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Xponential Fitness Bulks Up

CEO Anthony Geisler's IPO Bet Pays Off; Boutique Operator Eyes Hotels, Apartments

Anthony Geisler got his start in the Orange County business community at the age of 6, when he distributed flyers for his mom’s cleaning company to Turtle Rock homes in Irvine.

“It was the ’80s, so we photocopied on bright, neon paper,” Geisler told the Business Journal. “I would walk the neighborhood putting flyers in mailboxes.”

At an early age, “I learned that entrepreneurial mindset of having to wake up every day and bust your butt for an honest living.”

Geisler earned a Business Journal Excellence in Entrepreneurship Award in 2021 for leading the growth of his company, Irvine-based boutique fitness franchiser Xponential Fitness Inc. (NYSE: XPOF).

That year, Xponential was one of nearly a dozen OC firms to go public via a traditional initial public offering. Since then, it’s been the star of the crop, as the only one in the group to have seen its shares more than double.

As of last week, shares in Xponential were approaching $30 apiece and a $1.4 billion market cap. Its IPO was priced at $12 a share.

Xponential is currently Orange County’s 29th most valuable public company, and counts over 2,600 open studios domestically and globally, including locations in Japan, the U.K., Mexico and New Zealand.

It’s only getting bigger, with 2022 revenue up 59% over the year prior, and a goal to reach nearly $300 million in sales this year.

 

Stock Standout

Xponential is one of few new public companies in the U.S., let alone OC, that have seen shares rise since their 2021 IPO.

The 1,035 U.S. companies that went public in 2021 saw their stocks fall an average of 18% from their IPO price, according to data from investment analytics firm Stock Analysis.

The 10 other local companies that went public via traditional IPO in 2021—including Irvine EV maker Rivian Automotive Inc. (Nasdaq: RIVN) and Irvine mortgage company loanDepot Inc. (NYSE LDI)—saw an average decrease of 60% in their shares. Many other OC companies that went public in 2021 and 2022 via special purpose acquisition companies, or SPACs, have fared even worse.

Geisler attributes Xponential’s unique success to pandemic-fueled shifts in consumer priorities and the fitness industry.

Post-COVID, “people are taking their health seriously,” Geisler said. Additionally, “30% of the boutique fitness market permanently closed during COVID, while our business grew by 30%. So, we were a big net there to catch displaced members, displaced labor and displaced real estate.”

 

Secondary Offering

Xponential last month made a $141 million secondary offering, in which Geisler sold less than 10% of his shares, earning about $25 million. He opted not to sell a large stake in his holdings at the time of the IPO, betting on the company’s potential on Wall Street.

“It returns the majority of my investment six years ago,” Geisler said of the February sale, noting that he put in $30 million to start Xponential in 2017 with TPG Growth, the private equity arm of asset management firm TPG Inc.

Other sellers in the secondary offering included affiliates of private equity firm SnapDragon Capital Partners, whose managing partner, Mark Grabowski, serves as the chairman on Xponential’s board.

Underwriters of the offering opted to purchase an additional 750,000 shares at $24.50 per share, increasing the total shares sold to 5,750,000.

“People don’t realize that the stock market is like putting out 10,000 cars and everybody has to just sell the cars around with each other,” Geisler said. “What ends up happening is there’s this overhang on the stock, where it’s very hard for the stock price to trade up, because the bigger players can’t come in and put bigger money to work.”

Geisler owns 8 million shares, or about 13%, representing approximately $221 million, according to its latest proxy.

 

Franchise­r Beginnings

Geisler moved from Arizona to OC when he was 6 years old, settling in a three-bedroom, one-bathroom apartment with his mother, father and brother in Lake Forest.

“In the mornings, we’d often take turns getting ready or going to the bathroom, or trying to do both, which was challenging,” he said.

As he grew older, he neglected to take care of himself. He said he wasn’t active, slept poorly and did not maintain a healthy diet, which led him to frequently fall sick.

Upon his doctor’s recommendation for a lifestyle change, Geisler signed up for classes at LA Boxing gym in Costa Mesa.

“I really enjoyed it,” he said, adding that he partook in a few amateur fights. “I saw an opportunity there to expand the business.”

With permission from the owners, Geisler opened his own LA Boxing location in Aliso Viejo. He later bought the Costa Mesa location and eventually franchised the brand to 200 locations, which he sold to UFC Gym in 2012.

Geisler planned to retire after the sale, but stepped back into the fitness industry three years later by buying Club Pilates from a mutual friend for $2 million.

“She didn’t want anything to do with the business anymore,” he said of the former Club Pilates owner. “She loves Pilates but hates business.”

After quadrupling Club Pilates’ locations to around 120, and building the business to “50 times what I bought it for,” he sold a stake of the brand to TPG Growth.

Associates at TPG Growth then encouraged Geisler to work with them in developing a boutique fitness business by rolling up other brands and running it together.

“That was kind of the launch of Xponential,” he said.

 

Doubling Studio Count

It appears growth for Xponential won’t be stopping any time soon.

The company today operates more than 2,600 studios and has sold over 5,400 studio licenses globally.

“Even if we don’t sell another franchise going forward, our store count would still double in size from where it is today,” Geisler said, adding that the company last year opened a store every 17 hours.

Xponential’s North American franchisees grew revenue last year 46% to $1 billion, marking the company’s first billion-dollar milestone.

Royalties from those sales, along with equipment and other services, boosted Xponential’s fourth-quarter revenue 44% to $71 million, beating the Zacks consensus estimate.

For the full fiscal year of 2022, Xponential grew revenue 59% to $245 million from the year prior. Company officials expect revenue this year to reach between $285 million and $295 million.

Following the fourth-quarter results, released at the start of this month, shares in Xponential jumped 17% to around $29 a share. Three analyst firms—Raymond James, Morgan Stanley and Citigroup—maintained their respective ratings of “strong buy,” “overweight” and “buy” for the company. Citigroup’s analyst raised Xponential’s price target from $31 to $32, while the analysts from Morgan Stanley and Raymond James both increased the company’s price target by $2 to $30 and $32, respectively.

As talks of a recession warn of industry downturns, Geisler remains confident about Xponential’s future due to the “rinse and repeat” nature of his business.

“Our business is very predictable,” he said. “We know when we sell a franchise, how long it’ll be before it opens and how it ramps. So, there’s not a lot of guesswork for us. In 2023, we’ll just continue to sell more stores, open more stores, drive more dollars through our existing store base and then try to keep our expenses as low as we possibly can.”

 

­ Xponential at Sea

As Xponential Fitness Inc. (NYSE: XPOF) ramps up its boutique fitness portfolio and reaches record revenue, the Irvine-based firm is also expanding its online and retail offerings through new business lines.

Officials this month said the company is partnering with conglomerate LG Corp., which will feature an application for Xponential’s Xplus—a subscription service that features online workouts—on LG televisions.

The deal is one of many steps Xponential is taking to increase its visibility to consumers without spending heavy dollars to reach new customers.

“Customer acquisition costs were rising in boutique fitness, digital and everything across the board,” Geisler told analysts during Xponential’s fourth-quarter conference call this month. “We started to [ask] how can we be smart … how can we be scrappy and do things that other people aren’t doing?”

The LG partnership, on top of deals the company secured last year with Lululemon Athletica Inc. (Nasdaq: LULU), Aktiv—a gym designer for hotels, offices, apartments and universities—and Princess Cruises, came as a result.

Xponential last April agreed to make original fitness programming for Lululemon’s Mirror, a smart home gym that offers live and on-demand classes. The company’s dance-focused brand AKT, full-body workout brand Pure Barre, boxing brand Rumble and YogaSix are adding programs to Mirror’s workout library.

Last September, Xponential became the first cross-modality fitness franchise to land its brands on a major cruise line through its partnership with Princess Cruises, officials said. The deal grants a minimum of 120 Xponential studios across Princess’ 15-ship fleet.

The following month, Xponential inked a deal with Aktiv, which will deploy the company’s workout equipment and online fitness programs in 11,000 outlets across the world, including gyms at Hyatt Hotels Corp. (NYSE: H) and Hilton Hotels & Resorts, according to Geisler.

“It would be our goal that by the time someone parks at Starbucks to get a coffee in the morning and they see a Pure Barre sign next door, that they’re sick of seeing that brand everywhere … because they’ve seen it on a cruise, they’ve seen it on a Mirror, [and] they’ve seen it in a Lululemon store,” Geisler told analysts.
—Kaitlin Aquino

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