F45 Training Holdings: the company has finally reached its valuation (NYSE: FXLV)

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Personal health is considered by many to be extremely important. After all, if you don’t have your health, what do you? Understanding this, it should come as no surprise that the global gym membership space is incredibly vast. In 2019 there were a valued 184.6 million gym members worldwide, including 64.2 million in the US market alone. The industry’s total worldwide revenue that year was $96.7 billion. Such a vast market requires the existence of a number of players. And for companies with a good business model, the growth can be impressive. A good example can be seen by looking at F45 Training Fund (NYSE: FXLV). While I’m generally hesitant to see fast-growing companies in a favorable light because they tend to hemorrhage cash and trade at levels that normally don’t make sense, this particular player seems ready no only to grow in its valuation, but to grow so much in the short term that it could actually trade cheap on a forward basis. Risks always exist, namely the risk of not meeting expectations. But for investors willing to accept this risk, the upside potential could be significant over the next two years.

A workout for your wallet

According to the management team of F45 Training Holdings, the company works like the fastest growing fitness franchisor in the world. While the company offers a variety of options, it primarily offers customers 45-minute workouts that management says are effective, fun, and community-focused. These workouts typically combine elements of interval, circuit, and high-intensity functional training, all with the goal of providing the maximum return on the time and energy invested by a client. The company offers its workouts largely through its global network of digitally connected studios. and it has also built a technology platform that allows it to create and distribute workouts to its global base of franchisees.

Number of slots

F45 Training Fund

Unlike traditional in-person fitness companies, which tend to focus on setup and equipment first, F45 Training Holdings focuses largely on technology. After opening its first location in 2013, the company began to focus on its technology to create a different type of experience for both members of the locations it would have and franchisees. By the end of its last fiscal year, the company had expanded its global footprint to more than 3,301 total franchises in 67 countries. This includes 1,749 studios in total. For context, Total Franchises refers to the total number of signed franchise contracts the company has sold and the total number currently in operation, while Total Studios is defined as the cumulative openings the company has calculated up to the date in question. Management estimates that it will eventually be able to reach more than 23,000 studios worldwide, almost all of which will be franchised.

Today, F45 Training Holdings is a global company. However, it is undeniable that most of its revenue currently comes from customers in the United States. In total, 65.8% of its revenues come from this market. Its second largest market happens to be Australia, which contributed 14.6% of the company’s revenue last year. In terms of revenue mix, the company derives the majority of its sales, approximately 55% in total, from its franchise agreements. The remaining 45% comes from the sale and financing of equipment and merchandise. Recently, the company has embarked on attractive financial arrangements aimed at further developing the business. In May of this year, the company landed a combined $250 million in funding facilities that he can use to issue capital to people looking to open an F45 Training Holdings location. This number can be increased by an additional $150 million under certain circumstances. Despite concerns about the economy, management has high hopes for the near future. For fiscal 2022, the company now expects new sold franchises totaling 1,500 locations. This is up from the 1,000 previously expected. The company also expects total studio openings of around 1,000 for the year.

Historical financial data

Author – SEC EDGAR Data

Over the past few years, the management team at F45 Training Holdings has done a fantastic job of growing the company’s revenue. The company’s revenue fell from $25.5 million in 2017 to $134 million in 2021. The only year of decline was in 2020, when revenue fell slightly from $92.7 million to 82 .3 million. Naturally, the main cause of this increase has been the increase in the number of members and facilities available to the company. On this subject, we only have data covering the last two or three years. From 2019 to 2021, the number of Total Franchises sold increased from 1,892 to 3,301, while the number of Total Studios increased from 1,140 to 1,749. In 2020, the company recorded 20.44 million visits on its system, generating $302.4 million in system-wide revenue. In 2021, those numbers have increased to $26.79 million and $410.3 million, respectively.

Although this advantage was enormous, the company’s losses were also significant. The company went from a modest net profit in 2017 and 2018, the best year being a net profit of $12.8 million, to large and ever-increasing losses. The company’s net loss in 2021, for example, was $182.7 million. Operating cash flow has also deteriorated in recent years. The metric went from positive $12.6 million in 2017 to negative $37.7 million in 2021. The only real bright spot was Adjusted EBITDA. Data for this shows the metric grew from $30.7 million in 2019 to $25.5 million in 2020 before climbing to $52 million last year.

Historical financial data

Author – SEC EDGAR Data

So far, fiscal 2022 is looking good for the company. Revenues of $50 million in first quarter of this year eclipses the $18.2 million generated at the same time a year earlier. This was due, in large part, to an increase in system-wide visits, which rose from 6.78 million to 7.22 million. The company also benefited from an increase in the total number of franchises sold from 3,301 at the end of last year to 4,007, while the number of total studios increased to 1,866. This increase in revenue was also accompanied by an improvement in profitability. The company’s net loss of $36.8 million in the first quarter of 2021 turned into a profit of $2.5 million in the same period this year. Operating cash flow deteriorated from negative $0.2 million to negative $45 million. But if we adjust for changes in working capital, it would have gone from a negative $0.8 million to a positive $8.2 million. Meanwhile, adjusted EBITDA more than tripled from $5.3 million to $17.7 million.

Trading multiples

Author – SEC EDGAR Data

For the full year 2022, management waits revenues between $255 and $275 million. Midway through, this would translate to a 97.8% year-over-year improvement. The company also expects EBITDA between $90 million and $100 million, with free cash flow between $50 million and $60 million. No estimates have been given with respect to cash flow from operations or capital expenditures. But if we simply remove interest expense from EBITDA and use the result as an indicator of operating cash flow, investors can expect a reading of around $94.5 million. This makes it very easy to evaluate the company. Based on a futures price to adjusted operating cash flow, the company is trading at a multiple of 5.1. Meanwhile, the EV/EBITDA multiple should be at 5.2. I would prefer to use 2021 data. However, given the company’s rapid growth and rapidly changing results, it makes more sense for me to look at the company ahead of time. To put this into perspective, I decided to compare the company to two similar companies. These companies were trading at price/operating cash flow multiples of 25.9 and 96.5. The EV/EBITDA multiple of one of them was 33.3, while the other had no positive reading. Clearly, F45 Training Holdings is the cheapest of the bunch.

Company Price / Operating Cash EV / EBITDA
F45 Training Fund 5.1 5.2
Planet Fitness (PLNT) 25.9 33.3
Lifetime Group Holdings (LTH) 96.5 N / A

Carry

Based on the data provided, I will say that I find F45 Training Holdings intriguing. If the company can meet the targets set by management, I think the stock could have huge upside potential. I think investors should be careful about this because there is no certainty about the future. But because of how cheap stocks look going forward if management hits those targets, investors who don’t mind some speculation about the future might be wise to take stocks in the future. company.


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Richard V. Johnson