Earnings Call: Q2 2021

Aug 26, 2021

Quarterly report

Good afternoon. Thank you for attending the F-forty five Training Holdings Incorporated Quarter 2 2021 Earnings Call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to your host, Bruce Williams, Managing Director with F-forty 5 Training Holdings. Thank you. You may proceed. Good afternoon, everyone, and thank you for joining the call to discuss F-forty 5 Training's 2nd 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 2, that are based on current management expectations. These may include, without limitations, predictions, expectations, targets or estimates, including regarding our anticipated financial performance and actual results could differ materially from those mentioned. These forward looking statements also involve substantial risks and uncertainties, some of which may be outside of our control that could cause 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 quarterly report on Form 10Q in our earnings release. You should not place undue reliance on these Forward looking statements 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 comparison of our core operating results and the results of peer companies. Reconciliations of these non GAAP measures to the most comparable GAAP and Conditions of these indicators are included in our quarterly report on Form 10 Q and in our earnings release. Now I would like to turn the call over to Adam. Thank you, Bruce, and thank you, everyone, for joining us today for our Call as a public company. I want to start off by saying that we are thrilled to enter this next chapter of our journey. I'm very proud of what the S-forty five team has accomplished over the last few months and the strong results we delivered in the Q2. For those of you who are not already familiar with our business, S-forty 5 is the fastest growing fitness franchisor With a mission to create a leading global fitness training and lifestyle brand. We offer functional 45 minute workouts that are high intensity interval training based with sessions that we believe are the world's Best Workout. We deliver our workouts through our digitally connected global network of studios operating in 65 countries. And we've built a differentiated technology enabled platform that allows us to create and distribute the workouts to our franchise base every day of the week at massive scale. Our unique platform has helped drive our rapid growth. It also helps promote the success of our franchisees through standardization of our world's best workout and enables us to deliver results to our members 5.5 had a very strong second quarter underscored by a record 554 New Franchises Sold, with 68 net new studios opening during the quarter system wide same store sales growth of 126 percent total revenue growth of 54% to $26,800,000 and an adjusted EBITDA growth of 7% to 10,700,000 Despite challenges posed by the COVID-nineteen pandemic, we grew our footprint and experienced Minimal permanent closures during 2020, which really underscores the resilience of our business model. At the end of the Q2 2021, we had over 2,800 total franchises sold and over 1500 total studios open in 65 different countries. As of June 30, 2021, 91% of our network had reopened. Our differentiated approach to fitness is firmly rooted in 3 pillars of our DNA: innovation, motivation and most importantly, results. Starting with innovation. Innovation is at the core of everything we do. We are dedicated to driving new innovations that to elevate the F-forty five training experience and further our position as a global fitness training and lifestyle brand. We are able to distinguish ourselves from competitors through such innovations, including our technology enabled distribution platform and our proprietary fitness algorithm, which configures movements from our content library containing 1000 of exercises into new workout plans, ensuring that virtually no two workouts are ever the same. 2nd pillar is motivation. We believe the foundation for any effective fitness program is motivation, and we motivate our members through a combination of positivity, inclusivity and teamwork, which builds communities and encourages our members to view each as a sanctuary. The last key pillar is results. Supported by the sustainability of our workouts over time, we strive to help our members achieve and maintain results by focusing on creating a sustainable fitness program designed to encourage members to visit studios multiple times per week over the course of their long term fitness journey. Now let's talk about growth. We have a significant footprint expansion opportunity both in the United States and across the rest of the world. Starting with the U. S, we continue to believe that there is a significant long term opportunity to meaningfully expand our franchise studio footprint. As of June 30, 2021, we had 13 79 Franchises Sold and 556 Open Studios in the U. S. Based on our white space analysis, we believe there is long term studio potential for us to open over 7,000 studios in the U. S. Outside our core markets of the U. S. And Australia, we have demonstrated the portability of our brand and franchise model in 65 countries. We have designed our studios to be easily deployed in both developed and emerging markets and to drive continued growth in both underpenetrated existing markets and new markets. Based on our global white space analysis, we see potential for approximately 16,000 studios outside the U. S. Let me also take a moment to touch on a few of our growth drivers that we're really excited about. Multi Unit Franchise Systems is the first that I'll touch on. The majority of our franchisees today consist of owner operators that manage single locations. Going forward, we intend to seek further opportunities to develop multiunit franchise systems with select financial partners. As of June 30, 2021, approximately 51% of our franchises sold were owned by multiunit franchisees, up from approximately 40% as of the end of 2019, Which really highlights the strong market demand for multiunit franchise opportunities and our ability to sell to existing franchisees. Secondly, what are our new channels? We believe there is significant opportunities to expand into new channels, and we are actively pursuing potential opportunities to partner with major universities, high schools, corporations and Military Facilities. We currently have 29 studios located in major university campuses in the U. S. Thirdly, we're also looking at new target demographics, and we believe there is a significant opportunity to create workout programs that enable us to target a broader range of consumer demographic groups. We have also recently developed a new fitness concept in Australia called FS8, which integrates 3 popular methods in the health and fitness industry, the remixing of Pilates, yoga and tone to create a new workout style. Fitness Studio Clubhouse targeting men over the age of 50 as well as Avalon House, a studio sanctuary for women of a similar age. As you just heard, there's tremendous opportunities for growth across our business. I'm thrilled by the great teams we have built at both the corporate and the franchisee level. We have an amazing management team who is focused on executing our growth strategy and continuing to drive Shareholder Value. Our franchise partners are well capitalized and committed to growing the businesses. And I believe that we have developed a platform that can be one of the most powerful franchise systems in the world. And Full Year. With that, I will turn it over to Chris to go over our financial results. Thanks, Adam, and good afternoon, everyone. I'll begin by reviewing the details of our 2nd quarter results and then provide our outlook for the full fiscal year 2021. In the 2nd quarter, we sold 554 New Net Franchises and opened 68 new net studios. We believe these Strong net sales numbers demonstrate the growing awareness of our brand and our ability to sell franchises globally. The Q2 of 2021, total revenue increased 54% from $7,500,000 in the prior year to 26,800,000 Same store sales increased by 126%, driven by strong membership recovery at our studios globally as pandemic restrictions have relaxed and the studios have continued to reopen from COVID-nineteen mandated restrictions. As of June 30, 2021, approximately 91% of our studios globally had reopened from COVID-nineteen mandated closures. 7. In the U. S, virtually all of our studios have reopened following the temporary closures due to the COVID-nineteen restrictions. Regionally, our revenues have increased 84% in the United States, 68% in Australia and declined 2% in the Rest of Weld segment. We have a high level of visibility into our revenue streams as we operate nearly 100% franchise model. We charge new franchisees a onetime establishment fee of $50,000 which is amortized over 10 years and monthly franchise fees, contractually required to purchase a Worldpac, which consists of all of the equipment, signage and technology they need to operate their studio. We believe our well packs differentiate us as a franchisor. Nearly all necessary items a franchisee needs to operate The business gets delivered in a 40 foot shipping container and our franchisees see a tremendous amount of value in the Worldpac. This one time equipment sale of $125,000 is recognized at the time of delivery. Refresh and grade equipment revenues vary year to year depending on usage and new equipment introductions, but currently do not constitute a significant part of equipment revenues. We break out our revenue into franchise and equipment revenue. Moving on to franchise revenue. Franchise revenue was $20,600,000 an increase of 71% from $12,100,000 in the prior year period. The increase in franchise revenue in the quarter was driven by new franchise sales, a one time revenue catch up adjustment of approximately $3,000,000 related to prior periods also favorably contributed to the franchise revenues in the quarter. This adjustment is due to changes in accounting estimates on the recognition of 2 types of contracts, the stimulus deals that we entered into last year and contracts in certain U. S. States where royalty billings for a particular studio do not begin until that studio is open. I want to state clearly, this is not an acceleration of revenue. Rather, We started recognizing revenue for our stimulus and deferred state contracts consistent with how we recognize revenue with our other contracts. It's also important to note that we would always have recognized this contracted franchise revenue and our change in estimates have been guided by GAAP. In Q2, 'twenty one and beyond, we will recognize revenue related to these stimulus contracts in the deferred state contracts in each period. Geographically, we saw strong growth across regions. Franchise revenue increased 57% in the United States, 112% in Australia and 76% in Rest of World. Our equipment revenue increased 16% to $6,300,000 from 5,400,000 This year over year increase was primarily driven by Worldpac equipment sales to new franchisees. Equipment sales in the quarter were modestly impacted by delivery delays at the end of the quarter. However, we caught up with our delivery schedules by the end of July. In addition, we've taken the necessary steps to purchase in advance 3, so we can deliver equipment consistent with the contractually required delivery dates of our franchisees. Regionally, equipment revenues increased 2 27% in the United States, declined 28% in Australia and declined 66% in rest of world. Equipment revenue decline in Australia and Rest of Wealth were driven by the deferral of Wellpack deliveries due to the pandemic during the Q2. Moving on to gross profit. Gross profit increased to $21,600,000 compared to $13,200,000 in the Q2 last year. Gross profit margin was 80.6 percent in the 2nd quarter, up 4.90 basis points from the same period last 6 year, reflecting a higher mix of franchise segment revenues in the quarter. SG and A for the quarter was 18 point $6,000,000 compared to $7,600,000 a year ago. The increase in SG and A expense was primarily driven by professional fees and other one time and Building Investments. We focused our marketing, investments and brand building initiatives, including partnerships with new brand ambassadors, efforts to promote our newer concept FSA and other market specific promotional efforts. Moving on, adjusted EBITDA increased 7% from $10,200,000 to $10,700,000 in 2021. Adjusted EBITDA margin was 0.9% in the 2nd quarter versus 57.4% in the prior year period. This decline was primarily due to the investments I mentioned above. Net interest expense in the quarter was $8,900,000 22, which was compared to $400,000 in the 2nd quarter. The increase in interest expense was due to the incremental 206,000,000 Debt outstanding in 2021. Turning to the balance sheet. As of June 30, 2021, prior to our IPO, we had cash and cash equivalents of $18,000,000 and total debt outstanding of $255,000,000 On July 14, we completed our IPO, 22,000 shares of common stock was sold at $16 per share or gross proceeds of 3 $50,000,000 The company received $279,000,000 in proceeds, net of underwriters discounts and commissions. The net proceeds were used to exercised an over allotment option to purchase an additional 300,000 shares of the company's common stock from the company. The company received 4,600,000 22nd in net proceeds from the purchase of the additional shares after deducting the underwriter costs and commissions. On August 13, we amended our secured credit agreement. Our updated credit agreement provides for a $90,000,000 5 year senior secured revolving facility and under certain circumstances, we may increase the aggregate principal amount of the revolving commitments by an aggregate amount of up to $35,000,000 I'm really thrilled by our current capital structure and the flexibility it in the face of the lingering impacts of COVID-nineteen following these recent equity and debt financing activities. Just to reiterate, following the IPO, we repaid all of our outstanding debt, excluding the convertible note, which converted into at the IPO. We amended our credit facility to provide for a $90,000,000 commitment, none of which we have drawn today. And proven ability to generate significant free cash flow, we feel very comfortable with our current capital structure and we're excited about the opportunities to invest in the business going forward. Moving on to our outlook for fiscal 2021. We expect Full year revenue to be between $132,000,000 $137,000,000 full year net franchises sold to be between 8 100 to 850, full year net new franchise openings to be between 220,260, adjusted EBITDA to be between $50,000,000 $52,000,000 This outlook constitutes forward looking statements and subject to risk and uncertainties discussed at the beginning of this call. Please note, the outlook does not assume a significant worsening of the COVID-nineteen pandemic that may seriously impact performance, including prolonged studio closures or other mandated operational restrictions. 7, we recorded in our quarterly report from our 10 Q and in our earnings release. I'll now turn the call back over to Adam 6 for some closing remarks. Thank you very much, Chris. And look, I'd like to thank Everybody that's on the call for just taking the time out and just spending some time with us because we're obviously extremely passionate and proud of what we've achieved. And more importantly, we change people's lives, and that's really part of our DNA. We're here to build out a great franchise system. But as we discuss with every single franchisee that looks at buying A franchise of ours, we say, we want to change people's lives. And that's we do it one member at a time. 2. And it's exciting because we have a great business and our mandate at head office is about delivering the world's best workout every single day across our F-forty five TV platform. And again, I thank everybody for just taking some time out to listen to this call. And we look forward to continuing to grow this business and hopefully have all you folks that are on the call sharing our journey. It's been such an incredible one For the last 8 years. And I'll pause there and hand it back to Bruce and allow you guys to dive in with any questions that you may have. Absolutely. We will now begin the question and answer session. Those of you asking a question are asking are asked to limit yourselves to one question and one follow-up. We will pause here briefly to allow questions to generate in queue. The first question is from Oliver Chen with Cowen. You may proceed. Thank you. Hi, Chris and Bruce. We also see a big opportunity for U. S. Unit growth 7,000 or more. Could you let us know or inform us how you see that opportunity and why you see that opportunity in terms of the longer term White Space. And second, a bigger picture question, as you think about other platforms and other concepts, How do you approach innovation and stay close to your core competencies? And which of these concepts might be Bigger or prioritized ones for the United States as well. Thank you. Well, that's a great question. Firstly, we sort of look at the TAM being 7,000 because and literally, we can argue about what we've got. It's more of an art form. But we looked at the Australian experience where we have 27,000,000 people at GDP that's a 15th of the size of the U. S. So we extrapolate that number out, and you arrive at a number that's actually closer to 9,000 studios 2 in the U. S. We give that a haircut, and we arrive at 7,000. So that's the first part of the answer, and I hope You can look at the Australian experience and think that it's very similar with respect to culture. And you can also look at the crossfit experience where they had Somewhere in the range of 7,000 in the U. S. And we think that that's about the right number. And if you look at your second part of your question, which is innovation, we believe that, that is a critical part to our success. So when we talk about F-forty five, we have 3 key pillars: 1st being innovation 2nd being motivation and results. But with respect to innovation, we have over 6,000 different exercises that are filmed, and it's Crucial for us to continue to innovate and create a benchmark, which respectively, like Moving that number of exercises from 6000 to 8000 to 10000. And we're really excited about the fact that Every day, somebody turns up for an F45 and they do a workout that has never been Repeated in the past. But this is being done in universities. It's being done in military bases. 2. And in Miramar, where we just launched, we have these military folks that have Hand of my heart, we went down there. They're saying it's the world's best workout. So we're really excited about innovation being a critical part of our focus. And every single day we wake up, we believe that we have a mandate to deliver The world's best workout. And to do that, to your question, we have to have great innovation. And that's something that really keeps us up at night. And we believe we're doing a great job in continuing to expand our exercise encyclopedia. Thanks, Adam. And as you think about new concepts, which ones are you most excited about for the roadmap? And How do you think about your company more broadly as a platform as you continue to think about other opportunities as well? Well, to be honest, I don't get more excited about training techs than I do 6. I think, we, as the world leading organization in fitness and well-being have a responsibility to deliver the world's best workout across And age demographic from I'm talking from 5 years old, like I've got a 3.5 year old, all the way up to 90 or 100. And we see this responsibility being critical to our growth. Obviously, there are age demographics that we believe have been neglected, And that's the truth. That's totally been neglected. And as we sit here today, we have Nearly 3,000 franchises sold. But I can tell you that after your family, the most important thing in your life So we believe we can be bigger than Starbucks, we can be bigger than McDonald's, and we will do that because We are delivering an incredible product to age demographic, whether it's 12 years old, 17 years old, 70 years old. And at the moment, we're trialing workouts with Greg Norman. I'm really fortunate to be in Florida right now with him, chatting to him every single day about Workouts that work for him, talking about workouts that work for kids, we're the only third party 3rd party gym ever to go into a high school, ever. And we're doing that right now where we're going to deliver these workouts up to kids aged between 17 years old. And look, when Stanford rang us up and said, hey, we want an F45 in our University, we're like, of course, University of Texas rang us up and said, hey, can you get down here? I flew down to Austin, Texas. I love that city so much. We moved our head office there. I was like, of course, we can train these guys. These are schools that are the most sophisticated schools in terms of developing great systems. But to answer your question, we're excited about training anybody that's wanting to be trained from the age of 4 to 90 years old. So Look, I don't want to beat this to a pulp, but we're the only third party gym ever to go onto a military base. We're the only 3rd party gym ever to go into the university. And right now, we're rolling out into high schools, which is, for us, 2. An extremely proud moment because the truth is what are we excited about? Lots of things. But what do I think is really important? I I actually think it's the newest because if we can get these young guys, whether they're male, female, 12, 14, 17 years old, Just enjoying getting out and having some fun with their training, that is a critical element of our success. And we want to create a new benchmark of training. And functional training in our environment What I would say to be and I say this candidly, to be the most important aspect About that business. Adam, thank you very much and best regards. Thank you. Thank you, Mr. Chen. The next question is from Paul Boulding with Mac Query. You may proceed. Thanks so much, Adam, Chris and the team. Congratulations on the quarter. Just wanted to ask you, the performance as far as units sold in the period in Australia was impressive for such a mature market at 109. I was wondering if you could give any color on how much of that is The existing F-forty 5 concept versus new concepts like FS-eight? And then I have a follow-up. Yes. Greg, quick one. I'll just pump that over to Chris. Yes. Sorry, Chris. Hi, Paul. How are you? Yes, around twothree of that Australian number is FS8, so our yoga Pilates tone concept. Great. And any color with respect to forward sales on units for the new concept. It seems like it's having great reception, great uptake despite The volatility in reopening with the pandemic in that market? Yes. We actually haven't modeled in to 2. That product is well out of the gates and trialing well. So but in terms of the numbers, that's going to be upside for us. Great. And then lastly around the U. S. Opportunity, Any color you can give on the real estate opportunity there with incumbents? We've seen so many statistics around incumbents Closing permanently, sort of the opposite story of what you're seeing with your success in franchise sales. Anything you can say around whether you're hearing from franchisees that deployment, the opportunities for store Trends are good or rollout is simplified. Anything you could give around that would be great. Thanks. Paul, I think that's a really interesting question because The speed and the breakneck speed, I should say, of our growth has to do with Amazon, to be honest with you. They have done an incredible job moving a lot of commercial and retailers into an e commerce environment, which has created a platform where we've been able to open up multiple locations in regions that were quite frankly impossible to open up in. So if you look at Air 45 today, we're the biggest operator in London. But that is due to the fact that, obviously, a lot of these businesses are moving into e commerce. And we get excited about the fact that there's a lot of people inviting us into Areas and locations where we just never had an opportunity to be able to even walk in the door. So we think that there's probably 2 great Reasons why we will continue to grow at this speed, number 1 is Amazon, and they've been around for many years. But number 2, COVID-nineteen has really impacted a number of our competitors. And so if you look at and I don't want to talk about CrossFit, And I don't want to talk about any of our friends at Xponential, but the fact is some of them are going broke and we have A number of these opportunities opening up where they want to turn their business into an F45 and create A Platform for Success. So we see COVID-nineteen right now being Century. Our continuing challenge, number 1, for our franchisees. But number 2, we have a balance sheet to support a lot of those folks. We have less than 20 that will not reopen. But really, I think that this is a great period where we can accelerate our growth because of the fact that There's a lot of real estate opportunities out there and we've exclusively partnered with CB Richard Ellis to go out and find our sites, assist us in Shoehorning our franchisees into new locations. And that's something that's really interesting for us is just enabling our franchisees to come into our funnel, Get introduced to CBRE, have a location that can open up. And then we have currently a 9 month period between contract signing and location opening that we want to compress. And CBRE will be a big part of that solution To compress that to 6 and potentially 4 or 5 months. Great. Thanks so much for that color, Adam. And Chris, thanks for the FSA info. Appreciate it. Thank you, Mr. Golding. The next question is from Jonathan Komp with Baird. You may proceed. Yes. Hi. Thank you. If I could ask maybe more on the near term environment, can you maybe expand more of what you're seeing maybe across markets, specifically Australia though in terms of the impact from some of the recent closures, maybe what you're assuming For the balance of the year and how we should think about that impacting your ability to sell more units, given the unique model where So your revenue is tied more to the units sold than the actual sales volumes. But any perspective there on what you're seeing and sort of what you're embedding Within Australia would be helpful. It's a good question. Chris, you can dive in. But look, Australia has got A limited number of vaccines. And I'm not blaming any political There's no blame here, but whether it's been mismanaged or not is irrelevant. We see the country reopening very quickly. We see, obviously, people In Australia, being very similar to the U. S, 40% of Australians will die in the history of heart disease, 30% of people will die of Cancer, about 29.9 percent of people will die of other things and 0.0001 percent of people will die of COVID-nineteen. The average age of death October 2019 is over 85 years old in Australia. So we feel pretty good about The fact that Australia will come out of this, and we're looking to emerging markets like the U. S. 2 and the UK. But we believe this is a robust World, whereby we'll get through this. More importantly, we believe that people will want to get back and more importantly, be more You want to be more fit than you are because of this, because the fitter you are, the better your chances are of COVID-nineteen. But the exact, Donna, I'll press pause and let Chris dive in. But we're feeling really good about We're really disappointed that Australia is in this situation. We're actually not disappointed. We're devastated, to be honest, Because we have so many great friends that own franchises that are sitting there struggling. And we see them Ready and willing and able to reopen. So again, I'll pause there And let Chris just dive in on to the 2nd part of the culture. Yes, sure. Thanks, Adam. So John, to just Yes. And hit it specifically around approximately 60% of our Australian network is shut right now in terms of Our guidance and forward looking projections, it contemplates Australia getting back into the studio in Q4 mid to late Q4. And look, the other thing I'd add to Adam's comment is that we have a really good case study in what happened the first time around. And What we saw when these studios reopened was that the members just got straight back into the studio in Australia, and they were outperforming COVID pretty quickly. And What we've actually seen when there's been a second and third wave now that everyone in the world is now more familiar with COVID, That actual ramp, when things have closed and then reopened for the second time, that actually that ramp The normalcy is much quicker. So look, we're really optimistic that our Australian membership This is keen to get back into the studio as soon as these studios are allowed to open up. And as I said, we've got a good case study that proves that out. In addition to that, just in terms of Yes, sales volume, franchise sales volume, the level of Late inquiry into additional FSI units is remaining really steady even through this period that Astridler is navigating through at the moment. Yes, that's really helpful. And just as my follow-up, more broadly on the global Guidance for franchise sold, I think it's $800,000,000 to $850,000,000 for the year. Can you just talk about what's needed or what's And then as you look beyond 2021, how are you thinking about the right growth rate for franchise units sold? Yes. Let's remember that the year to date sales were already at close to 5.70 units sold. In that guidance range, the midpoint, gets us to our number comfortably. So that's the first point. And then I'll let Adam take the second part of the question. Yes. After 2021, it's a good question. We are really excited About a couple of things. Number 1 is, we're the 1st third party gym operator Ever to go into a military base. So you folks on the call may or may not notice, but there's 200,000 military folks 2 retiring this year from the military. And that's a big number, in the last 3 years, obviously, call it 600,000. So if you think about that, we believe we will be able to attract A huge number into our business to continue to drive our franchise network growth. And Interestingly, you've got countries like South Korea that also have huge military personnel. And We're feeling really bullish about the fact that we can get a wide variety of people 2 different verticals, but also semi professional athletes. And As we sit here today, we've currently got, I think we said this on our roadshow, over 600 applicants From the military that not just implied, but wanted to buy an F-forty five franchise. And we need to be a little bit Cautious about how much we say about this, but we think that the military will be our biggest Growth Funnel to drive brand new franchise sales. We're working with private equity folks that are saying that they will fund military folks and go fifty-fifty with them. We don't have that in writing yet. But The way we look at life is we just want to create lots of entrepreneurs. We want to have an environment where we're delivering the world's best workout 2, thousands of people. And interestingly, we just have under 50 SAS, which is like Navy Seal, Coach that own and operate F-45s in Australia, they're incredible franchisee operators. And we just want to replicate that on a multiple of 102100. So moving forward, We see the military as an incredible opportunity. And that's really an interesting Stat for us is 200,000 people live in the military this year, and they're on the 1st military base ever as a third party gym in Miramar. Yes, great. Appreciate all the color. Thank you. 16/2 Look, I apologize. We can't share too much more color on 2022. So I apologize, John. So I do apologize. We can't go too far down the road on our numbers, but I'd like to have our TAM fully sold By next year. And as an aggressive CEO, you've got to look at ways to do that. And the military is one of those ways. So I just want to say that I apologize, I can't go into 20 22 numbers. Participants to ask one question. Thank you. The next question is from George Kelly with ROTH Capital Partners. You may proceed. Hi, everybody. Thanks for taking my questions or a question, I guess. So I wanted to ask about marketing. You have some marketing related franchise revenue that I believe 6, you sort of gave franchisees a pause on in the U. S. And so just curious, have you started to turn back on those revenue streams and or what's sort of baked into your 2021 guidance related to those kind of marketing related franchise revenue streams? Thank you. Yes, George, it's very, very similar to what we Advised around the IPO, that will be coming back. That's coming back on as we speak. And middle of from middle of Q3 through Q4, that marketing revenue will be switched back on. And I guess this is just a continuation of the prior question really, but have you started to notify franchisees of that? Like what's the sort of how has that been Shift? Yes. We're working through the rollout strategy in a thoughtful way. Obviously, Our franchisees have had a difficult time due to COVID. We've onboarded Our new CMO, we're actually improving the way that we handle member acquisition marketing as well With new vendors. So that messaging is underway, yes. Okay, got you. Thank you. Thank you, Mr. Kelly. The next question is from John Ivankoe with JPMorgan. You may proceed. Hi, thank you. 1st, thank you for the comment on the $41,000,000 in U. S. System sales. I think a lot of us care about system sales In Australia and Rest of the World. And I was hoping that we could get those numbers either on this call or hopefully in the 10 Q. Yes. John, I think Through June, we've got those outlined in the S-one. Okay. All right. Okay. So I'll make sure that I we have those if those are the exact numbers, I know there's obviously, you have to go through an audit. So I'll make sure yes, to your point, the U. S. Was, I mean, it actually rounds up. It was fairly close, but if those are the exact numbers, I'll make sure that we use those. And then secondly, and if you don't want to tell me, I certainly have them, so I'll get those. Secondly, but I do recommend reporting those going forward if we can. Secondly, Talk about that $3,000,000 franchise royalty benefit. I mean, I think there's some confusion as part of kind of the IPO process in terms of when royalties would be recognized relative to when a franchise store was opened. Can you just Can you elaborate in terms of like what either the U. S. Practice is or what the global practice is, just to give us a sense You know consistently how those franchise royalties are recognized relative to a store actually being open. Yes. So ASC 606 is obviously the governing standard in this regard. The Basically, you take the contract value less the world pack and you amortize that over the useful life of the for life of the contract. So you're right, the monthly amount that we're recognizing in the U. S. Is close to that $3,000 a month per studio. So that is quite right. Okay. And that can be for how many months can that be recognized before a store is actually open? In other words, I know you have Yes, some deals, at least from what I saw, and yes, one that were up to 8 years. I mean, I assume that you're not going to recognize royalties for a store that's opening in 8 years. I mean, is there kind of A point, whether it's 6 months or 12 months, that you can recognize royalty before the store is actually open for operation? Yes. So upon executing the franchise agreement with the franchisee, material consideration Changes hands in the form of the establishment fee. So there's and that forms part of the obviously, The amount that's factored into the revenue recognition per month over the useful life of the agreement. So there's material consideration upon execution of the franchise agreement. And at that point, we therefore start to recognize That monthly amount over the next 10 year period. Okay. Just a reminder though, Our franchise agreements, technically, the billing starts, it's defined. Regardless of whether a franchise is open or not, a franchisee will be billed and they're required to pay in accordance with the terms of their franchise agreement. Yes, we got them of course understood. And then, yes. And the final, which is I think probably the important question, there was I mean, I think it tweaked down in terms of the net openings expectations for fiscal 2021 to the range of 220 to 260 is at the lower end of certainly the range that we talked to you. Can you elaborate on that, I guess, Relative lowering of expectations and what that says in terms of your visibility of units open in fiscal 2022 relative to previous expectations? Yes, John, maybe we can chat about that in our call, but no, it's consistent with our Look, so maybe we can address that with you. But no, certainly, we have not revised that number down. We have exceptional visibility As to the health of our onboarding pipeline, we've brought forward enough inventory to service Our franchisees' contractual relation as it relates to their wellpack purchase obligations. So we've trued up our supply chain and we'll be delivering all of that equipment throughout the remainder of the year. And yes, Openings are in line with where we've previously guided. So happy to address that with you offline if you're seeing something differently. Yes. Well, we were at 260 and the range is 220 to 260. So yes, I guess it all depends just how One defines that. But yes, certainly understood and thank you for the clarification. And obviously, I have no problem being corrected at all. Thank you so much, guys. 2. Thanks, John. Thank you. There are no additional questions waiting at this time. I will now pass it back over to Management Team for additional remarks. Thanks. Look, Adam here. I just I have to say, as we sit here today, we've been impacted by COVID-nineteen over the last 18 months. And we've 6. We've been a very fiscally conservative business since day 1. We've never had an unprofitable quarter. That's really important to think about because we've been growing at breakneck speed, and we were really excited During this IPO process to be able to relieve all of our debt, so we have a balance sheet that I would argue is the Strongest in this space. Thirdly, I would say that when you talk about workouts and you talk about What is going to be sustainable in this space? You need to have the world's best workout, and that's what we have. And every single day, like I said earlier, and I'll echo the point, we wake up and we deliver the world's best workout to our franchisees. And we're excited about it because we see so many folks waking up saying, right, let's get out of bed 5 am, get to Air 45, do our workout. We think that it's crucial To create these communities, but we want to continue to create these communities across the globe. And the last thing I'll say is, we actually Really believe that the most important people in this whole conversation are our members, and we don't talk about it enough. Our members turn up 2.65 times per week, and they absolutely love our workout. And that's really important for us because they are the glue in this whole conversation. And when we talk about growing our business, We transcend everything, religions, languages, geographies. We're in great countries that are Emerging Countries with respect to fitness. And we get excited about the conversation about growing our business in India, Where we're the largest growing fitness franchise business there. We've got 2, a massive footprint in Singapore with respect to our peers. So we think that Our mandate is continue to deliver the world's best workout. We are a lightweight business with respect to owning franchises. We want to continue to grow our business. And like I said at the beginning of the call, we thank you for your time. I'll pause there and let Chris dive in and say add anything to that to my comments. But We think that this is an exciting period because a lot of folks are really being challenged. However, 2. For us, that's an opportunity. So again, thank you for your time, and I'll press pause and look forward to our next quarterly conversation. Yes. Thanks, Adam, and thanks, everyone. It's been great. It's our first ever Earnings Call as a public company and look forward to speaking to you all again in the not too distant future.