AUSTIN, TX / ACCESSWIRE / October 13, 2023 / It's been a rough couple of years for connected fitness as the pandemic-era bubble burst leaving once shining growth stocks like Peloton grappling with waning demand and high production costs. However, some companies had the agility and foresight to pivot and diversify their revenue as consumer demand fell. Interactive Strength Inc. (NASDAQ:TRNR) - doing business as FORME - is one of those companies. The connected fitness company went public earlier this year and has announced significant updates on its B2B and B2C growth strategy.
The Company's core product portfolio is sold as the brand FORME, offering premium connected fitness mirrors along with a differentiated offering through virtual one-on-one training sessions and guidance from highly qualified personal trainers. The company recently announced a transformative acquisition of CLMBR, the maker of the first-to-market connected vertical climber. The combined business is anticipated to generate more than $20 million in revenue in 2024 and be cashflow positive and adjusted EBITDA profitable potentially as early as the fourth quarter of 2024. The combined business is expected to be driven primarily by B2B revenue supported by the acquired sales and distribution partnership with WOODWAY, a leading domestic and international equipment supplier with a reputation for the highest quality equipment in the industry.
Trent Ward, Co-Founder and CEO of FORME, commented within the press release: "We believe this will be a transformational acquisition that can accelerate the Company's commercialization path. We expect this transaction can help us achieve immediate scale across all of our cost centers, resulting in a high-growth, profitable platform that sells connected fitness equipment and digital fitness services across B2B and B2C channels. Our executive team has significant experience with M&A from my decade in finance, to the numerous acquisitions that our CTO, Deepak Mulchandani, effected while at Peloton, and of course, to the roll-up story at XPO, from where our CFO, Mike Madigan, joined. This transaction is a great example of checking all the boxes - accretive financials driven by cost synergies, strategic benefits such as gaining a very strong route to market with WOODWAY and shifting the business to be primarily B2B, and a complementary product with an attractive patent portfolio."
The Rise And Fall Of Connected Home Fitness Equipment
After soaring to a $45 billion valuation in 2020, Peloton Interactive Inc. has been in an almost relentless freefall since 2021 as demand for its high-priced exercise equipment dropped after economies began reopening. The connected fitness brand had scaled its manufacturing so rapidly on the assumption that pandemic-era levels of demand would continue even after gyms reopened that it became bloated with high operation costs and unsold inventory. After burning cash for nine consecutive quarters, it finally reported positive free cash flow in its fourth quarter for the 2023 fiscal year, but Peloton CEO Barry McCarthy said the company didn't expect cash flow to remain positive in a letter to shareholders last month.
As the recently appointed CEO attempts to turn the company around, Peloton is shifting its focus to a software-first business model. That includes an attempt to revive subscription revenue with a new low-cost monthly plan that lets subscribers access Peloton fitness classes from anywhere so they don't have to buy into the expensive exercise equipment that's suffered a major reputation hit after multiple recalls.
Similarly, Lululemon Atheltica Inc. bought Mirror, a connected fitness platform, in the summer of 2020, at the height of the pandemic-era boom for $500 million. The poorly-timed deal seems to have been a heavy burden on the company's balance sheets ever since. This spring, the fitness brand took $443 million in impairment and other charges as a result of the declining value of the acquisition and there are now rumors that Lululemon is trying to sell the connected fitness acquisition.
Italy-based Technogym S.p.A. also faced a post-pandemic decline in home sales for its connected fitness equipment, with revenue from its B2C segment dropping 9% year-over-year in 2022. In the first half of 2023, B2C revenue declined another 4.6%.
But the key difference for the Italy-based connected fitness company is that it didn't put all of its eggs in the B2C basket. Even at the height of the pandemic, home sales only made up 30% of Technogym's total revenue. The rest of its earnings come from B2B sales to hotels, gyms, fitness clubs, health centers and other enterprise customers. So even as B2C revenue fell 4.6% in the first half of this year, the company still pulled off a 13.8% increase in revenue driven entirely by B2B sales which grew more than 20%.
FORME Reports Focus On Disciplined And Sustainable Growth In Connected Fitness
FORME is transitioning to a B2B-led business model similar to the one that helped Technogym weather the post-pandemic drop in demand for home fitness equipment. The connected strength company has developed a portfolio of premium connected hardware along with a unique virtual training membership that allows users to get live one-on-one training sessions through their Forme studio or through any mobile device.
The base monthly membership offers custom workouts and training programs along with on-demand content designed by a personal trainer. Then, members have the option to buy live one-on-one virtual sessions with that personal trainer.
The option to pay for a membership without having to buy the equipment upfront substantially lowers the barrier to entry that other brands face. Consumers can try out the membership first before committing to the FORME equipment - or they can stick with the mobile-only plan indefinitely.
But FORME isn't planning to make the same mistakes that Peloton made by relying solely on B2C demand. Instead, the company's commercialization strategy includes a pivot into the B2B space to further diversify its revenue streams.
In May, FORME announced a partnership with Aethos, a hotel brand with locations in Portugal, Spain and Italy that will put Forme's connected fitness mirrors in all of its hotels and member clubs.
Last month, the company announced a distribution partnership with The Risher Companies, a leading fitness center consultant and equipment procurement firm servicing office buildings, multifamily properties and other large-scale customers - opening FORME up to a worldwide commercial distribution channel.
Now, with the acquisition of CLMBR complete, the company plans to expand its B2B vertical while creating cross-selling opportunities in its existing B2C vertical as it gains access to the target company's customer base and product portfolio.
Mr. Ward, CEO, commented on the transaction: "We believe this will be a transformational acquisition that can accelerate the Company's commercialization path. Further, we believe the combination of these businesses can create tremendous value for all of our shareholders. We expect this transaction can help us achieve immediate scale across all of our cost centers, resulting in a high-growth, profitable platform that sells connected fitness equipment and digital fitness services across B2B and B2C channels."
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To learn more about CLMBR, CLICK HERE
Featured photos by FORME.
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