XPOF

Business Context and Reporting Period

Xponential Fitness, Inc. (XPOF) is a global franchisor of boutique health and wellness brands, including Club Pilates, StretchLab, YogaSix, Pure Barre, and BFT. This Form 10-Q covers the quarterly period ended March 31, 2026. The Company operates as a holding company with an 85.1% ownership interest in Xponential Fitness LLC. As of the period end, the Company had 3,137 operating studios globally and is currently reviewing strategic alternatives, which may include a sale or merger.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Decline: Total revenue decreased 21% year-over-year to $60.7 million. This was driven by a 61% drop in equipment revenue and a 90% drop in merchandise revenue, largely due to the divestiture of CycleBar and Rumble brands in July 2025 and the outsourcing of retail merchandising to Fit Commerce effective December 2025.
• Improved Operating Income: Despite lower revenue, operating income increased 35% to $13.0 million. This improvement was primarily due to a $15.5 million reduction in Selling, General, and Administrative (SG&A) expenses, driven by lower legal fees and a $1.9 million decrease in impairment charges compared to the prior year.
• Debt Refinancing: In December 2025, the Company entered a new Credit Agreement with a $525 million term loan and $25 million revolving facility, replacing the prior credit agreement. This resulted in higher interest expense ($14.5 million vs. $11.4 million) due to higher average debt balances.
• Cash Flow Deterioration: Operating cash flow turned negative at $(21.7) million, a significant shift from the $5.8 million positive flow in Q1 2025. This was caused by unfavorable changes in working capital, specifically decreases in accounts payable and accrued expenses.

Outlook, Risks, and Management Commentary

• Restructuring Plan: The Company is executing a restructuring plan to exit company-owned transition studios. Management expects to recognize additional restructuring charges of $9.2 million to $12.9 million throughout 2026. Upon completion, the plan is estimated to yield annualized savings of $13.5 million to $15.5 million.
• Strategic Review: The Board has initiated a review of strategic alternatives to maximize stockholder value, which could include a sale or merger. This process may create uncertainty and divert management attention.
• Regulatory and Legal Risks:
  • FTC Settlement: The Company agreed to a consent order with the FTC to pay $17.0 million over 12 months regarding franchise rule compliance.
  • Franchise Sales Pauses: Franchise sales are temporarily paused in several states (including California, New York, and Maryland) pending regulatory review of amended Franchise Disclosure Documents (FDDs).
  • Litigation: The Company faces ongoing securities class action lawsuits and shareholder derivative suits, though management believes a loss is not currently probable or estimable for most matters.
• Goodwill Impairment Risk: The Pure Barre reporting unit remains at a heightened risk of future impairment, with its fair value exceeding carrying value by only approximately 6%.
• Internal Controls: The Company disclosed that its disclosure controls and procedures were not effective as of March 31, 2026, due to material weaknesses related to insufficient accounting resources and IT general controls. Remediation is ongoing.

Investor Verification Checklist

• Cash Runway: Verify the sufficiency of the $12.2 million unrestricted cash balance against the $21.7 million operating cash burn and upcoming $17.0 million FTC payment obligations.
• Debt Covenants: Confirm continued compliance with the Total Net Leverage Ratio covenant under the new Credit Agreement, given the recent cash flow volatility.
• Franchise Sales Pipeline: Monitor the resolution of FDD registration delays in key states (CA, NY, MD) to assess the impact on future royalty and development fee revenue.
• Restructuring Costs: Track the actual realization of the projected $13.5 million–$15.5 million in annualized savings versus the $9.2 million–$12.9 million in expected 2026 charges.
• Internal Control Remediation: Review progress on hiring accounting/IT personnel and implementing IT general controls to address the material weakness in internal controls.