Securities Class Action Alleges F45 Training Holdings Misled Investors on ‘Unsustainable’ Growth Strategy

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A proposed class action claims F45 Training Holdings and its top executives harmed investors financially by issuing several misleading statements throughout 2021 regarding the fitness franchisor’s revenue stream and ability to maintain its rapid-expansion business model.

The 33-page lawsuit alleges the Texas-based company failed to disclose certain "material adverse facts" about its business in a registration statement filed with the U.S. Securities and Exchange Commission on July 16, 2021 in connection with F45’s upcoming IPO.

Although F45 asserted that its "asset-light business model" would support a rapid growth strategy, it left out that it was providing special, extended payment terms to some multi-unit franchise owners, the case asserts. The complaint summarizes that this was an unsustainable business model that caused the company's growth rate and revenue to plummet.

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The lawsuit names as defendants several current and former F45 executives who allegedly signed off on the misleading registration statement, including former CEOs Adam Gilchrist and Chris Payne, former board member Darren Richman, and current board members Michael Raymond and actor Mark Wahlberg.

According to the suit, F45's registration statement claimed that its franchise model enabled it to "open new studios at an accelerated pace versus the owner-operator model." The company noted that it planned to emphasize the growth of multi-unit franchises over single-unit franchises and that it would generate quick revenue because "[f]or the majority of franchises that we sell, we receive an upfront payment from the franchisee," the case says.

However, the complaint contends this statement was misleading because F45 failed to mention that it provided "modified" payment terms for large multi-unit deals in a way that was ultimately unsustainable, as multi-unit franchise owners did not pay back F45 quickly enough to maintain significant franchise growth.  

"As a result of these fronted costs, which had caused F45's cash and equivalents to plummet below pre-IPO levels, the Company was left in the position of being unable to continue a pace of new franchise openings that would match, much less exceed, pre-IPO levels," the case reads.

Consequently, the suit claims, F45 was forced to implement several "strategic updates" that it announced in a July 2022 press release. Per the suit, F45 revealed that it would open only 350 to 450 new studios in 2022, as opposed to the prior guidance of 1,000 studios; that it would be letting go of 45 percent of its workforce; and that Gilchrist had resigned earlier that month. The company also reported that it was significantly reducing its financial guidance, and a $250 million credit line would "not be available," the filing says.

Per the complaint, F45's stock price fell over 60 percent following the publication of these updates.

The lawsuit looks to represent anyone that purchased or otherwise acquired the common stock of F45 pursuant to the company's allegedly false and/or misleading Form S-1 Registration Statement and accompanying Prospectus and Supplemental Prospectus issued in connection with the Company's July 16, 2021 initial public offering of 18.75 million shares of common stock, priced at $16 per share.

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