Xponential Fitness, Inc. — FY2021 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2021; it is an annual Form 10-K rather than a standalone quarterly filing. Xponential is a holding company whose principal operating subsidiary, Xponential Fitness LLC, franchises ten boutique fitness brands, including Club Pilates, Pure Barre, CycleBar, StretchLab, YogaSix, Rumble and BFT. The company completed its IPO on July 23, 2021, and trades on the NYSE under XPOF.
The business is primarily an asset-light franchisor. At December 31, 2021, the system had 2,130 global studios, including 1,954 in North America and 176 internationally, and franchisees were contractually committed to open an additional 1,806 North American studios. Rumble and BFT were acquired in March and October 2021, respectively.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $155.1 million | $106.6 million | +45.5% |
| Operating income (loss) | $(30.8) million | $7.8 million | Declined |
| Net loss | $(51.4) million | $(13.6) million | Loss increased |
| Net loss attributable to Xponential Fitness, Inc. | $(18.8) million | $(13.6) million | Loss increased |
| Adjusted EBITDA | $27.3 million | $9.8 million | +178.6% |
| System-wide sales | $709.7 million | $442.7 million | +60.3% |
| Same-store sales | +41% | -34% | Strong recovery |
| Cash flow from operations | $14.5 million | $(0.7) million | Improved |
| Cash flow from investing | $(50.6) million | $(4.6) million | Higher use |
| Cash flow from financing | $46.2 million | $7.3 million | Higher inflow |
Revenue mix included franchise revenue of $74.5 million, equipment revenue of $22.6 million, merchandise revenue of $20.1 million, franchise marketing fund revenue of $13.6 million and other service revenue of $24.3 million. Approximately 77% of 2021 revenue was considered recurring, compared with 73% in 2020.
Reported operating margin was approximately -19.9%, compared with 7.3% in 2020, and net margin was approximately -33.2%, compared with -12.8%. The operating loss reflected $26.6 million of acquisition and transaction expenses, including a $25.1 million increase in Rumble contingent consideration, as well as higher SG&A, equity compensation, legal costs and costs associated with company-owned transition studios. Adjusted EBITDA margin was approximately 17.6%, compared with 9.2% in 2020.
Liquidity, debt and capital structure
- Cash and cash equivalents were $19.9 million at December 31, 2021, excluding $1.4 million of restricted marketing-fund cash; total cash, cash equivalents and restricted cash were $21.3 million.
- Reported total indebtedness was $134.2 million; outstanding term-loan principal was $133.2 million at year-end, with $2.96 million of scheduled principal payments due in 2022 and $124.3 million due in 2025.
- The senior secured term loan bears interest at either LIBOR plus 6.50% or a reference rate plus 5.50%; the reference-rate margin was 7.50% at year-end. The credit agreement includes leverage, liquidity, EBITDA and other restrictive covenants. The company reported compliance at December 31, 2021.
- The company repaid $115.0 million of debt using IPO and preferred-stock proceeds and borrowed an additional $38.0 million to fund the BFT acquisition.
- The IPO and related transactions generated approximately $122.0 million of net common-stock proceeds. The company also issued $200.0 million of convertible preferred stock, with a 6.50% cash coupon or a 7.50% PIK rate if cash dividends are not paid.
- The company stated that available cash and expected operating cash flow should satisfy anticipated debt service, capital expenditures, tax distributions, tax-receivable-agreement obligations and working-capital needs for at least the next twelve months, subject to business and macroeconomic risks.
Material changes versus prior comparable period
- Revenue rebounded 45.5% as studios reopened after COVID-19 disruptions, same-store sales recovered, and new studios were added. Franchise revenue increased 54.9%, marketing-fund revenue increased 82.9%, and other service revenue increased 75.9%.
- System-wide sales increased to $709.7 million from $442.7 million, while global studios increased to 2,130 from 1,796 and cumulative global licenses sold increased to 4,424 from 3,469.
- Operating profitability deteriorated despite revenue growth because total operating expenses increased 88.2%. SG&A increased 55.6%, acquisition and transaction expenses shifted from $11.0 million of income in 2020 to $26.6 million of expense in 2021, and interest expense increased 15.4%.
- Operating cash flow improved to $14.5 million, aided in part by a $30.0 million increase in deferred revenue. Investing cash use increased primarily because of the $44.3 million cash purchase of BFT.
- The company acquired Rumble through an equity-based transaction and acquired BFT for approximately $44.3 million in cash, plus contingent consideration. BFT added $21.2 million of goodwill and $32.5 million of identifiable intangible assets.
- The company held 25 company-owned transition studios at year-end, down from 40 in 2020, and recorded $0.8 million of impairment charges related to transition studios.
- Previously identified material weaknesses in internal control over financial reporting were reported as remediated as of December 31, 2021. Management concluded disclosure controls were effective, but the company remained eligible for emerging-growth-company exemptions and its auditor was not required to attest to internal control effectiveness.
Guidance, outlook, risks and unusual items
The filing does not provide formal 2022 revenue or EBITDA guidance. Management expects consumers to return to boutique fitness as activity normalizes and intends to expand the studio base, increase same-store sales and AUV, grow digital offerings and XPASS, improve operating leverage, and expand internationally. The company’s model is designed around approximately $500,000 AUV in a studio’s second year, 25%–30% studio-level operating margins and an approximately 40% unlevered cash-on-cash return; these are model targets, not reported consolidated results.
- COVID-19, new variants, renewed capacity restrictions, consumer reluctance to attend indoor classes and continued shifts toward at-home fitness could reduce studio sales, royalties and new openings.
- Growth depends on franchisees’ ability to obtain financing, secure sites, control construction costs, recruit personnel and convert licenses sold into operating studios. The filing notes 302 terminated North American licenses and two terminated international licenses through year-end.
- Franchisee performance, brand reputation, health and safety incidents, litigation, labor costs, franchise regulation, electronic-payment rules and data-security or privacy failures could materially affect results.
- Debt covenants and variable interest rates constrain flexibility. The company previously exceeded a leverage covenant during the pandemic and required an amendment to its prior credit agreement.
- The company has significant contingent obligations, including approximately $10.3 million of estimated BFT contingent consideration through 2023, a potential BFT master-franchise cancellation fee, and a tax receivable agreement generally requiring payment of 85% of realized tax savings. A $37.2 million non-current TRA liability was not recorded because realization of the related tax benefits was not considered more likely than not.
- The February 2022 settlement of litigation involving AKT’s former owners is expected to be paid in 2022. BFT-related patent litigation remained pending in Delaware, although an Australian court ruled in February 2022 that the plaintiff’s infringement claims were invalid and that the seller had not infringed.
- Goodwill and intangible assets totaled approximately $305.9 million, or roughly 74% of total assets. No goodwill or indefinite-lived trademark impairment was recorded in 2021, but future impairment remains a risk.
Important facts for investors to verify
- Reconcile the strong system-wide sales and adjusted EBITDA recovery with the continued $51.4 million GAAP net loss and negative equity attributable to Xponential Fitness, Inc.
- Assess the conversion rate and timing of the 1,806 North American committed studios and the 956 internationally obligated licenses.
- Review debt maturity, interest-rate exposure, covenant headroom and required cash payments, including contingent consideration and preferred-stock obligations.
- Evaluate whether BFT and Rumble generate the expected growth and whether acquisition-related contingent consideration could create additional earnings volatility.
- Monitor transition-studio refranchising, related impairment charges and the company’s ability to limit capital requirements under its asset-light model.
- Review the pending BFT-related litigation, the settled AKT matter, the ClubReady dispute and other legal contingencies.
- Confirm the effectiveness and continued operation of remediated internal controls, particularly given the company’s recent IPO and reliance on third-party information systems.