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04 Aug 2023
Xponential posts Q2 2023 profit results – reveals growth strategies
BY
Liz Terry
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Xponential's account show a US$31.1m consideration in relation to the acquisition of Rumble
photo: Xponential Fitness
Xponential Fitness, has released its global financial results for the year to date, with a confident performance across the board, although share earnings were slightly below analysts' expectations. Profit was US$18.4m and year-on-year revenues grew by 30 per cent in Q2 to US$77.3m, while adjusted EBITDA was US$25.3m – an increase of 43 per cent when compared to the US$17.6m achieved in 2022.
CEO, Anthony Geisler, said: “I'm proud to share yet another consistent quarter of results that continue to highlight the strength of our business and the health of our franchisees.
“Xponential franchisees now operate nearly 2,900 studios globally, with over 5,800 licences sold across our 10 leading fitness brands. We have franchise, master franchise, and international expansion agreements in 19 countries outside of North America” he said.
Total members across North America saw growth of 29 per cent year-on-year to a total of 697,000 at the end of the second quarter, with over 90 per cent of customers making active payments.
Geisler highlighted growth in studio visits of 32 per cent year-on-year, reaching a total of 12.9m in Q2 and driving record North American system-wide sales of 341m – a 37 per cent increase on 2022.
“Q2 North American average unit volumes (AUV) of 561,000 were up 17 per cent from 480,000 in Q2 of 2022, our 12th straight quarter of AUV growth.,” said Geisler. “We continue to believe that AUV growth is the most direct measure of our franchise systems’ health.”
More mature studios also performed well, increasing sales by 16 per cent. “Now we’re further removed from COVID-impacted time periods, we believe this metric has begun to normalise,” he said.
Xponential is also growing repeat franchise sales, with 30 per cent being sold to existing franchisees in the quarter: “We sold 234 licences globally in Q2 2023, bringing total sold licences to 5,872,” reported Geisler. “Our average franchisee has bought 2.6 licences, with 1.3 studios currently open.
“We’re always pleased when an existing franchisee purchases additional licences, as it reinforces their satisfaction with our model and the success of their businesses,” he said. “Over 56 per cent of our studios have owners who have purchased multiple Xponential licences.”
The global rollout is where the company sees much of its growth potential: “We recently announced the signing of a master franchise agreement in France for our Club Pilates brand, which represents our 19th country outside of North America,” said Geisler, “Xponential is currently targeting 50 countries and 500 different master franchise agreement opportunities, which provides significant white space for future growth.”
The company has a pipeline of around 2,000 licences sold or ‘contractually obligated’ globally in addition to 1,000 master franchise agreement obligations.
Geisler said Xponential intends to cease holding and trading ‘company-owned transition studios’ – sites that have been handed back by franchisees or others that have not been sold on following acquisitions: “Going forward, we will no longer take on company-owned transition studios,” said Geisler, explaining that they “create headwinds when optimising margins.”
“We’re currently operating 38 company-owned sites and have nine corporate LA Fitness studios under our Club Pilates and StretchLab brands – we plan to continue operating these nine in order to prove the LA Fitness non-traditional studio concept, but we plan to refranchise the 38 studios down to zero and we'll no longer take on any more,” he said. What will happen to these sites in future was not explained.
Looking forward Geisler said the company is positive about the second half of 2023, saying: “We remain on track to achieve adjusted EBITDA margins in the 35 per cent to 39 per cent range by year-end and adjusted EBITDA margins of 40 per cent in 2024.
The financial statement shows that US$31.1m consideration was recorded in relation to the acquisition of Rumble.
At the end of June the company was holding around US$40.2m of cash (and cash equivalents) and US$265.9m in long-term debt.
Net cash provided by operating activities in the three months ended 30 June was US$30.6m.
Xponential Fitness 2023 full-year outlook
New studio openings in the range of 540 to 560, or an increase of 8% at the midpoint as compared to full year 2022;
North America system-wide sales in the range of $1.385 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 $1.370 billion to $1.380 billion;
Revenue in the range of $295.0 million to $305.0 million, or an increase of 22% at the midpoint as compared to full year 2022; this compares to previous guidance of $290.0 million to $300.0 million; and
Adjusted EBITDA in the range of $102.5 million to $106.5 million, or an increase of 41% at the midpoint as compared to full year 2022; this compares to previous guidance of $102.0 million to $106.0 million.
Additional key assumptions for full year 2023 include:
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