Executive Summary / Key Takeaways

• Strategic Transformation Underway: Xponential Fitness is undergoing a significant transformation, streamlining its brand portfolio through recent divestitures (CycleBar, Rumble, Lindora) and focusing on operational efficiency, franchisee profitability, and a data-driven approach to fuel long-term sustainable growth.
• Core Brands Show Strength: Flagship brand Club Pilates continues to exhibit robust unit economics and rapid revenue ramps for new studios, while YogaSix and Pure Barre demonstrate impressive organic growth and strong member retention.
• Foundation Building in 2025: The current year is characterized by "foundation building," including a corporate reorganization, deployment of field operations teams, enhanced real estate and license sales support, and significant investments in technology and marketing, which are expected to reaccelerate growth in 2026 and beyond.
• Financial Performance Reflects Transition: Recent financial results show a decrease in total revenue due to divestitures and lower equipment/merchandise sales, but an increase in franchise revenue and Adjusted EBITDA, driven by higher royalty rates and cost efficiencies from reduced legal expenses and restructuring.
• Key Risks and Outlook: While the company has resolved an SEC investigation, ongoing legal proceedings, material weaknesses in internal controls, and a significant portion of inactive license obligations remain key risks. The 2025 guidance reflects a conservative approach, anticipating stabilization before a return to accelerated growth.

A Strategic Evolution Towards Focused Growth

Xponential Fitness, Inc. (NYSE:XPOF) stands as a prominent franchisor in the burgeoning boutique health and wellness industry, a sector experiencing significant momentum. The global boutique fitness market is projected to reach $60 billion by 2030, driven by increasing demand for specialized, community-focused experiences and a growing number of Americans engaging in exercise routines. XPOF's business model centers on licensing proprietary systems to franchisees who operate studios, offering diverse training and instruction programs across its portfolio of brands. This model allows for scalable expansion and a relatively asset-light footprint compared to traditional gym operators.

The company's journey has been marked by rapid expansion, followed by a strategic pivot towards operational optimization and portfolio refinement. Initially, a period of aggressive growth led to "rapid scaling and lack of organizational maturity," as noted by former CEO Mark King in Q4 2024. This necessitated a "transformation of our business" to build a foundation of efficiency and effectiveness. The current strategy, reinforced by new CEO Mike Nuzzo, emphasizes a streamlined brand portfolio, enhanced franchisee support, and a data-centric operational approach.

In the competitive landscape, XPOF differentiates itself from mass-market players like Planet Fitness (PLNT) by offering specialized, premium boutique experiences. While Planet Fitness excels in broad accessibility and cost efficiency, XPOF's diverse brand portfolio (Club Pilates, StretchLab, YogaSix, Pure Barre, BFT) targets niche, wellness-oriented consumers, fostering stronger loyalty. Against upscale, integrated wellness providers like Life Time Group Holdings (LTH), XPOF's franchise model offers faster geographic expansion and lower capital intensity, contrasting with LTH's ownership of large-scale facilities. However, XPOF's in-person focus differs significantly from digital-first competitors like Peloton Interactive (PTON), which leads in technological integration for home users. XPOF's challenge lies in balancing its physical community strength with the need for digital innovation to remain competitive.

Portfolio Refinement and Operational Streamlining

Xponential Fitness has actively reshaped its brand portfolio to concentrate on high-return assets. This strategic evolution saw the acquisition of Lindora Franchise, LLC in January 2024, followed by its divestiture in September 2025 to Next Health Management Group, Inc. This move, alongside the divestiture of CycleBar and Rumble brands in July 2025 to Extraordinary Brands, LLC, was designed to "focus the Company's time and capital on our core fitness modalities with the greatest impact to our profitability." The company also divested the Stride and Row House brands in 2024 and wound down AKT franchise operations. These actions underscore a commitment to a leaner, more focused portfolio, which management believes will lead to improved portfolio health, reduced closure rates, and increased average unit volumes (AUVs).

Complementing the brand divestitures, XPOF is overhauling its operational infrastructure. A significant initiative is the outsourcing of retail merchandising to Fit Commerce, effective December 1, 2025. This partnership is expected to improve margins and reduce working capital commitments by shifting the manufacturing and distribution of retail items to a dedicated e-commerce provider. Fit Commerce will pay XPOF minimum guaranteed commissions of approximately $50 million over the initial five-year contract period.

The company has also initiated a comprehensive corporate reorganization, including a reduction in force in October 2025, expected to generate $6 million in annualized SG&A savings. New senior management appointments, including a Chief Legal Counsel and Administrative Officer, a Chief Marketing Officer, and a Chief Human Resource Officer, aim to strengthen leadership and drive efficiency. A new field operations function is being deployed across North America, with 12 field managers by Q2 2025, to provide direct support to franchisees, focusing on best practices for studio operations and successful launches.

Technological Edge and Data-Driven Future

Xponential Fitness's competitive moat is increasingly bolstered by its commitment to technological differentiation and innovation, which underpins its franchise model and member experience. The company's core technology lies in its proprietary systems that facilitate initial development, operational training, preopening support, and ongoing access to technology solutions for franchisees. These solutions include software for statistical tracking, scheduling, member workout statistics, and music.

The tangible benefits of this integrated technology are evident in the operational efficiency and consistent brand experience across its vast network. For instance, Club Pilates, the flagship brand, has seen its 2023 and 2024 cohorts achieve "record year 1 revenue ramps, exceeding the previous 3 vintages at month 12 by an average of 27%." This rapid ramp-up is partly a testament to the effectiveness of XPOF's presale activity and new studio build execution, which are supported by these proprietary systems.

A significant R&D initiative is the development of a "data lakehouse" or data warehouse project. This aims to transform XPOF into a "data-centric company," providing "real-time insights, operational efficiency, and enhanced member experience." This technology will enable brand-specific and department-specific dashboards, offering granular data on sales, studio openings, and franchisee performance. For investors, this translates into a stronger competitive moat by enabling data-driven decision-making, optimizing marketing spend, and improving franchisee profitability, thereby enhancing the overall health and scalability of the system.

Innovation extends to product offerings and studio design. Club Pilates recently launched "Circuit," its first new class in several years, incorporating more intense athletic movements. YogaSix is refining its class menu for 2026 and introduced a "mobility" class blending yoga and functional movement. A new Club Pilates studio design has also been defined, a "big request from our franchisees." These innovations, coupled with aligned marketing efforts, are designed to continuously fuel member engagement and retention, providing a competitive edge in a dynamic fitness market.

Financial Performance and Liquidity

Xponential Fitness's recent financial performance reflects the ongoing strategic transformation and market dynamics. For the three months ended September 30, 2025, total revenue, net, decreased by 2.1% to $78.8 million, and for the nine months ended September 30, 2025, it decreased by 2.2% to $231.9 million. This decline was primarily driven by a significant 49.2% decrease in equipment revenue and a 27% decrease in merchandise revenue for the third quarter, largely due to fewer global equipment installations and lower demand.

However, franchise revenue demonstrated strength, increasing by 16.7% to $51.9 million in Q3 2025, fueled by higher royalty rates from new studios and a notable increase in revenue recognized from franchise agreement terminations. Franchise marketing fund revenue also grew by 3.1% in the quarter.

Operating costs and expenses saw significant shifts. Selling, general and administrative (SG&A) expenses decreased substantially by 46.6% to $24.7 million in Q3 2025. This reduction was primarily due to lower legal expenses, including nonrecurring insurance credits of $5 million in the quarter, and decreased equity-based compensation. Conversely, impairment of goodwill and other noncurrent assets surged by 290% to $17.6 million in Q3 2025, reflecting impairments related to BFT and Lindora goodwill, and CycleBar and BFT intangible assets.

Despite revenue headwinds, Adjusted EBITDA for Q3 2025 increased by 9% year-over-year to $33.5 million, with the Adjusted EBITDA margin expanding to 42% from 38% in the prior year period. The company reported a net loss of $6.7 million in Q3 2025, an improvement from a $18.1 million net loss in Q3 2024.

From a liquidity perspective, XPOF's cash, cash equivalents, and restricted cash stood at $41.5 million as of September 30, 2025, up from $32.7 million at the end of 2024.

Net cash provided by operating activities for the nine months ended September 30, 2025, was $17.6 million, a $6.7 million increase year-over-year.

The company's total long-term debt was $348.9 million as of September 30, 2025. The $5 million promissory note from the CycleBar and Rumble divestiture was collected in full in November 2025, bolstering cash. XPOF is actively pursuing refinancing options for its term loan, which becomes current in May 2026, and has extended its final maturity date to August 1, 2027, through an Eighth Amendment to the Credit Agreement.

Outlook and Key Risks

Xponential Fitness's 2025 outlook reflects a period of "foundation building" and stabilization before an anticipated reacceleration of growth in subsequent years. The company has reiterated its guidance for net new studio openings, revenue, and Adjusted EBITDA, while taking a more conservative approach to North America system-wide sales.

Key Guidance for 2025:

• North America System-Wide Sales: Expected to range from $1.73 billion to $1.75 billion, representing a 12% increase at the midpoint.
• Global Net New Studio Openings: Projected between 170 and 190, a 37% decrease at the midpoint from the prior year, reflecting a deliberate slowdown to ensure quality openings.
• Closures: Expected to be approximately 5% of the global system.
• Total Revenue: Forecasted between $300 million and $310 million, a 5% year-over-year decrease at the midpoint, impacted by recent divestitures.
• Adjusted EBITDA: Anticipated to range from $106 million to $111 million, a 7% year-over-year decrease at the midpoint, translating to a 35.6% margin.
• Capital Expenditure: Approximately $6 million to $8 million, or 2% of revenue at the midpoint, focusing on data transformation and technology investments.
• Levered Adjusted EBITDA Cash Flow Conversion: Expected to be approximately 35%.

Management anticipates increased marketing fund spend in Q4 2025, exceeding revenue by approximately $5 million, primarily for a nationwide Club Pilates branding campaign. This investment is strategic, aiming to test new performance channels and drive organic growth into 2026.

Despite the positive strategic shifts, several risks warrant investor attention. The company has identified material weaknesses in its internal control over financial reporting, including insufficient accounting personnel and deficiencies in impairment assessments and contract completeness. While remediation efforts are underway, these issues could impact financial reporting accuracy. XPOF also faces ongoing government investigations from the U.S. Attorneys Office, FTC, and NYAG, though the SEC concluded its investigation without action in July 2025. The company is involved in various legal proceedings, including class action and shareholder derivative lawsuits, with a $25 million settlement in principle for a franchisee class action.

Furthermore, approximately 40% of global license obligations are over 12 months behind their development schedule, potentially leading to increased terminations and impacting future revenue growth. The goodwill related to the Pure Barre reporting unit is also at a "heightened risk of future impairment" due to potential decreases in fair value. The ability to refinance its significant long-term debt by May 2026 remains a critical financial consideration.

Conclusion

Xponential Fitness is in the midst of a profound strategic transformation, shedding non-core assets and rigorously building a more efficient, data-driven foundation for its boutique fitness empire. While 2025 is positioned as a year of stabilization and operational refinement, the underlying strengths of its core brands, particularly Club Pilates, and a renewed focus on franchisee success and technological innovation, lay the groundwork for a compelling long-term investment thesis. The company's commitment to enhancing its proprietary systems, leveraging AI-powered insights for site selection, and driving product innovation through new class content and studio designs, positions it to deepen its competitive moat in a growing market.

Investors should closely monitor the execution of XPOF's strategic initiatives, particularly the successful integration of its new field operations teams, the efficacy of its increased marketing investments, and the progress in resolving internal control weaknesses and outstanding legal matters. The ability to effectively manage its vast network of franchisees, convert inactive licenses, and successfully refinance its debt will be paramount. With a leaner portfolio and a clear vision for operational excellence and technological leadership, Xponential Fitness aims to reaccelerate growth and deliver enhanced shareholder value in the years to come.