BowFlex (BFX) - 2024 Q2 - Quarterly Report

FORM 10-Q Filing Information This section details BowFlex Inc.'s Form 10-Q filing, including company status and shares outstanding Filing Details This section provides basic filing information for BowFlex Inc.'s Quarterly Report on Form 10-Q - BowFlex Inc. is a non-accelerated filer and a smaller reporting company[2][18] Shares Outstanding and Trading Information | Metric | Value | | :----- | :---- | | Shares Outstanding (as of Nov 10, 2023) | 36,361,526 shares | | Trading Symbol | BFX | | Exchange | New York Stock Exchange | PART I. FINANCIAL INFORMATION This part presents BowFlex Inc.'s unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This section presents BowFlex Inc.'s unaudited condensed consolidated financial statements for the periods ended September 30, 2023 Condensed Consolidated Balance Sheets The balance sheet shows a slight increase in total assets and a notable increase in total liabilities, with decreased shareholders' equity Balance Sheet Metrics (in thousands) | Metric (in thousands) | Sep 30, 2023 | Mar 31, 2023 | | :-------------------- | :----------- | :----------- | | Total Assets | $167,678 | $163,532 | | Total Liabilities | $120,555 | $102,232 | | Total Shareholders' Equity | $47,123 | $61,300 | | Cash and cash equivalents | $8,134 | $17,362 | | Inventories | $66,077 | $46,599 | | Trade Payables | $63,235 | $29,378 | Condensed Consolidated Statements of Operations Net sales and gross profit decreased, but reduced operating expenses led to a smaller operating and net loss Statements of Operations (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Sales | $48,659 | $65,458 | $90,409 | $120,275 | | Cost of Sales | $38,705 | $54,000 | $71,805 | $101,859 | | Gross Profit | $9,954 | $11,458 | $18,604 | $18,416 | | Operating Expenses | $21,162 | $25,800 | $40,345 | $83,942 | | Operating Loss | $(11,208) | $(14,342) | $(21,741) | $(65,526) | | Net Loss | $(12,543) | $(13,203) | $(17,467) | $(73,380) | | Basic Net Loss Per Share | $(0.35) | $(0.41) | $(0.51) | $(2.33) | | Diluted Net Loss Per Share | $(0.35) | $(0.41) | $(0.51) | $(2.33) | Condensed Consolidated Statements of Comprehensive Loss The company reported a comprehensive loss of $12.96 million and $17.71 million for the three and six months ended September 30, 2023 Statements of Comprehensive Loss (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Loss | $(12,543) | $(13,203) | $(17,467) | $(73,380) | | Foreign Currency Translation | $(416) | $(1,221) | $(238) | $(2,080) | | Comprehensive Loss | $(12,959) | $(14,424) | $(17,705) | $(75,460) | Condensed Consolidated Statements of Cash Flows Cash used in operating activities decreased, investing activities provided significant cash, and financing activities used cash for debt payments Statements of Cash Flows (in thousands) | Metric (in thousands) | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | | Net Cash Used in Operating Activities | $(7,931) | $(9,596) | | Net Cash Provided by (Used in) Investing Activities | $10,948 | $(7,511) | | Net Cash (Used in) Provided by Financing Activities | $(9,844) | $16,516 | | Net Decrease in Cash, Cash Equivalents and Restricted Cash | $(8,020) | $(7,460) | | Cash, Cash Equivalents and Restricted Cash at End of Period | $10,292 | $10,638 | - Investing activities were significantly boosted by $10.5 million from the sale of intellectual property and $2.35 million from the sale of an equity investment[185] Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of financial statements, covering accounting policies, segments, debt, and equity (1) General Information This note outlines consolidation basis, estimates, and adoption of recent accounting pronouncements with no material impact - The company adopted ASU 2016-13 (Credit Losses) and ASU 2020-06 (Convertible Instruments) on April 1, 2023, with no material impact on financial position, results of operations, or cash flows[166][189] - Interim results are not necessarily indicative of full-year results due to typical seasonal fluctuations in revenue, strongest in fiscal third and fourth quarters[117][163] (2) Discontinued Operations Expenses from discontinued operations were immaterial for the first six months of fiscal 2024, following a $2.1 million tax benefit release - Expenses from discontinued operations were immaterial for the first six months of fiscal 2024[167] - In fiscal 2023, a $2.1 million tax benefit from a previously unrecognized tax position on discontinued international operations was released due to tax deregistration of a foreign entity[300] (3) Restructuring and Exit Charges A restructuring plan initiated in February 2023 resulted in $1.76 million in charges/accruals for the six months ended September 30, 2023 - A restructuring plan, including workforce reduction, was implemented in February 2023[168] Restructuring Accrued Liability (in thousands) | Metric (in thousands) | Severance Benefits | Third Party Costs | Total | | :-------------------- | :----------------- | :---------------- | :---- | | Accrued liability as of March 31, 2023 | $1,110 | $123 | $1,233 | | Charges / Accruals (6 months ended Sep 30, 2023) | — | $1,763 | $1,763 | | Payments (6 months ended Sep 30, 2023) | $(753) | $(1,129) | $(1,882) | | Accrued liability as of September 30, 2023 | $357 | $757 | $1,114 | (4) Revenues Net sales decreased significantly year-over-year, with product sales as the primary source and the U.S. as the largest market Net Sales by Revenue Source (in thousands) | Revenue Source (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :---------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Product sales | $44,424 | $60,107 | $81,196 | $109,703 | | Extended warranties and services | $776 | $938 | $1,526 | $1,980 | | Royalty income | $143 | $1,072 | $570 | $1,950 | | Other | $3,316 | $3,341 | $7,117 | $6,642 | | Net Sales | $48,659 | $65,458 | $90,409 | $120,275 | Net Sales by Geographic Region (in thousands) | Geographic Region (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | United States | $38,787 | $53,440 | $71,007 | $99,521 | | Canada | $4,918 | $8,388 | $9,366 | $14,195 | | Europe, the Middle East and Africa | $4,308 | $2,340 | $8,664 | $4,179 | | All other | $646 | $1,290 | $1,372 | $2,380 | | Net Sales | $48,659 | $65,458 | $90,409 | $120,275 | Contract Liabilities (in thousands) | Contract Liabilities (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Balance, beginning of period | $4,432 | $6,582 | $5,075 | $6,285 | | Balance, end of period | $3,008 | $4,193 | $3,008 | $4,193 | (5) Fair Value Measurements The company measures certain liabilities at fair value, primarily Common Warrants (Level 3) and foreign currency forward contracts (Level 2) Fair Value of Liabilities (in thousands) | Liabilities (in thousands) | Level 1 | Level 2 | Level 3 | Total | | :------------------------- | :------ | :------ | :------ | :---- | | Common Warrants (Sep 30, 2023) | $— | $— | $1,618 | $1,618 | | Foreign currency forward contracts (Sep 30, 2023) | $— | $20 | $— | $20 | | Foreign currency forward contracts (Mar 31, 2023) | $— | $141 | $— | $141 | - The fair value of Common Warrants is determined using the Black Scholes Option Pricing methodology with Level 3 inputs, including expected stock price, exercise price, volatility, term, risk-free rate, and zero dividend yield[178][224] (6) Derivatives BowFlex uses foreign currency forward contracts to hedge exposure, with a fair value of $20 thousand and recognized income of $158 thousand Derivative Instruments (in thousands) | Derivative Instrument (in thousands) | Balance Sheet Classification | Sep 30, 2023 | Mar 31, 2023 | | :----------------------------------- | :--------------------------- | :----------- | :----------- | | Foreign currency forward contracts | Accrued liabilities | $20 | $141 | Income (Loss) Recognized from Derivatives (in thousands) | Income (Loss) Recognized (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Income (loss) recognized in earnings (Other, net) | $158 | $(685) | $158 | $(589) | | Income tax expense (benefit) | $39 | $(170) | $39 | $(146) | - As of September 30, 2023, total outstanding contract notional amounts for foreign currency forward contracts were $2.3 million with maturities of 62 days or less[225] (7) Inventories Inventories increased to $66.08 million as of September 30, 2023, primarily in finished goods, in anticipation of the busy season Inventory Breakdown (in thousands) | Inventory Type (in thousands) | Sep 30, 2023 | Mar 31, 2023 | | :---------------------------- | :----------- | :----------- | | Finished goods | $62,260 | $42,463 | | Parts and components | $3,817 | $4,136 | | Total inventories | $66,077 | $46,599 | - The increase in inventory was driven by purchases in anticipation of the busy season (Q3 and Q4), with approximately 40% of inventory in-transit as of September 30, 2023[132] (8) Property, Plant and Equipment Net property, plant and equipment decreased to $28.35 million, with depreciation expense of $3.09 million for the three months ended September 30, 2023 Property, Plant and Equipment, Net (in thousands) | PP&E Category (in thousands) | Sep 30, 2023 | Mar 31, 2023 | | :--------------------------- | :----------- | :----------- | | Total cost | $83,505 | $81,720 | | Accumulated depreciation | $(55,153) | $(48,931) | | Total property, plant and equipment, net | $28,352 | $32,789 | Depreciation Expense (in thousands) | Depreciation Expense (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Depreciation expense | $3,091 | $2,464 | $6,225 | $4,755 | (9) Other Intangible Assets Other intangible assets, net, decreased significantly to $3.06 million due to the $10.5 million sale of intellectual property Other Intangible Assets, Net (in thousands) | Intangible Asset (in thousands) | Sep 30, 2023 | Mar 31, 2023 | | :------------------------------ | :----------- | :----------- | | Indefinite-lived trademarks | $2,900 | $6,597 | | Patents | $1,043 | $1,043 | | Accumulated amortization | $(884) | $(853) | | Other intangible assets, net | $3,059 | $6,787 | - The sale of indefinite-lived intellectual property, including the Nautilus brand trademark assets and related licenses, for $10.5 million, resulted in a gain recorded in Other, net[206][358] (10) The Sale of Shares in Equity Investments BowFlex sold Vi Labs for $2.3 million on May 1, 2023, resulting in a $2.2 million gain as part of its strategic review - Sale of Vi Labs for $2.3 million on May 1, 2023, resulted in a $2.2 million gain (net of transaction costs)[206][384] - The sale was part of an ongoing comprehensive strategic review to streamline brand focus and enhance financial flexibility[206][384] (11) Leases Total operating lease liabilities were $18.53 million, with lease expense of $1.36 million for the three months ended September 30, 2023 Lease Liabilities (in thousands) | Lease Liabilities (in thousands) | Sep 30, 2023 | Mar 31, 2023 | | :------------------------------- | :----------- | :----------- | | Total operating lease liabilities | $18,525 | $20,807 | | Total finance lease liabilities | $348 | $404 | Lease Expense (in thousands) | Lease Expense (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :--------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease expense | $1,332 | $1,527 | $2,664 | $3,060 | | Amortization of finance lease assets | $29 | $29 | $57 | $57 | | Total lease expense | $1,361 | $1,556 | $2,721 | $3,117 | Lease Term and Rate | Lease Term & Rate | Sep 30, 2023 | Mar 31, 2023 | | :---------------- | :----------- | :----------- | | Weighted Average Remaining Lease Term (Operating) | 4.6 years | 5.0 years | | Weighted Average Discount Rate (Operating) | 5.06% | 5.05% | | Weighted Average Remaining Lease Term (Finance) | 3.0 years | 3.5 years | | Weighted Average Discount Rate (Finance) | 2.08% | 2.08% | (12) Capital Stock BowFlex issued 3.53 million shares and pre-funded warrants, generating $4.6 million in net proceeds, and issued unregistered Common Warrants - On June 15, 2023, the company sold 3,525,000 shares of common stock and pre-funded warrants for 573,362 shares, with all pre-funded warrants exercised by July 28, 2023[237][383] - Net proceeds from the offerings were $4.6 million, used for general corporate purposes[267][383] - Unregistered Common Warrants to purchase 4,098,362 shares were issued, exercisable six months after issuance at $1.35 per share, and are recorded as a liability subject to re-measurement[26][266] Common Warrants Liability (in thousands) | Common Warrants Liability (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 | (13) Accrued Liabilities Accrued liabilities decreased by $3.7 million to $11.86 million, primarily due to reductions in deferred revenue and bonus accruals Accrued Liabilities Breakdown (in thousands) | Accrued Liability (in thousands) | Sep 30, 2023 | Mar 31, 2023 | | :------------------------------- | :----------- | :----------- | | Payroll and related liabilities | $3,517 | $5,220 | | Deferred revenue | $3,008 | $5,075 | | Reserves | $1,578 | $1,200 | | Accrued Tariffs | $1,320 | $1,167 | | Other | $2,435 | $2,913 | | Total accrued liabilities | $11,858 | $15,575 | - The decrease was primarily due to a $2.1 million decrease in JRNY deferred revenue (discontinuation of 12-month free trials), a $0.9 million reduction in fiscal 2023 bonus accruals, and a $0.4 million decrease in JRNY expense accruals[362] (14) Product Warranties Product warranty obligations decreased to $3.42 million for the six months ended September 30, 2023, reflecting estimated future claims Warranty Obligations (in thousands) | Warranty Obligations (in thousands) | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :---------------------------------- | :-------------------------- | :-------------------------- | | Balance, beginning of period | $3,267 | $6,216 | | Accruals | $2,749 | $1,882 | | Payments | $(2,597) | $(3,748) | | Balance, end of period | $3,419 | $4,350 | - The company records a liability at the time of sale for estimated future warranty claims, which is adjusted as new information becomes available[269] (15) Accumulated Other Comprehensive Loss Accumulated other comprehensive loss increased to $(1.72) million, primarily due to foreign currency translation adjustments Accumulated Other Comprehensive Loss (AOCI) (in thousands) | AOCI (in thousands) | Foreign Currency Translation Adjustments | Accumulated Other Comprehensive Loss | | :------------------ | :--------------------------------------- | :----------------------------------- | | Balance, March 31, 2023 | $(1,478) | $(1,478) | | Current period other comprehensive loss before reclassifications (6 months ended Sep 30, 2023) | $(238) | $(238) | | Balance, September 30, 2023 | $(1,716) | $(1,716) | (16) Loss Per Share Basic and diluted loss per share were $(0.35) for three months and $(0.51) for six months ended September 30, 2023 Shares Used in Loss Per Share Calculation (in thousands) | Shares (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic | 36,008 | 31,585 | 34,192 | 31,496 | | Diluted | 36,008 | 31,585 | 34,192 | 31,496 | - Potentially dilutive shares (performance stock units, restricted stock units, stock options) were excluded from diluted EPS calculations because the company had a loss from continuing operations, making them anti-dilutive[34][245] (17) Segment and Enterprise-Wide Information BowFlex operates Direct and Retail segments, plus Royalty income, with consolidated net sales of $48.66 million and $90.41 million - The company has two operating segments: Direct (products sold directly to consumers) and Retail (products sold through independent retailers), plus Royalty income from brand and intellectual property licensing[275][317] Segment Net Sales (in thousands) | Segment Net Sales (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Direct | $20,737 | $24,480 | $42,582 | $50,957 | | Retail | $27,780 | $39,905 | $47,257 | $67,348 | | Royalty | $142 | $1,073 | $570 | $1,970 | | Consolidated Net Sales | $48,659 | $65,458 | $90,409 | $120,275 | Segment Contribution (in thousands) | Segment Contribution (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Direct | $(7,668) | $(7,887) | $(12,376) | $(17,780) | | Retail | $3,663 | $966 | $4,045 | $(4,442) | | Royalty | $142 | $1,073 | $570 | $1,970 | | Consolidated Contribution | $(3,863) | $(5,848) | $(7,761) | $(20,252) | (18) Borrowings BowFlex amended its SLR Term Loan and ABL Credit Facility, reducing the ABL commitment to $40.0 million, with $29.0 million available - Amendments to the SLR Term Loan and ABL Credit Facility on July 28, 2023, increased borrowing advance rates for Amazon.com receivables and allowed for monthly compliance reports[40][41][42][106][114][136][250] - The ABL Credit Facility's maximum revolving loan commitment was reduced from $60.0 million to $40.0 million[42][391] - As of September 30, 2023, the company was in compliance with financial covenants, with $29.0 million available for borrowing under the ABL Credit Facility[107][251] Loan Facility Interest Rates | Loan Facility | Interest Rate (as of Sep 30, 2023) | | :------------ | :--------------------------------- | | ABL Credit Facility | 10.41% (SOFR + 5.00%-5.50%) | | SLR Term Loan | 13.92% (SOFR + 7.75%-8.25%) | (19) Commitments and Contingencies BowFlex had $2.1 million in standby letters of credit and $20.7 million in non-cancellable purchase obligations as of September 30, 2023 - As of September 30, 2023, standby letters of credit totaled $2.1 million[44] - Non-cancellable market-based purchase obligations were approximately $20.7 million as of September 30, 2023, up from $12.1 million as of March 31, 2023, primarily to secure factory capacity for inventory purchases in the next twelve months[138][284] - The company enters into indemnification agreements, but management does not deem these obligations significant to its financial position, results of operations, or cash flows[108][139][253][254] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses BowFlex Inc.'s financial condition, performance, liquidity, and key business factors for the periods ended September 30, 2023 Overview BowFlex Inc. focuses on individualized connected fitness experiences, leveraging an asset-light, omni-channel model, and recently changed its corporate name - BowFlex Inc. (formerly Nautilus, Inc.) focuses on individualized connected fitness experiences, designing, developing, sourcing, and marketing cardio and strength fitness products under brands like BowFlex, Schwinn, and JRNY[289] - The company's operating model is asset-light, with a diversified product portfolio, omni-channel distribution, and a variable cost structure designed to adapt to market variability[290] - The company changed its corporate name to 'BowFlex Inc.' and its common stock began trading under 'BFX' on November 1, 2023, following the sale of the Nautilus brand trademark assets[289] North Star Strategy Update BowFlex is progressing on its five-pillar North Star strategy to become a leader in connected fitness, focusing on consumers, digital, core business, supply chain, and organization - The North Star strategy has five pillars: (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[50] - The company believes it has set the foundation for becoming a leader in connected fitness by leveraging its equipment business and scaling a differentiated offering[50] JRNY Digital Platform The JRNY® app introduced Motion Tracking, driving high engagement, with 596,000 members and 143,000 subscribers as of September 30, 2023 - The JRNY® app introduced Motion Tracking, offering personalized coaching, automatic rep tracking, form guidance, and adaptive weight targets, which are chosen 70% more frequently than other workouts[57] JRNY® Platform Metrics | Metric | Sep 30, 2023 | | :----- | :----------- | | JRNY® Members | 596,000 (51% YoY growth) | | JRNY® Subscribers | 143,000 (1% YoY growth) | - JRNY® All-Access subscription is priced at $19.99/month or $149/year, while JRNY® Mobile subscription is $11.99/month or $99/year[89][296] Full Year Fiscal 2024 Guidance BowFlex adjusted its fiscal 2024 guidance, lowering net revenue expectations to $215 million - $240 million but increasing JRNY® Member targets - Full year net revenue guidance adjusted to $215 million - $240 million (previously $270 million - $300 million)[324] - Full year JRNY® Members target increased to cross 650,000 by March 31, 2024 (previously 625,000)[297] - Full year royalty revenue expected to be $1.1 million (previously $1.8 million)[59] Factors Affecting Our Performance Performance is influenced by seasonality, customer patterns, innovation, competition, and economic factors, with gross margins impacted by costs and logistics - Revenues fluctuate due to seasonality, customer buying patterns, product innovation, competition, and economic factors[60] - Gross margins are impacted by increased product costs (including JRNY platform components), tariffs, and expedited shipping[61][298] - Forecasting near-term demand is challenging due to persistent retail headwinds and economic uncertainty, leading the company to take decisive actions to reduce costs[299] Discontinued Operations Results from discontinued operations were immaterial for the first six months of fiscal 2024, following a $2.1 million tax benefit in fiscal 2023 - Results from discontinued operations (former Commercial business) were immaterial for the first six months of fiscal 2024[62][300] - In fiscal 2023, a $2.1 million tax benefit was recognized from the tax deregistration of a foreign entity that was part of discontinued operations[300] RESULTS OF OPERATIONS Net sales declined, but significant reductions in operating expenses led to substantial improvements in operating and net loss Results of Operations Summary (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Net Sales | $48,659 | $65,458 | $(16,799) | (25.7)% | | Gross Profit | $9,954 | $11,458 | $(1,504) | (13.1)% | | Operating Expenses | $21,162 | $25,800 | $(4,638) | (18.0)% | | Operating Loss | $(11,208) | $(14,342) | $3,134 | (21.9)% | | Net Loss | $(12,543) | $(13,203) | $660 | (5.0)% | Comparison for the Three-Months Ended September 30, 2023 to the Three-Months Ended September 30, 2022 Net sales decreased by 25.7%, but operating loss improved by 21.9% due to lower operating expenses and higher gross profit margins Sales and Gross Profit Consolidated net sales declined by 25.7% to $48.7 million, but gross profit margin improved by 3 percentage points to 20.5% - Net sales decreased by 25.7% to $48.7 million, driven by lower customer demand[51][301] - Gross profit margin improved by 3 percentage points to 20.5%, primarily due to lower landed product costs (+9 ppts) and a decrease in inventory adjustments (+2 ppts), partially offset by unfavorable JRNY COGs absorption (-4 ppts) and increased discounting (-3 ppts)[318] Direct Segment Direct segment net sales decreased by 15.3% to $20.7 million, driven by lower customer demand, with Cardio sales down but Strength sales up - Direct segment net sales decreased by 15.3% to $20.7 million due to lower customer demand[68][291] - Cardio sales declined by 29.9% (driven by bikes and Max Trainer/elliptical equipment), while Strength product sales increased by 14.9% (driven by home gyms)[70][306] - Direct gross profit margin improved by 0.7 percentage points to 13.4%, mainly from lower landed product costs and favorable logistics absorption, offset by unfavorable JRNY COGs absorption and increased discounting[99] Retail Segment Retail segment net sales decreased by 30.4% to $27.8 million, but gross profit margin significantly improved by 7 percentage points to 25.3% - Retail segment net sales decreased by 30.4% to $27.8 million, driven by lower demand from retailers[84][334] - Retail gross profit margin improved by 7 percentage points to 25.3%, primarily due to lower landed product costs (+10 ppts) and decreased inventory adjustments (+2 ppts)[307] - Cardio sales declined by 24.4% (lower bike demand), and Strength product sales declined by 33.8% (lower SelectTech weights demand)[70] Royalty Royalty income decreased by 86.8% to $0.14 million, primarily due to the sale of Nautilus brand trademarks and related licenses - Royalty income decreased by $0.9 million (86.8%) to $0.1 million, primarily due to the sale of the Nautilus brand trademarks and related royalty licenses[101][260] Selling and Marketing Selling and marketing expenses decreased by 25.3% to $7.02 million, primarily due to reduced media spend and employee expenses Selling and Marketing Expenses (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Selling and marketing | $7,023 | $9,400 | $(2,377) | (25.3)% | | Total advertising | $2,305 | $3,103 | $(798) | (25.7)% | - The decrease was primarily due to a $0.8 million decrease in media spend and a $0.8 million decrease in employee expenses from a reduction in force and no bonus accrual for fiscal year 2024[52][340] General and Administrative General and administrative expenses decreased by 18.3% to $8.98 million, mainly due to reduced personnel expenses and no bonus accrual General and Administrative Expenses (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | General and administrative | $8,980 | $10,995 | $(2,015) | (18.3)% | | As % of net sales | 18.5% | 16.8% | | | - The decrease was primarily driven by a $1.8 million decrease in personnel expenses due to a reduction in force and no bonus accrual for fiscal year 2024[78] Research and Development Research and development expenses decreased by 29.0% to $3.84 million, primarily due to reductions in employee expenses, contract labor, and product development costs Research and Development Expenses (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Research and development | $3,836 | $5,405 | $(1,569) | (29.0)% | | As % of net sales | 7.9% | 8.3% | | | - The decrease was primarily driven by a $0.7 million decrease in employee expenses, a $0.4 million reduction in contract labor, and a $0.4 million reduction in product development costs[344] Operating Loss Operating loss improved by 21.9% to $(11.21) million, primarily due to lower operating expenses and higher gross profit - Operating loss improved by $3.1 million (21.9%) to $(11.2) million, driven by lower operating expenses and higher gross profit[261][346] Interest Expense Interest expense increased by 91.1% to $1.14 million, primarily due to a $0.3 million loss related to the ABL Credit Facility amendment - Interest expense increased by $0.5 million (91.1%) to $1.1 million, primarily due to a $0.3 million loss related to the ABL Credit Facility amendment[376] Other, Net Other, net, increased by $0.48 million to $0.25 million, primarily due to a $0.9 million gain from warrant revaluation Other, Net (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Other, net | $251 | $(224) | $475 | (212.1)% | - The increase was primarily due to a $0.9 million gain related to the revaluation of warrants, offset by a $0.4 million loss in foreign exchange[349] Income Tax Expense Income tax expense increased by 189.7% to $0.45 million, primarily driven by higher foreign related taxes Income Tax Expense (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Income tax expense | $452 | $156 | $296 | 189.7% | | Effective tax rate | (3.7)% | (1.0)% | | | - The increase was primarily driven by foreign related taxes, with no tax benefits from domestic losses recognized due to the U.S. deferred tax asset valuation allowance[319][352] Loss from Continuing Operations Loss from continuing operations decreased by 18.1% to $(12.54) million, primarily due to lower operating expenses and higher gross profit - Loss from continuing operations decreased by $2.77 million (18.1%) to $(12.54) million, or $(0.35) per diluted share, driven by lower operating expenses and higher gross profit[53][380] Net Loss Net loss decreased by 5.0% to $(12.54) million, or $(0.35) per diluted share - Net loss decreased by $0.66 million (5.0%) to $(12.54) million, or $(0.35) per diluted share[293][301][354] Comparison for the Six-Months Ended September 30, 2023 to the Six-Months Ended September 30, 2022 Net sales decreased by 24.8%, but operating loss significantly improved by 66.8% due to reduced operating expenses and a prior year impairment charge Sales and Gross Profit Consolidated net sales declined by 24.8% to $90.41 million, but gross profit slightly increased by 1.0% to $18.60 million - Net sales decreased by 24.8% to $90.4 million, driven by lower customer demand[262] - Gross profit increased by 1.0% to $18.6 million, and gross profit margin increased by 5 percentage points to 20.6%[86] - The gross profit margin increase was primarily due to lower landed product costs (+10 ppts) and decreased inventory adjustments (+2 ppts), partially offset by unfavorable JRNY COGs absorption (-5 ppts)[86] Direct Segment Direct segment net sales decreased by 16.4% to $42.58 million, with Cardio sales down but Strength sales up, and gross profit margin flat - Direct segment net sales decreased by 16.4% to $42.6 million due to lower customer demand[101][320] - Cardio sales declined by 28.4% (lower bike demand), while Strength product sales grew by 6.8% (driven by home gyms)[337] - Direct gross profit margin was relatively flat at 14.8%, with gains from lower landed product costs and favorable logistics absorption offset by unfavorable JRNY COGs absorption and increased discounting[72] Retail Segment Retail segment net sales decreased by 29.8% to $47.26 million, but gross profit margin significantly improved by 11.8 percentage points to 24.8% - Retail segment net sales decreased by 29.8% to $47.3 million, driven by lower demand from retailers[54][73] - Retail gross profit margin improved by 12 percentage points to 24.8%, primarily due to lower landed product costs (+11 ppts) and decreased inventory adjustments (+2 ppts)[103] - Cardio sales declined by 23.0% (lower bike demand), and Strength product sales declined by 34.2% (lower SelectTech weights demand)[310] Royalty Royalty income decreased by 71.1% to $0.57 million, primarily due to the sale of Nautilus brand trademarks and related licenses - Royalty income decreased by $1.4 million (71.1%) to $0.6 million, primarily due to the sale of the Nautilus brand trademarks and related royalty licenses[109][294] Selling and Marketing Selling and marketing expenses decreased by 41.6% to $13.02 million, primarily due to reduced media spend and employee expenses Selling and Marketing Expenses (in thousands) | Metric (in thousands) | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Selling and marketing | $13,024 | $22,290 | $(9,266) | (41.6)% | | Total advertising | $3,410 | $8,815 | $(5,405) | (61.3)% | - The decrease was primarily related to a $5.4 million decrease in media spend and a $1.2 million decrease in employee expenses due to a reduction in force and no bonus accrual for fiscal year 2024[263][368] General and Administrative General and administrative expenses decreased by 23.8% to $17.87 million, mainly due to reduced personnel expenses and no bonus accrual General and Administrative Expenses (in thousands) | Metric (in thousands) | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | General and administrative | $17,874 | $23,458 | $(5,584) | (23.8)% | | As % of net sales | 19.8% | 19.5% | | | - The decrease was primarily driven by a $5.0 million decrease in personnel expenses due to a reduction in force and no bonus accrual in fiscal year 2024, and a $0.4 million decrease in legal expenses[263][313] Research and Development Research and development expenses decreased by 31.6% to $7.68 million, primarily due to reductions in contract labor, employee expenses, and product development costs Research and Development Expenses (in thousands) | Metric (in thousands) | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Research and development | $7,684 | $11,229 | $(3,545) | (31.6)% | | As % of net sales | 8.5% | 9.3% | | | - The decrease was primarily driven by a $1.4 million decrease in contract labor, a $1.3 million decrease in employee expenses, and a $0.8 million reduction in product development costs[373] Operating Loss Operating loss improved significantly by 66.8% to $(21.74) million, primarily due to lower operating expenses and a prior year goodwill impairment charge - Operating loss improved by $43.8 million (66.8%) to $(21.7) million, driven by lower operating expenses and a prior year goodwill and intangible impairment charge of $27.0 million[263][321][375] Interest Expense Interest expense increased by $2.63 million to $3.60 million, primarily due to accelerated capitalized loan fees and interest-related payments - Interest expense increased by $2.6 million to $3.6 million, primarily due to $1.8 million in accelerated capitalized loan fees from credit facility amendments and $0.6 million in interest-related payments[347] Other, Net Other, net, increased significantly by $9.56 million to $8.82 million, primarily due to gains from asset sales and warrant revaluation Other, Net (in thousands) | Metric (in thousands) | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Other, net | $8,818 | $(739) | $9,557 | (1,293.2)% | - The increase 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 $0.9 million gain related to the revaluation of warrants[351][377] Income Tax Expense Income tax expense decreased by 88.4% to $0.96 million, primarily due to the U.S. deferred tax asset valuation allowance Income Tax Expense (in thousands) | Metric (in thousands) | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Income tax expense | $957 | $8,251 | $(7,294) | (88.4)% | | Effective tax rate | (5.8)% | (12.3)% | | | - The decrease was primarily a result of the U.S. deferred tax asset valuation allowance recognized in fiscal 2023[55][379] Loss from Continuing Operations Loss from continuing operations decreased by 76.8% to $(17.47) million, primarily due to lower operating expenses and a prior year impairment charge - Loss from continuing operations decreased by $58.02 million (76.8%) to $(17.47) million, or $(0.51) per diluted share[294][353] - The decrease was primarily due to lower operating expenses and the goodwill and intangible impairment charge in the prior year period[353] Net Loss Net loss decreased by 76.2% to $(17.47) million, or $(0.51) per diluted share - Net loss decreased by $55.91 million (76.2%) to $(17.47) million, or $(0.51) per diluted share[87][381] LIQUIDITY AND CAPITAL RESOURCES BowFlex had $10.3 million in cash and $29.0 million available under its ABL Credit Facility, with improved operating cash flow and significant cash from asset sales - As of September 30, 2023, cash, cash equivalents, and restricted cash totaled $10.3 million, with $29.0 million available under the ABL Credit Facility[357] - The company expects current liquidity and cash from operations to be sufficient for operating and capital requirements for at least the next twelve months[359] - Cash used in operating activities improved to $(7.9) million for the six months ended September 30, 2023, from $(9.6) million in the prior year[360] - Investing activities provided $10.9 million in cash, primarily from the sale of intellectual property ($10.5 million) and an equity investment ($2.3 million)[111][358][384] - Capital expenditures for the six months ended September 30, 2023, were $1.9 million, a decline primarily related to lower investments in JRNY as the Vay integration was completed[111][389] Free Cash Flow Free cash flow was $(9.83) million for the six months ended September 30, 2023, an improvement from $(17.11) million in the prior year - Free cash flow is defined as net cash provided by (used in) operating activities minus capital expenditures[105] Free Cash Flow (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 6 Months Ended Sep 30, 2023 | 6 Months Ended Sep 30, 2022 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(5,566) | $(3,616) | $(7,931) | $(9,596) | | Purchase of property, plant and equipment | $(724) | $(4,130) | $(1,902) | $(7,511) | | Free cash flow | $(6,290) | $(7,746) | $(9,833) | $(17,107) | | Free cash flow as percentage of net loss | 50.1% | 58.7% | 56.3% | 23.3% | Financing Arrangements Amendments to the SLR Term Loan and ABL Credit Facility reduced the ABL commitment to $40.0 million, with a $0.3 million loss recorded - Amendments to the SLR Term Loan and ABL Credit Facility on July 28, 2023, increased borrowing advance rates for Amazon.com receivables and reduced the ABL Credit Facility's maximum commitment to $40.0 million[42][106][114][391] - A total loss of $0.3 million was recorded in Other, net, in connection with the amendments[137][281] - As of September 30, 2023, outstanding principal and accrued interest totaled $17.2 million, and $29.0 million was available under the ABL Credit Facility[107][251] Off-Balance Sheet Arrangements BowFlex enters into indemnification agreements, but management does not consider these obligations significant to its financial position - The company enters into agreements requiring indemnification against third-party claims, including with vendors, customers, lessors, licensees/licensors, and debt arrangement parties[108][139][253] - Management does not deem these indemnification obligations significant, and no related liabilities were recorded as of September 30, 2023[116][254] SEASONALITY Revenue from fitness equipment products is strongest in fiscal Q3 and Q4, and weakest in Q1 and Q2, impacting inventory and working capital - Sales are typically strongest in fiscal Q3 and Q4 (Dec 31 and Mar 31) and weakest in fiscal Q1 and Q2 (June 30 and Sep 30)[117] - This seasonality significantly affects inventory levels, working capital needs, and resource utilization[117] CRITICAL ACCOUNTING POLICIES AND ESTIMATES No material changes have occurred in the company's critical accounting policies from those discussed in its fiscal 2023 Form 10-K - No material changes in critical accounting policies from the fiscal 2023 Form 10-K[118] NEW ACCOUNTING PRONOUNCEMENTS Refer to Note 1 of the Notes to Condensed Consolidated Financial Statements for a discussion of recent accounting pronouncements - Discussion of recent accounting pronouncements is provided in Note 1 of the Condensed Consolidated Financial Statements[119] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in the company's market risk have occurred compared to disclosures in its Annual Report on Form 10-K for the year ended March 31, 2023 - No material changes in market risk compared to the disclosures in the 2023 Form 10-K[120] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Management concluded that BowFlex Inc.'s disclosure controls and procedures were effective as of September 30, 2023 - Management concluded that disclosure controls and procedures were effective as of September 30, 2023[142] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the three months ended September 30, 2023 - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2023[143] PART II. OTHER INFORMATION This part covers legal proceedings, risk factors, exhibits, and signatures for the Form 10-Q filing Item 1. Legal Proceedings As of the filing date, BowFlex Inc. was not involved in any material legal proceedings - The company was not involved in any material legal proceedings as of the filing date[144] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in BowFlex Inc.'s 2023 Form 10-K - No material changes to the risk factors set forth in the 2023 Form 10-K[145] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, credit agreements, and certifications - Exhibits include Amended and Restated Articles of Incorporation and Bylaws, amendments to Credit Agreements, CEO and CFO certifications, and XBRL Instance Documents[127] Signatures The report was duly signed on November 14, 2023, by the Chief Financial Officer and Chief Executive Officer of BowFlex Inc. - The report was signed by Aina E. Konold (Chief Financial Officer) and James Barr IV (Chief Executive Officer) on November 14, 2023[131][149]