Good afternoon and thank you for attending today's F45 Training Holdings Inc. Q1 2022 Earnings Conference Call. My name is Selena and I will be your moderator. [Operator Instructions] I would now like to pass the conference over to our host, Adam Gilchrist with F45 Training. Please go ahead.

Good afternoon, everyone and thank you for joining the call to discuss F45 Training's first quarter results which we released this afternoon and can be found on the Investor Relations section of our website at f45training.com. Today's call will be hosted by Chief Executive Officer, Adam Gilchrist; and Chief Financial Officer, Chris Payne. Before we get started, I want to remind everyone that management's remarks on this call may 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 and the 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 can cause the 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 earnings release and our filed quarterly report on Form 10-Q for the quarter ended March 31, 2021. You should not place undue reliance on these forward-looking statements which 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 assist 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 peer companies. Reconciliations of these non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our earnings release. Now, I would like to turn the call over to Adam.

I am pleased to report that our business is firing on all cylinders. Our key performance metrics are trending at or above pre-pandemic levels and we are encouraged by the unprecedented demand from our franchise partners and members around the world. Overall, our momentum remains strong across our performance metrics. During the first quarter, we sold a record 706 net new franchises which brought the total number of sold but not yet open studios to over 2,200. This is an incredible accomplishment, particularly given the fact that all 706 of these new franchises are full fee-paying contracts. During the quarter, global same-store sales increased 6% and U.S. same-store sales increased approximately 40%. Global systemwide sales increased 25% and U.S. systemwide sales increased 73%. Systemwide visits increased almost 7% globally and 37% in the United States. We continue to lead the industry with average weekly visits per member and expect them to increase to over 3 times per week which is a testament to our members' unwavering loyalty and dedication to F45. We have also seen improvements in AUVs, particularly in the U.S., where AUVs are at or above pre-COVID-19 levels. During the quarter, we delivered approximately 240 equipment world packs that were received on time. This achievement is a result of the proactive measures we have taken over the last 2 quarters to mitigate macro supply chain challenges. We remain confident in our ability to meet expected demand for the balance of the year. During Q1, we opened 117 new studios which was in line with our expectations, bringing the total number of open studios to 1,866 globally. As we have noted on our year-end earnings call, we expect studio openings this year to be back half-weighted due to industry-wide factors, including franchise financing which I'll actually address shortly; as well as permitting and construction delays which is a broader issue in the commercial construction industry. Strong growth continues with the rollout of F45 studios in colleges with many new clients coming on board during the period, some including University of North Carolina, University of West Virginia, Virginia Tech, Texas Tech. F45 and our workout continues to dominate this vertical and this is underscored by the fact that we are the only boutique company that operates third-party workouts on college campuses. With over 450 college proposals currently being negotiated, we are very optimistic to see this market segment continue to grow. Our military rollout has now seen over 2,500 servicemen and women apply to own and operate an F45 franchise. This vertical has 2 enormous opportunities: number one, it will drive revenue from operating F45 studios on military bases; and number two, generate franchise inquiry demand to continue to fuel our F45 rollout. With many new verticals maturing into this franchise network, we remain confident in the TAM that we have previously presented. For 2022, we are not changing our openings guidance and we believe in our ability to deliver the 1,000 openings this year as we have both the equipment packs now available and the contracted franchises moving through the opening process to achieve this target. On the supply side, as previously discussed, we have already secured 1,200 equipment world packs for delivery this year. And on the demand side, we have approximately 1,100 franchisees that have a contractual obligation to pay for and receive equipment packs by the end of '22 as well as nearly 900 contracted franchises that are in advanced process of securing financing and/or finalizing a lease so they can commence their opening process. Now I would like to provide an update on our strategic growth initiatives, starting with franchise financing. First, we announced a $150 million facility with affiliates of Fortress Investment Group which has the potential to expand to $300 million. This facility will principally be used to help our existing franchisees secure growth capital to fund new studio development on a more timely basis and at more attractive terms than is otherwise available. Second, we announced a $100 million facility to support our AFTER program which stands for Armed Forces to Entrepreneurship. AFTER is an exciting new chapter in the relationship we have established with the U.S. military and the veteran community in the United States. And through this innovative program, we will have the opportunity to empower many of the 200,000 service members who leave the U.S. military each year to pursue an exciting entrepreneurial opportunity that may otherwise not be possible due to financial constraints. We are grateful for their service and we look forward to the opportunity to serve them as new F45 business partners. Even before marketing the new financing, we have already received over 2,500 inquiries from interested prospects who want to become F45 franchise owners. By establishing new bespoke financing solutions tailored to the specific needs of our franchisees, we have taken proactive measures to assist our franchisees in executing on their growth ambition. In particular, we are securing the pathway to 1,000 new openings this year and we are creating a playbook for establishing financing solution to support our expansion in 2023. To that end, we have launched a new process to establish a third financing vehicle to fund growth outside the U.S. I'm excited to share developments on this front in the coming months as that process unfolds. Because these facilities will be funded by third parties and be treated as off-balance sheet from F45's perspective, we are able to maintain the compelling economics of our typical franchise agreement and our asset-light economic model. Next, I will provide an update on real estate and new studio construction. First, let me provide an overview of the permitting and construction delays that I had previously mentioned. As most of you probably know, permitting and build-outs are simply taking longer today than they did prior to the pandemic which is an industry-wide challenge in commercial construction. Nevertheless, our tech-driven real estate approval process provides visibility throughout the entire franchise opening process. We approve the property, LOI and then sign off on city approvals and on the contractors so that for each individual franchisee, we know exactly where they are in the process. And by knowing this, we maintain strong visibility into our new studio opening pipeline which reinforces our guidance on full year openings of 1,000. I would also like to highlight that our F45 real estate team is well experienced and our partnership with CBRE is providing tools to expedite the site selection and construction process. This is an area of the business we have invested in through partnership, systems and key personnel and we believe it is an area which can bring tremendous value for our franchise partners. Next, I want to provide some color on a very important new strategic initiative: the F45 shared services platform. Earlier this year, we established a new group within F45 that will be responsible for providing services for a fee to franchisees across 4 main areas: membership sales, studio bookkeeping, marketing and real estate. With real estate, it includes site selection, lease negotiation, permitting and construction. By offering a solution for franchisees to outsource these functions to F45, we will provide them with the opportunity to focus their efforts exclusively on operating their studies and delivering a world-class experience to their members. I'm excited about the potential for this new initiative because it will help our franchisees operate their businesses more efficiently and profitably which in turn will allow them to continue to scale their respective footprints. In addition, I expect for this new division to become a meaningful profit center for F45 over time as it achieves the benefits of economy of scale. Lastly, on the marketing side, we continue to grow brand awareness and drive engagement with our membership. Just last week, we debuted our newest exclusive workout with one of our key global ambassadors, David Beckham. As expected, the launch of this new workout called DB45 was a huge success. Fitness programming has always been a key differentiator for our business. And by leveraging our industry-leading team of global ambassadors to further elevate our fitness offering, we are truly delivering on a mission to offer our franchisees and members the world's best workout. In conclusion, we are very excited about the opportunities in front of us. Our business is extremely well positioned with a new studio pipeline that has never been stronger and strategic initiatives in place to streamline the path of opening new studios. We are in front of the supply chain issues that are impacting many and we have a clear visibility to deliver 1,200 equipment world packs and 1,000 openings this year. With that, I'll turn the call over to Chris.

Thanks, Adam and thank you all for taking the time to join our call today. As Adam mentioned, our first quarter results were strong and above our expectations. Despite increased geopolitical and macro volatility, our teams delivered record results and continue to drive the financial success of the business. This quarter was another strong demonstration of our stability of our revenue stream, returns on investment and our strength of our business model. As Adam discussed, our KPIs continue to improve with strong systemwide sales, systemwide visits and same-store sales growth. Additionally, AUVs have recovered and are at or above pre-pandemic levels across the U.S. and Rest of World. Now I will review our Q1 results, discuss the 2 franchise financing facilities in some more detail and discuss our current outlook for the rest of 2022. First quarter total revenues increased 175% to $50 million from $18.1 million which was driven by a significant increase in both franchise and equipment and merchandise revenues. First quarter franchise revenues increased 51% to $19.9 million from $13.2 million. The increase was due to the growth in our global studio base of franchises sold which increased by 1,760 units or 78% from 2,247 total franchises sold as of March 31, 2021 to 4,007 total franchises sold as of March 31, 2022. This represents a record 706 net new franchises sold during Q1 2022 which was an increase of 703 net new franchises sold versus Q1 2021. In addition, franchise revenues were supported by global same-store sales of 6.2%. Additionally, we made the strategic decision to delay the systemwide rollout of mandatory marketing fees during the quarter as studios continue to recover from COVID-19 disruptions but we plan to reinitiate these marketing fees and related marketing programs this year. As I've said before, the majority of F45's revenue is derived from contractual agreements with our franchisees that dictate our monthly franchise fees and the sale of equipment to our franchisees. In the case of our monthly franchise fee, our agreements typically ensure we receive a minimum fee with a variable component that allows us to capture upside from studios as they reach run rate levels of productivity. These reoccurring contracted revenue streams are driven by our existing global franchise footprint and increase with every additional franchise sale we make. This reoccurring revenue, paired with our asset-light business model, result in strong profitability and cash flow generation. Global systemwide sales increased 25% to $117.4 million in the first quarter this year from $94 million in the first quarter last year. This was driven by strong growth in the U.S. and Rest of World regions. In the U.S., systemwide sales increased 73% with a 37% increase in U.S. systemwide visits. In the Rest of World, systemwide sales increased 88% with an 88% increase in systemwide visits. The strong growth in the U.S. and ROW segment for both systemwide sales and systemwide visits were driven by our members' rapid return to studios as the regulatory restrictions and health risks associated with the pandemic continue to fade in most of our U.S. and ROW markets. In Australia, systemwide sales declined 17% and visits were down 29% due to increased COVID-19-related closures and restrictions, particularly related to the increase in the Omicron variant in Q1 2022. During the comparable period Q1 2021, Australia experienced far fewer COVID-19-related restrictions. The Australian market remains a very healthy market and we continue to take market share in the boutique fitness space. As of today, I'm pleased to share that COVID-related restrictions have been lifted in Australia and the Q2-to-date trends have improved. In fact, earlier this month, we held our first in-person franchise conference for APAC in the last 2 years. It was incredibly rewarding for our teams to get back together for in-person events which is a sign that life is finally returning to normal. First quarter equipment revenues increased 499% to $30.1 million from $5 million in the prior year period. The increase was primarily driven by the delivery of approximately 240 world packs during the quarter. Geographically, first quarter U.S. revenues increased 271% to $35 million with franchise revenues increasing 77% to $12.4 million, driven by an increase in the number of franchises sold from 941 as of March 31, 2021 to 2,402 as of March 31, 2022. U.S. equipment and merchandise revenues increased 821% to $22.8 million, driven by strong world pack deliveries. Australia revenues increased 35% to $5.6 million. Australia franchise revenues increased 5% to $3.5 million and Australia equipment and merchandise revenue increased 154% to $2.1 million. The increase in equipment and merchandise revenues were driven by higher equipment sales. Rest of World revenues increased 101% to $9.2 million. Rest of World franchise revenues increased 41% to $4 million and Rest of World equipment and merchandise revenues increased 201% to $5.2 million. During the quarter, we sold 706 franchises and opened 117 studios on a net basis. As of March 31, 2022, we had over 2,200 franchises sold but not yet open with the highest concentration in the U.S. with over 1,700 backlog studios. The vast majority of these studios sold but not yet open are attributed to our most experienced multiunit franchise partner. As of March 31, 2022, approximately 71% of our franchises sold were owned by multiunit franchisees, up from approximately 65% as of December 31, '21. This highlights the strong market demand for multiunit franchise opportunities. Moving to gross profit. Gross profit increased 174% to $37.8 million compared to $13.8 million in the first quarter last year. Gross profit margin was 76%, roughly flat to last year due to the higher mix of equipment revenues this quarter. Franchise gross profit increased 56% to $18.6 million compared to $11.9 million in the first quarter of last year. Franchise gross margin increased approximately 300 basis points, driven by a higher mix of royalty revenues compared to the same period last year. Equipment and merchandise gross profit increased 936% to $9.2 million compared to $1.8 million. Equipment gross margin was 63.7% compared to 36.8% in the prior year, driven partially by a reduction in costs due to more favorable arrangements with our suppliers and cost savings related to bulk shipping and storage of world packs. We have also increased our pricing to standardize our world pack margins globally. SG&A for the quarter was $32 million compared to $16.8 million a year ago. The increase in SG&A expense was primarily due to the higher stock-based compensation, investment in personnel, infrastructure to support our growth and increased marketing investment to grow brand awareness. Adjusted EBITDA increased 231% to $17.7 million from $5.3 million in Q1 2021. Adjusted EBITDA margin was 35% in the first quarter compared to 29% in the prior year period. This increase in adjusted EBITDA margin reflects the gross margin improvement mentioned earlier. Turning to the balance sheet. We ended the quarter with approximately $14 million of cash and cash equivalents and we had approximately $32 million drawn on our revolving credit facility. As of March 31, 2022, we had approximately $55 million of capacity under our revolving credit facility which we can expand by another $35 million if needed. We expect to allocate free cash flow generated during the year to repay the outstanding balances drawn on our revolving credit facility. As we've noted before, our capital structure remains very strong and we believe this provides us strategic flexibility to fund our growth priority. We may invest in several strategic initiatives and as a result, we're comfortable with our current liquidity and revolver capacity. Moving on to the 2 franchise financing facility. As Adam mentioned, we are very excited about our 2 new strategic financing initiatives that we announced today. These innovative off-balance sheet financing facilities will help streamline the process for franchisees to obtain financing while maintaining the standard franchisor economics of our franchise agreements. The first facility we announced is with affiliates of Fortress Credit Corp. The facility will provide franchisees with access to $150 million of committed debt capital with the potential to expand to $300 million over time. Under this facility, approved franchisees will have access to five year lines to fund up to 100% of the project costs associated with developing a new studio. As a part of the agreement, F45 will defer receipt of establishment and royalty fees for a period of time as well as provide limited guarantee for up to 10% of the total facility size. The second facility we announced was the AFTER franchise financing facility. As Adam mentioned, AFTER stands for Armed Forces to Entrepreneurs. This program is aimed at providing franchisee financing for retired military servicemen and women interested in becoming F45 franchisees. This facility provides for a $100 million commitment and is structured as a 50-50 JV between F45 and an affiliate. These loans will be funded through a separate SPV and the capital contributed by F45 comes in the form of our establishment fee and world pack. This facility will provide up to 100% of the project costs associated with developing a new studio. We believe this is an extremely compelling program to attract highly qualified veterans with an interest in becoming an F45 franchisee who may be experiencing hardships in obtaining traditional franchise or small business financing. Now moving on to guidance. We are providing guidance based on the visibility that we have today and we're assuming no significant worsening of the pandemic or increased risks related to geopolitical uncertainties that may materially impact performance. We expect full year net franchises sold of approximately 1,500 compared to our prior guidance of 1,000; full year net initial studio openings of approximately 1,000 and we expect the cadence of those openings to be weighted towards the back half of the year; full year revenue between $255 million and $275 million; full year adjusted EBITDA between $90 million and $100 million; and full year free cash flow between $50 million and $60 million. As a reminder, a reconciliation of the non-GAAP measures to the most comparable GAAP measures and definitions of these indicators are included in our quarterly report form of our 10-K and in our earnings release. With that, I'll turn the call over to Adam for closing remarks.

Thanks, Chris. In closing, we remain bullish as ever about the future of this business. I have no doubt that we have the right team and strategic initiatives in place to execute on our growth plans. Finally, I would like to personally thank the F45 team for our amazing people at HQ, to our strategic ambassadors and shareholders, to our franchisees on the front lines for all their support, hard work and dedication. Because of you, we're able to serve our valued members by providing them with the world's best workout each and every day. With that, we will open up the line for Q&A.

[Operator Instructions] The first question comes from Randy Konik with Jefferies.

I guess I just wanted to ask about the franchises sold during the quarter, the huge spike, what specifically drove that, anything in particular? Just curious on that. And then related to that, as you open up these partnered financing solutions, would you expect to open up or speed up the pace at which you sell more franchises going forward? Just curious there.

Yes. Thanks, Randy. The first part, the answer is, we've never seen this amount of demand from franchisees. We are continuing to grow our business by leveraging incredible influencers, such as David Beckham. But what we have found in the past is what we sort of term as the franchise effect. So as more franchises open up, that generates more awareness to both investors and members. And typically, when we open up a franchise, we see somewhere between 5 and 15 very solid inquiries from members of that studio. So there is a flywheel effect as we continue to roll out the franchise network and we do continue to see this huge upward trend of interested parties wanting to invest. We have increased guidance from 1,000 sales to 1,500. However, if I was looking into the future, I'd certainly not speculate that, that may go up again closer to 2,000 before the end of the year. The second part to your question, yes, definitely. With regard to franchise, bespoke franchise finance, we believe that will assist in speeding up the backlog openings. During COVID, we had very choppy periods with respect to openings. Pre-COVID, a typical franchisee would take 9 months to open their studio. That 9 month period was broken up typically into 3 parts: number one, finding a location which typically took 3 months; secondly, getting permits which pre-COVID took 3 months; and then the third part was obviously the build-out. So we're hoping that we can get back to pre-pandemic backlog periods in openings. But with this finance and secondly, with our CB Richard Ellis relationship, we think that, that could come down to as close as 6 months with regard to backlog periods from signing a contract to openings.

Great. Very helpful. And then my last question is, I believe your new Chief Marketing Officer has been in place for about 45 days. So any kind of gleanings on what his focus will be on or any kind of learnings he's had with being at the organization for about 1.5 months on how you guys can kind of amplify brand messaging further? Just any kind of takes on how you're going to approach go-to-market a little bit differently or the same or going forward with Brian onboard.

Yes. Look, I think, Brian, is an incredible asset. And we're very proud of the achievements we've had in the past with respect to brand positioning. We think that Brian will continue to roll out this aspirational brand for both members and potential franchisees coming on board. We don't have any learnings from Brian just yet. He's still obviously, it's embryonic with regard to where he's at. We have, however, had an enormous marketing team in place for a long period of time. So he's inheriting a very qualified team underneath him. Secondly, we have an incredible franchise committee that assists us in guiding the business from marketing decisions and so forth. So look, we're very proud of what we've achieved in the past. We're a household name in many, many countries. And we're going to continue to grow the business with our top-of-mind awareness. And I wouldn't be surprised if we come out with a lot more events this year. We're excited to be through COVID. So I think it's an exciting time. And you can just look at the numbers and they're mind-blowing to sell over 700 full fee-paying franchises this year. And secondly, with our visibility on openings which we haven't changed our guidance for 1,000, it's just Brian's job to maintain the incredible brand that we have and continue to grow it across the globe.

The next question comes from John Ivankoe with JPMorgan.

I have a couple of balance sheet and cash flow statements. And hopefully, I'll hit on some strategic stuff as well. First, in the quarter, around $45 million of accounts receivable and that was relative to franchise revenue which I think was around $50 million. Could you walk through what's the normal payment term for a royalty for equipment as we kind of think about managing at least that side of the balance sheet? And I guess, would you have expected accounts receivable to be a lower percentage of revenue as you finish the first quarter?

Yes. Thanks, John and good morning or good afternoon wherever you are. You're quite right. Typically, a world pack is payable on delivery. Obviously, when we're entering into these large multiunit deals, we do enter into slightly modified payment terms. So some of that accounts receivable increase is attributed to world packs that we've delivered to our larger multiunit partners and that's probably equated to the lion's share of the increase on Q4. As it relates to franchise revenue, nearly all of our studios that are open are fully paying their fees which has been a big improvement, obviously, coming out of the pandemic. In terms of what the payment terms actually are, a franchisee is paying their franchise fees in each month. So a franchisees' franchise fee for the month of March, for example, are payable on the 15th of March. I hope that addresses your AR question.

It does but it doesn't change the fact that AR does look very elevated relative to revenue. Would you expect that ratio to improve in coming quarters or they're just based on how the payment timing is with some of your larger operators to stay elevated?

Yes. It definitely will. So that money is going to return to us in the very near future. So we gave a runway of around 3 to 6 months in some cases to pay off the full balance of the equipment. Obviously, they wanted to secure the equipment because these developers have very aggressive opening time lines that they're really sticking to and that gets us really excited. So we wanted to help facilitate that. Obviously, that backlog is 2,200. That's made up of 1,700 of those are those larger multiunit or top-tier multiunit. There are 45 franchisees that we're really excited to support and continue to grow this network.

Okay. I don't remember asking ever a question on this line in a conference call and I had to remind myself what it was. There's a $20 million jump in prepaid expenses in the first quarter, meaning money that you spent but haven't yet expensed. What was that? What is that? I guess talk about that line item going forward.

Yes. That's the, as you remember, we fully paid out the year's world packs in full. So that's the component, one component. I think we have $17 million in inventory. And the balance which is really the world packs that are in the final stages of production, that's the prepayment on those world packs. So that gets treated as a prepayment that will then be converted into inventory.

Okay. And that's the point. So I knew you were doing, you had bought world packs before you sold them but I assumed that they would go into inventory, all of it, as opposed to going into prepaid. It can only go into inventory if it's actually completed package? Is that, I guess, a live accounting lesson, if you don't mind?

Yes. That's right, John. So it can only go into inventory once the pack is finalized. And just to give you some clarity on that, 270, we have sitting that have arrived. We've got around 600 that are on ships commencing. The final shipment of world packs will be at the end of July. So we're significantly ahead of where we were last year and that's all of our inventories in hand. Once it completes production, it will move from prepayment into inventory.

Yes. I got you. It definitely jumped out. Your explanation is perfect. The CapEx, could you talk about what CapEx number is implied in your free cash flow guidance? Obviously, you did at least imply that you took it up as of the last conference call. What number have we landed on and where is that money going to go specifically?

It's approximately $10 million. We are continuing to remain asset-light. We do have some construction costs related to the fit-out of our facility in Austin but we are continuing an asset-light approach to our business. There will be a handful of corporate-owned studios developed but our CapEx at this stage is earmarked to be around $10 million to $12 million.

All right. Perfect. And last quarter, you guys reported middle of March. We didn't talk about a 1Q opening. I don't know where consensus was on 1Q openings. But could you give us a sense maybe quarter-to-date or just what you're expecting in the second quarter, just kind of best guesses just so everyone's models can more or less be aligned?

I'm sorry, we have to move on to the next question. The next question comes from Max Rakhlenko with Cowen and Co.

Do you want me to...

Congrats, guys. So...

Sorry, I'll just address the question.

Yes. Go ahead. Yes.

John, it's Adam, great question. Sorry, Chris, I'll just dive in and just say that we do anticipate the bulk of the 1,000 openings being weighted in Q3, Q4. If you were to sort of model out a number that's going to be closer to sort of 200 to 250 for this quarter, that would be in the range that we're currently expecting. Hopefully, that answers your question.

Great, guys. So the franchises that were sold in 1Q, just can you provide more color on some of the larger groups? Maybe what was the split between the large and the small franchisees? And then also, any opening considerations, how long will they have to open their boxes? I remember last year, some of the bigger ones had, I think, 7-year or 10-year commitment. So just any color on the cadence there is the first question.

Yes. The average number of franchises that our investors purchased in Q1 was 20 franchises per franchisee. So some purchased 5, 10; some purchased 30, 40. That's the first part. The second part is, we've never provided terms as long as 7 or 10 years. The longest we have provided is 3 years to open up. But with regard to the Q1 sales, we would anticipate all of those opening up before the end of 2023. Hopefully, that covers that question.

No. That's great. That's helpful. And then just curious, at this point, what percentage of your opening studios are paying the variable royalty rate? And then where do you think that, that can go by the end of the year?

Right now, each quarter that the number of studios as we come out of the pandemic, the number of studios that are going on to that variable rate is increasing. I think, as we've said previously, we expect that towards the end of this year and certainly through next year, that's going to be material upside to our model. Obviously, with studios getting back, that the ramp and the number of studios that are coming online now, it start to hit that threshold at roughly $430,000 AUV. So we'd expect that there'll be a material contribution from that cohort of studios that are in that range towards the end of the year.

[Operator Instructions] The next question comes from Jonathan Komp with Baird.

I want to just ask. I know the guidance for the year, you raised the units sold pretty materially. I believe that's typically the driver for a good portion of your franchise revenue but you didn't change your revenue outlook for the year. So could you just reconcile that? And are you assuming any changes in the terms or any other differences to explain that?

Jon, I think the best way to answer that is that this will be back half-weighted. So we haven't, at this stage, taken the opportunity to increase revenue guidance but that will be something that we continue to assess in subsequent quarters. We're not changing the terms of our franchise agreements. They will always be the same. We're selling off rate card in all of our major geographies. So no, there's no change in our franchise model but there are some complexities with development deals and when revenue recognition commences. So we have decided not to increase revenue guidance at this stage.

Yes, that makes sense. And then a follow-up on the new Fortress announcement today. So I want to just ask the broader thought process of putting that in place. It doesn't appear you're having any problem selling units. So is that more to make up the gap between units sold and open? And then any more color just on the thoughts, I believe there was some equity and warrants tied to that. Can you just maybe outline the impact financially and the thought process on that?

Yes. The first part is quite simple. We want to have a seamless, simple, cost-effective, bespoke product for franchisees coming into the network that continues to assist us in compressing that backlog period. If you typically go out and look at any small business loan, it can take anywhere up to 90 days to get approved. With this particular product, we effectively have a box of conditions that if a franchise meets those conditions, they can be approved within, call it, 72 hours. So that gives our onboarding franchisees confidence to move forward with the business. But secondly, from our standpoint, enables us, like I said and just to echo this point, compress the backlog period down to that 6 months. And that's why we have such confidence moving into this year with our 1,000 openings because franchise financing can be challenging for certain franchisees. So we're excited about that particular facility. But more importantly, we believe we can go out and continue to raise more bespoke financing that assists us with our growth for next year. And like I mentioned earlier on the call, we'll hopefully have further developments. But as we sit here today, our goal is to raise $500 million for next year and that will hopefully and continue to underpin our ability to have these openings and an efficient platform for franchisees. And I'll pause and let Chris dive in on the warrants which was a part of the negotiation. Obviously, Fortress is an incredible partner. So we were happy to work with those folks in sharing some of the upside with regard to this particular product.

Yes. The warrants provide for 2.5% of fully diluted shares but they're only in the money above $16. Look, we think that this is a phenomenal facility that enables us to still achieve all of our rate card economics. As Adam said, it's an important part of threading that needle between compressing the time for a studio, executing to signing a lease, getting their studio open. Where also another huge important feature that we've been working on internally is building out a shared services department which combined with financing real estate, shared services, this now enables us to provide a fully turnkey solution to our franchisees. We also think the warrants actually align Fortress' interests with ours quite nicely. So we think that this is a fantastic achievement and advancement for F45.

And just to clarify, going forward, if you raise additional capital with this method in future years, would you anticipate including more equity or is that sort of an upfront feature? I don't know if you have any perspective.

Look, that...

I think the answer is no. Sorry, Adam. You go ahead.

Look, yes, no, Chris, I'll let you dive in as well. But I think the first part is, we would hope that we can negotiate great terms without any warrants or any sort of additional upside outside their interest rate. But again, we'll consider it on a case-by-case basis. But the answer is we hope that we don't have any warrants for any future finance products in the future.

The next question comes from Paul Golding with Macquarie.

Congrats on the unit sales figure. I wanted to ask around the college program and I guess, similarly, the military program. But most importantly, the college program economics sounds like, if I heard correctly, you had about 450 that you're in discussions with. How are the economics for that deployment format evolving as you get more practice with these and you do more of them? And it seems like you're in more demand in these types of facilities. And then I have a follow-up.

Yes. As we sit here today, the economics should be identical to a typical franchisee. That's the first point. The second point is, we're still proving that the system is an incredible asset to these colleges. So we, obviously, have just over 50 colleges signed and partnering and operating at 45 at the moment. There are 4,000 colleges and techs across the U.S. So the TAM is very large for us. But medium and long term, the economics will be identical to a typical franchisee.

Great. And then on equipment, the gross profit margin continues to be, tracking over from Q4, it's continuing to be pretty healthy there, especially relative to prior years. So I'm just curious how you're thinking of price as you continue to engage in bulk orders. It doesn't seem like you need help selling units here given these volumes. But just curious if you continue to think that holding price is where you want to be or if you want to, how you're thinking about price going forward, especially for Rest of World given the margin, the healthy margin you have.

Thanks, Paul. I think one of the things that's really helping those margins out is that by committing to such large order volumes and production volumes, it's given factories and suppliers a lot of confidence and it's enabled us to be able to renegotiate our deals on better terms. We've also standardized our world pack margins across all of our territories. And that's been something that we've been working on for a couple of years now but that's been rolled out. So that is standardized pricing. We've also, obviously, the shipping and logistics, it actually becomes more efficient for us to pull all of this stuff forward. In bulk, we can pack things differently. And we're able to, even though shipping costs have increased, by bringing large volumes together, it's actually created efficiency on a per-pack basis. So the margins are improving and we expect that they'll continue to stay in a range around 50% in the future.

The next question comes from Warren Cheng with Evercore.

I just had a follow-up on Jonathan's questions and the conversion of that strong sold franchise pipeline to franchise openings. What are the biggest gating factors right now to that opening time line as we look beyond this year? So if I just kind of think through the factors, is it financing and access to capital which it sounds like these new facilities will help address? Is it the kind of contractor pipeline and permits? Is labor availability creeping up as consideration? Just curious if you could shed some color there.

Yes. I think you sort of answered your own question. The franchisee have to have efficient and timely finance to be provided to them. Secondly, there are labor challenges. And these labor challenges sort of straddle both city approvals and then the construction industry. We're seeing delays across both that, quite honestly, haven't been improving over the last couple of months which for us is a little bit of a concern. However, we're able to sort of hedge that time delay with the fact that we have CBRE presenting preapproved properties with negotiated leases coupled with the finance. So where we've had these delays with labor, where we've had delays in the past with franchise financing, we're now able to sort of pull that together. And we're excited about the size of our backlog. It's extremely healthy prior to the IPO. And Chris has mentioned this a couple of times on previous calls, we went in and removed franchisees that weren't moving through because of the pandemic. So the backlog is extremely healthy from a finance standpoint and from an execution standpoint. If you look at our openings for next year which we're not currently providing guidance on, we're extremely excited because as we sit here today, we've got over 2,000 in our backlog and we have unprecedented demand from prospective franchisees. So it's hopefully going to improve. But to summarize the answer, yes, there are big challenges with labor shortages.

Got you. And I also wanted to follow up on one of the KPIs you mentioned, the visits per week up. I think it was 2.7 pre-pandemic. Now it's up closer to 3. If I were to look at sort of the cohort of members pre-pandemic, would they be up on a like-for-like basis? Or is it the number that came in during the pandemic were more frequent users and it's driven more by mix shift or is it like up on a like-for-like basis as well?

It's up on a like-for-like basis. It was just on 2.7 visits per week pre-pandemic. We're just on 3 visits per week right now. Again, it sort of adjusts every month. But our expectation is we'll break through that 3 visits per week on a regular basis. The exciting part for us is that is one of our key metrics to health. If you look at visitation, there's an inverted relationship between visitation and churn. So the more somebody turns up, the less likely they are to leave which means that, that franchisee has obviously the benefit of not spending as much money on their marketing to go ahead and acquire new customers because they've got a sticky client base that are passionate and loyal to the brand and subscribe to this idea that it is the world's best workout. So for us, we think 3 times per week is an incredible achievement. And if any of the folks on the line are attending F45, they would also be able to testify to the fact that the more times they turn up, the better results you get. It becomes a life-changing service for you and hopefully, the family if you introduce them as well.

The next question comes from George Kelly with ROTH Capital Partners.

So just a couple for you. The first one, in your prepared remarks, you talked about a new shared services platform. And I think you listed 3 or 4 different services that you're contemplating packaging. So curious, when is this going to launch and how are you going to price it? And I guess the third element of the question is, you also mentioned delaying certain marketing services fees. And is this shared services something that could replace that marketing program or do you expect to eventually come back with those marketing fees as well?

Yes. Thanks for the question, George, sorry, you go, Adam.

I'll dive in and answer the first part. You dive in on the second here. The 4 parts, so the shared platform is bookkeeping, number one; membership marketing to obviously go out and attract new leads. The third pillar is outbound sales, where as an inquiry is received, we have a qualified localized call center that contacts the potential member and books them in. And obviously, the fourth part is real estate. Real estate is made up of, a, finding a location for the franchisee; b, negotiating the lease; c, getting the permit; and lastly, d, getting the construction completed on behalf of the franchisee. The way we look at the economics at the moment is that will be a cost plus 10% margin. So that's exciting for us because it will generate more revenue. It will have excellent margin in the future. But lastly, the most important aspect with our shared services is it will enable our franchisees to continue to grow and outsource a lot of these basic yet challenging services from their business. I'll pause and let Chris dive in with some additional color as well.

Yes. And I think, George, it was a great question. On the MMP, you're quite right. We have not remandated that. That will be happening in the beginning of Q3. But we have taken the opportunity to reinvent that program and enhance it and make it even more impactful. So we're really excited about it. We've onboarded new agency partners to help assist us in those endeavors. And we've been trialing and it's been having great success. So that MMP program will be reinstituted in Q3. And we're really excited that, that will be a more productive and more efficient program than ever for us and our franchisees.

Thank you. And that concludes today's Q&A session. I would like to pass the conference back over to Adam Gilchrist and Chris Payne for closing remarks.

Yes. Thank you very much. I suppose if you look at this business, it comes down to the success of our athletic department delivering the world's best workout. We're very passionate about changing people's lives. We do it extremely well and we've been doing it for many, many years. And if we look at the continuing success, it really still hinges on our 3 key pillars of what our business was built on. Number one, innovation. We have incredible innovation with thousands, we're about to go over 10,000 exercises in our exercise encyclopedia which means that our members turn up every single day excited about a different workout. The second key pillar is motivation training and teams. We know that when you train with friends or new friends, you get an incredible experience with that community and camaraderie around you. Lastly, results. If you turn up and you get incredible results and we believe our modality of HIIT training with functional star movements which are multiplane movements where you don't get injured and you have this life-changing platform, we think that we're going to continue to be extremely successful. Moving forward as a very simple business, we're all about execution. 100% of our focus is about execution. We sit here today with absolute visibility on being able to open 1,000 franchises this year. When we achieve that milestone, we will have set another record for this company to be the only franchisor in history to open 1,000 franchises. If you look at the financing for our franchisees, that was a key bridge that we had to build to enable us to get to that 1,000 openings this year with absolute confidence. The second part of our business moving forward is obviously getting these sales converted to openings and we're doing that with CBRE, with finance and with architects. And we have all of these instrumental key players assisting with us moving from a sale to an opening. And lastly, managing our existing network. We've done an incredible job, like I said, remaining focused on our 3 key pillars but more importantly, continuing to provide services like our shared services platform to provide that flexibility to enable our franchisees to continue to grow and open up additional studios. So, I'll close with those remarks and thank everybody for their time. Obviously, we're extremely passionate about our business. But more importantly, we have 100% belief that we can achieve our goals this year. We haven't changed guidance on openings for a specific reason, being we have a visibility on our backlog. And more importantly, this cash-rich business which is asset-light, is incredible for investors, in our opinion. I'm the largest individual shareholder of this business and I've never been more bullish. And that was underpinned by buying additional shares late last year. So, I'll pause and hand it over to Chris but thank everybody for their time on the call.

Yes. Thank you, Adam. And I'd just also like to thank everyone for their time today and I'm looking forward to the follow-up calls later today with all of the analysts and looking forward to chatting with all of the investment community over the next few days. We're excited to keep talking about our business and this phenomenal trajectory that we're on. And yes, thank you very much for your time.

That concludes the F45 Training Holdings Inc. Q1 2022 Earnings Call. Thank you for your participation. You may now disconnect your lines.