Xponential Fitness(US:XPOF)2024-05-04 01:04PART I. FINANCIAL INFORMATION This section provides the company's unaudited financial statements, management's discussion, market risk disclosures, and internal controls for the reporting period Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Q1 2024, reflecting total revenues of $79.5 million, a net loss of $4.4 million, and strategic brand changes Q1 2024 Key Financial Metrics | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Total Revenue, net | $79,521 | $70,690 | | Operating Income (Loss) | $7,388 | $(7,207) | | Net Loss | $(4,356) | $(14,979) | | Net Loss per Share (Basic & Diluted) | $(0.30) | $(1.38) | Balance Sheet Summary | Metric | March 31, 2024 (in thousands) | Dec 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Assets | $508,442 | $528,698 | | Total Liabilities | $599,927 | $616,832 | | Total Stockholders' Deficit | $(214,251) | $(202,794) | Cash Flow Summary | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $2,695 | $11,351 | | Net Cash used in Investing Activities | $(9,204) | $(2,385) | | Net Cash used in Financing Activities | $(3,367) | $(18,201) | | Cash, Cash Equivalents, and Restricted Cash (End of Period) | $27,218 | $28,135 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, the Lindora acquisition, Stride divestiture, Q1 2024 restructuring charges of $6.9 million, and ongoing legal and SEC matters - On January 2, 2024, the Company acquired Lindora Franchise, LLC, a wellness brand franchisor, for cash consideration of $8.5 million, plus up to $1.0 million in contingent consideration73 - On February 13, 2024, the Company divested the Stride brand for no consideration and recognized a loss on divestiture of $279,00078 - The company initiated a restructuring plan in Q3 2023 to exit company-owned transition studios, recognizing total restructuring charges of $6.9 million during Q1 2024162163 - The company is involved in a federal securities class action lawsuit filed in February 2024 and is cooperating with an SEC investigation that began in December 2023152154 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial performance, noting a 12.5% revenue increase to $79.5 million, strategic brand changes, and Adjusted EBITDA growth to $29.8 million Key Performance Indicators Key performance indicators for Q1 2024 include system-wide sales of $401.1 million, 3,156 global studios, and a 9% increase in same-store sales Key Performance Indicators (Q1 2024 vs. Q1 2023) | Indicator | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | System-wide sales ($ millions) | $401.1 | $321.9 | | Global studios operating | 3,156 | 2,762 | | New studio openings (global) | 111 | 116 | | Same store sales | 9% | 19% | | AUV (LTM) ($ thousands) | $621 | $525 | Global Studio Count Change (Q1 2024) | Metric | Count | | :--- | :--- | | Studios at beginning of period | 3,072 | | New studio openings | 111 | | Studios no longer operating | (27) | | Studios at end of period | 3,156 | Results of Operations Total revenue for Q1 2024 increased by 12.5% to $79.5 million, driven by franchise growth, resulting in an operating income of $7.4 million Revenue by Source (Q1 2024 vs. Q1 2023) | Revenue Source | Q1 2024 ($ millions) | Q1 2023 ($ millions) | % Change | | :--- | :--- | :--- | :--- | | Franchise revenue | $41.8 | $33.0 | 26.7% | | Equipment revenue | $13.9 | $13.1 | 6.2% | | Merchandise revenue | $8.2 | $7.2 | 14.1% | | Franchise marketing fund revenue | $7.8 | $6.2 | 26.1% | | Other service revenue | $7.9 | $11.3 | (30.1)% | | Total revenue, net | $79.5 | $70.7 | 12.5% | - The increase in franchise revenue was driven by a 9% rise in same-store sales and 405 net new global studio openings since March 31, 2023202 - Acquisition and transaction expenses decreased by $11.2 million (71%), primarily representing a smaller non-cash change in contingent consideration compared to the prior year212 Non-GAAP Financial Measures Adjusted EBITDA, a key non-GAAP measure, increased to $29.8 million in Q1 2024, reflecting adjustments to net loss for various non-operating items Reconciliation of Net Loss to Adjusted EBITDA | Line Item (in thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net loss | $(4,356) | $(14,979) | | Interest expense, net | $11,182 | $7,341 | | Income tax benefit | $(47) | $(123) | | Depreciation and amortization | $4,436 | $4,197 | | EBITDA | $11,215 | $(3,564) | | Equity-based compensation | $3,942 | $6,056 | | Acquisition and transaction expenses | $4,515 | $15,742 | | Restructuring and related charges | $8,064 | $— | | Other adjustments | $1,815 | $4,638 | | Adjusted EBITDA | $29,830 | $22,872 | Liquidity and Capital Resources As of March 31, 2024, the company held $16.7 million in cash and equivalents, with $331.4 million in term loans outstanding, maintaining sufficient liquidity for the next twelve months - As of March 31, 2024, the company had $16.7 million of cash and cash equivalents, excluding $10.5 million of restricted cash223 - The total principal amount outstanding on the Term Loans was $331.4 million at March 31, 2024228 - Net cash provided by operating activities decreased to $2.7 million in Q1 2024 from $11.4 million in Q1 2023231 Quantitative and Qualitative Disclosures About Market Risk The company faces market risks primarily from variable interest rates on its $331.4 million debt, where a 1% change impacts annual interest expense by approximately $3.3 million - The company is exposed to interest rate risk on its $331.4 million of variable-rate debt outstanding as of March 31, 2024238239 - A hypothetical 1% change in interest rates would change the company's annual interest expense by approximately $3.3 million239 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective241 - There have been no changes in internal control over financial reporting during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, internal controls242 PART II. OTHER INFORMATION This section provides details on legal proceedings, risk factors, and exhibits filed with the Form 10-Q Legal Proceedings This section details ongoing legal matters, including a federal securities class action lawsuit, a shareholder derivative lawsuit, and an SEC investigation initiated in December 2023 - The company is a defendant in a federal securities class action lawsuit filed in February 2024 alleging violations of the Exchange Act152 - The company is cooperating with an SEC investigation that began on December 5, 2023, after the SEC requested certain information and documents154 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, 2023 - 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, 2023246 Exhibits This section lists the exhibits filed with the Form 10-Q, including the Sixth Amendment to the Credit Agreement and various officer certifications - Key exhibits filed include the Sixth Amendment to the Credit Agreement and certifications from the Principal Executive Officer and Principal Financial Officer252