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May 5, 2023

Xponential Fitness (XPOF) Reports

Xponential Fitness (XPOF)

Xponential Fitness reported another good quarter of top-line growth after the close yesterday though profitability missed expectations. Revenue was up 40% to $70.7 million and beat by $5.3 million while EPS of -$0.02 improved by almost 90%. Management said they see full-year 2023 revenue higher than previously expected, in a range of $295 - $300 million (+20%), which straddles consensus of $295 million. They also see net new studio openings in the range of 540 to 560 (+8% over 2022). Adjusted EBITDA, a measure of profitability, is seen up 40% to a range of $102- $106 million. Stepping back, the company continues to see a lot of demand for new franchisees and with leases signed six months ahead of new studio openings, investors should feel reasonably confident in the growth trajectory through this year. It’s worth noting that it only costs around $300K to $350K to open one of these boutique studios, whereas the cost to open a full-fledged gym, like with Planet Fitness (PLNT), is around $3 million. Xponential has also been able to increase its royalty by a percentage point with the Stretch Lab brand (to 8%) and may do the same with some other brands (Club Pilates being one). After the report Piper Sandler stayed at overweight (price target of 42), B. Riley kept at buy (PT from 40 to 46) and Bank Of America kept at buy (PT from 38 to 40). XPOF was up early and is now (oddly) bucking the strong market by trading down. We’ll stick with it. Continue to hold. HOLD TWO THIRDS

Tyler Laundon is chief analyst of the limited-subscription advisory, Cabot Small-Cap Confidential and grand slam advisory Cabot Early Opportunities. He has spent his entire career managing, consulting and analyzing start-up and small-cap companies. His hands-on experience has taught Tyler that the development of a superior business model is the biggest factor in determining a company’s long-term success. Accordingly, his research focuses on assessing the viability of management’s growth strategies, trends in addressable markets and achievement of major developmental milestones.