F45 Training Holdings Inc., in its first report since going public, reported same-store sales increased 6 percent globally and 67 percent in the U.S. in the third quarter ended September 30. The fitness franchisor posted a loss in the period, but adjusted EBITDA increased 37 percent.
“We delivered another solid quarter with continued strength in new franchises sold and significant recovery in studio visits, particularly in the United States, our most important growth market. Furthermore, we continue to be encouraged by the health of our studio backlog and how it positions us to continue to execute on our new studio opening strategy. With approximately 1,400 total franchises sold but not yet open studios, we believe we are well-positioned to achieve our ambitious unit growth targets,” said Adam J. Gilchrist, president, CEO and chairman, F45.
He continued: “We recently announced several exciting milestones that we believe will help accelerate our growth into the future, including the expansion of our partnership with the U.S. Military, our collaboration with OneSpaWorld, which brings the F45 experience to the high seas, and, finally, the entry into a definitive agreement to acquire Vive Active, which will strengthen our business through the addition of a disruptive and innovative fitness brand to our portfolio.”
Third Quarter Results Ended September 30, 2021
- Total revenue increased $5.2 million, or 24 percent, to $27.2 million from $22.0 million as compared to the third quarter last year.
- Franchise revenue increased $4.4 million, or 32 percent, to $18.5 million from $14.1 million in the prior-year period. The increase in franchise revenue was driven by the increase in the establishment and other franchise-related fees. The increased revenue from new franchisees more than offset the negative impact of approximately $1 million of credits provided to temporary COVID-19-related studio closures, primarily in Australia and Asia.
- Equipment and merchandise revenue increased $0.8 million, or 10 percent, to $8.7 million from $7.9 million in the prior-year period. The increase in equipment and merchandise revenue was driven by increased sales of World Packs and Top-Up Packs, which more than offset the approximately $3 million negative impact related to delays in the delivery of World Packs to certain studios.
- Gross profit increased $5.1 million, or 35 percent, to $19.8 million from $14.7 million as compared to the third quarter of last year. Gross profit margin of 72.8 percent represented an increase of 580 basis points from the same period last year, primarily due to a higher mix of franchise revenue.
- Selling, general and administrative (“SG&A”) expenses were $110.5 million, compared to $10.1 million in the third quarter last year. The increase in SG&A expense was primarily due to significant one-time expenses, including an approximately $85.7 million increase in stock-based compensation and the acceleration of RSUs related to the company’s IPO.
- Loss from operations was $90.6 million, compared to income from operations of $4.6 million in the third quarter last year.
- Interest expense was $41.9 million, compared to $0.5 million in the third quarter last year. The increase was due to higher interest expense related to increased borrowings and one-time charges related to the write-off of $23.7 million of unamortized debt discount on the company’s convertible notes and interest payments related to the early termination of its Subordinated Credit Agreement.
- Net loss was $130.2 million, compared to net income of $2.4 million in the third quarter last year.
- Adjusted EBITDA was $10.1 million, compared to $7.4 million in the third quarter last year. Adjusted EBITDA margin of 37.2 percent represented an increase of 361 basis points from the same period last year.
Balance Sheet and Liquidity Overview
As of September 30, 2021, the company had approximately $52.6 million of cash and cash equivalents, and no debt outstanding. This compares to $29.0 million of cash and equivalents and $243 million of total debt outstanding, in the prior-year period. As of September 30, 2021, the company had approximately $88.5 million of capacity under its revolving credit facility.
For the year ending December 31, 2021, the company is increasing the low end of the range for net new franchises sold and net initial studio openings.
- Full-year net new franchises sold of 830-to-850, compared to the prior range of 800-to-850; and
- Full-year net initial studio openings of 240-to-260, compared to the prior range of 220-to-260.
While there remains considerable uncertainty regarding the global supply chain backdrop and delays at major shipping ports, the company is maintaining its financial outlook for the year.
- Full-year revenue between $132 million and $137 million; and
- Full-year Adjusted EBITDA between $50 million and $52 million.
The outlook is based on the assumption that there is no change from the current estimated delivery dates for equipment and merchandise provided by the company’s third-party logistics partners and no significant worsening of the pandemic that materially impacts performance, including prolonged studio closures or other mandated operational restrictions.
Photo courtesy F45