F45 training has about 40 franchises in Auckland and 81 in New Zealand. Photo / NZME
Embattled fitness chain F45 has posted a massive $60 million quarterly loss and cancelled more than 300 franchise sales as it stares down up to five possible lawsuits from disgruntled investors.
Reporting its financial results after the close of the market in the US on Monday, F45 revealed it had made a net loss of US$34.9 million in the three months to June with total revenue of US$30m, some US$19.1m of which came from franchise fees.
Its comprehensive loss, which includes foreign currency translation adjustments, came in at just under US$38.5m ($60.34m).
"I am pleased with the performance of our studios, which generated same-store sales growth of 6 per cent as well as record system-wide sales of US$127.1m, representing year-over-year growth of 23 per cent," F45 interim chief executive Ben Coates said in a statement.
Coates said there were 92 net initial studio openings during the quarter bringing the total count to 1958.
He told investors a number of franchise sales had been cancelled after third-party financing had fallen through.
"In total franchises, sales declined by 175 in the [US] region," he said, as reported by The Sydney Morning Herald.
"The franchises sold in the US will comprise of 132 gross franchise sales, less 307 terminations during the quarter. The terminations were due to the inability of franchisees to access the financing facilities, we announced that the end of [the first quarter]."
F45 said it was reaffirming its guidance for the remainder of the year, which takes into account that the previously announced US$250m in growth capital from two franchise financing facilities would not be available "despite strong demand from franchisees".
The company forecasts net new franchises sold and net initial studio openings for the full year both at between 350 and 450, total revenue of US$120m to US$130m and profit of US$25m to US$30m.
It had previously expected to sell up to 1500 new franchises this year.
The fitness franchise chain founded in 2013, known for its high-intensity interval training (HIIT) classes, was once an Australian success story but has come crashing down to earth in dramatic fashion since hitting the New York Stock Exchange in July last year.
Late last month its founder and CEO Adam Gilchrist stepped down while 110 employees were sacked — representing nearly half of its global workforce — as expansion plans were slashed significantly "due to market conditions".
F45's already wobbling share price plummeted further on the news, and is currently down nearly 90 per cent from its US$16 listing price to US$2 at close on Monday.
"As described in that announcement, we have implemented a strategic reorganisation and cost reduction plan to align the company more closely with macroeconomic conditions and current business trends," Coates said.
"We are confident they are the appropriate and prudent steps to prioritise profitability and cash flow generation over the near term, and position F45 for strong, sustainable growth over the long term. While the recently announced strategic changes are significant, we continue to be as confident as ever in the future of F45.
"We remain committed to our core mission to offer the world's best workout, to help change lives, and to create opportunities for individuals who are passionate about fitness and entrepreneurship. Consumer demand for F45 remains strong, and we continue to deliver results to our franchisees, our members, and the communities we serve. To that end, I would like to express my appreciation to our employees and our franchisees for their continued focus and execution."
F45's June quarter results came after reports that five heavyweight class action law firms in the US were mulling potential claims and calling for investors to come forward.
The firms are investigating whether F45 misled investors, including around US$250m credit line which was announced in May.
Major shareholder and actor Mark Wahlberg reportedly cashed out 1.1 million of his shares for US$12.2m in April.
During the July trading update, investors learned the credit line would not be available.
Gilchrist – not to be confused with the cricket player of the same name – listed his $14m Sydney home on the market after the turmoil. The Freshwater mansion sold two weeks before it was due to be auctioned for more than $1m over the guide.
He and Rob Deutsch founded the company in 2013 in the Sydney suburb of Paddington but Deutsch left in February 2020 and said he was devastated to hear what had happened since then.
"Never in my wildest dreams could I have imagined this," Deutsch wrote on Instagram after the shock news of the lay-offs.
"When I exited, and sold out of F45, I left a healthy, phenomenal, beast of a business. All the way from the company culture to the heartbeat of the business … The workouts. F45 was special. I genuinely hope all of the 110 laid-off staff, find happiness and opportunities elsewhere."