BowFlex (BFX) - 2020 Q4 - Annual Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Q1 2020 consolidated financial statements show a shift to net income, driven by sales growth and reduced operating expenses Condensed Consolidated Financial Statements Consolidated Balance Sheets (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $23,024k | $11,070k | | Total current assets | $113,073k | $129,193k | | Total assets | $204,370k | $220,479k | | Liabilities & Equity | | | | Total current liabilities | $52,358k | $88,708k | | Total liabilities | $111,445k | $129,883k | | Total shareholders' equity | $92,925k | $90,596k | Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net sales | $93,722k | $84,400k | | Gross profit | $35,597k | $35,842k | | Operating loss | $(560)k | $(10,167)k | | Net income (loss) | $2,184k | $(8,575)k | | Diluted net income (loss) per share | $0.07 | $(0.29) | - Net cash provided by operating activities was $6.3 million for Q1 2020, a significant improvement from the $24.5 million used in operating activities in Q1 2019[14] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, revenue, segment performance, new credit agreement, and CARES Act tax benefits Revenue by Source (in thousands) | Revenue by Source | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Product sales | $89,882k | $80,132k | | Extended warranties & services | $1,935k | $2,469k | | Other | $1,905k | $1,799k | | Total Net Sales | $93,722k | $84,400k | Segment Performance (in thousands) | Segment Performance | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net Sales | | | | Direct | $47,141k | $46,714k | | Retail | $45,613k | $36,821k | | Contribution | | | | Direct | $1,809k | $(4,542)k | | Retail | $2,389k | $(722)k | - On January 31, 2020, the company entered into a new credit agreement with Wells Fargo, providing an asset-based revolving loan facility of up to $55.0 million and a term loan of $15.0 million. Proceeds were used to extinguish the prior credit agreement[70][71] - The company recorded a $3.2 million income tax benefit in Q1 2020 as a result of the CARES Act, which allows for the carryback of net operating losses (NOLs) to years with higher tax rates (35%)[77][78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q1 2020 results, highlighting 11.0% net sales growth from home-fitness demand and a reduced operating loss Overview and Results of Operations Q1 2020 net sales rose 11.0% from strong retail demand, reversing operating loss to net income despite lower gross margin Financial Performance Summary (in thousands) | Metric | Q1 2020 | Q1 2019 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $93,722k | $84,400k | 11.0% | | Gross Profit | $35,597k | $35,842k | (0.7)% | | Operating Expenses | $36,157k | $46,009k | (21.4)% | | Operating Loss | $(560)k | $(10,167)k | (94.5)% | | Net Income (Loss) | $2,184k | $(8,575)k | - | - The Retail segment's net sales increased by 23.9% YoY, driven by strong demand for Bowflex® SelectTech® weights and Schwinn® IC4 connected-fitness bikes through e-commerce and curbside pick-up platforms despite retail store closures[96][116] - The Direct segment's net sales grew 0.9% YoY. Strong growth in strength products (+58.5%) was largely offset by a decline in cardio products (-9.4%) as strong demand for new bikes could not fully offset declines in Max Trainer® sales[95][112] - Selling and marketing expenses decreased by $9.4 million (27.5%) YoY, primarily due to a $6.5 million reduction in media advertising spend, reflecting an increased focus on return on investment[120][121] Liquidity and Capital Resources As of March 31, 2020, the company had $26.5 million cash and $18.0 million available credit, with operating cash flow significantly improving - As of March 31, 2020, the company had $26.5 million in cash, cash equivalents, and restricted cash, and $18.0 million available for borrowing under its ABL Revolving Facility[131] - Cash provided by operating activities was $6.3 million for Q1 2020, a stark contrast to the $24.5 million used in Q1 2019, primarily due to improved operating income and working capital management[132] - Inventories decreased by $19.8 million from year-end 2019 to $34.9 million, attributed to business seasonality and a surge in demand[134] - A new financing agreement with Wells Fargo was established on January 31, 2020, providing an ABL Revolving Facility up to $55.0 million and a Term Loan Facility of $15.0 million[140] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risks include interest rate changes on variable-rate debt and foreign exchange fluctuations, mitigated by forward contracts - The company's main market risks are interest rate changes on its variable-rate debt and foreign currency exchange rate fluctuations[151] - As of March 31, 2020, the company had $28.4 million in outstanding balances on its credit facilities, which are subject to interest rate fluctuations[152] - To mitigate foreign exchange risk, the company uses forward contracts, with total notional amounts of $7.8 million outstanding at the end of the quarter[153] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal controls - Based on an evaluation by management, including the Principal Executive Officer and Principal Financial Officer, the company's disclosure controls and procedures were deemed effective as of March 31, 2020[155] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[156] PART II. OTHER INFORMATION Item 1. Legal Proceedings As of the filing date, the company was not involved in any material legal proceedings, though ordinary course claims may exist - As of the filing date of the Form 10-Q, Nautilus was not involved in any material legal proceedings[158] Item 1A. Risk Factors Updates 2019 Form 10-K risk factors, focusing on COVID-19 pandemic's adverse impacts on operations, supply chains, and market uncertainty - The COVID-19 pandemic is identified as a significant risk that has created worldwide operational and economic volatility, with an uncertain and unpredictable impact on the business[160][161] - The pandemic is adversely affecting operations, supply chains, and distribution systems, leading to the company being unable to satisfy certain customer orders and causing product delivery delays[163][164] - Retail store closures and other public health measures could adversely impact results, and the disruption of global financial markets could potentially reduce the company's ability to access capital[162][165] Item 6. Exhibits Lists exhibits filed with Form 10-Q, including the new Credit Agreement, CEO/CFO certifications, and XBRL data files - Key exhibits filed with the report include the Credit Agreement with Wells Fargo dated January 31, 2020, CEO and CFO certifications pursuant to the Securities Exchange Act, and XBRL data files[167]