Xponential Fitness(US:XPOF)2023-11-08 02:26Studio Operations and Growth - As of September 30, 2023, there were 2,596 studios open in North America, with franchisees committed to opening an additional 2,031 studios[164]. - The total number of operating studios in North America increased from 2,175 at the end of September 2022 to 2,596 at the end of September 2023, representing a growth of approximately 19.5%[171]. - Internationally, the number of studios operated increased from 266 at the end of September 2022 to 384 at the end of September 2023, marking a growth of approximately 44.3%[172]. - The number of operating studios globally increased to 2,980 by the end of Q3 2023, up from 2,481 at the end of Q3 2022, representing a growth of 20.2%[173]. - The number of studios obligated to open internationally under master franchise agreements (MFAs) totaled 1,042 as of Q3 2023, compared to 920 in Q3 2022, showing a growth of 13.3%[174]. - The company reported a net increase of 344 new studio openings for the nine months ended September 30, 2023, compared to 355 in the same period of 2022[175]. - The company opened 127 new studios in Q3 2023, slightly down from 128 in Q3 2022[173]. - Cumulative franchise licenses sold globally reached 6,088 by the end of Q3 2023, an increase from 5,193 in Q3 2022, marking a growth of 17.2%[173]. Financial Performance - Total revenue for the three months ended September 30, 2023, was $80.4 million, an increase of $16.7 million or 26% compared to $63.8 million in the same period of 2022[189]. - Total revenue for the nine months ended September 30, 2023, was $228.5 million, an increase of $54.8 million or 31.5% compared to $173.7 million in the same period of 2022[205]. - Franchise revenue increased to $36.4 million, up $6.4 million or 21% from $30.0 million in the prior year, driven by a 15% increase in same store sales and 499 net new studio openings globally[190]. - Franchise revenue increased to $104.5 million, up $21.4 million or 25.7% from $83.1 million in the prior year, driven by a 17% increase in same store sales and 499 new studio openings[206]. - Equipment revenue rose to $12.6 million, an increase of $0.8 million or 7%, with global equipment installations totaling 116 compared to 136 in the prior year[191]. - Equipment revenue rose to $40.1 million, an increase of $8.2 million or 25.5% compared to $31.9 million in the previous year, attributed to 395 global equipment installations[207]. - Other service revenue grew to $16.0 million, an increase of $5.5 million or 52%, mainly from a $6.1 million rise in package and memberships revenue[194]. - Other service revenue surged to $40.1 million, up $15.1 million or 60.3% from $25.0 million, primarily due to increased package and memberships revenue[210]. - Adjusted EBITDA for Q3 2023 was $26.5 million, compared to $20.0 million in Q3 2022, reflecting a 32.5% increase[174]. - Adjusted EBITDA for Q3 2023 was $26.5 million, up 32.5% from $20.0 million in Q3 2022[227]. - Net income for the nine months ended September 30, 2023, was $7.4 million, compared to $3.2 million in the same period of 2022[186]. - Net income for Q3 2023 was a loss of $5.2 million, an improvement from a loss of $13.1 million in Q3 2022[227]. Costs and Expenses - The company recognized restructuring charges of $6.3 million during the three and nine months ended September 30, 2023, primarily for write-offs and losses related to abandoned assets[166]. - Total operating costs and expenses decreased slightly by $1.2 million or 1.7% to $73.0 million compared to $74.2 million in the prior year[195]. - Selling, general and administrative expenses increased by $15.7 million or 48% to $48.6 million, largely due to restructuring charges and increased salaries[197]. - Selling, general and administrative expenses increased to $127.9 million, up $31.8 million or 33% from $96.1 million, primarily due to restructuring charges and increased salaries[214]. - Marketing fund expense was $16.3 million, an increase of $3.6 million or 28% compared to $12.7 million in the prior year, consistent with the increase in franchise marketing fund revenue[216]. - Costs of product revenue increased to $12.7 million, up $0.9 million or 7%, with costs as a percentage of related revenue decreasing to 60% from 66%[195]. - Acquisition and transaction expenses (income) showed a significant decrease to ($1.9) million from $16.3 million, a change of $18.2 million or 112%[199]. Cash Flow and Financing - Cash and cash equivalents as of September 30, 2023, totaled $43.7 million, excluding $8.2 million of restricted cash[228]. - Net cash provided by operating activities for the nine months ended September 30, 2023, was $38.2 million, compared to $37.5 million in the same period of 2022[245]. - Cash provided by operating activities increased to $38.2 million in the nine months ended September 30, 2023, from $37.5 million in the same period of 2022, reflecting a $0.7 million increase[246]. - Cash used in investing activities decreased to $8.6 million in the nine months ended September 30, 2023, compared to $11.6 million in the same period of 2022, primarily due to reduced cash used for purchasing intangible assets[247]. - Cash used in financing activities decreased to $15.1 million in the nine months ended September 30, 2023, from $16.3 million in the same period of 2022, driven by an increase in cash received from long-term debt borrowings of $183.7 million[248]. - The company incurred $15.1 million in net cash used in financing activities for the nine months ended September 30, 2023[245]. - The total principal amount outstanding on the Term Loans was $329.7 million as of September 30, 2023[241]. - An accelerated share repurchase program was executed for $50.0 million, resulting in the repurchase of 2,598,877 shares at an average price of $19.24 per share[244]. - Cash used for the ASR Program amounted to $50.4 million in the nine months ended September 30, 2023[248]. - The company received $8.1 million from a shareholder during the financing activities in the nine months ended September 30, 2023[248]. Restructuring and Future Plans - The restructuring plan is expected to yield annualized gross savings of approximately $9.0 million to $12.0 million once completed[168]. - The company plans to continue investing in its brands and integrated services to support franchisees and enhance consumer experiences[170]. - The company is negotiating lease terminations that may result in net gains from lease liability decreases, with cash outflows expected through 2024[167]. - The company aims to increase same store sales and average unit volumes (AUVs) by helping franchisees acquire new members and expand ancillary revenue streams[170]. Debt and Compliance - Interest expense for the nine months ended September 30, 2023, was $27.2 million, an increase of $18.2 million or 201% compared to $9.1 million in the prior year, due to higher average debt balances and interest rates[219]. - Interest expense for the nine months ended September 30, 2023, was $26.1 million, compared to $7.9 million in the same period of 2022[227]. - The company expects available cash and cash generated from operations to meet anticipated debt service requirements for at least the next twelve months[229]. - The company was in compliance with all covenants under the Credit Agreement as of September 30, 2023[234]. Off-Balance Sheet Arrangements - The company has off-balance sheet arrangements consisting of guarantees of lease agreements for franchisees, with a maximum total commitment of approximately $3.1 million[249]. - As of September 30, 2023, an accrual of $0.2 million has been recorded for the potential obligation under a standby letter of credit issued to a third-party financing company[250]. - The estimated fair value of guarantees related to off-balance sheet arrangements was not material as of September 30, 2023[249]. - The company experienced unfavorable changes in working capital totaling $3.7 million, primarily related to prepaid expenses and deferred revenue[246]. - There have been no significant changes to the company's critical accounting policies and estimates since the last annual report[251].