Xponential Fitness, Inc. (XPOF) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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%.
Key Financial Performance
North American system-wide sales $474 million, up 12% year-over-year. Growth driven primarily by a 1% same-store sales increase within the existing base of open studios, coupled with growth from net new studio openings. Approximately 80% of system-wide sales growth was driven by a higher number of actively paying members and approximately 20% by higher pricing and/or mix shifts.
North American quarterly run rate average unit volumes (AUVs) $659,000, up 3% year-over-year from $638,000. The increase was largely driven by a higher number of actively paying members and higher pricing for new members.
Total members 863,000 at quarter-end, up 8% year-over-year. Growth attributed to increased demand and expansion of studio openings.
Same-store sales Up 1% year-over-year. Growth moderated compared to the first quarter, attributed to strategic actions aimed at improving performance in future periods.
Revenue $76.2 million, down 1% year-over-year from $76.9 million. Decline attributed to lower equipment and merchandise sales volumes.
Franchise revenue $45.4 million, up 5% year-over-year. Growth driven by an increase in royalty revenue supported by an 8% increase in actively paying memberships and an 11% increase in total visits, offset by lower revenues from license terminations.
Equipment revenue $9.5 million, down 26% year-over-year. Decline due to a 39% year-over-year lower volume of global installations.
Merchandise revenue $5.6 million, down 8% year-over-year. Decrease due to lower sales volumes.
Adjusted EBITDA $28.1 million, up 14% year-over-year from $24.7 million. Growth primarily driven by an increase in high-margin royalties in franchise revenues. Adjusted EBITDA margin was 36.9%, up from 32.1% in the prior year period.
Net income $1.3 million, compared to a net loss of $14.3 million in the prior year period. Improvement attributed to higher adjusted EBITDA and lower operating expenses.
Cash, cash equivalents, and restricted cash $38.7 million as of June 30, 2025, up from $26 million as of June 30, 2024. Increase attributed to net cash provided by operating activities and reduced operating expenses.
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Operating Highlights
New retail partnership agreement: Xponential Fitness entered into a new retail partnership agreement with Fit Commerce to outsource its retail operations, which were historically low-margin and resource-intensive. This transition is expected to reduce SG&A expenses and introduce annual minimum guaranteed commissions totaling over $50 million over a 5-year contract period.
Club Pilates innovations: Club Pilates is focusing on monetization strategies, including enhanced pricing, new membership types, and a national brand marketing campaign to drive revenue growth.
Pure Barre marketing: Pure Barre is planning major marketing campaigns for its 25th anniversary to accelerate growth.
YogaSix new class: YogaSix launched a new signature class, 'mobility,' blending yoga and functional movement to attract a broader audience.
StretchLab enhancements: StretchLab is testing new equipment and cross-studio memberships to increase engagement and utilization.
International expansion: Club Pilates reached 150 international studios, and BFT opened its 50th studio in New Zealand. Xponential is also hiring regional directors for Europe and Asia to support global growth.
Divestiture of CycleBar and Rumble: Xponential divested CycleBar and Rumble brands to focus on higher ROI brands like Club Pilates, Pure Barre, YogaSix, and StretchLab. This is expected to improve portfolio health and operational efficiency.
Field operations team expansion: The company expanded its field operations team to support franchisees and improve studio openings.
License management: Xponential is terminating underperforming licenses and implementing a new sales process to ensure timely studio openings.
Leadership transition: Mike Nuzzo was appointed as the new CEO, bringing 25 years of experience in consumer and retail businesses. His focus will be on innovation, franchisee support, and strategic growth.
Retail strategy shift: The partnership with Fit Commerce marks a strategic shift to focus on higher-margin areas and reduce sensitivity to market cycles.
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Risk or Challenges
Retail Operations: The wholesale retail business has been a low-margin segment with significant risks and management attention requirements. Outsourcing to Fit Commerce is expected to reduce SG&A expenses and improve margins, but the transition carries execution risks and dependency on Fit Commerce meeting capital requirements by October.
Brand Divestitures: The divestiture of CycleBar and Rumble aims to focus resources on higher ROI brands. However, this transition involves a period of operational adjustment and potential short-term disruptions.
Franchisee Development Backlog: Approximately 40% of global licenses are over 12 months behind their development schedule. Terminations of these licenses are expected to increase in the second half of the year, which could impact development pipeline health and revenue.
StretchLab Challenges: The brand faces challenges in achieving higher AUV levels. Planned changes, such as cross-studio memberships and new equipment, are being tested but may not yield immediate results.
Macroeconomic Environment: The company has adopted a more conservative revenue outlook due to an unpredictable macroeconomic environment, which could impact consumer spending and franchisee performance.
FDD Renewal Process: Franchise sales in the U.S. are paused due to the FDD renewal process, potentially delaying revenue from new franchise openings.
Studio Closures: The annualized closure rate is 6.9%, with higher closures expected in the second half of the year, particularly from underperforming brands like CycleBar and Rumble.
International Expansion: While international growth is progressing, it requires additional support and resources, such as hiring regional directors, which could strain operational focus and financials.
Dynamic Pricing Risks: Plans to implement dynamic pricing strategies, including new price tiers and cancellation policies, could face resistance from members and impact customer satisfaction.
Leadership Transition: The appointment of a new CEO introduces potential risks related to organizational realignment and strategic execution during the transition period.
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Guidance & Outlook
North America system-wide sales: Projected to range from $1.78 billion to $1.8 billion for 2025, representing a 13% increase at the midpoint from the prior year when removing Rumble and CycleBar from the comparison.
Global net new studio openings: Expected to range from 170 to 190 for 2025, representing a 37% decrease at the midpoint from the prior year, excluding Rumble and CycleBar.
Studio closures: Expected to be approximately 5% of the global system in 2025, excluding Rumble and CycleBar.
Total 2025 revenue: Projected to be between $300 million to $310 million, representing a 5% year-over-year decrease at the midpoint of the guided range.
Adjusted EBITDA for 2025: Expected to range from $106 million to $111 million, representing a 7% year-over-year decrease at the midpoint of the guided range.
Capital expenditure for 2025: Anticipated to be approximately $10 million to $12 million, or approximately 4% of revenue at the midpoint.
SG&A expenses for 2025: Expected to range from $130 million to $140 million, with further exclusions for one-time charges and stock-based costs.
Unlevered free cash flow conversion: Anticipated to be approximately 90% of adjusted EBITDA for 2025.
Levered adjusted EBITDA cash flow conversion: Expected to be 28% for 2025.
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Shareholder Return Plan
Preferred Stock Dividends: $3.8 million in payments on preferred stock dividends for the quarter.
Quarterly Cash Dividends: $1.9 million in quarterly cash dividends related to convertible preferred stock.
Annual Cash Dividends: Approximately $8 million in cash dividends related to convertible preferred stock for the year.
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Key Q&A
Q:What drove the change in same-store sales trend from Q1 to Q2?
A:Same-store sales decreased from 4% in Q1 to 1% in Q2. Club Pilates, despite performing well, saw a decrease from the first quarter, and StretchLab experienced a greater negative same-store sales comp in Q2.
Q:What is the status of the 40% backlog that is behind schedule?
A:The backlog includes banners like Rumble and CycleBar, which will be transferred to a new owner, significantly reducing the backlog. Remaining banners include Club Pilates, StretchLab, and YogaSix. The backlog issues originated from COVID-related delays.
Q:What pricing strategies are being considered for Club Pilates?
A:The company is exploring pricing and monetization strategies, including membership pricing structures, cancel and late fees, and dynamic pricing.
Q:When is the closure rate expected to stabilize?
A:The closure rate is expected to trend down to about 5% in the second half of 2025 and further decrease to mid-to-low single digits by 2026. Closures are currently higher in international markets and among brands like StretchLab and YogaSix.
Q:What are the four items impacting profitability in 2025?
A:1. Rationalization of corporate support functions post-divestiture of Rumble and CycleBar. 2. Lower system-wide sales and royalty impact. 3. Increased marketing spend in the second half of 2025. 4. Conservative approach to SG&A due to the incoming CEO.
Q:What is the focus of the increased marketing spend?
A:The marketing spend is focused on performance marketing to generate leads and conversions. A brand campaign for Club Pilates will also be launched to strengthen brand awareness.
Q:What is the status of the FDD renewal process?
A:The FDD renewal process is ongoing due to the CEO change, requiring amendments. Non-registration states will have quicker approvals, while registration states will take longer. License sales are expected to resume momentum in the second half of the year.
Q:What is the outlook for non-core brands like Lindora and BFT?
A:BFT is performing well internationally and will continue to expand. Lindora is under evaluation, but the company is focused on growing its current portfolio of brands.
Q:What is the updated guidance for same-store sales?
A:The guidance has been adjusted to low-single digits for the second half of the year, down from the previously expected mid-single digits.
Q:What feedback has been received on the new field operations team?
A:The field operations team has been well-received by the system, with franchisees looking forward to support and best practices.
Q:What are the plans for Club Pilates expansion?
A:The company plans to aggressively expand Club Pilates, leveraging its high utilization rates and strong returns. A recent sale of 60 units demonstrates this strategy.
Q:What is the focus of the $20 million marketing campaign for Club Pilates?
A:The campaign will focus on various mediums to strengthen brand awareness and position Club Pilates as a leader in the Pilates space.
Q:What is the breakdown of the system sales guidance adjustment?
A:$120 million of the adjustment is due to the divestiture of CycleBar and Rumble, with the remainder attributed to softer sales at core brands.
Q:What is the impact of the Fit Commerce partnership?
A:The partnership will generate a $50 million minimum guaranteed royalty over five years, starting December 1, with $7 million in the first year. It will also improve cash flow in 2026 and beyond.
Q:What are the lessons learned from divestitures like CycleBar and Rumble?
A:Challenges included lack of brand awareness, ineffective growth strategies, and shifts in consumer trends. Cycling as a modality was particularly impacted by COVID.
Q:Are there any changes in churn or retention patterns post-Q1 promotions?
A:No significant changes in churn or retention patterns have been observed, apart from normal seasonal trends.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the question about the specific timeline for the FDD renewal process in registration states, only stating that it would take longer than non-registration states. Additionally, the response to the question about the impact of the Fit Commerce partnership lacked detailed numerical breakdowns of cost savings.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ADDO Investor
Altobello Raymond
America Meloun
Asia end
Associates Inc
BFT traction
Baird Co
Director
Fit Commerce
Inc Research
Incorporated Research
Kawaja President
LLC Research
Meloun Chief
Nuzzo Chief
Officer King
Research Division
Unidentified
access studio
barre
dedication
divestiture CycleBar
engagement
fitness
marketing campaign
milestone
mobility
moment
priority
return
stretching
term potential
utilization
wave
win
working capital
XPOF Transcript
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The earnings call summary highlights strong financial performance, with significant year-over-year increases in revenue, net income, and adjusted EBITDA. Operating margin and cash flow improvements further support a positive outlook. Despite the lack of strategic initiatives and operational updates, the financial metrics indicate robust growth and efficient management. The absence of negative sentiment in the Q&A section reinforces the positive sentiment, suggesting a likely positive stock price movement in the short term.
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The earnings call highlights strong financial performance, with a 22% increase in revenue and a shift from a net loss to a net income, indicating improved operational efficiencies. Adjusted EBITDA and free cash flow also saw significant growth. Despite risks associated with forward-looking statements, the financial results suggest positive sentiment. The lack of discussion on operational updates and shareholder returns does not detract from the overall positive financial outlook. Without market cap data, the positive sentiment is based on financial growth and improved profitability, suggesting a likely stock price increase of 2% to 8%.
Xponential Fitness, Inc. (XPOF) Q3 2025 Earnings Call Transcript
Unknown11-7
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.
Xponential Fitness, Inc. (XPOF) Q2 2025 Earnings Call Transcript
Positive8-9
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%.
XPOF Slides
XPOF Report
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