Remember back in the old days when the Facebook relationship profile status prominently displayed “It’s Complicated”? That’s basically been Wahoo Fitness the last year or two. Like many things involving private equity, the initial investment sounded great, but over the last two years things went south.
Prior to the pandemic, and prior to private equity, Wahoo was a pretty normal and growing business in the sports tech realm. The company started off in 2010 initially selling ANT+ to iPhone adapters, then Bluetooth sensors, followed by their first trainer, bike computers, and eventually an entire empire of indoor and outdoor training gear – including fans, desks, power meter pedals, treadmill modules, and more. All of this was basically self-funded by Chip Hawkins, Wahoo’s founder – atop funds from a floating dock business (yes, like boat docks).
In any case, Wahoo’s business was doing well pre-pandemic, and then as the pandemic set in, their business exploded with sales. Like most indoor training companies, they couldn’t make stuff fast enough. Though, prices didn’t rise – they stayed as-is. Enter Rhone Equity in June 2021, with an agreement to take a majority ownership stake in Wahoo Fitness. As part of that, Wahoo Fitness as a business took on quite a bit of debt – a loan of $225m. That year Wahoo reported revenues of just under $500m (fiscal year 2021).
Of course, what goes up must come down. Anyone who wanted a trainer had bought one, and by early 2022, the indoor trainer industry was seeing a pretty substantial drop in sales. Long time and major trainer companies such as Kurt Kinetic and Saris (formerly CycleOps) put themselves up for sale, or found themselves in a financial pickle. Kinetic quietly sold their company shell and branding to Magene, where it now basically sells Magene trainers under the Kinetic name (there are no longer production/etc facilities in the US). And the Saris business was purchased by C+A global.
All the while, Wahoo’s debt continued to pile up. Because the previously structured deal meant that Wahoo’s debt was publicly traded, Wahoo had financial coverage initiated on them by Moody’s and the S&P. Thus, every quarter or so we’d get the entertainment-factor of finding out how Wahoo’s financial position was doing, and what financial analysts thought of their dirty laundry. Wahoo even had to pay Moody’s and S&P for that privilege. But, it was essentially a self-fulfilling prophecy. With each new analyst statement, consumers became more concerned with the company’s viability and their ability to make debt payments.
An example from coverage a few months ago would be:
“Wahoo’s capital structure is unsustainable given its negative EBITDA and cash flow. We assess the company’s liquidity as weak because its liquidity sources are insufficient to cover its cash needs over the next 12 months. Wahoo had minimal cash on hand and no availability under its revolver as of the end of 2022 after funding its quarterly interest and mandatory debt amortization payments…. We forecast Wahoo will also violate its consolidated total net leverage covenant, which became effective as of Dec. 31, 2022, adding to its default risk in the first half of 2023.
We’d see further peeks of this financial situation after Wahoo filed a lawsuit against Zwift for patent infringement. The seriousness of Wahoo’s situation often making it into documents, as they pleaded with the judge. Some of it was redacted in the publicly filed documents, but most was not. It was clear Wahoo was teetering on the edge, unable to cover the debt payments. As Wahoo’s founder, Chip Hawkins, said while discussing it, “The business was fine. We had a few fantastic years, and a few bad years, but we would have been fine”, without the ballooning debt payments due to private equity.
And thus, three months ago, Wahoo Fitness was taken over by the banks. Specifically, 15 different banks had called the debt, and took over the business. Making matters worse, their private equity ‘partner’ and owner, Rhone Group, wouldn’t put any money into the business, since that’d only benefit the banks. As a result, Wahoo ceased all marketing activities, ceased most sponsorships and other non-critical business functions, and curtailed product development on various products – all trying to save money.
However, as of yesterday, that “nightmare is over”, according to Wahoo Founder Chip Hawkins.
Chip himself, alongside three “equal strategic partners”, have bought back the business. There is no longer any debt remaining, and Chip says they now have a “super healthy balance sheet” with “plenty of cash runway”.
The three ‘equal’ investment partners are:
- Rhone Group (yes, the original investor/partner)
- David Wichmann of Jory Capital & Human Powered Health
- RZC Investments
Speaking about the buy-out, Chip said that this finally gives Wahoo the breathing room to run their company in a normal way again. That includes “smart” investment in advertising, as well as having a longer-term view on product development.
He noted that while the immediate [indoor training] “market still sucks”, they see recovery going into later this year and next year. As a result, they still “have to be rational” in terms of spending, but that they can at least get back to spending again.
In some prepared comments, Wahoo’s CEO Mike Saturnia, stated:
“The investment from both new and existing investors is a clear sign of confidence in the strength of Wahoo- specifically our team, brand, strategy, and powerful ecosystem of innovative products, software, and services. This could not have happened without months of hard work from and support from our channel partners. We want to thank our supply chain and retail and distribution partners for their trust and confidence as we navigated to a successful conclusion to this process.”
It’ll be interesting to see where Wahoo goes from there, and which product categories they choose to focus on. They are undoubtedly a leader in the indoor smart trainer & smart bike space in terms of technological advancement and branding. But their competitors have largely caught-up, both at the budget end and the high-end, from a technology standpoint. That’s especially true when you look at smart trainer accessories, an area Wahoo somewhat pioneered with premium accessories like the KICKR Desk (8 years old) and Headwind Fan (5 years old), but over the last 3-4 years, has become flooded with more budget-friendly options that do the same thing – often times even better. Wahoo needs to find ways to re-energize those products, alongside their premium gateway drug products.
And of course, Wahoo needs to decide on their next steps for their lawsuit against Zwift. The judge recently ruled against Wahoo’s temporary injunction request (to stop the sale of the Zwift Hub). In the 33-page ruling that was released, the judge noted that:
“Wahoo has raised a number of arguments regarding why the asserted claims would not be likely to be found obvious in light of Zwift’s proposed combinations of prior art. After consideration of the parties’ evidence, however, I find that Wahoo has failed to show that an
obviousness challenge based on one of LeMond Revolution, Shu-Chiung, or Miyata combined with Nakao lacks substantial merit. On a motion for a preliminary injunction, the patentee is required to make such a showing. New England Braiding, 970 F.2d at 883. Because Wahoo has failed to make that showing, there remains a substantial question as to the validity of the asserted claims. For that reason, Wahoo has failed to show that it is likely to succeed on the merits, a prerequisite for obtaining a preliminary injunction.”
In fact, the judge noted numerous times he was skeptical of Wahoo’s claims (even referencing comments on a 2010 post of mine, showing the obviousness of where this technology was heading, prior to Wahoo’s patent). The judge did say that it appeared Zwift likely infringed on some portions of some of Wahoo’s claims, but then of course turned around and heavily questioned the validity of those patents entirely (as above). However, as Wahoo has requested a jury trial, it does tend to be harder to get a patent invalidated there. That jury trial is currently now scheduled for May 13th, 2024 at 9:00AM (yes, a year from now).
It’s likely this could speed up the process of a settlement between Wahoo & Zwift, given that this would continue to be a distraction for both companies over at least the next year, with the only real winners being very high-priced lawyers.
In any case, I’m excited to see Wahoo having the financial resources now to hopefully get their mojo back in product development and focus, and start introducing new and more competitive products – and product categories.
With that – thanks for reading!
Good for chip. Leverage is not always your friend.
Fantastic news for a great company making great products. Full speed ahead Wahoo!
So the banks and investors try to run the company, and they fail as expected, so the founder comes back
Good to see their balance sheet is nice and healthy after stealing thousands of dollars from their employees
I do still wonder whether Wahoo has a future as a standalone business and if so what that looks like. In particular the following points struck me:
1. I don’t think you can sustain a business selling trainers anymore. Ultimately trainers are now sufficiently accurate and well built that there isn’t a need to upgrade – heck my 2015 Kickr still works well and is more than good enough for my zwifting (especially as I use power from my on-bike power meter to get real world read across) so I don’t see some drive for people to upgrade trainers. (I don’t really know many people with smart bikes but given the pricing point I’d imagine the upgrade cycles will be even longer than for a trainer – although maybe there are more things that can break).
2. Various accessories might be a helpful supplementary income but things like the desk are pricey, the fan seems realistically to be expensive/overengineered when you can get a smart plug and a cheap, but more powerful, industrial fan to do something similar, and things like the climb are a gimick that you might sell to some die hards but aren’t going to be your bread and butter.
3. That then leads towards your bread and butter future sales being bike computers and watches. Given that Garmin is a pretty overwhelming behemoth in that space, it seems like a really difficult area for someone like Wahoo to compete. Admittedly I come at this as a triathlete where there are benefits to staying within a single ecosystem, but there has to be a question as to how much of Garmin’s pie can you eat (and how much will it cost you to do so) because you are always going to be outgunned by Garmin and, whilst Wahoo has the brand position in the trainer space, it’s reputation on GPS devices is pretty mixed and so its a tough sell to persuade people to switch (by way of example, someone from our tri club was looking for a bike computer, they got about 30 recommendations for 530/830/540/840 type options and 1 person mentioned Wahoo – which was dismissed because the person has a garmin running watch).
It does make you wonder, if you are looking at buying in particular a new trainer or smart bike, where you might want support it 5-10 years time whether Wahoo is a good option. I’m not saying its a bad business – its just also not really clear where they go from here.
While I think the watch was a bust for Wahoo, based on my observations at my local cycling club (70+ showed up last week), probably 30-40% of riders use an ELEMNT of some sort, mostly the BOLT, with the rest using Garmin. That’s real inroads against a behemoth. For the record I’ve never seen a Hammerhead in real life.
I just think you’re not looking then if you have “never” seen a hammerhead in real life. I appreciate your experience and comment, that portion of the comment just feels a little disingenuous.
I have 4 fans set up in my cave. Three use “smart” switches, but I have still not found anything that will replace my HR controlled headwind. I think it’s the best thing I use. So if there are HR controlled smart switches out there I would certainly entertain that route, but if my headwind dies, I’m buying another
What is a Hammerhead? I use mostly Wahoo, most of my acquaintances have switched from Garmin to Wahoo computers, but I’ve never come across the product?
I’ve never seen a Hammerhead in my club, maybe there is some but I’ve never seen them, and I’m a geek and always looking at what people are using, would love to see one and hear from a fellow club member about them, I’m sure that day will come as they look great
I’ve used Wahoo’s products (Tickr, bike sensors, Element Bolt) and have always appreciated their design philosophy when comes to digital product design and UI -VS- other brands. And I’m happy that they’re sorting themselves out financially.
However, I hope Wahoo takes a moment to honestly reflect on their product strategy and other aspects of their product design and execution in recent years. They’ve made some genuine product and brand missteps that had nothing to do with the spikes in pandemic-related trainer demand. Perhaps that was driven by demands placed on them by previous investors.
Whatever the cause, it started to feel like they may have lost their way a bit. Now feels like the perfect time to refocus and reorient to an ethos that attracted so many of us in the first place.
Well the analysts seemed to like the fundamentals outside of the debt load:
link to cyclingnews.com
At the time of that recent credit-rating downgrade, the overarching trend among investment advisors’ analysis was that, while Wahoo would require restructuring, the brand position and its product lineup was strong enough for the company to survive. American advisor Moody’s stated “Wahoo benefits from its strong market position in the cycling and smart fitness products market, supported by its good brand recognition, product innovation, and high product quality.”
@dan, sorry you thought the comment was disingenuous. It wasn’t, it was an honest comment. As a follower of DCR, I’m pretty geeky about bike tech, tend to look at what other riders in my club have. If I had spotted a Hammerhead, you’d be guaranteed I would have had the rider show it to me. Maybe I just missed it, but if I did it means that there aren’t many riding with them.
I must confess, I have never understood why I would want my fan anything other than on full blast. I used to used a Dyson fan (that got moved around my house) and when on the turbo it was either off or on full blast. If I am warm enough to need the fan on, I’m only going to get warmer and I’d rather get ahead of that by having the fan going full whack than do some sort of half way house with the fan on a little bit. Now arguably this means that I might have a minute or two transition period where I am not quite at the right temperature, if I turn the fan on too early or hang on too long.
To be honest I just seen having an HR/Power controlled fan to be a solution looking for a problem (like the climb, its ultimately a bit of a gimick for me) – if I’m hot, I’m hot, the fact that I am on a rest interval and my HR has dropped for a couple of minutes doesn’t mean I want my fan to turn down (in fact I would argue that it turning down in that scenario would be a design flaw that would undermine my recovery in that interval and impact the work out as a whole).
I use a Garmin watch and Wahoo bike computer, and I don’t feel particularly tied to either. They’re both good enough for what I need. It’s healthy and natural for the market leader to have competition; look at just about any other industry and you’ll see the same thing. The question is who the competition is, but it seems that Wahoo has the ease-of-use factor while Garmin allows more tweaking and customizing. My friend has a Hammerhead and I’ve yet to go on a ride with him without it spectacularly failing in one way or another.
I have a Karoo 2 for about 6 weeks now. Simply put it is stress relief from Garmin. It like going from dial-up to broadband in terms of ease of use. Nav and map features are simple and most importantly WORK! I don’t want to spend hours figuring out compatibility issues. Not sure about Wahoo honestly but can highly recommend Hammerhead. Based in Brooklyn, NY.
“I just think you’re not looking then if you have “never” seen a hammerhead in real life. I appreciate your experience and comment, that portion of the comment just feels a little disingenuous.’
I’ve never seen one either. Not even in shops. Folk usually ride with Garmins or Wahoos. Claiming folk are being disingenuous by claiming they’ve never seen a fairly niche product is um…disingenuous.
Happy to hear this as I just bought a ROAM V2 after my ELEMNT finally crapped out after 7 years of service! Good luck Wahoo and I’m looking forward to future products and them getting their mojo back.
Typo “as they pleased with the judge.”
– Should probably be “pleaded”?
Outside of that, some of this is shocking news that I’d not seen before, but it seems that the ship might be righted now and hopefully pointed in a positive direction.
Great to hear, Wahoo have always been innovators, the market is a much better place with them in it.
Just heard about you yesterday. Just read your Wahoo article. And Garmin’s gonna be my new GPS! Thanking you.
This is how private equity works. The PE firm makes the target of their acquisition pay for its own acquisition by taking on debt. I hadn’t been aware that Wahoo had been through this, but it makes more sense now.
The most shocking part of this story for me is that Wahoo Docks exist.
I’d love to see Wahoo Fitness send out a survey to their registered customers and get feedback on where they should focus their development dollars next. They could surely sort through that feedback and make better choices of how to spend their money than handing it to lawyers.
It is actually now a building products company:
link to wahoobuildingproducts.com
They have had a few product surveys in their community forums – the ones I can remember focus more on the training software. I was surprised that wasn’t addressed in the article as SYSTM is pretty good and continues to improve its content and is a great value versus some of its competitors.
Through a random set of circumstances, I was aware of Wahoo docks, but TIL that the two companies are actually related
Ultimately, a healthy Wahoo is good news for the overall industry and more importantly, consumers. There needs to be ongoing competition to continue to drive a) lower prices and b) innovation.
I don’t own any Wahoo products myself, but they’re definitely a company I’d consider for my next trainer whenever my current one bites the dust (hopefully not for a long time).
I’ve been buying Wahoo products for over ten years. I hope they find a way to turn things around as the last thing I want is any Garmin tech in my house or bike.
I’m shocked the steering handlebar mount thingy didn’t completely pull them out of debt.
Whatever they do…………Free the RGT one!!
I don’t understand the US business ‘sense’ for what they did. Please tell us the person(s) responsible for that extremely poor business decision is no longer with the company. Wahoo just need to keep doing what they’ve continually done across all their product lines. Take on the strongest players, out-innovate and out-quality them on comparable products at comparable price points. You’ve won us all over so far doing it, so keep going! Don’t try to out-lawyer Zwift/Garmin/etc. Just out-perform them in the same channels. You’re doing it already so well.
HRM: noname->Garmin soft->Garmin hard->Tickr Blue->Tickr v2 (Wahoo convert)
Headunit: Edge 500->800->810->Elemnt v1 (Wahoo convert)
Trainer: KKRM2->Tacx Vortex->Flux->Neo->KICKRv5 (Wahoo convert)
Fans: 4-5 unbranded/noname->Honeywell x2->Headwind (Wahoo convert)
Been on Zwift since the start. Last 2 years gradually riding RGT alongside, no replacing some racing with it too.
I guess all I have left are my Strava subscription to get swapped to Systm. Whoop to get replaced by Rival and 4iiii/Stages to get replaced by Rally. So I’m not quite there yet Wahoo, but keep up the work and the pattern will continue.
Just to share my view on the PE transaction part. In this case the details were not disclosed but in principle the debt combined with equity typically forms proceeds that go to sellers of the stake in the company when PE invests.
So Chip and his cofounder most probably have pocketed some $250-300m on their sale of majority stake in 2021 (maybe a bit less if there was cash in to the company but certainly no less than $225m debt).
So they personally had more than enough cash to buy back the $200m debt, most probably at significant discount from the banks, and still have some money left.
All in all this was a traumatic experience for the company but founders actually “sold the cake and got to keep the cake for a fraction of price”
Yeah, the debt was publicly traded. I don’t have a price chart, but my understanding was the debt was down to 40 cents on the dollar at the end.
That‘s what I thought. Chip is the winner here. Congrats. But employees and customers had to pay the bill.
Well to fully redeem the debt you need to negotiate with the large holders of bonds, the public market for such a small issue of $225m is very illiquid, so 40c/$ would apply to purchases of small lots only.
In this case my read is that the debt holders actually used security/pledges on the bonds to take over full ownership of the company or ownership of certain key assets and as such negotiated the transaction.
Anyway, as owner of Kickr Core, I am more than happy that the founder is back and I keep my fingers crossed for their core business to sustain. However, they should look hard at their product range and markets where they want to compete.
I wished that Speedplay would buy that back from Wahoo and bring back all the great pedals they made that Wahoo binned!
After owning two Tikr heart rate sensors which both failed just after the warranty was up, plus Wahoo’s acquisition of Speedplay after which they ceased parts support of my favorite Frog pedals, I will never again buy a Wahoo product.
I had 3 Tikr heart rate sensors and all failed at some stage within 1-2 years. They either failed by completely stopping (died) or would stop on a ride and come to life after the ride. I also found the sensors too short and would get regular dropouts during the ride. I then bought a Polar H10 heart rate sensor. It has be very reliable and the sensor area on the strop is much longer. I have had the strap now for 8 months and no dropouts. It seems bomb proof.
Great Article, Great Products and I am happy to see the company is on the mend. Maybe they can ge track to innovation and better prices now.
I live up here in BC, every year the smoke gets worse and cycling masks stay the same (largely crap) Wahoo, please make a cycling mask that’s actually comfortable and fits the profile of a face ergonomically. 🙌
I love wahoo devices are designed with the head of a cyclist, not like a garmin by a clerk who has not ridden a bike. However, the wahoo also has horns. I convinced myself by buying ROAMv1 and discovering like others that the device freezes after driving 250-300km. What the wahoo service wrote back to me that it is a counter for 200km or 15h. Why don’t they put that on their product page? I have been misled. I hope ROAM v2 is free of this wahoo-hidden flaw. However, further notifications in navigation are only up to 200km why? Despite this, I still like riding with Wahoo and I can’t imagine going back to Garmin. My colleagues who switched to ROAM v2 tell me why I didn’t do it before :). Wahoo correct yourself and don’t lie to us.
Just as a heads up for those following along in the comments, I’ve updated the post to add in details about the three other investors.
Interesting that one of those partners is RZC, the investing platform of the Walton brothers…
Since suggestions for product seem to abound, how about bringing back Frogs and a Frog PM would seem a no brainer for the Speedplay group. Systm seems sound and RGT without overdoing the knighthood stuff is super interesting and evolving well in the heretofore constrained environment. Real money may be in that space. See Zwift.
WOW – not very often that the original guy managed to take control of his company back from the banks – good on him. I found this a very interesting article in terms of Waho’s future direction, especially considering the existing lawsuit and the most likely outcome being an OOC settlement. Possible future collaborations between Zwift and Wahoo? Unlikely IMO given that they are competitors but I’ll be keeping an eye on this over the next 12 months.
Fingers crossed for budget friendly high specc’d indoor trainers!
Jury is still out on Wahoo I think. It seems great that the original owner is now back in charge but my feeling is that he got them in this mess to begin with. I look at it as a wild overreach to aquire all those companies. I mean Speedplay pedals? I know a tiny portion of the cycling world loves them but invest more into them for Frogs? Same as competing with Zwift. I think it would have been better to supply Zwift with the trainers. Anyway, glad they are out of debt. By the way, I own an original Bolt, a brand new Roam V2 and two Wahoo heart rate monitors. I want them to succeed.
Way to go Wahoo – don’t let the money ghouls destroy your business. Some really innovative products over the years and hopefully plenty more to come.
Well I had no idea Wahoo was originally created from money from floating docks, but it makes perfect sense to me — floating docks and their close relative wheeled rolling docks are an incredibly useful thing that’s not that technically complicated on the surface but certainly a while back there seemed not to be that many people doing them.
Other than that, exhibit roughly number 37 million on why leveraged buyouts are a terrible idea. Good to see the company back at least partly under original management and totally debt free.
My understanding is these docks are very high end luxury things, not just your barebones “I need somewhere to put my little motor boat”.