F45 Training Holdings Inc. (FXLV) has carved out a unique position in the highly competitive global fitness industry, leveraging its technology-enabled platform and franchise model to drive growth and expand its global footprint. With a storied history spanning over a decade, the company has weathered industry challenges and emerged as a formidable player, poised to capitalize on the evolving fitness landscape.
Company Overview
Established in 2019, F45 Training Holdings Inc. was founded with the vision of creating a leading global fitness training and lifestyle brand. The company's signature F45 Training workouts combine elements of high-intensity interval, circuit, and functional training, offering consumers what the company believes is the world's best functional training workout. These 45-minute workouts are delivered primarily through a digitally connected global network of franchised studios, resonating with fitness enthusiasts worldwide and attracting a loyal and growing customer base.
Historical Milestones
F45 Training's expansion efforts gained significant momentum in 2020, despite facing challenges from the COVID-19 pandemic, which resulted in temporary studio closures and disruptions to its operations. The company demonstrated resilience by continuing to operate and grow its franchise network during this challenging period.
A major milestone for F45 Training came in 2021 when the company went public through an initial public offering (IPO) on the New York Stock Exchange. This strategic move provided the company with additional capital to support its growth initiatives, including the expansion of its franchise network.
Recent Challenges
However, the company faced additional challenges in 2022, including delays in its financial reporting and issues related to its franchisee network. Specifically, F45 Training determined that certain multi-unit franchise and development agreements were not in compliance with their development schedule timelines. As a result, the company recognized no Franchise revenue and limited Equipment and merchandise revenue in conjunction with these transactions during the period.
Despite these setbacks, F45 Training has remained focused on addressing these issues and strengthening its position in the market. The company has implemented various initiatives to improve its financial reporting and strengthen its franchisee relationships as it looks to move forward and continue growing its global fitness brand.
Global Presence
As of June 30, 2023, F45 Training reported a total of 2,083 studios across its three geographical segments: the United States, Australia, and the Rest of the World. The company's franchise model has been a key driver of its global expansion, with a total of 3,470 franchises sold as of the same date.
Financials
Financially, F45 Training has faced challenges in recent years, as evidenced by its financial performance. For the fiscal year ended December 31, 2022, the company reported total revenue of $104.42 million, a decrease from the $125.22 million reported in the previous fiscal year. Net income for the same period stood at a loss of $178.80 million, compared to a loss of $193.47 million in the prior year.
The company's operating cash flow (OCF) for the fiscal year 2022 was negative $98.03 million, while free cash flow (FCF) was negative $108.72 million. These figures underscore the financial challenges faced by F45 Training during this period.
For the most recent quarter (Q2 2023), F45 Training reported revenue of $17.04 million, representing a year-over-year decline of 38.5%. Net income for the quarter was a loss of $23.73 million, with operating cash flow at negative $17.86 million and free cash flow at negative $18.18 million.
The decreases in revenue, net income, OCF, and FCF for the most recent quarter were primarily due to decreases in New Franchises Sold and Initial Studio Openings compared to the prior year period.
Liquidity
The company's liquidity position has also been a point of concern, with cash and cash equivalents totaling $34.45 million as of June 30, 2023. F45 Training's debt-to-equity ratio stands at -2.06, indicating a highly leveraged financial position. The company has an available credit line of $0.40 million under the Senior Credit Agreement as of June 30, 2023. The current ratio is 1.04, while the quick ratio is 0.45, suggesting potential short-term liquidity challenges.
To address these financial challenges, F45 Training has taken steps to streamline its operations, reduce costs, and secure additional financing. In February 2023, the company entered into a $90 million, five-and-a-half-year term loan facility with a lender group consisting of existing stockholders. This financing, combined with the company's ongoing efforts to optimize its operations and explore strategic alternatives, is expected to provide the necessary resources to navigate the current market conditions and position F45 Training for future growth.
Segment Performance
F45 Training operates in three reportable segments: United States, Australia, and Rest of World (ROW). Each segment generates revenue from franchise operations and equipment and merchandise sales.
Franchise Revenue for the three months ended June 30, 2023, was $14.48 million, a decrease of $4.62 million or 24% compared to the prior year period. This decrease was primarily due to declines in New Franchises Sold, net and Initial Studio Openings, net across all three segments. For the six months ended June 30, 2023, Franchise revenue was $29.09 million, a decrease of $9.88 million or 25% compared to the prior year period.
Equipment and Merchandise Revenue for the three months ended June 30, 2023, was $2.55 million, a decrease of $6.04 million or 70% compared to the prior year period. This decrease was primarily attributable to lower equipment deliveries as a result of reduced Initial Studio Openings, net across all three segments. For the six months ended June 30, 2023, Equipment and Merchandise revenue was $5.52 million, a decrease of $12.60 million or 70% compared to the prior year period.
Cost of franchise revenue for the three months ended June 30, 2023, was $2.50 million, an increase of $761,000 or 44% compared to the prior year period, primarily due to higher brand fund marketing expenses. For the six months ended June 30, 2023, Cost of franchise revenue was $4.83 million, an increase of $1.78 million or 58% compared to the prior year period.
Cost of equipment and merchandise decreased by $6.77 million or 75% for the three months ended June 30, 2023, and by $10.36 million or 64% for the six months ended June 30, 2023, compared to the respective prior year periods. These decreases were primarily attributable to lower equipment deliveries and related freight expenses across all three segments.
Industry Trends
The fitness industry has seen a compound annual growth rate (CAGR) of approximately 5-7% over the past 5 years, driven by increasing health consciousness and demand for convenient and effective workout options. However, the COVID-19 pandemic has disrupted the industry, leading to temporary studio closures and reduced memberships across the sector. F45 Training has faced challenges in opening new studios and selling new franchises during this period.
Future Outlook
Despite the headwinds faced by the company, F45 Training remains committed to its mission of delivering a best-in-class fitness experience to its global customer base. The company's focus on technological innovation, data-driven insights, and a strong franchisee network continues to be the foundation of its strategy.
As F45 Training navigates the evolving fitness landscape, the company's ability to adapt, innovate, and address the changing needs of its members will be crucial to its long-term success. With a renewed focus on financial discipline, operational efficiency, and strategic partnerships, F45 Training is poised to capitalize on the growing demand for personalized, technology-driven fitness solutions, positioning itself for a stronger and more resilient future.
Investors will be closely watching F45 Training's ability to navigate these challenges and return to a growth trajectory. The company's success in expanding its studio footprint, improving financial performance, and strengthening its liquidity position will be key factors in determining its long-term viability and growth prospects in the competitive fitness industry.