F45 Training Holdings Inc. [FXLV] Filings

10-Q 1 f45-20220930.htm 10-Q f45-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For transition period from to

Commission File Number 001-36773

F45 Training Holdings Inc.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)						84-2529722 (I.R.S. Employer Identification Number)
3601 South Congress Avenue, Building E Austin, Texas 78704 (Address of principal executive offices and zip code) (737) 787-1955 (Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:
Title of each class Common stock, par value $0.00005	Trading Symbol FXLV	Name of each exchange on which registered New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act: Yes No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No

As of November 11, 2022, there were approximately 97,315,803 shares of the registrant's common stock outstanding.

F45 Training Holdings Inc.

Form 10-Q

Table of Contents


Part I.	Financial Information	Page

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit )	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	71
Item 4.	Controls and Procedures	72
Part II.	Other Information
Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	74
Item 4.	Mine Safety Disclosures	74
Item 5.	Other Information	74
Item 6.	Exhibits	75

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these words, variations of these words or other similar terms or expressions that concern our expectations, strategy, plans, or intentions. Such forward-looking statements are subject to certain risks, uncertainties and assumptions relating to factors that could cause actual results to differ materially from those anticipated in such statements, including, without limitation, the following:

•our dependence on the operational and financial results of, and our relationships with, our franchisees and the success of their new and existing studios;

•our ability to protect our brand and reputation;

•our ability to identify, recruit and contract with a sufficient number of qualified franchisees;

•our ability to execute our growth strategy, including through development of new studios by new and existing franchisees;

•our ability to execute and achieve the benefits of our recent restructuring initiative and other cost saving measures

•our ability to manage our growth and the associated strain on our resources;

•our ability to identify, source and procure components of our inventories on a timely basis and at attractive economics terms;

•our ability to successfully integrate any acquisitions, or realize their anticipated benefits;

•the high level of competition in the health and fitness industry;

•economic, political and other risks associated with our international operations, including due to the Russia-Ukraine conflict;

•changes to the industry in which we operate;

•our reliance on information systems and our and our franchisees’ ability to properly maintain the confidentiality and integrity of our data;

•the occurrence of cyber incidents or a deficiency in our cybersecurity protocols;

•our and our franchisees’ ability to attract and retain members;

•our and our franchisees’ ability to identify and secure suitable sites for new franchise studios;

•risks related to franchisees generally;

•our ability to obtain third-party licenses for the use of music to supplement our workouts;

•certain health and safety risks to members that arise while at our studios;

•our ability to adequately protect our intellectual property;

•risks associated with the use of social media platforms in our marketing;

•our ability to obtain and retain high-profile strategic partnership arrangements;

•our ability to comply with existing or future franchise laws and regulations;

•our ability to anticipate and satisfy consumer preferences and shifting views of health and fitness;

•our business model being susceptible to litigation; and

•additional factors discussed in our SEC filings, including those identified under the header “Risk Factors” beginning on Page 73 of this Quarterly Report on Form 10-Q.

You should not rely upon forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q on historical performance, management’s current expectations and projections about future events and trends that management believes may affect our business, results of operations, financial condition and prospects in light of information currently available to us.

The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward- looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events, and circumstances reflected in the forward-looking

iii

statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.

The forward-looking statements made in this Quarterly Report on Form 10-Q relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this Quarterly Report on Form 10-Q to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, or investments we may make.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Part I. Financial Information

Item 1. Condensed Consolidated Financial Statements (Unaudited)

F45 Training Holdings Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts and share data)

(unaudited)


	September 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	16,676	$	42,004
Restricted cash	66		—
Accounts receivable, net	33,937		27,788
Due from related parties	1,058		2,442
Inventories	53,745		12,300
Deferred costs	1,861		1,887
Prepaid expenses	9,620		12,706
Other current assets	18,348		9,515
Total current assets	135,311		108,642
Property and equipment, net	10,546		5,645
Deferred tax assets, net	10,145		22,716
Goodwill	4,405		4,614
Intangible assets, net	28,342		28,446
Deferred costs, net of current	10,946		11,871

Other long-term assets	26,330		21,960
Total assets	$	226,025	$	203,894

Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses	$	60,189	$	36,594
Deferred revenue	6,828		7,137
Interest payable	382		276
Current portion of long-term debt	37		—
Income taxes payable	16,712		9,624

Total current liabilities	84,148		53,631
Deferred revenue, net of current	1,908		7,385

Long-term debt	88,351		—

Other long-term liabilities	9,191		12,605
Total liabilities	183,598		73,621
Commitments and contingencies (Note 17)

Stockholders’ equity
Common stock, $0.00005 par value; 97,315,803 and 95,806,063 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	6		5
Additional paid-in capital	672,898		662,946
Accumulated other comprehensive (loss) income	(4,772)		603
Accumulated deficit	(450,985)		(358,561)
Less: Treasury stock	(174,720)		(174,720)
Total stockholders' equity	42,427		130,273
Total liabilities and stockholders' equity	$	226,025	$	203,894

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F45 Training Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share amounts and share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues:
Franchise (Related party: $2,188 and $2,724 for the three months ended September 30, 2022 and 2021, respectively, and $7,164 and $3,329 for the nine months ended September 30, 2022 and 2021, respectively)	$	18,565	$	18,513	$	57,534	$	52,250
Equipment and merchandise (Related party: $4,020 and $0 for the three months ended September 30, 2022 and 2021, respectively, and $14,652 and $0 for the nine months ended September 30, 2022 and 2021, respectively)	10,762		8,664		51,834		19,950
Total revenues	29,327		27,177		109,368		72,200
Costs and operating expenses:
Cost of franchise revenue	1,469		1,486		4,390		4,162
Cost of equipment and merchandise (Related party: $4,607 and $1,561 for the three months ended September 30, 2022 and 2021, respectively, and $8,932 and $3,678 for the nine months ended September 30, 2022 and 2021, respectively)	7,950		5,752		27,572		12,672
Selling, general and administrative expenses	53,913		110,492		138,831		145,882

Total costs and operating expenses	63,332		117,730		170,793		162,716
Loss from operations	(34,005)		(90,553)		(61,425)		(90,516)
Loss on derivative liabilities, net	—		—		—		48,603
Change in fair value - warrant liabilities	(3,192)		$	—	(4,457)		—
Interest expense, net	12,620		41,897		13,442		59,165
Other expense (income), net	2,567		(2,035)		1,953		(1,415)
Loss before income taxes	(46,000)		(130,415)		(72,363)		(196,869)
Provision (benefit) for income taxes	14,010		(222)		20,061		693
Net loss	$	(60,010)	$	(130,193)	$	(92,424)	$	(197,562)

Other comprehensive income (loss)
Unrealized (loss) gain on interest rate swap, net of tax	—		(7)		—		196
Reclassification to interest expense from interest rate swaps	—		464		—		464
Foreign currency translation adjustment, net of tax	(2,736)		(509)		(5,375)		(616)
Comprehensive loss	$	(62,746)	$	(130,245)	$	(97,799)	$	(197,518)


Net loss per share
Basic and diluted	$	(0.62)	$	(1.52)	$	(0.96)	$	(4.10)


Shares used in computing net loss per share
Basic and diluted	97,100,453		85,463,755		96,245,149		48,214,724

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F45 Training Holdings Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share amounts)

(unaudited)


	Three Months Ended September 30, 2022
	Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balances as of June 30, 2022	—	—		96,491,418	6		663,599		(174,720)		(2,036)		(390,975)		95,874
Stock-based compensation	—	—		—	—		7,283		—		—		—		7,283


Issuance of common stock related to promotional agreement	—	—		969,990	—		2,455		—		—		—		2,455
Shares withheld related to net share settlement of equity awards	—	—		(158,232)	—		(439)		—		—		—		(439)
Restricted stock awards vested	—	—		(227,213)	—		—		—		—		—		—
Issuance of common stock related to settlement of RSUs	—	—		239,840	—		—		—		—		—		—
Net loss	—	—		—	—		—		—		—		(60,010)		(60,010)
Cumulative translation adjustment, net of tax	—	—		—	—		—		—		(2,736)		—		(2,736)
Balances as of September 30, 2022	—	$	—	97,315,803	$	6	$	672,898	$	(174,720)	$	(4,772)	$	(450,985)	$	42,427


	Three Months Ended September 30, 2021
	Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Treasury Stock		Accumulated Other Comprehensive Loss		Accumulated Deficit				Total Stockholders' (Deficit) Equity
	Shares	Amount		Shares	Amount
Balances as of June 30, 2021	9,854,432	$	98,544	29,281,514	$	1	$	11,456	$	(174,720)	$	(886)	$	(243,215)			$	(407,364)
Conversion of convertible preferred stock into common stock upon initial public offering	(9,854,432)	(98,544)		27,368,102	1		98,543		—		—		—				98,544
Conversion of convertible notes into common stock upon initial public offering	—	—		14,847,066	1		191,517		—		—		—				191,518
Stock-based compensation	—	—		—	—		80,707		—		—		—				80,707
Issuance of common stock pursuant to initial public offering, net of underwriting commissions and discounts and offering costs of $5.8 million	—	—		19,057,889	1		277,754		—		—		—				277,755
Net loss	—	—		—	—		—		—		—		(130,193)				(130,193)
Unrealized loss on interest rate swap, net of tax	—	—		—	—		—		—		(7)		—				(7)
Reclassification to interest expense from interest rate swap	—	—		—	—		—		—		464		—				464
Cumulative translation adjustment, net of tax	—	—		—	—		—		—		(509)		—				(509)
Balances as of September 30, 2021	—	$	—	90,554,571	$	4	$	659,977	$	(174,720)	$	(938)	$	(373,408)	$	—	$	110,915


	Nine Months Ended September 30, 2022
	Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balances as of December 31, 2021	—	$	—	95,806,063	$	5	$	662,946	$	(174,720)	$	603	$	(358,561)	$	130,273
Stock-based compensation	—	—		—	—		11,504		—		—		—		11,504

Exercise of warrants	—	—		346,192	—		4,460		—		—		—		4,460
Restricted stock awards vested	—	—		114,667	—		—		—		—		—		—
Issuance of common stock related to settlement of RSUs	—	—		368,092	—		—		—		—		—		—
Issuance of common stock related to promotional agreement	—	—		1,884,682	1		5,418		—		—		—		5,419
Shares withheld related to net share settlement of equity awards	—	—		(1,203,893)	—		(11,430)		—		—		—		(11,430)
Net loss	—	—		—	—		—		—		—		(92,424)		(92,424)


Cumulative translation adjustment, net of tax	—	—		—	—		—		—		(5,375)		—		(5,375)
Balances as of September 30, 2022	—	$	—	97,315,803	$	6	$	672,898	$	(174,720)	$	(4,772)	$	(450,985)	$	42,427


	Nine Months Ended September 30, 2021
	Convertible Preferred Stock			Common Stock			Additional Paid- In Capital		Treasury Stock		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' (Deficit) Equity
	Shares			Shares	Amount
Balances as of December 31, 2020	9,854,432	$	98,544	29,281,514	$	1	$	11,456	$	(174,720)	$	(982)	$	(175,846)	$	(340,091)
Conversion of convertible preferred stock into common stock upon initial public offering	(9,854,432)	(98,544)		27,368,102	1		98,543		—		—		—		98,544
Conversion of convertible notes into common stock upon initial public offering	—	—		14,847,066	1		191,517		—		—		—		191,518
Stock-based compensation	—	—		—	—		80,707		—		—		—		80,707
Issuance of common stock pursuant to initial public offering, net of underwriting commissions and discounts and offering costs of $5.8 million	—	—		19,057,889	1		277,754		—		—		—		277,755
Net loss	—	—		—	—		—		—		—		(197,562)		(197,562)
Unrealized gain on interest rate swap, net of tax	—	—		—	—		—		—		196		—		196
Reclassification to interest expense from interest rate swap	—	—		—	—		—		—		464		—		464
Cumulative translation adjustment, net of tax	—	—		—	—		—		—		(616)		—		(616)
Balances as of September 30, 2021	—	$	—	90,554,571	$	4	$	659,977	$	(174,720)	$	(938)	$	(373,408)	$	110,915

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F45 Training Holdings Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net loss	$	(92,424)	$	(197,562)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	912		195
Amortization of intangible assets	2,895		1,968
Amortization of deferred costs	3,032		1,330
Accretion and write-off of debt discount	—		31,585
Amortization of debt offering costs	263		—
Bad debt expense	11,308		5,417
Stock-based compensation	11,504		85,745
Deferred income taxes	11,672		—
Loss (gain) on disposal of property and equipment	565		(6)
Change in fair value - warrant liabilities	(4,457)		—
Prepayment penalty included in interest expense	—		13,034
PPP loan forgiveness	—		(2,063)
Loss on termination of Fortress financing facility	14,046		—
Loss on derivative liabilities, net	—		48,603
Provision for inventories	—		147
Paid-in-kind interest accrual	—		12,851
Unrealized foreign currency transaction (losses) gains	(1,461)		333
Impairment expense	131		—
Other	(41)		—
Changes in operating assets and liabilities:
Due from related parties	(626)		178
Accounts receivable, net	(16,359)		(11,361)
Inventories	(41,793)		(7,120)
Prepaid expenses	2,886		(7,863)
Other current assets	(12,907)		(2,742)
Deferred costs	(2,620)		(2,534)
Other long-term assets	(6,460)		(9,274)
Accounts payable and accrued expenses	24,545		5,432

Deferred revenue	(1,042)		989
Interest payable	—		(107)
Income taxes payable	7,891		(1,766)
Other long-term liabilities	(437)		(167)
Net cash used in operating activities	(88,977)		(34,758)
Cash flows from investing activities
Purchases of property and equipment	(6,079)		(1,465)

Acquisition of Flywheel	—		(25,033)
Purchases of intangible assets	(2,995)		(872)
Net cash used in investing activities	(9,074)		(27,370)
Cash flows from financing activities






Borrowings under revolving facility	87,946		—
Proceeds from issuance of common stock, net of offering costs	—		277,753

Repayment of revolving facility	—		(7,000)
Repayment of 1st lien loan	—		(33,688)
Repayment of 2nd lien loan	—		(137,443)
Prepayment premium on 2nd lien loan	—		(13,034)


	Nine Months Ended September 30,
	2022		2021
Taxes paid related to net share settlement of equity awards	(11,423)		—



Deferred financing costs	(3,176)		(1,012)

Net cash provided by financing activities	73,347		85,576
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(558)		203
Net change in cash, cash equivalents, and restricted cash	(25,262)		23,651
Cash and cash equivalents at beginning of period	42,004		28,967
Restricted cash at beginning of period	—		—
Cash, cash equivalents, and restricted cash at beginning of period	42,004		28,967
Cash and cash equivalents at end of period	16,676		52,618
Restricted cash at end of period	66		—
Cash, cash equivalents, and restricted cash at end of period	$	16,742	$	52,618

Supplemental disclosures of cash flow information:
Income taxes paid	$	674	$	1,771
Interest paid	1,457		14,143

Supplemental disclosures of noncash financing and investing activities:
Conversion of convertible debt and derivative liability into common stock	$	—	$	191,519
Conversion of convertible preferred stock into common stock	—		98,544

Property and equipment included in accounts payable and accrued expenses	592		—

Deferred financing costs incurred pursuant to issuance of liability warrants	8,917		—
Reduction in liability warrant related to exercise of put option via net share settlement	4,460		—
Deferred financing costs included in accounts payable and accrued expenses	2,224		—
Assumption of note payable in exchange for intangible and other current assets	405		—

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F45 Training Holdings Inc.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 1—Nature of the business and basis of presentation

Organization

F45 Training Holdings Inc. (“F45 Training Holdings,” the “Company,” or “F45”) was incorporated in the State of Delaware on March 12, 2019 as a C-Corp. The Company and its subsidiaries are engaged in franchising and licensing the F45 Training brand to fitness facilities in multiple countries across the globe.

Transaction with MWIG LLC (“MWIG”)

On March 15, 2019, MWIG, a special purpose private investment fund vehicle led by FOD Capital LLC, a family office investment fund, and Mark Wahlberg, made a minority preferred investment in the Company. On March 15, 2019, F45 Training Holdings, MWIG and Flyhalf Acquisition Company Pty Ltd, a newly incorporated wholly-owned, indirect subsidiary of F45 Training Holdings, entered into a Share Purchase Agreement (“SPA”) with F45 Aus Hold Co Pty Ltd (“F45 Aus Hold Co”) and its existing stockholders pursuant to which F45 Training Holdings became the ultimate parent of F45 Aus Hold Co and its subsidiaries. Upon the consummation of the transaction with MWIG, the existing stockholders and MWIG held 72.5% and 27.5% ownership interests, respectively, in the Company and, its wholly-owned subsidiaries. On December 30, 2020, MWIG converted 1,145,568 shares of preferred stock of the Company into 3,181,514 shares of common stock of the Company and sold those shares of common stock to affiliates of L1 Capital Fund, an Australian based global fund manager. See Note 18—Convertible preferred stock and stockholders' equity (deficit) for further discussion.

Pursuant to the SPA and in return for acquiring 100% of the shares in F45 Aus Hold Co, F45 Training Holdings issued 29,000,000 shares of common stock to the existing stockholders of F45 Aus Hold Co proportionate to their relative ownership of the common stock of F45 Aus Hold Co and its wholly-owned subsidiaries. As a result of this transaction, there was no change in control. All references to shares in the condensed consolidated financial statements and the notes to the condensed consolidated financial statements presented herein, including but not limited to the number of shares and per share amounts, unless otherwise noted, have been adjusted to reflect the effects of the transaction retrospectively as of the earliest period presented in the condensed consolidated financial statements.

Initial public offering

The Company’s registration statement on Form S-1 (“IPO Registration Statement”) related to its initial public offering (“IPO”) was declared effective on July 14, 2021, and the Company’s common stock began trading on the New York Stock Exchange on July 15, 2021. On July 19, 2021, the Company completed its IPO of 20,312,500 shares of the Company’s common stock, $0.00005 par value per share at an offering price of $16.00 per share. The Company sold 18,750,000 shares and one of the Company’s existing stockholders sold an aggregate of 1,562,500 shares. The Company received aggregate net proceeds of approximately $277.8 million after deducting underwriting discounts, commissions and other offering costs. Immediately prior to the closing of the IPO, the Company amended and restated its articles of incorporation and its bylaws authorizing an increase of capital stock to 215,000,000 shares with a par value of $0.00005 per share.

Upon completion of the IPO, 9,854,432 shares of the Company’s redeemable convertible preferred stock then outstanding with a carrying value of $98.5 million were automatically converted into an aggregate of 27,368,102 shares of the Company’s common stock and the Company’s outstanding convertible notes were converted into an aggregate of 14,847,066 shares of common stock. Following the completion of the IPO, the Company only has outstanding common stock.

On August 13, 2021, the underwriters in the Company’s IPO exercised in part their over-allotment option to purchase an additional 307,889 shares of the Company’s common stock from the Company and to purchase an additional 1,231,555 shares of the Company’s common stock from the selling stockholder at a public offering price of $16.00 per share. The over-allotment sale was consummated on August 17,

2021 and the Company received $4.6 million in net proceeds from the purchase of the additional 307,889 shares after deducting underwriting discounts and commissions and utilized the net proceeds for continuing operations and to pay expenses related to the offering.

Joint Venture with Club Sports Group LLC

On May 16, 2022, the Company announced the formation of a joint venture with Club Sports Group LLC, a Delaware limited liability company (“CSG”), to, among other things, make, hold and monetize certain loans to prospective franchisees of the Company who have prior military service, with such loans secured by first priority senior liens on the equity interests of such franchisees and all or substantially all of the assets of such franchisee and its subsidiaries (if applicable). The joint venture will be conducted through FAFC LLC, a newly-formed Delaware limited liability company (“FAFC”). CSG is an affiliate of Kennedy Lewis Management LP, a significant stockholder of the Company which beneficially owns directly or indirectly through funds it manages, as of the date hereof, in excess of 10% of the Company’s outstanding common stock and has the right to designate a member of the Company’s board of directors. As of September 30, 2022, no activity has occurred through FAFC.

Basis of presentation

The accompanying unaudited interim condensed consolidated financial statements and accompanying notes have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) and applicable regulations of the Securities and Exchange Commission (“the SEC”) regarding interim financial reporting, and include the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the applicable required disclosures and regulations of the SEC. Therefore, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Use of estimates

The preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Key estimates and judgments relied upon in preparing these interim condensed consolidated financial statements include revenue recognition, allowance for doubtful accounts, depreciation of long-lived assets, internally developed software, amortization of intangible assets, valuation of inventory, fair value of derivative instruments, warrant liability, fair value of stock-based awards, and accounting for income taxes. The Company bases its estimates on historical experience and various other assumptions that the Company believes to be reasonable. Actual results could differ from these estimates.

Sources and Uses of Liquidity

The Company currently funds its operations and growth primarily from cash on hand, credit facilities, and operating cash flow. The ability of the Company to grow and be competitive in the marketplace is dependent on the availability of adequate capital. Access to capital is dependent on the Company’s operating cash flows and the availability of and access to debt and equity financing. The Company has a history of negative cash flows from operations. While we believe that our cash, liquid assets, and cash generated by operating cash flows will provide us with sufficient financial resources to fund operations and meet our capital requirements and anticipated obligations as they become due in the twelve months

subsequent to the date of issuance of these condensed consolidated financial statements, changes in forecasted growth and available funds could have a further negative impact on our future liquidity.

The Company continues to manage its liquidity and could take further action, if needed, to protect its liquidity position including, but not limited to, the sale of excess inventory, entry into a borrowing facility with one or more lenders, reduction in headcount, and the reduction of promotional and professional advisory contracts. However, there can be no assurance that such matters can be implemented, if needed, on acceptable terms or at all.

Note 2—Summary of significant accounting policies

There were no changes to the significant accounting policies or recent accounting pronouncements that were disclosed in Note 2—Summary of significant accounting policies to the audited consolidated financial statements of the Company as of and for the years ended December 31, 2021 and 2020, other than as discussed below.

Cash, cash equivalents, and restricted cash

Cash and cash equivalents consist of bank deposits. The Company holds cash and cash equivalents at major financial institutions, which often exceed insured limits. Historically, the Company has not experienced any losses due to such bank depository concentration. Restricted cash relates to cash held in term deposits.

Accounts receivable and allowance for doubtful accounts

Accounts receivable is primarily comprised of amounts owed to the Company resulting from fees due from franchisees. The Company evaluates its accounts receivable on an ongoing basis and establishes an allowance for doubtful accounts based on historical collections and specific review of outstanding accounts receivable. Accounts receivable are written off as uncollectible when it is determined that further collection efforts will be unsuccessful.

The change in allowance for doubtful accounts is as follows (in thousands):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Balance at beginning of period	$	5,756	$	5,256	$	8,132	$	5,746
Provision for bad debts, included in selling, general and administrative	4,628		1,903		11,308		5,417
Uncollectible receivables written off	(2,202)		(114)		(11,258)		(4,118)
Balance at end of period	$	8,182	$	7,045	$	8,182	$	7,045

One of the Company’s customers accounted for approximately 22% of the Company’s accounts receivable as of September 30, 2022. None of the Company’s customers accounted for more than 10% of the Company’s accounts receivable as of December 31, 2021. As of September 30, 2022, $2.0 million of long-term receivables were reported in other long-term assets on the condensed consolidated balance sheet. One customer accounted for approximately 20% of the Company’s revenues for the three months ended September 30, 2022. No customer accounted for more than 10% of the Company’s revenues for the nine months ended September 30, 2022.

Impairment of long-lived assets, goodwill, and intangible assets

The Company assesses potential impairment of its long-lived assets, which include property and equipment and amortizable intangible assets, whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of an asset is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset group exceeds its estimated

undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Goodwill is tested annually for impairment on October 1 of each fiscal year or more frequently when an event or circumstance indicates that goodwill might be impaired. Generally, the Company first performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If factors indicate that this is the case, the Company then estimates the fair value of the related reporting unit. If the fair value is less than the carrying value, the goodwill of the reporting unit is determined to be impaired and the Company will record an impairment equal to the excess of the carrying value over its fair value.

The indefinite-lived intangible asset impairment test consists of a comparison of the fair value of each asset with its carrying value, with any excess of carrying value over fair value being recognized as an impairment loss. The Company is also permitted to make a qualitative assessment of whether it is more likely than not an indefinite-lived intangible asset’s fair value is less than its carrying value prior to applying the quantitative assessment. If based on the Company’s qualitative assessment it is more likely than not that the carrying value of the asset is less than its fair value, then a quantitative assessment may be required. The Company also tests for impairment whenever events or circumstances indicate that the fair value of such indefinite-lived intangible asset has been impaired.

If impairment indicators arise with respect to finite-lived intangible assets, the Company evaluates impairment by comparing the carrying amount of the asset to the estimated future undiscounted net cash flows expected to be generated by the asset. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, then the Company estimates the fair value of the asset and compare the estimated fair value to the intangible asset’s carrying value. The Company recognizes any shortfall from carrying value as an impairment loss in the current period.

Warrant liabilities

The Company accounts for its Immediately Exercisable Warrants and the 50% Utilization Warrants (as defined in Note 13—Warrant liabilities) under the provisions of ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging - Contracts in Entity’s Own Equity (“ASC 815”). ASC 480 requires the recording of certain liabilities at their fair value. Changes in the fair value of these liabilities are recognized in earnings. The Company determined the fundamental transaction provisions required the warrants to be accounted for as a liability at fair value on the date of the transaction, with changes in fair value recognized in earnings in the period of change. On May 17, 2022, the holders of the Immediately Exercisable Warrants exercised the Put Option via a net share settlement, resulting in the issuance of 346,192 shares of Common Stock.

Revenue from contracts with customers

The Company’s contracts with customers are typically comprised of multiple performance obligations, including exclusive franchise rights to access the Company’s intellectual property to operate an F45 Training-branded fitness facility in a specific territory (franchise agreements), a material right related to discounted renewals of the franchise agreements (both reflected in franchise revenue in the condensed consolidated statements of operations and comprehensive loss) and equipment and merchandise. Taxes collected from customers and remitted to government authorities are recorded on a net basis.

Franchise revenue

The Company’s primary performance obligation under the franchise agreement is granting certain exclusive rights to access the Company’s intellectual property to operate an F45 Training-branded fitness facility in a defined territory. This performance obligation is a right to access the Company’s intellectual property, which is satisfied ratably over the term of the franchise agreement. Renewal fees are generally recognized over the renewal term for the respective agreement from the start of the renewal period. Transfer fees are recognized over the remaining term of the franchise agreement beginning at the time of transfer.

Franchise agreements generally consist of an obligation to grant exclusive rights over a defined territory and may include options to renew the agreement. Earlier franchise agreements had an initial term of three years while more recent agreements have an initial term of five years. With the Company’s approval, a franchisee may transfer a franchise agreement to a new or existing franchisee, at which point a transfer fee is paid. Generally the Company’s arrangements have no financing elements as there is no difference between the promised consideration and the cash selling price. Additionally, the Company has assessed that a significant amount of the costs incurred under the contract to perform are incurred up-front.

Franchise revenue consists primarily of upfront establishment fees, monthly franchise fees and other franchise-related fees. The upfront establishment fee is payable by the franchisee upon signing a new franchise agreement and monthly franchise and related fees are payable throughout the term of the franchise license. Historically, franchisees have paid a fixed monthly franchise fee. For new franchisees the franchise fee is based on the greater of a fixed monthly franchise fee or a percentage of gross monthly studio revenue.

Discounted franchise agreement renewal fees

The Company’s franchise agreements may include discounted renewal options allowing franchisees to renew at no cost or at a reduction of the initial upfront establishment fee. The resulting discount in fees at renewal provides a material right to franchisees. The Company’s obligation to provide future discounted renewals to franchisees are accounted for as separate performance obligations. The value of these material rights related to the future discount was determined by reference to the estimated franchise agreement term, which has been estimated to be 10 years, and related estimated transaction price. The estimated transaction price allocated to the franchise agreements, including the upfront establishment fee, is recognized as revenue over the estimated contract term of 10 years, which gives recognition to the renewal option containing a material right. At the end of the initial contract term, any unrecognized transaction price would be recognized during the renewal term, if exercised, or when the renewal option expires, if unexercised.

Equipment and merchandise revenue

The Company requires its franchisees to purchase fitness and technology equipment directly from the Company and payment is typically required to be made prior to the placement of the franchisees’ orders. Revenue is recognized upon transfer of control of ordered items, generally upon delivery to the franchisee, which is when the franchisee obtains physical possession of the goods, legal title has transferred, and the franchisee has all risks and rewards of ownership. The franchisees are charged for all freight costs incurred for the delivery of equipment. Freight revenue is recorded within equipment and merchandise revenue and freight costs are recorded within cost of equipment and merchandise revenue.

The Company is the principal in a majority of its equipment revenue transactions as the Company controls its proprietary equipment prior to delivery to the franchisee, has pricing discretion over the goods, and has primary responsibility to fulfill the franchisee order through its direct third-party vendor.

The Company is the agent in a limited number of equipment and merchandise revenue transactions where the franchisee interacts directly with third-party vendors for which the Company receives a rebate on sales directly from the vendor.

Allocation of transaction price

The Company’s contracts include multiple performance obligations—typically the franchise license, equipment and material rights for discounted renewal fees. Judgment is required to determine the standalone selling price for these performance obligations. The Company does not sell the franchise license or World Pack equipment on a stand-alone basis (the Company’s contracts with customers almost always include both performance obligations), as such the standalone selling price of the performance obligations are not directly observable on a stand-alone basis. Accordingly, the Company estimates the standalone selling prices using available information including the prices charged for each performance obligation within its contracts with customers in the relevant geographies and market conditions.

Individual standalone selling prices are estimated for each geographic location, primarily the United States, Australia and ROW, due to the unique market conditions of those performance obligations in each region.

Contract assets

Contract assets primarily consist of unbilled revenue where the Company is utilizing the costs incurred as the measure of progress of satisfying the performance obligation. When the contract price is invoiced, the related unbilled receivable is reclassified to trade accounts receivable, where the balance will be settled upon the collection of the invoiced amount. The unbilled receivable represents the amount expected to be billed and collected for services performed through period end in accordance with contract terms. The unbilled contract assets are principally the result of a number of multi-unit franchise agreements executed during 2021 and credits provided to studios impacted by the COVID-19 pandemic. As of September 30, 2022 and December 31, 2021, the Company had contract assets of $15.3 million and $4.3 million, respectively, in other current assets, and $22.2 million and $18.4 million, respectively, in other long-term assets. These contract assets are subject to impairment assessment. During the three and nine months ended September 30, 2022, the Company recognized $0.5 million and $0.8 million, respectively, of impairment charges with respect to these assets within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. During the three and nine months ended September 30, 2021, respectively, the Company recognized no impairment charges with respect to these assets within selling, general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss.

Deferred costs

Deferred costs consist of incremental costs to obtain (e.g., commissions) and fulfill (e.g., payroll costs) a contract with a franchisee. Both the incremental costs to obtain and fulfill a contract with a franchisee are capitalized and amortized on a straight-line basis over the expected period if the Company expects to recover those costs. The Company reviews existing franchisee contract terminations and where terminations are identified associated contract and fulfillment costs are fully impaired. As of September 30, 2022 and December 31, 2021, the Company had $12.8 million and $13.8 million, respectively, of deferred costs to obtain and fulfill contracts with franchisees. During the three and nine months ended September 30, 2022, the Company recognized $1.4 million and $3.0 million, respectively, in amortization of these deferred costs. During the three and nine months ended September 30, 2021, the Company recognized $