F45 Training Holdings, Inc. posted a steep loss in the third quarter ended September 30 on restructuring and litigation charges. Same-store sales increased 16 percent globally and 11 percent in the United States. The fitness studio also formed a committee to explore a sales offer.
On October 3, active investor, Kennedy Lewis Investment Management LP (KLIM) made an unsolicited offer to buy the company for $385 million and take it private.
The offer came after F45 in July announced a restructuring that included the departure of Gilchrist as CEO as well as the layoff of 110 corporate employees. In August, the company reaffirmed a downgrade in its 2022 financial guidance, projecting 2022 revenue of between $120 million and $130 million compared to prior guidance of $255 million to $275 million. Its 2021 revenue was $134 million.
“During the third quarter, we delivered total revenue of $29.3 million and Adjusted EBITDA of $6.1 million. In addition, we had 84 Net Initial Studio Openings for the quarter, bringing our global Total Studio count to 2,042. I am pleased with the performance of our studios, which generated same-store sales growth of 16 percent as well as record system-wide sales of $130.6 million, representing year-over-year growth of 31 percent,” said Ben Coates, interim CEO of F45, in a statement.
He continued, “Last quarter, we announced several key organizational changes and a cost reduction plan designed to position the company more closely with macroeconomic conditions and current business trends. I am pleased to share that these changes were implemented during the third quarter and are beginning to demonstrate positive results.”
Third Quarter Fiscal 2022 Highlights
(compared to Third Quarter Fiscal 2021)
- Total revenue increased from the prior year period by 8 percent to $29.3 million;
- Same-store sales increased 16 percent globally and 11 percent in the United States;
- System-wide sales increased 31 percent globally to $130.6 million, and 32 percent in the United States to $61.1 million;
- System-wide visits increased 19 percent globally to 7.6 million, and 10 percent in the United States to 3.3 million;
- Net Franchises Sold totaled 152, which was impacted by terminations due to the unavailability of previously announced franchise financing facilities;
- Net Initial Studio Openings totaled 84;
- Reported net loss of $60.0 million; and
- Adjusted EBITDA of $6.1 million.
Operating Results
(Third Quarter Ended September 30, 2022)
- Total revenue increased $2.1 million, or 8 percent, to $29.3 million from $27.2 million as compared to the prior year period;
- Franchise revenue increased $0.1 million, or 1 percent, to $18.6 million from $18.5 million in the prior year period; and
- Equipment and merchandise revenue increased $2.1 million, or 24 percent, to $10.8 million from $8.7 million in the prior year period. The increase in equipment and merchandise revenue was driven by the delivery of approximately 97 World Packs during the quarter.
Gross profit of $19.9 million remained unchanged as compared to the $19.9 million from the prior year period. Gross profit margin of 68 percent represented a decrease from 73 percent during the prior year period.
SG&A expenses were $53.9 million, compared to $110.5 million in the third quarter last year. SG&A expense was primarily driven by one-time expenses, including restructuring costs, legal settlements, relocation expenses, stock-based compensation, and COVID-19 concessions. After adjusting for non-recurring and non-cash items, SG&A equaled approximately $19.5 million, which represented a decline from the prior quarter period, due to the recently implemented cost reduction plan.
Net loss was $60.0 million, compared to net loss of $130.2 million in the prior year period.
Adjusted EBITDA was $6.1 million, compared to $10.1 million in the prior year period.
Financial Outlook
The company is reaffirming the following financial guidance for the year ending December 31, 2022 as described in the strategic outlook announcement on July 26, 2022. The guidance assumes that the $250 million of growth capital provided by two previously announced franchise financing facilities, which F45 had arranged for franchisees to open additional studios, will not be available despite strong demand from franchisees.
- Full-year net New Franchises Sold between 350 and 450;
- Full-year net Initial Studio Openings between 350 and 450;
- Full-year revenue between $120 million and $130 million; and
- Full-year Adjusted EBITDA between $25 million and $30 million.
Formation of Special Committee and Engagement of Advisors
The company’s Board of Directors formed a Special Committee of independent directors to review and evaluate strategic alternatives, including the previously announced unsolicited, preliminary and non-binding proposal the company received on September 30, 2022 from Kennedy Lewis Investment Management LP (“KLIM”) to acquire all of the outstanding shares of common stock of the company not already beneficially owned by KLIM or other stockholders participating in the proposed transaction at a price per share equal to $4.00 in cash (the “KLIM Proposal”). As part of the comprehensive process, the Special Committee will review and evaluate alternatives to the KLIM Proposal.
The Special Committee has retained J.P. Morgan Securities LLC as financial advisor, and King & Spalding LLP as legal counsel, to assist the Special Committee in its review and evaluation.
The Special Committee has the full power and authority of the Board of Directors to take any and all actions on behalf of the Board of Directors as it deems necessary to evaluate and negotiate the KLIM Proposal and alternatives to the KLIM Proposal. The Special Committee’s grant of authority provides that the KLIM Proposal and alternatives to the KLIM Proposal will not be consummated without the prior approval of the Special Committee.
The Special Committee has not set a definitive timetable for completion of its evaluation, and there can be no assurances that the process will result in any transaction being announced or completed.
Photo courtesy F45
