8-K: Xponential Fitness Reports Mixed Q3 2024 Results: System-Wide Sales Up, Net Loss Widens

Xponential Fitness saw a 21% year-over-year increase in system-wide sales to $431.2 million in Q3 2024, but also reported a net loss of $18.0 million.

Summary

• Xponential Fitness reported its financial results for the third quarter of 2024, showing a mixed performance.
• System-wide sales increased by 21% year-over-year to $431.2 million.
• The company's quarterly average unit volume (AUV) run rate grew by 8% year-over-year to $631,000.
• Total membership reached 827,000, a 16% increase year-over-year.
• Xponential sold 84 franchise licenses and opened 125 new studios in the quarter.
• Reported revenue was $80.5 million, consistent with the prior year period.
• North America same-store sales growth was 5%, down from 15% in the prior year.
• The company posted a net loss of $18.0 million, or a loss of $0.29 per basic share, compared to a net loss of $5.2 million, or earnings of $0.91 per basic share, in the prior year.
• Adjusted net loss was $0.2 million, or a loss of $0.04 per basic share, compared to adjusted net income of $6.0 million, or earnings of $0.09 per basic share, in the prior year.
• Adjusted EBITDA was $31.0 million, up 17% from $26.5 million in the prior year period.
• The company had $37.8 million in cash and $353.8 million in total long-term debt as of September 30, 2024.
• Net cash provided by operating activities was $10.9 million for the nine months ended September 30, 2024.
• The company has lowered its guidance for global new studio openings to a range of 490 to 510, a 10% decrease at the midpoint compared to full year 2023.
• The company is reiterating its 2024 guidance for system-wide sales, total revenue and adjusted EBITDA.

Sentiment

Score: 5

Explanation: The document presents mixed results with strong system-wide sales growth but a significant net loss and lowered guidance for studio openings. The sentiment is neutral to slightly negative due to the increased losses and slowing same-store sales growth.

Positives

• System-wide sales showed strong growth, increasing by 21% year-over-year.
• The company's AUV run rate increased by 8% year-over-year, indicating improved performance per studio.
• Total membership grew by 16% year-over-year, demonstrating increased customer base.
• Adjusted EBITDA increased by 17% year-over-year, showing improved profitability on an adjusted basis.
• The company sold 84 franchise licenses and opened 125 new studios, indicating continued expansion.

Negatives

• The company reported a net loss of $18.0 million, a significant increase from the $5.2 million loss in the prior year.
• Same-store sales growth in North America slowed to 5%, compared to 15% in the prior year.
• The company lowered its guidance for global new studio openings by 10% at the midpoint compared to full year 2023.
• The net loss was impacted by increased litigation expenses, acquisition and transaction expenses, and restructuring charges.

Risks

• The company faces risks related to its relationships with franchisees and international partners.
• There are challenges in opening studios by franchisees and ensuring they generate sufficient revenue.
• Expansion into international markets poses risks.
• The company is exposed to general economic conditions and industry trends.
• The company's net loss was significantly impacted by increased litigation expenses, acquisition and transaction expenses, and restructuring charges.

Future Outlook

The company is reiterating its 2024 guidance for system-wide sales, total revenue, and adjusted EBITDA, but has lowered its guidance for global new studio openings to a range of 490 to 510.

Management Comments

• Following my first 100 days, I'm looking forward to sharing my vision for the Company with all of you this afternoon, said Mark King, CEO of Xponential Fitness, Inc.
• My focus is on fostering a culture at Xponential that is conducive to long-term success.
• We need to transform into a marketing and operations-driven organization that places franchisee success at the center.

Industry Context

The boutique fitness industry is competitive, and Xponential's results reflect the challenges of maintaining growth while managing costs. The company's focus on franchise success and marketing is a common strategy in this sector.

Comparison to Industry Standards

• Xponential's system-wide sales growth of 21% is strong compared to some competitors, but the decrease in same-store sales growth to 5% is a concern.
• Companies like F45 Training have also experienced fluctuations in growth and profitability, highlighting the volatility in the boutique fitness market.
• The adjusted EBITDA growth of 17% is positive, but the net loss indicates that the company is still facing challenges in achieving overall profitability.
• Compared to larger fitness chains, Xponential's focus on boutique brands provides a niche market, but also requires careful management of franchise relationships and brand consistency.

Stakeholder Impact

• Shareholders will be concerned about the increased net loss and slowing same-store sales growth.
• Franchisees will be impacted by the company's focus on franchisee success and marketing.
• Employees may be affected by the company's restructuring and strategic shifts.
• Customers may experience changes in studio offerings and marketing efforts.

Next Steps

• The company will host a conference call to discuss the results.
• Management will focus on fostering a culture conducive to long-term success.
• The company will transform into a marketing and operations-driven organization.

Key Dates

Keywords

franchise, fitness, boutique, system-wide sales, AUV, EBITDA, studio openings, membership, financial results, Xponential Fitness