Xponential Fitness, Inc. Class A ((XPOF)) has held its Q4 earnings call. Read on for the main highlights of the call.
Xponential Fitness, Inc. Navigates Growth and Challenges in Latest Earnings Call
The recent earnings call of Xponential Fitness, Inc. painted a mixed picture of the company’s performance and future outlook. While the call highlighted impressive sales growth and strategic initiatives aimed at enhancing operational efficiency and franchise development, it also underscored significant challenges. These included missing EBITDA and studio opening targets, financial restatements, and increased legal costs, which have led to a cautious outlook for 2025.
Strong North America System-Wide Sales
Xponential Fitness reported robust growth in North America, with system-wide sales reaching $465 million, marking a 21% increase year over year. The company also saw a 15% increase in total membership, ending the quarter with 813,000 members.
Franchise Expansion Success
The company achieved notable success in franchise expansion by selling 400 franchise licenses and opening 464 gross new studios during 2024. This expansion is a testament to the company’s aggressive growth strategy and its appeal to franchisees.
Adjusted EBITDA Growth
Adjusted EBITDA for 2024 was reported at $116.2 million, reflecting a 16% increase compared to the previous year. This growth indicates the company’s efforts to enhance profitability despite facing some operational challenges.
Strategic Initiatives
Xponential Fitness is focusing on several strategic initiatives, including building a senior management team, restructuring field operations, enhancing the franchise development process, and improving data and analytics capabilities. These initiatives are aimed at strengthening the company’s operational framework and supporting future growth.
EBITDA and Studio Opening Misses
Despite the positive growth figures, the company missed its adjusted EBITDA target by $5.8 million, or 5%, and fell short of its gross new studio openings target by 36 studios. These misses highlight areas where the company needs to improve execution.
Impairments and Financial Restatements
The company recorded a $46 million impairment of goodwill and other assets and restated its 2023 financial statements due to accounting errors. These financial adjustments indicate challenges in financial management and reporting.
Increased Legal and Restructuring Costs
Xponential Fitness experienced an 8% increase in SG&A expenses year over year, with $18.1 million attributed to legal fees and other restructuring charges. These costs reflect the company’s ongoing efforts to address legal and operational challenges.
Higher Studio Closure Rate
The company reported 225 total studio closures in 2024, representing approximately 7% of global open studios, which is higher than the previously communicated range of 3 to 5%. This higher closure rate suggests challenges in maintaining studio performance and profitability.
Guidance for 2025
Looking ahead, Xponential Fitness provided guidance for 2025, projecting North America system-wide sales to range from $1.935 billion to $1.955 billion, reflecting a 13% increase at the midpoint. The company expects global net new studio openings to be between 200 and 220, marking a 12% decrease from the prior year. Total revenue is anticipated to be between $315 million and $325 million, with adjusted EBITDA expected to range from $120 million to $125 million, marking a 5% year-over-year increase. The company aims for an adjusted EBITDA margin of roughly 38% and plans for unlevered free cash flow conversion to be approximately 90% of adjusted EBITDA. Strategic initiatives will focus on enhancing data-driven operations and international expansion, while managing operational challenges and emphasizing franchisee profitability.
In conclusion, Xponential Fitness, Inc.’s latest earnings call reflects a company in transition, balancing strong sales growth and strategic initiatives with significant operational challenges. While the company has set ambitious targets for 2025, it must address its execution gaps and financial management issues to sustain its growth trajectory and improve profitability.