Xponential Fitness, Inc. (XPOF) is a leading global franchisor of boutique health and wellness brands, operating a diversified portfolio of eight fitness concepts spanning verticals such as Pilates, indoor cycling, barre, stretching, yoga, boxing, functional training, and metabolic health. Despite recent challenges, the company's strong brand positioning, expansive franchise network, and strategic initiatives position it for long-term growth in the rapidly evolving boutique fitness landscape.

Business Overview and History

Xponential Fitness, Inc. was formed as a Delaware corporation on January 14, 2020 for the purpose of facilitating an initial public offering. The company entered into a series of transactions to implement an internal reorganization, making it a holding company with its principal asset being an ownership interest in Xponential Fitness LLC through its ownership interest in Xponential Intermediate Holdings, LLC.

Xponential Fitness LLC was formed on August 11, 2017 as a Delaware limited liability company for the sole purpose of franchising fitness brands in several verticals within the boutique fitness industry. The company, through its boutique fitness brands, licenses its proprietary systems to franchisees who in turn operate studios to promote training and instruction programs to their club members within each vertical.

Since its inception, Xponential Fitness has experienced significant growth in its franchised studio footprint. The company expanded from 1,070 open studios across the U.S. and Canada as of December 31, 2018 to 2,760 open studios as of December 31, 2024, representing a compound annual growth rate of 17%. This growth has been driven by both organic expansion and strategic acquisitions.

Over the years, Xponential Fitness has made several acquisitions to expand its brand portfolio. These include the acquisitions of StretchLab in 2017, AKT in 2018, YogaSix in 2018, Rumble in 2021, BFT in 2021, and most recently, Lindora in 2024. The company has also divested certain brands, including Stride in 2024 and Row House in 2024, to better focus its resources on its core brands and operations.

As of December 31, 2024, Xponential Fitness operated a global footprint of 3,233 studios across 49 U.S. states, Puerto Rico, and 30 additional countries, with franchisees contractually obligated to open an additional 1,610 studios in North America and 1,040 studios internationally. The company's scaled brands, including Club Pilates, CycleBar, Pure Barre, StretchLab, and YogaSix, account for 94% of its North American studio base and 95% of system-wide sales, highlighting the strength and diversification of its portfolio.

Financial Performance and Metrics

Financials

For the full year 2024, Xponential Fitness reported total revenue of $320.3 million, a 1% increase from the prior year. The company's franchise revenue, which comprised 54% of total revenue, grew 21.8% year-over-year to $174.5 million, driven by increases in royalty fees, franchise territory fees, technology fees, and training fees. However, the company's equipment revenue, merchandise revenue, and other service revenue declined compared to the prior year, resulting in the overall modest revenue growth.

Adjusted EBITDA for 2024 was $116.2 million, up 16% from $100.3 million in the prior year, with an adjusted EBITDA margin of 36.3%. The company's North America system-wide sales grew 23% to $1.7 billion, and quarterly run rate average unit volumes (AUVs) increased 9% to $668,000 as of the fourth quarter of 2024.

Despite the overall growth, Xponential Fitness reported a net loss of $98.7 million for the year, compared to a net loss of $6.4 million in 2023. The increased net loss was primarily due to higher operating costs, including impairment charges related to goodwill and other intangible assets, as well as increased legal expenses and restructuring costs.

In the most recent quarter, Xponential Fitness reported revenue of $83.2 million, a 7.7% decrease from the same quarter in the previous year. This decrease was primarily due to a 22% decrease in equipment revenue and a 34% decrease in merchandise revenue, partially offset by a 17% increase in franchise revenue. The quarterly net loss was $43.5 million.

The company's international revenue has been growing steadily, with $14 million in revenue from outside the US in fiscal year 2024, up from $13.4 million in 2023 and $12.3 million in 2022.

Liquidity

Xponential Fitness ended the year with $32.7 million in cash and cash equivalents, excluding $16.1 million in restricted cash. The company's total indebtedness was $352.4 million at the end of 2024, with a maturity date of March 15, 2026 for its outstanding term loans. The company's debt-to-equity ratio stood at -0.028 as of December 31, 2024.

The company's current ratio was 0.779, and its quick ratio was 0.687, indicating potential short-term liquidity challenges. However, Xponential Fitness has access to a $212 million senior secured term loan facility, of which $352.4 million was outstanding as of December 31, 2024.

Xponential Fitness reported annual operating cash flow of $11.7 million for the most recent fiscal year. The company's free cash flow conversion was approximately 90% of adjusted EBITDA, demonstrating the capital-efficient nature of its franchise business model.

Operational Highlights and Challenges

Despite the overall growth in 2024, Xponential Fitness faced several operational challenges during the year. The company reported 464 gross new studio openings, missing its guidance range due to a more organic and prudent approach to new studio development. Additionally, the company's adjusted EBITDA of $116.2 million fell short of its guidance, primarily due to lower equipment and merchandise margins, increased expenses related to bad debt and loan liabilities, and severance costs.

In response to these challenges, the company initiated a restructuring plan in the third quarter of 2023 to improve cost efficiency and focus on its core franchise operations. As part of this plan, Xponential Fitness has been exiting company-owned transition studios and negotiating lease terminations, which resulted in $29.6 million in restructuring charges in 2024. The company expects to incur additional restructuring-related costs of $7.1 million to $10.8 million in 2025 as it continues to optimize its real estate footprint.

Leadership Transition and Strategic Initiatives

In June 2024, Xponential Fitness appointed Mark King as its new Chief Executive Officer, replacing the company's founder, Anthony Geisler. King, a seasoned executive with a proven track record of scaling global consumer brands and franchisors, has initiated a comprehensive organizational assessment and implemented several strategic initiatives to position the company for long-term success.

The key pillars of Xponential's strategic plan under King's leadership include:

1. Becoming the franchisor of choice in the health and wellness category by enhancing franchisee support and studio-level profitability.
2. Delivering a world-class member experience through data-driven insights and continuous innovation.
3. Transforming the company into a data-driven organization to drive operational efficiency and informed decision-making.
4. Accelerating international expansion, particularly in markets where the company's flagship brand, Club Pilates, has established a strong presence.
5. Cultivating a culture of innovation and relentless focus on execution.

These strategic initiatives are designed to address the operational challenges faced in 2024 and lay the foundation for sustainable growth in the years ahead.

Human Capital Management and Talent Development

As of December 31, 2024, Xponential Fitness had approximately 432 employees at its corporate headquarters, of which around 145 were part-time. The company also had 13 employees at its one company-owned transition studio. Xponential does not have any employees represented by labor unions and maintains what it believes to be good relationships with its employees.

The company's human capital objectives include identifying, recruiting, retaining, incentivizing, and integrating existing and prospective employees. Xponential offers competitive compensation and benefits packages, including salaries, retirement plans, healthcare, and paid time off, as well as resources and programs to support employee well-being.

Xponential's incentive plans, including stock-based compensation and cash-based performance bonuses, are designed to attract, retain, and motivate key personnel, such as executive officers and directors. The company also focuses on developing its talent pipeline, providing training and development opportunities, and fostering a culture of innovation and collaboration.

Outlook and Guidance

For the full year 2025, Xponential Fitness expects North America system-wide sales to range from $1.935 billion to $1.955 billion, representing a 13% increase at the midpoint from the prior year. The company forecasts global net new studio openings, net of closures, to be in the range of 200 to 220, a 12% decrease at the midpoint from 2024.

Total revenue for 2025 is expected to be between $315 million and $325 million, reflecting no change year-over-year at the midpoint. Adjusted EBITDA is projected to range from $120 million to $125 million, a 5% year-over-year increase at the midpoint, translating to an adjusted EBITDA margin of approximately 38%.

Additional guidance for 2025 includes:

• Capital expenditures of $10 million to $12 million, or approximately 3% of revenue.

• An effective tax rate in the mid to high single digits.
• A share count of 34 million for earnings per share calculations.
• Quarterly cash dividends related to convertible preferred stock of $1.9 million.
• Unlevered free cash flow conversion of approximately 90% of adjusted EBITDA.
• Levered adjusted EBITDA cash flow conversion of over 40%.

Risks and Considerations

While Xponential Fitness has a strong market position and robust franchise network, the company faces several risks that investors should consider:

1. Regulatory Challenges: The company is currently addressing regulatory inquiries from various state agencies regarding its compliance with franchise disclosure laws, which have temporarily impacted its ability to sell franchises in certain markets. Xponential Fitness has received notice of investigations from the SEC, U.S. Attorney's Office, FTC, and New York Attorney General related to compliance with franchise laws. The company entered into a consent order with the California Department of Financial Protection and Innovation to resolve one of these matters.

2. Competition and Industry Dynamics: The boutique fitness industry is highly competitive, and Xponential Fitness faces the risk of losing market share to both established players and emerging competitors, particularly in the digital fitness space.

3. Reliance on Franchisees: As a franchisor, Xponential Fitness is dependent on the success and growth of its franchisees, and any operational or financial difficulties experienced by franchisees could adversely impact the company's performance.

4. Integration and Execution Risks: The company's growth strategy, which includes both organic expansion and strategic acquisitions, carries integration risks that could impact the company's financial and operational performance.

5. Macroeconomic Conditions: Xponential Fitness's business is susceptible to changes in consumer spending, disposable income, and broader economic trends, which could affect the company's ability to attract and retain members.

6. Legal and Compliance Risks: In February 2024, a federal securities class action lawsuit was filed against the company and certain officers, alleging misstatements and omissions in the company's financial statements, press releases, and SEC filings. This litigation is ongoing and could potentially impact the company's reputation and financial position.

Conclusion

Xponential Fitness is navigating a transitional period as it addresses operational challenges and implements strategic initiatives under new leadership. While the company faces regulatory hurdles and industry competition, its diversified portfolio of leading boutique fitness brands, robust franchise network, and capital-efficient business model position it for long-term growth in the rapidly evolving health and wellness industry. Investors should closely monitor the company's progress in executing its strategic plan and overcoming the operational hurdles it faced in 2024.