XPOF Xponential Fitness Inc

Company raises full year 2023 guidance for revenue and tightens top end ranges for new studio openings, system-wide sales and Adjusted EBITDA⁽⁴⁾

Grew Q3 2023 revenue 26% and North America system-wide sales¹ 35%, compared to Q3 2022

Sold 216 franchise licenses and opened 127 new studios in Q3 2023

Sold 6,088 total franchise licenses and had 2,980 total studios operating as of Q3 2023

Grew revenue 26% to $80.4 million.

Increased North America system-wide sales¹ by 35% to $356.7 million.

Reported North America same store sales² growth of 15%, compared to growth of 17% in Q3 of 2022.

Reported North America quarterly run-rate average unit volume (AUV)³ of $564,000, compared to $489,000.

Posted net loss of $5.2 million, or earnings of $0.91 per basic share, on a share count of 32.3 million shares of Class A Common Stock, compared to a net loss of $13.1 million, or a loss of $1.53 per basic share, on a share count of 26.2 million shares of Class A Common Stock.

Posted adjusted net income of $6.0 million, or adjusted earnings of $0.09 per basic share, compared to adjusted net income of $8.0 million, or adjusted earnings of $0.10 per basic share.

Reported Adjusted EBITDA⁴ of $26.5 million, an increase of 33%, compared to $20.0 million.

New studio openings in the range of 550 to 560, or an increase of 9% at the midpoint as compared to full year 2022; this compares to previous guidance of 540 to 560;

North America system-wide sales in the range of $1.390 billion to $1.395 billion, or an increase of 35% at the midpoint as compared to full year 2022; this compares to previous guidance of $1.385 billion to $1.395 billion;

Revenue in the range of $305.0 million to $310.0 million, or an increase of 26% at the midpoint as compared to full year 2022; this compares to previous guidance of $295.0 million to $305.0 million; and

Adjusted EBITDA in the range of $104.5 million to $106.5 million, or an increase of 42% at the midpoint as compared to full year 2022; this compares to previous guidance of $102.5 million to $106.5 million.

Tax rate in the mid-to-high single digits;

Share count of 31.7 million shares of Class A Common Stock for the GAAP EPS and Adjusted EPS calculations. A full explanation of the Company’s share count calculation and associated EPS and Adjusted EPS calculations can be found in the tables at the end of this press release; and

$1.9 million in quarterly dividends paid related to the Company’s Convertible Preferred Stock.

Assets

Current Assets:

Cash, cash equivalents and restricted cash

Accounts receivable, net

Inventories

Prepaid expenses and other current assets

Deferred costs, current portion

Notes receivable from franchisees, net

Total current assets

Property and equipment, net

Right-of-use assets

Goodwill

Intangible assets, net

Deferred costs, net of current portion

Notes receivable from franchisees, net of current portion

Other assets

Total assets

Liabilities, redeemable convertible preferred stock and equity (deficit)

Current Liabilities:

Accounts payable

Accrued expenses

Deferred revenue, current portion

Current portion of long-term debt

Other current liabilities

Total current liabilities

Deferred revenue, net of current portion

Contingent consideration from acquisitions

Long-term debt, net of current portion, discount and issuance costs

Lease liability

Other liabilities

Total liabilities

Commitments and contingencies

Redeemable convertible preferred stock, $0.0001 par value, 400,000 shares authorized, 114,660 and 200,000 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Stockholders’ equity (deficit):

Undesignated preferred stock, $0.0001 par value, 4,600,000 shares authorized, none issued and outstanding as of September 30, 2023 and December 31, 2022

Class A common stock, $0.0001 par value, 500,000,000 shares authorized, 31,477,165 and 27,571,312 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Class B common stock, $0.0001 par value, 500,000,000 shares authorized, 16,566,027 and 21,647,447 shares issued, and 16,491,502 and 21,572,922 shares outstanding as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital

Receivable from shareholder

Accumulated deficit

Treasury stock, at cost, 74,525 shares outstanding as of September 30, 2023 and December 31, 2022

Total stockholders’ deficit attributable to Xponential Fitness, Inc.

Noncontrolling interests

Total stockholders’ deficit

Total liabilities, redeemable convertible preferred stock and stockholders’ deficit

Revenue, net:

Franchise revenue

Equipment revenue

Merchandise revenue

Franchise marketing fund revenue

Other service revenue

Total revenue, net

Operating costs and expenses:

Costs of product revenue

Costs of franchise and service revenue

Selling, general and administrative expenses

Depreciation and amortization

Marketing fund expense

Acquisition and transaction expenses (income)

Total operating costs and expenses

Operating income (loss)

Other (income) expense:

Interest income

Interest expense

Other expense

Total other expense

Income (loss) before income taxes

Income taxes (benefit)

Net income (loss)

Less: net income (loss) attributable to noncontrolling interests

Net income (loss) attributable to Xponential Fitness, Inc.

Net income (loss) per share of Class A common stock:

Basic

Diluted

Weighted average shares of Class A common stock outstanding:

Basic

Diluted

Cash flows from operating activities:

Net income

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Amortization and write off of debt issuance cost

Amortization of discount on long-term debt

Change in contingent consideration from acquisitions

Amortization of right-of-use assets

Bad debt expense (recovery)

Equity-based compensation

Non-cash interest

Write down of goodwill and brand assets

Gain on disposal of assets

Changes in assets and liabilities, net of effect of acquisitions:

Accounts receivable

Inventories

Prepaid expenses and other current assets

Operating lease liabilities

Deferred costs

Notes receivable, net

Accounts payable

Accrued expenses

Other current liabilities

Deferred revenue

Other assets

Other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Purchases of property and equipment

Proceeds from sale of assets

Purchase of studios

Purchase of intangible assets

Notes receivable issued

Notes receivable payments received

Net cash used in investing activities

Cash flows from financing activities:

Borrowings from long-term debt

Payments on long-term debt

Debt issuance costs

Payment of preferred stock dividend and deemed cash dividend

Payment of contingent consideration

Payments for taxes related to net share settlement of restricted share units

Payment for tax receivable agreement

Payments for redemption of preferred stock

Payments for distributions to Pre-IPO LLC Members

Repurchase of Class A common stock

Payment received from shareholder

Loan to shareholder

Proceeds from disgorgement of stockholders short-swing profits

Net cash used in financing activities

Increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Numerator:

Net income (loss)

Less: net (income) loss attributable to noncontrolling interests

Less: dividends on preferred shares

Add: deemed contribution (dividend)

Add: deemed contribution from redemption of convertible preferred stock

Net income (loss) attributable to XPO Inc. - basic

Add: net income (loss) attributable to non-controlling interests

Add: dividends on preferred shares

Less: deemed (contribution) dividend

Less: Deemed contribution from redemption of convertible preferred stock

Net income (loss) attributable to XPO Inc. - diluted

Denominator:

Weighted average shares of Class A common stock outstanding - basic

Effect of dilutive securities:

Rumble Class A common stock

Restricted stock units

Convertible preferred stock

Conversion of Class B common stock to Class A common stock

Weighted average shares of Class A common stock outstanding - diluted

Net earnings (loss) per share attributable to Class A common stock - basic

Net earnings (loss) per share attributable to Class A common stock - diluted

Anti-dilutive shares excluded from diluted earnings (loss) per share of Class A common stock:

Rumble Class A common stock

Restricted stock units

Conversion of Class B common stock to Class A common stock

Convertible preferred stock

Accelerated Purchase Program—final settlement

Rumble contingent shares

Profits interests, time vesting

Net income (loss)

Interest expense, net

Income taxes

Depreciation and amortization

EBITDA

Equity-based compensation

Employer payroll taxes related to equity-based compensation

Acquisition and transaction expenses (income)

Litigation expenses

Employee retention credit

Financial transaction fees and related expenses

TRA remeasurement

Write down of goodwill and brand assets

Restructuring and related charges

Adjusted EBITDA

Net income (loss)

Change in fair value of contingent consideration

TRA remeasurement

Write down of goodwill and brand assets

Restructuring and related charges

Adjusted net income

Adjusted net income (loss) attributable to noncontrolling interest

Adjusted net income attributable to Xponential Fitness, Inc.

Dividends on preferred shares

Earnings (loss) per share - basic numerator

Add: adjusted net income attributable to noncontrolling interest

Add: dividends on preferred shares

Earnings (loss) per share - diluted numerator

Adjusted net earnings (loss) per share - basic

Adjusted net earnings (loss) per share - diluted

Weighted average shares of Class A common stock outstanding - basic

Effect of dilutive securities:

Rumble Class A common stock

Restricted stock units

Convertible preferred stock

Conversion of Class B common stock to Class A common stock

Weighted average shares of Class A common stock outstanding - diluted

Anti-dilutive shares excluded from diluted earnings per share of Class A common stock:

Rumble Class A common stock

Restricted stock units

Convertible preferred stock

Conversion of Class B common stock to Class A common stock

Rumble contingent shares

Profits interests, time vesting

System-wide sales represent gross sales by all North America studios. System-wide sales include sales by franchisees that are not revenue realized by us in accordance with GAAP. While we do not record sales by franchisees as revenue, and such sales are not included in our consolidated financial statements, this operating metric relates to our revenue because we receive approximately 7% and 2% of the sales by franchisees as royalty revenue and marketing fund revenue, respectively. We believe that this operating measure aids in understanding how we derive our royalty revenue and marketing fund revenue and is important in evaluating our performance. System-wide sales growth is driven by new studio openings and increases in same store sales. Management reviews system-wide sales weekly, which enables us to assess changes in our franchise revenue, overall studio performance, the health of our brands and the strength of our market position relative to competitors.

Same store sales refer to period-over-period sales comparisons for the base of studios. In accordance with industry standard, we define the same store sales base to include studios in North America that are in traditional locations and that have generated positive sales for at least 13 consecutive calendar months as of the measurement date. Any transfer of ownership of an existing studio does not affect this metric. We measure same store sales based solely upon monthly sales as reported by franchisees. This measure highlights the performance of existing studios, while excluding the impact of new studio openings. Management reviews same store sales to assess the health of the franchised studios.

AUV is calculated by dividing sales during the applicable period for all studios being measured by the number of studios being measured. Quarterly run-rate AUV consists of average quarterly sales activity for all North America traditional studio locations that are at least 6 months old at the beginning of the respective quarter, and that have non-zero sales in the period, multiplied by four. Monthly run-rate AUV is calculated as the monthly AUV multiplied by twelve, for studios that are at least 6 months old at the beginning of the respective month, operate in traditional locations and have nonzero sales. AUV growth is primarily driven by changes in same store sales and is also influenced by new studio openings. Management reviews AUV to assess studio economics.

We define Adjusted EBITDA as EBITDA (net income/loss before interest, taxes, depreciation and amortization), adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include equity-based compensation and related employer payroll taxes, acquisition and transaction expenses (including change in contingent consideration), litigation expenses (consisting of legal and related fees for specific proceedings that arise outside of the ordinary course of our business), employee retention credit (a tax credit for retaining employees throughout the COVID-19 pandemic), fees for financial transactions, such as secondary public offering expenses for which we do not receive proceeds (including bonuses paid to executives related to completion of such transactions), expense related to the remeasurement of our TRA obligation, write down of goodwill and brand assets, and restructuring and related charges that we do not believe reflect our underlying business performance and affect comparability. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We believe that Adjusted EBITDA, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of operations because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period.