Bowflex, Inc. saw fiscal third-quarter sales fall 31.1 percent year-over-year (YoY) to $67.6 million for the three-month period ended December 31, compared to $98.1 million in the prior-year corresponding quarter.

Direct segment net sales decreased by 17.4 percent YoY to $38.6 million in fiscal Q3, compared to $50.6 million in the prior-year period. The net sales decrease was said to be primarily driven by lower customer demand.

Retail segment net sales decreased by $21.9 million, or 43.2 percent, to $28.7 million for the three months ended December 31, 2023, compared to $50.6 million in the three months ended December 31, 2022. The decrease in net sales compared to the prior year was primarily driven by lower demand from retailers.

Royalty income for the quarter decreased by $0.5 million compared to the three months ended December 31, 2022. The decrease in Royalty income was said to be primarily due to the sale of the Nautilus brand trademarks and related royalty licenses.

Gross profit was $17.4 million in the quarter, compared to $22.9 million in the prior-year Q3 period, a decrease of 23.9 percent.

Gross profit margin was 25.7 percent of sales for the period, compared to 23.3 percent in the prior-year quarter. The 240 basis point-point increase in gross profit margin was said to be primarily due to lower landed product costs (+12 ppts), partially offset by unfavorable absorption of JRNY COGs (-3 ppts), higher outbound freight (-2 ppts), increased discounting (-1 ppt), increased inventory adjustments (-1 ppt), unfavorable logistics overhead absorption (-1 ppt) and increased warranty costs (-1 ppt).

Operating expenses were $50.2 million in Q3, compared to $33.1 million in the prior year Q3. The increase of $17.1 million, or 51.5 percent, was primarily due to a $20.9 million asset impairment charge in the current quarter, a $0.8 million increase in other marketing expenses, and a $0.5 million increase in bad debt expense, partially offset by a $1.5 million decrease in media spending, a $1.2 million decrease in information technology costs, a $1.0 million decrease in personnel expenses, and a $1.0 million decrease in product development expenses. Total advertising expenses were $8.0 million this year versus $9.5 million last year.

Operating loss was $32.8 million compared to an operating loss of $10.3 million last year, primarily driven by lower sales and an asset impairment charge included in our operating expenses, partially offset by lower cost of sales.

Income tax expense was $0.1 million this year compared to $0.3 million last year. The decrease in income tax expense compared to last year was primarily driven by higher foreign-related taxes in the prior year period.

Loss from continuing operations was $34.3 million, or $0.94 per diluted share, compared to a loss of $11.1 million, or $0.35 per diluted share, last year.

Net loss was $34.3 million, or a loss of 94 cents per diluted share, compared to a net loss of $11.1 million, or a loss of 35 cents per diluted share, in the prior-year comp quarter.

Going Concern Notification
As a result of the continued challenging retail operating environment, deteriorating macroeconomic conditions, and decline in customer demand, the company said in an SEC filing that it experienced a significant year-over-year decline in revenue for the three and nine months ended December 31, 2023. Additionally, Bowflex now believes that conditions will not improve in the next several quarters, which is negatively affecting its liquidity projections.

“We have been actively pursuing alternatives to access liquidity or sell the company or its assets, which may include making a voluntary filing under federal bankruptcy laws,” the company wrote in its 10-Q filing. “If we are not able to promptly consummate a transaction or access additional sources of liquidity, we will not be able to maintain compliance with debt covenants in our credit facilities and may not be able to continue to operate our business.”

The note went on to say that management has determined that under these circumstances, there is substantial doubt about the company’s ability to continue as a going concern for twelve months from the issuance date of the 10-Q report.

“For the three and nine months ended December 31, 2023, we incurred a net loss of $34.3 million and $51.8 million, respectively, and for the three and nine months ended December 31, 2022, we incurred a net loss of $11.1 million and $84.5 million, respectively. As of December 31, 2023, we had $15.9 million of cash, working capital of $31.9 million and $24.4 million available for future borrowings under our ABL Credit Facility,” Bowflex said in the filing.

The consolidated financial statements for the quarter were prepared on a “going concern” basis, which it said means that the continuation of the company is presumed even though events and conditions exist that, when considered in the aggregate, raise substantial doubt about the company’s ability to continue as a going concern. This also means that the condensed consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

For example, the filed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from this uncertainty. Such adjustments could be material.

Key Executive Compensation Plan
The Bowflex Inc. Board of Directors recently approved a plan the company is working on to retain key executives as the business continues to shed sales and credibility. Shares of the publicly-traded company formerly known as Nautilus Inc. fell below 17 cents a share on Thursday. Executives for any company surely figured out some time ago their options aren’t worth anything.

The Board has set up a Key Executive Compensation Plan to enact a compensation program for “certain senior-level executives.” The Board approved the Executive Compensation Plan in recognition of the significant benefits to the company in compensating such executives to continue assisting the company in its operations as it evaluates strategic alternatives and initiatives.

Under certain Award Agreements under the Executive Compensation Plan, the company and certain members of the company’s executive management team, specifically, Jim Barr, Aina Konold, Alan Chan, John Goelz, and Becky Alseth, shall be bound to the terms and conditions of the Executive Compensation Plan upon execution of each Executive’s applicable Award Agreement.

The Executive Compensation Plan provides for a lump sum, one-time cash payment, less applicable tax withholdings, on the next administratively practicable payroll date following the date the Executive returns a countersigned Award Agreement to the company in the following amounts: 48 percent of the current annualized base salary for Jim Barr; 61 percent of the current annualized base salary for Aina Konold; and 57 percent of the current annualized base salary for Alan Chan; and other Executive participants in the Executive Compensation Plan will be eligible for amounts based upon a percentage of the applicable Executive’s base salary.

The Executive Awards are subject to a “clawback” requirement, which provides that each Executive must repay the net (after-tax) amount of their Executive Award upon the occurrence of certain events as outlined in the Executive Compensation Plan.

The Executive Compensation Plan supersedes all oral or written plans, programs, agreements, and policies of the company and its affiliates concerning the subject matter of the Executive Compensation Plan.

Image courtesy Bowflex, Inc.