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Xponential Bulks Up on Fitness Franchising Thesis

Wall Street was getting an IPO workout, the delta variant occupied headlines and investor sentiment towards fitness stocks was tepid at best.

Xponential Fitness Inc. (NYSE: XPOF) founder and CEO Anthony Geisler knew it wasn’t exactly the greatest time to go public last July, but he pushed forward anyway, raising $120 million in the initial public offering—and another $200 million in a concurrent offering to Michael Dell’s MSD Capital—for the Irvine fitness franchisor he started in 2017 with a single brand that’s now ballooned to a portfolio of 10.

Brands under the company’s umbrella include Club Pilates, StretchLab, CycleBar, Row House, YogaSix, Pure Barre, Stride, Rumble, Body Fit Training and AKT.

“It was bittersweet in the regard that we probably ended up on the worst week of 2021 to actually go public and, even worse, as a fitness company because there were 19 IPOs that week, so it was hard getting investor attention,” Geisler told the Business Journal in an interview late last year.

“We had another fitness company [F45 Training Holding Inc., NYSE: FXLV] go public the week before that was a broken IPO, so they were trading below their IPO price. By the time we got up to bat, people were like, ‘OK, there’s 19 other deals, the delta variant is in the news and fitness IPOs have never been great for Wall Street.”

None of that phased Geisler.

Xponential had already put off plans to go public in 2020 just before Covid hit; he was unwilling to do that again.

“I removed my secondary [offering] from the IPO and, with that, we said, ‘Hey, let’s push forward and let’s get the IPO done. Let’s go out and prove over time that the company can perform. I’m not really focused on where the price is today; I’m focused on where the price is in three to five years.”

Strong Returns

Today, the stock is more than 60% higher than Xponential’s IPO price.

The company has a market cap of $980 million, factoring in Dell’s stake in the business.

The company was ranked by trade publication Club Industry as the 10th largest fitness club chain in 2020 by revenue. At the time, Xponential had 40 company-owned locations and more than 1,600 franchised. The company’s footprint has expanded considerably since then.

Xponential ended the third quarter with more than 1,900 studios and systemwide sales in North America of $192.4 million, up 93% from the prior-year period.

Geisler is one of four local execs who took their company public in 2021 named as Businesspeople of the Year by the Business Journal.

LA Fitness Pact

In November, the company announced an exclusive development agreement with Irvine-based Fitness International LLC to see at least 350 franchised locations in the next five years inside of Fitness International’s LA Fitness and City Sports Club locations. Privately held Fitness International is the country’s No. 1 fitness chain, with nearly $2 billion in revenue annually, according to Club Industry’s data.

It’s a move that Geisler says expands Xponential’s market via a chain with a considerable footprint and headquarters just down the street from his own company.

Buildout of those studios is expected to begin this quarter.

Achieving Results

Given all that Xponential has become in such a short amount of time, the IPO, Geisler described, “was pretty cool.”

“Being on the stock exchange floor, ringing the bell, having all your friends and family there, that was probably the best part of the whole thing. It was a very unique, once in a lifetime trip to New York that we were all able to take as a family,” he said.

And, it’s one that runs through the minds of most business owners at some point as they scale, he pointed out.  

“As an entrepreneur, going public is kind of like playing in the Super Bowl of business,” Geisler said.

“I think it’s always in people’s heads as they’re running a business that someday, one day [they might IPO].”

Similar to most other roadshows that occurred in 2020 and parts of last year, Xponential’s was virtual.

Geisler and the team flew to New York to make themselves available for anyone in person. Ultimately, they ended up doing everything virtually in a conference room at the St. Regis New York in Manhattan.

The CEO is even-keel about the IPO process, describing it as “pretty simple,” with the objective of telling “investors what you believe the company is going to achieve and then you go achieve it.”

“I think the difference between a private and public company is that when you’re a private company and you’re an entrepreneur, you tend to shoot for the high side. You tend to shoot for the stars. Obviously, in the public world, you can’t do that. You have to be very scientific and very conservative of what you believe the business can do because the business has to perform,” the CEO reflected on his jump to running a public company.

Pandemic’s Impact

As Geisler looks to the current operating environment, he remains confident the omicron variant won’t impact the business.

In fact, 2020 is a good example. Compared to other large fitness chains, Xponential had one of the smallest revenue declines on Club Industry’s 2020 ranking. Additionally, the company’s digital offering of classes allowed it to transition smoothly to accommodate shelter-in-place orders and only continues to keep the company relevant to those who want an on-demand experience.

“The business continues to perform at or above expected levels. We’ve said it before and we’ll say it again that the delta variant didn’t have an impact on us nor has omicron, and the business continues to operate the way it’s intended,” the CEO said.

Continued Scale

In October, Xponential said it was paying $44 million for Australia-based Body Fit Training, a franchisor of studios touting 50-minute classes focused on strength, cardio and conditioning. The deal marked the addition of the 10th brand to Xponential’s portfolio.

The company is not laying off the gas on acquisitions, Geisler confirmed, saying they’re always on the lookout.

“It’s probably daily that somebody sends me something [to possibly buy]. It doesn’t mean it’s all good. Some of it’s not at all [good] and some of it’s interesting, but we’re constantly looking for opportunities in the marketplace,” he said.

Part of what’s driving that acknowledges how quickly franchising demand is growing. He referenced the fact that the company sold 250 franchises in the last quarter.

“There’s a lot of demand for our franchise sales, and so we will have to continue to acquire brands so long as we continue to have that demand. Otherwise, you won’t be able to keep up with that kind of demand with just the brands that we have,” he said.

Xponential’s portfolio encapsulate plenty already, including studios offering classes in Pilates, yoga, dance, rowing, barre and boxing just to name a few.

StretchLab, the No. 1 franchise seller of 2021, counts the highest average unit volume, indicating the strength of health and wellness brands and not just fitness for Xponential.

Room to Grow

Taking that into account, there’s plenty left in terms of future verticals for the company to get into, according to Geisler.

“I don’t think you’ll see us in medical stuff or things of that nature, but there is that health and wellness positioning. On the fitness side, there’s functional training. There is high-intensity interval training, so it still leaves others and there’s always new things popping up. There’s definitely space in the market,” he said.

Geisler and team have plenty on their plate for this year, nothing he said he could share, but said in the final days of 2021 he said he’s “looking forward to wrapping up Q4 and our first year as a public company and starting the race fresh on 1/1/2022.” 

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