Mark Wahlberg's $200 Million Investment

Hey Friends,

F45 Training, a franchisor & operator of group fitness centers, made its public market debut last week, raising $325 million and valuing the business at $1.5 billion.

• Founded in 2013 in Australia

• Trades under the ticker “FXLV”

• Almost 3,000 studios sold across 63 countries

• 2020 revenue of $82.3 million, down from $92.7 million in 2019

• F45 Training plans to use $190.7 million of the IPO’s net proceeds to repay debt, $2.5 million to give select cash bonuses for select employees, and $25 million to acquire the Flywheel indoor cycling chain.

The stock traded up to $17.75 per share on its first day ($1.6 billion market cap) but has since declined over 20% to ~$14 per share as COVID-19 lockdown concerns resurface.

F45 Training is an interesting business to me for a variety of reasons. They offer functional, 45-minute studio and home workouts for people across all fitness levels. New workouts are chosen each day, “inspired by a database of over 3,900 high-intensity interval training exercises consisting of both cardio and resistance.”

But that’s just the foundation of their business. F45 Training makes most of its money acting as a franchisor of the brand, expanding to almost 3,000 franchises across 63 countries in the last 8 years. Their end-goal? More than 23,000 studios worldwide.

Here’s how it works: Potential operators pay various franchise, equipment, and merchandise fees to get started, including a $50k upfront franchise fee, a $30k annual fee, a $120k studio equipment & tech fee, and more.

The average franchise will have an initial investment of $315,000, but with the ability to charge customers a premium rate between $200 to $250 per month, or $2,400 to $3,000 per year, they can quickly turn a profit.

Average Franchise Economics

• Initial Investment: $315,000

• Average Margins: >30%

• Months To Profitability: ~6

• Members to Breakeven: ~75

• Avg. Membership Churn: 1%

That unique combination of simplicity — the same 45-minute training class is offered to all members around the globe each day — and quality replication has increased demand, enabling F45 to create a repeatable sales process that averages 45 franchise sales per month.

Sales Funnel Overview

• Monthly Prospects: 1,605

• Monthly Leads: 260

• Monthly Sales: 41

As a result, the F45 sales team has grown from 6 members in 2019 to more than 50 members today, with representation globally in the United States, Europe, Middle East, and Asia.

In the end, a lot of the future growth prospects of F45 training will depend on how brick and mortar gyms recover from the COVID-19 shutdown. For example, F45 saw *100%* of its gyms closed globally for *multiple* months last year, resulting in its first-ever annual decline in revenue.

The market is already reacting to recent shutdown news. Still, if F45 training can execute on its plan for 23,000 studios worldwide — that’s about 7.5x from current standing — they might eventually make this IPO price look like a bargain.

At-home fitness companies like Peloton continue to gain market share, but with F45 selling more than 40 studio franchises per month, there is still obvious demand for premium, group-oriented, in-person workout options.

As for where it goes from here, only time will tell, but the business model is fascinating.

Have a great day, and I’ll talk to everyone tomorrow.

Charts for today’s email were pulled from F45’s investor presentation here.

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