A ‘strategic update’ descended into a stock market bloodbath overnight for embattled F45 Training Holdings Inc. (NYSE: FXLV), the world’s fastest growing fitness franchisor, after it was announced that CEO and co-founder Adam Gilchrist has stepped down from the top job.
Although Gilchrist will remain on the board, F45’s shares went into freefall on the New York Stock Exchange overnight (Wednesday), slumping more than 60 per cent and wiping more than US$206 million ($295 million) off the company’s already decimated value.
F45 shares closed at US$1.35 ($1.93), down from highs of more than US$15 ($21.46) reached earlier this year, as the gym franchisor faces ongoing challenges in its business. Although it reported a full-year net loss of US$182.7 million ($261.42 million) in March, the company managed to post a US$2.5 million ($3.6 million) profit in the first quarter of FY22.
F45 - a company founded in Australia by Gilchrist and Rob Deutsch in 2012 and famously backed by Hollywood star Mark Wahlberg (pictured) - was valued at $US1.4 billion ($2 billion) when it listed in New York in July last year.
The company, with more than 550 gyms in Australia and 650 in the US, now says that because of ‘ongoing macroeconomic uncertainty’, it has undertaken a ‘comprehensive review of its strategic and financial priorities in order to best position the company to succeed and grow sustainably over the long term’.
“When we founded F45, we made it our principal goal to change people’s lives by creating the world’s best workout,” says Gilchrist in a statement.
“To the staff that have worked tirelessly since our inception, you have been incredible in your efforts, and I thank you for all of your support. To the investors that have joined us along our journey, I thank you for your commitment to F45.
“I am forever grateful to our franchisees who deliver the world’s best workout each day to F45 members around the world.”
Gilchrist has been replaced by independent director Ben Coates as interim CEO while a permanent replacement is found.
In an Instagram post, Deutsch, who exited the F45 business in 2020, paid tribute to F45 staff and franchisees while also lamenting the company’s current situation.
“Never in my wildest dreams could I have imagined this,” Deutsch says in his post. “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.”
Deutsch says he ‘genuinely’ hopes all of the 110 staff laid off ‘find happiness and opportunities elsewhere’.
“For those OG’s, I want to personally thank you for your blood, sweat and tears. You are the reason F45 was special. Time has proven that.
“To all the franchisees (of which I have had non-stop correspondence), stick to your guns, keep making members happy and delivering the world’s best HIIT workouts.”
Chris Payne, the CFO of F45, announced the sacking of 110 staff from the company amid steps to ‘right-size our business in light of shifting macroeconomic and business conditions’.
“While we expect growth to continue, market dynamics are having a greater than expected impact on the ability of franchisees to obtain capital to develop new F45 locations,” says Payne.
“In addition, recent share price performance has made it challenging for franchisees to utilise financing facilities announced earlier this year. While reducing corporate headcount was an incredibly difficult decision, acting proactively to realign our resources is an important step to enable the company to remain on track for long-term, sustainable success.”
Payne says he believes the measures will generate positive free cash flow on a normalised basis and that the fundamentals of the business remain strong.
Earlier this year, F45 took another hit following a four-year legal stoush with Australian rival Body Fit Training over alleged intellectual property (IP) infringements as both companies pushed into the US market. F45 lost a Federal Court action in Australia which deemed invalid two of the company’s patents that had been the subject of the legal action; the case however is ongoing in the United States.
With its second-quarter financial results due to be announced next month, F45 has revised its guidance for full-year revenue of between US$120 million ($171.7 million) and US$130 million ($186 million), compared with a previous forecast of between US$255 million ($364.9 million) and US$275 million ($393.5 million).
The group has also downgraded the number of new franchises sold for the year from 1,500 to between 350 and 450. This is due to US$250 million ($358 million) in franchise financing facilities no longer being available, despite the company saying there is strong demand for F45 franchises.
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