Q3 2021 F45 Training Holdings Inc Earnings Call
Contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 that are based on the current management's expectations. These may include without limitations predictions expectations targets or estimates, including regarding our anticipated financial performance.
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Actual results could differ materially from those mentioned those forward looking statements also involve substantial risks and uncertainties some of which may be outside of our control that could cause actual results to differ materially from those expressed in or implied by such statements. These factors and uncertainties among.
Others are 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 in 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 assists in evaluating our ability to generate earnings provide consistency and comparability with our past performance and facilitate period to period comparisons of our core operating results and the results of <unk>.
Peer companies.
Conciliation 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 earnings release now I would like to turn the call over to Adam.
Thank you Bruce and thanks, everyone for joining us today to review our third quarter results. We are very pleased to report strong third quarter results, notably we continued to execute on our growth strategy demonstrated by strong new franchise styles, including additional multi unit deals and continued strength in used.
Judy openings.
Additionally, we saw encouraging sequential improvements in studio performance with visitation and average unit volumes exceeding pre pandemic levels in the U S, which is our most significant growth market.
Our rest of World Studios experienced similar recovery as government mandated restrictions are lifted.
I'm also very pleased that <unk>.
As government mandated restrictions in Australia have eased over the last few weeks, we've seen a rapid uplift in our Australia and studio performances.
As you know we have a differentiated approach to fitness firmly rooted in the three pillars of that DNI.
<unk> motivation and of course results.
This differentiated approach to fitness continues to drive interest in our business both from potential franchise partners and new members and as a result of our global footprint and brand awareness, we continue to grow at a rapid pace.
In the third quarter, we sold 210 net new franchises.
<unk> ended the quarter with 3011 franchises sold.
We also opened 63 net new studios globally and ended the quarter with 1618 total studios and 18% increase versus the prior year.
We are well on our way to achieving over full year goals of franchises sold and studio openings demonstrating the strong continued interest from franchisees to open U S 45 studios.
Moreover, we are encouraged by the strong franchise pipeline.
Ultimately 1400 sold but not yet open studios.
As I've said before.
A significant portion of the sold but on open studios are comprised of very experienced well capitalized multiunit franchisees.
Now I'll turn it over to Chris to go over our financial results and then I'll spend some time discussing our growth strategy.
Thanks, Adam and good morning, everyone.
I will begin by reviewing the data out without third quarter results and then provide our current outlook for full fiscal year 2021.
Total revenue increased 24% to $27 million from $22 million in the prior year.
Global Systemwide sales, which reflect the total revenue generated by our franchise network increased 33% driven by seven 8% increase in visits globally.
In the third quarter global same store sales increased 6% as COVID-19 related Judy I closures in Australia, partly offset significant strength in the U S where same store sales increased by 67%.
As Adam mentioned, we had strong sales price in the quarter with 210 net sales, bringing our total franchise adult to 3011 as at 30 September 2021. We also had strong net studio openings with 63 opened in the quarter, bringing out title studios that six to 818000.
September 2021 rigs.
Regarding our segment trends in the quarter in the U S, where virtually all of our studios, where I've been we saw a significant recovery in CTF performance and demand trends.
Revenues increased 55% year over year to $15 3 million the number of visits increased by 115% year over year and surpassed $3 million for the first time ever.
We are pleased to report that <unk> base continue to recover and exceed pre pandemic levels during the quarter a trend, which has continued Q4 did I <unk>.
Finally in the quarter, we had 87 net franchise styles and 30 net new openings as of September 32021, We had 466 title franchises Salt and 596 titled Studios in the U S.
In Australia, however, approximately 60% of our studio network was closed during the quarter due to COVID-19 mandated Lockdowns. In addition, during this studio closure period, we wife franchise and related monthly fee.
As such revenues in Australia declined 26% to $6 6 million and visits were down 34% year over year.
While the challenging backdrop during the quarter. We are encouraged by the recovery that has occurred since quarter end as of today approximately 80% of the country is now being back Tonight. Most of the Covid restrictions have been lifted and nearly all of our studios arrival to react to.
Since the reopening we're really encouraged by the rapid recovery with the number of visits already tracking to pre COVID-19 levels.
We have also resumed billing and collecting a normal franchise fees, which we previously wide change of the government mandated restriction.
Finally, despite these restrictions we continue to sell in Iceland Cdos in the quarter, We had 15 net franchise styles and five net studio opening.
As of 30 September 2021, we had 800 title franchises song and 663 titles Studios in Australia.
Revenues in visits and rest of world continue to improve accelerated by studio openings and rapid recovery in visits Canada, the largest region in our <unk> segment.
Just completely reopened and is performing above its pre COVID-19 levels on our system wide sales and visitation devices.
Rest of World revenues in the third quarter were up 63% to $5 3 million.
In the quarter, we had 109 net franchise styles in 'twenty net studio openings.
As of 30 September 2021, we had 745 total franchise itself and 399 titled Studios.
<unk> segment.
Moving on to the components of our revenue franchise revenue was that $8 5 million, an increase of 32% from $48 million in the prior year period.
The increase in franchise revenue of approximately $4 5 million was driven by the increase in establishment and other franchise related phase in the United States and rest of world.
This was partially offset by studio clauses, including the $1 million of White franchise, the marketing phase related to the temporary studio closures in Australia.
By region revenue increased 79% in the United States declined 30% in Australia and increased 83% in rest of world compared to the prior year period.
Equipment revenue increased 10% to eight.
$8 7 million from $7 9 million.
This year over year increase was primarily driven by increased sales of equipment, which more than offset the approximately $3 million negative impact related to the delivery delays that are well packs to certain <unk>.
Judy.
Regionally equipment revenue increased 16% in the United States declined 7% in Australia and increased 41% in rest of world.
Like many other companies across industry as supply chain is being disrupted by COVID-19, and related global supply chain delays as a result equipment deliveries were impacted by port congestion and transportation delays beyond our control Fortunately due to our proactive approach towards supply chain management.
We had the required equipment in merchandize stock to meet our anticipated demand.
Additionally, we have already secured additional manufacturing and production capacity in our factories in China, and we continue to actively engage with our shipping partners to manage our equipment deliveries to the best of our ability.
Moving on to gross profit gross profit increased $9 8 million compared to $14 7 million in the third quarter last year gross profit margin was 72, 8% in the third quarter up 580 basis points for the same period last year. This reflects a higher mix of franchise segment revenues in the quarter.
SG&A for the quarter was $110 6 million compared to $10 1 million a year ago. This increase in SG&A expense was primarily due to a significant one time expenses, including approximately $86 million in stock based compensation due to the IPO related equity awards to certain employees.
And the acceleration of <unk> related to the company's IPO.
Excluding these one time expenses SG&A increased approximately $5 million from the prior year, reflecting our investment in our global workforce Global brand marketing efforts.
And other growth initiatives.
Adjusted EBITDA increased 38% to $10 1 million from $7 4 million in Q3 2020, adjusted EBITDA margin was 37, 2% in the third quarter versus 33, 5% in the prior year period.
This increase in EBITDA margin reflects the revenue mix shift I mentioned earlier.
Net interest expense was $41 9 million compared to 500000 in the third quarter last year. The increase was due to higher interest expense related to the increased borrowings and onetime charges related to the write off of $23 7 million of amortize.
Amortize debt discount on our convertible notes and interest payments related to the early termination of our subordinated credit agreement with.
With the debt repayment transactions behind us, we expect net interest expense to be immaterial going forward.
Turning to the balance sheet, we ended the quarter with approximately $52 6 million of cash and cash equivalents and no debt outstanding. This compares to $29 million of cash and equivalents and $243 million of total debt outstanding in the prior year period.
As I discussed last quarter, I'm really pleased with our current capital structure and the flexibility. It gives us in the face of the lingering impacts of kind of the non bank credit facility provides for a $90 million commitment of which <unk> 5 million was available.
Aligned with our capital light model and a proven ability to generate significant free cash flow, we feel very comfortable with our current capital structure and we are excited about the opportunities to invest in the business going forward such as our recently announced acquisition of buyback, which Adam will discuss in a few minutes.
Now moving onto the guidance with the pace of franchise styles with studio openings tracking ahead of our prior outlook, we're raising the low end of our guidance ranges, but franchise styles and studio openings. We now expect full year, new net franchise is solid.
830 to 850 compared to our prior range of 800 to one.
150.
Full year net studio openings of 240 to 260 compared to prior range of 220 to 260.
As we've discussed in the past we continue to have very good visibility into our studio pipeline for the next few years.
We are very pleased with the highest and visibility of our franchisee pipeline with either 3000 franchise itself today approximately half of which are open studios.
Half represents more than 4800 solid, but not yet opened studio a significant portion of which are part of multi unit deals with well capitalized franchisee groups.
These studios are contractually obligated to open and we continue to have high confidence in our partners' ability to do so in a timely manner.
While there remains considerable uncertainty regarding the global supply chain backdrop and delays that might just shipping ports. The company maintains its financial outlook for the year. This is based on the assumption that there is no change from the current estimated delivery dates for equipment a much not provided by a third party logistics part.
As well as not a significant worsening of COVID-19, pandemic that materially impacts performance, including prolonged studio clauses or mandated operational restrictions.
We continue to expect full year revenue between $132 million and $137 million full year, adjusted EBITDA between 50 million and $62 million.
As a reminder.
A reconciliation of non-GAAP measures to the most comparable GAAP measures and definitions.
<unk> are included in our quarterly report from our 10-Q and in our earnings release I'll now turn the call back over to Adam.
Great. Thank you, Chris I'll now spend some time discussing our growth opportunities and strategies.
First I am really excited by some of the organizational initiatives. We have continued to execute upon during the past quarter.
Fighting with our teams we have invested in and developed additional infrastructure to allow for more seamless training of new franchisees and for the on boarding of new trainees.
On the real estate front, we believe that our partnership with CBRE will reduce the time from when a new franchises sold to win that studio opened the stores.
Historically, our second about nine months for us than our franchisees to open a studio however, due to our partnership with CBRE as well as continuing improvements in the internal onboarding process.
We believe we can significantly reduce that lead time. We are also excited that our larger multi unit franchise groups are already taking advantage of these resources and are tracking to their opening targets.
Now turning to the wide space, starting with the U S. We continue to believe that there is significant long term opportunity to meaningfully expand our franchise studio footprint as COO.
Chris already mentioned as of September 32021, we had 1466 franchise with salt.
And 596 total studios in the United States.
Based on a white space analysis.
And our internal estimates we continue to believe there is long term studio a potential for us to open over 7000 studios in the U S.
This does not include the meaningful long term white space potential related to Ada.
And 45 verticals, such as corporate College military studios.
Other fitness modalities, such as emphasized Malibu crew, Avalon house, and buyback, which I'll discuss in more detail in a few moments.
Outside of our core markets of the U S and Australia, we have already demonstrated the portability of our brand and franchise model and almost 70 countries.
We've 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 continue to see long term potential for approximately 16000 studios outside the U S.
Now what gives us our confidence in these long term targets, we have three significant drivers that will enable us to achieve ambitious goals.
One multi unit franchises.
<unk> expansion into institutional channels and three <unk>.
Concepts targeting additional demographics.
Starting with multi unit franchise as we.
We continue to see strong market demand for multi unit franchise opportunities.
Our multi unit operator partners range from existing franchise partners, who are looking to expand our studio footprint to well capitalized institutional partners.
Currently most of our franchisees are independent.
Operators to manage a single location.
Going forward, we will continue to drive new franchise sales and your studio openings with larger well capitalized multi unit franchise groups.
In the third quarter, we added 155, multiunit owner, operator franchises across three multi unit franchise groups and as of September 32021, approximately 65% of our franchise installed while earned bond multiunit franchisees and that's up from <unk>.
Approximately 40% as of the end of 2019.
During Q3, we executed two significant multi unit deals driving growth in our rest of world segment.
Regarding the first deal we have a great partner in Europe, which we won and open up 75 studios in Spain, Switzerland, Italy, Germany, Holland, Denmark, Luxembourg, Liechtenstein and Austria.
Regarding the second deal we have once again partnered with one of our highest performing existing multiunit franchisees to open 15, New studios in the U K over the next two years.
This particular group.
<unk> already has 30 operational studios in Australia, and the UK and has demonstrated the ability to rapidly scale.
Very short period of time.
Moving onto the opportunities to expand into new channels.
We are actively pursuing potential opportunities to partner with major universities high schools cooperations military facilities in prices and hospitality operators.
We currently have 30 studios located in major University campuses in the U S, including Stanford University of Southern California, and the University of Texas.
In October 2021, we expanded that college offerings to Purdue University in Indiana, where we are excited to join the Big 10 conference.
Moving on we are proud to be serving active Judy and veteran communities in the United States.
Having opened 45 studio on the Marine Corps Air station Miramar based in California. The heap, we became the first third party fitness business on a military base.
We're excited about the long term potential of this partnership as we continue to expand our footprint on the military bases and government facilities in the U S and around the world.
We are also excited to share that we are in advanced discussions with third party investors to establish a new lending partnership.
Aimed at providing attractive financing solution to the military personnel, who would like to own and operate a new 45 franchise, we already have a strong pipeline consisting of other 50 veterans.
Who have been prequalified to become franchisees and who will be ideal candidates for this new financing partnership.
Looking ahead, we believe there is significant opportunity to attract members of the military community to <unk> 45.
And more importantly, as new franchisees.
Approximately 200000 veterans are discharged from the military AG, many of whom thing going to enter into the private sector with deeply excited at that opportunity to partner with these proven latest we will share updates on these initiatives in the months to come.
Moving onto the hospitality sector last week, we became the first third party boutique fitness business to underpin a studio on a cruise ship.
As we unveiled the new F 45 studio during the maiden voyage of the award winning celebrity apex.
This was made possible due to our partnership with <unk>, well, which is the number one spa and wellness provider at safest industry latest including celebrity Norwegian and Carnival.
Occupancy rates in the industry recover to pre pandemic levels.
Similarly, 30 million passengers per year, we are excited about the long term potential of these channel as a brand awareness as well as a franchisee and member acquisition vehicle.
Finally, we are also looking at new target demographics.
We believe very significant opportunity to leverage new workout concepts.
Enable us to target a broader range of consumers.
As discussed on our last call early this year, we launched a new fitness concept in Australia called FSA.
Which any grade three popular methods.
Health and fitness industry by Remixing, Pilates, yoga and time to create a new dynamic what account style.
We continue to see very strong demand from existing and new franchise partners to open and operate FSA Studios.
We currently have nine open FSA studios in Australia.
And are on track to end the year with over 115 franchises sold which are included in our franchises sold and opened studio accounts.
Proud to have additional concepts in development, including Malibu crew, which has a functional fitness studio targeting men over the age of 50, and Avalon House, a studio sanctuary for women of a similar age we plan to open our first Malibu and Avalon House locations in Florida early next year.
Yes.
As company owned flagships, the Cds will provide us with firsthand visibility into skier operations, which will allow us to perfect. These new concepts and optimized member experience as we seek to grow these concepts through franchise styles.
Finally, we are proud to welcome via active to be at 45 family on Monday, We announced the acquisition of <unk>, which we expect to close during the fourth quarter. We are extremely excited about the acquisition because we believe it is one of the hottest new fitness concepts in Australia.
Vive is an engaging plies focus workout that can be experienced both in CEO and online through <unk> and <unk> platforms.
What else makes us excited about.
It's very simple that he has created an amazing differentiated customer experience.
<unk> extremely strong customer engagement, driven by our unique multi sensory and triangulate experience as an organic influencer strategy.
<unk> currently offers five workout options for its customers ranging from circuit workout to stretch our entitled Workouts with classes.
Last thing about 50 minutes.
Importantly, <unk> generates extremely strong unit level economics, and we look forward to exploring this large global Tam, but opening several hundred franchise locations, while leveraging the vive management team to selectively open company owned units.
Additionally, we have already received a multi unit commitment from an existing franchise group to expand vibe in the U S.
In closing I would like to thank you all for your time and your continued interest in our 45, we continue to execute on our vision to create the world's best workout every single day across the 45 training platform.
We are only just getting started and we're looking forward to sharing many more exciting developments across the company in the future driven by our dedicated team members franchise partners and customers.
With that I would like to open it up for Q&A.
Of course.
If you would like to ask a question. Please press star one on your kind of think he patch. If you change your mind. Please press star fish by chain.
Having to ask your question please ensure site <unk>.
Just to ask a question. Please press star followed by one.
Our first question comes from the line John Heimbach <unk> John Please proceed.
Thanks.
Adam and Chris Let me start with.
Given the importance of <unk>.
Opening studios.
Visibility because you talked about that and your ability to get your arms around what the franchisees are doing what their plans are timing is.
As you look out 369 months.
How do you guys go about doing that.
And ensuring that they are on track maybe the role that CBRE places on that as well.
Hi, John Adam Gilchrist date excellent question.
Initially when I was looking at obviously trying to create.
Platform of efficiency, but what became very evident was the importance of being able to obviously follow people through but more importantly follow these folks through a journey, where we can assist them in getting the studio open and obviously.
Trying to calibrate these folks into being great marketing operators.
So what we did is we created a technology platform called F 45 playbook.
This playbook is a process where the individual franchisee has to go through 50 different steps to be able to open up the franchise.
Every step of the way they have to upload information through our playbook to progress into the next phase of their opening process. So an excellent example would be <unk>.
<unk> entered into a letter of intent to lease. The property then that has to be uploaded to our playbook and our customer support team have to approve it we look for our critical metrics when people are going out looking for leases, including what the tail I might be what the period of the lease might be if there's various demolition clauses.
As we move through the process the visibility for US is excellent because we assist them with CBRE and going in sourcing your location.
We have visibility on the letter of intent with respect to leasing properties.
We get all of the leases sent to us and has to be approved by us.
Then we go out with those folks and provide third party operators, but also assist them in getting city approvals and then lastly, completing the construction sites. So.
And what that really means is nearly on a daily basis, we're aware of where these products are up to.
With regard to.
With great relationship we have with CBRE, what we're really trying to achieve is an ability to.
<unk> express or compressed that timeframe by providing a franchisee with an already approved location in their franchise territory.
How that would play out in our case studies right now we have CBRE looking in scouring over 2000 locations.
We have a major multi unit Ananda has got over 100 letters of intent that we're <unk>.
Really saying that relationship.
And enable us to bring forward that backlog period that you know to.
To be quite Frank has always been nine months from the time somebody signs.
Pre pandemic to.
So when they open and we're trying to achieve a period, where someone walks in they love the experience even at 45 enter into a franchise agreement with us, but we deliver them and already approved property. So the very important question you asked.
But I think what we've identified is the fact that the visibility is crucial because that enables Chris and his finance team to have such confidence with the.
All of the earnings, but not just this year, but going into next year.
Great maybe as a follow up right you talked about.
Supply chain.
The challenges, which is true for everybody.
I think the plan is to open a great number of studios, particularly in the U S. The early part of 'twenty two probably.
The first quarter into the second quarter.
Lot of that product in the U S. Today.
Order of magnitude like us have a adhere two thirds of it here or is that still to come from overseas over the next month or two.
Yeah again.
Incredibly important questions for the success of obviously out.
Our revenue and earnings what we have been doing since the IPO is making sure that.
Instead of being one quarter ahead, we're looking at this business paying two to three quarters ahead.
And that is a.
Situation, where the supply chain is extremely challenging.
If people in this industry aren't talking about it then.
There's something wrong within that business, because they don't have a lot of manufacturing happening, but we're seeing a lot about.
A lot of our challenges of the last eight weeks.
Sort of lighten up we've seen obviously the largest part of wheat.
Bring our equipment into which is long beach.
Accelerating with all those <unk> deals with them with all of the transport. So as we sit here today, we have most of the equipment for this quarter. He right now we're waiting on three more deliveries for this quarter and for Q1 next year, we're hoping best case scenario. It comes in the first four weeks of Q1.
And then we'll be right ahead of the game with respect to <unk>.
Describe them as well tax paying about one quarter to two quarters minimum in advance and the importance of that is because.
We want to bring that that backlog period.
<unk> nine months realistically down to three or four months. So we really want to be able to have everything in advance for at least two to three quarters in summary.
Thank you very much.
Yes.
Okay.
Our next question comes from the line of Jonathan Komp.
On bad Jonathan Please proceed.
Yeah.
Yes, hi, thank you.
I wanted to follow up a bit on the last question, but when I step back and look at this year you raised the low end of your target for franchises sold to.
838, 50 could you maybe just give us more perspective, how much of that you sort of think or larger maybe chunkier deals that we shouldn't expect to continue.
Is there opportunity as you look into 'twenty, two to maintain or grow the number of unit openings given some of that new initiatives.
Sorry, not the unit openings, but the units sold just wanted to hear your thoughts on how to think about the <unk>.
Directionally heading into next year.
Yeah I'll take this one Adam Hi, John good to chat.
In regards to our multi unit deals, yes, we have a very strong pipeline.
They sophisticated investors larger groups that are looking to take out portfolios in that 45.
We do also have a very healthy pipeline at our regular y.
Single to five unit multi unit deals.
We're expecting that in the fullness of time.
That we will be closing a mix of multi unit larger deal and also continuing our regular lifestyles.
Yes, if I can just also add one point on to that Chris.
We have been.
<unk>.
I'm not.
Inundated, but we've had probably somewhere between 40 and 60 inquiries from PE firms and because of the large amount of inquiry, we've actually outsource the negotiations and created a process with an investment bank and we mentioned those folks on our last call through our system.
And going through and and and.
Channeling.
Great sophisticated investors into the 45 network. So we're feeling really good about the fact that there is an extremely large pipeline.
And as we continue to mature with the rest of the franchise community. We believe that that space will continue to grow over the next two to three years.
Okay, that's really helpful.
And then maybe a broader question around profitability Youre, obviously seeing.
A strong recovery this year, if I were to ask maybe relative to some of the external expectations I see.
Estimates for 'twenty, two and the EBITDA base to get closer to $100 million next year on an adjusted basis and I just wanted to ask sort of your comfort.
Sort of those external expectations and in your mind as you look forward what the key profitability levers are for.
<unk> 22.
Yes, there's probably a few different parts to that answer.
Diving, that's the first which is the sales pipeline and what's interesting.
Is the fact that we have never had more inquiries than this.
This particular quarter the web.
Talking about what we're looking at continuing to do is get more sophisticated with our marketing. So that we can continue to drive inquiries as we've mentioned in the past 2% of our inquiries convert to becoming a franchisee and this is also tied in with the level of success, we have with <unk>.
<unk> influences.
I would argue that one of the biggest influences on the planet is David Beckham, who we've secured is a great.
Partner incredible ambassador fresh style of workout, where we're actually filming David all of next week. So we're really excited about being able to launch all of that all of that marketing OLED marketing assets into the UK and Europe.
But in addition, you have to have a high degree of visibility on what your backlog is this is really important, especially with the multi unit orders.
So if you if you can see that.
Al Al F 45, playbook platform, where we can see how many letters of intent have been signed how many leases have been executed how many approvals are in city, we have tremendous visibility.
Perfectly honest.
We haven't changed that at 45 playbook really since our inception, it was well thought out from day, one, but again it gives us that critical or surprise visibility on openings.
And look there are challenges with supply chain.
On a daily basis were really saying that whole environment improving.
And again, it's just not one step in the process.
Many but probably one of them.
<unk> aspects was the fact that our manufacturers in China have actually never slowed down during the pandemic I'll Echo the point from our previous Roadshow discussion.
During the IPO, they've only closed for two weeks.
So for us what that really demonstrated what do we have tremendous.
Supplies of our equipment in China.
And these challenges that we're having with a lack of containers and speculation is really freeing up so again, it's a long winded answer and I'll, let Chris dive in and answer the second part.
On the backlog as well.
Yeah, just to just to reiterate a couple of points there John we have a we have a high degree of visibility.
Our backlog as Adam has clearly articulated in.
And the other important point there in regards to the backlog is but I have a hard backlog.
Large multiunit operators with contractual.
<unk> dates and times, Theyre, very well capitalized and from what we're saying.
They're moving ahead ahead of pace so.
We've got a high degree of confidence.
Okay. That's really helpful. Thank you both.
That's for nine Jets off any further questions. Please press star followed by one who say Gee to Tom constraints piece can you also maybe two five to one question.
Our next question comes from the line of Mark sparkling Cai from Cowen and company. Please go ahead.
Great. Thanks, a lot guys. So maybe switching gears a little bit nice comps in the U S.
What can you share about reopening trends in the country.
Anything to call out by region or studios that have been opened longer versus maybe some of the more recent openings. Thank.
Thank you.
Yeah, Great question and thanks again for your time.
Look we firmly believe we have the world's best workout.
And that is underpinned and underscored by the incredible numbers that I'm about to share with you last quarter. We had 3 million visits to our F 45 studios in the U S.
That is an incredible achievement of as you go through the $3 million, but more importantly for US is the inverted relationship between churn and visitation visitation now is over three seven times per week on average, which is better than pre pandemic. So the key indicators for us.
Really important and I'll, let Chris dive in on same store sales growth and our <unk>, which are also outperforming pretax pre pandemic levels as well.
Yeah look on system wide sales and same store sales the growth in the U S was was really pleasing on a same store sales basis, we reported that 67, theyre up 67% for our U S segment, 6% overall globally, but yes.
To appreciate that that included Australia, which 60% of our Australian network was closed.
For Q3.
So that had a negative same store sales.
But what's really pleasing about the Australian sector is over 90% of the studios.
Our open and operational right now and they just ramping back to pre COVID-19 levels.
In a matter in a matter of weeks.
We're really pleased with how the business is trending in recovery and then the studios that have been open the longest they're getting back to outperforming that pre COVID-19 numbers in a matter of a few weeks.
Great.
Very helpful. And then just a quick one but how would you assess your digital capabilities is there anything in the works on that App and what do you view as the opportunities to continue to burn to marriage.
Physical all with channel at 45, Thank you and best regards.
Yes, I mean.
It's a great question, what do you think it's <unk>.
Extremely important part of our business to continue to grow our digital platform.
As we sit here today, we have over a million people on our platform called F 45 challenge.
We continue to invest heavily in that.
And one of the areas that we like to talk about is the fact that this is really a supplement to our membership at a 45, we certainly don't believe that at home workouts will go back to pandemic levels and the reason, we say that is.
And we've been in the fitness space a long time.
I was fortunate enough to go to it to a school on scholarship with.
Back when I was training.
Biggest brand name and you got to remember this was Jane Fonda things.
Things at home workouts, and certainly not new to both the fitness community or to the general public. We think it's critical to continue to invest in that side of the business.
It's like you know this conversation I have with a lot of folks since we were able to go back to restaurants. When was the last time you had a zoom dinner party with your friends and the answer to that one I've asked in the past he's never so we see a lot of folks really enjoying communities getting back to a boy scout, which quite frankly, if you know.
You have a choice of doing a work out where we have over 6000 exercises in our exercise Encyclopedia.
We'll stay at home on a bike whether that'd be two things you can do on a block which is sitting in the saddle will get out of it or get on a treadmill, where there's two things you can do which is just can walk, Iran. We believe that innovation, which is one of the three key pillars.
We'll continue to drive people into our communities more importantly.
The innovation and obviously with all of our communities you've got to have a workout that gets great results.
We would argue that we get great results, that's what people really want to achieve when they start to.
Get involved in that that style of trading whether it's at home or a hit.
And we believe that it is the world's best worked out and that's why we're very conscious of the fact that it's important but it's certainly not one about straight K pillars, that's going to continue to make us extremely successful into the future.
Our next question comes from the line of John Zang case with J P. Morgan. Please go ahead John.
Hi, Thank you.
Two very quick ones and then I guess another question.
Can you talk about I guess the difference between visits and system sales I mean, obviously I think there's a pretty big difference between the two systems sales up 33% visits up 17.
There's a lot of that just market mix or is the average price per visit up 16% as those numbers might imply.
Yeah.
It's John it's got more to do with membership brand guys right.
Coming out of the periods of closure.
So obviously.
In Australia that that I'll talk about a specific trend there.
Visits systemwide sales were only down seven 8%, but given the clauses visits were down 35%. So I think that kind of highlights that point that coming out of.
I'm kind of coming out of a period of closure, we expect to see some odd thousand visits are going to start to.
Along a little bit more closely.
Okay Alright.
Alright.
Hey, guys listen I mean, I'm, sorry, maybe I'm just completely confusing these numbers.
But that gap of 16 points is is not small, but can you I'm sorry, I just didn't understand.
The answer to the question so.
I mean, what what.
What would be that what would be that gap and why would it converge I mean, I think just in terms of I would think that to be actually very related to each other and it wouldn't be such a wide gap.
Yeah.
Is it something like people sign up for a month and just don't come as many times in that month and Thats why there is that difference between system sales and visits.
I guess, you guys reported yes, hi, John or maybe I'm just misunderstanding.
Yes.
Yes, it might be misunderstanding the question too so I apologize, but what I will do it.
About 30 seconds of color on sort of the typical.
Membership profile. So we do enter into monthly membership contracts with all of our members we offer whether it be one three or six month contracts.
Visitation is extremely important for us because if theyre paying $66 per week, and they turn up six or seven times, a week, they're getting a workout, but the only costing roughly $10 workouts.
What's important for us is getting people into the studio because we are a premium product in comparison to Rfps, where you know you folks have probably had a lot of time talking to some of that piece.
On average.
Somewhere between 20, and 30% higher than some of them.
Visitation is crucial they can turn up as frequently as they want.
Number two we've had challenges in Australia with regard to being able to operate at full capacity within a studio so.
So that's the second element that we need to just sort of provide any color on.
We're allowed to try and depending on the jurisdiction one person per square meters or one person per square meters. So this is a really challenging.
I suppose stepping sign to regions getting reopened.
In regard to same store sales, though.
We have better same store sales in Australia.
Visitation numbers and lower while we're engagements so what's that what that is saying is we're able to turn up the price of a membership fee.
That loss pace answer to your question, which is we have fewer members coming in but we are able to charge a premium price on top of what we were pre pandemic.
Oh, Okay, Yeah listen we work with an inflationary environment for everything.
Yeah, I guess that would be expected.
The second question.
It's actually a balance sheet question is on inventory actually went from $6 4 million in the second quarter to $17. Two in the third I assume that those are equipment packages and does that mean, you actually have those landed and when it goes on your balance sheet as inventory does that mean.
He just simply writing a check to someone in China or how they actually landed in country and ready to go and I guess.
When I look at that total.
Inventory number of $17 2 million, how many world tax.
I guess would that reflect that you would have ready to put it in the stores.
Yeah, John so that that increase that you're highlighting that.
Specifically related to us.
As Adam said post post Ipi would started advanced ordering all of our equipment to give us that visibility on.
Equipment equipment deliveries and our ability to be able to deliver.
The equipment to our franchisee in accordance with their agreement.
That inventory is inventory that's in our control.
So it's it's it's.
At that point here.
In the U S.
Okay.
Alright, and I can't I can't get calculated in how many packages that is.
And then the third point I think Jonathan Komp asked the question on EBITDA, but I'd like to ask the question on units.
I mean as you have a nine month lead time, I mean, do you kind of have a view of it.
Total system development I know this is kind of an important question in terms of the number of stores being opened maybe first half of 'twenty two versus second half of 2022 is there any change in.
The numbers that we previously talked about for fiscal 'twenty, two or is there potentially a shift between first half and second half as you're starting to have some visibility of what's going to be opened in the next six months.
Yes, we have visibility and we are going to be describing those numbers, we're not doing it in this particular call.
And we were wanting to be as cautious as possible just given the last four to six weeks of supply chain challenges. So you know we're now.
Now, saying.
Vast improvements in our supply chain and like I mentioned and I'll Echo the point again, we do have that great visibility across that F 45 playbook platform.
So that's something that we're really excited to do it but we weren't doing it on this particular call, but it will be coming out.
Okay understood fair enough. Thanks, guys.
And look just to just on that last point, we have over 600.
Franchises in our backlog that are highly sophisticated private equity folks or family offices with incredible balance sheets and great operators.
These these are folks that are on the ground know CBRE executing letters of intent and leases. So we're feeling really good about Q1 and Q2, there wont be a big I suppose and this might be might have been part of your question. There wont be a big Q4 loaded next year, obviously, we've had a pandemic disease, where we're heavily weighted.
Getting these folks side from where they were not even operating you must advisor of Australia.
Hopefully that answers the question that we think it's gonna be fast smooth.
Next year than it is this year.
Certainly you'll see that almost every company that we cover.
Back end loaded or even loaded to the fourth quarter. So if you guys can be even throughout the year, you've definitely achieve something so congratulations.
Okay.
As a reminder, chi Tung constraints piece can you limit yourself to one question. Thank you.
Our next question comes from the line of George Kelly from Roth Capital Partners. Please go ahead.
Hey, everybody thanks for taking my questions.
So curious.
Cheniere marketing fees that you've gained franchisees a breaker during COVID-19 I'm just wondering if you've been reintroducing those and what the reception has been from from franchisees.
Yes, great question.
So our marketing fees.
Designed to assist our studios and accelerating that there are you baked.
We have seen is that our studios that are reopening have obviously.
Had three three areas of concern one is how many people can I actually bring into the studios and are they at capacity. So if we can only try and idled tend to take a break clause then it would be counterproductive to what those folks the type of marketing.
Already at full capacity number two we've got folks like Santa Barbara franchise that are at full capacity without any limitation in our studios. So again, it's it's an area that we're trying to just.
Be very cautious about reintroducing all the marketing fees because of the challenges Mount the third point I was going to make with their cash flows over the last nine months. So obviously we're.
We're wanting these folks to get back to pre pandemic levels.
Two we're going to be reintroducing all of the marketing phase throughout Q4 and into 2022.
We've been very cautious.
Allowing our franchise they used to be a successful out of the gate as possible.
Without requiring to pay additional fees.
They might believe to be unnecessary given the fact that they could be operating at full capacity.
Okay understood. Thank you.
And the last point I'll make I'll, just sort of thought about this as well, but the margin we make on the marketing phase.
It's normal to the point that it's not going to have a major bearing on the bottom line.
Slide eight states, it's very very minimal.
Okay that you stand to the Q&A session today, So I'll now hand, you back to the management team for any closing remarks.
Firstly I'd like to thank everybody and you know its such an.
<unk> journey.
And I think with <unk>.
For us what you know.
Really excites us about the future is our members coming back in drugs greater than pre pandemic. So that for US is demonstrating the health of our network. We do believe on a second point that we have the world's best work out where.
We underscore that by the fact that we're the only third party Jim on a military base.
Conversations happening with over 12 military bases right now.
In addition debate generally third party Jim on military bases training soldiers to be combat ready where in some of the greatest institutions in the world be it stands at USA U T. So we're saying there's vertical reopening up with respect to the rec centers coming on board to continue to expand.
The quality of services and our Rec centers.
Also we announced on our last call that we're now in high schools operating on behalf of <unk>.
There is great Costco institution.
Again why are we excited about that.
<unk>, we're the only third party Jim out in some of these independent verticals and the last comment I'll make is the fact that we're about to go into a Hilton hotel and hopefully prove out that concept that will enable us to continue to scale through that particular vertical.
We see our business being fiscally conservative.
We had challenges last year getting through obviously, the pandemic and we added some additional debt funded the company last year, but as we sit here today, we have an untapped revolver and $88 million.
We've got strong balance sheet with cash, we're being very opportunistic with investments.
The investments, we're making we passed on a lot, but some of that piece of thought into.
Like I said I think we're excited about the fact that our product that stands here today will continue to be able to push and.
Pushed out into a number of these verticals.
If we talk about our adjusted EBITDA margins that improved.
This quarter in comparison to previous periods.
Think that.
If you look at the strength of that business, there's probably some key elements. One is were sort of a carbon fiber like white business that provides a great segue technology platform.
An incredible Athletics Department that go out and choreograph all these incredible workouts for our franchisees.
Yeah, it's been a great period being a public company.
Get excited about having the visibility on our backlog we have.
Got lots of folks in PE that are contacting us that we're working through now to join our family and like we've said all along we believe that we can be the world's biggest franchise system in the future.
Secondly, we believe that we're delivering the most important franchise serves in the world, which is getting people fit and healthy.
Thirdly, we want to do it in a fiscally responsible way whereby where.
Very strong business from a from a balance sheet and cash flow standpoint, but also making sure that our franchisees have got incredible margin. So.
Just to wrap up thank you everybody.
Liked it.
I'll always say that were available for offline conversations.
And I are happy to take any one's called and again, thanks, everybody for their time.
This concludes today's call. Thank you for joining you may now disconnect your lines.
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