contract adjustment of $2.1 million and receipt of a one-time settlement payment 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, 2017December 31, 2023 as compared to the same period of 20162022 was primarily related to a $4.7$1.5 million decrease in media spend, a $0.3 million decrease in consulting and contracting expenses, a $0.3 million decrease in personnel expenses, a $0.2 million decrease in third-party commissions and a $0.2 million decrease in finance fees, offset by a $0.5 million increase in bad debt expense. We expect variable selling costs, includingand marketing expenses to continue to fluctuate with sales.
The $11.3 million decrease in selling and marketing expenses for the factors noted above, and lowerfor the nine-month period ended December 31, 2023 compared to the same period of 2022 was primarily related to a $6.9 million decrease in media spend, a $1.6 million decrease in employee expenses, a $0.8 million decrease in finance fees, a $0.7 million decrease in contract labor, a $0.7 million decrease in other marketing program costs of $1.0 million, offset by increases of $2.9expenses, $0.3 million in media advertisinginformation technology related expenses and $0.8$0.1 million in photoshipping expenses. We expect variable selling and video production costs.marketing expenses to continue to fluctuate 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 December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
| | | | | | | |
| | | | | | | |
Total advertising | $ | 7,992 | | | $ | 9,515 | | | $ | (1,523) | | | (16.0)% |
|
| | | | | | | |
Dollars in thousands | Three Months Ended September 30, | | Change |
| 2017 | | 2016 | | $ | | % |
Media advertising | $11,114 | | $10,790 | | $324 | | 3.0% |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Nine-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
| | | | | | | |
| | | | | | | |
Total advertising | $ | 11,403 | | | $ | 18,330 | | | $ | (6,927) | | | (37.8)% |
|
| | | | | | | |
Dollars in thousands | Nine Months Ended September 30, | | Change |
| 2017 | | 2016 | | $ | | % |
Media advertising | $43,704 | | $40,804 | | $2,900 | | 7.1% |
The increases$1.5 million decrease in media advertising in the three and nine month periods ended September 30, 2017 compared to the same periods of 2016 reflected lower response rates that drove the increased investments in advertising.
General and Administrative
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| | | | | | | |
Dollars in thousands | Three Months Ended September 30, | | Change |
| 2017 | | 2016 | | $ | | % |
General and administrative | $6,305 | | $6,177 | | $128 | | 2.1% |
As % of net sales | 7.2% | | 7.6% | | | | |
|
| | | | | | | |
Dollars in thousands | Nine Months Ended September 30, | | Change |
| 2017 | | 2016 | | $ | | % |
General and administrative | $21,106 | | $21,611 | | $(505) | | (2.3)% |
As % of net sales | 7.6% | | 7.7% | | | | |
The increase in general and administrativeexpense for the three monthsthree-month period ended September 30, 2017December 31, 2023, as compared to the same period of 20162022 reflects increased cost control measures while maintaining advertising support to preserve market share. Advertising as a percentage of selling and marketing for the three-month period ended December 31, 2023 was primarily due52.8% as compared to higher legal expenses of $0.4 million, offset by $0.4 million lower integration costs and administrative cost savings related to Octane incurred in55.3% for the same comparative period.quarter last year.
The $6.9 million decrease in general and administrativemedia advertising expense for the nine monthsnine-month period ended September 30, 2017December 31, 2023, as compared to the same period of 20162022 reflects increased cost control measures while maintaining advertising support to preserve market share. Advertising as a percentage of selling and marketing for the nine-month period ended December 31, 2023 was 40.5% as compared to 46.4% for the same period last year.
General and Administrative
General and administrative expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related expenses associated with finance, legal, facilities, certain human resources and other administrative personnel, and other administrative fees.
General and administrative was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
General and administrative | $ | 9,382 | | | $ | 10,859 | | | $ | (1,477) | | | (13.6)% |
As % of net sales | 13.9 | % | | 11.1 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Nine-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
General and administrative | $ | 27,256 | | | $ | 34,317 | | | $ | (7,061) | | | (20.6)% |
As % of net sales | 17.3 | % | | 15.7 | % | | | | |
The $1.5 million decrease in general and administrative expenses for the three-month period ended December 31, 2023 as compared to the same period of 2022 was primarily driven by a $1.0 million decrease in personnel expenses, a $0.2 million decrease in marketing expenses, and a $0.2 million decrease in consulting fees.
The $7.1 million decrease in general and administrative expenses for the nine-month period ended December 31, 2023 compared to the same period of 2022 was primarily driven by a $6.0 million decrease in personnel expenses due to reduction in force, a $0.4 million decrease in contract labor, a $0.4 million decrease in patent and legal fees, a $0.2 million decrease in depreciation expense and a $0.2 million decrease in state taxes and license fees.
Research and Development
Research and development expenses include payroll, employee benefits, other headcount-related expenses and information technology associated with product development.
Research and development was as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
Research and development | $ | 4,049 | | | $ | 5,086 | | | $ | (1,037) | | | (20.4)% |
As % of net sales | 6.0 | % | | 5.2 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
Research and development | $ | 11,734 | | | $ | 16,315 | | | $ | (4,581) | | | (28.1)% |
As % of net sales | 7.4 | % | | 7.5 | % | | | | |
| | | | | | | |
| | | | | | | |
The $1.0 million decrease in research and development expenses for the three-month period ended December 31, 2023, as compared to the same period of 2022, was primarily driven by a $0.8 million savingsdecrease in contract labor.
The $4.6 million decrease in research and development expenses for the nine-month period ended December 31, 2023, as compared to the same period of 2022, was primarily driven by a $2.3 million decrease in contract labor, a $1.2 million decrease in employee expenses and a $0.9 million decrease in product development costs.
Restructuring and Exit Charges
Restructuring and exit charges in the three and nine-month periods ended December 31, 2023 include charges related to lower integration costsour reduction in force and administrative cost savings related exit charges which began in February 2023.
Goodwill and Asset Impairment Charge
Due to Octane,certain triggering events during fiscal 2024 that had a material adverse effect on our results of operations, cash flows and lower employee incentiveslong-lived assets, we performed an asset impairment test on our long-lived assets in the third quarter of fiscal 2024 which resulted in an impairment charge of $20.9 million. See Note 6 - Asset Impairment Charge of Notes to Condensed Consolidated Financial Statements for additional information.
As a result of the decline in our market value relative to the market and compensation costsour industry, which was identified as a triggering event, we performed an interim evaluation and a market capitalization reconciliation during the first quarter of $0.9fiscal 2023 which resulted in a non-cash goodwill and indefinite-lived intangible assets impairment charge of $27.0 million. These costs were partially offset by higher litigation-related expenses
Operating Loss
Operating loss for the three-month period ended December 31, 2023 was $32.8 million, an increase of $1.3$22.5 million, or 219.0%, as compared to an operating loss of $10.3 million for the same comparative period.period of 2022. The increase was primarily driven by lower sales and higher operating expenses, partially offset by lower cost of sales.
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 inOperating loss for the three and nine month periodsnine-month period ended September 30, 2017December 31, 2023 was $54.6 million, a decrease of $21.3 million, or 28.0%, as compared to an operating loss of $75.8 million for the same periodsperiod of 2016 were2022. The improvement in results was primarily due to our investment in additional engineeringdriven by lower cost of sales and product development headcount as we continue to supplement our new product development resources required to innovate and broaden our product portfolio.lower operating expenses, partially offset by lower sales.
Interest Expense
Interest expense for the three-month period ended December 31, 2023 was $1.1 million, a decrease of $0.4$0.1 million, andor 9.4%, as compared to an interest expense of $1.2 million for the threesame period of 2022.
Interest expense for the nine-month period ended December 31, 2023 was $4.7 million, an increase of $2.5 million, as compared to interest expense of $2.2 million for the same period of 2022. The increase was primarily due to the recognition of $1.8 million in accelerated capitalized loan fees from the amendments to the SLR Term Loan and nine month periods ended September 30, 2017 decreased $0.1ABL Credit Facility, $0.3 million in amortization loan fees and $0.2 million respectively, compared to the same periods of 2016. The decreases werein interest expense due to reductions in principal balance on our term loan.higher interest rates.
Other, Net
Other, net relates to the effect of exchange rate fluctuations betweenwith the U.S., the valuation of warrants and our foreign subsidiaries primarily Canada, China and Europe.
an intellectual property asset sale.
Other, net was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
Other, net | $ | (334) | | | $ | 715 | | | $ | (1,049) | | | (146.7)% |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Nine-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
Other, net | $ | 8,484 | | | $ | (23) | | | $ | 8,507 | | | NM |
NM = Not meaningful | | | | | | | |
The $1.0 million decrease in Other, net for the three-month period ended December 31, 2023, as compared to the same period of 2022 was primarily due to a $1.4 million increase in foreign exchange expense, offset by a $0.2 write-off of capitalized loan fees in the third quarter of fiscal 2024 and a $0.2 million gain related to the revaluation of warrants sold in the first quarter of fiscal 2024.
The $8.5 million increase in Other, net for the nine-month period ended December 31, 2023, as compared to the same period of 2022, was primarily due to a $6.4 million net gain on the sale of intellectual property, a $2.2 million net gain on the sale of equity investments, and a $1.5 million gain related to the revaluation of warrants sold in the
first quarter of fiscal 2024, partially offset by a $1.3 million loss on foreign exchange and $0.5 million of expenses related to the capital raise transaction in the first quarter of fiscal 2024.
|
| | | | | | | |
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 effectiveinternational income taxes, and interest and penalties on uncertain tax rates from continuing operationspositions.
Income tax expense was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
Income tax expense | $ | 117 | | | $ | 322 | | | $ | (205) | | | 63.5 | % |
Effective tax rate | (0.3) | % | | (3.0) | % | | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Nine-Months Ended December 31, | | Change |
| 2023 | | 2022 | | $ | | % |
Income tax expense | $ | 1,074 | | | $ | 8,573 | | | $ | (7,499) | | | (87.5)% |
Effective tax rate | (2.1) | % | | (11.0) | % | | | | |
Income tax expense for the three and nine month periodsthree-month period ended September 30, 2017December 31, 2023 was $0.1 million compared to $0.3 million last year. The expense in both quarters was primarily driven by foreign related to our profitable U.S and foreign operations. The reduced effective tax rates from continuing operations for the three and nine month periods ended September 30, 2016 were primarily due to the release of, on a non-recurring basis, previously unrecognizedtaxes. No tax benefits associated with certain non-U.S. filing positions. These resulted from completiondomestic losses were recognized due to the U.S. deferred tax asset valuation allowance position established in the first quarter last year.
Income tax expense for the nine-month period ended December 31, 2023 was $1.1 million compared to $8.6 million last year. Income tax expense in the current period was primarily driven by foreign related taxes and reserves related to an income tax audit. The decrease in income tax expense compared to last year was primarily as a result of the deregistration process of a certain foreign entity. In addition, the effectiveU.S. deferred tax rateasset valuation allowance recognized in fiscal 2023.
Loss from Continuing Operations
Loss from continuing operations was $34.3 million for the nine monthsthree-month period ended September 30, 2017 included $0.7December 31, 2023, or $0.94 per diluted share, compared to loss from continuing operations of $11.1 million, or $0.35 per diluted share, for the three-months ended December 31, 2022. The increase in loss from continuing operations was primarily due to lower sales and higher operating expenses, partially offset by lower costs of excess tax benefits relatedsales.
Loss from continuing operations was $51.8 million for the nine-month period ended December 31, 2023, or $1.48 per diluted share, compared to stock-based compensation recognizedloss from continuing operations of $86.6 million, or $2.75 per diluted share, for the nine-month period ended December 31, 2022. The decrease in loss from continuing operations was primarily due to lower cost of sales and lower operating expenses, partially offset by lower sales as a currentdiscussed in more detail above.
Net Loss
Net loss was $34.3 million for the three-month period benefit throughended December 31, 2023, compared to net loss of $11.1 million for the statementthree-months ended December 31, 2022. Net loss per diluted share was $0.94 for the three-months ended December 31, 2023, compared to net loss per diluted share of operations, resulting from$0.35 for the adoptionthree-months ended December 31, 2022.
Net loss was $51.8 million for the nine-month period ended December 31, 2023, compared to net loss of ASU 2016-09 in January 2017.$84.5 million for the nine-month period ended December 31, 2022. Net loss per diluted share was $1.48 for the nine-month period ended December 31, 2023, compared to net loss per diluted share of $2.68 for the nine-month period ended December 31, 2022.
LIQUIDITY AND CAPITAL RESOURCES
AsOur future capital requirements may vary materially from those currently planned and will depend on many factors, including our levels of September 30, 2017,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, including if we had $77.8 millionare able to maintain compliance with debt-related financial covenants, we may be required to seek additional equity or debt financing. The sale of cashadditional equity would result in additional dilution to our shareholders. The incurrence of debt financing would result in debt service obligations and investments compared to $79.6 million asthe instruments governing such debt could provide for operating and financing covenants that would restrict our operations.
As of December 31, 2016. Cash provided by operating activities was $16.72023, we had $18.2 million for the nine months ended September 30, 2017, compared to $14.9 million for the nine months ended September 30, 2016. We expect ourof cash, cash equivalents and available-for-sale securitiesrestricted cash, and $24.4 million was available for borrowing under the ABL Credit Facility, compared to $18.3 million of cash, cash equivalents and restricted cash, and $14.9 million available for borrowing under the ABL Credit Facility as of March 31, 2023.
Recent Funding Sources
During the quarter ended June 30, 2023, we sold 3,525,000 shares of Common Stock for $1.22 per share and pre-funded warrants to purchase up to 573,362 shares of Common Stock at September$1.2199 per share for net proceeds of $4.6 million after offering expenses. The pre-funded warrants had an exercise price of $0.0001 per share, were immediately exercisable and would expire when exercised in full. On July 28, 2023, all 573,362 pre-funded warrants were exercised for the same number of shares of Common Stock. See Note 14for additional information.
During the quarter ended June 30, 2017, along2023, we completed the sale of intellectual property for $10.5 million as part of our ongoing comprehensive strategic review. The sale of these assets, which included the Nautilus® brand trademark assets and related licenses, will continue to streamline our brand focus and enhance our financial flexibility. The carrying value of the intangible assets sold was $3.7 million and the resulting gain, net of transaction costs, was recorded in the Consolidated Statement of Operations as Other, net and in the Consolidated Statements of Cash Flows from investing activities as proceeds from sale of intellectual property for the quarter ended June 30, 2023.
During the quarter ended June 30, 2023, we completed the sale of Vi Labs for $2.3 million as part of our ongoing comprehensive strategic review. The sale of this equity investment streamlined our brand focus and enhanced our financial flexibility. The assets sold did not have any carrying value and transaction costs of the sale were $0.1 million. The resulting gain of $2.2 million, net of transaction costs, was recorded in the Consolidated Statements of Operations as Other, net and in the Consolidated Statements of Cash Flows investing activities as Proceeds from sale of equity investment for the quarter ended June 30, 2023.
Going Concern
As a result of the continued challenging retail operating environment, deteriorating macroeconomic conditions, and decline in customer demand, we experienced a significant year over year decline in our revenue for the three and nine months ended December 31, 2023. Additionally, we now believe that conditions will not improve in the next several quarters, which is negatively affecting our liquidity projections. We have been actively pursuing alternatives to access liquidity or sell the Company or its assets, which may include making a voluntary filing under federal bankruptcy laws. If we are not able to promptly consummate a transaction or access additional sources of liquidity, we will not be able to maintain compliance with cash expecteddebt covenants in our credit facilities and may not be able to be generated from operations,continue to be sufficientoperate our business.
Management has determined that under these circumstances, there is substantial doubt about our ability to fund our operating and capital requirementscontinue as a going concern for at least twelve months from September 30, 2017.the issuance date of this report. Our assessment of going concern was completed in accordance with FASB ASC Topic 205-40, “Basis of Presentation—Going Concern.” For the three and nine months ended December 31, 2023, we incurred a net loss of $34.3 million and $51.8 million, respectively, and for the three and nine months ended December 31, 2022, we incurred a net loss of $11.1 million and $84.5 million, respectively. As of December 31, 2023, we had $15.9 million of cash, working capital of $31.9 million and $24.4 million available for future borrowings under our ABL Credit Facility.
The increaseconsolidated financial statements have been prepared on a “going concern” basis, which means that the continuation of the Company is presumed even though events and conditions exist that, when considered in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern. This also means that the condensed consolidated financial statements do not include any adjustments that might result from the outcome
of these uncertainties. For example, these consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from this uncertainty. Such adjustments could be material.
Operating Activities
Cash used in operating activities was $10.8 million for the nine-month period ended December 31, 2023, compared to cash used in operating activities of $11.8 million for the nine-month period ended December 31, 2022. The improvement in cash flows from operating activities for the nine monthsnine-month period ended September 30, 2017December 31, 2023 as compared to the same period of 20162022 was primarily due to the changes in our operating assets and liabilities as discussed below partiallyand a decrease in net loss, offset by the declinea decrease in operating performance.
non-cash charges.
Trade receivables decreased $6.9 millionincreased to $38.5 million as of September 30, 2017, compared to $45.5$26.1 million as of December 31, 2016, due to seasonally lower net sales to specialty retail and commercial customers. Trade receivables as of September 30, 20172023, 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$21.5 million as of September 30, 2017, comparedMarch 31, 2023, primarily due to $47.0busy season sales, which typically occur in the third and fourth quarters of our fiscal year.
Inventory was $54.3 million as of December 31, 2016 due2023, up 17% compared to seasonal preparations for the fourth quarter. Inventories$46.6 million as of September 30, 2017March 31, 2023 and down 30% compared to September 30, 2016 increased by $8.4 million due to increased in-transit inventory.
Trade payables decreased $3.9 million to $62.1 million as of September 30, 2017, compared to $66.0$77.3 million as of December 31, 2016, due to seasonality2022. The increase in inventory in the third quarter of fiscal 2024 versus the business. Trade payablesfiscal year ended March 31, 2023 was driven by higher inventory purchases for our busy season, which typically occurs in the third and fourth quarters of our fiscal year. About 7% of inventory as of September 30, 2017December 31, 2023 was in-transit.
Prepaid and other current assets increased by $0.5 million to $8.5 million, compared to September 30, 2016 increased $17.4 million. The higher amount outstanding as of September 30, 2017 was due to the increased inventory.
Accrued liabilities decreased $4.8 million to $8.1$8.0 million as of September 30, 2017, comparedMarch 31, 2023, primarily due to $12.9an increase of prepaid marketing of $1.0 million and prepaid insurance expense of $0.6 million, offset by a decrease in amortization of deferred contract costs of $0.8 million and lower royalty receivables of $0.4 million.
Trade payables increased by $30.6 million to $59.9 million as of December 31, 2016,2023, compared to $29.4 million as of March 31, 2023, primarily due to payoutinventory purchases for busy season of $28.3 million and goods received not yet invoiced of $1.2 million.
Accrued liabilities decreased by $3.6 million to $12.0 million as of December 31, 2023, compared to $15.6 million as of March 31, 2023, primarily due to a $1.5 million decrease of deferred revenue, a $1.0 million decrease in accrued incentive compensation during the first quarter of 2017bonuses, a $0.5 million decrease in tariff payable, a $0.2 million decrease in D&O insurance expense and settlement of a royalty dispute$0.2 million decrease in the second quarter of 2017.other insurance costs.
Investing Activities
Cash used inprovided by investing activities of $18.2$10.2 million for the first nine months of 2017nine-month period ended December 31, 2023 was primarily due to $10.5 million from the sale of intellectual property and $2.4 million from the sale of an equity investment, partially offset by $2.7 million of capital purchases related to net purchases of marketable securities of $15.4 million. In addition, $2.7 million was used for capital expenditures primarily related to production equipment tooling and implementation of new software systems.our digital platform. We anticipate spending between $4.5 million and $5.5approximately $3.5 million in 2017fiscal 2024 for product tooling, computer equipment and software,digital platform enhancements, systems integration, and production equipment.tooling.
Financing Activities
Cash used in financing activities of $17.0$0.7 million for the first nine months of 2017nine-month period ended December 31, 2023 was primarily related to principal repayments$21.0 million in payments on long-term debt and $0.9 million in payments of debt issuance costs, offset by $17.2 million in proceeds from long-term debt and $4.5 million in proceeds from the sale of common stock and warrants, as discussed above.
Free Cash Flow
Free cash flow is a non-GAAP financial measure. We define free cash flow as net cash provided by (used in) operating activities minus capital expenditures. We believe that, when viewed with our term loanGAAP results, free cash flow provides management, investors and other users of $12.0our financial information with a more complete understanding of factors and trends affecting our cash flows. We believe free cash flow provides useful additional information to users of our financial information and is an important metric because it represents a measure of how much cash we have available for discretionary and non-discretionary items after the deduction of capital expenditures. We use this metric internally, as we believe our sustained ability to generate free cash flow is an important driver of value creation. However, this non-GAAP financial measure is not intended to supersede or replace our GAAP results.
The following table presents a reconciliation of free cash flow, a non-GAAP financial measure, to Net cash provided by (used in) operating activities, the most directly comparable financial measure prepared in accordance with GAAP (in thousands):
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| Three-Months Ended December 31, | | Nine-Months Ended December 31, | | | | |
| 2023 | | 2022 | | 2023 | | 2022 | | | | | | | | |
Net cash used in operating activities | $ | (2,857) | | | $ | (2,184) | | | $ | (10,788) | | | $ | (11,780) | | | | | | | | | |
Purchase of property, plant and equipment | (761) | | | (3,186) | | | (2,663) | | | (10,697) | | | | | | | | | |
Free cash flow | $ | (3,618) | | | $ | (5,370) | | | $ | (13,451) | | | $ | (22,477) | | | | | | | | | |
Net loss | $ | (34,339) | | | $ | (11,082) | | | $ | (51,806) | | | $ | (84,461) | | | | | | | | | |
Free cash flow as percentage of net loss | 10.5 | % | | 48.5 | % | | 26.0 | % | | 26.6 | % | | | | | | | | |
Capital expenditures totaled $0.8 million and share repurchases$2.7 million for the three and nine-months ended December 31, 2023, respectively, compared to $3.2 million and $10.7 million for the three and nine-month periods ended December 31, 2022, respectively. The decline is primarily related to lower investments in JRNY® as we completed the integration of $4.8 million.Vay in 2022.
Financing Arrangements
We have
Amendment to Existing Term Loan Credit Agreement
On July 28, 2023, we entered into an amendment (the “Term Loan Amendment”) to our existing SLR Term Loan with Crystal Financial LLC, d/b/a SLR Credit Solutions ("SLR") dated as of November 30, 2022 (as amended, the "SLR Term Loan").
The Term Loan Amendment provides us with an increased borrowing advance rate for certain eligible accounts owed to us by Amazon.com, Inc. and its affiliates, and allows for certain compliance reports to be delivered to SLR under the SLR Term Loan on a monthly (rather than weekly) basis as long as specified conditions are satisfied.
Amendment to Existing ABL Credit Agreement
On July 28, 2023, we entered into an amendment (the “ABL Amendment”) to our existing Credit Agreement with JPMorgan ChaseWells Fargo Bank, N.A. (“Chase Bank”National Association ("Wells Fargo") thatdated as of January 31, 2020 (as amended, the "ABL Credit Facility").
The ABL Amendment provides us with an increased borrowing advance rate for an $80.0certain eligible accounts owed to us by Amazon.com, Inc. and its affiliates and allows for certain compliance reports to be delivered on a monthly (rather than weekly) basis as long as specified conditions are satisfied.In addition, the ABL Amendment reduced the maximum revolving loan commitment amount under the ABL Credit Facility from $60.0 million term loan and a $20.0 million revolving line of credit. The termto $40.0 million.
In connection with the amendment of the SLR Term Loan and ABL Credit Agreement expires on December 31, 2020 and is secured by substantially allFacility, we recorded a total loss of our assets.
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$0.3 million, as a reductioncomponent of the available borrowing amount and are subject to covenant testing.Other, net in our Condensed Consolidated Statements of Operations.
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 30, 2017, the balance on our term loan was $52.0December 31, 2023, outstanding principal and accrued and unpaid interest totaled $26.7 million, with $16.6 million and we had no outstanding borrowings$10.1 million under the line of credit.our SLR Term Loan and ABL Credit Facility, respectively. As of September 30, 2017,December 31, 2023, we were in compliance with the financial covenants ofcontained in the agreements governing both the SLR Term Loan and ABL Credit AgreementFacility, and $20.0$24.4 million was available for borrowing under the line of credit.WF ABL Credit Facility.
As of September 30, 2017, we had a $52.0 million receive-variable, pay-fixedDecember 31, 2023, our interest rate swap outstanding with Chase Bank. The interest rate swap amortizes monthly in line withwas 10.36% for the outstanding principal balance on our term loanABL Credit Facility 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 rate13.89% for the SLR Term Loan. Interest on the ABL Credit Facility accrues at the Secured Overnight Financing Rate ("SOFR") plus a margin of 5.00% to 5.50% (based on average quarterly availability) and interest rate swap ison the one-month LIBOR benchmark. At September 30, 2017, the one-month LIBOR rate was 1.24%SLR Term Loan accrues at SOFR plus a margin of 7.75% to 8.25% (based on fixed charge coverage ratio).
Commitments and ContingenciesThe balance sheet classification of the borrowings under the loan facilities has been determined in accordance with ASC 470, Debt.
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 December 31, 2023, we had approximately $2.6 million, compared to $12.1 million as of March 31, 2023 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 BowFlex warehouses. The decrease in purchase obligations was primarily due to strong inventory management as we continue to right-size inventory levels ahead of our busy season, which occurs during the third and fourth quarters of our fiscal year.
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 30, 2017.December 31, 2023.
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 salesrevenue from fitness equipment products to vary seasonally. Sales are typically strongest in the firstour fiscal third quarter ending December 31 and fiscal fourth quarters, followed by the third quarter ending March 31 and are generally weakest in theour fiscal first quarter ending June 30 and fiscal second quarter.quarter ending September 30. 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 from those discussed in our 2016fiscal 2023 Form 10-K.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 for a discussion of newrecent 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 changesas 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 affectAnnual 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 lineyear ended March 31, 2023, filed with the outstanding principal balanceSEC 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 1, 2023.
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 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 ChiefPrincipal Executive Officer, Principal Financial Officer and our Chief FinancialPrincipal 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 ChiefPrincipal Executive Officer, Principal Financial Officer, and Chief FinancialPrincipal 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 monthsthree-months ended September 30, 2017,December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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.
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 20162023 Form 10-K are not the only risks and uncertainties thatto which we face. Additional risksare 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, maythat could impair our business or operations. If any of the risks described in our 20162023 Form 10-K actually occur, our business, operating results and financial position could be adversely affected. There has not been a material change to the risk factors as set forth in our 2016 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:
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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 |
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(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. |
Item 6. Exhibits
The following exhibits are filed herewith and this list is intended to constitute the exhibit index:
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Exhibit No. | | Description | |
| Exhibit No. | | Description
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| | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | |
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| | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended. | |
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| | 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. | |
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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. | |
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101.SCH | | XBRL Taxonomy Extension Schema Document | |
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101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document | |
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101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document | |
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101.LAB | | XBRL Taxonomy Extension Label Linkbase Document | |
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101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document | |
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* Indicates management contract, compensatory agreement or arrangement, in which our directors or executive officers may participate. | |
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.
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| | BOWFLEX INC. |
| | | (Registrant) |
| | | NAUTILUS, INC. |
February 20, 2024 | | (Registrant) |
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November 2, 2017 | | By: | /S/ Bruce M. CazenaveJames Barr IV |
Date | | | Bruce M. CazenaveJames Barr IV |
| | | Chief Executive Officer (Principal Executive Officer)
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| | BOWFLEX INC. |
| | | (Registrant) |
| | | NAUTILUS, INC. |
February 20, 2024 | | (Registrant) |
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November 2, 2017 | | By: | /S/ Sidharth NayarAina E. Konold |
Date | | | Sidharth NayarAina E. Konold |
| | | Chief Financial Officer (Principal Financial and Accounting Officer)
|