Xponential Fitness(XPOF) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section covers unaudited financial statements, management's analysis, market risk, and internal controls Item 1. Financial Statements (Unaudited) This section presents Xponential Fitness's unaudited condensed consolidated financial statements and detailed notes for Q2 2022 Condensed Consolidated Balance Sheets Total assets increased to $463.2 million as of June 30, 2022, driven by higher current assets and intangibles, while stockholders' deficit decreased Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash, cash equivalents and restricted cash | $29,267 | $21,320 | | Total current assets | $76,289 | $51,226 | | Goodwill | $169,073 | $169,073 | | Intangible assets, net | $142,670 | $136,863 | | Total assets | $463,236 | $415,544 | | Liabilities & Equity | | | | Total current liabilities | $85,934 | $65,893 | | Long-term debt, net | $126,823 | $127,983 | | Total liabilities | $368,583 | $349,123 | | Total stockholders' deficit | $(105,347) | $(210,469) | | Total liabilities, redeemable convertible preferred stock and deficit | $463,236 | $415,544 | Condensed Consolidated Statements of Operations The company reported a net income of $31.5 million in Q2 2022, driven by 66.5% revenue growth and a non-cash gain from contingent consideration Statement of Operations Highlights (in thousands) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenue, net | $59,560 | $35,775 | $109,922 | $64,840 | | Operating income (loss) | $36,142 | $(392) | $21,368 | $(613) | | Net income (loss) | $31,477 | $(8,001) | $16,298 | $(12,751) | | Net income (loss) attributable to Xponential Fitness, Inc. | $16,834 | $(8,001) | $9,315 | $(12,751) | | Diluted EPS | $0.50 | N/A | $0.26 | N/A | - A significant driver of operating income in Q2 2022 was a non-cash income of $31.6 million from 'Acquisition and transaction expenses (income)', which reflects a change in the fair value of contingent consideration[11] Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly improved to $26.2 million for the six months ended June 30, 2022, reflecting increased profitability Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $26,194 | $510 | | Net cash used in investing activities | $(5,635) | $(2,113) | | Net cash provided by (used in) financing activities | $(12,612) | $10,507 | | Net increase in cash, cash equivalents and restricted cash | $7,947 | $8,904 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, post-IPO structure, acquisitions, debt, lease accounting, and contingencies - The company operates a portfolio of ten fitness brands and completed its IPO on July 23, 2021, now operating as a holding company with a majority interest in XPO LLC[22][24] - The company adopted the new lease accounting standard (Topic 842) on January 1, 2022, recognizing $17.6 million of right-of-use assets and a corresponding lease obligation of $21.8 million[51] - Acquisitions are a key part of the strategy, with BFT acquired in October 2021 and Rumble in March 2021, involving cash, equity, and significant contingent consideration liabilities remeasured quarterly[63][73][79] - As of June 30, 2022, the company had $131.7 million in outstanding long-term debt under its Term Loan Facility, with quarterly principal payments required[99][112] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 financial performance, highlighting strong revenue growth, pandemic recovery, and key operational metrics Overview and COVID-19 Impact The company, a leading global fitness franchisor, shows strong recovery from COVID-19, with members and visits surpassing pre-pandemic levels - As of June 30, 2022, the company had 2,123 studios open in North America and 234 internationally, with a total of 4,935 global franchise licenses sold[183][202] - The business has recovered significantly from the pandemic, with actively paying members and membership visits in Q2 2022 surpassing pre-pandemic levels (Q4 2019) by 39% and 46% respectively[189] Key Performance Indicators and Non-GAAP Measures Key performance indicators show strong growth in Q2 2022, with system-wide sales reaching $249.8 million and Adjusted EBITDA increasing to $17.6 million Key Performance Indicators (Q2 2022 vs Q2 2021) | Indicator | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | System-wide sales | $249.8M | $172.0M | | Number of new studios openings globally, net | 128 | 77 | | Number of studios operating globally (cumulative) | 2,357 | 1,952 | | AUV (LTM as of period end) | $457k | $313k | | Same store sales | 25% | 129% | | Adjusted EBITDA | $17.6M | $8.3M | Adjusted EBITDA Reconciliation (in thousands) | Line Item | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net income (loss) | $31,477 | $(8,001) | | EBITDA | $39,721 | $5,722 | | Adjustments | $(22,085) | $2,612 | | Adjusted EBITDA | $17,636 | $8,334 | Results of Operations Comparison Q2 2022 total revenue grew 66.5% to $59.6 million, with operating income significantly improving due to a non-cash gain on contingent consideration Revenue by Source - Three Months Ended June 30 (in thousands) | Revenue Source | 2022 | 2021 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Franchise revenue | $27,622 | $17,764 | $9,858 | 55.5% | | Equipment revenue | $12,381 | $4,755 | $7,626 | 160.4% | | Merchandise revenue | $6,753 | $4,509 | $2,244 | 49.8% | | Franchise marketing fund revenue | $4,937 | $3,314 | $1,623 | 49.0% | | Other service revenue | $7,867 | $5,433 | $2,434 | 44.8% | | Total revenue, net | $59,560 | $35,775 | $23,785 | 66.5% | - The increase in franchise revenue was driven by a 25% increase in same-store sales and 405 new global studio openings since June 30, 2021[220] - Selling, general and administrative (SG&A) expenses increased by 38.3% to $29.3 million in Q2 2022, mainly due to higher equity-based compensation ($4.0 million) and legal expenses ($3.0 million)[227] - Interest expense decreased by 75.3% to $2.9 million in Q2 2022, primarily due to a lower average debt balance and the absence of significant debt extinguishment costs incurred in Q2 2021[232] Liquidity and Capital Resources The company maintains sufficient liquidity with $27.1 million in cash and $131.7 million in outstanding debt, supported by strong operating cash flow - The company held $27.1 million of cash and cash equivalents as of June 30, 2022, excluding $2.2 million of restricted cash[254] - The outstanding balance on the Term Loan Facility was $131.7 million as of June 30, 2022, with which the company was in compliance with related covenants[260][264] Summary Cash Flow (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $26,194 | $510 | | Net cash used in investing activities | $(5,635) | $(2,113) | | Net cash used in/provided by financing activities | $(12,612) | $10,507 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has indicated that this item is not applicable for this reporting period - Not applicable[273] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal controls - Management concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective at a reasonable assurance level[274] - No material changes to internal control over financial reporting occurred during the quarter ended June 30, 2022[275] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings The company is involved in various legal proceedings, including a settled case and ongoing patent infringement claims related to an acquisition - A complaint filed by Get Kaisered Inc. was settled in February 2022, with the settlement amount paid in full in March 2022[170] - In relation to the BFT acquisition, the company is indemnifying the seller for patent infringement claims, with related claims still pending in the U.S. District Court for Delaware despite a favorable Australian ruling[171] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the previously disclosed Risk Factors have occurred[279] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[281] Item 5. Other Information The company reported no other information for this item - None[284] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including certifications and Inline XBRL data files - Exhibits filed include CEO and CFO certifications and XBRL data files[286]