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F45 Training Holdings Inc. (FXLV)·Q3 2022 Earnings Summary

Executive Summary

  • Q3 2022 revenue was $29.3M (+8% YoY) with Adjusted EBITDA returning positive at $6.1M; same-store sales grew 16% globally and system-wide sales reached a record $130.6M, driven by unit openings and engagement .
  • Reported net loss was $60.0M and gross margin compressed to 68% on a higher mix of lower-margin equipment sales; SG&A remained elevated but normalized SG&A was ~$19.5M after restructuring .
  • The Board formed a Special Committee to evaluate strategic alternatives, including a preliminary non-binding $4.00/share proposal from Kennedy Lewis Investment Management; FY22 guidance was reaffirmed at the reduced levels set on July 26 .
  • Management said Q3 results came in “above expectations” on revenue and Adjusted EBITDA, and highlighted improving supply-chain costs (shipping per World Pack down from ~$18k to ~$3k) as a tailwind .

What Went Well and What Went Wrong

  • What Went Well
    • Record franchise network activity: Same-store sales +16% globally (+11% U.S.) and system-wide sales $130.6M (+31% YoY) supported by 84 net initial studio openings; “I am pleased with the performance of our studios” (Ben Coates) .
    • Cost actions taking hold: “Changes were implemented during the third quarter and are beginning to demonstrate positive results”; normalized SG&A approximated $19.5M, with targeted quarterly SG&A of $15–$20M going forward (Chris Payne) .
    • Operational execution and partner leverage: Master Franchise Agreement in Europe with Club Sports Group; 56 World Packs delivered in ROW tied to the agreement .
  • What Went Wrong
    • Backlog attrition and financing headwinds: Net franchises sold were (152) due to terminations tied to the unavailability of the $250M franchise financing facilities; multi-unit commitments were reduced .
    • Margin pressure from equipment mix/costs: Gross margin fell vs prior year on higher equipment revenue mix; equipment gross margin was 26.1% in Q3, with earlier pressure in Q2 from shipping/storage costs and discounting .
    • Large GAAP loss and liquidity reliance: Net loss of $60.0M; revolver fully drawn to ~$88M as of quarter-end, with ~$17M cash; liquidity plan depends on cost cuts and equipment monetization .

Financial Results

MetricQ1 2022Q2 2022Q3 2022
Revenue ($USD Millions)$50.0 $30.0 $29.3
Net Income (Loss) ($USD Millions)$2.5 $(34.9) $(60.0)
Diluted EPS ($USD)$0.03 $(0.36) $(0.62)
Gross Profit Margin %76% 65.5% 68%
Adjusted EBITDA ($USD Millions)$17.7 $(7.3) $6.1
Franchise Revenue ($USD Millions)$19.9 $19.1 $18.6
Equipment & Merchandise Revenue ($USD Millions)$30.1 $10.9 $10.8

Segment breakdown – Q3 2022 revenue and gross profit:

SegmentFranchise Revenue ($M)Equipment Revenue ($M)Gross Profit ($M)
United States$11.7 $4.8 $11.6
Australia$3.3 $0.7 $3.2
Rest of World$3.5 $5.3 $5.1
Consolidated$18.6 $10.8 $19.9

KPIs and network health:

KPIQ1 2022Q2 2022Q3 2022
System-wide Sales ($USD Millions, Global)$117.4 $127.1 $130.6
System-wide Sales ($USD Millions, U.S.)$52.7 $58.1 $61.1
System-wide Visits (Millions, Global)7.2 7.3 7.6
System-wide Visits (Millions, U.S.)3.1 3.3 3.3
Same-store Sales Growth (% Global)6% 6% 16%
Same-store Sales Growth (% U.S.)40% 20% 11%
Net Franchises Sold (net)706 (173) (152)
Net Initial Studio Openings (net)117 92 84
Total Studios, end of period1,866 1,958 2,042

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net New Franchises SoldFY 2022~1,500 350–450 Lowered
Net Initial Studio OpeningsFY 2022~1,000 350–450 Lowered
RevenueFY 2022$255M–$275M $120M–$130M Lowered
Adjusted EBITDAFY 2022$90M–$100M $25M–$30M Lowered
Free Cash FlowFY 2022$50M–$60M Guidance withdrawn Withdrawn

Note: FY22 guidance above was reaffirmed in the Q2 and Q3 earnings materials .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Liquidity & leverageQ2 cash ~$8.5M; revolver ~$61.6M at 6/30; ~$83M as of 8/15; draw to bolster liquidity amid one-time costs Q3 cash ~$17M; revolver ~$88M; plan to improve liquidity via cost cuts and equipment monetization Stabilizing (cost actions)
Franchise financing facilitiesQ1 announced $250M off-balance sheet facilities ; Q2 terminated $150M Fortress facility; financing unavailable Credit markets tight; exploring alternatives and 3rd-party lenders; targeting program acceleration in Q1’23 Unavailable near-term; alternatives explored
Cost reduction (SG&A)Strategic reorg targets quarterly SG&A $15–$20M Normalized SG&A ~$19.5M; expect $7–$10M quarterly savings vs earlier 2022 levels Improving (execution underway)
Supply-chain & equipment costsQ2 equipment margin 20.6% on higher logistics/storage costs Q3 equipment margin 26.1%; shipping cost per World Pack down from ~$18k to ~$3k Improving (cost relief)
Master Franchise strategyClub group accelerating U.S. rollout; target ~300 studios in 36 months Executed Europe Master Franchise; delivered 56 World Packs in ROW linked to this Expanding partner-led growth
Regional performanceQ2 Australia headwinds from restrictions Australia comps +90% YoY; visits +22% YoY; U.S. visits at all-time high (~3.3M) Recovering (Australia); strong U.S.

Management Commentary

  • “During the third quarter, we delivered total revenue of $29.3 million and Adjusted EBITDA of $6.1 million…same store sales growth of 16% as well as record system-wide sales of $130.6 million” — Ben Coates, Interim CEO .
  • “These changes were implemented during the third quarter and are beginning to demonstrate positive results” — Ben Coates on cost reductions .
  • “Q3 results…came in above expectations on revenue and adjusted EBITDA” — Ben Coates .
  • “Normalized SG&A expense was approximately $19.5 million…we continue to expect…$15 million to $20 million range” — Chris Payne, CFO .
  • “We’re maintaining [FY22] guidance…net franchises sold 350–450…initial studio openings 350–450…revenues $120–$130 million…adjusted EBITDA $25–$30 million” — Chris Payne .
  • “Shipping times have drastically reduced…cost…down from up to $18,000…to around $3,000 [per World Pack]” — Chris Payne .
  • “U.S. run-rate annualized AUV are around $380,000” — Chris Payne .

Q&A Highlights

  • Liquidity levers: Targeted discounting can monetize inventory; pursuing master franchise fees to bolster liquidity (CFO) .
  • Visitation/membership: Visits per member per week steady at ~2.5–3.0; U.S. visitation at all-time highs (~3.3M) (CFO) .
  • Master Franchise strategy/logistics: MFA in complex regions to reduce resource intensity; acceptance of economic trade-off for faster, partner-led growth (CEO) .
  • AUV ramp and marketing: Aim to compress ~3-year ramp via national brand campaigns and premium partnerships; U.S. AUV cohort trends improving (CEO) .
  • Credit program outlook: Continuing discussions despite tight markets; expectation to accelerate into Q1 2023 (CEO/CFO) .
  • SG&A trajectory: Target $15–$20M quarterly in 2023; free cash flow target ~$10M per quarter by Q4 2022 (CEO/CFO) .

Estimates Context

  • Wall Street consensus from S&P Global was unavailable for F45 (FXLV) due to a missing CIQ mapping, so an apples-to-apples comparison vs consensus EPS/revenue could not be performed. Management stated Q3 revenue and Adjusted EBITDA were “above expectations” on the call, but we cannot corroborate with S&P Global consensus data .
  • Given the lack of S&P Global estimates, investors should anchor expectations to the reaffirmed FY22 guidance ranges and the company’s commentary on cost normalization and free cash flow trajectory .

Key Takeaways for Investors

  • The franchise network is healthy with record system-wide sales and improving visits; near-term growth depends more on organic execution and partner MFAs than multi-unit financing programs .
  • Cost discipline is the core catalyst: normalized SG&A is tracking toward the $15–$20M quarterly target, supporting a return to positive adjusted EBITDA and free cash flow exit run-rate (target ~$10M/quarter) .
  • Margin mix remains the swing factor: equipment-driven revenue supports openings but compresses gross margin; logistics cost relief and curbed discounting should aid margins sequentially .
  • Financing conditions are the principal headwind to backlog conversion; watch for updates on alternative credit solutions and master franchise cash-in opportunities .
  • Strategic review adds an external catalyst: the Special Committee process and the KLIM $4.00/share preliminary proposal could impact valuation and capital allocation .
  • Regional trajectory is improving, particularly Australia’s recovery; U.S. AUVs at ~$380k provide a sturdy revenue base as cohorts mature .
  • Trading setup: near-term upside hinges on visible cost reductions and equipment monetization; downside risks include further backlog terminations and slower credit-market recovery .