Form 10-K: Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

BowFlex Winds Down Operations After Bankruptcy Filing

BowFlex Inc., a leading manufacturer of home fitness equipment, has been going through a difficult period and has now filed for bankruptcy. The company has been in the process of winding down its business and liquidating its assets after facing significant challenges in its operations.

Declining Sales and Profitability BowFlex’s financial performance has been on a downward trend in recent years. In the fiscal year ended March 31, 2024, the company’s net sales declined by 28.2% to $205.9 million, compared to $286.8 million in the prior year. This decrease was driven by lower sales in both the Direct and Retail segments.

The Direct segment, which sells products directly to consumers, saw a 19.8% drop in net sales, while the Retail segment, which sells through independent retailers, experienced a 35.4% decline. The company also saw a 66.9% decrease in royalty income compared to the previous year.

BowFlex’s profitability also suffered, with the company reporting an operating loss of $89.7 million, or a negative 43.5% operating margin, compared to an operating loss of $93.4 million, or a negative 32.6% operating margin, in the prior year. The loss from continuing operations was $90.4 million, or $2.56 per diluted share, compared to a loss of $107.5 million, or $3.40 per diluted share, in the previous year.

Factors Contributing to the Decline The company attributed the decline in its financial performance to several factors, including the continued challenging retail operating environment, deteriorating macroeconomic conditions, and a decline in customer demand. These factors negatively affected the company’s liquidity projections, leading to the decision to file for bankruptcy.

Bankruptcy Proceedings and Asset Sale On March 4, 2024, BowFlex and certain of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. The company sought to implement a sale of substantially all of its assets through the bankruptcy proceedings.

On April 15, 2024, the Bankruptcy Court approved the sale of BowFlex’s assets to Johnson Health Tech Retail, Inc. for $37.5 million in cash. As a result of this asset sale, there were insufficient proceeds for common stockholders to receive any value for their shares, and the company will not be making any future distributions to shareholders.

Operational Restructuring and Impairment Charges In the lead-up to the bankruptcy filing, BowFlex implemented a restructuring plan that included a reduction in workforce and other exit costs. The company recorded $12.1 million in restructuring and exit charges in fiscal 2024, compared to $2.5 million in the prior year.

Additionally, due to the decline in the company’s financial performance and the bankruptcy proceedings, BowFlex recognized significant impairment charges. In fiscal 2024, the company recorded a $39.6 million goodwill and asset impairment charge, compared to $27.0 million in the previous year.

Liquidity and Financing As of March 31, 2024, BowFlex had $21.9 million in cash and restricted cash, compared to $18.3 million in the prior year. The company’s liquidity was supported by a debtor-in-possession (DIP) financing facility of up to $25 million, which was approved by the Bankruptcy Court.

However, the company’s financial position was severely strained, and the Bankruptcy Court’s approval of the asset sale to Johnson Health Tech Retail, Inc. was necessary to facilitate an orderly wind-down of the business.

Discontinued Operations and Outlook BowFlex’s discontinued operations relate to the disposal of its former Nautilus® Commercial business, which was completed in 2011. The company reached substantial completion of the asset liquidation for this business in 2012 and has since only incurred minor expenses related to product liability.

Going forward, BowFlex anticipates that this will be its final filing with the SEC, as the company filed a Form 15 on April 25, 2024, to terminate its future filing obligations. The company’s operations are now limited to winding down the business and completing the liquidation of any remaining assets.

Strengths and Weaknesses One of BowFlex’s key strengths was its strong brand recognition and reputation in the home fitness equipment market. The company’s products, such as the Bowflex® and Schwinn® lines, were well-known and popular among consumers. Additionally, the company’s direct-to-consumer sales channel allowed it to have a more direct relationship with its customers.

However, the company’s weaknesses included its heavy reliance on the retail channel, which was significantly impacted by the challenging market conditions. BowFlex also faced increasing competition from other home fitness brands and the growing popularity of connected fitness solutions, which put pressure on its sales and profitability.

Conclusion BowFlex’s financial troubles and eventual bankruptcy filing highlight the challenges facing the home fitness equipment industry. The company’s inability to adapt to changing market conditions and consumer preferences ultimately led to its downfall. While the company’s assets have been sold to Johnson Health Tech Retail, Inc., the bankruptcy proceedings mark the end of BowFlex as an independent entity, leaving its shareholders with no value for their investments.