F45 Training to Do Corporate Layoffs, Transition to New CEO as It Revises Down 2022 Guidance

F45 Training Holdings Inc., Austin, Texas, is undergoing restructuring after a review of macroeconomic trends caused the public company to revise downward its 2022 guidance.

Included in the restructuring is a lay off 110 employees, about 45 percent of the company’s corporate staff, and the transition to a new CEO, the company announced on July 26.

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

F45 is now projecting full-year revenue between $120 million and $130 million, compared to the prior guidance of $255 million to $275 million.

Its full-year adjusted EBITDA is now anticipated to be between $25 million and $30 million, compared to the prior guidance of $90 million to $100 million.

The company has withdrawn its full-year free cash flow guidance.

In addition, F45 now anticipates full-year net new franchises sold between 350 and 450, compared to the prior guidance of 1,500, and its full-year net initial studio openings are now projected to be between 350 and 450, compared to the prior guidance of 1,000.

F45 is expected to report results and host its second quarter earnings conference call in mid-August.

CEO Transition

Adam Gilchrist, who founded F45 in 2013 and has been serving as president, CEO and chairman of the board of directors, stepped down from those roles on July 24, but he will remain as a non-employee director on the board, the company shared.

As part of his separation agreement, Gilchrist is eligible for a one-time cash payment of $4.8 million, a one-time cash payment of $1 million and payment of up to $1.2 million by the company of a 12-month lease on his home in Florida, according to F45’s 8-K filing with the Securities and Exchange Commission. He will also get reimbursement for COBRA premiums for himself and covered dependents for up to 18 months, and he will receive relocation expenses up to $20,000 and reimbursement of separation agreement legal fees.  

The board is searching for a new CEO and chairman of the board.

During the search term, Ben Coates will serve as interim CEO. Coates is an independent director with corporate executive and financial leadership experience, having held management, directorship, and advisory roles at a range of businesses. He currently serves as director of Coolgardie Investments, a private investment vehicle that he founded in 2006. Prior to this, Coates held management, compliance, risk management and strategy roles with multiple companies in the financial services industry, including National Australia Bank, Westpac Banking Corporate, Hanover Group, and ANZ Banking Group. He has been a member of F45’s board of directors since August 2021.

F45 notified the New York Stock Exchange (NYSE), on which it began trading under the symbol FXLV in July 2021, that, due to the appointment of Coates as interim chief executive officer, the company currently has five independent directors and six non-independent directors and, accordingly, does not have a majority of independent directors, which is required to be listed on the NYSE. However, the company is searching for one or more additional independent members of the board and intends to complete the process as soon as practical, the 8-K filing noted.

The filing also showed that F45 entered into an agreement with F45 Training CFO Chris Payne to give him $2.4 million in a cash retention bonus along with accelerated vesting of his outstanding and unvested equity awards if he stays with the company through Oct. 15, 2022. He will be entitled to 18 months of company-paid COBRA and relocation benefits provided for in his existing employment agreement following any termination of employment after Oct. 15.

Layoffs of 45 Percent

One of the major cost-cutting moves for the company is reducing operational expenses and streamlining corporate functions, which will involve laying off 110 employees. The layoffs are expected to be completed in the third quarter, costing the company $10 million to $12 million in severance and related costs, according to the 8-K filing.

The moves will save $15 million to $20 million per quarter in selling, general and administrative (SG&A) expenses, which is approximately 40 percent to 50 percent less than SG&A expenses during first quarter 2022, according to the announcement.

Payne said in the announcement: “We are taking the necessary 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. In addition, recent share price performance has made it challenging for franchisees to utilize 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. Additionally, we believe that once these cost reductions are fully realized, the company will be able to generate positive free cash flow on a normalized basis. Despite the headwinds, F45's business fundamentals remain strong, and we are as excited as ever to continue bringing the world’s best workout to a growing base of members every day.”