Q2 2021 F45 Training Holdings Inc Earnings Call
Good afternoon.
Thank you for attending the F 35 training holdings incorporated quarter, two 2021 earnings call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
I would now like to pass the conference over to your host Bruce Williams, Manning director or managing director.
Actor with F 35 training holding.
Thank you you May proceed afternoon, everyone and thank you for joining the call to discuss our 45 training second quarter results, which we released this afternoon and can be found on the Investor Relations section of our website at 45 training Dot com.
Today's call will be hosted by Chief executive.
So Adam Gilchrist and Chief Financial Officer, Chris paint.
Before we get started I want to remind everyone that management's remarks on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 that are based on current management expectations. These may include without.
If all presentations predictions expectations targets or estimates, including regarding our anticipated financial performance and actual results could differ materially from those mentioned. These forward looking statements also involve substantial risks and uncertainties some of which may be outside of our control that could cause actual results.
Also differ materially from those expressed in or implied by such statements. These factors and uncertainties among others discussed in our filings with the SEC. We encourage you to review these filings for a discussion of these factors, including our quarterly report on Form 10-Q, and our earnings release, you should not place undue reliance on these.
Forward looking statements speak only as of today and we undertake no obligation to update or revise them for any new information.
This call will also contain certain non-GAAP financial measures, which we believe are useful supplemental measures that assist in evaluating our ability to generate earnings provide.
Consistency and comparability with our past performance and facilitate period to period comparison of our core operating results and the result of peer companies reconciliations of these non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our quarterly report on Form 10-Q and in our.
Our earnings release, now I would like to turn the call over to Ed.
Thank you Bruce and thank you everyone for joining us today for our first earnings call as a public company.
I want to start off by saying that we are thrilled to enter this next chapter of our journey I'm very proud of what the F.
45 team has accomplished over the last few months and the strong results we delivered in the second quarter.
For those of you who are not already familiar with our business at 45 is the fastest growing fitness franchise, though with a mission to create a leading global fitness training and lifestyle brand.
We offer a functional 45 minute workouts that are high intensity interval training based with sessions that we believe are the world's best workout.
We deliver out workouts throughout digitally connected global network of studios operating in 65 countries and we.
We've built a differentiated technology enabled platform that allows us to create and distribute the work outs to our franchise base every day of the week at massive scale.
Our unique platform has helped drive that rapid growth. It also helps promote the success of.
All of our franchisees through standardization of our world's best workout and has enabled us to deliver results to our members with this incredible work out.
F 45 had a very strong second quarter.
<unk> by a record 554 new franchise.
Franchise is sold.
With 68, net new studios opening during the quarter.
System wide same store sales growth of 126%.
Total revenue growth of 54% to 26.8 million and an adjusted EBITDA.
<unk> growth of 7% to $10.7 million.
Despite challenges posed by the COVID-19 pandemic, we grew our footprint and experienced minimal permanent closures during 2020, which really underscores the resilience of our business model.
At the end of the second quarter 2021, we had over 2800 total franchises sold in over 1500 total studios open in 65 different countries.
As of June 32021, 91% of our network had reopened.
Our differentiated approach to fitness is firmly rooted in three pillars about DNI.
Innovation motivation and most importantly results.
Starting with innovation.
Innovation is at the core of everything we do we are dedicated to driving new.
New innovations that will continue to elevate the F 45 training experience and further our position as a global fitness training and lifestyle brand.
Able to distinguish ourselves from competitors through such innovations, including our technology enabled distribution platform.
And our proprietary fitness algorithm, which can figures movements from our content library containing thousands of exercises into new workout plans, ensuring the virtually no two workouts ever signed.
Second pillar is motivation we believe the foundation.
For any effective fitness program is motivation.
And we motivate our members through a combination of positivity inclusivity, and teamwork, which builds communities and encourage our members to view H studio as a sanctuary.
The last key pillar is resolved.
Results supported by the sustainability of our workout. So over time, we strive to help our members achieve and maintain results by focusing on creating a sustainable fitness program designed to encourage members to visit studios multiple times per week over the course of their long term fitness journey.
Tony.
Now, let's talk about growth.
We have a significant footprint expansion opportunity both in the United States and across the rest of the world.
Starting with the U S. We continue to believe that there is a significant long term opportunity to meaningfully expand our franchise studio footprint.
Footprint.
As of June 32021, we had 1100 <unk> on franchises sold.
And 556 open studios in the U S.
Based on a white space analysis, we believe there is long term studio a potential.
For us to open over 7000 studios in the U S.
Outside our core markets of the U S and Australia, we have demonstrated the portability of our brand and franchise model in 65 countries.
We have designed our studios to be easily deployed in both developed and.
Emerging markets and to drive continued growth in both under penetrated existing markets and new markets.
Based on our global White space analysis, we see potential for approximately 16000 studios outside the U S.
Let me also take a moment to touch on a few of our.
Our growth drivers the way really excited about <unk>.
Multi unit franchise systems is the first that I'll touch on the.
The majority of our franchisees today consist of owner operators that manage single locations.
Going forward, we intend to seek further opportunities to develop multi unit franchise.
<unk> with select financial partners.
As of June 32021, approximately 51% of our franchises sold well earned by Multiunit franchisees up from approximately 40% as of the end of 2019, which really highlights the strong market demand for multi unit.
Franchise opportunities and their ability to sell to existing franchisees.
Secondly.
What are our new channels. We believe there is significant opportunities to expand into new channels and we are actively pursuing potential opportunities to partner with major universities.
High School.
<unk> corporations and military facilities. We currently have 29 studios located in major University campuses in the U S.
And in June 2021 we opened our first studio and a government military base in Miramar, California.
Thirdly, we're.
We're also looking at new target demographics, and we believe there is a significant opportunity to create workout programs that enable us to target a broader range of consumer demographic groups. We have also recently developed a new fitness concept in Australia called F S eight which integrates three.
Popular methods in the health and fitness industry, the Remixing of Pilates yoga and turn to create a new workout style.
In addition, we have additional concepts in developing including Malibu crude a functional fitness studio clubhouse targeting men over the age.
Safety as well as Avalon House, a studio sanctuary for women of a similar age.
As you just heard there's tremendous opportunities for growth across our business I'm thrilled by the great teams, we have built at both the corporate and the franchise. The level, we have an amazing management team who is focused.
<unk> of executing our growth strategy and continuing to drive shareholder value.
Our franchise partners are well capitalized and committed to growing the businesses and.
And I believe that we have developed a platform that can be one of the most powerful franchise systems in the world.
With that.
Just on I'll turn it over to Chris to go over our financial results.
Thanks, Adam and good afternoon, everyone I'll begin by reviewing the details about second quarter results and then provide our outlook for the full fiscal year 2021 in the second quarter. We sold 554, new net franchises and I have been 68, new next.
Studios, we believe the strong net sales numbers demonstrate the growing awareness of our brand and our ability to sell franchises globally.
For the second quarter of 2021 title revenue increased 54% from seven $8.5 million in the prior year to $26.8 million.
Same store sales increased by 126% driven by strong membership recovery at ask Judy is globally as pandemic restrictions have relaxed and as studios have continued to reopen from COVID-19 mandated restrictions.
As of June 32021, approximately 91% of our studios.
Gladly had reopened from COVID-19 mandated clauses and an IPO in May and June 21, we had strong year over year membership growth as.
As of August 21st approximately 70% about studios globally, our IPO, reflecting the impact of the recently imposed COVID-19 restrictions in Australia in the U.
Virtually all of our studios have reopened following the temporary closures due to the COVID-19 restrictions.
Regionally our revenues have increased 84% in the United States, 68% in Australia and declined 2% in the rest of World segment.
We have a high level of visibility.
Revenue streams as we operate nearly 100% franchise model, we charge a new franchise as a one time established let's say a $50000, which is amortized over 10 years and monthly franchise fees, which are the greater of two and a half thousand dollars a month or 7% of gross revenues.
Inclusive.
And about one time, establishing pay franchisees are contractually required to purchase a weld pad, which consists of all of the equipment signage and technology they need to operate their studio.
We believe that well pass differentiate us as a franchise or nearly all necessary items are franchise they need to operate their business.
Basically that will limit in a 40 foot shipping container and our franchise, they say a tremendous amount of value in the world pack.
This one time equipment sale of $125000 is recognized at the time of delivery refresh and upgrade equipment revenue is very year on year to year, depending on usage and new equipment introductions.
Let's get Vince.
Currently they're not constitute a significant part of equipment revenues.
Breakout out revenue into franchise and equipment revenue moving onto franchise revenue franchise revenue was $20.6 million, an increase of 71% from $12.1 million in the prior year period.
The increase in franchise revenue in the quarter was driven by new franchise style or one time revenue catch up adjustment of approximately $3 million related to prior periods also favorably contributed to the franchise revenue in the quarter. This adjustment is due to changes in accounting estimates on the recognition of two types of contracts.
The stimulus deals that we entered into last year and contracting set in U S States, where royalty billings for a particular, Judy I do not begin until that Judy I was I've been I want to state clearly this is not an acceleration of revenue rather we started recognizing revenue from stimulus and deferred state contracts consistent.
System with how we recognize revenue without all the contracts.
It's also important Tonight that we would always have recognized these contracted franchise revenue and a change in estimates have been guarded by GAAP in.
In Q2, 'twenty, one and beyond we will recognize revenue related to the stimulus contracts and the deferred state contracts in H P.
Period.
Geographically, we saw strong growth across regions franchise revenue increased 57% in the United States, 112% in Australia, and 76% in rest of world.
Our equipment revenue increased 16% to $6.3 million from $5.4 million this year over year increase.
Primarily driven by well pack equipment sales to new franchisees equipment sales in the quarter were modestly impacted by delivery delays at the end of the quarter. However, we caught out without delivery schedules by the end of July.
In addition, we've taken the necessary steps to purchase in advance inventory. So we can.
With deliver equipment consistent with the contractually required delivery died about franchisees.
Originally equipment revenues increased 227% in the United States declined 28% in Australia and declined 66% in rest of world equipment revenue declines in Australia and rest of world were driven.
And by the deferral of well pack deliveries due to the pandemic during the second quarter.
Moving on to gross profit gross profit increased to $21.6 million compared to $13.2 million in the second quarter last year gross profit margin was 86% in the second quarter up 490 basis.
But from the same period last year, reflecting a higher mix of franchise segment revenues in the quarter.
SG&A for the quarter was $18.6 million compared to 7.6 million a year ago. The increase in SG&A expense was primarily driven by professional fees and other one time brand building.
Investments, we focused our marketing investments in brand building initiatives, including partnerships with new brand ambassadors efforts to promote a new concept FSIC and other market specific promotional efforts.
Moving on adjusted EBITDA increased 7% from $10.2 million.
To $10.7 million in Q2, 'twenty one adjusted EBITDA margin was 39, 9% in the second quarter versus 57, 4% in the prior year period.
This decline was primarily due to the investments I mentioned above.
Net interest expense in the quarter.
Quarter was $8.9 million, which was compared to <unk> 4 million in the second quarter of last year. The increase in interest expense was due to the incremental 206 million debt outstanding in 2021.
Turning to the balance sheet as of June 32021 price or RPI, we had cash.
And cash equivalents of eight 8 million entitled debt outstanding of $255 million.
On July 14, we completed our RPI in which a title of $20.3 million shares of common stock with salt at $16 per share for gross proceeds of $350 million.
The company received 279 million in price eight net of underwriters discounts and commissions. The net proceeds were used to repay all existing debt pay the purchase price for our acquisition of certain assets of flywheel indoor cycling studio and pay one time cash bonuses to certain employee.
Additionally.
Italy in August 2021.
<unk> seen the company's RCI, partially exercised an IRA allotment option to purchase an additional 300000 shares of the company's common stock from the company. The company received $4.6 million in net proceeds from the purchase of the additional shares after deducting the underwriter.
It costs and commissions.
On August 30, we amended our secured credit agreement.
Updated credit agreement provides for a $90 million five year senior secured revolving facility and under certain circumstances, we might increase the aggregate principal amount of the revolving commitments by.
By an aggregate amount of up to $35 million.
I'm really thrilled by our current capital structure and the flexibility it gives us in the face of the lingering impacts of COVID-19. Following these recent equity and debt financing activities.
Just to reiterate following the IPO, we repaid all of their outstanding.
Excluding the convertible not which converted into equity at the RTI, we amended our credit facility to provide for a 90 million dollar commitment.
None of which we have drawn today and we have either $60 million of cash in our account.
Combined with our capital light model and proven ability.
<unk> to generate significant free cash flow, we feel very comfortable without current capital structure and we're excited about the opportunities to invest in the business going forward.
Moving onto our outlook for fiscal 2021 we expect.
Full year revenue to be between $132 million and 137 million.
GAAP net franchise is solved to be between 800 to 850.
Full year net new franchise openings to be between $262.2.
Adjusted EBITDA to be between 50 million and $52 million.
This outlook constitute forward looking statements.
And subject to risks and uncertainties discussed at the beginning of this call.
Not the outlook does not assume a significant worsening of the COVID-19 pandemic that my seriously impact performance, including prolonged studio clauses or other mandated operational restrictions.
As a reminder.
Linda a reconciliation of the non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our quarterly report from our 10-Q and in our earnings release.
Now I'll turn the call back over to Adam for some closing remarks.
Thank you very much Chris and look I'd like to thank everybody. That's on the call. So just taking the time out.
And just spending some time with us because we're obviously extremely passionate I'm proud of what we've changed.
And more importantly, we change People's lives and that's really part of our DNI.
In a way he to build out a great franchise system, but as we discussed with every single franchisee that looks a buying a franchise of ours, we say you know.
We want to change People's lives.
And that's when we do one.
One member at a time and it's exciting.
Because we have a great business and a mandate at head office is about delivering the world's best work out every single day across out 45, K V platform and again I. Thank everybody for just.
Just taking some time out to listen to this call.
And we look forward to continuing to grow this business and hopefully you have all your folks that are on the call.
Sharing our journey has been such an incredible one.
For the last eight years, and I'll pause, there and hand it back to the person allow you guys to dive in with any questions that you might have.
Operator, we're ready for questions.
Absolutely we will now begin the question and answer session if you'd like to ask a question. Please press star followed by one on your Touchtone keypad.
Any reason you would like to them. There's a question. Please press star followed by two.
Again to ask a question press star.
Star one.
Those of you asking a question, they're asking are asked to limit yourselves to one question and one follow up a little pause here briefly to allow questions to generate in Q.
The first question is from Oliver Chen with Cowen You May proceed.
Hi, Thank you Hi, Adam Chris and Bruce.
We also see a big opportunity for our U S unit growth 7000, or more could you, let us know or inform us how.
How you see that opportunity and why.
Why why do you see that opportunity in terms of the longer term white space.
And second a bigger picture question as you think about other platforms and other concepts.
How do you approach innovation and stay close to your core competencies and which of these concepts might be.
Bigger.
Prioritize ones for the United States as well thank you.
Well.
That's a great question, Firstly, we sort of look at that the Tam.
Bang seven.
7000, because admittedly.
We can argue.
About what mobile, but it's more of an art form, but we looked at the straggling experience, where we have a.
27 million people at J D pay that the 15th of the size of the U S.
We extrapolate that number out and you arrive at a number that's actually closer.
<unk> 9000 studios in the U S.
We give that a haircut and when you Rob at 7000, well that's the first part the answer them.
You know like you can look at these training experience and think that is very similar.
With respect to culture.
And you can also look at the cross Street experience, where they had.
Yeah somewhere in the range of 7000 in the U S.
And we think that that's about the right number.
And if you look at just the second part of your question, which is innovation. We believe that that is a critical part classic sense, but when we talk about it at 45, we have trade case.
Pillars.
The first being innovation that can bang motivation and results, but with respect to innovation we have over six.
Different exercises that are filmed and it's crucial for us.
Continue to innovate and create a benchmark.
With respect to <unk>.
Moving that that that number of exercises 6000 to 8000 to 10000.
And we're really excited about the fact that every diet somebody turns up Cornell 40 fives and.
I may do a work out there.
Never Bain.
<unk>.
In the past, but this is being done in universities.
Paying down in military base.
And in Miramar, where we just launched we have these military folks that have no <unk>.
Hand on my Heart, we went down there they think it's the world's best workout.
Yes, so we're really excited.
Thought about innovation being a critical part of our focused.
And every single day, we wake up we believe that we have a mandate could deliver the world's best work out and to do that.
No question, we have to have great innovation.
And that's something that.
It really keeps us up at night.
And we believe we're doing a great job in continuing to expand out exercise Encyclopedia.
Thanks, Adam and as you think about new concepts, which ones or are you most excited about for the roadmap and.
How do you think about your company.
More broadly as a platform as you continue to think about other opportunities as well.
Well.
To be honest I.
Can I get more excited about training teenagers, they're not the someone this my father's age 70.
I think.
We as the world's leading our organization and fitness and well being have a responsibility could deliver the world's best workout.
Across our across an age demographic from I'm talking from five years old like I've got a three and a half year old all the way up to 90 or 100.
And.
We see this responsibility being critical cloud growth.
Obviously, there are you know.
Age demographics that we believe have been neglected and that's the truth.
Been neglected.
And.
As we sit here today, we have nearly 3000 franchises sold but.
But I can tell you.
But after your family the most important thing in your life is your health.
So we believe we can be bigger than Starbucks, we can be bigger than mcdonalds and we will do that.
Because we are delivering an incredible product to age demographic, whether a 12 year 12 is all 17 years old 70 years old and at the moment we're trialing.
Workouts with Greg Norman.
I'm really fortunate to be in Florida, right now with him.
Turning to them every single day about warehouse club worked for him talking about warehouse club work for kids, where the only third party third party Jim ever to go into a high school ever.
And we're doing that right now where we're going to deliver these workouts the kids age between.
12, and 17 years old.
And look when Stanford Rang us up and said Hey, we want in that 45, and you know you know University will like of course.
Diversity of Texas ranks up and said Hey can you get down here I flew down to Austin, Texas, I Love that city. So much we moved out.
Head Office day I was like of course, we can train these guys you know.
These days of schools that are the most sophisticated schools in terms of you know.
Developing great systems.
But to answer your question.
You know we're excited about training anybody.
That's wanting to be grind from the age of four to 90 is all but look I don't want to I don't want to pay their so pulp, but we're the only third party Jim ever to go.
Onto our military base.
We're the only third party Jim ever to go into a University and.
And right now we're rolling out in the Hall.
High schools, which is bras and extremely proud moment, because the truth is.
What are we excited about lots of things, but what do I think is really important.
I actually think it's for us because if we can get these young guys, whether theyre mile Fame out 12.
<unk> 47 in result.
Enjoying.
Getting out and having some fun with a training that is a critical element of our success and we want to create a new benchmark of training and functional training in our environment is you know what I would say.
You know to be.
I say this candidly to be the most important aspect of our Val.
Of al.
That business.
Adam Thank you very much and best regards.
Thank you. Thank you Mr Chang.
The next question is from Paul Golding with my query you May proceed.
Thanks, So much Adam Chris and the team congratulations on the quarter.
Just wanted to ask you the performance as far as units sold in the period in Australia was a it was impressive.
Such a mature market at one O nine I was wondering if you could give any color on how much of that is the existing at 45 concept versus new concepts like <unk> eight.
Then I have a follow up.
Yeah, Greg Greg question, I'll, just I'll, just pass that that'd be great.
For Biocryst.
Hi, Hi, Paul how are you yeah around two thirds of that Australian number is if it's I am So L. L Yoga Pilates Tony concept.
Great and any any color with respect to.
Forward sales on on units for the new concept. It seems like it's having great great reception, great uptake despite the volatility in reopening with the pandemic in that market.
Yeah, we actually haven't modeled in.
To the guidance that.
To float and provided we actually haven't modeled in any additional growth.
As I am obviously that that product is well well out of the guidance and trialing well so but in terms of you know the numbers that's going to be upside for us.
Great and then.
Lastly around.
The U S opportunity.
Any any color you can give on the real estate opportunity there with incumbents.
We've seen so many statistics around incumbents.
Closing permanently.
Sort of the opposite story of what Youre seeing with your success in franchise.
<unk> sales anything you can say around whether youre hearing from franchisees.
Deployment.
The opportunities for storefronts are good or rollout is simplified anything you could give around that would be great. Thanks.
Cole I think.
That's a really.
Interesting question because.
The speed and the breakneck speed I should say about growth.
Has to do with Amazon to be honest with you.
Yes.
Done an incredible job moving a lot of commercial and Ray Tyler's into an e-commerce environment.
<unk>, which has created a platform where we've been able to open up multiple locations.
In fragrance.
Frankly impossible to life and not being so if you're looking at 45 today.
We're the biggest operator in London.
But that that that is.
Prior to the fact that obviously a lot of these businesses are moving into e-commerce.
And we get excited about the fact that there's a lot of people are inviting us into.
Areas and locations, where we just never had an opportunity to be able.
Even walk in the door so.
We think that there's probably.
Two great reasons, why we will continue to grow at this speed number one is Amazon and I've been around for many years, but number two COVID-19 has really impacted.
<unk>.
A number of our competitors.
And so if you look at I don't want to talk about cross fit and I don't want to talk about.
He is out and our friends at exponential, but the fact is some of them are going broke and we have a number of these opportunities opening up where they want to.
Turn that business into a net 45 and create.
A platform for success.
So we see COVID-19, right now being a continuing challenge number one for our franchisees, but number two we have a balance sheet to support a lot of those folks we have less than 20.
They will not reopen.
But really I think that this is a great period, where we can accelerate our growth because of the fact that there's a lot of real estate opportunities out there and we've exclusively partner with CB Richard Ellis.
To go out and find upsides assist us.
Austin.
Shoehorning, our franchisees into new locations and that's something that's really interesting for us is just.
Enabling our franchisees to come.
Coming to our funnel get introduced to CBRE have a location that can open up and then we have currently in our nine a M.
<unk>.
Period between contract signing and location I think that we want to compress.
And CBRE will be a big part of that solution to compress that to six and potentially four or five months.
Great. Thanks, so much for that Colorado, and then Chris Thanks for the info appreciate it.
Thank you Mr. Gao me. The next question is from Jonathan can't wait and you May proceed.
Yes, hi, Thank you if I could ask maybe more on the near term environment could you maybe expand more of what youre seeing.
Maybe across markets, specifically, Australia, though in terms of the.
The impact from some of the recent closures, maybe what youre assuming.
For the balance of the year and how we should think about that impacting your ability to sell more units.
Given the unique model, where your revenue is tied more to the units sold in the actual sales volumes, but any any perspective there.
How to what Youre seeing and sort of what Youre embedding.
Within Australia that would be helpful.
Yeah, It's a good question al.
I'll pass.
Chris you can dive in but look Australia.
He has got.
A limited number of.
<unk> vaccines and I'm, not blaming any political but there's not blame here, but whether Spain mismanaged or not is irrelevant.
We see the country reopening very quickly.
We see obviously.
People in Australia, being very similar to the U S, 40% of Australians with Divesture of heart disease.
30% of people would do.
Die of cancer.
About 29.9% of people will die of other things and 0.0000 to one.
Percent of people with Dai of COVID-19, the average age of death.
Of COVID-19.
Is over 85 years old in Australia. So it's so we feel pretty good about the fact that Australia will come out of this and where we're looking to emerging markets.
Like the U S and the UK.
But you know we are.
We believe this is this is a robust world whereby we will get through this more importantly, we believe that people will want to get back and more importantly be more like one to be more fit.
It than ever before.
Because of this because the city you are that you know the better your chances are.
COVID-19.
But the exact.
Donna I'll, let all of our proposed unlike crystal IV, but we're feeling really good about it we're really disappointed that Australia is in this situation.
We're actually.
Actually not disappointed with devastated to be honest because.
Because we have so many great friends that are in France causes that is giving that struggling and we see them ready and willing and able to reopen.
And I'll pause, there and let Chris just diving.
The second part of the culture.
Yeah sure. Thanks, Adam So John to just hit it specifically around approximately 60% about Australia network is shot right now in terms of.
Got it and forward looking.
Projections.
It contemplates Australia getting back.
The studio in Q4 mid to late Q4.
And look.
The other thing I would add to two items come in is that we have a really good starting case study in what happened the first time around and what we saw when they stay.
Judy I was reopened was that the members just got straight back into the studio in Australia and are outperforming kind of it pretty quickly and what was what was actually saying when there's been a second and third wives now that you know that everyone. In the world is now more familiar with with Covid that actual ramp.
When when when things have closed and then reopened for the second time that that actually that ramped to normalcy is it's much quicker.
So look we're really optimistic that you know.
Our Australia and membership prices came to get back into the shipyard as soon as soon as they should as are allowed to open up and as I said, we've got a good case study.
That proves that out.
In addition to that just in terms of yeah South.
Volume in French.
Franchise sales volume the the level of late inquiry into additional F. S. Eight units is reminding really steady even even through these periods that Australia is navigating through.
Yeah.
Yeah, that's really helpful and just as my follow up.
More broadly on the global guidance for franchise so.
I think it's 800 to 850 for the year can you just talk about what's what's needed or what's sort of embedded to hit that number and then as.
Minus beyond 2021 how are you thinking about the right growth rate for our franchise units sold.
Yes sure.
But I'll, let Chris I'll, let you talk I'm sorry.
Yeah, well, just let let's let's remember that the.
The year.
When you look at styles were already at close to five 570 unit sold that that in that guidance range. The midpoint gets us to our get this two hour number comfortably so.
So that's that's the first point and then I'll, let Adam type of second part of the question.
Yeah, 2021, and it's a good question we are really excited about.
About a couple of a couple of things number one is where the first.
The third part of gym, operator ever to go on to a military base. So.
Di you.
You folks on the call my only I don't know this but there's 200000 military folks that are retiring this year from the military.
And that's a big number.
In the last three years obviously.
600000.
So if you think about that.
Believe we will.
Yeah, well to attract a huge number into our business to continue to drive our franchise network growth.
And interestingly you've got countries like South Korea also have huge military personnel and you know.
So what we're feeling.
I'm really bullish about the fact that we can get.
A wide variety of people from different verticals, but also semi professional athletes.
And.
You know, we we as we as we sit here today.
We've currently got.
Well.
I think we said this on our road show 600 applicants from the military that.
Not just inquire, but wanted to buy and then 45 franchise.
And we need to be a little bit.
I'm cautious about how much we say about this but we think that the military will be al.
Got pissed.
Growth funnel.
To drive brand new franchise styles.
We were working with private equity folks.
That are saying that they will fund our military folks and got 50.50 with them.
We don't have that in writing.
We cannot.
The way we look at life is we just want to cry lots of entrepreneurs, we want to have an environment, where we're delivering the world's best work out to.
Thousands of people and.
And interestingly, we just have under 50 a S.
S I S, which as you know as like.
Yet you know folks that.
Arne and operate F 40, fives in Australia, the incredible franchisee operators.
And we just want to replicate that on a multiple of 102 hundred.
Moving forward, we see the military as an incredible opportunity.
Maybe some.
And that's then and that's really.
And an interesting stat for US is 200000 people living in the military this year.
And we're on the first military base ever was a third party game in Miramar.
Yeah great.
So the color. Thank you.
And look I apologize bunch it too much more color on 2022, so I apologize John.
I do apologize we kind of go.
Too far down the road on our numbers, but.
Al.
I'd like to have our Tam fully sold by next year and.
As as an aggressive say oh, you've got to look at ways to do that.
And the military is one of those wise. So I just wanted to say that I apologize I can't go into 'twenty 'twenty two numbers.
I appreciate him for it we only have time for participants to ask one question. Thank you. The next question is from George Kelly with Roth Capital Partners. You May proceed.
Hi, everybody thanks for taking my questions.
A question I guess.
So.
I.
I wanted to ask about marketing.
Marketing you have some market marketing related franchise revenue is that I believe you sort of gave franchisees a pause on in the U S and so just curious.
Have you started to turn back on those revenue streams and whats sort.
Baked into your.
2021 guidance related to those kind of marketing related franchise revenue streams.
Yeah, Georgia.
It's very very similar to the.
What we advised around around the IP I that'll be that'll be coming back.
It's coming back on as we speak.
And middle of milk for Middle of Q3 through Q4 that marketing revenue will be switched back on.
And I guess this is just a continuation of the prior question early but have you starting to notify franchisees of that like what what's.
That sort of Russo how has that been received.
Yeah, well, we're working through the rollout strategy.
In a thoughtful thoughtful why obviously and our franchisees have I haven't had a had a difficult time due to COVID-19.
We've on boarded.
What's the revenue.
CMO, we're actually improving the way that we handled member acquisition marketing as well with new news with move and it's that that messaging is underway. It yes.
Okay got you. Thank you.
Thank you Mr. Kerry. The next question is from John <unk> with J P. Morgan you May proceed.
Hi, Thank you thank.
Thank you for the comment on the $41 million in U S system sales.
I think a lot of us care about system sales.
Australia and rest of the.
And I was hoping that we can get those numbers either on this call are hopefully in the 10-Q.
Yeah, John I think through through June we've got we've got that was outlined in the S. One.
Okay, Alright I'll make.
The world, Okay, well I'll make sure that I have you know we have those that those are the exact number but I know there's.
You have to go through an audit so I'll make sure yes to your point the U S was I mean, it actually rounds up it was fairly close but if those are the exact number is I'll make sure that we use those and then secondly, and if we end up you don't want to tell me all else will so.
Aye.
And we have them so I'll get those SEC.
<unk>, but I do recommend reporting those going forward. It if we can secondly.
Talk about that $3 million our franchise.
Royalty benefit I mean, I think you know there was some confusion as part of the IPO process in terms of when royalties would be recognized.
I searched realm.
Relative to when a franchise store was opened you know can you just elaborate in terms of like what you know what either the U S practices of what the global practices just to give us a sense you know consistently how those franchise.
Franchise royalties are recognized relative to a store actually being opened.
Okay.
Oh I see six six.
He is the is obviously the governing standard in this regard.
The basically and.
You you you you take the contract value less less the world pack and you amortize that over the useful life of the contract.
The.
Yes, you're right the monthly amount that we're recognizing in the U S as close to that $3000 a month per post studio. So I say that is that he's quad rights.
Okay.
And that can be you know for how many months you know.
Cannot be recognized before our stores actually.
Yeah. The words I know you have.
There's some deals you know at least from what I saw in the S. One that we're up to eight years I mean, I assume that you're not getting recognized royalties for a store. That's opening in eight years. I mean is there a kind of a point, whether it's six months or 12 months.
That you know that you can recognize royalty before the stores actually open for operation.
Yeah. So the upon upon executing the franchise agreement with the franchisee material consideration changes hands in the form of the establishment phase.
Side, there's an end and that forms part of the obviously the the amount.
But it's factored.
The the revenue recognition per month over the useful life of the agreement. So there's material consideration upon execution of the franchise agreement and that's at that point, we therefore start to recognize that monthly amount over the next 10 year period.
Okay.
Sorry, just a remark just a reminder that.
Our franchise agreements.
Nicley billing starts its defined regardless of whether our franchises IPO not a franchise they will be built and they're required pi in accordance with the terms of their franchise agreement.
Yes.
Understood and then.
Yep.
And the final which is I think probably the important question. There was you know I mean.
It tweaked down you know in terms of the net openings expectations for fiscal 'twenty. One that you know the range of $2.20 to 260 is kind of at the lower end of certainly the range you know.
You should talk to you know can you elaborate on.
On that I guess.
Relative lowering of expectations and what that says you know in terms of your visibility of units opened in fiscal 'twenty two.
Relative to previous expectations.
Yeah Joe.
Maybe we can chat about that.
But now it's consistent with its consistent with our outlook. So maybe we can address that with you, but certainly we have not revised that number down we have exceptional visibility.
As to the health of all our Onboarding pipeline when we bought.
That we would have enough inventory to service a.
Our franchisees contractual relation.
As it relates to they're well pack purchase obligations. So I would trade off out supply China won't be delivering all of that equipment throughout the remainder of the year and yep.
Openings are.
Bob for you, where we are.
Previously got it happy to address that with you offline, if if you're seeing something differently.
Yeah, well, we went to 60 and you know the range is $2.20 to 2016. So yeah, you know I guess it all depends on how one defines that but you know certainly understood and thank you for the clarification.
In La and obviously I have no problem being corrected at all thank you so much guidance.
Thanks, John.
Thank you.
There are no additional questions waiting at this time I will now pass it back over to the management team for additional remarks.
And I'll look.
Look at me I just.
I have to say as we sit here today, we've been impacted by COVID-19, and over the last 18 months.
And we've.
You know I've been a very fiscally conservative business.
Since day, one we've never had.
An unprofitable quarter.
That's really important to think about because we've been growing at breakneck speed and you know we we were really excited during this IPO process to be able to relieve all of our debt. So we have you know.
Balance sheet debt I would argue is the strongest.
In this space.
Thirdly, I would say that you know.
When you talk about workouts and you talk about you know what is going to be sustainable in this space.
Need to have the world's best workout and that's what we have and every single dialogue I said earlier and I'll Echo the point.
White top.
We deliver the world's best work out to our franchisees and we're excited about it because we.
We've seen so many folks waking up saying right, let's can I get out of bed five I am getting at 45 do I work out.
We think that it's crucial to create these community.
These but we want to continue to create these communities across the globe.
And the last thing I'll say is you know, we we actually really believe that the most important people in this whole conversation are our members.
And we don't talk about it enough.
Members turn up 2.65 times.
And were weak.
And I, absolutely love our workout.
And that's really important for us because they are the glue in this whole call.
The station and you know when we talk about growing our business.
We transcend everything religions languages geography.
<unk> PS.
We're in great countries that are emerging countries with respect to fitness.
And we we get excited about the conversation about growing our business in India, where we're the largest growing fitness franchise business there.
Got you now.
Massive footprint in Singapore with respect to our peers. So we think that our mandate.
<unk> continued to deliver the world's best work out.
We are a light weight business with respect to you know owning franchises, we want to continue to grow our business.
And.
Like I said at the beginning of the call. We thank you for your time I'll pause, there and let Chris dive in and say.
<unk> add anything to that.
To my comments, but we think that this is an exciting period because a lot of folks are.
<unk> being challenged however for us that's an opportunity.
So again, thank you for your time in our press pause and look forward to our next quarterly a conversation.
Yeah.
Yeah.
It's Adam.
Everyone at a bank right is that fair.
Uh huh.
<unk> earnings call as a public company and I look forward to speaking to you all again in the not too distant future.
Yeah.
That concludes our conference call. Thank you for your participation and enjoy the rest of your day.
Yeah.
Really.