Nautilus 2014 Annual Report Download - page 11

Additionally, we derive a significant portion of our revenue from a small number of Retail customers. A loss of business from one or more of
these large customers, if not replaced with new business, could negatively affect our operating results and cash flow.
A decline in sales of TreadClimber
®
and/or Max Trainer
®
products without a corresponding increase in sales of other products would
negatively affect our future revenues and operating results.
Sales of cardio products, especially Bowflex TreadClimber
®
and Bowflex Max Trainer
®
products, represent a substantial portion of our Direct
segment revenues. Introduction by competitors of comparable products at lower price-
points, a maturing product lifecycle or other factors could
result in a decline in our revenues derived from these products. A significant decline in our sales of these products would have a material adverse
effect on our operating results, financial position and cash flows.
Portions of our operating expenses and costs of goods sold are relatively fixed, and we may have limited ability to reduce expenses
sufficiently in response to any revenue shortfalls.
Many of our operating expenses are relatively fixed. We may not be able to adjust our operating expenses or other costs sufficiently to
adequately respond to any revenue shortfalls. If we are unable to reduce operating expenses or other costs quickly in response to any declines in
revenue, it would negatively impact our operating results, financial condition and cash flows.
If we are unable to anticipate consumer preferences or to effectively develop, market and sell future products, our future revenues and
operating results could be adversely affected.
Our future success depends on our ability to effectively develop, market and sell new products that respond to new and evolving consumer
preferences. Accordingly, our revenues and operating results may be adversely affected if we are unable to develop or acquire rights to new
products that satisfy consumer preferences. In addition, any new products that we market may not generate sufficient revenues to recoup their
acquisition, development, production, marketing, selling and other costs.
Decline in consumer spending likely would negatively affect our product revenues and earnings.
Success of each of our products depends substantially on the amount of discretionary funds available to our customers. Global credit and
financial markets have experienced extreme disruptions in the recent past, including severely diminished liquidity and credit availability,
declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There
can be no assurance that similar disruptions will not occur in the future. Deterioration in general economic conditions may depress consumer
spending, especially spending for discretionary consumer products such as ours. Poor economic conditions could in turn lead to substantial
decreases in our net sales or have a material adverse effect on our operating results, financial position and cash flows.
Our business is affected by seasonality which results in fluctuations in our operating results.
We experience fluctuations in aggregate sales volume during the year. Sales are typically strongest in the first and fourth quarters, followed by
the third quarter, and are generally weakest in the second quarter. However, the mix of product sales may vary considerably from time to time as
a result of changes in seasonal and geographic demand for particular types of fitness equipment. In addition, our customers may cancel orders,
change delivery schedules or change the mix of products ordered with minimal notice. As a result, we may not be able to accurately predict our
quarterly sales. Accordingly, our results of operations are likely to fluctuate significantly from period to period.
Government regulatory actions could disrupt our marketing efforts and product sales.
Various international and U.S. federal, state and local governmental authorities, including the Federal Trade Commission, the Consumer Product
Safety Commission, the Securities and Exchange Commission and the Consumer Financial Protection Bureau, regulate our product and
marketing efforts. Our sales and profitability could be significantly harmed if any of these authorities commence a regulatory enforcement action
that interrupts our marketing efforts, results in a product recall or negative publicity, or requires changes in product design.
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