IPO Notes: Interactive Strength (TRNR)
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IPO Notes: Interactive Strength (TRNR)
A fitness IPO that's grabbed our attention for all the wrong reasons
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This is a different post than I have ever written in the past and will actually focus on an interesting company that has filed to go public. I’ll be going over its S-1 and what I think is “interesting” about it, meaning how I would want to play it should things go the way I see them.
The company I am going to talk about today is called Interactive Strength d/b/a FORME and it should be going public under the ticker (TRNR).
The reasons why this IPO are that
It’s in the fitness industry, something we are in and understand very well.
Competes with other high-profile companies in the mirror hardware space like Tonal and MIRROR (owned by lululemon).
And that it is bleeding money with not much to really show for it in my opinion.
But before we get into my opinion, we need to go over the fact of the company and the IPO itself.
IPO Stats
Interactive Strength originally filed a proposal to raise $50 million
in its IPO announced in November but later reduced that figure after I imagine that conditions were not what they hoped it would be.From the amended filing, the Austin, TX-based company plans to raise $14 million by offering 2 million shares at a price range of $6 to $8. At the midpoint of the proposed range, Interactive Strength would command a fully diluted market value of $100 million.
The estimated IPO date is Wednesday, February 15th.
Use of proceeds: “We currently intend to use the net proceeds to us from this offering primarily for general corporate purposes, including working capital, sales and marketing activities, technology development, general and administrative matters, and capital expenditures”
Shares outstanding post IPO: 13,996,108 (2,000,000 from IPO + 11,996,108 current)
Lock-up period: At least 180 days.
Underwriters would be granted a 45-day option to buy up to 300K additional shares.
Company Overview
Forme offers “smart gym” hardware that can be used for strength training, barre and other exercise programs. Its flagship Studio product includes a 43-inch touchscreen display with a mirrored front and two cameras that allows people to join personal training sessions from home.
Offerings:
Fitness hardware
Video-on-demand (“VOD” or “On-demand”)
Custom training
Live 1:1 personal training
This is the same technology that I’ve sure you’ve seen alongside other companies like Tonal (backed by Lebron James) and MIRROR, which is owned by lululemon.
Also, their website for trainers looks like something from my local gym than a serious company that’s trying to sell you on $6,000 hardware.
Critical I know but it’s pretty much fact if we’re being real here.
Much like the others though, the price tag of these machines is not cheap.
Looking at the only two hardware options they currently have, the more “Tonal” looking option is $5,995 while the more “MIRROR” looking option is $2,495.
To paint you a comparison picture too, Tonal is priced at $3,995 which doesn’t count membership, smart accessories (smart handles, smart bar, new rope, bench, roller, and workout mat), or S&H, but it does deliver in 1-3 weeks.
MIRROR offers their starter package at $1,495 ($795 on sale - must be in high demand 🤡) and goes all the way up to $3,295 with a 6-8 week delivery.
So in some way, you could say that FORME is more but also less expensive than the other two main competitors.
With those numbers though, you’d think they’d be doing well financially, right?
Not really.
Company financials
This is where things really get interesting considering that the company all over its S-1 talks about the fitness industry and how big it is, and if we only get 🤏 much of it then the company is worth so much.
According to our research, we believe our TAM includes nearly 10 million households, representing total potential revenue of $18 billion, all of which is in the United States.
FORME is just another TAM bro company that is most likely going to go down the drain.
Let’s explore.
Pulled directly from its amended S-1, the company made $0 in 2020 (which is the year it took pre-orders) and made $323,000 in FY’21. Not bad but in order to do that, they lost (~$33 million).
For the first nine months of 2022 vs 2021 shows gross revenue of $487,000 which was a 202% increase Y/Y.
However, gross losses nearly doubled to $6.1 million and operating losses grew by 51% to (~$32 million) bringing net losses to (~$38 million).
Without really needing to go deep into the financials, the takeaway is that these guys are burning through money for a product in order to “ramp up” revenue.
Friendly reminder that real consumer spending is down and terminal FFR is 5.1% in case you forgot.
As of September 30, 2022, Interactive Strength had $660,000 in cash and $15.4 million in total liabilities.
Free cash flow (operating less capex) during the first nine months ending September 30, 2022, was ($30 million) which wasn’t much worse than the first nine months of 2021 at ($28.4 million).
Post-IPO, the company believes after paying fees that it will have $20.1 million in cash and cash equivalents.
Membership Comparisons
This is a very brief comparison but I wanted to include it to paint you a picture of what they are up against.
FORME: $99 first month, $399 month after
Tonal: Ranges but looks like $94/month for the most basic package, $264/month for 9 classes
MIRROR: $39/month for unlimited
Peloton: $44/month for unlimited
Management/Compensation
Some fun facts about management to paint you a picture of just how much of an overlap this company is with others and where “qualifications” lie.
CEO, Trent Ward - He was a PM at Citadel but then left that in 2015 to invest in start-ups. His salary alone for 2022 is about half of what the entire company brought in for the first nine months of 2022 ($240,000) Which increases to $300,000 in 2023. His total compensation package however is $4.55 million with the inclusion of options.
CTO, Deepak Mulchandani - An ex-Peloton product engineer who worked there from 2017 - 2019.
CFO, Michael Madigan - Previously XPO Last Mile FP&A director.
Wouldn’t necessarily say and of these people at “fitness industry” experts or even people that I would back.
All these people seem to be product and execution people with no real background in the space, unlike an Xponential Fitness XPOF 0.00%↑ which I've been very vocal on.
Why I’m Interested
This company has all the signs of it trying to be another mimick-like player in the connected fitness space. Where have I head opinions like this before?
Oh yea…
But anyways, this space is hard and this company just seems to be another one that thinks it can survive long enough until it can become sustainable.
The problem with this, which we’ve seen is that this market is just too niche to really be something massive.
Peloton has had its fair share of problems that it’s paid dearly for.
If we want to look at the private market though, let’s take a look at Tonal. The company was a big bet for many because it was “different” than Mirror because you could actually use it to lift weights.
In 2021, the company raised $250 million at a $1.6 billion valuation. Fast forward to September 2022, and the company was once again trying to get financing that would value it at $1.9 billion
.This was after the company laid off 35% of its workforce in July and was on track to generate more than $100 million in the next twelve months.
Not to mention that Tonal has the backing of Lebron James and Serena Williams which was in a Super Bowl ad in 2022.
Now the company is looking for fresh funding that could value it at less than $500 million and also exploring a sale to a strategic buyer after burning through cash
.There are a few key points that I want you to take away from this.
General
Connected fitness was more hype than it was with real numbers
It takes too long to have subscriptions catch up to all the spending necessary to make it a viable business
Even celebrities can’t save it
FORME Specific
This is another repeat Tonal and will most likely suffer the same fate
The company is burning through so much cash so quickly that dilution is not an if but a when
With future expected capital raises in the cards, selling will only be exacerbated once the lock-up period expires.
With selling shares in the IPO, the float will sit just under 15%. Usually, companies with a float of 10% or less mean the stock can suffer price volatility.
Bottom line: This is a company that I’ll be looking to short when the time comes should it make its IPO debut.
Until next time,
Paul Cerro | Cedar Grove Capital
Personal Twitter: @paulcerro
Fund Twitter: @cedargrovecm
HoldCo Twitter: @cedargrovech