Interactive Strength, Inc. quarterly report, Q1 FY2023

Interactive Strength, Inc. — Q1 2023 Form 10-Q

Reporting period: Three months ended March 31, 2023. Unaudited consolidated results; amounts below are in U.S. dollars. Interactive Strength operates the Forme connected home-fitness platform, selling fitness equipment alongside memberships and personal training.

Financial performance and position

Metric	Q1 2023	Q1 2022 / prior period
Revenue	$157,000	$189,000
Gross loss	$1.651 million	$2.158 million
Operating expenses	$19.560 million	$10.138 million
Operating loss	$21.211 million	$12.296 million
Net loss	$15.961 million	$12.691 million
Adjusted EBITDA (non-GAAP)	$(4.427) million	$(10.770) million
Net cash used in operating activities	$4.738 million	$10.761 million
Cash and cash equivalents at period end	$1.050 million	$226,000 at December 31, 2022

• Revenue comprised fitness products of $72,000, memberships of $24,000, and training of $61,000. Product sales fell 59%; membership revenue doubled from a low base, and training revenue began following the 2022 launch of live personal training.
• Gross margin remained deeply negative at approximately 1,052%; product, membership, and training costs collectively exceeded revenue by $1.651 million.
• Operating expenses included $14.639 million of stock-based compensation, compared with $88,000 a year earlier. General and administrative expense rose to $15.847 million from $3.162 million, largely reflecting stock compensation.
• Other income included a $2.595 million gain from debt forgiveness and a $2.410 million noncash gain from changes in warrant fair value. These items helped reduce the net loss relative to the operating loss.
• At March 31, current assets were $7.708 million and current liabilities were $24.130 million. Total liabilities were $24.724 million and stockholders’ equity was $1.037 million. The filing’s figures imply a current ratio of approximately 0.32.
• Debt included $5.889 million of related-party loans, which had matured but whose repayment was temporarily waived, $4.350 million of convertible notes, and $2.000 million of senior secured notes. The company reported that the senior secured notes were repaid in May 2023.
• Operating cash use improved year over year; financing provided $6.181 million, primarily from the rights offering and bridge notes. Investing activities used $416,000.
• Operating metrics increased year over year: households were 204 versus 115; members, 235 versus 115; ARR, $364,800 versus $58,919; average annualized recurring revenue per household, $1,650 versus $490; and net dollar retention was 176% (prior-period figure not meaningful).

Changes, outlook, and material matters

• Revenue declined 17% year over year, mainly because of fewer equipment installations. Management attributed membership growth to a larger member base and a price increase from $39 to $49 effective August 2022. Training revenue reflected the launch of live 1:1 personal training.
• Cost reductions from lower headcount reduced research and development, sales and marketing, and membership and training costs. The company also closed retail locations. A December 2022 restructuring and January 2023 employee terminations included option acceleration and repricing, contributing $0.5 million of additional compensation expense.
• Management reported substantial doubt about the company’s ability to continue as a going concern: available liquidity at the financial-statement issuance date was insufficient for the next 12 months without additional capital. Planned responses included cost reductions, financing, and strategic arrangements; management gave no assurance these actions would be sufficient. It cited possible significant operational curtailment, asset or company sale, or bankruptcy if funding needs were not met.
• After quarter-end, the company completed an IPO on May 2, 2023, issuing 1.5 million shares at $8 per share. The filing reports $10.9 million of proceeds after underwriting discounts and commissions but before offering costs; elsewhere it describes approximately $6.9 million of net proceeds after offering expenses. The company says $2.0 million was used to repay bridge notes and approximately $3.9 million for offering costs.
• On June 6, 2023, the company agreed to issue up to $15.8 million of 10% senior secured notes due June 25, 2025. The filing does not establish how much of the authorized amount had been funded as of the report date. Interest is payable in cash for the first six payments; later payments may be paid in cash or in kind at the company’s election.
• The company disclosed material weaknesses in financial reporting controls, involving insufficient trained accounting personnel, formal processes and segregation of duties, and U.S. GAAP expertise. Remediation plans include hiring and consulting support, stronger reviews, and new accounting software; completion and effectiveness are not assured.
• No specific financial guidance was provided. Management described growth plans involving add-on services, partnerships, corporate wellness, and possible international expansion, while noting that international plans were not definitive.
• Key risks include continuing losses and funding dependence, weak equipment sales and negative gross margins, member retention and demand uncertainty, inventory and supply-chain exposure, reliance on manufacturers in Taiwan, competition, and the possibility that consumer financing becomes less available. Legal proceedings were described as ordinary-course matters not expected to have a material adverse effect.

Most important facts for investors to verify

1. Current liquidity, cash burn, and whether the IPO and subsequent note financing provide sufficient funding; confirm the amount of the June notes actually issued and outstanding.
2. Repayment status and terms of the matured related-party loans, including waivers and any remaining defaults or obligations.
3. Reconcile IPO proceeds: the filing gives both approximately $10.9 million before offering costs and approximately $6.9 million after offering costs.
4. Track equipment installations, recurring membership growth and retention, training economics, and progress toward reducing the substantial gap between revenue and cost of revenue.
5. Review stock-based compensation and dilution, including the share-count figures: the filing reports 11,774,279 shares outstanding on the balance sheet at March 31, a different 11,908,946 figure in a note for that date, and 14,313,185 shares outstanding as of June 7.
6. Assess whether the company remediates its disclosed control weaknesses and maintains timely, reliable reporting; the filing also indicates it had not filed all required reports during the preceding 12 months.