03 Jul 2023
Xponential fights back from damning Fuzzy Panda report
BY Liz Terry
Xponential Fitness shares are recovering following a fightback by the directors after the publication of a damning report on its prospects and conduct from Fuzzy Panda Research last week.
Fuzzy Panda made a series of allegations about Xponential CEO Anthony Geisler and the general trading position of the business, including that in spite of claims by the company that it has “never closed” a location, 30 have been permanently closed.
It also said it had evidence that eight out of ten Xponential brands are losing money, calling the business “an abusive franchisor that is a house of cards.”
Shares in the company – the largest global franchisor of boutique fitness brands – fell 37 per cent on the day of publication, but a fast response from Xponential directors, who called the report ‘misleading’ and ‘inaccurate’ and positive statements from other analysts, such as Raymond James – who said the response of the market was ‘overdone’ – has seen them starting to rebound.
Speaking to the media immediately after the publication of the report, Mark Grabowski, chair of the board and founder of Snapdragon Capital Partners – the Company’s largest investor – said: “As an investor in high-integrity management teams and high-performing businesses, I’ve known and worked closely with Anthony Geisler, CEO of Xponential, since investing in Club Pilates at my prior firm. I couldn’t speak more highly of his passion, commitment to excellence and professionalism. I’m confident in the strength of Xponential’s business and the company’s continued execution and creation of long-term shareholder value.”
The board and management told HCM, “We stand firmly behind the strength of the business and health of its franchisees…We take pride in our talented team and strong financial results, illustrated by solid and growing average unit volumes and same store sales. Xponential’s scalable business model, strong free cash flow generation and history of margin expansion position the company for continued success.”
Xponential also published a series of statements about its financial position, rebutting the Fuzzy Panda report in forensic detail, including that its Q1 2023 average unit volume was US$542k, with an expected 25-30 per cent operating margin and 40 per cent cash-on-cash return and that the Q1 2023 data set of almost 2,000 studios – open continuously for 13 months, or longer, as of March 31 – 2023 yielded same store sales of 20 per cent.
The Company said it’s in compliance with all of its debt covenants and is levered at 2.9 times net debt. It also confirmed that 74 per cent of its revenues are recurring.
In support of Geisler, who Fuzzy Panda accused of selling off his equity, Xponential confirmed he owns 8.2m shares in the business – a larger shareholding that the company’s top five outside institutional investors combined.
The company had previously reported that its 12 months' revenue to March 2023 jumped 71 per cent to US$265 million and that membership was up 48 per cent.
After posting a US$0.02 per ‘share adjusted’ net loss in Q1 2023, Xponential says it’s expecting to move into profit this year and is forecasting that profits will more than double in 2024.
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