Xponential Fitness, Inc. Q3 FY2024 earnings call

Key takeaways: People love Xponential's offerings, strong domestic and international growth, and it's a great business model. Challenges: Infrastructure and processes, fostering a culture, capital allocation. Vision pillars: Become franchiseur of choice in health and wellness, deliver world-class member experience, transform data capabilities, create culture of innovation, build international footprint. Tactical progress: Augmenting executive leadership, working with data consultancy, moving to marketing/operations-focused organization.

For the period ended September 30th, 2024, North America run rate average unit volumes were $631,000 in the third quarter, increasing 8% from $585,000 in the prior year period. Franchise revenue was $44.5 million, up 22% year-over-year. Equipment revenue was $14.7 million, up 17% year-over-year. Merchandise revenue was $6.5 million, down 23% year-over-year. Franchise marketing fund revenue was $8.6 million, up 23% year-over-year. Other service revenue was $6.2 million, down 61% from the prior year period. The company ended the third quarter with 3,178 global open studios, opening 125 gross new studios during Q3 with 96 in North America and 29 internationally, and 49 global studio closures in the period.

Reiterates 2024 guidance: Global new studio openings expected to be 490-510 (10% decrease from prior year). North America system-wide sales projected to range from $1.705 billion to $1.715 billion (22% increase). Total 2024 revenue expected to be $310 million to $320 million (1% year-over-year decrease). Adjusted EBITDA expected to range from $120 million to $124 million (16% increase). SG&A expected to range from $145 million to $160 million. Capital expenditure anticipated to be $8 million to $10 million.

Challenges include infrastructure and process issues to support growth, fostering a culture conducive to long-term success, figuring out capital allocation, regulatory issues leading to legal costs, and lease restructuring charges.

Q: Randy Konik asked about potential divestiture criteria and Japan expansion.

A: Mark King said they're getting familiar with brands, no plan to divest short term, Japan has positive momentum with good partners.

Q: John Heinbockel asked about execution consistency and franchisee consolidation.

A: Mark King said execution varies by brand, working on standardizing best practices, evaluating franchisee consolidation.

Q: Joe Altobello asked about infrastructure spending and EBITDA margin.

A: Mark King said infrastructure and processes are about discipline, John Meloun said 45% EBITDA margin target is doable but needs AOP process.

Q: Chris O'Cull asked about comp sales and litigation.

A: Mark King said focus on member, John Meloun said legal costs related to D&O policy will be reimbursed.

Q: Jonathan Komp asked about closures and new openings.

A: John Meloun said closures decreasing, expecting lower in Q4, 2025 closure rate to lessen to 1-2%.

Q: J.P. Wollam asked about customer purchasing patterns.

A: John Meloun said membership mix and retail sales trends, expecting retail to improve with process changes.

Q: Richard Magnusen asked about modalities and acquisitions.

A: Mark King said all options on the table, focusing on growing existing brands.

Q: Korinne Wolfmeyer asked about membership trends and franchisee motivation.

A: John Meloun said membership growth consistent, Mark King said changing license sales team and having brand presidents own development to encourage franchisees.