Wahoo's future...bleak?

After all the flack that the TR leadership team got by not selling/partnering with Zwift in 2021, I’m wondering if they matrix dodged a bullet. Rather than over extending themselves and loosing control of the direction they were methodical with the strategy around machine learning and seem well positioned for future growth.

I see so much potential for WahooX and I loved the quirky sufferfest videos (I remember the days when you would pay for a .MP4 download). It would be sad to see that business go sideways. The entertainment side of WahooX and integrated yoga/strength training + Adaptive training and AI FTP detection would be my dream exercise plan.

30 Likes

Interesting take. I was actually thinking about this today too. I was thinking about how long it has taken to get to 2.0 and wondering if we would have 2.0 out faster or slower as a result of a pairing with Zwift. There probably would have been a massive cash influx, but would it have pushed everything in a totally different direction?

3 Likes

Enough right sizing or more to come? Privately held LLC, so any financial data is leaked or rumors.

15% layoffs in the current environment isn’t too bad, and being over-leveraged is survivable if you can maintain revenue without further borrowing. Running out of cash would be disastrous, of course. My guess is Wahoo has been too aggressive on the acquisitions. All these companies had to know the pandemic windfall would come to an end, but I guess it’s hard to not get exuberant when the cash is rolling in.

Wahoo has had its debt rating downgraded, so the financial data isn’t entirely rumors.

4 Likes

Going by what Caley said on his podcast, this is coming from the financial institution that ranks a companies ability to get credit. Just like your personal credit score doesn’t really tell the whole picture, if your score was 600, getting loans becomes a bit challenging.

Obviously don’t know the inner workings of TR, but it certainly looks like they had some foresight to just chug along, business as usual, rather than make a quick cash grab, and I’m super thankful for that!

Hope wahoo makes it out alive! Save for the tickr hr strap, I love pretty much everything they offer!

8 Likes

In fact, that’s exactly what’s in some of the more recent lawsuit filings from them. They’ve got declrations from half a dozen bike shops showing the financial impact of the Zwift Hub to KICKR sales, along with starting to paint the picture of what happens to their financials in 2023 if the Zwift Hub is permitted to keep being sold. Unfortunately, the next line of that paragraph is then redacted.

Also redacted to public view are further Wahoo financial bits in that same filing that covers the concern that they have. However, the filings do include two different creditor reports, and one of them notes that Ch. 11 is a very significant possibility.

All that said - as I’ve noted recently, some of this is Wahoo’s own doing. They’ve got numerous products that they’ve let just languish:

  1. KICKR Desk: This came out in 2015, and has received zero updates. Other companies have added power, they’ve added wheel locks, they’ve added water bottle holders, they’ve made it lighter, they’ve made it cheaper. They’ve done everything. Unquestionably, Wahoo’s product is just about the worst of the bunch now, yet, it’s by far the most expensive. The others are 1/3rd to 1/2 the price, and far better functionality speaking. This is gravy money for Wahoo. People will still pay the silly $250 for a Wahoo branded desk, if it was at least competitive. But it’s not. So instead, people pay $60-$120 for a 3rd party desk that’s better. This isn’t rocket science, upgrading these products isn’t hard. There’s no firmware, no software upgrade cycle. It’s dead easy compared to everything else they do.

  2. The Fan: Again, a product that people love and love to pay $250-$300 for. But in that time we’ve seen Elite launch their fan which features adjustability, and we’ve seen other non-sport companies get in and launch cardio versions of their fans too, at the same 1/3rd or less price points and all with adjustablity. Why hasn’t Wahoo dove in and either added more features to their fan (adjustability), or, made a KICKR Fan Jr. Edition that cost $125.

  3. Wahoo KICKR CORE V2: This is now 4 years old, and while still a great trainer, the writing was on the wall when JetBlack started selling the VOLT to OEM’s that were pricing it at sub-$500, even before Zwift came along. That was a few years ago. The writing was also on the wall when Elite did the same with the Zumo at $599 at launch in 2019. This (CORE) is the trainer that’s at the epicenter of Wahoo’s suit, and yet, even before the Zwift Hub it was starting to be overtaken by offerings from Saris/Elite (Tacx didn’t really do anything here that meaningfully competes). Wahoo should have either lowered the price to drive sales, or, found some way to increase the reason to buy it.

And all of this ignores the mostly half-hearted attempts lately in the bike computer realm, with Hammerhead now easily beating them in feature additions and existing functionality.

Look, I like Wahoo as a company, and I like what they’ve done over the last decade. There’s a lot of good people there too, from top to bottom. But ultimately, as a business, they have to innovate and they have to be competitive as pricing changes. By and large, the last few years, they’ve done neither - and as a result, competitive has come in and eroded their base.

(Funny side note: Wahoo today filed to have all filings kept under seal in the trial, including going back and removing existing ones. The judge approved.)

63 Likes

I hope you are sorted now :neutral_face:

Oh boy this doesn’t look good for Wahoo honestly.

Ray’s post is a doozy.

I never realized how many of their products haven’t been updated/upgraded!

I’ve owned all of their computers from the RFLKT up to the Roam (no V2 bolt or their latest version of the Roam) and really liked them. I don’t have a GPS now, so I’m in the market and Wahoo certainly falls from top consideration at this point.

I must be the only person in existence who liked the Wahoo HR? I’ve had the same one for years now, maybe 5 or 6, and I’ve only replaced the battery and the strap.

5 Likes

Thanks for all you wrote, and I agree with everything you said and will add that dropping support for Kickr 2017 (sorry for you, no XDR freehub unlike the Neo available in October 2017).

I’m not keeping track of this story, but I would assume the financial picture was used to justify Wahoo request to immediately halt all Zwift sales in USA?

1 Like

Not sure how they can continue to survive. I’m questioning their overall leadership in terms of the decision making which has resulted in unsustainable development. They’ve left software to languish on their hardware platforms. Over production and miss-predicted market shifts is one of many issues. I wonder how much their investments in their online platform WahooX+RGT have reduced their ability to staff device software development.

It kind of smacks as desperation. How can Wahoo sue an online service like Zwift for being competitive by offering a compelling hardware accessory at a competitive price? So what? Zwift doesn’t owe Wahoo anything unless this suit is based around some sort of contract. What if Zwift had been selling rebranded Saris H3s at ridiculously low prices instead of Jet Black? Would Wahoo still have sued?

I mean Wahoo needs to get their house in order and bankruptcy seems like the most viable option in addition to losing their current leadership.

Yes mate, all sorted. Just miss the employee discount!

9 Likes

Yeah, they’re so far behind in the cycling computer department now it’s a little absurd. After a few battery mishaps with a Karoo 2 last year, I decided to check out the alternatives. After closely looking at the Garmin 1040 and the new Wahoo Roam, and thinking about my previous Karoo 2, it was basically between the Garmin and picking up another Hammerhead w/ a small backup battery since the Roam was so lackluster.

You know what’s pretty freaking basic? Being able to move back and forth between data screens. I had a Roam before and it always drove me nuts having to cycle through every screen if I clicked one too many times and overshot a screen I wanted to look at. And with the new Roam, they couldn’t even be bothered to add that simple feature.

I ended up picking up a Garmin 1040 on a good deal and it seems pretty excellent so far. The phone setup works as well as Wahoo’s, plus I can make changes on the device. Visibility’s good, there’s all sorts of nifty FirstBeat stuff. Plus I can go back and forth between screens!

1 Like

Pasted below from the Moody’s report in October. Does not look good.

New York, October 13, 2022 – Moody’s Investors Service (“Moody’s”) downgraded Wahoo Fitness Acquisition L.L.C.'s (“Wahoo”) ratings including its Corporate Family Rating (“CFR”) to Caa3 from B3, its Probability of Default Rating (“PDR”) to Caa3-PD from B3-PD, and the rating on the company’s senior secured first lien credit facility to Caa3 from B3. The first lien credit facility consists of a $30 million first lien revolver due 2026, and a $225 million original principal amount first lien term loan due 2028. The outlook is negative.

Today’s downgrade and negative outlook reflects Wahoo’s material underperformance relative to Moody’s previous expectations, and the elevated risk of default including a distressed exchange due to the company’s meaningfully constrained liquidity and unsustainable capital structure at the current earnings level. Wahoo reported meaningfully lower operating results for the second quarter period of fiscal 2022, with year-over-year revenue declining by more than 50% and with negative EBITDA for the period. Although Moody’s anticipated that elevated channel inventory and deep competitive discounting will pressure operating results in fiscal 2022, the drop in sales and earnings during the first half of 2022 is materially greater than Moody’s previous expectations.

Wahoo recently launched several new products which it expects to spur demand from its loyal customer base. The company expects the contribution from new product launches, combined with the seasonal trainer demand, will help to sequentially improve operating results during the second half of 2022. However, persistently high inflation and the shift in consumer spending from goods to services will continue to pressure consumer demand for discretionary goods, including the company’s bike trainers and related products. Also, the high promotional activity in efforts to improve sell-through and reduce inventories alongside increased competition will continue to pressure profitability. In addition, the macro-economic conditions in Europe, the company’s largest market, continue to deteriorate given the ongoing geopolitical conflict and its impact on energy costs. As a result, Moody’s now projects that Wahoo’s revenue will decline by about a third and EBITDA by more than 80% in fiscal 2022, with debt/EBITDA increasing to over 18x and a free cash flow deficit in the $50 million range.

As a result, Moody’s views Wahoo’s capital structure as unsustainable absent a meaningful improvement in 2023 and the company’s weak liquidity reflects the very likely financial maintenance covenant violation once the covenant test is reinstated in December. Given Wahoo’s meaningfully lower earnings, Moody’s anticipates the company will not comply with the first lien credit facility’s maximum total net leverage financial covenant of 7.0x, which will be tested at the end of fiscal 2022. In addition, the leverage test steps down to 5.5x in the first quarter period of 2023. Thus, the likelihood of an event of default, including a distress exchange is very high over the next six months. In efforts to improve its near-term liquidity and profitability, Wahoo is implementing cost savings initiatives that include expense control and improvement in working capital through extended payment terms and a reduction in inventory purchases. Although the company completed an amendment that temporarily waived the financial maintenance covenant and received an approximately $12 million new equity investment in May 2022, an additional covenant amendment will be challenging given current difficult market conditions and weakening economic outlook.

Wahoo’s $7 million of cash at the end of June and unused capacity on the $30 million revolver ($14 million drawn as of June 2022) does not provide a significant amount of leeway to fund debt service if the company is unable to stem the sizable cash consumption experienced since the July 2021 leverage buyout. A capital contribution from the founder or private equity owner Rhone Group could help bolster cash sources and obtain a covenant amendment, but Moody’s believes there is risk that the structure of a transaction and use of any cash received could constitute a distressed exchange. The risk of a distressed exchange is reflected in a change in the governance issuer profile score to G-5 from G-4 and the credit impact score to CIS-5 from CIS-4.

10 Likes

Correct, it’s the majority of their request (the injunction portion). It’s roughly divided up into a few chunks:

A) The story dives into how this will hurt LBS and related (including specifically calling out REI, actually).
B) It dives into how the pricing isn’t sustainable because it’s direct to the consumer, and thus again, hurts IBD/LBS
C) It starts to talk about the immediate impact on sales for Wahoo and their 2023 expectations
D) It includes two creditor reports that paint a very ugly picture of Wahoo’s debt situation, current income, and future income.
E) And then there’s the whole patent/tech piece, which is of course the core of it all.

Note that the judge has not ruled on that injunction, despite it being requested over a month ago. The judge has ruled on everything else.

4 Likes

Just my thought but how competitive are they on the software side with their wahoo x aka former sufferfest and rgt?

It might by just my impression but I would be surprised if they are break-even. The pricing is steep but the offer is still lagging from what I can see.

One might consider TR and Zwift on a par, albeit gatherin to different customers.
Wahoo coming in last of the main players.

Out of curiosity, don’t wahoo’s computers also suffer from sticky watt similar to Bryton devices?
I might have seen it or read it under a gplama review.

Finally, I’d add to the list of missed updates the Kickr bike.
At 4K USD/eur is way overpriced IMO and hasn’t changed over the previous gen.
They could price this bike more competitively (2k sticker price might still be profitable?) but would definitely help expand the customer base if they believed in the product.

1 Like

Thanks, pretty interesting insight and oh boy I did not expect that kind of development.

What new products are they exactly relying upon to boost sales?

The PE fund better inject equity soon but they also need to reconsider product and marketing choices.

Heres the big question… youre in the market for a new trainer. Are you going with wahoo, one of the best ones on the market, knowing theres a possibility you lose software support for it in 6mo, or looking elsewhere? Hate to say it, but Im in the market for a new headunit, and until this, wahoo was in the running to convert me from garmin. Not sure thats the case right now…

6 Likes

Perhaps OT, are there other companies in the cycling industry facing these market conditions?

I have the feeling inventory will pick up considerably next year for many.

Most recent I think of without fuller research (rough order from most recent to older):

  • Elemnt Roam V2
  • Kickr Bike V2
  • Kickr V6
  • Elemnt Bolt V2

If I was going to buy a trainer I would go with a Saris H3. Saris financials are also a bit of an unknown, but if you can get one at the $400 price point that pops up every now and then it is definitely worth it. (Not so much at $800 it is now though). You may lose updates but at the $400 price point it is a great buy for a competent trainer that is completely silent and half the price as others (again, only at the $400 price). If it goes whacky in a few years you got your money’s worth.

If you are going for a bike the Kickr V1 at $1999 is amazing. 2k is a lot of money but if you are dropping 1k on a trainer I’d skip it and go for the bike. It’s the best thing out there and my guess is Wahoo will be bought up before it ever goes under and you’ll still get updates as needed.

Watches and head units? I’m going Garmin. Mine just works really well. I like their Garmin Connect app and everything just works so would buy again when I need to.

5 Likes