BowFlex (BFX) - 2020 Q1 - Quarterly Report

Part I. Financial Information Financial Statements Nautilus reported a $78.9 million net loss for Q2 2019, primarily due to a $72.0 million impairment charge, significantly impacting assets and cash flow Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $7,921 | $38,125 | | Inventories | $51,981 | $68,465 | | Goodwill | $0 | $63,452 | | Total assets | $193,267 | $332,944 | | Total liabilities | $98,351 | $150,348 | | Total shareholders' equity | $94,916 | $182,596 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Q2 2019 | Q2 2018 | | :--- | :--- | :--- | | Net sales | $59,004 | $75,498 | | Gross profit | $17,517 | $33,648 | | Goodwill and intangible impairment charge | $72,008 | $0 | | Operating (loss) income | $(85,414) | $1,202 | | Net (loss) income | $(78,868) | $928 | | Diluted net (loss) income per share | $(2.66) | $0.03 | Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands) | Cash Flow Category | 2019 | 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(37,216) | $16,589 | | Net cash provided by (used in) investing activities | $17,897 | $(6,935) | | Net cash used in financing activities | $(11,002) | $(11,031) | | Decrease in cash and cash equivalents | $(30,204) | $(1,964) | - In the second quarter of 2019, the company recorded a non-cash goodwill and indefinite-lived intangible assets impairment charge of $72.0 million ($63.5 million for goodwill and $8.5 million for intangibles), triggered by a decline in the company's market value[71][57][58] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 24.6% net sales decline and a $72.0 million impairment charge to a $95.6 million operating loss, leading to tightened liquidity and a new $40.0 million credit facility Results of Operations Q2 2019 net sales fell 21.8% to $59.0 million due to Direct segment weakness and a $72.0 million impairment charge, causing an $85.4 million operating loss Net Sales by Segment (Q2, in thousands) | Segment | Q2 2019 | Q2 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Direct | $20,834 | $34,824 | (40.2)% | | Retail | $37,453 | $39,185 | (4.4)% | | Total | $59,004 | $75,498 | (21.8)% | Gross Margin by Segment (Q2) | Segment | Q2 2019 | Q2 2018 | Change (bps) | | :--- | :--- | :--- | :--- | | Direct | 43.3% | 59.6% | (1,630) | | Retail | 20.8% | 29.1% | (830) | - The decline in Direct segment sales was attributed to a drop in sales of Bowflex MaxTrainer® products and a 45.8% year-over-year reduction in media spending for the quarter as the company prepared for a new marketing campaign[132][140] - General and administrative expenses increased in Q2 2019 primarily due to a $2.0 million litigation settlement expense[141] - A non-cash goodwill and intangible assets impairment charge of $72.0 million was recorded in Q2 2019 due to a decline in the company's market value[144] Liquidity and Capital Resources H1 2019 liquidity weakened, with cash dropping to $7.9 million and $37.2 million cash used in operations, requiring a new $40.0 million credit facility - Cash and investments decreased from $63.5 million at December 31, 2018, to $7.9 million as of June 30, 2019[150] - Cash used in operating activities was $37.2 million for the first six months of 2019, compared to cash provided by operations of $16.6 million in the same period of 2018, primarily due to decreased operating performance[151] - The company entered into a new $40.0 million revolving line of credit agreement with JPMorgan Chase Bank, expiring in March 2022; as of June 30, 2019, $20.6 million was outstanding and $14.1 million was available for borrowing[95][98][159] - No shares were repurchased in the first six months of 2019, with $14.0 million remaining available for future repurchases under the existing program[167] Quantitative and Qualitative Disclosures About Market Risk Primary market risks are interest rate changes on $20.6 million variable-rate debt and foreign currency fluctuations, with a 10% adverse change not expected to be material - Primary market risks are identified as changes in interest rates on variable-rate debt and foreign exchange rate fluctuations[173] - As of June 30, 2019, the company had $20.6 million in variable-rate debt outstanding[174] - The company terminated its $20.0 million interest rate swap during the quarter[175] - A hypothetical 10% adverse movement in interest rates or foreign currency exchange rates is not expected to have a material impact on the company's financials[176] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting - Management, including the Principal Executive Officer and Principal Financial and Accounting Officer, concluded that the company's disclosure controls and procedures were effective as of the end of the period[177] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[178] Part II. Other Information Legal Proceedings The company reported no involvement in any material legal proceedings as of the filing date of this report - The company reports that it was not involved in any material legal proceedings as of the filing date[180] Risk Factors No material changes to the risk factors previously disclosed in the company's 2018 Annual Report on Form 10-K were reported - There has not been a material change to the risk factors as set forth in the company's 2018 Form 10-K[181] Exhibits This section lists exhibits filed with the Form 10-Q, including an employment agreement, officer certifications, and XBRL data files - Exhibits filed include an employment agreement for James Barr IV, CEO and Controller certifications (Rule 13a-14(a) and Section 906), and XBRL interactive data files[182]