Interactive Strength, Inc. (Forme) — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The company operates a connected home-fitness platform combining equipment, memberships, and personal training. Financial amounts below are in U.S. dollars; tables are in millions except per-share and operating metrics.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0.306 | $0.201 | $0.779 | $0.487 |
| Gross loss | $(1.123) | $(2.495) | $(3.911) | $(6.174) |
| Operating expenses | $8.952 | $12.178 | $39.312 | $32.252 |
| Operating loss | $(10.075) | $(14.673) | $(43.223) | $(38.426) |
| Net loss | $(10.408) | $(14.754) | $(39.971) | $(39.415) |
| Adjusted EBITDA (non-GAAP) | $(3.373) | $(9.160) | $(13.532) | $(29.808) |
- Q3 revenue increased 52% year over year; nine-month revenue increased 60%. Q3 product revenue was $0.206 million, membership revenue $0.038 million, and training revenue $0.062 million. Nine-month amounts were $0.502 million, $0.094 million, and $0.183 million, respectively.
- Gross margin remained substantially negative: approximately (367%) in Q3 2023 versus (1,241%) in Q3 2022, and (502%) for the first nine months versus (1,268%) a year earlier. Management attributed lower cost of revenue and a smaller gross loss mainly to reduced headcount and lower inventory valuation charges.
- Q3 net loss narrowed year over year, while the nine-month net loss was slightly higher. Nine-month general and administrative expense rose to $30.043 million from $11.774 million, primarily reflecting stock-based compensation. Nine-month stock-based compensation was $23.773 million versus $3.951 million in 2022.
- Nine-month operating cash use was $13.561 million, compared with $29.492 million in 2022. Investing cash use was $1.146 million; financing provided $14.656 million. Cash declined by $0.196 million to $0.030 million.
Balance sheet, debt, and liquidity
- At September 30, 2023, total assets were $18.271 million and total liabilities $18.545 million; stockholders’ deficit was $0.274 million. Current assets of $5.722 million were below current liabilities of $18.302 million.
- Debt included $6.266 million of related-party loans and $1.038 million of senior secured notes. Related-party loans were past maturity and classified as current; repayment had been temporarily waived. The company also reported defaulted interest on its June 2023 senior notes at period end; THLWY waived remedies on November 3, 2023.
- Management stated that available liquidity was insufficient to fund operations and obligations for the next 12 months without additional outside capital. The filing concludes that substantial doubt exists about the company’s ability to continue as a going concern. Management cited cost reductions, additional financing, and strategic arrangements as possible responses, without assurance they will be sufficient.
- The May 2023 IPO issued 1.5 million shares at $8.00 per share. Net proceeds after underwriting commissions and other offering expenses were reported as $6.2 million. The company also raised funds through a rights offering.
Changes, outlook, risks, and unusual items
- Revenue growth reflected more Studio Lift installations, membership growth and a price increase, and the launch of live one-to-one training. At quarter end, the company reported 226 households and 232 members, versus 173 and 192 a year earlier; ARR was $464,425 versus $223,547. Net dollar retention was 185%; the prior-year measure was not meaningful.
- No specific financial guidance or quantified forward outlook is provided. Management describes plans to grow coaching and add-on services, partnerships, corporate wellness, and selected international markets, while emphasizing that execution and profitability are uncertain.
- Unusual items included a $2.595 million nine-month gain from termination and settlement of third-party content-provider agreements, and a $2.266 million gain from the change in fair value of warrants. These non-operating items do not represent recurring operating revenue.
- After quarter end, the company agreed to acquire substantially all assets and assume certain liabilities of CLMBR for an enterprise value of approximately $16.9 million, including $6.0 million in company stock, assumption of $1.5 million of subordinated debt, and retirement of $9.4 million of senior debt. Potential earn-out shares are tied to 2024 sales and subject to contractual terms and a maximum. The transaction adds execution, financing, and dilution risks.
- On November 10, 2023, the company issued approximately $1.9 million of secured notes with a 15% original issue discount, maturity in November 2024, interest initially at 3% and stepping up to 8% after January 31, 2024, plus warrants.
- The company disclosed material weaknesses in internal financial controls, including inadequate staffing and technical accounting expertise. Remediation plans include hiring, stronger reviews, and new accounting software expected in fiscal 2024; successful remediation is not assured.
- Nasdaq had granted the company until February 19, 2024 to demonstrate compliance with its minimum stockholders’ equity requirement. The filing also highlights potential delisting, stock-price volatility, concentrated ownership, dilution, supply-chain disruption, and dependence on equipment sales.
Important facts for investors to verify
- Near-term liquidity, progress in securing financing, and the status and terms of overdue related-party debt and secured notes.
- Whether the CLMBR acquisition closes, how it is funded, the debt retired or assumed, and the potential number and dilution effect of earn-out shares.
- Progress toward Nasdaq equity compliance by February 19, 2024, and remediation of the disclosed internal-control material weaknesses.
- Whether revenue growth, member retention, and the shift toward training and recurring services can improve the company’s deeply negative gross margins and cash economics.
- The recurring nature and cash impact of stock-based compensation and reported gains from debt forgiveness and fair-value changes.