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Xponential Fitness, Inc. (NYSE:XPOF): A Diversified Fitness Franchise Poised for Continued Growth
Published on September 24, 2024 | Ticker: XPOF

Xponential Fitness, Inc. (NYSE:XPOF) is the largest global franchisor of boutique fitness brands, operating a diversified platform of ten brands spanning across verticals including Pilates, indoor cycling, barre, stretching, rowing, dancing, boxing, functional training, metabolic health and yoga. The company has experienced impressive growth in recent years, driven by its successful franchise model and strategic acquisitions.

Financials

In the fiscal year 2023, Xponential Fitness reported annual revenue of $318.66 million, a decrease of 3.2% from the prior year. However, the company's net income for the year was -$17.48 million, a significant improvement from the -$27.65 million reported in the previous year. The company's annual operating cash flow was $35.42 million, while its annual free cash flow stood at $26.05 million.

During the first quarter of 2024, Xponential Fitness continued to demonstrate its strong performance. The company reported quarterly revenue of $79.52 million, an increase of 12.5% year-over-year. This growth was driven by a 26.7% increase in franchise revenue, a 6.2% increase in equipment revenue, and a 14.1% increase in merchandise revenue. The company's quarterly net loss was $4.36 million, a significant improvement from the $14.98 million net loss reported in the same period of the prior year.

Business Overview

Xponential Fitness' business model is centered around its franchise operations, which accounted for 53% of the company's total revenue in the first quarter of 2024. The company's franchise revenue consists of franchise royalty fees, franchise territory fees, technology fees, and training fees. The company's equipment revenue, which represented 17% of total revenue, is generated from the sale of equipment to franchisees for their studios. Merchandise revenue, which made up 10% of total revenue, is derived from the sale of branded merchandise to franchisees and consumers.

The company's strong performance in the first quarter of 2024 was driven by several key factors. First, the company's same-store sales increased by 9% during the quarter, reflecting the continued demand for its fitness offerings. Additionally, the company opened 111 new studios globally during the quarter, including 85 in North America and 26 internationally. As of March 31, 2024, the company had a total of 3,156 studios operating globally, with 2,724 in North America and 432 internationally.

International Expansion

Xponential Fitness' international expansion efforts have been a key driver of growth. The company has developed strong relationships with master franchisees to propel its international growth, and as of the end of the first quarter of 2024, the company had over 1,000 studios obligated to open under master franchise agreements. The company's international business accounted for 31% of license sales and 23% of new openings in the first quarter of 2024.

Recent Developments

In addition to its organic growth, Xponential Fitness has also been active in pursuing strategic acquisitions to expand its portfolio of brands. In January 2024, the company acquired Lindora Franchise, LLC, the franchisor of the "Lindora" wellness brand, for $8.5 million in cash consideration, plus up to $1.0 million in contingent consideration. The acquisition of Lindora complements the company's existing brands and helps it deliver on consumers' increasing demand for a holistic approach to health.

Liquidity

Xponential Fitness' financial position remains strong, with $27.2 million in cash, cash equivalents, and restricted cash as of March 31, 2024. The company's total long-term debt stood at $331.4 million as of the same date, up from $266.7 million as of March 31, 2023, primarily due to the repurchase and retirement of approximately 2.6 million shares under the company's accelerated share repurchase program in the third and fourth quarters of 2023.

Outlook

Looking ahead, Xponential Fitness has provided guidance for the full year 2024. The company expects global new studio openings to be in the range of 540 to 560, in line with the prior year's studio openings. The company projects North America system-wide sales to range from $1.705 billion to $1.715 billion, representing a 22% increase at the midpoint from the prior year. Total 2024 revenue is expected to be between $340 million and $350 million, an 8% year-over-year increase at the midpoint of the guided range. Adjusted EBITDA is expected to range from $136 million to $140 million, a 31% year-over-year increase at the midpoint of the guided range, translating to an adjusted EBITDA margin of approximately 40%.

Conclusion

Xponential Fitness' diversified portfolio of fitness brands, strong franchise model, and strategic acquisitions position the company for continued growth in the years ahead. The company's focus on international expansion, brand optimization, and operational efficiency should help drive further improvements in its financial performance and shareholder value.

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