Xponential Fitness Inc., which has exploded to more than 3,000 franchised exercise studios, may put itself up for sale.
The Irvine-based company, founded in 2017, announced a strategic review on April 6 following two public calls from institutional shareholders. The company said its board’s independent directors will evaluate a range of potential alternatives, including a sale of the company, a merger or another strategic or financial transaction.
“Our board is firmly focused on maximizing value for shareholders, and we are confident that undertaking a thorough and disciplined review of the opportunities available to the company will determine the best path forward,” Board Directors Rachel Lee and Lily Yang said in a statement.
The possible sale adds another dramatic twist to a company that exploded to a market cap topping $1 billion before a short trader in 2023 questioned its business model, leading the stock to lose three-fourths of its value. Founder and Chief Executive Anthony Geisler left the company a year later.
In the trading session following the company’s April 6 announcement, shares rose 7.4% to $7.25 apiece, with a market cap of $370 million (NYSE: XPOF).
The Largest Shareholder
In March, Voss Capital, Xponential’s largest shareholder with a 19% stake, wrote a letter to the board calling on the directors to explore a sale. On April 1, Florida-based Kanen Wealth Management LLC, which has a 4% stake, penned its own letter to Xponential urging the same action.
The board also appointed Nicole Parent Haughey as a new director last week, following the resignations of three members on April 1.
Xponential, the operator of Club Pilates, YogaSix, StretchLab, Pure Barre and BFT, has been chasing a business turnaround after three years of regulatory investigations, executive turnover and brand divestitures.
The company recently finalized a $17 million settlement with the Federal Trade Commission (FTC) and a $22.75 million settlement with over 500 current and former franchisees, in hopes of resolving “uncertainty” for stakeholders.
Chief Executive Mike Nuzzo joined Xponential last August after the company’s prior CEO, Mark King, departed for medical reasons.
“While the board conducts this process, the Xponential team is continuing to execute our strategy to position our brands for success,” Nuzzo said.
A Second Shareholder Letter
Kanen Wealth Management said it had privately communicated with Xponential around the same time Voss Capital first posted its letter in March.
“In our view, our conversations with the company’s former CFO and current chairman suggest a degree of alignment at the leadership level, with both appearing receptive to pursuing strategic alternatives as a rational and appropriate path forward,” President David Kanen wrote on April 1.
Xponential’s previous CFO, John Meloun, left the company on March 9, a few days after the Voss Capital letter and less than two weeks after it posted fourth-quarter results on Feb. 26 that drove shares to an all-time low of $3.83.
Meloun first joined Xponential in 2018 and led the fitness company’s initial public offering (IPO) in 2021. He was recognized as the Outstanding CFO of a Public Company at the Business Journal’s 2022 CFO of the Year Awards.
Xponential named Robert Julian as interim CFO.
“Notably, we did not encounter material opposition to the concept of exploring a transition to private ownership,” Kanen said regarding the firm’s talks with Meloun and Chairman Mark Grabowski.
“The Board should establish an independent Special Committee and retain a qualified financial advisor to conduct a good-faith process with credible bidders,” Kanen suggested in the letter.
At its peak in early 2023, Xponential traded as high as $33 each, with a market cap topping $1 billion.
After three years of CEO turnovers, financial restatements and regulatory scrutiny, the stock market “responded accordingly,” Kanen said.
Similar to Voss Capital, Kanen highlighted Xponential’s Club Pilates as “a premier asset.”
The firm estimates the brand “can generate $100M+ of EBITDA today, with a clear path to $125–150M within three years under focused stewardship.”
Kanen considers taking Xponential private as a worthy alternative.
“Private ownership would enable the operational reset required to unlock this value without the credibility overhang and quarterly scrutiny suppressing the stock,” he said. “We believe the current share price materially understates intrinsic value, and that a strategic process would result in a transaction at a substantial premium.”
New Independent Director
The Xponential board described its newest independent director, Haughey, as an “operator with a strong track record of value creation” with a 20-year career in financial, M&A and operational roles.
She is the founder of Halsey Loganberry Growth Advisors and currently sits on the board of Allegion plc, a provider of security products and solutions with a $12 billion market cap (NYSE: ALLE).
Haughey also sat on the board of Altra Industrial Motion Corp. until it was acquired by Regal Rexnord in 2023. She is a co-founder of Vertical Research Partners in New York as well.
She was previously chief operating officer of Island Creek Oysters, an aquaculture company, for one year and COO of Mimeo, an online printing and content distribution company, from 2016 to 2018. Before that, Haughey worked at United Technologies as vice president of corporate strategy and development, at Credit Suisse as a managing director in institutional research, and at Bank of America as a director.
Xponential has recruited Jefferies LLC as its financial advisor during the review process.
