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 year ended December 31, 2020 (the “2020 Form 10-K”). All references to the first quarter and first three-months of 2021 and 2020 mean the three-month periods ended March 31, 2021 and 2020, respectively. Unless the context otherwise requires, “Nautilus,” “we,” “us” and “our” refer to Nautilus, Inc. and its subsidiaries. Unless indicated otherwise, all information regarding our operating results pertains to our continuing operations.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “plan,” “expect,” “aim,” “believe,” “project,” “intend,” “estimate,” “will,” “should,” “could,” and other terms of similar meaning typically identify forward-looking statements. We also may make forward-looking statements in our other documents filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”). In addition, our senior management may make forward-looking statements orally to analysts, investors, representatives of the media and others. Forward-looking statements include any statements related to our future business, financial performance or operating results; the impact of any divestiture or separation transaction on our remaining business; anticipated fluctuations in net sales due to seasonality; plans and expectations regarding gross and operating margins; plans and expectations regarding research and development expenses and capital expenditures and anticipated results from such expenditures and other investments in our capabilities and resources; anticipated losses from discontinued operations; plans for new product introductions, strategic partnerships and anticipated demand for our new and existing products; and statements regarding our inventory and working capital requirements and the sufficiency of our financial resources. These forward-looking statements, and others we make from time-to-time, are subject to a number of risks and uncertainties. Many factors could cause actual results to differ materially from those projected in forward-looking statements, including our ability to timely acquire inventory that meets our quality control standards from sole source foreign manufacturers at acceptable costs, changes in consumer fitness trends, changes in the media consumption habits of our target consumers or the effectiveness, availability and price of media time consistent with our cost and audience profile parameters, greater than anticipated costs or delays associated with launch of new products, weaker than expected demand for new or existing products, a decline in consumer spending due to unfavorable economic conditions, softness in the retail marketplace or the availability from retailers of heavily discounted competitive products, an adverse change in the availability of credit for our customers who finance their purchases, our ability to pass along vendor raw material price increases and other cost pressures, including increased shipping costs and unfavorable foreign currency exchange rates, tariffs, risks associated with current and potential delays, work stoppages, or supply chain disruptions caused by the coronavirus pandemic, our ability to hire and retain key management personnel, our ability to effectively develop, market and sell future products, the availability and timing of capital for financing our strategic initiatives, including being able to raise capital on favorable terms or at all; changes in the financial markets, including changes in credit markets and interest rates that affect our ability to access those markets on favorable terms, the impact of any future impairments, our ability to protect our intellectual property, the introduction of competing products, and our ability to get foreign-sourced product through customs in a timely manner. Additional assumptions, risks and uncertainties are described in Part I, Item 1A, “Risk Factors,” in our 2020 Form 10-K as supplemented or modified in our quarterly reports on Form 10-Q. We do not undertake any duty to update forward-looking statements after the date they are made or conform them to actual results or to changes in circumstances or expectations.
Overview
We empower healthier living through individualized connected fitness experiences. We are committed to build a healthier world, one person at a time. Our principal business activities include designing, developing, sourcing and marketing high-quality cardio and strength fitness products, related accessories and digital platform for consumer use, primarily in the U.S., Canada, Europe and Asia. Our products are sold under some of the most-recognized brand names in the fitness industry: Bowflex®, Schwinn®, JRNY® and Nautilus®.
We market our products through two distinct distribution channels, Direct and Retail, which we consider to be separate business segments. Our Direct business offers products directly to consumers primarily through websites. Our Retail business offers our products through a network of independent retail companies to reach consumers in
the home use markets in the U.S. and internationally. We also derive a portion of our revenue from the licensing of our brands and intellectual property.
As previously disclosed, we changed our fiscal year from the twelve months beginning January 1 and ending December 31 to the twelve months beginning April 1 and ending March 31 in order to include the primary fitness season for exercise equipment, October to March, in the same fiscal year. In addition, the new fiscal year-end is better aligned with the fiscal year-end of our retail partners.
For the three-months ended March 31, 2021, our results were primarily impacted by strong demand driven by changes we made to our operating model beginning in late 2019 and COVID-19 stay-at-home orders. The primary actions taken include extensive, in-depth consumer insights research, which has identified effective new positioning for the Bowflex® brand, and which is now underway through a new advertising campaign and updates to our websites, television commercials, social media, and other digital platforms. Additionally, we expect to launch targeted new products across all our channels over the next twelve months. In parallel, we plan to continue our digital transformation with the inclusion of updated digital experience platforms on key new products, moving toward our goal of having the majority of our products equipped with subscription-based digital experience offerings.
•Net sales for the three-months ended March 31, 2021 were $206.1 million, reflecting a 119.9% increase as compared to net sales of $93.7 million for the three-months ended March 31, 2020.
•Net sales of our Direct segment increased by $54.4 million, or 115.4%, for the three-months ended March 31, 2021, compared to the three-months ended March 31, 2020.
•Net sales of our Retail segment increased by $57.8 million, or 126.8%, for the three-months ended March 31, 2021, compared to the three-months ended March 31, 2020.
•Royalty income for the three-months ended March 31, 2021 increased by $0.1 million compared to the three-months ended March 31, 2020.
•Gross profit for the three-months ended March 31, 2021 was $79.1 million, reflecting a 122.2% increase as compared to gross profit of $35.6 million for the three-months ended March 31, 2020.
•Operating expenses for the three-months ended March 31, 2021 were $39.4 million, an increase of $3.2 million, or 8.9%, as compared to operating expenses of $36.2 million for the three-months ended March 31, 2020.
•Operating income for the three-months ended March 31, 2021 was $39.7 million compared to an operating loss of $0.6 million for the three-months ended March 31, 2020.
•Income from continuing operations was $30.6 million for the three-months ended March 31, 2021, or $0.94 per diluted share, compared to $2.3 million, or $0.08 per diluted share, for the three-months ended March 31, 2020.
•The effective tax rates for the three-months ended March 31, 2021 and for the three-months ended March 31, 2020 were 19.9% and 301.2%, respectively.
•Net income was $30.4 million for the three-months ended March 31, 2021, compared to net income of $2.2 million for the three-months ended March 31, 2020.
Forward Looking Guidance
First Quarter Fiscal 2022
•Net sales are expected to grow between 40% and 50% versus prior year or between 51% and 62% when excluding Octane Fitness which was sold in calendar year 2020.
•Gross margins in the upcoming quarter will continue to be pressured by higher commodity prices, FX, and continued disruptions in global logistics. Additionally, extremely elevated prices for microchips given global scarcity and incremental investments in JRNY® and Supply Chain will further pressure gross margins in the near-term.
•The Company plans to return to normalized levels of media spend, moving to about 7% of sales vs 2% of sales last year.
•As a result, operating margins are expected to between 6.5% and 8%.
Full Year Fiscal 2022
•Full year capital expenditures are expected to be between $12 million and $14 million with the majority earmarked for JRNY® investments.
•The Company is reiterating that JRNY® members are expected to be 250,000 by the end of FY22.
Factors Affecting Our Performance
Our results of operations may vary significantly from period-to-period. Our revenues typically fluctuate due to the seasonality of our industry, customer buying patterns, product innovation, the nature and level of competition for health and fitness products, our ability to procure products to meet customer demand, the level of spending on, and effectiveness of, our media and advertising programs and our ability to attract new customers and maintain existing sales relationships. In addition, our revenues are highly susceptible to economic factors, including, among other things, the overall condition of the economy and the availability of consumer credit in both the U.S. and Canada. The COVID-19 pandemic has created a heightened need for home-fitness products at an unplanned rate. We are unable to estimate the length of time that the short-term increases in demand for many of our home-fitness products will outpace supply and we are accelerating the manufacturing and delivery of key products. We cannot predict the longer-term impacts of COVID-19 and the impact on our results of operations is uncertain. 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, tariffs, expedited shipping and transportation costs, cost associated with acquisition or license of products and technologies, product warranty costs, the cost of fuel, foreign currency exchange rates, 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, websites and other media, facility costs, operating costs of our information and communications systems, product supply chain management, customer support and new product development activities. In addition, our operating expenses have been affected from time-to-time by asset impairment charges, restructuring charges and other significant unusual or infrequent expenses.
As a result of the above and other factors, our period-to-period operating results may not be indicative of future performance. You should not place undue reliance on our operating results and should consider our prospects in light of the risks, expenses and difficulties typically encountered by us and other companies, both within and outside our industry. We may not be able to successfully address these risks and difficulties and, consequently, we cannot assure you of any future growth or profitability. For more information, see our discussion of risk factors located at Part I, Item 1A of our 2020 Form 10-K as supplemented by our quarterly reports on Form 10-Q.
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 as of December 31, 2012. Although there was no revenue related to the former Commercial business in either the 2021 or 2020 periods, we continue to incur product liability and other legal expenses associated with product previously sold into the Commercial channel.
RESULTS OF OPERATIONS
Results of operations information was as follows (dollars in thousands):
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended March 31,
|
|
Change
|
|
2021
|
|
2020
|
|
$
|
|
%
|
Net sales
|
$
|
206,075
|
|
|
$
|
93,722
|
|
|
$
|
112,353
|
|
|
119.9
|
%
|
Cost of sales
|
126,984
|
|
|
58,125
|
|
|
68,859
|
|
|
118.5
|
%
|
Gross profit
|
79,091
|
|
|
35,597
|
|
|
43,494
|
|
|
122.2
|
%
|
Operating expenses:
|
|
|
|
|
|
|
|
Selling and marketing
|
23,480
|
|
|
24,686
|
|
|
(1,206)
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|
|
(4.9)
|
%
|
General and administrative
|
12,060
|
|
|
7,656
|
|
|
4,404
|
|
|
57.5
|
%
|
Research and development
|
3,843
|
|
|
3,815
|
|
|
28
|
|
|
0.7
|
%
|
Total operating expenses
|
39,383
|
|
|
36,157
|
|
|
3,226
|
|
|
8.9
|
%
|
Operating income (loss)
|
39,708
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|
|
(560)
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|
|
40,268
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|
|
*
|
Other expense:
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|
|
|
|
|
|
Interest income
|
45
|
|
|
2
|
|
|
43
|
|
|
|
Interest expense
|
(214)
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|
|
(627)
|
|
|
413
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|
|
|
Other, net
|
(1,363)
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|
|
41
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|
|
(1,404)
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|
|
|
Total other expense, net
|
(1,532)
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|
(584)
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|
|
(948)
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|
|
|
Income (loss) from continuing operations before income taxes
|
38,176
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|
|
(1,144)
|
|
|
39,320
|
|
|
|
Income tax expense (benefit)
|
7,595
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|
|
(3,446)
|
|
|
11,041
|
|
|
|
Income from continuing operations
|
30,581
|
|
|
2,302
|
|
|
28,279
|
|
|
|
Loss from discontinued operations, net of income taxes
|
(177)
|
|
|
(118)
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|
|
(59)
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|
|
|
Net income
|
$
|
30,404
|
|
|
$
|
2,184
|
|
|
$
|
28,220
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|
|
|
*Not meaningful
Results of operations information by segment and major product lines was as follows (dollars in thousands):
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|
|
|
|
|
|
Three-Months Ended March 31,
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|
Change
|
|
2021
|
|
2020
|
|
$
|
|
%
|
Net sales:
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|
|
|
|
|
|
Direct net sales:
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|
|
|
|
|
|
|
Cardio products(1)
|
$
|
70,148
|
|
|
$
|
35,876
|
|
|
$
|
34,272
|
|
|
95.5
|
%
|
Strength products(2)
|
31,389
|
|
|
11,265
|
|
|
20,124
|
|
|
178.6
|
%
|
Direct
|
101,537
|
|
|
47,141
|
|
|
54,396
|
|
|
115.4
|
%
|
|
|
|
|
|
|
|
|
Retail net sales:
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|
|
|
|
|
|
|
Cardio products(1)
|
70,907
|
|
|
36,143
|
|
|
34,764
|
|
|
96.2
|
%
|
Strength products(2)
|
32,528
|
|
|
9,470
|
|
|
23,058
|
|
|
243.5
|
%
|
Retail
|
103,435
|
|
|
45,613
|
|
|
57,822
|
|
|
126.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Royalty
|
1,103
|
|
|
968
|
|
|
135
|
|
|
13.9
|
%
|
|
$
|
206,075
|
|
|
$
|
93,722
|
|
|
$
|
112,353
|
|
|
119.9
|
%
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
Direct
|
$
|
50,491
|
|
|
$
|
22,842
|
|
|
$
|
27,649
|
|
|
121.0
|
%
|
Retail
|
76,493
|
|
|
35,283
|
|
|
41,210
|
|
|
116.8
|
%
|
|
|
|
|
|
|
|
|
|
$
|
126,984
|
|
|
$
|
58,125
|
|
|
$
|
68,859
|
|
|
118.5
|
%
|
|
|
|
|
|
|
|
|
Gross profit:
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|
|
|
|
|
|
|
Direct
|
$
|
51,046
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|
|
$
|
24,299
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|
|
$
|
26,747
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|
|
110.1
|
%
|
Retail
|
26,942
|
|
|
10,330
|
|
|
16,612
|
|
|
160.8
|
%
|
Royalty
|
1,103
|
|
|
968
|
|
|
135
|
|
|
13.9
|
%
|
|
$
|
79,091
|
|
|
$
|
35,597
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|
|
$
|
43,494
|
|
|
122.2
|
%
|
Gross margin:
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|
|
|
|
|
|
Direct
|
50.3
|
%
|
|
51.5
|
%
|
|
(120)
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|
basis points
|
Retail
|
26.0
|
%
|
|
22.6
|
%
|
|
340
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|
basis points
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|
|
|
|
|
|
|
|
Contribution:
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|
|
|
|
|
|
|
Direct
|
$
|
27,846
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|
|
$
|
1,809
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|
|
26,037
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|
|
1,439.3
|
%
|
Retail
|
20,348
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|
|
2,389
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|
|
17,959
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|
|
751.7
|
%
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|
|
|
|
|
|
|
|
Contribution rate:
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|
|
|
|
|
|
Direct
|
27.4
|
%
|
|
3.8
|
%
|
|
2,360
|
|
basis points
|
Retail
|
19.7
|
%
|
|
5.2
|
%
|
|
1,450
|
|
basis points
|
(1) Cardio products include: connected-fitness bikes, the Bowflex® C6, Bowflex® VeloCore®, Schwinn® IC4, Max Trainer®, connected-fitness treadmills, other exercise bikes, ellipticals and subscription services.
|
(2) Strength products include: Bowflex® Home Gyms, Bowflex® SelectTech® dumbbells, kettlebell and barbell weights, and accessories.
|
Direct
Direct segment delivered its best quarterly sales in segment history. Net sales for the three-months ended March 31, 2021 were $101.5 million, up 115.4%, from $47.1 million.
Strength product sales grew 178.6%, led by the popular SelectTech® weights and Bowflex® Home Gyms. Cardio sales increased 95.5%, driven by the connected-fitness bikes and treadmills. The latest addition to the Max Trainer line, the M9, also contributed to the growth in the segment.
Gross margin rate for the three-months ended March 31, 2021 was 50.3%, down 1.2%, from 51.5% in the same period last year, primarily driven by higher landed product costs due to inflationary increases in commodity prices. FX, and elevated transportation costs.
Segment contribution income for the three-months ended March 31, 2021 was $27.8 million or 27.4%, up 1,439.3%, compared to segment contribution income of $1.8 million or 3.8% for the same period last year. The $26 million improvement was primarily driven by higher gross profit and decreased media spend. Advertising expenses were $10.1 million for the three-months ended March 31, 2021 compared to $13.2 million last year.
Combined consumer credit approvals by our primary and secondary U.S. third-party financing providers for the first quarter of 2021 were 54.7%, compared to 52.9% in the same period of 2020. The increase in approval rates reflects higher credit quality applications.
Retail
Retail segment sales of $103.4 million for the three-months ended March 31, 2021 were the second-best quarterly sales in segment history, second only to last quarter's $106.3 million.
Net sales for the three-months ended March 31, 2021 were up 126.8%, from $45.6 million for the same period last year, or 182.6% excluding sales related to the Octane brand. Retail segment sales outside the United States and Canada grew 200% or 340% excluding Octane.
Strength product sales grew by 243.5%, led by the Bowflex® Home Gyms and SelectTech® weights and benches. Cardio sales increased by 96.2%, driven by bikes, particularly the Schwinn® IC3, IC4 and C7 connected-fitness bikes, and treadmills.
Gross margin rate for the three-months ended March 31, 2021 was 26.0%, up from 22.6% in the same period last year primarily driven by favorable customer mix and fixed costs leverage which more than offset higher landed costs.
Segment contribution income for the three-months ended March 31, 2021 was $20.3 million or 19.7%, compared to $2.4 million or 5.2% for the same period last year, primarily driven by higher gross profit.
Selling and Marketing
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, and other programs.
Selling and marketing information was as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended March 31,
|
|
Change
|
|
2021
|
|
2020
|
|
$
|
|
%
|
Selling and marketing
|
$23,480
|
|
$24,686
|
|
$(1,206)
|
|
(4.9)%
|
As % of net sales
|
11.4%
|
|
26.3%
|
|
|
|
|
The decrease in selling and marketing expense in the three-month period ended March 31, 2021 as compared to the same period of 2020 was primarily related to a $3.0 million decrease in media advertising, partially offset by finance fees and commissions.
Media advertising expense of our Direct business is the largest component of selling and marketing was as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended March 31,
|
|
Change
|
|
2021
|
|
2020
|
|
$
|
|
%
|
Media advertising
|
$10,140
|
|
$13,185
|
|
$(3,045)
|
|
(23.1)%
|
The decrease in media advertising for the three-month period ended March 31, 2021 compared to the same period of 2020 primarily due to our strong organic demand.
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 expenses was as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended March 31,
|
|
Change
|
|
2021
|
|
2020
|
|
$
|
|
%
|
General and administrative
|
$12,060
|
|
$7,656
|
|
$4,404
|
|
57.5%
|
As % of net sales
|
5.9%
|
|
8.2%
|
|
|
|
|
General and administrative expenses were higher for the three-months ended March 31, 2021 compared to the same period of 2020 primarily driven by increases for short term incentive and personnel costs.
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 expenses was as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended March 31,
|
|
Change
|
|
2021
|
|
2020
|
|
$
|
|
%
|
Research and development
|
$3,843
|
|
$3,815
|
|
$28
|
|
0.7%
|
As % of net sales
|
1.9%
|
|
4.1%
|
|
|
|
|
The research and development expenses for the three-month period ended March 31, 2021 compared to the same period of 2020 was essentially flat, as increases in investments for our digital platform JRNY® were offset by the removal of costs related to the Octane brand which we sold in October 2020.
Interest Expense
Interest expense decreased $0.4 million to $0.2 million for the three-month period ended March 31, 2021, compared to the same period of 2020. The decrease was primarily due to loss on debt extinguishment of $0.2 million reported as interest expense in our condensed consolidated statements of operations incurred in connection with the termination of our prior credit agreement with JPMorgan Chase Bank, N.A. in the first quarter of 2020.
Other, Net
Other, net primarily relates to the effect of exchange rate fluctuations between the U.S. and our foreign subsidiaries and foreign exchange derivative contracts.
Income Tax Expense (Benefit)
Income tax provision includes U.S. and international income taxes, and interest and penalties on uncertain tax positions.
Income tax expense (benefit) was as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Three-Months Ended March 31,
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Change
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2021
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2020
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$
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%
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Income tax expense (benefit)
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$7,595
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$(3,446)
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$11,041
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(320.4)%
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Effective tax rate
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19.9%
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301.2%
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The income tax expense from continuing operations for the three-month period ended March 31, 2021 was as a result of the profit generated in the U.S. The reduced effective tax rate for the same period was primarily due to $1.4 million of excess tax benefit related to stock-based compensation recognized as a current period benefit through the statement of operations.
The income tax benefit and effective tax rate from continuing operations for the same period of the prior year was due to the 14% rate benefit of net operating loss carry-back from the 2019 tax year to the 2016 tax year as a result of CARES Act enactment, which was discretely recognized in the first quarter of 2020.
LIQUIDITY AND CAPITAL RESOURCES
Our future capital requirements may vary materially from those currently planned and will depend on many factors, including our levels of revenue, the timing and extent of spending on research and development efforts and other business initiatives, the expansion of sales and marketing activities, the timing of new product introductions, market acceptance of our products, and overall economic conditions. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our shareholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations.
As of March 31, 2021, we had $113.2 million of cash, cash equivalents, restricted cash and investments, and $54.4 million was available for borrowing under the ABL Revolving Facility, compared to $94.1 million of cash, cash equivalents, restricted cash and investments as of December 31, 2020. We expect our cash, cash equivalents, restricted cash and investments and amounts available under our Wells Fargo Financing as of March 31, 2021, along with cash expected to be generated from operations, to be sufficient to fund our operating and capital requirements for at least twelve months from March 31, 2021.
Cash provided by operating activities was $24.8 million for the three-month period ended March 31, 2021, compared to $6.3 million for the three-month period ended March 31, 2020. The increase in cash flows from operating activities for the three-month period ended March 31, 2021 as compared to the same period of 2020 was primarily due to the increase in operating income, along with the changes in our operating assets and liabilities discussed below.
Trade receivables decreased by $2.6 million to $88.7 million as of March 31, 2021, compared to $91.2 million as of December 31, 2020, primarily due to the timing of customer payments. Trade receivables as of March 31, 2021 compared to March 31, 2020 increased by $54.4 million due to the higher net sales and the timing of receipts.
Inventory was $68.1 million, compared to $51.1 million as of December 31, 2020. The increase in inventory was primarily due to the surge in demand for home-fitness products driving up in-transit inventory. Inventories as of March 31, 2021 compared to March 31, 2020, increased by $33.2 million, primarily due to the surge in demand.
Prepaid and other current assets was $25.8 million, compared to $19.2 million as of December 31, 2020, primarily related to other short-term deposits.
Trade payables increased by $2.5 million to $98.9 million as of March 31, 2021, compared to $96.4 million as of December 31, 2020, primarily due to timing of payments for inventory related payments.
Accrued liabilities decreased by $2.9 million to $19.6 million as of March 31, 2021, compared to $22.5 million as of December 31, 2020, primarily due to payroll related liabilities.
Cash used in investing activities of $40.0 million for the first three-months of 2021 was primarily due to purchase of available-for-sale securities. We anticipate spending between $12.0 million and $14.0 million in 2022 for digital platform enhancements, systems integration, and production tooling.
Cash used in financing activities of $2.0 million for the first three-months of 2021 was primarily related to tax payments related to stock award issuances.
Financing Arrangements
On January 31, 2020, we entered into a Credit Agreement with Wells Fargo Bank, National Association (“Wells Fargo”) and lenders from time to time party thereto (collectively with Wells Fargo the “Lenders”) (“Credit Agreement”), pursuant to which the Lenders have agreed, among other things, to make available to us an asset-based revolving loan facility in the aggregate principal amount of up to $55.0 million, subject to a borrowing base (the “ABL Revolving Facility”), and a term loan facility in the aggregate principal amount of $15.0 million (the “Term Loan Facility” and together with the ABL Revolving Facility, the “Wells Fargo Financing"), in each case, as such amounts may increase or decrease in accordance with the terms of the Credit Agreement. The Wells Fargo Financing expires and all outstanding amounts become due on January 31, 2025 unless the maturity is accelerated subject to the terms set forth in the Credit Agreement. The repayment of obligations under the Credit Agreement is secured by substantially all of our assets. Principal and interest amounts are required to be paid as scheduled.
Interest on the ABL Revolving Facility will accrue at LIBOR plus a margin of 1.75% to 2.25% (based on average quarterly availability) and interest on the Term Loan Facility will accrue at LIBOR plus 5.00%. As of March 31, 2021, our interest rate was 1.87% for the ABL Revolving Facility and 5.12% for the Term Loan Facility.
As of March 31, 2021, outstanding borrowings totaled $13.6 million, with $13.4 million and $0.2 million under our Term Loan Facility and ABL Revolving Facility, respectively. As of March 31, 2021, $54.4 million was available for borrowing under the ABL Revolving Facility. Any outstanding balance is due and payable on January 31, 2025.
The balance sheet classification of the borrowings under the revolving loan credit facility has been determined in accordance with ASC 470, Debt. Borrowings outstanding under a revolving credit agreement that includes both a subjective acceleration clause and a requirement to maintain a springing lock-box arrangement are classified based on the provisions of ASC 470 because the lock-box remittances do not automatically reduce the debt outstanding.
As of March 31, 2021, we were in compliance with all covenants contained in our Term Loan Facility and ABL Revolving Facility and assessed the probability that the creditor would accelerate the due date of the debt by exercising the subjective acceleration clauses of our Term Loan Facility and ABL Revolving Facility before its scheduled maturity as remote. Accordingly, this obligation has been classified as a long-term liability in the balance sheet.
The Credit Agreement contains customary affirmative and negative covenants for financings of this type, including, among other terms and conditions, delivery of financial statements, reports and maintenance of existence, revolving availability subject to a calculated borrowing base, as well as limitations and conditions on our ability to: create, incur, assume or be liable for indebtedness; dispose of assets outside the ordinary course; acquire, merge or consolidate with or into another person or entity; create, incur or allow any lien on any of our property; make investments; or pay dividends or make distributions, in each case subject to certain exceptions. The financial covenants set forth in the Credit Agreement include a minimum liquidity covenant of $7.5 million. Beginning February 1, 2022, the minimum liquidity covenant will decrease to $5.0 million and only a minimum EBITDA covenant will apply. In addition, the Credit Agreement includes customary events of default, including but not limited to, the nonpayment of principal and interest when due thereunder, breaches of representations and warranties, noncompliance with covenants, acts of insolvency and default on indebtedness held by third parties (subject to certain limitations and cure periods).
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 March 31, 2021, we had approximately $216.3 million, compared to $165.7 million as of December 31, 2020 in non-cancelable market-based purchase obligations, primarily to secure additional factory capacity for inventory purchases in the next twelve months. Purchase obligations can vary from quarter-to-quarter and versus the same period in prior years due to a number of factors, including the amount of products that are shipped directly to Retail customer warehouses versus through Nautilus warehouses.
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 March 31, 2021.
SEASONALITY
Prior to the COVID-19 pandemic, our revenue from fitness equipment products varied seasonally. Sales were typically strongest in the fourth calendar quarter and lowest in the second calendar quarter as we believe that 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 had a significant effect on our inventory levels, working capital needs and resource utilization. Since 2020, due to stay-at-home orders related to the COVID-19 pandemic, we did not experience the typical seasonality.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our critical accounting policies have not changed from those discussed in our 2020 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 new accounting pronouncements.