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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                   to                   
Commission file number: 001-31321
NAUTILUS, INC.
(Exact name of Registrant as specified in its charter)
Washington 94-3002667
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)

17750 S.E. 6th Way
Vancouver, Washington 98683
(Address of principal executive offices, including zip code)

(360) 859-2900
(Registrant's telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
 Common Stock, no par valueNLSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  [x]    No  [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  [x]    No  [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer[ ]Accelerated filer[x]Non-accelerated filer[ ]Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  [x]
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
The number of shares outstanding of the registrant's common stock as of August 7, 2020 was 29,967,125 shares.



NAUTILUS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020
Item 1.
Item 2.
Item 3.
Item 4.
Item 1.
Item 1A.
Item 6.




Table of Contents
PART I. FINANCIAL INFORMATION
        
Item 1.  Financial Statements

NAUTILUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)
 As of
 June 30, 2020December 31, 2019
Assets
Cash and cash equivalents$45,656  $11,070  
Restricted cash
2,196    
Trade receivables, net of allowances of $62 and $45
33,741  54,600  
Inventories21,310  54,768  
Prepaids and other current assets8,304  8,283  
Income taxes receivable5,326  472  
Current assets held-for-sale29,054    
Total current assets145,587  129,193  
Property, plant and equipment, net
22,246  22,755  
Operating lease right-of-use assets21,513  20,778  
Other intangible assets, net9,601  43,243  
Other assets6,024  4,510  
Total assets$204,971  $220,479  
Liabilities and Shareholders' Equity
Trade payables$45,207  $74,255  
Accrued liabilities11,632  7,633  
Operating lease liabilities, current portion3,216  3,720  
Warranty obligations, current portion1,966  3,100  
Debt payable, current portion, net of unamortized debt issuance costs of $83 and $0
1,917    
Current liabilities held-for-sale14,214    
Total current liabilities78,152  88,708  
Operating lease liabilities, non-current20,429  18,982  
Warranty obligations, non-current585  2,617  
Income taxes payable, non-current3,949  3,676  
Deferred income tax liabilities, non-current222  1,783  
Other non-current liabilities  46  
Debt payable, non-current, net of unamortized debt issuance costs of $298 and $230
12,518  14,071  
Total liabilities115,855  129,883  
Commitments and contingencies (Note 16)
Shareholders' equity:
Common stock - no par value, 75,000 shares authorized, 29,967 and 29,781 shares issued and outstanding
2,729  1,261  
Retained earnings87,346  90,272  
Accumulated other comprehensive loss(959) (937) 
Total shareholders' equity89,116  90,596  
Total liabilities and shareholders' equity$204,971  $220,479  

See accompanying Notes to Condensed Consolidated Financial Statements.
1

Table of Contents
NAUTILUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands, except per share amounts)
 
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net sales$114,188  $59,004  $207,910  $143,404  
Cost of sales66,792  41,487  124,917  90,045  
Gross profit
47,396  17,517  82,993  53,359  
Operating expenses:
Selling and marketing12,446  17,631  37,132  51,674  
General and administrative9,315  9,443  16,971  17,098  
Research and development3,728  3,849  7,543  8,160  
Loss on disposal group and goodwill and other intangible impairment charge29,013  72,008  29,013  72,008  
Total operating expenses54,502  102,931  90,659  148,940  
Operating loss(7,106) (85,414) (7,666) (95,581) 
Other expense:
Interest income1  (3) 3  162  
Interest expense(338) (223) (965) (428) 
Other, net115  171  156  (222) 
Total other expense, net(222) (55) (806) (488) 
Loss from continuing operations before income taxes(7,328) (85,469) (8,472) (96,069) 
Income tax benefit(2,342) (6,725) (5,788) (8,841) 
Loss from continuing operations(4,986) (78,744) (2,684) (87,228) 
Discontinued operations:
Loss from discontinued operations before income taxes
(29) (51) (63) (65) 
Income tax expense of discontinued operations
95  73  179  150  
Loss from discontinued operations(124) (124) (242) (215) 
Net loss$(5,110) $(78,868) $(2,926) $(87,443) 
Basic loss per share from continuing operations
$(0.17) $(2.65) $(0.09) $(2.94) 
Basic loss per share from discontinued operations
    (0.01) (0.01) 
Basic net loss per share(1)
$(0.17) $(2.66) $(0.10) $(2.95) 
Diluted loss per share from continuing operations
$(0.17) $(2.65) $(0.09) $(2.94) 
Diluted loss per share from discontinued operations
    (0.01) (0.01) 
Diluted net loss per share(1)
$(0.17) $(2.66) $(0.10) $(2.95) 
Shares used in per share calculations:
Basic29,909  29,678  29,852  29,626  
Diluted29,909  29,678  29,852  29,626  
(1) May not add due to rounding.



See accompanying Notes to Condensed Consolidated Financial Statements.
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NAUTILUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited and in thousands)
 
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Net loss$(5,110) $(78,868) $(2,926) $(87,443) 
Other comprehensive income (loss):
Unrealized (loss) gain on available-for-sale securities, net of income tax expense of $0, $1, $0 and $6  (9)   6  
Loss on derivative securities, effective portion, net of income tax expense (benefit) of $0, $(106), $0 and $(139)  (123)   (223) 
Foreign currency translation, net of income tax benefit of $(15), $(9), ($47) and $(64)353  72  (22) 200  
Other comprehensive income (loss)
353  (60) (22) (17) 
Comprehensive loss$(4,757) $(78,928) $(2,948) $(87,460) 


See accompanying Notes to Condensed Consolidated Financial Statements.
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NAUTILUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited and in thousands)
Common StockRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' Equity
SharesAmount
Balances at December 31, 2019
29,781  $1,261  $90,272  $(937) $90,596  
Net income—  —  2,184  —  2,184  
Foreign currency translation adjustment,
net of income tax benefit of $32
—  —  —  (375) (375) 
Stock-based compensation expense—  564    —  564  
Common stock issued under equity
compensation plan, net of shares withheld
for tax payments
36  (44) —  —  (44) 
Balances at March 31, 2020
29,817  1,781  92,456  (1,312) 92,925  
Net loss—  —  (5,110) —  (5,110) 
Foreign currency translation adjustment,
net of income tax benefit of $15
—  —  —  353  353  
Stock-based compensation expense—  865    —  865  
Common stock issued under equity
compensation plan, net of shares withheld
for tax payments
87  —  —    
Common stock issued under employee stock purchase plan
63  83  —  —  83  
Balances at June 30, 2020
29,967  $2,729  $87,346  $(959) $89,116  


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Common StockRetained EarningsAccumulated Other Comprehensive LossTotal Shareholders' Equity
SharesAmount
Balances at December 31, 2018
29,545  $215  $183,290  $(909) $182,596  
Net loss—  —  (8,575) —  (8,575) 
Unrealized gain on marketable securities, net of income tax expense of $5
—  —  —  15  15  
Loss on derivative securities, effective portion, net of income tax benefit of $33
—  —  —  (100) (100) 
Foreign currency translation adjustment,
net of income tax benefit of $55
—  —  —  128  128  
Stock-based compensation benefit—  (147) (218) —  (365) 
Common stock issued under equity
compensation plan, net of shares withheld
for tax payments
48  (68) —  —  (68) 
Balances at March 31, 2019
29,593    174,497  (866) 173,631  
Net loss—  —  (78,868) —  (78,868) 
Unrealized loss on marketable securities, net of income tax expense of $1
—  —  —  (9) (9) 
Loss on derivative securities, effective portion, net of income tax benefit of $106
—  —  —  (123) (123) 
Foreign currency translation adjustment,
net of income tax benefit of $9
—  —  —  72  72  
Stock-based compensation expense—  9    —  9  
Common stock issued under equity
compensation plan, net of shares withheld
for tax payments
87  36  —  —  36  
Common stock issued under employee stock purchase plan
48  168  —  —  168  
Balances at June 30, 2019
29,728  $213  $95,629  $(926) $94,916  

See accompanying Notes to Condensed Consolidated Financial Statements.
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NAUTILUS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)  
Six Months Ended June 30,
 2020 2019
Cash flows from operating activities:
Loss from continuing operations$(2,684)  $(87,228) 
Loss from discontinued operations(242)  (215) 
Net loss(2,926)  (87,443) 
Adjustments to reconcile net loss to cash provided by (used in) operating activities 
Depreciation and amortization5,454   5,192  
Provision for allowance for doubtful accounts970   52  
Inventory lower-of-cost-or-market/NRV adjustments1,755  491  
Stock-based compensation expense (benefit)1,429   (356) 
Loss on asset dispositions184  536  
Loss on debt extinguishment230    
Loss on disposal group, goodwill and other intangible impairment charge29,013  72,008  
Deferred income taxes, net of valuation allowance (1,494)  (9,372) 
Other(630) (108) 
Changes in operating assets and liabilities:
Trade receivables12,270   16,755  
Inventories20,451   16,457  
Prepaids and other assets1,323   2,329  
Income taxes receivable(4,855)  2,611  
Trade payables(20,529)  (56,234) 
Accrued liabilities and other liabilities, including warranty obligations3,893   (134) 
Net cash provided by (used in) operating activities46,538   (37,216) 
Cash flows from investing activities: 
Proceeds from sales and maturities of available-for-sale securities  25,271  
Purchases of property, plant and equipment(4,659)  (3,874) 
Purchases of other investments in non-controlled affiliates  (3,500) 
Net cash (used in) provided by investing activities(4,659)  17,897  
Cash flows from financing activities: 
Proceeds from long-term debt44,717  529  
Payments on long-term debt(43,453) (11,667) 
Payments of debt issuance costs(1,823)   
Proceeds from employee stock purchases83  168  
Proceeds from exercise of stock options  75  
Tax payments related to stock award issuances(44) (107) 
Net cash used in financing activities(520)  (11,002) 
Effect of exchange rate changes on cash and cash equivalents(591)  117  
Increase (decrease) in cash, cash equivalents and restricted cash40,768   (30,204) 
Less: Net change in cash balances classified as assets held-for-sale(3,986)   
Net change in cash, cash equivalents and restricted cash36,782  (30,204) 
Cash, cash equivalents and restricted cash:
Cash and cash equivalents at beginning of period11,070   38,125  
Cash, cash equivalents and restricted cash at end of period$47,852   $7,921  
Supplemental disclosure of cash flow information: 
Cash paid for interest$450  $677  
Cash paid (received) for income taxes, net490   (2,324) 
Supplemental disclosure of non-cash investing activities:
Capital expenditures incurred but not yet paid$652  $537  
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The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Condensed Balance Sheets to the total of the same amounts shown above:
Six Months Ended June 30,
2020 2019
Cash and cash equivalents$45,656  $7,921  
Restricted cash
2,196    
Total cash, cash equivalents and restricted cash$47,852  $7,921  
See accompanying Notes to Condensed Consolidated Financial Statements.
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NAUTILUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(1) GENERAL INFORMATION
 
Basis of Consolidation and Presentation
 
The accompanying condensed consolidated financial statements present the financial position, results of operations and cash flows of Nautilus, Inc. and its subsidiaries, all of which are wholly owned. Intercompany transactions and balances have been eliminated in consolidation.
 
The accompanying condensed consolidated financial statements have not been audited. We have condensed or omitted certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Management believes the disclosures contained herein are adequate to make the information presented not misleading. However, these condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”).

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Uncertainties regarding such estimates and assumptions are inherent in the preparation of financial statements and actual results could differ from those estimates. These uncertainties will be heightened by the COVID-19 pandemic, as we may be unable to accurately predict the impact of COVID-19 going forward and as a result our estimates may change in the near term. Further information regarding significant estimates can be found in our 2019 Form 10-K.

In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments necessary to present fairly our financial position as of June 30, 2020 and December 31, 2019, and our results of operations, comprehensive loss and shareholders' equity for the three and six months period ended June 30, 2020 and 2019 and our cash flows for the six months period ended June 30, 2020 and 2019. Interim results are not necessarily indicative of results for a full year. Our revenues typically vary seasonally, and this seasonality can have a significant effect on operating results, inventory levels and working capital needs.

Unless indicated otherwise, all information regarding our operating results pertain to our continuing operations.

Updates to Significant Accounting Policies

Restricted Cash
The Company is required by our banking partner to maintain a restricted bank account to cover for exposures on corporate credit cards and letters of credits. The use of these funds are restricted until the exposure with the banking partner is closed. 

Long-Lived Assets
The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10, Property, Plant and Equipment, where applicable to all long-lived assets. ASC 360 addresses accounting and reporting for impairment and disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360. ASC 360 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. For a long-lived assets or disposal group classified as held-for-sale to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost to sell. The assets and liabilities of a disposal group classified as held-for-sale should be presented separately in the asset and liability sections, respectively, of the balance sheet. The disposal group is expected to be structured as a sale of the subsidiary shares and we elected to not classify the deferred taxes associated with the individual assets and liabilities as part of the disposal group held-for-sale.



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Recent Accounting Pronouncements

Recently Adopted Pronouncements

ASU 2019-01
In March 2019, the FASB issued Accounting Standards Update ("ASU") 2019-01, "Leases (Topic 842): Codification Improvements." The amendments in ASU 2019-01 address three issues: (1) determining the fair value of the underlying asset by lessors that are not manufactures or dealers; (2) presentation on the statement of cash flows of sales-type and direct financing leases; and (3) transition disclosures related to Topic 250, Accounting Changes and Error Corrections. ASU 2019-01 is effective for public companies' fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019 with early application permitted. Our adoption of ASU 2019-01 as of January 1, 2020 had no material impact on our financial position, results of operations or cash flows.

ASU 2018-13
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in ASU 2018-13 modify the disclosure requirements on fair value measurements in Topic 820 based on the concepts in the FASB Concepts Statement, Conceptual Framework for Financial Reporting - Chapter 8: Notes to Financial Statements, which was finalized in August 2018. The main provisions include removals, modifications, and additions of specific disclosure requirements. ASU 2018-13 is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Certain amendments should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption, while all other amendments should be applied retrospectively to all periods presented upon their effective date. Our adoption of ASU 2018-13 as of January 1, 2020 had no material impact on our financial position, results of operations or cash flows.

Recently Issued Pronouncements Not Yet Adopted

ASU 2020-04
In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848)," which provides optional guidance related to reference rate reform and provides practical expedients for contract modifications and certain hedging relationships associated with the transition from reference rates that are expected to be discontinued. This guidance is applicable for our borrowing instruments, which use London Inter-bank Offered Rate ("LIBOR") as a reference rate, and is effective immediately, but is only available through December 31, 2022. We are currently assessing the impact of adopting this standard but do not expect the adoption of this guidance to have a material impact on our financial position, results of operations and cash flows.
ASU 2020-01
In January 2020, the FASB issued ASU 2020-01, "Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)." The amendments in ASU 2020-01 clarify certain interactions between the guidance to account for certain equity securities under Topic 321, the guidance to account for investments under the equity method of accounting in Topic 323, and the guidance in Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with Topic 825, Financial Instruments. These amendments improve current GAAP by reducing diversity in practice and increasing comparability of the accounting for these interactions. ASU 2020-01 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. We are currently assessing the impact of adopting this standard but do not expect the adoption of this guidance would have a material impact on our financial position, results of operations and cash flows.

ASU 2019-12
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The amendments in ASU 2019-12 introduce the following new guidance: (1) provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax; and (2) provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or a separate transaction. The amendments in ASU 2019-12 make changes to the following current guidance: (1) making an intraperiod allocation if there is a loss in continuing operations and a gain outside of continuing operations; (2) determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting; (3) accounting for tax law changes and year-to-date losses in interim periods; and (4) determining how to apply the income tax guidance to franchise taxes that are partially based on income. ASU 2019-12 is effective for public business entities' fiscal years, including interim periods within those fiscal years, beginning after December 15, 2020 with early adoption
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permitted. We are currently assessing the impact of adopting this standard but do not expect the adoption of this guidance would have a material impact on our financial position, results of operations and cash flows.

ASU 2016-13
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates for smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We are currently assessing the impact of adopting this standard but do not expect the adoption of this guidance would have a material impact on our financial position, results of operations and cash flows.

(2) ASSETS AND LIABILITIES HELD-FOR-SALE

We met the relevant criteria for reporting the assets and liabilities of Octane Fitness® as held-for-sale as of June 30, 2020 and as a result assessed the disposal group for losses in accordance with ASC 360. The net carrying value of Octane Fitness® was compared to its fair value less estimated costs to sell as of June 30, 2020. The fair value less estimated costs to sell for the Octane Fitness® disposal group was $14.8 million resulting in a loss on disposal group within continuing operations of $29.0 million. For additional information related to asset and liabilities held-for-sale, see Note 4.

As part of our strategic decision to refocus on the home fitness market we are exploring the options to sell Octane Fitness®. Our expectation is that the sale of Octane Fitness® will occur within the next twelve months. The Octane Fitness disposal group is reported within our Retail segment.

The assets and liabilities of Octane Fitness® disposal group were recorded on the condensed consolidated balance sheets as current assets held-for-sale of $29.1 million and current liabilities held-for-sale of $14.2 million as follows (in thousands):

As of
June 30, 2020
Assets:
Cash and cash equivalents$3,986  
Trade receivables7,765  
Inventories11,538  
Prepaids and other current assets1,054  
Property, plant and equipment, net1,655  
Other intangible assets32,045  
Loss on disposal group(29,013) 
Other assets24  
Total current assets held-for-sale$29,054  
Liabilities:
Trade payables$8,997  
Accrued liabilities2,121  
Warranty obligations3,097  
Income taxes payable99  
Other(100) 
Total current liabilities held-for-sale$14,214  



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(3) REVENUES

Our revenues from contracts with customers disaggregated by revenue source, excluding sales-based taxes, were as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Product sales$110,595  $56,326  $200,477  $136,458  
Extended warranties and services1,465  1,168  3,400  3,637  
Other(1)
2,128  1,510  4,033  3,309  
Net sales$114,188  $59,004  $207,910  $143,404  
(1) Other revenue is primarily freight and delivery, royalty income and subscription revenue.

Our revenues disaggregated by geographic region, based on ship-to address, were as follows (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
United States$97,363  $48,897  $177,313  $119,085  
Canada6,248  3,557  12,497  11,486  
All other10,577  6,550  18,100  12,833  
Net sales$114,188  $59,004  $207,910  $143,404  

As of June 30, 2020, estimated revenue expected to be recognized in the future totaled $34.2 million, primarily related to customer order backlog, which includes firm orders for future shipment to our Retail customers, as well as unfulfilled consumer orders within the Direct channel. Direct orders of $20.6 million and Retail orders of $13.6 million comprised our backlog as of June 30, 2020, compared to Direct orders of $8.0 million and Retail orders of $5.8 million as of March 31, 2020. The estimated future revenues are net of contractual rebates and consideration payable for applicable Retail customers, and net of current promotional programs and sales discounts for our Direct customers.

The following table provides information about our liabilities from contracts with customers, primarily customer deposits and deferred revenue for which advance consideration is received prior to the transfer of control. Revenue is recognized when transfer of control occurs. All customer deposits and deferred revenue received are short-term in nature. Significant changes in contract liabilities balances, including revenue recognized in the reporting period that was included in opening contract liabilities, are shown below (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Balance, beginning of period$2,050  $479  $1,225  $816  
Cash additions2,371  351  4,470  512  
Revenue recognition(918) (268) (2,192) (766) 
Balance, end of period$3,503  $562  $3,503  $562  


(4) FAIR VALUE MEASUREMENTS

Factors used in determining the fair value of financial assets and liabilities are summarized into three broad categories:

Level 1 - observable inputs such as quoted prices (unadjusted) in active liquid markets for identical securities as of the reporting date;
Level 2 - other significant directly or indirectly observable inputs, including quoted prices for similar securities, interest rates, prepayment speeds and credit risk; or observable market prices in markets with insufficient volume and/or infrequent transactions; and
Level 3 - significant inputs that are generally unobservable inputs for which there is little or no market data available, including our own assumptions in determining fair value.
 
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Assets and liabilities measured at fair value on a recurring basis were as follows (in thousands):
June 30, 2020
Level 1Level 2Level 3Total
Assets:
Derivatives
Foreign currency forward contracts$  $93  $  $93