AndreyPopov
A Quick Take On Interactive Strength
Interactive Strength (TRNR) has filed to raise $21.6 million in an IPO of its common stock, according to an S-1 registration statement.
The firm provides a digital connected fitness platform called Forme.
TRNR has produced minimal revenue history, high operating losses and large uses of cash.
When we learn more about management’s pricing and valuation assumptions, I’ll provide a final opinion.
Interactive Strength Overview
Austin, Texas-based Interactive Strength was founded to develop hardware and related workout software for fitness enthusiasts that promises to provide a more immersive experience.
Management is headed by co-founder, Chairman and CEO Trent A. Ward, who has been with the firm since its inception in May 2017 and was previously a portfolio manager at Citadel LLC, a financial services company.
The company’s primary offerings include:
-
Forme Studio – fitness mirror
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Forme Studio List – fitness mirror with cable-based digital resistance
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Video-on-demand fitness classes
-
Health coaching
-
Fitness Concierge
-
Custom Training
As of September 30, 2022, Interactive Strength has booked fair market value investment of $67.5 million from investors including Apeiron, block.one Investments, Ritastar Limited and Bradley J. Wickens.
Interactive Strength – Customer Acquisition
The firm charges for the hardware and also charges a monthly subscription fee for the value-added services.
TRNR’s revenue has primarily been derived from the sale of its hardware products.
Sales and Marketing expenses as a percentage of total revenue have fallen as revenues have increased from a tiny base, as the figures below indicate:
|
Sales and Marketing |
Expenses vs. Revenue |
|
Period |
Percentage |
|
Nine Mos. Ended September 30, 2022 |
1066.5% |
|
2021 |
2032.8% |
|
2020 |
— |
(Source – SEC)
The Sales and Marketing efficiency multiple, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, rose to 0.1x in the most recent reporting period, as shown in the table below:
|
Sales and Marketing |
Efficiency Rate |
|
Period |
Multiple |
|
Nine Mos. Ended September 30, 2022 |
0.1 |
|
2021 |
0.0 |
(Source – SEC)
Interactive Strength’s Market & Competition
According to a 2021 market research report by The Insight Partners, the connected gym equipment market was valued at $511 million in 2021 and is forecast to reach $3.5 billion by 2028.
This represents a forecast CAGR of 28.1% from 2021 to 2028.
The main drivers for this expected growth are younger demographics who prefer newer technologies for their physical fitness efforts and equipment makers and studios use the resulting data exhaust to improve their product and service offerings.
Also, the market is segmented into gym, residential and other commercial user types, with the gym market accounting for the highest market share of the three types.
Major competitive or other industry participants include:
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Curiouser Products
-
Peloton Interactive (PTON)
-
Tonal Systems
-
Others
Interactive Strength Financial Performance
The company’s recent financial results can be summarized as follows:
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Growing topline revenue from a tiny base
-
Large gross loss and negative gross margin
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Very high operating losses
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Very high cash used in operations
Below are relevant financial results derived from the firm’s registration statement:
|
Total Revenue |
||
|
Period |
Total Revenue |
% Variance vs. Prior |
|
Nine Mos. Ended September 30, 2022 |
$ 487,000 |
202.5% |
|
2021 |
$ 323,000 |
— |
|
2020 |
$ – |
— |
|
Gross Profit (Loss) |
||
|
Period |
Gross Profit (Loss) |
% Variance vs. Prior |
|
Nine Mos. Ended September 30, 2022 |
$ (6,174,000) |
96.0% |
|
2021 |
$ (4,842,000) |
1252.5% |
|
2020 |
$ (358,000) |
|
|
Gross Margin |
||
|
Period |
Gross Margin |
|
|
Nine Mos. Ended September 30, 2022 |
-1267.76% |
|
|
2021 |
-1499.07% |
|
|
2020 |
— |
|
|
Operating Profit (Loss) |
||
|
Period |
Operating Profit (Loss) |
Operating Margin |
|
Nine Mos. Ended September 30, 2022 |
$ (38,426,000) |
-7890.3% |
|
2021 |
$ (37,146,000) |
-11500.3% |
|
2020 |
$ (16,537,000) |
— |
|
Net Income (Loss) |
||
|
Period |
Net Income (Loss) |
Net Margin |
|
Nine Mos. Ended September 30, 2022 |
$ (39,415,000) |
-8093.4% |
|
2021 |
$ (32,840,000) |
-6743.3% |
|
2020 |
$ (11,183,000) |
-2296.3% |
|
Cash Flow From Operations |
||
|
Period |
Cash Flow From Operations |
|
|
Nine Mos. Ended September 30, 2022 |
$ (29,492,000) |
|
|
2021 |
$ (38,256,000) |
|
|
2020 |
$ (13,423,000) |
|
(Source – SEC)
As of September 30, 2022, Interactive Strength had $660,000 in cash and $15.4 million in total liabilities.
Free cash flow during the twelve months ended September 30, 2022, was negative ($53.1 million).
Interactive Strength IPO Details
Interactive Strength intends to raise $21.6 million in gross proceeds from an IPO of its common stock, the final figure may differ.
No existing shareholders have indicated an interest in purchasing shares at the IPO price.
Management says it will use the net proceeds from the IPO as follows:
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, although we do not currently have any specific or preliminary plans with respect to the use of proceeds for such purposes.
(Source – SEC)
Management’s presentation of the company roadshow is not available.
Regarding outstanding legal proceedings, management says the firm is not currently a party to any legal proceedings that would have a material adverse effect on its financial condition or operations.
The listed bookrunners of the IPO are Aegis Capital Corp.
Commentary About Interactive Strength’s IPO
TRNR is seeking U.S. public capital market funding for its general corporate expansion plans and working capital needs.
The firm’s financials have generated increasing topline revenue from a tiny base, high gross loss and negative gross margin, large operating losses and cash used in operations.
Free cash flow for the twelve months ended September 30, 2022, was negative ($53.1 million).
Sales and Marketing expenses as a percentage of total revenue have dropped as revenue has increased from a tiny base; its Sales and Marketing efficiency multiple rose to 0.1x in the most recent reporting period.
The firm currently plans to pay no dividends on its common stock and to retain any future earnings to reinvest back into the company’s growth initiatives.
TRNR has spent heavily on capital expenditures despite its operating cash use.
The market opportunity for digital and connected fitness products and services is reasonably large and expected to grow at a high rate of growth through 2028.
However, the recent waning of the pandemic and the high-profile disappointment of Peloton Interactive have negatively impacted the connected fitness industry, at least in the short term.
Aegis Capital Corp. is the sole underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (49.6%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.
Risks to the company’s outlook as a public company include its minimal revenue history, high operating losses and use of cash.
When we learn more about management’s pricing and valuation assumptions, I’ll provide a final opinion.
Expected IPO Pricing Date: To be announced.
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