F45 Training Holdings Inc. reported a modest improvement in operating earnings on an adjusted basis in the second quarter ended June 30 as sales jumped 54 percent.
“We are very pleased to report strong second-quarter results, underscored by 554 net new franchises sold and 68 net new studio openings. These fantastic net franchise sales and openings numbers demonstrate the strength of our brand and the continued interest F45 has received from investors and entrepreneurs around the world. We have never been more excited about the opportunity we have to transform the health and wellness industry as we expand our footprint and our franchise offerings globally,” said Adam J. Gilchrist, president, CEO and chairman of F45.
He continued, “Despite the ongoing uncertainty related to COVID-19 and recent Delta variant spread, we remain highly encouraged by the resilience of our franchise network and our members’ enthusiasm to come back to our studios at a very healthy pace. We delivered strong same-store sales growth of 126 percent during the quarter as global systemwide sales returned to pre-pandemic levels and our United States segment generated historic systemwide sales of $41 million in the quarter.
“As the broader fitness industry continues to evolve, I’ve never been more excited by F45’s unique strategic position and the opportunity to offer to our growing network of franchisees and members the world’s best workout,” said Gilchrist.
Q2 2021 Compared to Q2 2020 Fiscal Highlights
- Total revenue increased 54 percent to $26.8 million.
- Same-store sales increased 126 percent.
- Net new studio openings totaled 68 compared to 33.
- Net new franchises sold totaled 554 compared to 100.
- Reported income from operations of $3.1 million compared to $5.6 million.
- Adjusted EBITDA increased 7 percent to $10.7 million.
Total revenue increased $9.4 million, or 54 percent, to $26.8 million from $17.5 million as compared to the second quarter last year.
Franchise revenue increased $8.5 million, or 71 percent, to $20.6 million from $12.1 million in the prior-year period. The increase in franchise segment revenue was primarily driven by the increase in the number of franchises sold, as well as a one-time adjustment to revenue recognition related to a change in estimates of approximately $3.0 million. This adjustment is due to a change in estimates related to a subset of franchise contracts, whereby the company recognizes revenue on this subset of agreements consistent with revenue recognition for the remainder of the company’s franchise agreements.
Equipment revenue increased $0.9 million, or 16 percent, to $6.3 million from $5.4 million in the prior-year period, driven by increased sales and deliveries of World Packs.
Gross profit increased to $21.6 million, compared to $13.2 million in the second quarter of last year. Gross profit margin was 80.6 percent for the quarter, a 490 basis points increase from the same period last year. The gross profit margin improvement was primarily driven by a higher mix of franchise segment revenue.
Selling, general and administrative (“SG&A”) expenses were $18.6 million, compared to $7.6 million in the second quarter last year. The increase in SG&A expense was primarily due to professional services and other one-time expenses as well as increased brand-building investments.
Net loss was $30.5 million, compared to net income of $5.9 million in the second quarter last year.
Adjusted EBITDA was $10.7 million, compared to $10.0 million in the second quarter last year.
Liquidity and Capital Resources
As of June 30, 2021, the company has approximately $18.2 million of cash and cash equivalents, including restricted cash, and $255 million in total debt, net of unamortized financing costs.
In July 2021, the company closed its IPO and received net proceeds from the offering of approximately $279.0 million, after deducting underwriting discounts and commissions. The company used the proceeds from the offering to repay all $190.7 million of outstanding indebtedness, $25.0 million for the acquisition of certain assets of the Flywheel indoor cycling business, $2.4 million in cash bonuses to certain employees, and $2.5 million for expenses incurred with the IPO. In addition, at the time of the IPO closing, all outstanding shares of convertible preferred stock and outstanding convertible notes were converted into common stock.
Additionally, in August 2021, the underwriters in the company’s IPO partially exercised an overallotment option to purchase an additional 307,889 shares of the company’s common stock from the company. The company received $4.6 million in net proceeds from the purchase of the additional shares after deducting underwriting costs and commissions.
In August 2021, the company entered into an amended and restated credit agreement (“Credit Agreement”) which amended and restated the Secured Credit Agreement dated September 18, 2019. The Credit Agreement provided for a $90.0 million five-year senior secured revolver facility. The Credit Agreement also provides that, under certain circumstances, the company may increase the aggregate principal amount of revolving commitments by an agreed amount of up to $35.0 million for a total aggregate commitment of up to $125.0 million. The proceeds from the Facility will be used for general corporate purposes.
Financial Outlook
For the year ending December 31, 2021, the company expects the following, assuming there is no significant worsening of the pandemic that materially impacts performance, including prolonged studio closures or other mandated operational restrictions:
- Full-year revenue between $132 million and $137 million;
- Full-year new net franchises sold of 800 to 850;
- Full-year new net franchise openings of 220 to 260; and
- Adjusted EBITDA between $50 million and $52 million.