Yes mate, all sorted. Just miss the employee discount!
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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!
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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.
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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.
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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.
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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…
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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.
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This is another one for me… I really dont know too many people that have $4k that theyd be willing to put into a bike that they cant actually ride. This is a super niche market. $4k is what Im hoping to spend on my real bike to use 4-5 years. When you could by 2 stages bikes and have leftover cash, how do you justify that?
Really hope they figure this out. Having a company like wahoo is so good for the community in general
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This to me is the a key point in their problems. I would be interested to know how much additional debt payments have been made as a result of the 2021 buyout. This is the money extracted from the company due to by buyout - it serves no purpose to the company itself. Looks like debt of about $225 million, although not sure how much of this is due to the buyout.
They have certainly made other mistakes, but those may well have been quite survivable without this extra burden. There are good reasons why highly leveraged buyouts are looked down upon by people not profiting from them.
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Because they believe the Zwift trainer infringes on their patents….
The fact that Zwift is an “online service” is immaterial. Even the argument that they offer a trainer at a “compelling price” isn’t necessarily the issue…it is about patent violation.
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You are forgetting that Giant is the largest bike manufacturer in the world.
At first blush I don’t think of Wahoo having an inflated product category, but I went to their website I’m now rethinking that. The Rival smartwatch has been a dud and Wahoo will struggle to compete with Apple/Google, let alone Garmin. The Kickr Rollr was a development searching for a problem. Maybe teams were asking for it, but there is no way that product pay back its initial investment. Speedplay power pedals probably took longer than expected and Wahoo underestimated the challenge moving people from SPD SL or Look pedal systems. So I could see how these misses from a business perspective are challenging long term financials.
I think this is a combo of their recent developments getting a luke warm reception and the lack of innovation on their core market (trainers and head units) as DC Rainmaker expressed above. When was the last time you saw a new Wahoo product and your immediate thought was “ohhh I need to buy that”. A few years ago they were a differentiator, now given the competitive landscape I think that is a tougher sell.
I still think Wahoo X and RGT is their ticket to success. The 4DP concept is pretty cool (although not as good as progression levels). They have great content with the Mike Conty rides and sufferfest videos. The integration of running, yoga and cross training is good. Most importantly it provides a steady stream of income to offset cyclical nature of cycling hardware. However, they need to decide what company will they be. A Hardware company that dabbles in software or a software company (ie. zwift competitor) that dabbles in hardware.
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Do they have any giant only stores?
Hope they can turn things around, enjoy my V1 Bolt although I have seemingly fried a few Tickrs I have found Wahoo customer service to be fast and helpful, way better to deal with than Saris for issues with my H3.
My H3 is only a year old so hope to get a few more years out of it but if I had to buy another trainer I would look at the V6 Kickr first, same if I had to get a new head unit, would look at the Bolt V2… Got a cycling desk and fan for xmas and did not consider Wahoo, went RAD and Lasko.
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Some, but nowhere near as many as Trek & Specialized
My LBS is a Giant only store. They also sell Kona, Salsa and one or two other brands secondarily.
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RAD and Lasko are fantastic products! We have two RAD desks in my household.
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