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Xponential Fitness, Inc. 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

Xponential Fitness, Inc.

Filing date:

03/14/2025

TLDR:

ELI5:

Xponential Fitness, like a company that sells franchises for gyms, lost money this year even though they sold more gym licenses. They have some problems with how they keep track of their money and are being investigated by the government, but they also have chances to grow by selling more franchises overseas.

Accession #:

0000950170-25-039541

Published on

Analyst Summary

  • Total revenue increased slightly by 0.8% to $320.3 million, with franchise revenue increasing by 21.8% but offset by a decrease in equipment and merchandise revenue.
  • The company reported a net loss of $98.7 million, a significant increase from the $6.4 million net loss in the previous year, driven by impairment charges, restructuring costs, and legal expenses.
  • Operating expenses increased significantly, contributing to a negative operating margin of -16.7%.
  • Cash and cash equivalents decreased to $16.6 million, and the company has a total indebtedness of $352.4 million.
  • Management highlights growth in system-wide sales and studio openings, focusing on franchisee support, member experience, international expansion, and data-driven decision-making.
  • The company acknowledges challenges related to government investigations and internal control weaknesses.
  • Gross Profit Margin decreased slightly from 76.0% to 74.6%.
  • Operating Profit Margin decreased significantly from 11.0% to -16.7%.
  • Net Profit Margin decreased significantly from -2.0% to -30.8%.
  • Return on Assets (ROA) decreased significantly from -1.2% to -24.5%.
  • Current Ratio decreased from 0.95 to 0.78, indicating potential liquidity concerns.
  • Quick Ratio decreased from 0.80 to 0.69, indicating potential short-term liquidity issues.
  • Cash Ratio decreased from 0.36 to 0.30.
  • Debt-to-Assets Ratio increased from 1.18 to 1.48, indicating high leverage.
  • Interest Coverage Ratio decreased from 0.90 to -1.16, indicating difficulty in covering interest expenses.
  • Inventory Turnover decreased from 7.74 to 4.64.
  • Revenue Growth increased by 0.8%.
  • Net Income Growth increased by 1429.1%.
  • Adjusted EBITDA increased year over year.
  • System-wide sales are increasing year over year.
  • The number of new studio openings decreased in 2024 compared to 2023.
  • The number of studios operating globally is increasing year over year.
  • AUV is increasing year over year.
  • Same store sales are decreasing year over year.

Opportunities and Risks

  • Material Weaknesses: Identified in internal controls over financial reporting, raising concerns about the reliability of financial information.
  • Government Investigations: Ongoing investigations by the SEC, USAO, FTC, and NYAG could lead to significant penalties and reputational damage.
  • High Debt: Substantial indebtedness could limit the company’s financial flexibility.
  • Franchisee Dependence: Financial results are heavily reliant on the performance of franchisees.
  • Competition: The boutique fitness market is highly competitive.
  • Asset-Light Model: Franchise model allows for capital-efficient growth.
  • International Expansion: Significant potential for growth in international markets.
  • Diversified Brand Portfolio: Reduces risk and expands market reach.
  • Digital Platform: Opportunity to capitalize on the growing demand for digital fitness solutions.
  • Lindora Acquisition: Expansion into the medically guided wellness and metabolic health solutions market.

Potential Implications

Company Performance

  • Prioritize remediation of internal control weaknesses.
  • Proactively address the government investigations and mitigate potential penalties.
  • Carefully manage debt levels and explore refinancing options.
  • Focus on improving franchisee profitability and same-store sales.
  • Continue to develop and expand the digital platform.

Xponential Fitness, Inc. (XPOF) – 10-K Filing Analysis

Executive Summary

This report analyzes Xponential Fitness, Inc.’s 10-K filing for the fiscal year ended December 31, 2024. The company, a leading franchisor of boutique fitness brands, faces challenges despite growth in studio numbers and system-wide sales. Key issues include a net loss, material weaknesses in internal controls, ongoing government investigations, and significant debt. While the asset-light franchise model and international expansion present opportunities, the risks necessitate a cautious approach.

Company Overview

Xponential Fitness, Inc. franchises eight boutique fitness brands across various modalities. The company operates primarily through a franchise model, generating revenue from franchise fees, royalties, equipment sales, and other services. Recent developments include a CEO transition, the acquisition of Lindora, and the divestiture of Stride and Row House brands. The company is currently under investigation by the SEC, USAO, FTC, and NYAG.

Detailed Analysis

Financial Statement Analysis

Key financial highlights and ratios:

  • Revenue: Total revenue increased slightly by 0.8% to $320.3 million. Franchise revenue increased by 21.8%, while equipment and merchandise revenue decreased.
  • Profitability: Net loss of $98.7 million, a significant increase from the $6.4 million net loss in the previous year.
  • Operating Expenses: Increased significantly, driven by impairment charges, restructuring costs, and legal expenses.
  • Liquidity: Cash and cash equivalents decreased to $16.6 million.
  • Debt: Total indebtedness of $352.4 million.

Key Ratios and Trends

Ratio 2024 2023 Trend
Gross Profit Margin 81.4% 81.6% Slight Decrease
Operating Margin -16.7% 11.0% Significant Decrease
Debt-to-Equity Ratio Negative Equity Negative Equity N/A

Management’s Discussion and Analysis (MD&A) Insights

  • Management highlights growth in system-wide sales and studio openings.
  • Emphasis on franchisee support and member experience.
  • Focus on international expansion and data-driven decision-making.
  • Acknowledges challenges related to government investigations and internal control weaknesses.

Risks and Opportunities

Risks:
  • Material Weaknesses: Identified in internal controls over financial reporting, raising concerns about the reliability of financial information.
  • Government Investigations: Ongoing investigations by the SEC, USAO, FTC, and NYAG could lead to significant penalties and reputational damage.
  • High Debt: Substantial indebtedness could limit the company’s financial flexibility.
  • Franchisee Dependence: Financial results are heavily reliant on the performance of franchisees.
  • Competition: The boutique fitness market is highly competitive.
Opportunities:
  • Asset-Light Model: Franchise model allows for capital-efficient growth.
  • International Expansion: Significant potential for growth in international markets.
  • Diversified Brand Portfolio: Reduces risk and expands market reach.
  • Digital Platform: Opportunity to capitalize on the growing demand for digital fitness solutions.
  • Lindora Acquisition: Expansion into the medically guided wellness and metabolic health solutions market.

Red Flags and Uncommon Metrics

  • Restatements: Correction of previously issued financial statements indicates potential accounting issues.
  • Goodwill Impairments: Significant impairment charges suggest overvaluation of acquired assets.
  • High Legal Expenses: Substantial legal expenses related to government investigations.
  • Negative Equity: Negative equity position due to accumulated losses.

Conclusion and Actionable Insights

Xponential Fitness faces significant challenges despite its growth initiatives. The material weaknesses in internal controls and ongoing government investigations are major concerns. The high debt level further constrains the company’s financial flexibility. While the asset-light franchise model and international expansion offer opportunities, the risks necessitate a cautious approach.

Overall Assessment: Hold/Sell. The risks outweigh the opportunities at this time.

Recommendations:

  • Prioritize remediation of internal control weaknesses.
  • Proactively address the government investigations and mitigate potential penalties.
  • Carefully manage debt levels and explore refinancing options.
  • Focus on improving franchisee profitability and same-store sales.
  • Continue to develop and expand the digital platform.

Financial Analysis of Xponential Fitness, Inc. (XPOF)

1. Commentary

Xponential Fitness’s financial performance in 2024 reveals a mixed picture. System-wide sales increased, and the number of studios operating globally grew, indicating continued expansion. However, the company experienced a significant net loss, driven by a substantial increase in impairment of goodwill and other assets. While franchise revenue increased, other service revenue declined sharply, contributing to a slight overall revenue increase. The company’s Adjusted EBITDA remained positive, suggesting underlying operational strength despite the net loss.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin:

    • Metric: (Total Revenue – Costs of Product Revenue – Costs of Franchise and Service Revenue) / Total Revenue
      • 2024: ($320,346 – $59,477 – $21,806) / $320,346 = 74.6%
      • 2023: ($317,937 – $60,331 – $15,985) / $317,937 = 76.0%
    • Trend: (74.6% – 76.0%) / 76.0% = -1.8%
    • Industry: The fitness industry has varying margins depending on the business model. Franchise-based models often have higher gross margins than direct operators. A reasonable benchmark for franchise-based fitness companies is between 70% and 85%. Xponential’s gross profit margin is within this range.
  • Operating Profit Margin:

    • Metric: Operating Income (Loss) / Total Revenue
      • 2024: -$53,614 / $320,346 = -16.7%
      • 2023: $34,906 / $317,937 = 11.0%
    • Trend: (-16.7% – 11.0%) / 11.0% = -251.8%
    • Industry: The fitness industry can vary widely, but a healthy operating margin is typically between 10% and 20%. Xponential’s operating margin decreased significantly and is now negative.
  • Net Profit Margin:

    • Metric: Net Income (Loss) / Total Revenue
      • 2024: -$98,696 / $320,346 = -30.8%
      • 2023: -$6,443 / $317,937 = -2.0%
    • Trend: (-30.8% – (-2.0%)) / -2.0% = 1440%
    • Industry: A healthy net profit margin for fitness companies is typically between 5% and 15%. Xponential’s net profit margin is significantly negative.
  • Return on Assets (ROA):

    • Metric: Net Income (Loss) / Total Assets
      • 2024: -$98,696 / $403,397 = -24.5%
      • 2023: -$6,443 / $529,534 = -1.2%
    • Trend: (-24.5% – (-1.2%)) / -1.2% = 1941.7%
    • Industry: A good ROA for the fitness industry is generally considered to be above 5%. Xponential’s ROA is significantly negative.
  • Return on Equity (ROE):

    • Metric: Net Income (Loss) Attributable to Xponential Fitness, Inc. / Total Stockholders’ Deficit Attributable to Xponential Fitness, Inc.
      • 2024: -$67,658 / -$216,571 = 31.2%
      • 2023: -$4,001 / -$130,004 = 3.1%
    • Trend: (31.2% – 3.1%) / 3.1% = 906.5%
    • Industry: A good ROE is generally considered to be above 10%. Xponential’s ROE is positive due to the negative equity, but this is not a sustainable indicator of performance.
  • Earnings Per Share (EPS) – Basic and Diluted:

    • Metric: From the income statement.
      • 2024: Basic: -$2.27, Diluted: -$2.27
      • 2023: Basic: $1.08, Diluted: -$0.52
    • Trend:
      • Basic: (-$2.27 – $1.08) / $1.08 = -310.2%
      • Diluted: (-$2.27 – (-$0.52)) / (-$0.52) = 336.5%
    • Industry: EPS varies significantly. The trend is negative.

Liquidity

  • Current Ratio:

    • Metric: Total Current Assets / Total Current Liabilities
      • 2024: $84,147 / $107,887 = 0.78
      • 2023: $96,980 / $102,234 = 0.95
    • Trend: (0.78 – 0.95) / 0.95 = -17.9%
    • Industry: A current ratio of 1.5 to 2.0 is generally considered healthy. Xponential’s current ratio is below 1, indicating potential liquidity concerns.
  • Quick Ratio (Acid-Test Ratio):

    • Metric: (Total Current Assets – Inventories) / Total Current Liabilities
      • 2024: ($84,147 – $10,016) / $107,887 = 0.69
      • 2023: ($96,980 – $15,588) / $102,234 = 0.80
    • Trend: (0.69 – 0.80) / 0.80 = -13.8%
    • Industry: A quick ratio of 1.0 or greater is generally considered ideal. Xponential’s quick ratio is below 1, indicating potential short-term liquidity issues.
  • Cash Ratio:

    • Metric: (Cash, Cash Equivalents and Restricted Cash) / Total Current Liabilities
      • 2024: $32,739 / $107,887 = 0.30
      • 2023: $37,094 / $102,234 = 0.36
    • Trend: (0.30 – 0.36) / 0.36 = -16.7%
    • Industry: A cash ratio of 0.5 or greater is often considered a sign of good liquidity. Xponential’s cash ratio is below this level.

Solvency/Leverage

  • Debt-to-Equity Ratio:

    • Metric: Total Liabilities / Total Stockholders’ Deficit
      • 2024: $597,402 / (-$310,815) = -1.92
      • 2023: $624,406 / (-$209,532) = -2.98
    • Trend: (-1.92 – (-2.98)) / -2.98 = 35.6%
    • Industry: The fitness industry’s debt-to-equity ratio can vary, but a ratio below 1.0 is generally considered healthy. Xponential’s negative equity results in a negative ratio, which is not a reliable indicator.
  • Debt-to-Assets Ratio:

    • Metric: Total Liabilities / Total Assets
      • 2024: $597,402 / $403,397 = 1.48
      • 2023: $624,406 / $529,534 = 1.18
    • Trend: (1.48 – 1.18) / 1.18 = 25.4%
    • Industry: A debt-to-assets ratio below 0.5 is generally considered healthy. Xponential’s ratio is above 1, indicating high leverage.
  • Interest Coverage Ratio (Times Interest Earned):

    • Metric: Operating Income (Loss) / Interest Expense
      • 2024: -$53,614 / $46,250 = -1.16
      • 2023: $34,906 / $38,733 = 0.90
    • Trend: (-1.16 – 0.90) / 0.90 = -228.9%
    • Industry: An interest coverage ratio above 1.5 is generally considered healthy. Xponential’s ratio is negative, indicating difficulty in covering interest expenses.

Activity/Efficiency

  • Inventory Turnover:

    • Metric: Costs of Product Revenue / Average Inventory
      • 2024: $59,477 / (($10,016 + $15,588)/2) = 4.64
      • 2023: $60,331 / (($15,588 + $0)/2) = 7.74 (using 2022 inventory as 0)
    • Trend: (4.64 – 7.74) / 7.74 = -40.1%
    • Industry: Inventory turnover varies. A reasonable range for retail fitness-related products is 4-6.
  • Days Sales Outstanding (DSO):

    • Metric: (Accounts Receivable / Total Revenue) * 365
      • 2024: ($31,693 / $320,346) * 365 = 36.1 days
      • 2023: ($31,609 / $317,937) * 365 = 36.3 days
    • Trend: (36.1 – 36.3) / 36.3 = -0.6%
    • Industry: DSO depends on payment terms. A DSO around 30-45 days is typical.
  • Days Payable Outstanding (DPO):

    • Metric: (Accounts Payable / Costs of Product Revenue) * 365
      • 2024: ($27,011 / $59,477) * 365 = 165.7 days
      • 2023: ($18,620 / $60,331) * 365 = 112.6 days
    • Trend: (165.7 – 112.6) / 112.6 = 47.2%
    • Industry: DPO varies. A DPO around 30-60 days is typical.
  • Asset Turnover:

    • Metric: Total Revenue / Total Assets
      • 2024: $320,346 / $403,397 = 0.79
      • 2023: $317,937 / $529,534 = 0.60
    • Trend: (0.79 – 0.60) / 0.60 = 31.7%
    • Industry: Asset turnover varies. A reasonable range is 0.5-1.0.

Valuation

  • Price-to-Earnings Ratio (P/E):

    • Metric: Stock Price / EPS
      • Stock Price: $7.46
      • 2024 EPS: -$2.27

      Since EPS is negative, the P/E ratio is not meaningful.

    • Trend: N/A
    • Industry: N/A
  • Price-to-Book Ratio (P/B):

    • Metric: Market Capitalization / Total Stockholders’ Equity
      • Market Cap: Shares Outstanding * Stock Price = (33,660 + 14,664) * 1000 * $7.46 = $360.5 million
      • Total Stockholders’ Equity: -$310.815 million

      Since equity is negative, the P/B ratio is not meaningful.

    • Trend: N/A
    • Industry: N/A
  • Price-to-Sales Ratio (P/S):

    • Metric: Market Capitalization / Total Revenue
      • Market Cap: $360.5 million
      • Total Revenue: $320.346 million

      P/S Ratio: $360.5 / $320.346 = 1.13

    • Trend: To determine the trend, we would need the P/S ratio from the previous comparable period, which is not provided in the filing.
    • Industry: The average P/S ratio for the leisure industry is around 1-3.
  • Enterprise Value to EBITDA (EV/EBITDA):

    • Metric: (Market Cap + Total Debt – Cash) / EBITDA
      • Market Cap: $360.5 million
      • Total Debt: $352.403 million (current) + $341.742 million (long-term) = $694.145 million
      • Cash: $32.739 million
      • EBITDA: -$36.899 million

      Since EBITDA is negative, the EV/EBITDA ratio is not meaningful.

    • Trend: N/A
    • Industry: N/A

Growth Rates

  • Revenue Growth:

    • Metric: (Current Year Revenue – Previous Year Revenue) / Previous Year Revenue
      • (320,346 – 317,937) / 317,937 = 0.8%
    • Trend: 0.8%
    • Industry: The fitness industry is expected to grow at a rate of 7.7% annually.
  • Net Income Growth:

    • Metric: (Current Year Net Income – Previous Year Net Income) / Previous Year Net Income
      • (-98,696 – (-6,443)) / (-6,443) = 1429.1%
    • Trend: 1429.1%
    • Industry: N/A
  • EPS Growth:

    • Metric: (Current Year EPS – Previous Year EPS) / Previous Year EPS
      • (-2.27 – 1.08) / 1.08 = -310.2%
    • Trend: -310.2%
    • Industry: N/A

Other Relevant Metrics

  • Adjusted EBITDA:

    • Description: A non-GAAP metric used by the company to assess operating performance. It starts with net income (loss) and adds back interest expense, income taxes, depreciation and amortization, and other non-cash or non-recurring items.
    • Calculation: Provided directly in the filing.
    • Significance: It provides a view of the company’s profitability from core operations, excluding the impact of financing, accounting, and certain strategic decisions.
    • Trend:
      • 2024: $116,217
      • 2023: $100,321
      • 2022: $72,440

      Adjusted EBITDA is increasing year over year.

    • Critique: While Adjusted EBITDA can be useful, it’s important to remember that it’s a non-GAAP metric and can be manipulated. In this case, the adjustments seem reasonable, but investors should always look at GAAP net income as well.
  • System-wide Sales:

    • Description: Represents the total sales of all franchise locations.
    • Calculation: Provided directly in the filing.
    • Significance: Indicates the overall health and growth of the franchise system.
    • Trend:
      • 2024: $1,713,725 (in thousands)
      • 2023: $1,398,626 (in thousands)
      • 2022: $1,033,857 (in thousands)

      System-wide sales are increasing year over year.

  • Number of New Studio Openings Globally, Gross:

    • Description: The number of new franchise locations opened during the year.
    • Calculation: Provided directly in the filing.
    • Significance: Indicates the rate of expansion of the franchise system.
    • Trend:
      • 2024: 464
      • 2023: 553
      • 2022: 500

      The number of new studio openings decreased in 2024 compared to 2023.

  • Number of Studios Operating Globally (Cumulative Total as of Period End):

    • Description: The total number of franchise locations operating at the end of the year.
    • Calculation: Provided directly in the filing.
    • Significance: Indicates the overall size of the franchise system.
    • Trend:
      • 2024: 3,233
      • 2023: 2,994
      • 2022: 2,553

      The number of studios operating globally is increasing year over year.

  • AUV (LTM as of period end):

    • Description: Average Unit Volume (LTM as of period end)
    • Calculation: Provided directly in the filing.
    • Significance: Indicates the average revenue generated by each studio.
    • Trend:
      • 2024: $662
      • 2023: $613
      • 2022: $512

      AUV is increasing year over year.

  • Same Store Sales:

    • Description: The percentage change in revenue for studios that have been open for at least 13 months.
    • Calculation: Provided directly in the filing.
    • Significance: Indicates the growth in revenue for existing studios.
    • Trend:
      • 2024: 7%
      • 2023: 16%
      • 2022: 23%

      Same store sales are decreasing year over year.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️