• North America Run Rate Average Unit Volumes: $631,000 in Q3, up 8% from $585,000 in the prior year period.
• Global Open Studios: 3,178 studios, with 125 new openings and 49 closures in Q3.
• Licenses Sold: 84 globally in Q3.
• North American Systemwide Sales: $431.2 million, up 21% year over year.
• Same Store Sales Increase: 5% within the existing base of open studios.
• Revenue: $80.5 million, slightly up from $80.4 million in the prior year period.
• Franchise Revenue: $44.5 million, up 22% year over year.
• Equipment Revenue: $14.7 million, up 17% year over year.
• Merchandise Revenue: $6.5 million, down 23% year over year.
• Franchise Marketing Fund Revenue: $8.6 million, up 23% year over year.
• Other Service Revenue: $6.2 million, down 61% from the prior year period.
• Adjusted EBITDA: $31 million, up 17% from $26.5 million in the prior year period.
• Adjusted EBITDA Margin: 38% in Q3, up from 33% in the previous quarter and prior year period.
• Net Loss: $18 million, or a loss of 29 per basic share.
• Cash, Cash Equivalents, and Restricted Cash: $37.8 million as of September 30, 2024.
• Total Long Term Debt: $353.8 million as of September 30, 2024.
• 2024 Revenue Guidance: Expected between $310 million to $320 million.
• 2024 Adjusted EBITDA Guidance: Expected to range from $120 million to $124 million.

• Warning! GuruFocus has detected 6 Warning Signs with XPOF.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Xponential Fitness Inc (NYSE:XPOF) reported an 8% increase in North America run rate average unit volumes, driven by sales growth in scaled brands.
• The company opened 125 new studios globally in Q3, with a significant portion in North America, indicating strong expansion efforts.
• Xponential Fitness Inc (NYSE:XPOF) achieved a 21% year-over-year increase in North American systemwide sales, primarily driven by a 5% same-store sales increase.
• The company is focusing on becoming a data-driven organization, aiming to optimize franchisee operations and improve member experiences through predictive analytics.
• Xponential Fitness Inc (NYSE:XPOF) is actively working on expanding its international footprint, with successful operations in countries like Japan and Australia.

Negative Points

• The company is facing challenges with infrastructure and processes, which are struggling to keep pace with rapid growth.
• There is a need to shift from a sales-first to a marketing and operations-driven culture to better support franchisees.
• Xponential Fitness Inc (NYSE:XPOF) reported a net loss of $18 million in the third quarter, attributed to increased litigation expenses and restructuring charges.
• The company experienced a decline in merchandise revenue by 23% year-over-year, attributed to efforts to reduce inventory levels.
• There were 49 global studio closures in the period, with expectations of closures trending at the higher end of the 3% to 5% range for the year.

Q & A Highlights

Q: Can you provide perspective on the potential divestiture of certain concepts if they don't meet performance hurdles? A: Mark King, CEO: We like all of our brands strategically and see potential in them. We plan to invest in different brands in 2025 to give them a chance to gain momentum. We'll evaluate based on studio profitability and license sales. Currently, there's no plan to divest any brands; we'll assess annually based on performance.

Q: Why is Japan a focus for international expansion, and are there other countries of interest? A: Mark King, CEO: Japan is our second-largest territory with 75 studios and positive momentum. We have strong partners there. We also see potential in Australia, Mexico, Singapore, and New Zealand. Key factors for expansion include market size and strong, well-capitalized franchise partners.

Q: How would you assess the consistency of execution across brands, and is there a benefit to consolidation? A: Mark King, CEO: Execution varies; Club Pilates has excellent execution, while smaller brands need improvement. We're standardizing best practices across brands and creating a playbook for consistent execution. Consolidation is still under evaluation.

Q: What can be done in the near term to support sales trends at concepts with decelerating trends? A: Mark King, CEO: The focus is on the member experience. We're evaluating how we spend marketing funds locally to maximize benefits for franchisees. We'll have more specific plans by brand in the next earnings call.

Q: Can you provide more information about the $10 million litigation expense and potential reimbursement? A: John Meloun, CFO: We have a $7.5 million retainer on our D&O policy and are working with carriers for reimbursement. Future legal costs related to regulatory defense will be covered by D&O, minimizing cash outflow.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.