NEW YORK (TheStreet) -- SoulCycle could very easily get into the souls of investors during its IPO roadshow.
On Thursday, the high-end boutique gym chain that promises its fanatical riders a tribal workout experience filed with U.S. regulators for an initial public offering. The filing said the company plans to raise $100 million, but it did not disclose the number of shares the company planned to offer, the expected price or the exchange on which it seeks to list its shares.
SoulCycle offers its workout fiends carefully curated "cardio parties," fueled by the personalities of its instructors. For a steep $32 per class, riders listen in to unique music playlists crafted by the instructors and sweat away the calories on stationary bikes for about 40 minutes. According to SoulCycle's prospectus, "The instructor leads the rider on an emotional journey that runs parallel to the physical workout."
Long-term risks certainly exist for SoulCycle, which has ambitions to reach 250 domestic locations from the 38 that exist today. For one, patrons that pay per day instead of doling out for a typical monthly gym fee could easily curtail visits during an economic downturn. There are also low barriers to entry to SoulCycle's niche in the fitness world, and competition from a rise in popularity of alternative workout gyms, such as boot camps or CrossFit training sessions.
But SoulCycle has much in its favor to excite prospective investors as investment banks pitch the IPO. TheStreet takes a look at three of them.
1. SoulCycle is insanely profitable.
Wall Street will often buy into an IPO even if it's unprofitable, as long as the company's long-term growth prospects are strong. So when a company seeking to IPO is in fact profitable -- and nicely so, like SoulCycle -- investor appetite to buy into the company early on will typically be strong.
SoulCycle's revenue skyrocketed about 209% to $11.9 million in 2014 compared to 2012. Operating income rose at an even faster pace during that span, surging roughly 240% to $26.5 million. The momentum has continued into 2015 as SoulCycle readies to ask investors for money to fuel its growth plans.
So far in 2015, revenue and operating income have gained 53% and 49%, respectively. Adjusted margins for earnings before interest, taxes and depreciation were a fat 35.2% in the first quarter, an improvement of 290 basis points year over year.
The robust profit margins underscore SoulCycle's first-mover advantage in the space and its relatively simple cost structure.
2. SoulCycle is virtually debt-free.
Oftentimes a company will go public in order to pay off debt that was incurred to fuel its early expansion efforts. A good example of this is Planet Fitness, which is planning an IPO in large part to pay down debt. Total debt for Planet Fitness as of March 31, 2015, tallied about $506.4 million relative to a mere $12.4 million in total equity.
Large amounts of debt on the books of an emerging company require payments that eats into profits for the early round of investors.
By contrast, SoulCycle's balance sheet is as healthy as its buff instructors. In the first quarter, SoulCycle's cash stood at $6.5 million, up from $5.7 million at the end of 2014. Total debt weighs in at a mere $3.7 million, or only six times shareholder's equity. Further, SoulCycle's debt has remained largely stable since 2013, hinting at a disciplined management team.
With more profits going right to SoulCycle's bottom line, investors are likely to get excited about the IPO.
3. All of SoulCycle's key operating metrics are going in the right direction.
To get enthusiastic about a company's long-term prospects during the roadshow, investors will want to see key operating metrics moving in the right direction today. Seeing that is the surest sign that the company could deliver solid results that reward investors for the early confidence shown in the company.
All of SoulCycle's key operating metrics are, well, rocking. The number of classes rose 44.6% in the first quarter to 25,461. For all of 2014, the number of classes surged to 81,317, up 223% compared to 2012. The number of customer rides hit 934,000 in the first quarter, up 52% year over year. Since 2012, the number of rides have increased 198%.