Xponential Fitness, Inc. - A Diversified Fitness Franchise Platform

Xponential Fitness, Inc. is one of the leading global franchisors of boutique health and wellness brands. The company operates a diversified platform of eight brands spanning verticals like Pilates, indoor cycling, barre, stretching, boxing, functional training, metabolic health, and yoga.

Financial Performance Overview

In the first quarter of 2025, Xponential Fitness generated $76.9 million in total revenue, down 3.5% from the same period in 2024. This decrease was primarily due to lower equipment and merchandise revenue, partially offset by an increase in franchise revenue.

Franchise revenue, which makes up the majority of Xponential’s total revenue, grew 5.1% year-over-year to $43.9 million. This increase was driven by higher franchise royalty fees, technology fees, and training fees, reflecting growth in same-store sales and the total number of operating studios globally.

However, equipment revenue declined 20.1% to $11.1 million, and merchandise revenue fell 25.0% to $6.3 million compared to the prior year period. These decreases were attributed to lower demand from studios and a drop in vendor rebates.

On the expense side, Xponential’s total operating costs and expenses decreased 6.3% to $67.2 million. This was mainly due to lower costs of product revenue, costs of franchise and service revenue, and depreciation and amortization. However, selling, general and administrative expenses increased 24.4% to $45.5 million, primarily due to higher legal expenses related to government investigations.

As a result, Xponential reported a net loss of $2.7 million in the first quarter of 2025, an improvement from a $3.8 million net loss in the same period of 2024.

Segment Information and Geographic Expansion

Xponential operates in one reportable and operating segment - the franchise business of its health and wellness brands. The company generates the majority of its revenue and has the majority of its assets within the United States. During the first quarter of 2025, the company generated $2.6 million of revenue outside the US, primarily from franchise development and royalty fees.

As of March 31, 2025, Xponential had 3,298 studios open globally, with 2,806 in North America and 492 internationally. The company’s franchisees were contractually committed to open an additional 1,509 studios in North America and 1,027 studios internationally.

Xponential continues to focus on international expansion, having developed strong relationships with master franchisees to propel growth outside of North America. The company may also consider acquisitions and partnerships to enhance and expand its brands and operations domestically.

Key Performance Indicators

Xponential tracks several key metrics to measure its performance, including:

• System-wide sales: Grew 17.7% year-over-year to $466.8 million
• New studio openings: 116 new studios opened globally in Q1 2025
• Total operating studios: 3,298 studios globally as of March 31, 2025
• Licenses sold: 6,286 licenses sold globally as of March 31, 2025
• Average Unit Volume (AUV): $673,000 for the last 12 months as of March 31, 2025
• Same-store sales: Increased 4% in Q1 2025

These metrics demonstrate Xponential’s continued growth in studio count, license sales, and same-store sales, though the pace of new studio openings has slowed somewhat compared to the prior year period.

Challenges and Restructuring Efforts

Xponential has faced some regulatory challenges, receiving inquiries from several state agencies regarding its compliance with franchise laws. This led the company to pause offering or selling franchises for an extended period while it updated its franchise disclosure documents.

To address these issues and focus on its core franchise operations, Xponential initiated a restructuring plan in 2023 that involves exiting company-owned transition studios and other cost-saving measures. The company expects to recognize additional restructuring charges of $5.2 million to $9.0 million throughout 2025 related to lease terminations and other exit costs.

Once completed, Xponential estimates the restructuring plan will generate $13.5 million to $15.5 million in annualized savings. However, the company may not be able to fully realize these cost savings if it cannot reach agreements with contractual counterparties or if the charges are greater than expected.

Liquidity and Capital Resources

As of March 31, 2025, Xponential had $26.6 million in cash and cash equivalents, as well as $16.0 million in restricted cash. The company believes its available cash and cash generated from operations will be sufficient to fund its operations, debt service, and other obligations for at least the next 12 months.

Xponential has a $212 million senior secured term loan facility, with a total principal amount outstanding of $379.1 million as of March 31, 2025, including an exit fee. The company recently amended this credit facility to extend the maturity date to August 2027 and obtain an additional $10 million in term loans.

The credit facility contains certain financial covenants that Xponential must comply with, including maintaining specific leverage ratios, liquidity levels, and EBITDA levels. As of March 31, 2025, the company was in compliance with these covenants.

Outlook and Risks

Xponential’s future performance will depend on its ability to continue attracting new qualified franchisees, sell additional licenses to existing franchisees, and open new studios in a timely manner. The company’s revenue growth is also tied to increasing same-store sales at its franchised locations.

Additionally, Xponential’s results may be impacted by macroeconomic factors, such as inflation and recession, that could affect consumer demand for its fitness services. Competition for discretionary consumer spending could also impact the returns generated by Xponential’s franchisees.

The company’s restructuring efforts and ability to realize the anticipated cost savings will be crucial in improving its profitability. However, Xponential may face challenges in reaching agreements with contractual counterparties or the restructuring charges could be higher than expected, which could negatively impact the expected benefits.

Regulatory compliance also remains an ongoing risk for Xponential, as evidenced by the recent inquiries from state agencies. The company’s inability to offer and sell franchises for an extended period has already slowed its growth, and further regulatory issues could continue to impact its expansion plans and financial performance.

Overall, Xponential Fitness appears to be navigating a period of transition, as it works to address regulatory challenges, optimize its operations through restructuring, and continue growing its diversified portfolio of fitness brands both domestically and internationally. The company’s ability to execute on its strategic initiatives and manage the various risks it faces will be key to its future success.