More ‘Meh’ Than ‘Wahoo’? Liquidity warning from S&P

by 25

Cycling Industry News reports that Wahoo is facing cashflow troubles and has had its credit rating cut from CCC to -CCC by S&P Global Ratings. For those of you who have not watch a Netflix documentary about economic meltdowns, this means that S&P Global Ratings now considers Wahoo to be less likely to be able to meet its debt repayments than before.

Cycling Industry News states that S&P wrote in its summary: “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. Further, we expect its operating conditions will remain pressured over the next few months as it laps the COVID-related demand tailwinds it benefitted from last year. This will lead it to generate negative free operating cash flow (FOCF), which, along with the higher interest expense on its floating-rate debt, will likely lead to a near-term liquidity shortfall. 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.

“Wahoo’s operating performance continues to deteriorate amid the weakening macroeconomic environment as consumer spending shifts toward non-discretionary categories.”

Wahoo makes a range of sports equipment, including watches, bike computers, and indoor trainers. Its Wahoo X indoor training app with virtual races and routes is currently £135 a year, and incorporates the Sufferfest features that the company bought in 2019.

Following a huge boom during Covid, indoor training platforms are finding the market tough going. Wahoo bridges the indoor and outdoor market however – will this be enough to keep it afloat?

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Hannah came to Singletrack having decided there must be more to life than meetings. Having worked in policy and project management roles at the Scottish Parliament and in local government, Hannah had organisational skills that SIngletrack needed. She also likes bikes, and likes to write. Hannah likes all bikes, but especially unusual ones. If it’s a bit odd, or a bit niche, or made of metal, she’s probably going to get excited. If it gets her down some steep stuff, all the better. She’ll give most things a go once, she tries not to say no to anything on a bike, unless she really thinks it’s going to hurt. She’s pretty good with steri-strips. More than bikes, Hannah likes what bikes do. She thinks that they link people and places; that cycling creates a connection between us and our environment; bikes create communities; deliver freedom; bring joy; and improve fitness. They're environmentally friendly and create friendly environments. Hannah tries to write about all these things in the hope that others might discover the joy of bikes too.

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Viewing 25 posts - 1 through 25 (of 25 total)
  • More ‘Meh’ Than ‘Wahoo’? Liquidity warning from S&P
  • DickBarton
    Full Member

    Likely to be some offers coming up on kit from them I’m guessing. It seems good, based on what I’ve seen on mate’s bikes, so if the price does drop to help get some cash flowing them plenty folk will be getting bargains.

    Never good to hear things like this, inevitable given the current financial climate/cost of living, but this is likely going to impact jobs and wages.

    (Crikey, I seem to be rather sombre for a Friday afternoon, sorry)

    scotroutes
    Full Member

    Likely to be some offers coming up on kit from them I’m guessing.

    They were selling Kickr bikes at about 30% discount a couple of weeks ago.

    BadlyWiredDog
    Full Member

    What does this mean for normal people. I mean those of us who are starting to wonder if they’ve accidentally wandered onto Bikebiz. Will Wahoo be going bust? Will they stop upgrading stuff? Will their products become cheaper? More expensive? Will Wahoo be bought by Chelsea in a multi-million dollar transfer coup? Does this mean Wahoo employees no longer have coffee and cake in the morning?

    Just wondering.

    jameso
    Full Member

    Will Wahoo be going bust? Will they stop upgrading stuff? Will their products become cheaper? More expensive? Will Wahoo be bought by Chelsea in a multi-million dollar transfer coup? Does this mean Wahoo employees no longer have coffee and cake in the morning?

    Every story has a start, middle and end? So I guess we’ll find out, for now the speculation can start.

    Blazin-saddles
    Free Member

    They were selling Kickr bikes at about 30% discount a couple of weeks ago.

    only because there’s a MK2 out.

    tagnut69
    Free Member

    Hambini did a piece on this earlier today as well

    xcracer1
    Free Member

    I do think in general bikes and components need to come down in price. I have thought this for the past few years.

    It’s at a stage where a good quality Honda CRF250R is cheaper than a good quality ebike, something like a Trek Rail 9.7 or Specialized Levo expert!

    BadlyWiredDog
    Full Member

    Every story has a start, middle and end? So I guess we’ll find out, for now the speculation can start.

    It would be nice if the article explained what a liquidity warning might mean in basic English. Is it an existential threat? Is it indicative of a wider industry trend or something more specific to Wahoo and/or the bike tech sector? We don’t all read the FT.

    madhouse
    Full Member

    Liquidity is the ability to turn assets into cash and ‘cash is king’.

    What that means is that it doesn’t matter how big your business is, if you don’t have the cash to pay your bills you’re insolvent and that’s the end of your business.

    So a liquidity warning is pretty big news, it means suppliers will probably be stricter on payment terms, some may even refuse to supply goods. That could mean production problems and if you’re not making anything then you can’t sell it and then you don’t have the cash to pay anyone so your rating drops and … you get the idea.

    It’s a big brand so in theory it would be bought and continue to trade, but the underlying story is that people have less money to spend on the stuff they sell, so they’re feeling the pinch. I expect that anyone operating in a market reliant on surplus disposable income is feeling the same pressure.

    thisisnotaspoon
    Full Member

    The new Zwift branded trainer is presumably going to absolutely hammer them (and probably Tacx and Elite) on the bottom line.

    It’s at a stage where a good quality Honda CRF250R is cheaper than a good quality ebike, something like a Trek Rail 9.7 or Specialized Levo expert!

    It’s certainly true, but it’s also presumably down to the markets prepared to buy them. There seems to be a big influx/growth of people coming into MTB from dirt bikes as a consequence of byways being restricted and e-bikes becoming a thing. So it’s not surprising that their toy budget is the same.

    The real problem (IME) is expectation management. £5k doesn’t buy you a “good” bike, it buys you something pretty damn great. Just because a £10k version exists doesn’t diminish the £5k one. And more to the point £1k bikes. The media need to stop upselling and doing the odd article on “can this £800 bike really survive the Lake District” and start actually saying “you know what, this £800 bike really isn’t any disadvantage compared to that £5k one”. Especially as exchange rates pretty much mean that those £5k+ bikes aren’t really even aimed at the UK market, few people here have that disposable income compared to in Europe or the USA.

    That and the lack of development in lower spec stuff. Trickle down should be about making GX as good as XX1 was eventually, not just making it as expensive as it.

    BadlyWiredDog
    Full Member

    Liquidity is the ability to turn assets into cash and ‘cash is king’.

    What that means is that it doesn’t matter how big your business is, if you don’t have the cash to pay your bills you’re insolvent and that’s the end of your business…..

    Thanks for the explanation, appreciated.

    argee
    Full Member

    You also have less ability to borrow, as they are rated as being vulnerable at present, mainly due to the liquidity issue, and they will more than likely need to borrow, or have investment to continue.

    It’s sad to see, i like their GPS units, i know their business model has these as a small part of it, lets hope they survive, don’t want to go back to garmin any time soon!

    sharkattack
    Full Member

    Hambini did a piece on this earlier today as well

    You mean you haven’t blocked him on every platform?

    Gribs
    Full Member

    So a liquidity warning is pretty big news, it means suppliers will probably be stricter on payment terms, some may even refuse to supply goods. That could mean production problems and if you’re not making anything then you can’t sell it and then you don’t have the cash to pay anyone so your rating drops and … you get the idea.

    It would be if it had a decent rating to start with. Moving from CCC to CCC- makes little difference as non-payment is already factored in as being reasonably likely. In reality it means that the private investors who currently own it will probably have to put in some more money.

    Finster
    Free Member

    The bolt brilliant and small, the roam really good for navigation , yet the wahoo watch what a bag of spanners… shite.

    ratherbeintobago
    Full Member

    DCR article on it today reckons this isn’t as big a problem as it sounds, but that the watch is likely to be culled.

    jamiemcf
    Full Member

    Why is the rating CCC and not C? A quick Google never explained it.

    Gribs
    Full Member

    Why is the rating CCC and not C? A quick Google never explained it.

    It’s a more granular scale. B would be better than CCC, CC is worse etc.

    HB47
    Full Member

    There are three main credit rating agencies – S&P, Moodys and Fitch. Each has their own rating scale with S&P ( and Fitch ) using a combination of letters and +/- , the best rating is AAA, then AA+, AA, AA – and so on all the way down to C. Investment grade rating stop at BBB-, and junk/high yield starts at BB+; Moodys uses a combination of letters and numbers. Ultimately they all map to a probability of default ( the point at which the creditors, normally banks and bond holders will call in the receivers to try and get there money back. )

    The key point here is if they fail their debt covenants ( normally defined in terms of interest coverage ) the debt holders ( normally Banks ) will come in and either liquidate the company or force a sale to new investors ( if they can find anyone) .

    The fact that they are so highly leveraged ( lots of debt ) suggests that they are probably owned by one of the private equity funds , who will cut their loses if they can see a future.

    HB47
    Full Member

    There are three main credit rating agencies – S&P, Moodys and Fitch. Each has their own rating scale with S&P ( and Fitch ) using a combination of letters and +/- , the best rating is AAA, then AA+, AA, AA – and so on all the way down to C. Investment grade rating stop at BBB-, and junk/high yield starts at BB+; Moodys uses a combination of letters and numbers. Ultimately they all map to a probability of default ( the point at which the creditors, normally banks and bond holders will call in the receivers to try and get there money back. )

    The key point here is if they fail their debt covenants ( normally defined in terms of interest coverage ) the debt holders ( normally Banks ) will come in and either liquidate the company or force a sale to new investors ( if they can find anyone) .

    The fact that they are so highly leveraged ( lots of debt ) suggests that they are probably owned by one of the private equity funds , who will cut their loses if they can’t see a future where they can make money – the one thing they won’t care about is the people who have already bought the products

    HB47
    Full Member

    If they fail their year end covenant ( which the article suggests) that will trigger a potentially default on the bank debt and the bonds – which means the debt holders take charge of what happens next. It would be normal for the investors to be allowed to put in more equity to cure the default, but they are under no obligation to do so.

    robertajobb
    Full Member

    And the decision whether to put more money in, is basically one of whether they are throwing good money after bad – will chucking more ££ in now mean they might more back later. Or will they see that new ££ burned away and end up losing even more.

    ElShalimo
    Free Member

    I’m annoyed with them as my v1 Bolt doesn’t work with a new OnePlus phone because the Bluetooth chip is a bit new

    They’ve had over 6 months to fix it

    walowiz
    Full Member

    Pity as my wahoo kickr has been faultless and I use wahoo systm – which they have developed quite nicely imvho. My subscription to systm or wahoo x (or whatever it’s currently called) is up in feb, I wonder what happens to those services in the event of a fold.

    scotroutes
    Full Member

    The fear has to be that anyone renewing pauses or cancels on account of this latest news and it becomes a self-fulfilling prophecy. Is there a monthly subscription option?

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