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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40638

 

 

Xponential Fitness, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

84-4395129

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

17877 Von Karman Ave., Suite 100

Irvine, CA

92614

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (949) 346-3000

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Class A common stock, par value $0.0001 per share

 

XPOF

 

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

The number of outstanding shares (in thousands) of the registrant’s Class A common stock and Class B common stock as of April 26, 2024 was 31,584 and 16,488 shares, respectively.

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Changes to Stockholder's Equity (Deficit)

3

Condensed Consolidated Statements of Cash Flows

5

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

43

Item 4.

Controls and Procedures

43

PART II.

OTHER INFORMATION

44

Item 1.

Legal Proceedings

44

Item 1A.

Risk Factors

44

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 3.

Defaults Upon Senior Securities

44

Item 4.

Mine Safety Disclosures

44

Item 5.

Other Information

44

Item 6.

Exhibits

45

Signatures

46

 

 

 

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Xponential Fitness, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(amounts in thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

27,218

 

 

$

37,094

 

Accounts receivable, net (Note 10)

 

 

32,242

 

 

 

32,751

 

Inventories

 

 

15,270

 

 

 

14,724

 

Prepaid expenses and other current assets

 

 

5,661

 

 

 

5,856

 

Deferred costs, current portion

 

 

7,332

 

 

 

6,620

 

Notes receivable from franchisees, net

 

 

65

 

 

 

203

 

Total current assets

 

 

87,788

 

 

 

97,248

 

Property and equipment, net

 

 

19,436

 

 

 

19,502

 

Right-of-use assets

 

 

55,623

 

 

 

71,413

 

Goodwill

 

 

173,947

 

 

 

171,601

 

Intangible assets, net

 

 

124,105

 

 

 

120,149

 

Deferred costs, net of current portion

 

 

45,546

 

 

 

46,541

 

Notes receivable from franchisees, net of current portion

 

 

647

 

 

 

802

 

Other assets

 

 

1,350

 

 

 

1,442

 

Total assets

 

$

508,442

 

 

$

528,698

 

Liabilities, redeemable convertible preferred stock and equity (deficit)

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable

 

$

24,995

 

 

$

19,119

 

Accrued expenses

 

 

12,734

 

 

 

14,088

 

Deferred revenue, current portion

 

 

30,110

 

 

 

34,674

 

Current portion of long-term debt

 

 

5,147

 

 

 

4,760

 

Other current liabilities

 

 

19,409

 

 

 

19,666

 

Total current liabilities

 

 

92,395

 

 

 

92,307

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

115,866

 

 

 

117,305

 

Contingent consideration from acquisitions (Note 16)

 

 

12,971

 

 

 

8,666

 

Long-term debt, net of current portion, discount and issuance costs

 

 

318,812

 

 

 

319,261

 

Lease liability

 

 

54,258

 

 

 

70,141

 

Other liabilities

 

 

5,625

 

 

 

9,152

 

Total liabilities

 

 

599,927

 

 

 

616,832

 

Commitments and contingencies (Note 16)

 

 

 

 

 

 

Redeemable convertible preferred stock, $0.0001 par value, 400 shares authorized,
     
115 shares issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

122,766

 

 

 

114,660

 

Stockholders' equity (deficit):

 

 

 

 

 

 

Undesignated preferred stock, $0.0001 par value, 4,600 shares authorized, none issued and
    outstanding as of March 31, 2024 and December 31, 2023

 

 

 

 

 

 

Class A common stock, $0.0001 par value, 500,000 shares authorized, 31,582 and 30,897 shares
    issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

3

 

 

 

3

 

Class B common stock, $0.0001 par value, 500,000 shares authorized, 16,488 and 16,566 shares issued,
    and
16,413 and 16,491 shares outstanding as of March 31, 2024 and December 31, 2023, respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

506,017

 

 

 

521,998

 

Receivable from shareholder (Note 10)

 

 

(15,775

)

 

 

(15,426

)

Accumulated deficit

 

 

(632,994

)

 

 

(630,127

)

Treasury stock, at cost, 75 shares outstanding as of March 31, 2024 and December 31, 2023

 

 

(1,697

)

 

 

(1,697

)

Total stockholders' deficit attributable to Xponential Fitness, Inc.

 

 

(144,444

)

 

 

(125,247

)

Noncontrolling interests

 

 

(69,807

)

 

 

(77,547

)

Total stockholders' deficit

 

 

(214,251

)

 

 

(202,794

)

Total liabilities, redeemable convertible preferred stock and stockholders' deficit

 

$

508,442

 

 

$

528,698

 

 

See accompanying notes to condensed consolidated financial statements.

1


 

Xponential Fitness, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(amounts in thousands, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenue, net:

 

 

 

 

 

 

Franchise revenue

 

$

41,754

 

 

$

32,966

 

Equipment revenue

 

 

13,900

 

 

 

13,094

 

Merchandise revenue

 

 

8,173

 

 

 

7,164

 

Franchise marketing fund revenue

 

 

7,832

 

 

 

6,211

 

Other service revenue

 

 

7,862

 

 

 

11,255

 

Total revenue, net

 

 

79,521

 

 

 

70,690

 

Operating costs and expenses:

 

 

 

 

 

Costs of product revenue

 

 

14,391

 

 

 

14,035

 

Costs of franchise and service revenue

 

 

5,121

 

 

 

4,032

 

Selling, general and administrative expenses (Note 10)

 

 

37,155

 

 

 

34,885

 

Depreciation and amortization

 

 

4,436

 

 

 

4,197

 

Marketing fund expense

 

 

6,515

 

 

 

5,006

 

Acquisition and transaction expenses

 

 

4,515

 

 

 

15,742

 

Total operating costs and expenses

 

 

72,133

 

 

 

77,897

 

Operating income (loss)

 

 

7,388

 

 

 

(7,207

)

Other (income) expense:

 

 

 

 

 

Interest income

 

 

(363

)

 

 

(636

)

Interest expense

 

 

11,545

 

 

 

7,977

 

Other expense

 

 

609

 

 

 

554

 

Total other expense

 

 

11,791

 

 

 

7,895

 

Loss before income taxes

 

 

(4,403

)

 

 

(15,102

)

Income tax benefit

 

 

(47

)

 

 

(123

)

Net loss

 

 

(4,356

)

 

 

(14,979

)

Less: net loss attributable to noncontrolling interests

 

 

(1,489

)

 

 

(4,996

)

Net loss attributable to Xponential Fitness, Inc.

 

$

(2,867

)

 

$

(9,983

)

 

 

 

 

 

 

 

Net loss per share of Class A common stock:

 

 

 

 

 

 

Basic

 

$

(0.30

)

 

$

(1.38

)

Diluted

 

$

(0.30

)

 

$

(1.38

)

Weighted average shares of Class A common stock outstanding:

 

 

 

 

 

 

Basic

 

 

31,125

 

 

 

30,754

 

Diluted

 

 

31,125

 

 

 

30,754

 

 

See accompanying notes to condensed consolidated financial statements.

2


 

Xponential Fitness, Inc.

Condensed Consolidated Statements of Changes to Stockholders' Equity (Deficit)

(Unaudited)

(amounts in thousands)

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional Paid-In Capital

 

 

Receivable from
Shareholder

 

 

Accumulated
Deficit

 

 

Noncontrolling
interests

 

 

Total
Equity (Deficit)

 

Balance at December 31, 2023

 

 

30,897

 

 

$

3

 

 

 

16,566

 

 

$

2

 

 

 

75

 

 

$

(1,697

)

 

$

521,998

 

 

$

(15,426

)

 

$

(630,127

)

 

$

(77,547

)

 

$

(202,794

)

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,252

 

 

 

 

 

 

 

 

 

1

 

 

 

3,253

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,867

)

 

 

(1,489

)

 

 

(4,356

)

Conversion of Class B shares to Class A shares

 

 

78

 

 

 

 

 

 

(78

)

 

 

 

 

 

 

 

 

 

 

 

(9,264

)

 

 

 

 

 

 

 

 

9,264

 

 

 

 

Vesting of restricted share units

 

 

607

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loan to shareholder and accumulated interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(349

)

 

 

 

 

 

 

 

 

(349

)

Distributions paid to Pre-IPO LLC Members

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36

)

 

 

(36

)

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,863

)

 

 

 

 

 

 

 

 

 

 

 

(1,863

)

Adjustment of preferred stock to redemption value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,106

)

 

 

 

 

 

 

 

 

 

 

 

(8,106

)

Balance at March 31, 2024

 

 

31,582

 

 

$

3

 

 

 

16,488

 

 

$

2

 

 

 

75

 

 

$

(1,697

)

 

$

506,017

 

 

$

(15,775

)

 

$

(632,994

)

 

$

(69,807

)

 

$

(214,251

)

See accompanying notes to condensed consolidated financial statements.

3


 

Xponential Fitness, Inc.

Condensed Consolidated Statements of Changes to Stockholders' Equity (Deficit)

(Unaudited)

(amounts in thousands)

 

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional Paid-In Capital

 

 

Receivable from
Shareholder

 

 

Accumulated
Deficit

 

 

Noncontrolling
interests

 

 

Total
Equity (Deficit)

 

Balance at December 31, 2022

 

 

27,571

 

 

$

3

 

 

 

21,647

 

 

$

2

 

 

 

75

 

 

$

(1,697

)

 

$

505,186

 

 

$

(16,369

)

 

$

(641,903

)

 

$

(53,284

)

 

$

(208,062

)

Equity-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,598

 

 

 

 

 

 

 

 

 

14

 

 

 

5,612

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,983

)

 

 

(4,996

)

 

 

(14,979

)

Conversion of Class B shares to Class A shares

 

 

4,926

 

 

 

 

 

 

(4,926

)

 

 

 

 

 

 

 

 

 

 

 

(2,332

)

 

 

 

 

 

 

 

 

2,332

 

 

 

 

Preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,069

)

 

 

 

 

 

 

 

 

 

 

 

(2,069

)

Adjustment of preferred stock to redemption value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(62,660

)

 

 

 

 

 

 

 

 

 

 

 

(62,660

)

Vesting of Class B Shares

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted share units, net of shares withheld for taxes

 

 

402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,935

)

 

 

 

 

 

 

 

 

 

 

 

(7,935

)

Deemed contribution from redemption of preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,679

 

 

 

 

 

 

12,679

 

Liability-classified restricted stock units vested

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,250

 

 

 

 

 

 

 

 

 

 

 

 

2,250

 

Loan to shareholder and accumulated interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,587

)

 

 

 

 

 

 

 

 

(3,587

)

Balance at March 31, 2023

 

 

32,899

 

 

$

3

 

 

 

16,731

 

 

$

2

 

 

 

75

 

 

$

(1,697

)

 

$

438,038

 

 

$

(19,956

)

 

$

(639,207

)

 

$

(55,934

)

 

$

(278,751

)

See accompanying notes to condensed consolidated financial statements.

4


 

Xponential Fitness, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(amounts in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(4,356

)

 

$

(14,979

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

4,436

 

 

 

4,197

 

Amortization and write off of debt issuance costs

 

 

72

 

 

 

283

 

Amortization and write off of discount on long-term debt

 

 

1,325

 

 

 

609

 

Change in contingent consideration from acquisitions

 

 

4,087

 

 

 

15,742

 

Non-cash lease expense

 

 

2,205

 

 

 

1,212

 

Bad debt expense (recovery)

 

 

(8

)

 

 

(21

)

Equity-based compensation

 

 

3,942

 

 

 

6,056

 

Non-cash interest

 

 

(318

)

 

 

(478

)

Gain on disposal of assets

 

 

(2,905

)

 

 

 

Changes in assets and liabilities, net of effect of acquisition:

 

 

 

 

 

 

Accounts receivable

 

 

524

 

 

 

3,230

 

Inventories

 

 

(546

)

 

 

(2,098

)

Prepaid expenses and other current assets

 

 

195

 

 

 

(3,083

)

Operating lease liabilities

 

 

(1,657

)

 

 

(1,228

)

Deferred costs

 

 

283

 

 

 

138

 

Notes receivable, net

 

 

1

 

 

 

2

 

Accounts payable

 

 

4,782

 

 

 

2,794

 

Accrued expenses

 

 

(2,320

)

 

 

433

 

Other current liabilities

 

 

2,389

 

 

 

(1,800

)

Deferred revenue

 

 

(6,003

)

 

 

624

 

Other assets

 

 

92

 

 

 

(68

)

Other liabilities

 

 

(3,525

)

 

 

(214

)

Net cash provided by operating activities

 

 

2,695

 

 

 

11,351

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

 

(855

)

 

 

(2,127

)

Proceeds from sale of assets

 

 

346

 

 

 

 

Purchase of intangible assets

 

 

(509

)

 

 

(470

)

Notes receivable payments received

 

 

314

 

 

 

212

 

Acquisition of business

 

 

(8,500

)

 

 

 

Net cash used in investing activities

 

 

(9,204

)

 

 

(2,385

)

Cash flows from financing activities:

 

 

 

 

 

Borrowings from long-term debt

 

 

38,701

 

 

 

126,100

 

Payments on long-term debt

 

 

(39,891

)

 

 

(1,065

)

Debt issuance costs

 

 

(269

)

 

 

(115

)

Payment of preferred stock dividend

 

 

(1,872

)

 

 

(1,320

)

Payments for taxes related to net share settlement of restricted share units

 

 

 

 

 

(7,935

)

Payments for redemption of preferred stock

 

 

 

 

 

(130,766

)

Payments for distributions to Pre-IPO LLC Members

 

 

(36

)

 

 

 

Loan to shareholder (Note 10)

 

 

 

 

 

(3,100

)

Net cash used in financing activities

 

 

(3,367

)

 

 

(18,201

)

Decrease in cash, cash equivalents and restricted cash

 

 

(9,876

)

 

 

(9,235

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

37,094

 

 

 

37,370

 

Cash, cash equivalents and restricted cash, end of period

 

$

27,218

 

 

$

28,135

 

 

See accompanying notes to condensed consolidated financial statements.

5


 

Xponential Fitness, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(amounts in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

 

$

9,857

 

 

$

7,036

 

Income taxes paid, net

 

 

60

 

 

 

550

 

Noncash investing and financing activity:

 

 

 

 

 

Capital expenditures accrued

 

$

2,116

 

 

$

1,169

 

Adjustment of convertible preferred stock to redemption value

 

 

8,106

 

 

 

62,660

 

Liability-classified restricted stock units vested

 

 

 

 

 

2,250

 

Deemed contribution from redemption of convertible preferred stock

 

 

 

 

 

12,679

 

Accrued tax withholding related to convertible preferred stock dividend

 

 

104

 

 

 

749

 

Contingent consideration upon acquisition

 

 

446

 

 

 

 

Debt issuance costs paid-in-kind - long-term debt

 

 

4,059

 

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

6


Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

 

Note 1 – Nature of Business and Operations

Xponential Fitness, Inc. (the “Company” or “XPO Inc.”), was formed as a Delaware corporation on January 14, 2020 for the purpose of facilitating an initial public offering (“IPO”) and entered into a series of transactions to implement an internal reorganization. Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being an ownership interest in Xponential Fitness LLC (“XPO LLC”) through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”).

XPO LLC was formed on August 11, 2017 as a Delaware limited liability company for the sole purpose of franchising fitness brands in several verticals within the boutique fitness industry. XPO LLC is a wholly owned subsidiary of XPO Holdings, which was formed on February 24, 2020, and prior to the IPO, ultimately, H&W Franchise Holdings, LLC (the “Parent”). Prior to the formation of XPO Holdings, the Company was a wholly owned subsidiary of H&W Franchise Intermediate Holdings, LLC (the “Member”).

As of March 31, 2024, the Company’s portfolio of ten brands consists of: “Club Pilates,” a Pilates facility franchisor; “CycleBar,” a premier indoor cycling franchise; “StretchLab,” a fitness concept offering one-on-one assisted stretching services; “Row House,” a rowing concept that provides an effective and efficient workout centered around the sport of rowing; “YogaSix,” a yoga concept that concentrates on connecting to one’s body in a way that is energizing; “AKT,” a dance-based cardio workout concept that combines toning, interval and circuit training; “Pure Barre,” a total body workout concept that uses the ballet barre to perform small isometric movements; “Rumble,” a boxing concept that offers boxing-inspired group fitness classes; “BFT,” a high-intensity interval training concept that combines functional, high-energy strength, cardio and conditioning-based classes, designed to achieve the unique health goals of its members; and “Lindora,” a provider of medically guided wellness and metabolic health solutions, which was acquired on January 2, 2024. The Company, through its boutique fitness brands, licenses its proprietary systems to franchisees who in turn operate studios to promote training and instruction programs to their club members within each vertical. Additionally, the Company, through its ownership of the Lindora brand, franchises clinics that provide medically guided wellness and metabolic health solutions to its members. In addition to franchised studios, the Company operated one and 87 company-owned transition studios as of March 31, 2024 and 2023, respectively.

On February 13, 2024, the Company divested the Stride brand, including the intellectual property, franchise rights and franchise agreements for open studios. See Note 3 for additional information.

In connection with the IPO, XPO Inc. entered into a series of transactions to implement an internal reorganization, (the “Reorganization Transactions”). The pre-IPO members of XPO Holdings (the “Pre-IPO LLC Members”) who retained their equity ownership in the form of limited liability company units (the “LLC Units”), immediately following the consummation of the Reorganization Transactions are referred to as “Continuing Pre-IPO LLC Members.”

Because XPO Inc. manages and operates the business and controls the strategic decisions and day-to-day operations of XPO LLC through its ownership of XPO Holdings and because it also has a substantial financial interest in XPO LLC through its ownership of XPO Holdings, it consolidates the financial results of XPO LLC and XPO Holdings, and a portion of its net income (loss) is allocated to the noncontrolling interest to reflect the entitlement of the Continuing Pre-IPO LLC Members to a portion of XPO Holdings’ net income or loss.

As the sole managing member of XPO LLC, the Company operates and controls all of the business and affairs of XPO LLC. The Company consolidates XPO LLC on its condensed consolidated financial statements and records a noncontrolling interest related to the Class B units held by the Class B stockholders on its condensed consolidated balance sheet and statement of operations.

Basis of presentation – The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In the opinion of management, the Company has made all adjustments necessary to present fairly the condensed consolidated statements of operations, balance sheets, changes in stockholders' equity (deficit), and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”). Interim results of operations are not necessarily indicative of results of operations to be expected for a full year.

7


Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

 

On January 2, 2024, the Company acquired Lindora Franchise, LLC, a Delaware limited liability company, the franchisor of the Lindora wellness brand (the “Lindora Franchisor” or “Lindora”), and has included the results of operations of Lindora in its condensed consolidated statements of operations from the acquisition date forward. See Note 3 for additional information.

Principles of consolidation The Company’s consolidated financial statements include the accounts of its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Use of estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. Actual results could differ from these estimates under different assumptions or conditions.

Note 2 – Summary of Significant Accounting Policies

Segment and geographic information – The Company operates in one reportable and operating segment. The Company generated $3,051 and $2,980 of revenue outside of the United States during the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, the Company did not have material assets located outside of the United States.

Cash, cash equivalents and restricted cash The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

The Company has marketing fund restricted cash, which can only be used for activities that promote the Company’s brands. In July 2022, the Company issued a $750 standby letter of credit to a third-party financing company, who provides loans to the Company's qualified franchisees. The standby letter of credit is contingent upon the failure of franchisees to perform according to the terms of underlying contracts with the third party. The Company deposited cash in a restricted account as collateral for the standby letter of credit. In addition, the Company, as a guarantor, is required to recognize, at inception of the guaranty, a liability for the fair value of the obligation undertaken in issuing the guarantee. See Note 16 for further discussion of such obligations guaranteed.

The Company's restricted cash consists of marketing fund restricted cash and guarantee of standby letter of credit. Restricted cash was $10,511 and $9,333 at March 31, 2024 and December 31, 2023, respectively.

Accounts receivable and allowance for expected credit losses – Accounts receivable primarily consist of amounts due from franchisees and vendors. These receivables primarily relate to royalties, advertising contributions, equipment and product sales, training, vendor commissions and other miscellaneous charges. Receivables are unsecured; however, the franchise agreements provide the Company the right to withdraw funds from the franchisee’s bank account or to terminate the franchise for nonpayment. On a periodic basis, the Company evaluates its accounts receivable balance and establishes an allowance for expected credit losses based on a number of factors, including evidence of the franchisee’s ability to comply with credit terms, economic conditions and historical receivables. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

The Company’s accounts and notes receivable are recorded at net realizable value, which includes an appropriate allowance for expected credit losses. The estimate of expected credit losses is based upon historical bad debts, current receivable balances, age of receivable balances, the customer’s financial condition and current economic trends, all of which are subject to change. Actual uncollected amounts have historically been consistent with the Company’s expectations. The Company’s payment terms on its receivables from franchisees are generally 30 days.

8


Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

 

The following table provides a reconciliation of the activity related to the Company’s accounts receivable and notes receivable allowance for credit losses:

 

 

 

Accounts receivable

 

 

Notes receivable

 

 

Total

 

Balance at January 1, 2024

 

$

1,135

 

 

$

2,184

 

 

$

3,319

 

Bad debt expense (recovery) recognized during the period

 

 

(14

)

 

 

6

 

 

 

(8

)

Write-off of uncollectible amounts

 

 

(31

)

 

 

 

 

 

(31

)

Balance at March 31, 2024

 

$

1,090

 

 

$

2,190

 

 

$

3,280

 

Accrued expensesAccrued expenses consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Accrued compensation

 

$

3,763

 

 

$

4,798

 

Contingent consideration from acquisitions, current portion

 

 

1,850

 

 

 

1,564

 

Sales tax accruals

 

 

986

 

 

 

1,642

 

Legal accruals

 

 

1,731

 

 

 

1,343

 

Other accruals

 

 

4,404

 

 

 

4,741

 

Total accrued expenses

 

$

12,734

 

 

$

14,088

 

Other current liabilitiesOther current liabilities consisted of the following:

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Lease liabilities, short-term

 

$

6,461

 

 

$

9,109

 

Promissory note, current portion

 

 

3,406

 

 

 

3,345

 

Tax receivable agreement liability, current portion

 

 

2,892

 

 

 

2,892

 

Other current liabilities

 

 

6,650

 

 

 

4,320

 

Total other current liabilities

 

$

19,409

 

 

$

19,666

 

Comprehensive income – The Company does not have any components of other comprehensive income recorded within the consolidated financial statements and therefore does not separately present a consolidated statement of comprehensive income in the condensed consolidated financial statements.

Fair value measurements – Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, applies to all financial assets and financial liabilities that are measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. ASC Topic 820 establishes a valuation hierarchy for disclosures of the inputs to valuations used to measure fair value.

This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.

Level 2 – Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates and yield curves), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 – Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.

9


Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

 

The Company’s financial instruments include cash, restricted cash, accounts receivable, notes receivable, accounts payable, accrued expenses and notes payable. The carrying amounts of these financial instruments approximate fair value due to their short maturities, proximity of issuance to the balance sheet date or variable interest rate.