F45 Training Holdings Inc. (NYSE:FXLV) (“F45” or the “Company”) today reported financial results for the fiscal third quarter ended September 30, 2022 and announced the formation of a Special Committee and the engagement of advisors.

“During the third quarter, we delivered total revenue of $29.3 million and Adjusted EBITDA of $6.1 million. In addition, we had 84 Net Initial Studio Openings for the quarter, bringing our global Total Studio count to 2,042. I am pleased with the performance of our studios, which generated same store sales growth of 16% as well as record system-wide sales of $130.6 million, representing year-over-year growth of 31%,” said Ben Coates, interim CEO of F45.

He continued, “Last quarter, we announced several key organizational changes and a cost reduction plan designed to position the Company more closely with macroeconomic conditions and current business trends. I am pleased to share that these changes were implemented during the third quarter and are beginning to demonstrate positive results.”

Third Quarter Fiscal 2022 Highlights Compared to Third Quarter Fiscal 2021

• Total revenue increased from the prior year period by 8% to $29.3 million.
• Same-store sales increased 16% globally and 11% in the United States.
• System-wide sales increased 31% globally to $130.6 million, and 32% in the United States to $61.1 million.
• System-wide visits increased 19% globally to 7.6 million, and 10% in the United States to 3.3 million.
• Net Franchises Sold totaled (152), which was impacted by terminations due to the unavailability of previously announced franchise financing facilities.
• Net Initial Studio Openings totaled 84.
• Reported net loss of $60.0 million.
• Adjusted EBITDA of $6.1 million.⁽¹⁾

Operating Results for the Third Quarter Ended September 30, 2022

Total revenue increased $2.1 million, or 8%, to $29.3 million from $27.2 million as compared to the prior year period.

• Franchise revenue increased $0.1 million, or 1%, to $18.6 million from $18.5 million in the prior year period.
• Equipment and merchandise revenue increased $2.1 million, or 24%, to $10.8 million from $8.7 million in the prior year period. The increase in equipment and merchandise revenue was driven by the delivery of approximately 97 World Packs during the quarter.

Gross profit of $19.9 million remained unchanged as compared to the $19.9 million from the prior year period. Gross profit margin of 68% represented a decrease from 73% during the prior year period.

Selling, general and administrative (“SG&A”) expenses were $53.9 million, compared to $110.5 million in the third quarter last year. SG&A expense was primarily driven by significant one-time expenses including restructuring costs, legal settlements, relocation expenses, stock-based compensation, and COVID-19 concessions. After adjusting for non-recurring and non-cash items, SG&A equaled approximately $19.5 million, which represented a decline from the prior quarter period, due to the recently implemented cost reduction plan.

Net loss was $60.0 million, compared to net loss of $130.2 million in the prior year period.

Adjusted EBITDA was $6.1 million, compared to $10.1 million in the prior year period.

Financial Outlook

The Company is reaffirming the following financial guidance for the year ending December 31, 2022 as described in the strategic outlook announcement on July 26, 2022.

The guidance assumes that the $250 million of growth capital provided by two previously announced franchise financing facilities, which F45 had arranged for franchisees to open additional studios, will not be available despite strong demand from franchisees.

• Full-year net New Franchises Sold between 350 and 450.
• Full-year net Initial Studio Openings between 350 and 450.
• Full-year revenue between $120 million and $130 million.
• Full-year Adjusted EBITDA between $25 million and $30 million.

Formation of Special Committee and Engagement of Advisors

The Company’s Board of Directors has formed a Special Committee of independent directors to review and evaluate strategic alternatives including the previously announced unsolicited, preliminary and non-binding proposal the Company received on September 30, 2022 from Kennedy Lewis Investment Management LP (“KLIM”) to acquire all of the outstanding shares of common stock of the Company not already beneficially owned by KLIM or other stockholders participating in the proposed transaction at a price per share equal to $4.00 in cash (the “KLIM Proposal”). As part of the comprehensive process, the Special Committee will review and evaluate alternatives to the KLIM Proposal.

The Special Committee has retained J.P. Morgan Securities LLC as financial advisor, and King & Spalding LLP as legal counsel, to assist the Special Committee in its review and evaluation.

The Special Committee has the full power and authority of the Board of Directors to take any and all actions on behalf of the Board of Directors as it deems necessary to evaluate and negotiate the KLIM Proposal and alternatives to the KLIM Proposal. The Special Committee’s grant of authority provides that the KLIM Proposal and alternatives to the KLIM Proposal will not be consummated without the prior approval of the Special Committee.

The Special Committee has not set a definitive timetable for completion of its evaluation, and there can be no assurances that the process will result in any transaction being announced or completed. The Company does not undertake any obligation to provide any updates with respect to this or any other transaction, except as required under applicable law.

Conference Call

A conference call to discuss the Company’s first quarter results is scheduled for November 14, 2022, at 4:30 P.M ET. To participate, please dial 844-200-6205 or 929-526-1599 for international callers, and use the passcode 348873. The call is also accessible via webcast at https://ir.f45training.com/. A recording will be available shortly after the conclusion of the call. To access the replay, please dial 866-813-9403 or +44 204-525-0658, for international callers, and use the passcode 750057. An archive of the webcast will be available on F45 Training Holdings’ investor relations website.

About F45

F45 offers consumers functional 45-minute workouts that are effective, fun and community-driven. F45 utilizes proprietary technologies including a fitness programming algorithm and a digitally enabled delivery platform that leverages a rich content database of thousands of unique functional training movements to offer new workouts each day and provide a standardized experience across F45’s global franchise.

For more information, please visit www.f45training.com.

Non-GAAP Financial Measures

In addition to reporting our financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), this press release presents certain other supplemental financial measures, including Adjusted EBITDA and free cash flow, which is a measurement that is not calculated in accordance with GAAP. Management believes that Adjusted EBITDA and free cash flow is useful to management as it allows investors to evaluate the effectiveness of our business strategies, make budgeting and capital allocation decisions, and compare our performance against that of other peer companies using similar measures. Adjusted EBITDA is defined as net income before interest, taxes, depreciation and amortization and adjusted to exclude the impact of sales tax liability, transaction expenses, certain legal costs and settlements, COVID-19 concessions, growth and new market development expense as well as certain other items identified as affecting comparability, when applicable. Adjusted EBITDA eliminates non-cash depreciation and amortization expense that results from our capital investments and intangible assets, as well as income taxes, which may not be comparable with other companies based on our tax structure. Free cash flow is defined as cash flows from operating activities less capital expenditures. Adjusted EBITDA and free cash flow should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance. Other companies may define Adjusted EBITDA differently and, as a result the Company’s measures of Adjusted EBITDA, it may not be directly comparable to those of other companies. A reconciliation of non-GAAP financial measures used in this press release to their nearest comparable GAAP financial measures is included at the end of this press release.

Financial Metrics and Other Data

This press release includes several key financial metrics and other data used by the Company management in assessing the Company’s results of operations:

“Initial Studio Openings” means the number of studios that were determined to be first opened during such period. Prior to October 1, 2021, we classify an Initial Studio Opening to occur in the first month in which the studio first generates monthly revenue of at least $4,500. Starting on October 1, 2021, we classify an Initial Studio Opening to occur in the month in which we record the initial studio opening in our internal systems. Any studios that do not have an Initial Studio Opening under the prior definition are included as of October 1, 2021. Initial Studio Openings are not adjusted downward for studios that were temporarily closed due to the COVID-19 pandemic or otherwise.

“New Franchises Sold” means, for any specific period, the number of franchises sold during such period using the methodology set forth below for “Total Franchises Sold.”

“Open Studios” means the number of studios that were open for business as of a certain date. A studio may be classified as an Open Studio regardless of whether or not it generated minimum monthly revenue of $4,500. During the COVID-19 pandemic, a significant portion of our network was forced to temporarily close, which reduced the number of Open Studios. As studios re-open in accordance with state and local regulations, they are reflected in the Open Studios figures.

“Same store sales” means, for any reporting period, studio-level revenue generated by a comparable base of franchise studios, which we define as open studios that have been operating for more than 16 months.

“System-wide sales” are defined as all payments made to our studios and includes payment for classes, apparel and other sales for a given period. We track System-wide Sales as an indication of the strength of our franchisee network.

“System-wide visits” means the number of registered individual workouts for any specified period. A workout is registered when the consumer checks into a class.

“Total Franchises Sold” represents, as of any specified date, (i) the total number of signed franchise agreements in place as of such date for which an establishment fee has been paid and (ii) the total number of franchises committed in a multi-studio agreement in place as of such date for which an upfront payment has been made, in each case that have not been terminated. Each new franchise is included in the number of total franchises sold from the date on which such franchise first satisfies the condition in clause (i) or (ii) above, as applicable. total franchises sold includes franchise arrangements in all stages of development after signing a franchise agreement, and includes franchises with open studios. Franchises are removed from total franchises sold upon termination of the franchise agreement.

“Total Studios” as of any specified date, means the total cumulative Initial Studio Openings as of that date less cumulative permanent studio closures as of that date. Total Studios are not adjusted downward for studios that were temporarily closed due to the COVID-19 pandemic or otherwise.

Forward-Looking Statements

F45’s financial outlook and other statements in this press release that refer to future plans and expectations, including those relating to F45’s long-term growth expectations, are forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve a number of risks and uncertainties. Words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” “or negatives of these words and variations of such words and similar expressions are intended to identify such forward-looking statements. Statements that refer to or are based on estimates, forecasts, projections, uncertain events or assumptions, including statements relating to F45’s strategy, total addressable market and market opportunity, financial outlook, business plans, future macroeconomic conditions, future impacts of the COVID-19 pandemic, and future products and services, also identify forward-looking statements. All forward-looking statements included in this press release are based on management’s expectations as of the date of this press release and, except as required by law, F45 disclaims any obligation to update these forward- looking statements to reflect future events or circumstances.

Forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following: our dependence on the operational and financial results of, and our relationships with, our franchisees and the success of their new and existing studios; our ability to protect our brand and reputation; our ability to identify, recruit and contract with a sufficient number of qualified franchisees; our ability to execute our growth strategy, including through development of new studios by new and existing franchisees; our ability to manage our growth and the associated strain on our resources; our ability to successfully integrate any acquisitions, or realize their anticipated benefits; the high level of competition in the health and fitness industry; economic, political and other risks associated with our international operations; changes to the industry in which we operate; our reliance on information systems and our and our franchisees’ ability to properly maintain the confidentiality and integrity of our data; the occurrence of cyber incidents or a deficiency in our cybersecurity protocols; our and our franchisees’ ability to attract and retain members; our and our franchisees’ ability to identify and secure suitable sites for new franchise studios; risks related to franchisees generally; our ability to obtain third-party licenses for the use of music to supplement our workouts; certain health and safety risks to members that arise while at our studios; our ability to adequately protect our intellectual property; risks associated with the use of social media platforms in our marketing; our ability to obtain and retain high-profile strategic partnership arrangements; our ability to comply with existing or future franchise laws and regulations; our ability to anticipate and satisfy consumer preferences and shifting views of health and fitness; our business model being susceptible to litigation; the increased expenses associated with being a public company; and additional factors discussed in our filings with the Securities and Exchange Commission (the “SEC”). These risks also include the impact of the announcement of the formation of the Special Committee and review of the KLIM Proposal and alternatives to the KLIM Proposal on the Company’s business and its ability to effectuate any such potential transaction. Further, many of these factors are, and may continue to be, amplified by the COVID-19 pandemic. Detailed information regarding these and other factors that could affect F45’s business and results is included in F45’s SEC filings, including in the section titled “Risk Factors” in F45’s Annual Report on Form 10-K and other SEC filings.

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