Fitell Corporation Starts U.S. IPO Rollout (Pending:FTEL)

A Quick Take On Fitell Corporation

Fitell Corporation (FTEL) has filed to raise an undisclosed amount in an IPO of its ordinary shares, according to an F-1 registration statement.

The firm provides gym and fitness equipment via its online channels and licenses personal training studio concepts.

I’ll provide an update when we learn IPO pricing and valuation assumptions from management.

Fitell Overview

Taren Point, Australia based Fitell Corporation was founded to sell proprietary and external brand gym and fitness equipment to consumers and provide licensed commercial gym capabilities aimed at young to middle-aged patrons.

Management is headed by Chief Executive Officer Guy Adrian Robertson, who has been with the firm since 2021 and was previously founder and owner of Integrated CFO Solutions Pty Ltd and serves as a director of a number of ASX-listed companies.

The company’s primary offerings include:

• Smart connected fitness equipment

• AI interactive training content platform

• Boutique fitness club licensing

• Other fitness & equipment products

As of June 30, 2022, Fitell has booked fair market value investment of $1.5 million as of June 30, 2022 from investors including SKMA Capital and Investment Ltd. (Jieting Zhao) and others.

Fitell – Customer Acquisition

85% of the firm’s revenue has come from selling fitness equipment online to consumers and commercial customers.

84% of its revenue was derived from its own website, with the remainder coming from third-party channels including Amazon and eBay and other sources.

Sales and marketing expenses as a percentage of total revenue have risen as revenues have increased, as the figures below indicate:

Sales & Marketing	Expenses vs. Revenue
Period	Percentage
FYE June 30, 2022	7.4%
FYE June 30, 2021	4.9%

Click to enlarge

(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, was 2.0x in the most recent reporting period. (Source – SEC)

Fitell’s Market & Competition

According to a 2021 market research report by Global Market Insights, the global market for fitness equipment was an estimated $10 billion in 2020 and is expected to reach $20.8 billion by 2027.

This represents a forecast CAGR of over 11% from 2021 to 2027.

The main drivers for this expected growth are continued innovation by product makers and increasing demand for healthy lifestyle activities by consumers.

Also, digitally connected equipment will gain market share due to new product innovation and consumer demand.

The Chinese market is expected to produce a CAGR of 16% through 2027 due to an increase in the number of fitness centers there.

Major competitive or other industry participants include:

Nautilus, Peloton, ICON Health & Fitness (NordicTrack), Johnson Health Tech, Technogym, Echelon, Mirror, Hydrow, Tonal, JaxJox and Tempo. We also compete with marketers of smart device applications focused on fitness training and coaching, such as Peloton, Zwift, Strava, Mirror, BeachBody, Apple Fitness+, NeoU, Equinox+, FitScope, FitOn, Fulgaz Video Cycling, Sufferfest Training Systems, At Home Workouts by Daily Burn, and NIKE® Training Club. (Source – SEC)

Fitell Corporation Financial Performance

The company’s recent financial results can be summarized as follows:

• Growing topline revenue from a small base

• Increasing gross profit and gross margin

• Higher operating profit

• A swing to cash used by operations

Below are relevant financial results derived from the firm’s registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
FYE June 30, 2022	$ 8,155,734	17.4%
FYE June 30, 2021	$ 6,945,227
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
FYE June 30, 2022	$ 3,635,656	32.1%
FYE June 30, 2021	$ 2,753,134
Gross Margin
Period	Gross Margin
FYE June 30, 2022	44.58%
FYE June 30, 2021	39.64%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
FYE June 30, 2022	$ 1,332,256	16.3%
FYE June 30, 2021	$ 923,379	13.3%
Comprehensive Income (Loss)
Period	Comprehensive Income (Loss)	Net Margin
FYE June 30, 2022	$ (54,347)	-0.7%
FYE June 30, 2021	$ 812,279	10.0%
Cash Flow From Operations
Period	Cash Flow From Operations
FYE June 30, 2022	$ (131,781)
FYE June 30, 2021	$ 1,553,790
(Glossary Of Terms)

Click to enlarge

As of June 30, 2022, Fitell had $716,052 in cash and $3.0 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2022, was negative ($183,522).

Fitell Corporation IPO Details

Fitell intends to raise an undisclosed amount in gross proceeds from an IPO of its ordinary shares.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Management says it will use the net proceeds from the IPO as follows:

for the expansion of our online retail of gym and fitness equipment business;

for the development of our smart connected equipment, interactive platform, and mobile application;

for the expansion of our licensing business;

for business development; and

for working capital and other general corporate purposes.

(Source – SEC)

Management’s presentation of the company roadshow is not available.

Regarding outstanding legal proceedings, management said the firm is not a party ‘to any pending legal proceedings.’

The sole listed bookrunner of the IPO is Revere Securities.

Commentary About Fitell’s IPO

FTEL is seeking U.S. public capital market investment to fund its general growth initiatives.

The company’s financials have shown increasing topline revenue from a small base, higher gross profit and gross margin, increased operating profit but a swing to cash used operations.

Free cash flow for the twelve months ended June 30, 2022, was negative ($183,522).

Sales and marketing expenses as a percentage of total revenue have risen as revenue has increased; its sales and marketing efficiency multiple was 2.0x in the most recent fiscal year.

The firm currently plans to pay no dividends on its ordinary shares and intends to retain any future earnings for reinvestment back into its growth and operational initiatives.

The market opportunity for fitness equipment has grown significantly in recent years, although the current rising interest rate environment and economic downturn has reduced access to capital for many fitness centers or new openings.

Like other firms with Asian country operations seeking to tap U.S. markets, the proposed listing entity operates as a Cayman Islands corporation which owns interests in its other country operations.

U.S. investors would only have an interest in an offshore firm with interests in or only agreements with operating subsidiaries (i.e., potentially no equity interests), some of which may be located in or have substantial operations in Asian countries with restrictions or unpredictable regulatory environments regarding those interests.

Additionally, restrictions on the transfer of funds between subsidiaries located in various countries other than the United States may exist.

Prospective investors would be well advised to consider the potential implications of specific laws regarding earnings repatriation and changing or unpredictable regulatory rulings that may affect such companies and their U.S. stock listings.

Revere Securities is the lead underwriter and there is no data on IPOs led by the firm over the last 12-month period.

The primary risk to the company’s outlook is the current macroeconomic downturn and reduced access to capital for existing and new studio locations.

When we learn more about the IPO, I’ll provide a final opinion.

Expected IPO Pricing Date: To be announced.