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F45 CEO steps down as company issues profit warning and halves head office headcount

F45 is reducing its head office workforce by 110 employees, or around 50 per cent of its central workforce
The company’s president and CEO, Adam Gilchrist, will also be stepping down
Ben Coates, director of Coolgardie Investments, will take the role of interim CEO
F45 says many franchisees have been unable to secure capital in uncertain economic climate
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Mark Wahlberg- and David Beckham-backed F45 Training has announced a reduction in its core workforce of 110 employees with the aim of cutting its cost base. The number represents around 50 per cent of the head office headcount.

President and CEO Adam Gilchrist has also stepped down from his operational role with a reputed US$7m payoff while remaining on the board as a director.

Ben Coates, currently director of Coolgardie Investments – who has been on F45’s board since 2021 – will serve as interim CEO while recruitment of a new permanent leader takes place.

F45 says that although demand for franchises has been strong, the global outlook has stymied some franchisees' efforts to obtain capital and this has slowed growth.

This in spite of the company having launched a loan financing deal with Fortress.

“Recent share price performance has made it challenging for franchisees to utilise financing facilities announced earlier this year," said CFO Chris Payne.

F45's shares have been falling since its US$1.4bn IPO in New York in July 2021, with the share price having dropped from around US$17 a share in August 2021 to US$4.09 earlier in July 2022. They dropped a further 60 per cent on the restructuring announcement, to US$1.35, making F45 a likely takeover target and wiping more than US$206m off the company’s value overnight.

F45 says it has been struggling to carry its 'selling, general and administrative' expenses (SG&A) and has produced an updated growth outlook that will "prioritise profitability and cashflow generation".

“We're taking the necessary steps to right-size our business in light of shifting macroeconomic and business conditions,” said Payne. “While we expect growth to continue, market dynamics are having a greater than expected impact on the ability of franchisees to obtain capital to develop new F45 locations."

Payne said a new leader will allow Gilchrist's successor “to establish and execute new opportunities amid changing macroeconomic and business conditions”.

Following the restructure, F45 says it expects SG&A costs to be approximately US$15m to US$20m per quarter – up to 50 per cent less than during the first quarter of 2022.

"While reducing corporate headcount was an incredibly difficult decision, acting proactively to realign our resources is an important step to enable the company to remain on track for long-term, sustainable success," says Payne.

“Additionally, we believe that once these cost reductions are fully realised, the company will be able to generate positive free cashflow on a normalised basis.

"Despite the headwinds, F45’s business fundamentals remain strong and we are as excited as ever to continue bringing the world’s best workout to a growing base of members every day,” he said.

The new outlook provided by the company shows US$250m less income and second-quarter financial results – due to be announced in August – are expected to forecast full-year revenues of between US$120m and US$130m, compared with a previous forecast of between US$255m and US$275m.

F45 has also downgraded the number of new franchises it expects to sell this year from 1,500 to between 350 and 450, due to US$250m in franchise financing facilities no longer being available.

The franchise sector has been booming, as reported in the latest HCM Handbook and F45 was growing with it. In Q1 of 2022 the company reported revenues of US$50m, a 175 per cent increase from the US$18.2m it reported in Q1 of 2021. The adjusted EBITDA for the quarter was US$17.7m compared to US$5.3m in the same period last year.

However, F45 has also been carrying heavy legal costs due to various court actions in Australia which have seen it lose patents relating to its proprietary workouts. Similar cases are pending in the US.

The company had also funded the departure of co-founder Rob Deutsch in June 2020.

In an Instagram post earlier today Deutsch said: "Never in my wildest dreams could I have imagined this. When I exited and sold out of F45, I left a healthy, phenomenal, beast of a business. All the way from the company culture to the heartbeat of the business… the workouts. F45 was special."

2021 was a strong year for the company with the IPO and the arrival of David Beckham as a global partner. F45 also launched into the cruise industry with OneWorldSpa, partnering with Celebrity Cruises on Celebrity Apex and also Beyond when it launched in 2022.

During the first part of 2022 F45 entered the hotel market, targeted military veterans as franchisees. It also entered a corporate partnership programme and brought on board Gunnar Peterson as chief of athletics.

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Mark Wahlberg- and David Beckham-backed F45 Training has announced a reduction in its core workforce of 110 employees with the aim of cutting its cost base. The number represents around 50 per cent of the head office headcount.
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