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01/11 13:22
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights several concerning factors: a decrease in global studio openings and revenue, declining EBITDA, and significant delinquent licenses. While there are efforts to improve pricing and marketing strategies, the lack of clear guidance and challenges like labor issues and franchisee pressures overshadow positive aspects like brand strength and efficient new unit ramp-up. Additionally, the Q&A revealed management's avoidance of addressing key issues directly. These factors suggest a likely negative stock price reaction over the next two weeks.
North America system-wide sales $432.2 million, up 10% year-over-year. This was driven primarily by growth from net new studio openings. About 90% of system-wide sales growth came from a higher mix of actively paying members, with the remainder driven by higher pricing and mix shifts.
Same-store sales Down 0.8% for the quarter and up 5.4% on a 2-year stack basis. Factors include lead flow and member conversion issues, and StretchLab's challenges due to Medicare Advantage coverage reductions.
North America run rate average unit volumes (AUVs) $668,000 in the third quarter, up 2% from $654,000 in the prior year period. The increase was largely driven by a higher number of actively paying members and higher pricing for new members.
Consolidated revenue $78.8 million, down 2% or $1.7 million from $80.5 million in the prior year period. 73% of revenue for the quarter was recurring. Decline attributed to lower equipment and merchandise revenue.
Franchise revenue $51.9 million, up 17% year-over-year or $7.4 million. Growth driven by franchise territory license terminations and higher effective royalty rate from new studio openings.
Equipment revenue $7.5 million, down 49% year-over-year or $7.2 million. Decline reflects a 41% drop in global installation volume compared to the prior year period.
Merchandise revenue $4.8 million, down 27% year-over-year or $1.8 million. Decline attributed to lower sales volumes.
Adjusted EBITDA $33.5 million in the third quarter, up 9% or $2.7 million compared to $30.8 million in the prior year period. Growth driven by increased margin from license terminations and increased royalties in franchise revenues.
Adjusted EBITDA margin 42% in the quarter, up from 38% in the prior year period.
Net loss $6.7 million in the third quarter, compared to a net loss of $18.1 million in the prior year period. Improvement attributed to lower SG&A expenses and insurance reimbursements.
Cash, cash equivalents, and restricted cash $41.5 million as of September 30, 2025, up from $32.7 million as of December 31, 2024. Increase due to net cash provided by operating activities and proceeds from brand disposition.
New Class Launch: Club Pilates launched a new class called Circuit, incorporating intense athletic movements accessible to beginners. Yoga6 is refining its class offerings for 2026.
Studio Design: A new Club Pilates studio design was introduced, addressing franchisee requests.
Market Expansion: Opened 78 new studios globally in Q3 2025, including 57 in North America and 21 internationally. Sold 49 licenses, with 16 in North America and 33 internationally. Focused on expanding Club Pilates and BFT in Europe and Asia.
Marketing Enhancements: Improved digital media, CRM, search, and social capabilities. Launched a pricing study for Club Pilates and refreshed corporate brand websites. Initiated a national brand campaign for Club Pilates using new channels like podcasts and YouTube TV.
Operational Support: Introduced field support teams to enhance local studio performance. Transitioned to an outsourced retail model, expected to complete by year-end.
Cost Savings: Executed a reduction in corporate workforce, saving $6 million annually. Streamlined operations post-divestitures.
Brand Portfolio Optimization: Divested CycleBar, Rumble, and Lindora to streamline the brand portfolio and focus on core brands.
Franchisee Support: Enhanced real estate and license sales support using AI-powered tools. Attracted established operators and private equity to the franchisee base.
StretchLab Revenue Trends: StretchLab's revenue trends have been pressured due to Medicare Advantage plans scaling back on stretch as a covered benefit, impacting member flow and revenue.
Same-Store Sales Decline: Same-store sales were down 0.8% for the quarter, driven by lead flow and member conversion issues across the portfolio, as well as brand-specific challenges like StretchLab's positioning and Medicare Advantage reductions.
Studio Closures: There were 32 global studio closures in the third quarter, representing an annualized closure rate of 4%, which could impact overall growth and profitability.
Delayed License Openings: Approximately 40% of global licenses are over 12 months behind their applicable development schedules, delaying revenue generation and expansion plans.
Cost Pressures and SG&A Reduction: The company executed a reduction in force across corporate departments to save $6 million annually, which, while necessary, could impact operational capacity and morale.
Equipment and Merchandise Revenue Decline: Equipment revenue decreased by 49% year-over-year, and merchandise revenue fell by 27%, reflecting lower sales volumes and impacting overall revenue.
Debt Refinancing Risk: The company is actively exploring refinancing options for its term loan, which comes due in May 2026, posing a financial risk if not successfully managed.
Marketing and Lead Management Deficiencies: Lead management system and process deficiencies have been identified, impacting top-of-funnel KPIs and member acquisition.
StretchLab Brand Positioning Challenges: StretchLab faces brand positioning challenges, which, combined with Medicare Advantage reductions, have negatively impacted its performance.
High Studio Closure Rate: The company expects approximately 5% of the global system to close this year, which could hinder growth and profitability.
North America system-wide sales: Projected to range from $1.73 billion to $1.75 billion in 2025, representing a 12% increase at the midpoint.
Global net new studio openings: Expected to range from 170 to 190 in 2025, representing a 37% decrease at the midpoint from the prior year.
Total 2025 revenue: Expected to be between $300 million and $310 million, unchanged from previous guidance, representing a 5% year-over-year decrease at the midpoint.
Adjusted EBITDA: Expected to range from $106 million to $111 million in 2025, unchanged from previous guidance, representing a 7% year-over-year decrease at the midpoint.
SG&A expenses: Expected to range from $130 million to $140 million in 2025, with further breakdowns excluding one-time charges and stock-based costs.
Marketing fund spend: Expected to exceed marketing fund revenue by approximately $5 million in Q4 2025, driven by a nationwide branding campaign for Club Pilates.
Capital expenditure: Anticipated to be approximately $6 million to $8 million for 2025, reduced from previous guidance of $10 million to $12 million.
Tax rate: Expected to be mid- to high single digits for the full year 2025.
Unlevered free cash flow conversion: Anticipated to be approximately 90% of adjusted EBITDA for 2025.
Levered adjusted EBITDA cash flow conversion: Expected to be approximately 35% for 2025.
The selected topic was not discussed during the call.
The earnings call highlights several concerning factors: a decrease in global studio openings and revenue, declining EBITDA, and significant delinquent licenses. While there are efforts to improve pricing and marketing strategies, the lack of clear guidance and challenges like labor issues and franchisee pressures overshadow positive aspects like brand strength and efficient new unit ramp-up. Additionally, the Q&A revealed management's avoidance of addressing key issues directly. These factors suggest a likely negative stock price reaction over the next two weeks.
The earnings call highlights strong financial performance, with a significant improvement in net income and cash reserves. The company is actively addressing backlog issues and is focused on strategic expansions and partnerships, like the Fit Commerce deal, which promises future revenue. Despite some concerns about same-store sales and backlog, the overall guidance and strategic plans are optimistic, including aggressive marketing and expansion of Club Pilates. The positive sentiment from analysts in the Q&A further supports a positive outlook, likely leading to a stock price increase of 2% to 8%.
The earnings call reveals mixed financial performance with a notable revenue decline and significant net loss. Despite some positive metrics like franchise revenue growth and adjusted EBITDA, the high impairment costs and substantial net loss overshadow these positives. The Q&A indicates concerns about underperforming studios and unclear strategic timelines, adding to uncertainty. The market may react negatively to weak revenue guidance and operational challenges, despite some optimistic future plans. Without a market cap, the reaction is assumed to be moderate, leading to a negative sentiment.
The earnings call reveals several concerning factors: missed EBITDA, increased legal expenses, significant impairments, and elevated studio closures. Although there is growth in some areas like North America sales and franchise revenue, the overall financial health is questionable with a net loss and increased debt. The Q&A session highlighted management's evasiveness on key issues, further undermining confidence. Despite some positive aspects like international expansion plans, the negative elements, particularly financial risks, outweigh the positives, leading to a negative stock price prediction over the next two weeks.
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