8-K: Interactive Strength Inc. Amends CLMBR Acquisition Terms, Eyes January Close

Interactive Strength Inc. has amended its agreement to acquire CLMBR, reducing equity issued to CLMBR shareholders and securing debt financing, with the transaction expected to close in January 2024.

Summary

• Interactive Strength Inc. (FORME) has revised its asset purchase agreement with CLMBR, Inc. to acquire substantially all of CLMBR's assets.
• The amended agreement reduces the equity issued to CLMBR shareholders by $1.5 million and incorporates debt financing to close the transaction.
• The purchase price enterprise value is approximately $15.4 million, including $1.45 million in FORME common stock, $3.0 million in non-voting Series B preferred stock, assumption of $1.5 million in subordinated debt, and retirement of $9.4 million in senior debt.
• The senior debt retirement includes a $1.4 million cash payment and an $8 million promissory note.
• A wholly-owned subsidiary of FORME will issue a $6 million senior secured note, guaranteed by FORME and a third party.
• The number of shares issued will be based on the volume weighted average price (VWAP) of FORME's common stock over 10 trading days, subject to a VWAP collar.
• CLMBR shareholders may receive additional shares based on 2024 unit sales, with a maximum of 22,665,681 earn-out shares.
• The transaction is expected to close in January 2024, pending customary conditions.
• The combined business is projected to generate $15 million to $20 million in revenue in 2024 and potentially achieve cash flow positive and adjusted EBITDA profitability by the fourth quarter of 2024.

Sentiment

Score: 7

Explanation: The document conveys a positive outlook on the acquisition, highlighting expected revenue growth, profitability, and strategic benefits. However, it also acknowledges risks and uncertainties, preventing a higher score.

Positives

• The acquisition is expected to diversify revenue streams through products and channels, with significant growth in the B2B channel.
• FORME will gain a strong B2B sales and distribution partner in WOODWAY.
• The transaction is expected to result in near-term cash flow for FORME.
• The structure of the deal as an asset purchase reduces unknown risks.
• CLMBR shareholders are rolling all equity into TRNR, indicating confidence in the combined entity.

Negatives

• The transaction is subject to customary closing conditions, and there is no guarantee that it will close by the end of January 2024.
• The preferred equity is subject to a 24-month holdback for potential indemnification claims.
• The company will incur significant indebtedness to finance the transaction.

Risks

• The inability of the parties to enter into definitive agreements or successfully consummate the proposed transaction.
• Failure to realize the anticipated benefits of the proposed transaction, including integration challenges.
• The incurrence of significant indebtedness by FORME and the risk of default.
• The occurrence of events that may give rise to a right of termination.
• Risks related to the rollout of the combined business and the timing of expected business milestones.
• The effects of competition on FORME's future business.

Future Outlook

The combined business is expected to generate between $15 million and $20 million in revenue in 2024 and is anticipated to be cashflow positive and adjusted EBITDA profitable potentially as early as the fourth quarter of 2024. The company expects this transaction can help them achieve immediate scale across all of their cost centers, resulting in a high-growth, profitable platform that sells connected fitness equipment and digital fitness services across B2B and B2C channels.

Management Comments

• Trent Ward, Co-Founder and CEO of FORME, stated that the team has worked hard on executing this transaction and they are excited to be nearing the completion.
• Ward believes this will be a transformational acquisition that can accelerate the Company's commercialization path and that the combination of these businesses can create tremendous value for their shareholders.
• Ward expects this transaction can help them achieve immediate scale across all of their cost centers, resulting in a high-growth, profitable platform that sells connected fitness equipment and digital fitness services across B2B and B2C channels.

Industry Context

This acquisition reflects a trend in the connected fitness industry towards consolidation and diversification of revenue streams. Companies are seeking to expand their product offerings and market reach through strategic acquisitions, aiming for greater scale and profitability. The focus on B2B sales also indicates a shift towards targeting commercial clients in addition to individual consumers.

Comparison to Industry Standards

• The valuation of the deal at 1.0x to 1.3x EV/projected 2024 revenue and 3x to 4x EV/projected 2024 EBITDA, adjusted for synergies, is within the range of comparable transactions in the connected fitness space.
• Peloton, a major player in the industry, has seen its valuation fluctuate significantly, highlighting the volatility and competitive nature of the market.
• Other companies like Tonal and Hydrow have also pursued growth strategies through product innovation and market expansion, but the specific financial metrics of their deals are not directly comparable due to differences in business models and deal structures.
• The focus on B2B sales is a strategic move that aligns with the trend of fitness companies targeting commercial clients such as gyms, hotels, and corporate wellness programs, which can provide more stable and recurring revenue streams compared to direct-to-consumer sales.

Stakeholder Impact

• Shareholders of FORME are expected to benefit from the increased scale, diversified revenue, and potential profitability of the combined entity.
• CLMBR shareholders will receive equity in FORME, aligning their interests with the success of the combined business.
• Employees of both companies may experience changes as the businesses are integrated.
• Customers of both FORME and CLMBR are expected to benefit from a broader range of products and services.
• Suppliers and partners of both companies may see changes in their relationships as the combined entity streamlines operations.

Next Steps

• The transaction is expected to close by the end of January 2024, subject to satisfaction of closing conditions.
• Updated investor presentation materials will be shared on the Company's investor website after the close of the transaction.
• The company will work to integrate the businesses of FORME and CLMBR.

Key Dates

Keywords

acquisition, connected fitness, B2B, CLMBR, Interactive Strength, FORME, asset purchase, debt financing, revenue, EBITDA, WOODWAY