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July 22 IPO

July 22 IPO

Wall Street is getting a workout with Irvine-based Xponential Fitness Inc., one of two Orange County companies to go public in late July as the rapidly expanding boutique fitness company enters a new stage of growth.

“We’re excited about the milestone for the company,” said founder and CEO Anthony Geisler last week in chatting about the fitness franchisor’s IPO.

“It’s the next step in Xponential’s evolution as a business.”

The company (NYSE: XPOF), which had originally intended to go public last year before COVID thwarted those plans, raised $120 million in its IPO late last month, with 10 million shares sold at $12 a piece. The company had initially marketed 13.3 million shares for sale priced between $14 and $16.

Alongside the IPO, the company is also raising an additional $200 million via the sale of convertible preferred stock to affiliates of billionaire tech exec Michael Dell’s family office, MSD Partners. Those shares are convertible at a price of $14.40.

Proceeds from the two offerings are largely going to pay down debt, and could also be used to fund additional acquisitions, among other purposes.

Xponential had a recent market cap of $560 million, not factoring in the convertible share deal, with shares still trading around the opening price as of late last week.

Geisler, named a Business Journal Excellence in Entrepreneurship Award winner earlier this year, counts a 14% stake in the company following the IPO and preferred shares to Dell, which has a 9.9% stake, according to regulatory filings.

Big Footprint, Small Spaces

The company is not alone among fitness firms looking to tap the public markets.

F45 Training Holdings Inc. (NYSE: FXLV), which went public a week ahead of Xponential, had an opening price of $16 and raised $325 million. The Austin, Texas-based company, which counts Mark Wahlberg as an investor, last week was trading below its debut price with a recent market cap of $1.3 billion.

Xponential’s IPO and growth since its 2017 founding is a reflection of the current appetite for those companies able to cater to customers’ demands in the health and wellness space, with its footprint and efforts on the digital side via its platform Go and XPASS membership program.

Xponential counts more than 1,750 locations across nine brands: Club Pilates, CycleBar, StretchLab, Row House, AKT, YogaSix, Pure Barre, Stride and Rumble. Geisler pointed out 60% of the U.S. population lives within 10 miles of one of the company’s concepts.

By store count, Xponential is OC’s largest fitness operation at more than double the size of Irvine-based Fitness International LLC, parent company of the LA Fitness chain. The latter counts more than 730 locations, which often top 30,000 square feet. Xponential’s brands typically range in size from 1,000 square feet to 2,500 square feet.

2020 Fallout

Xponential continued to balloon in size, despite last year’s circumstances.

“The business today is about 98% reopened from its pre-COVID location count,” Geisler said. “We’ve grand opened over 300 new locations since COVID hit in March of last year, so when you look at our store count, it is far above where we were pre-COVID levels.”

The remaining 2% of doors are expected to reopen depending on local government mandates, Geisler said.

Xponential reported systemwide sales last year of $442 million, down from $560 million in 2019, according to the company’s filings with the Securities & Exchange Commission.

Xponential in 2020 had a net loss of $14 million as it continued to narrow its losses every year since 2018, according to regulatory filings.

Global fitness industry association IHRSA reported health clubs generated about $15 billion in revenue last year. That represents a loss of $20.4 billion from 2019’s all-time high of $35 billion in sales, according to the Boston-based association’s annual report on the state of the industry.

Some 17% of U.S. clubs shuttered their doors permanently last year, according to IHRSA.

New York spin concept Flywheel Sports Inc. filed to liquidate through Chapter 7 bankruptcy proceedings in September. Santa Monica-based YogaWorks Inc., with 60 yoga studios, filed for Chapter 11 in October.

The state of the industry has given some fitness concepts a better shot at capturing the memberships and real estate of those clubs that were closed for good.

“We’re the largest player by far in the United States and we continue to grow by selling more franchises and opening more stores, and our current footprint continues to grow with more members coming,” Geisler said. “We do see that about 15% of the fitness industry permanently closed during COVID, which I don’t wish that upon anybody who is trying to run a business, but the reality is YogaWorks went bankrupt. Flywheel went bankrupt. We took over Flywheel locations and turned them into CycleBars. We took over YogaWorks locations and turned them into YogaSix. We’ve taken over local yoga locations and turned them into our brands and so COVID has allowed us to continue our rapid expansion on the real estate side of things.”

XPASS Ecosystem

Geisler believes that, outside of location count, the variety in Xponential’s brand portfolio will also help keep it competitive.

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Rumble, the high-profile boxing concept Xponential bought in March, has already begun its expansion plans, with 71 licenses sold internationally as of June 30.

Acquisitions to help scale will also remain a part of the strategy.

“The company will still continue to grow in the future, so there will be a 10th brand. As far as what that brand is or what the timing is of that brand, it’s still up for discussion. But we will continue to expand the portfolio in the future,” Geisler said.

Internationally, the company’s master franchisees are contracted to sell licenses to franchisees for another 693 studios in nine countries.

The company’s XPASS program helps cross-sell the different brands in its portfolio, making it an attractive pitch to customers who like to switch up their workout routines.

XPASS members can choose from three plans based on how many classes they intend to book monthly, with prices set at $29, $49 and $69 a month.  

“That’s something an F45 can’t do, an Orangetheory can’t do, a Barry’s Boot Camp can’t do,” Geisler said, pointing to Xponential’s strength in comparison to mono-brand fitness companies.  

The XPASS program is still relatively young, with a rollout that began in the fourth quarter of 2020. It’s currently offered in select cities across nearly 500 studios in more than 30 states, and Geisler said that continues to grow each month.  

“We’re seeing that people love the platform and they’ve been continuing to utilize it as we’ve spread it across the country, so we’re happy about that,” Geisler said.

He declined to say how many members have signed up for the program.

“It’s a lot of work in opening stores and years and years and years of development in order to be able to launch something like this,” he said of XPASS.

Staying Focused

Complementary to the brick-and-mortar experience, Xponential also boasts a digital platform, called Go, with thousands of hours of on-demand workouts available as it seeks to accommodate consumer demand.

The company, pre-COVID, bought a 6,800-square-foot building across from its 35,000-square-foot headquarters at the Intersect campus to serve as a full production studio. The original goal was to launch its digital direct-to-consumer offering in April 2020, making it well positioned, unintentionally, for COVID.

“We simply dimmed the lights in our physical, brick-and-mortar locations and turned up the lights in digital during Covid. And then did the reverse as stores began to reopen,” Geisler said.

Today, more than 50,000 users are on the digital platform.

While Geisler said he expects many customers to return to physical spaces, digital still offers flexibility and also reaches those where the company and its franchisees may not have a studio nearby.  

The company last month completed a renovation to the digital platform that will eventually bring Rumble onto the network, along with more content.

“Digital changed during COVID,” Geisler said.

“We were state-of-the-art pre-COVID and during COVID everyone upped their digital game. So, we needed to do so as well so when we relaunched, we looked better than the competitors. And so we’ve done that. I think we’re very, very well-positioned, better than anybody else, to expand in the digital marketplace.”

The company remains disciplined in its growth plans.

There’s no intention of veering down unexpected paths as is the case for some in the competitive set. Equinox comes to mind with its hotel at Hudson Yards in New York City, co-working space named Industrious at Equinox and Electric Lemon restaurant.

“I don’t see us opening a Pure Bare hotel or a Club Pilates hotel, I could tell you that,” Geisler said.

“But we have plenty of opportunity with our current brands …. I don’t feel like it would make sense for us to expand out of what we currently do into something like a hotel or a restaurant. You’ll find us sticking to what we’re good at, which is franchising and servicing our franchisees and servicing our 850,000-plus customers across the country.”

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