Form 10-Q Xponential Fitness, Inc. For: Mar 31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of outstanding shares (in thousands) of the registrant’s Class A common stock and Class B common stock as of April 30, 2026 was
Table of Contents
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Page |
PART I. |
1 |
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Item 1. |
1 |
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1 |
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2 |
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Condensed Consolidated Statements of Changes to Stockholders' Equity (Deficit) |
3 |
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5 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
33 |
Item 3. |
49 |
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Item 4. |
49 |
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PART II. |
51 |
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Item 1. |
51 |
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Item 1A. |
51 |
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Item 2. |
51 |
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Item 3. |
51 |
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Item 4. |
52 |
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Item 5. |
52 |
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Item 6. |
53 |
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54 |
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Xponential Fitness, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(amounts in thousands, except per share amounts)
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March 31, |
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December 31, |
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2026 |
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2025 |
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Assets |
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Current assets: |
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Cash, cash equivalents and restricted cash |
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$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Deferred costs, current portion |
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Notes receivable, net |
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Total current assets |
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Property and equipment, net |
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Right-of-use assets |
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Goodwill |
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Intangible assets, net |
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Deferred costs, net of current portion |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities, redeemable convertible preferred stock and stockholders' equity (deficit) |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses |
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Deferred revenue, current portion |
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Current portion of long-term debt |
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Other current liabilities |
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Total current liabilities |
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Deferred revenue, net of current portion |
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Contingent consideration from acquisitions (Note 14) |
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Long-term debt, net of current portion, discount and issuance costs |
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Lease liabilities, net of current portion |
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Other liabilities |
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Total liabilities |
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Redeemable convertible preferred stock, $ |
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Stockholders' equity (deficit): |
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Undesignated preferred stock, $ |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Receivable from shareholder (Note 9) |
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( |
) |
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( |
) |
Accumulated deficit |
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( |
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( |
) |
Treasury stock, at cost, |
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( |
) |
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( |
) |
Total stockholders' deficit attributable to Xponential Fitness, Inc. |
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( |
) |
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( |
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Noncontrolling interests |
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( |
) |
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( |
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Total stockholders' deficit |
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( |
) |
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( |
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Total liabilities, redeemable convertible preferred stock and stockholders' deficit |
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$ |
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$ |
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See accompanying notes to condensed consolidated financial statements.
1
Xponential Fitness, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(amounts in thousands, except per share amounts)
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Three Months Ended March 31, |
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2026 |
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2025 |
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Revenue, net: |
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Franchise revenue |
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$ |
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$ |
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Equipment revenue |
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Merchandise revenue |
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Franchise marketing fund revenue |
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Other service revenue |
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Total revenue, net |
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Operating costs and expenses: |
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Costs of product revenue |
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Costs of franchise and service revenue |
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Selling, general and administrative expenses |
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Impairment of goodwill and other noncurrent assets |
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Depreciation and amortization |
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Marketing fund expense |
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Acquisition and transaction income |
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( |
) |
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( |
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Total operating costs and expenses |
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Operating income |
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Other expense (income): |
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Interest income |
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( |
) |
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( |
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Interest expense |
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Tax receivable agreement expense |
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Total other expense |
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Loss before income taxes |
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( |
) |
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( |
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Income taxes |
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Net loss |
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( |
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( |
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Less: net loss attributable to noncontrolling interests |
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( |
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( |
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Net loss attributable to Xponential Fitness, Inc. |
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$ |
( |
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$ |
( |
) |
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Net loss per share of Class A common stock: |
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Basic |
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$ |
( |
) |
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$ |
( |
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Diluted |
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$ |
( |
) |
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$ |
( |
) |
Weighted average shares of Class A common stock outstanding: |
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Basic |
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Diluted |
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See accompanying notes to condensed consolidated financial statements.
2
Xponential Fitness, Inc.
Condensed Consolidated Statements of Changes to Stockholders' Equity (Deficit)
(Unaudited)
(amounts in thousands)
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Class A Common Stock |
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Class B Common Stock |
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Treasury Stock |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional Paid-In Capital |
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Receivable from |
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Accumulated |
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Noncontrolling |
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Total |
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Balance at December 31, 2025 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
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||||||
Equity-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
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Conversion of Class B shares to Class A shares |
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( |
) |
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( |
) |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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Issuance of Class A common stock under stock-based compensation plans, net of shares withheld for taxes |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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— |
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( |
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Loan to shareholder and accumulated interest |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
Distributions paid to Pre-IPO LLC Members |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balance at March 31, 2026 |
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( |
) |
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( |
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( |
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( |
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( |
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See accompanying notes to condensed consolidated financial statements.
3
Xponential Fitness, Inc.
Condensed Consolidated Statements of Changes to Stockholders' Equity (Deficit)
(Unaudited)
(amounts in thousands)
|
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Class A Common Stock |
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Class B Common Stock |
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Treasury Stock |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional Paid-In Capital |
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Receivable from |
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Accumulated |
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Noncontrolling |
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Total |
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Balance at December 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
||||||
Equity-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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( |
) |
Conversion of Class B shares to Class A shares |
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— |
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( |
) |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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||
Issuance of Class A common stock under stock-based compensation plans, net of shares withheld for taxes |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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( |
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|
Loan to shareholder and accumulated interest |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
Distributions paid to Pre-IPO LLC Members |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Preferred stock dividend |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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— |
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( |
) |
Balance at March 31, 2025 |
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( |
) |
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( |
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( |
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( |
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( |
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See accompanying notes to condensed consolidated financial statements.
4
Xponential Fitness, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands)
|
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Three Months Ended March 31, |
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2026 |
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2025 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Amortization and write off of debt issuance costs |
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Amortization and write off of discount on long-term debt |
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Change in contingent consideration from acquisitions |
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( |
) |
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( |
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Non-cash lease expense |
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Change in tax receivable agreement liability |
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Bad debt expense |
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Equity-based compensation |
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Non-cash interest |
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( |
) |
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( |
) |
Gain on disposal of assets and lease terminations |
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( |
) |
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Change in contingent consideration receivable from Lindora |
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Impairment of goodwill and other noncurrent assets |
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Changes in assets and liabilities, net of effect of acquisition: |
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Accounts receivable |
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( |
) |
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( |
) |
Inventories |
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( |
) |
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Prepaid expenses and other current assets |
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( |
) |
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( |
) |
Operating lease liabilities |
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( |
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( |
) |
Deferred costs |
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Notes receivable, net |
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Accounts payable |
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( |
) |
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( |
) |
Accrued expenses |
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( |
) |
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Other current liabilities |
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( |
) |
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( |
) |
Deferred revenue |
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( |
) |
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( |
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Other assets |
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Other liabilities |
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Net cash provided by (used in) operating activities |
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( |
) |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
) |
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( |
) |
Purchase of intangible assets |
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( |
) |
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( |
) |
Notes receivable issued |
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( |
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Notes receivable payments received |
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|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Borrowings from long-term debt, net of original discount issue |
|
|
|
|
|
|
||
Payments on long-term debt |
|
|
( |
) |
|
|
( |
) |
Debt issuance costs |
|
|
|
|
|
( |
) |
|
Payment of preferred stock dividend |
|
|
|
|
|
( |
) |
|
Payments of contingent consideration |
|
|
|
|
|
( |
) |
|
Payments for taxes related to net share settlement of restricted share units |
|
|
( |
) |
|
|
( |
) |
Payments for distributions to Pre-IPO LLC Members |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
( |
) |
|
|
|
|
Increase (decrease) in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
||
See accompanying notes to condensed consolidated financial statements.
5
Xponential Fitness, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(amounts in thousands)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Supplemental cash flow information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid, net |
|
|
|
|
|
|
||
Non-cash investing and financing activities: |
|
|
|
|
|
|
||
Capital expenditures accrued at period end |
|
$ |
|
|
$ |
|
||
Accrued tax withholding related to convertible preferred stock dividend |
|
|
|
|
|
|
||
Debt issuance costs paid-in-kind - long-term debt |
|
|
|
|
|
|
||
Debt issuance costs exit fees - long-term debt |
|
|
|
|
|
|
||
See accompanying notes to condensed consolidated financial statements.
6
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
Note 1 – Nature of Business and Operations
Xponential Fitness, Inc. (“XPO Inc.”), and together with its subsidiaries, (the “Company” or “we,” “us,” and “our”), was formed as a Delaware corporation on January 14, 2020 for the purpose of facilitating an initial public offering (“IPO”) and entered into a series of transactions to implement an internal reorganization. Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being an ownership interest in Xponential Fitness LLC (“XPO LLC”) through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”).
XPO LLC was formed on August 11, 2017 as a Delaware limited liability company for the sole purpose of franchising fitness brands, through its subsidiaries, in several verticals within the boutique fitness industry. XPO LLC is a wholly owned subsidiary of XPO Holdings, which was formed on February 24, 2020, and prior to the IPO, ultimately, H&W Franchise Holdings, LLC (the “Parent”). Prior to the formation of XPO Holdings, the Company was a wholly owned subsidiary of H&W Franchise Intermediate Holdings, LLC (the “Member”).
In connection with the IPO, XPO Inc. entered into a series of transactions to implement an internal reorganization (the “Reorganization Transactions”). The pre-IPO members of XPO Holdings (the “Pre-IPO LLC Members”) who retained their equity ownership in the form of limited liability company units (the “LLC Units”), immediately following the consummation of the Reorganization Transactions are referred to as “Continuing Pre-IPO LLC Members.”
Because XPO Inc. manages and operates the business and controls the strategic decisions and day-to-day operations of XPO LLC through its ownership of XPO Holdings and because it also has a substantial financial interest in XPO LLC through its ownership of XPO Holdings, it consolidates the financial results of XPO LLC and XPO Holdings, and a portion of its net income (loss) is allocated to the noncontrolling interest to reflect the entitlement of the Continuing Pre-IPO LLC Members to a portion of XPO Holdings’ net income or loss.
As the sole managing member of XPO LLC, the Company operates and controls all of the business and affairs of XPO LLC. The Company consolidates XPO LLC on its condensed consolidated financial statements and records a noncontrolling interest related to the Class B units held by the Class B stockholders on its condensed consolidated balance sheet and statement of operations.
As of March 31, 2026, the Company’s portfolio of
7
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
On July 3, 2025, the Company and Fit Commerce, a California Corporation (“FC”), entered into a Retail Supply Agreement (the “Agreement”) effective as of December 1, 2025 (the “Effective Date”). The Agreement relates to the outsourcing of the Company’s retail merchandising, including the manufacturing and distribution, of any retail item sold by a franchisee, subject to terms and conditions outlined in the Agreement. In addition, FC agreed to purchase the Company’s existing retail inventory, which was completed in accordance with the terms of the agreement. This strategic initiative shifted management of the franchisee retail experience from in-house teams to a dedicated e-commerce provider, allowing the Company to focus on its core business priorities. Pursuant to the Agreement, FC will pay the Company domestic and foreign commissions as well as direct-to-customer commissions (each, a “Commission” and collectively, “Commissions”) in connection with the sale of products to the Company or the Company's franchisees. The domestic Commissions will be paid by FC to the Company based on each contract year (prorated for any partial contract year) in aggregate amount of approximately $
On September 19, 2025, the Company divested the Lindora brand, including the intellectual property, franchise rights and franchise agreements for open studios. On July 24, 2025, the Company divested the CycleBar and Rumble brands, including the intellectual property, franchise rights and franchise agreements for open studios. See Note 3 for additional information.
Basis of presentation – The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In the opinion of management, the Company has made all adjustments necessary to present fairly the condensed consolidated statements of operations, balance sheets, changes in stockholders' equity (deficit), and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission (the “SEC”). Interim results of operations are not necessarily indicative of results of operations to be expected for a full year.
Principles of consolidation – The Company’s consolidated financial statements include the accounts of its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
Use of estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. Actual results could differ from these estimates under different assumptions or conditions.
Note 2 – Summary of Significant Accounting Policies
Cash, cash equivalents and restricted cash – The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents. The Company's restricted cash consists of marketing fund restricted cash, which can only be used for activities that promote the Company’s brands and guarantee of standby letter of credit (See Note 14). Marketing fund restricted cash was $
Accounts receivable, notes receivable and allowance for expected credit losses – Accounts receivable primarily consist of amounts due from franchisees and vendors. These receivables primarily relate to royalties, advertising contributions, equipment and product sales, training, vendor commissions and other miscellaneous charges. The Company’s payment terms on its receivables from franchisees are generally
8
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
The Company’s accounts and notes receivable are recorded at net realizable value, which includes an allowance for expected credit losses. On a periodic basis, the Company evaluates its accounts and notes receivable balances and establishes an allowance for expected credit losses. The estimate of expected credit losses is based upon historical bad debts, current receivable balances, age of receivable balances, the franchisee’s or customer’s financial condition and ability to comply with credit terms and current economic trends, all of which are subject to change. Actual uncollected amounts have historically been consistent with the Company’s expectations. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.
The following table provides a reconciliation of the activity related to the Company’s accounts receivable and notes receivable allowance for credit losses:
|
|
Accounts receivable |
|
|
Notes receivable |
|
|
Total |
|
|||
Balance at December 31, 2025 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Bad debt expense recognized during the year |
|
|
|
|
|
|
|
|
|
|||
Write-off of uncollectible amounts |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Balance at March 31, 2026 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Revenue recognition – The Company’s contracts with customers consist of franchise agreements with franchisees. The Company also enters into agreements to sell merchandise and equipment, training, and on-demand video services. The Company’s revenues primarily consist of franchise license revenues, other franchise related revenues including equipment and merchandise sales and training revenue. In addition, the Company earns on-demand revenue, service revenue and other revenue.
Each of the Company’s primary sources of revenue and their respective revenue policies are discussed further below.
Franchise revenue – The Company enters into franchise agreements for each franchised studio. The Company’s performance obligation under the franchise license is granting certain rights to access the Company’s intellectual property; all other services the Company provides under the franchise agreement are highly interrelated, not distinct within the contract, and therefore accounted for as a single performance obligation, which is satisfied over the term of each franchise agreement. Those services include initial development, operational training, preopening support and access to the Company’s technology throughout the franchise term. Fees generated related to the franchise license include development fees, royalty fees, marketing fees, technology fees and transfer fees, which are discussed further below. Variable fees are not estimated at contract inception, and are recognized as revenue when invoiced, which occurs monthly. The Company has concluded that its franchise agreements do not contain any financing components. In certain circumstances, a franchise agreement may be terminated prior to the expiration of the contractual terms, including in connection with termination of a studio. Upon termination, the Company evaluates the remaining deferred franchise revenue associated with the terminated franchise agreement to determine whether its remaining performance obligations have been satisfied. When the original franchise agreement is terminated, any remaining deferred initial franchise fee associated with that studio is generally recognized as revenue at the point in time the termination occurs, provided that the Company has no remaining material performance obligations under the terminated agreement.
Franchise development fee revenue – The Company’s earlier franchise agreements typically operate under
9
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
Prior to the second quarter of 2025, the Company would enter into an area development agreement with certain franchisees. Area development agreements are for a territory in which a developer has agreed to develop and operate a certain number of franchise locations over a stipulated period of time. The related territory is unavailable to any other party and is no longer marketed to future franchisees by the Company. Depending on the number of studios purchased under franchise agreements or area development agreements, the initial franchise fee ranges from $
Starting in the second quarter of 2025, the Company may enter into multi-unit agreements with certain franchisees. Under these agreements, a developer has agreed to develop and operate a certain number of franchise locations over a stipulated period of time. The initial franchise fee ranges from $
The Company may enter into master franchise agreements with master franchisees, under which the master franchisee sells licenses to franchisees in one or more countries, excluding the United States and Canada. The master franchise agreements generally provide a
Franchise royalty fee revenue – Royalty revenue represents royalties earned from each of the franchised studios in accordance with the franchise disclosure document and the franchise agreement for use of the brands’ names, processes and procedures. The royalty rate in the franchise agreement is typically
Technology fees – The Company may provide access to third-party or other proprietary technology solutions to the franchisees for a fee. The technology solution may include various software licenses for statistical tracking, scheduling, allowing club members to record their personal workout statistics, music and technology support. The Company bills and recognizes the technology fee as earned each month as the service is performed and access is provided.
Transfer fees – Transfer fees are paid to the Company when one franchisee transfers a franchise agreement to a different franchisee. Transfer fees are recognized as revenue on a straight-line basis over the term of the new or assumed franchise agreement, unless the original franchise agreement for an existing studio is terminated, in which case the transfer fee is recognized immediately.
Training revenue – The Company provides coach training services either through direct training of the coaches who are hired by franchisees or by providing the materials and curriculum directly to the franchisees who utilize the materials to train their hired coaches. Direct training fees are recognized over time as training is provided. Training fees for materials and curriculum are recognized at the point in time of delivery of the materials.
The Company also offers coach training and final coach certification through online classes. Fees received by the Company for online class training are recognized as revenue over time for the
10
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
Franchise marketing fund revenue – Franchisees are required to pay marketing fees of
Equipment and merchandise revenue – The following revenues are generated as a result of transactions with or related to the Company’s franchisees.
Equipment revenue – The Company sells authorized equipment to franchisees to be used in the franchised studios. Franchisees generally prepay for equipment, and in that circumstance, the revenue is deferred until delivery and installation. Equipment revenue is recognized when control of the equipment is transferred to the franchisee, which is at the point in time when delivery and installation of the equipment at the studio is complete.
Merchandise revenue – Up to December 2025, the Company sold wholesale branded and non-branded merchandise to franchisees for retail sales to customers at studios. For wholesale merchandise sales, the performance obligation was satisfied at the point in time of delivery of the ordered merchandise to the franchisee. For such wholesale merchandise sales, the Company was the principal in the transaction as it controls the merchandise prior to it being delivered to the franchisee. The Company recorded wholesale merchandise revenue and related costs upon delivery on a gross basis. Customers had the right to return and/or receive credit for defective merchandise. Returns and credit for defective merchandise were insignificant for the years ended December 31, 2025, 2024 and 2023. Effective December 1, 2025, the Company entered into an agreement with FC to outsource its retail merchandising, including the manufacturing and distribution, of any retail item sold by a franchisee. Pursuant to the Agreement, FC will pay the Company domestic and foreign commissions as well as direct-to-customer commissions in connection with the sale of products to the Company's franchisees. The domestic Commissions will be paid by FC to the Company based on each contract year (prorated for any partial contract year) in an aggregate amount of approximately $
Other revenue – Service revenue – Historically, the revenue from company-owned transition studios has been very limited as the Company typically only owns a small number of studios and only for a short period of time pending the resale of the license to a franchisee. For company-owned transition studios, the Company’s distinct performance obligation is to provide fitness classes to the customer. The company-owned studios sell memberships by individual class and by class packages. Revenue from the sale of classes and class packages for a specified number of classes are recognized over time as the customer attends and utilizes the classes. Revenues from the sale of class packages for an unlimited number of classes are recognized over time on a straight-line basis over the duration of the contract period.
On-demand revenue – The Company grants a subscriber access to an online hosted platform, which contains a library of web-based classes that is continually updated, through monthly or annual subscription packages. Revenue is recognized over time on a straight-line basis over the subscription period.
Other revenue – The Company earns commission income from certain of its franchisees’ use of certain preferred vendors. In these arrangements, the Company is the agent as it is not primarily responsible for fulfilling the orders. Commissions are earned and recognized at the point in time the vendor ships the product to franchisees. In addition, the Company grants vendors access to franchisees' members to provide certain services to the members for a fee. Revenue is recognized over time on a straight-line basis over the access period.
11
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
Sales taxes, value added taxes and other taxes that are collected in connection with revenue transactions are withheld and remitted to the respective taxing authorities. As such, these taxes are excluded from revenue. The Company elected to account for shipping and handling as activities to fulfill the promise to transfer the goods. Therefore, shipping and handling fees that are billed to franchisees are recognized in revenue and the associated shipping and handling costs are recognized in cost of product sold as soon as control of the goods transfers to the franchisee.
Shipping and handling fees – Shipping and handling fees billed to customers are recorded in merchandise and equipment revenues. The costs associated with shipping goods to customers are included in costs of product revenue in the condensed consolidated statements of operations.
Comprehensive income – The Company does not have any components of other comprehensive income recorded within the consolidated financial statements and therefore does not separately present a consolidated statement of comprehensive income in the condensed consolidated financial statements.
Fair value measurements – Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, applies to all financial assets and financial liabilities that are measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. ASC Topic 820 establishes a valuation hierarchy for disclosures of the inputs to valuations used to measure fair value.
This hierarchy prioritizes the inputs into three broad levels as follows:
Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.
Level 2 – Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates and yield curves), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 – Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.
The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable, notes receivable, accounts payable, accrued expenses, notes payable and other current liabilities. The carrying amounts of these financial instruments approximate fair value due to their short maturities, proximity of issuance to the balance sheet date or variable interest rate.
Recently adopted accounting pronouncements
Financial Instruments-Credit Losses – In July 2025, the FASB issued ASU 2025-05, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets.” This standard allows entities to apply a practical expedient when estimating expected credit losses for current accounts receivable and current contract assets that arise from transactions accounted for under ASC Topic 606, “Revenue from Contracts with Customers.” The standard is effective for fiscal years beginning after December 15, 2025, including interim periods within those annual periods. Early adoption is permitted. The adoption of this guidance is applied prospectively. The adoption of this accounting standard did not have an impact on the Company's consolidated financial statements.
Recently issued accounting pronouncements
The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and will lose this qualification on December 31, 2026, which is the last day of the fiscal year after the fifth anniversary of the Company's IPO, or sooner. An emerging growth company may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company, the JOBS Act permits the Company an extended transition period for complying with new or revised accounting standards affecting public companies. The Company has elected to use this extended transition period.
12
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
Income Statement Expense Disclosures – In November 2024, the FASB issued ASU No. 2024-03, “Income Statement (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires disaggregated information about specified categories of expenses included in certain captions presented on the face of the income statement including purchases of inventory, employee compensation, depreciation, amortization, and depletion. ASU 2024-03 is effective for public entities with annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.
Business Combinations and Consolidation – In May 2025, the FASB issued ASU No. 2025-03, “Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity.” ASU No. 2025-03 provides clarifying guidance on determining the accounting acquirer in certain transactions involving VIEs. The update aims to improve consistency and comparability in financial reporting. The guidance will be effective for annual periods beginning after December 15, 2026, including interim periods within those annual periods. Early adoption is permitted. Upon adoption, the guidance will be applied prospectively. The Company is currently evaluating the impact this amended guidance may have but does not expect the adoption of the guidance to have a material impact on its condensed consolidated financial statements.
Intangibles-Goodwill and Other Internal-Use Software – In September 2025, the FASB issued ASU 2025-06, “Intangibles-Goodwill and Other Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use-Software.” This standard modernizes the guidance to reflect the software development approaches currently being used by removing all references to "development stages" from ASC 350-40 Intangibles-Goodwill and Other Internal-Use Software. Under ASU 2025-06, only the following criteria in ASC 350-40-25-12(b) and (c) must be met to begin capitalizing software costs: (i) management, with the relevant authority, implicitly or explicitly authorizes and commits to funding a computer software project and (ii) it is probable that the project will be completed and the software will be used to perform the function intended (referred to as the “probable-to-complete recognition threshold”). This standard is effective for fiscal years beginning after December 15, 2027, including interim periods within those annual periods. Early adoption is permitted. Upon adoption, the guidance will be applied prospectively, retrospectively, or via a modified prospective transition method. The Company is evaluating the impact this amended guidance may have but does not expect it to have a significant impact on its condensed consolidated financial statements.
Interim Reporting (Topic 270) – In December 2025, the FASB issued ASU 2025-11,“ Interim Reporting (Topic 270): Narrow-Scope Improvements” This standard improves the navigability of the required interim disclosures and clarifies when the guidance is applicable, as well as provides additional guidance on what disclosures should be provided in interim reporting periods. The amendments in this ASU are effective for fiscal years beginning after December 15, 2027, and interim reporting periods beginning after December 15, 2028. The Company is evaluating the impact this the new standard may have, but does not expect it to have a significant impact on its consolidated financial statements.
Supplemental balance sheet information
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2026 |
|
|
2025 |
|
||
Prepaid expenses and other current assets |
|
|
|
|
|
|
||
Prepaid expenses and other |
|
$ |
|
|
$ |
|
||
Contingent consideration receivable, current portion |
|
|
|
|
|
|
||
Insurance receivable |
|
|
|
|
|
|
||
Tax receivables |
|
|
|
|
|
|
||
Gift card receivable |
|
|
|
|
|
|
||
Total prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
|
||
Accrued compensation |
|
$ |
|
|
$ |
|
||
Contingent consideration from acquisitions, current portion |
|
|
|
|
|
|
||
Sales tax accruals |
|
|
|
|
|
|
||
Legal accruals, current portion |
|
|
|
|
|
|
||
Other accruals |
|
|
|
|
|
|
||
Total accrued expenses |
|
$ |
|
|
$ |
|
||
13
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
|
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Lease liabilities, current portion |
|
$ |
|
|
$ |
|
||
Gift card liability |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Total other current liabilities |
|
$ |
|
|
$ |
|
||
Other liabilities |
|
|
|
|
|
|
||
Legal accruals, net of current portion |
|
$ |
|
|
$ |
|
||
Other liabilities |
|
|
|
|
|
|
||
Total other liabilities |
|
$ |
|
|
$ |
|
||
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Impairment of goodwill and other noncurrent assets |
|
|
|
|
|
|
||
Right-of-use assets |
|
|
|
|
|
|
||
Total impairment of goodwill and other noncurrent assets |
|
$ |
|
|
$ |
|
||
Note 3 – Acquisitions and Dispositions
The Company completed the following acquisitions and dispositions which contain Level 3 fair value measurements related to the recognition of goodwill and intangibles.
Studios
During the three months ended March 31, 2026 and 2025, the Company operated
When the Company believes that a studio will be refranchised for a price less than its carrying value but does not believe the studio has met the criteria to be classified as held for sale, the Company reviews the studio for impairment. The Company evaluates the recoverability of the studio assets by comparing estimated sales proceeds plus holding period cash flows, if any, to the carrying value of the studio. For studio assets that are not deemed to be recoverable, the Company recognizes impairment for any excess of carrying value over the fair value of the studios, which is based on the expected net sales proceeds. During the three months ended March 31, 2026 and 2025, the Company did
14
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
Divestiture of CycleBar and Rumble brands – On July 24, 2025, the Company entered into an agreement with a buyer, pursuant to which the Company divested the CycleBar and Rumble brands, including the intellectual property, franchise rights and franchise agreements for open studios, and retained certain liabilities, including liabilities related to known litigation, pre-litigation, and disputes as of the closing of the divestiture. The Company received total consideration of $
Divestiture of Lindora brand – On September 19, 2025, the Company entered into an agreement with a buyer, pursuant to which the Company divested the Lindora brand, including the intellectual property, franchise rights and franchise agreements for open studios, and retained certain liabilities, including liabilities related to known litigation, pre-litigation, and disputes as of the closing of the divestiture. The Company will receive consideration of up to $
Note 4 – Contract Liabilities and Costs from Contracts with Customers
Contract liabilities – Contract liabilities consist of deferred revenue resulting from franchise fees (franchise fees, development fees and master franchise fees paid by franchisees), which are recognized over time on a straight-line basis over the franchise agreement term. The Company also receives upfront payments from vendors under agreements that give the vendors access to franchisees’ members to provide certain services to the members (“brand fees”). Revenue from the upfront payments is recognized on a straight-line basis over the agreement term and is reported in other service revenue. Also included in the deferred revenue balance are non-refundable prepayments for merchandise and equipment, as well as revenues for training, service revenue and on-demand fees for which the associated products or services have not yet been provided to the customer. The Company classifies these contract liabilities as either current deferred revenue or non-current deferred revenue in the condensed consolidated balance sheets based on the anticipated timing of delivery.
|
|
Franchise development fees |
|
|
Brand fees |
|
|
Total |
|
|||
Balance at December 31, 2025 |
|
|
|
|
|
|
|
|
|
|||
Revenue recognized that was included in deferred revenue at the beginning of the year (1) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Increase, excluding amounts recognized as revenue during the period |
|
|
|
|
|
|
|
|
|
|||
Balance at March 31, 2026 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
15
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
The following table illustrates estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2026. The expected future recognition period for deferred franchise and area development fees related to unopened studios is based on management’s best estimate of the beginning of the franchise license term for those studios. The Company elected to not disclose short term contracts, sales and usage-based royalties, marketing fees and any other variable consideration recognized on an “as invoiced” basis.
Contract liabilities to be recognized in revenue |
|
Franchise development fees |
|
|
Brand fees |
|
|
Total |
|
|||
Remainder of |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
The following table reflects the components of deferred revenue:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2026 |
|
|
2025 |
|
||
Franchise development fees |
|
$ |
|
|
$ |
|
||
Brand fees |
|
|
|
|
|
|
||
Equipment and other |
|
|
|
|
|
|
||
Total deferred revenue |
|
|
|
|
|
|
||
Non-current portion of deferred revenue |
|
|
|
|
|
|
||
Current portion of deferred revenue |
|
$ |
|
|
$ |
|
||
Contract costs – Contract costs consist of deferred commissions resulting from franchise and area development sales by third-party and affiliate brokers and sales personnel. The total commission is deferred at the point of a franchise sale. The commissions are evenly split among the number of studios purchased under the development agreement and begin to be amortized when a subsequent or initial franchise agreement is executed. The commissions are recognized on a straight-line basis over the initial
Note 5 – Property and Equipment
Property and equipment consisted of the following:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2026 |
|
|
2025 |
|
||
Furniture and equipment |
|
$ |
|
|
$ |
|
||
Computers and software |
|
|
|
|
|
|
||
Vehicles |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment |
|
$ |
|
|
$ |
|
||
16
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
Depreciation expense for the three months ended March 31, 2026 and 2025 was $
During the year ended December 31, 2025, the Company determined that the carrying amount of certain property and equipment assets exceeded their fair values and recorded an impairment of $
Note 6 – Goodwill and Intangible Assets
Goodwill represents the excess of cost over the fair value of identifiable net assets acquired related to the original purchase of the various franchise businesses and acquisition of company-owned transition studios. Goodwill is not amortized but is tested annually for impairment or more frequently if indicators of potential impairment exist. The carrying value of goodwill at both March 31, 2026 and December 31, 2025, totaled $
At December 31, 2025, the goodwill related to the Pure Barre reporting unit of $
At March 31, 2026, the YogaSix and StretchLab reporting units had negative carrying values. The goodwill related to the YogaSix and StretchLab reporting units were $
Intangible assets consisted of the following:
|
|
|
|
March 31, 2026 |
|
|
December 31, 2025 |
|
||||||||||||||||||
|
|
Amortization |
|
Gross |
|
|
Accumulated |
|
|
Net |
|
|
Gross |
|
|
Accumulated |
|
|
Net |
|
||||||
Trademarks |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
Franchise agreements |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Intellectual property |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Web design and domain |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Deferred video production costs |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||||
Other intangible assets |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|||
Total definite-lived intangible assets |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Trademarks |
|
N/A |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total intangible assets |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Amortization expense was $
17
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
The anticipated future amortization expense of intangible assets is as follows:
|
|
Amount |
|
|
Remainder of 2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
Note 7 – Debt
On April 19, 2021, the Company entered into a Financing Agreement with Wilmington Trust, National Association, as administrative agent and collateral agent, and the lenders party thereto (the “Prior Credit Agreement”), which consisted of a $
Under the Prior Credit Agreement, the Company was required to make: (i) monthly payments of interest on the Term Loans and (ii) quarterly principal payments equal to
The Prior Credit Agreement also contained mandatory prepayments of the Term Loans with: (i)
On March 14, 2025, the Company entered into an eighth amendment (the “Eighth Amendment”) to the Prior Credit Agreement. The Eighth Amendment extends the final maturity date under the Prior Credit Agreement to August 1, 2027 (the “Final Maturity Date”) and provides for, among other things, additional term loans in an aggregate principal amount of $
On July 24, 2025, the Company entered into a ninth amendment (the “Ninth Amendment”) to the Prior Credit Agreement in connection with the divestiture of the Rumble and CycleBar brands. The Ninth Amendment did not modify the terms of the Prior Credit Agreement. Instead, the Ninth Amendment requires the Company to apply the net proceeds received from the divestiture of the Rumble and CycleBar brands to repayment of the outstanding loan principal.
18
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
On December 8, 2025 (the “ Closing Date”), the Company entered into a Financing Agreement with HPS Investment Partners LLC, as administrative agent and collateral agent, and the lenders party thereto (the “Credit Agreement”), which consisted of a term loan facility in a principal amount of $
The Company received net proceeds of $
In connection with the Credit Agreement, the Company wrote off a pro rata portion of debt issuance costs related to the Prior Credit Agreement of $
The Credit Agreement includes provisions requiring customary mandatory prepayments, including, without limitation, arising from the incurrence of new debt or the receipt of proceeds from certain dispositions or casualty events, in each case, subject to customary exceptions for facilities of this type.
In addition, the Credit Agreement includes subjective acceleration clauses, which could impact debt classification. The Company believes that no events have occurred at March 31, 2026 that would trigger a subjective acceleration clause.
The obligations of the Company under the Credit Agreement are jointly and severally guaranteed by XPO Holdings and certain subsidiaries of Holding (collectively, the “Guarantors”, and together with the Company, the “Loan Parties”) and are secured by a first priority lien on substantially all of the Loan Parties assets, subject to customary exceptions.
The Credit Agreement contains various conditions to borrowing and certain customary affirmative and negative covenants, including, without limitation, covenants that restrict the ability of XPO Holdings, the Company and its certain subsidiaries to incur debt, grant liens, make investments, make restricted payments and dispose of assets. The Credit Agreement includes a financial covenant requiring the Company to maintain a Total Net Leverage Ratio (as defined in the Credit Agreement) not to exceed a certain threshold (pursuant to the table as set forth in Section 7.12 of the Credit Agreement) as of the last day of each Test Period (as defined in the Credit Agreement) commencing with March 31, 2026. The Credit Agreement also contains customary events of default. The Closing Date Term Loans will mature five years after the Closing Date and the Revolving Loans will terminate five years after the Closing Date. As of March 31, 2026, the Company was in compliance with these covenants.
The Company incurred debt issuance costs of $
19
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
Principal payments on outstanding balances of long-term debt as of March 31, 2026 were as follows:
|
|
Amount |
|
|
Remainder of 2026 |
|
$ |
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
2029 |
|
|
|
|
2030 |
|
|
|
|
Total |
|
$ |
|
|
The carrying value of the Company’s long-term debt approximated fair value as of March 31, 2026 and December 31, 2025 due to the variable interest rate, which is a Level 2 input.
Note 8 – Leases
The Company leases office space, company-owned transition studios, warehouse, training centers and a video recording studio. Certain real estate leases include one or more options to renew. The Company has in the past guaranteed lease agreements for certain franchisees. See Note 14 of Notes to Condensed Consolidated Financial Statements for additional information.
Right-of-use (“ROU”) assets from operating leases are subject to the impairment guidance in ASC Topic 360, Property, Plant, and Equipment, and are reviewed for impairment when indicators of impairment are present. ASC Topic 360 requires three steps to identify, recognize and measure impairment. If indicators of impairment are present (Step 1), the Company performs a recoverability test (Step 2) comparing the sum of the estimated undiscounted cash flows attributable to the ROU asset in question to the carrying amount. If the undiscounted cash flows used in the recoverability test are less than the carrying amount, the Company estimates the fair value of the ROU asset and recognizes an impairment loss when the carrying amount exceeds the estimated fair value (Step 3). When determining the fair value of the ROU asset, the Company estimates what market participants would pay to lease the assets assuming the highest and best use in the assets' current forms. The Company recognized ROU asset impairment charges of $
Supplemental balance sheet information related to leases is summarized as follows:
Operating leases |
|
Balance Sheet Location |
|
March 31, 2026 |
|
|
December 31, 2025 |
|
||
ROU assets, net |
|
Right-of-use assets |
|
$ |
|
|
$ |
|
||
Lease liabilities, short-term |
|
|
$ |
|
|
$ |
|
|||
Lease liabilities, long-term |
|
Lease liability |
|
$ |
|
|
$ |
|
||
The following table presents the components of lease expense during the three months ended March 31, 2026 and 2025:
|
|
Three months ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Operating lease costs |
|
$ |
|
|
$ |
|
||
Variable lease costs |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The following table presents the supplemental cash flow information related to operating leases during the three months ended March 31, 2026 and 2025:
|
|
Three months ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Cash paid for amounts included in the measurement of operating lease liabilities |
|
$ |
|
|
$ |
|
||
20
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
The following table presents other information related to leases:
|
|
March 31, 2026 |
|
|
December 31, 2025 |
|
||
Weighted average remaining lease term (years) |
|
|
|
|
|
|
||
Weighted average discount rate |
|
|
% |
|
|
% |
||
Maturities of lease liabilities as of March 31, 2026 are summarized as follows:
|
|
Amount |
|
|
|
Remainder of 2026 |
|
$ |
|
|
|
2027 |
|
|
|
|
|
2028 |
|
|
|
|
|
2029 |
|
|
|
|
|
2030 |
|
|
|
|
|
Thereafter |
|
|
|
|
|
Total future lease payments |
|
|
|
|
|
Less: imputed interest |
|
|
|
|
|
Total |
|
$ |
|
|
|
Note 9 – Related Party Transactions
In March 2021, the Company funded a note payable under a debt financing obligation in connection with the acquisition of Rumble. The Company earned interest at the rate of
In December 2022, the Company entered into an agreement with the former owner of Row House, pursuant to which contingent consideration relating to the 2017 acquisition of Row House was settled in exchange for the issuance of
21
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
In March 2023, Spartan Fitness Holdings, LLC (“Spartan Fitness”), which currently owns and operates
Note 10 – Stockholders' Equity (Deficit)
Common stock – During the three months ended March 31, 2026 and 2025, pursuant to the Amended Limited Liability Company Agreement of XPO Holdings (“Amended LLC Agreement”), certain Continuing Pre-IPO LLC Members exchanged their LLC units for
Noncontrolling interests – Following the IPO, XPO Inc. is the sole managing member of XPO LLC and, as a result, consolidates the financial results of XPO LLC. The Company reported noncontrolling interests representing the economic interests in XPO LLC held by the Continuing Pre-IPO LLC Members. Under the Amended LLC agreement, the Continuing Pre-IPO LLC Members are able to exchange their LLC Units for shares of Class A common stock on a one-for-one basis (simultaneously cancelling an equal number of shares of Class B common stock of the exchanging member), or at the option of the Company for cash.
In December 2021, the Company and the Continuing Pre-IPO LLC Members amended the LLC agreement of XPO Holdings, removing the redemption option in cash, except to the extent that the cash proceeds to be used to make the redemption in cash are immediately available and were directly raised from a secondary offering of the Company's equity securities. Future redemptions or exchanges of LLC Units by the Continuing Pre-IPO LLC Members will result in a change in ownership and reduce the amount recorded as noncontrolling interest and increase additional paid-in capital.
During the three months ended March 31, 2026 and 2025, the Company experienced a change in noncontrolling interests ownership due to the conversion of Class B to Class A shares and as such, has rebalanced the related noncontrolling interests balance. The Company calculated the rebalancing based on the net assets of XPO LLC, after considering the preferred shareholders' claim on the net assets of XPO LLC. The Company used the liquidation value of the preferred shares for such rebalancing.
The following table summarizes the ownership of XPO LLC as of March 31, 2026:
Owner |
|
Units Owned |
|
|
Ownership percentage |
|
||
XPO Inc. |
|
|
|
|
|
% |
||
Noncontrolling interests |
|
|
|
|
|
% |
||
Total |
|
|
|
|
|
% |
||
Note 11 – Equity Compensation
Equity classified restricted stock units –
|
|
Shares |
|
|
Weighted Average |
|
||
Outstanding at December 31, 2025 |
|
|
|
|
$ |
|
||
Issued |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited, expired, or canceled |
|
|
( |
) |
|
|
|
|
Outstanding at March 31, 2026 |
|
|
|
|
$ |
|
||
22
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
RSUs are valued at the Company’s closing stock price on the date of grant and generally vest over a - to
The Company grants performance-based restricted stock units (“PSUs”), which are included in the RSUs described above, to executive officers and other key employees that vests upon the achievement of specified market or internal performance goals. The PSUs are recognized as expense on a straight-line basis over the vesting period which is typically three years. Management performs a regular assessment to determine the likelihood of meeting the related metrics and adjusts the expense recognized if necessary.
|
|
Shares |
|
|
Weighted Average |
|
||
Outstanding at December 31, 2025 |
|
|
|
|
$ |
|
||
Issued |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeited, expired, or canceled |
|
|
( |
) |
|
|
|
|
Outstanding at March 31, 2026 |
|
|
|
|
$ |
|
||
During the three months ended March 31, 2026, the Company granted
The Monte Carlo simulation assumptions used for the period presented were as follows:
|
|
Three Months Ended March 31, |
|||
|
|
2026 |
|||
Risk free interest rate |
|
|
|
% |
|
Annualized volatility |
|
|
|
% |
|
Dividend yield |
|
|
|
% |
|
Expected term (in years) |
|
|
|
|
|
Stock-based compensation expense –
|
|
Three months ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Selling, general and administrative |
|
$ |
|
|
$ |
|
||
Total stock-based compensation expense, before tax |
|
|
|
|
|
|
||
Income tax benefit |
|
|
|
|
|
|
||
Total stock-based compensation expense, after tax |
|
$ |
|
|
$ |
|
||
Income tax expense relates to vested RSUs. Due to the Company's full valuation allowance on its net deferred tax assets, there is no income tax benefit on the unvested RSUs. At March 31, 2026, the Company had $
23
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
Note 12 – Income Taxes and Tax Receivable Agreement
Income taxes – The Company is the managing member of XPO Holdings and, as a result, consolidates the financial results of XPO Holdings in the condensed consolidated financial statements. XPO Holdings is a pass-through entity for U.S. federal and most applicable state and local income tax purposes following a corporate reorganization effected in connection with the IPO. As an entity classified as a partnership for tax purposes, XPO Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by XPO Holdings is passed through to and included in the taxable income or loss of its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from XPO Holdings, based on its
The provision for income taxes differs from the amount of income tax computed by applying the applicable U.S. statutory federal income tax rate of
As of March 31, 2026, management determined based on applicable accounting standards and the weight of all available evidence, it was not more likely than not (“MLTN”) that the Company will generate sufficient taxable income to realize its deferred tax assets including the difference in tax basis in excess of the financial reporting value for its investment in XPO Holdings. Consequently, the Company has established a full valuation allowance against its deferred tax assets as of March 31, 2026. In the event that management subsequently determines that it is MLTN that the Company will realize its deferred tax assets in the future over the recorded amount, a decrease to the valuation allowance will be made, which will reduce the provision for income taxes.
The Company is subject to taxation and files income tax returns in the United States federal jurisdiction and many state and foreign jurisdictions. XPO Holdings recently received an IRS audit letter for tax year 2023. As the audit has just commenced, the Company is currently not aware of any adjustments. The Company is not currently under examination by income tax authorities in state or other jurisdictions.
The Company does not expect a significant change in unrecognized tax benefits during the next 12 months.
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law, which enacted significant changes to U.S. tax and related laws, including immediate expensing of certain capital expenditures and favorable impacts to the business interest expense limitation. The Company has incorporated the OBBBA changes in its income tax provision for the three months ended March 31, 2026. There is no material impact to the Company's effective income tax rate and net deferred income tax assets, as the Company maintains a full valuation allowance on the deferred tax assets of XPO Inc.
Tax receivable agreement – In connection with the IPO, the Company entered into a Tax Receivable Agreement (“TRA”) pursuant to which the Company is generally required to pay to the other parties thereto in the aggregate 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the Company actually realizes as a result of: (i) certain favorable tax attributes acquired from H&W Investco Blocker II, LP (the “Blocker Company”) in the merger of the Blocker Company with and into XPO Inc. (including net operating losses and the Blocker Company’s allocable share of existing tax basis); (ii) increases in the Company's allocable share of existing tax basis and tax basis adjustments that resulted or may result from (x) the IPO Contribution and the Class A-5 Unit Redemption, (y) future taxable redemptions and exchanges of LLC Units by Continuing Pre-IPO LLC Members and (z) certain payments made under the TRA; and (iii) deductions attributable to imputed interest pursuant to the TRA (the “TRA Payments”). The Company expects to benefit from the remaining
24
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates each year and the tax rate then applicable. The Company calculates the liability under the TRA using a complex TRA model, which includes an assumption related to the fair market value of assets. The payment obligations under the TRA are obligations of XPO Inc. and not of XPO Holdings. Payments are generally due under the TRA within a specified period of time following the filing of the Company’s tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of LIBOR (or a replacement rate) plus
The TRA provides that if (i) there is a material breach of any material obligations under the TRA; or (ii) the Company elects an early termination of the TRA, then the TRA will terminate and the Company's obligations, or the Company's successor’s obligations, under the TRA will accelerate and become due and payable, based on certain assumptions, including an assumption that the Company would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA and that any LLC Units that have not been exchanged are deemed exchanged for the fair market value of the Company's Class A common stock at the time of termination. The TRA also provides that, upon certain mergers, asset sales or other forms of business combination, or certain other changes of control, the TRA will not terminate but the Company’s or the Company’s successor’s obligations with respect to tax benefits would be based on certain assumptions, including that the Company or the Company’s successor would have sufficient taxable income to fully utilize the increased tax deductions and tax basis and other benefits covered by the TRA.
As of March 31, 2026, the Company has concluded, based on applicable accounting standards, that it was more likely than not that its deferred tax assets subject to the TRA would not be realized. Therefore, the Company has not recorded a liability related to the tax savings it may realize from utilization of such deferred tax assets and accordingly $
Note 13 – Earnings (Loss) Per Share
Basic earnings (loss) per share has been calculated by dividing net income (loss) attributable to Class A common stockholders by the weighted average number of shares of Class A common stock outstanding for the period. Diluted earnings (loss) per share of Class A common stock has been computed by dividing net income (loss) attributable to XPO Inc. by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.
On July 23, 2021, the Company issued and sold in a private placement
Because a portion of XPO Holdings is owned by parties other than the Company, those parties participate in earnings and losses at the XPO Holdings level. Additionally, given the organizational structure of XPO Inc., a parallel capital structure exists at XPO Holdings such that the shares of XPO Holdings are redeemable on a one-to-one basis with the XPO Inc. shares. In order to maintain the one-to-one ratio, the preferred stock issued at the XPO Inc. level also existed at the XPO Holdings level. The Company applies the two-class method to allocate undistributed earnings or losses of XPO Holdings, and in doing so, determines the portion of XPO Holdings’ income or loss that is attributable to the Company and accordingly reflected in income or loss available to common stockholders in the Company’s calculation of basic earnings (loss) per share.
For the three months ended Mach 31, 2025, due to the attribution of only a portion of the preferred stock dividends issued by XPO Holdings to the Company in first determining basic earnings (loss) per share at the subsidiary level, the amounts presented as net income (loss) attributable to noncontrolling interests and net income (loss) attributable to XPO Inc. presented below will not agree to the amounts presented on the condensed consolidated statement of operations.
25
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
Diluted earnings (loss) per share attributable to common stockholders adjusts the basic earnings or losses per share attributable to common stockholders and the weighted average number of shares of Class A common stock outstanding to give effect to potentially dilutive securities. The potential dilutive impact of redeemable Convertible Preferred shares and Class B common stock is evaluated using the as-if-converted method. Weighted average shares of Class B common stock were
The following table presents the calculation of basic and diluted loss per share of Class A common stock:
|
|
Three months ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss attributable to XPO Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
Less: net loss attributable to noncontrolling interests |
|
|
|
|
|
|
||
Less: dividends on preferred shares |
|
|
|
|
|
( |
) |
|
Net loss attributable to XPO Inc. - basic and diluted |
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( |
) |
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( |
) |
Denominator: |
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Weighted average shares of Class A common stock outstanding - basic and diluted |
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Net loss per share attributable to Class A common stock - basic |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per share attributable to Class A common stock - diluted |
|
$ |
( |
) |
|
$ |
( |
) |
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||
Anti-dilutive shares excluded from diluted loss per share of Class A common stock: |
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Restricted stock units |
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Conversion of Class B common stock to Class A common stock |
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Convertible preferred stock |
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Treasury share options |
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Rumble contingent shares |
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Note 14 – Contingencies and Litigation
Litigation – The Company has in the past been, is currently and expects to continue in the future to be a party to or involved in pre-litigation disputes, individual actions, putative class actions or other collective actions, U.S. and state government regulatory inquiries and investigations and various other legal proceedings arising in the normal course of its business, including with former or current employees, customers, franchisees, vendors, landlords or others. The Company intends to defend itself in any such matters. The Company believes that the ultimate determination of liability in connection with legal claims pending against it, if any, will not have a material adverse effect on its business, annual results of operations, liquidity or financial position, except for those matters discussed below. However, it is possible that the Company’s business, results of operations, liquidity or financial condition could be materially affected in a particular future reporting period by the unfavorable resolution of one or more matters or contingencies during such period.
As of the end of each applicable reporting period, the Company reviews each of its legal proceedings and, where it is probable that a liability has been incurred, the Company accrues for all probable and reasonably estimable losses. The Company accrued for estimated legal liabilities, where appropriate, or settlement agreements to resolve legal disputes and recorded an aggregate accrual of $
26
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
The Company maintains insurance coverage which may cover certain losses and legal costs incurred. When losses exceed the applicable policy deductible and realization of recovery of the loss from existing insurance policies is deemed probable, the Company records receivables from the insurance company for the excess amount. The Company recorded an insurance receivable of $
On November 22, 2023, former employees of a former franchisee of the Company filed a putative class action complaint in the United States District Court for the Southern District of Ohio, captioned Shannon McGill et al. v. Xponential Fitness LLC, et al., Case No. 2:23-cv-03909, against the Company, as well as against a former franchisee of the Company and the franchisee’s legal entity, MD Pro Fitness, LLC. The complaint alleges violations of the Fair Labor Standards Act, as well as employment laws from different states in connection with the franchisee’s owner-operated studio locations. The Company was served with the complaint on December 4, 2023. On April 4, 2025, the parties executed a settlement agreement and filed a motion seeking court approval of the settlement. By order dated June 18, 2025 (the “Order”), the court enumerated requisite changes to the settlement structure. On September 25, 2025, the parties filed the Second Amended Complaint with exhibits containing the settlement structure and agreement and the parties are currently awaiting approval. The Company recorded an accrual in anticipation of this settlement, which was included in accrued expenses in the condensed consolidated balance sheets as of March 31, 2026.
On February 9, 2024, a federal securities class action lawsuit was filed against the Company and certain of the Company’s officers in the United States District Court for the Central District of California. The complaint alleged, among other things, violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, regarding misstatements and/or omissions in certain of the Company’s financial statements, press releases, and SEC filings made during the putative class period of July 26, 2021 through December 7, 2023. On July 26, 2024, plaintiffs filed an amended complaint, adding three Company directors as defendants, as well as the underwriters from the Company’s April 6, 2022 secondary offering, additionally bringing claims under Sections 11, 12(a)(2), and 15 of the Securities Act, and alleging a putative class period of July 23, 2021 through May 10, 2024. The Company filed a motion to dismiss the amended complaint on October 8, 2024. On December 6, 2024, plaintiffs filed their opposition to the motion to dismiss and also filed a motion to supplement the amended complaint, attaching a proposed supplemental complaint. On February 18, 2025, the court granted plaintiffs’ motion to supplement, denying defendants’ pending motion to dismiss as moot. On February 28, 2025, plaintiffs filed the supplemental complaint. On April 15, 2025, Defendants filed their motion to dismiss the supplemental complaint. Instead of opposing Defendants’ motion to dismiss, on May 6, 2025, plaintiffs filed an amended consolidated complaint, which, among other things, adds three new entity defendants to the claim under Section 20(a) of the Exchange Act. The Company filed a motion to dismiss the amended consolidated complaint on October 14, 2025. A hearing took place on December 3, 2025, but no decision has been rendered to date. The litigation is preliminary in nature and involves substantial uncertainties, and the Company believes that a loss is not probable or estimable at this time. However, there can be no assurance that such legal proceedings will not have a material adverse effect on the Company’s business, results of operations, financial condition, or cash flows.
27
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
On March 10, 2024, a shareholder derivative lawsuit was filed in the United States District Court for the Central District of California by Gideon Akande, allegedly on behalf of Xponential Fitness, Inc., against certain current officers and directors as defendants, and Xponential Fitness, Inc., as nominal defendant, for alleged wrongdoing committed by the individual defendants from July 26, 2021 to December 7, 2023. Plaintiff alleges claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, abuse of control, waste of corporate assets, violations of Section 14(a) of the Exchange Act, violations of Sections 20(a) and 10(b) and Rule 10b-5 of the Exchange Act, and against Anthony Geisler, the Company's former Chief Executive Officer, and John Meloun, the Company's former Chief Financial Officer, for contribution or indemnification under Sections 10(b) and 21D of the Exchange Act. Plaintiffs seek, inter alia, damages with pre- and post-judgment interest, and an order directing the Company and the individual defendants to improve the Company’s corporate governance, and restitution by the individual defendants. On April 3, 2024, the court entered an Order granting the parties’ Joint Stipulation to Stay Proceedings, which stayed the proceeding pending final resolution of the securities class action. On May 10, 2024, a second derivative lawsuit was filed in the United States District Court for the Central District of California by Patrick Ayers, purportedly on behalf of Xponential Fitness, Inc., alleging similar claims as the Akande action. On June 24, 2024, the court stayed the Ayers action pending resolution of the securities class action and consolidated the proceedings with the Gideon Akande derivative lawsuit. On February 10, 2025, a third derivative lawsuit was filed in the United States District Court for the Central District of California by Stefanie Nelson, purportedly on behalf of Xponential Fitness, Inc., alleging similar claims as the consolidated Akande and Ayers action. On March 31, 2025, the court consolidated the Nelson action with the previously consolidated Akande and Ayers action. On July 21, 2025, the Company received a demand from a purported shareholder making allegations similar to those made by Ayers, Akande and Nelson. The litigation and related demands are preliminary in nature and involve substantial uncertainties and the Company believes that a loss is not probable or estimable at this time. However, there can be no assurance that such legal proceedings will not have a material adverse effect on the Company’s business, results of operations, financial condition, or cash flows.
On February 21, 2025, the Company received a complaint on behalf of a putative nationwide class alleging violations of the Telephone Consumer Protection Act. The matter was settled on June 24, 2025 for $
Government investigations – On July 29, 2024, the Company received a civil investigative demand from the United States Federal Trade Commission (the “FTC”) regarding the Company’s compliance with Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and of the FTC’s Franchise Rule. On December 12, 2025, the Company received a letter from the staff of the FTC (the “FTC Staff”) stating that the FTC Staff was prepared to recommend the filing of a complaint against the Company seeking injunctive and monetary relief and civil penalties. On February 24, 2026, the FTC Staff indicated they will recommend the FTC Commissioners enter into a stipulated consent agreement (the “FTC Consent Order”) to fully resolve all of the FTC's claims. As part of the proposed FTC Consent Order, the Company has agreed, without any admission of liability, to pay $
The Company received notice on May 7, 2024 of an investigation by the U.S. Attorney’s Office for the Central District of California (the “USAO”). The Company is cooperating fully with the USAO in this investigation, and the Company has incurred, and may continue to incur, significant expenses related to legal and other professional services in connection with matters relating to or arising from this investigation. At this stage, the Company is unable to assess whether any material loss or adverse effect is reasonably possible as a result of these investigations or estimate the range of any potential loss.
28
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
Other state regulatory matters – The Maryland Securities Commissioner (the “Commissioner”) has previously contacted the Company regarding compliance with applicable Maryland franchise laws. On March 18, 2026, the Company and the Commissioner reached an agreement‑in‑principle to resolve and conclude the Commissioner’s investigation of the Company’s alleged violations of the Maryland franchise laws. On April 14, 2026, the related Consent Order was fully executed and entered by the Commissioner. Pursuant to the Consent Order, the Company agreed, among other things, to cease and desist from violating the Maryland franchise laws, pay an administrative penalty and make certain disclosures in its franchise disclosure documents. In addition, the Company agreed to offer to terminate certain area development and franchise agreements with, and refund initial fees to, certain Maryland franchisees with unopened outlets. The administrative penalty was paid on March 31, 2026, and subsequent to quarter-end, the Company made a refund payment to one franchisee. The Company also accrued for potential refunds in connection with this matter, which was included in accrued expenses in the condensed consolidated balance sheet as of March 31, 2026.
In addition, the Office of the Attorney General of the State of Maryland (“MAG”) has previously contacted the Company regarding compliance with applicable franchise laws. The Company is cooperating fully with the MAG in this investigation. The Company has recorded an accrual in connection with potential settlement of this matter, which was included in accrued expenses in the condensed consolidated balance sheet as of March 31, 2026.
On December 12, 2024, the Company received a subpoena from the Office of the Attorney General of the State of New York (the “NYAG”). The Company is cooperating fully with the NYAG in this investigation. The Company has recorded an accrual in connection with potential settlement of this matter, which was included in accrued expenses in the condensed consolidated balance sheet as of March 31, 2026.
Contingent consideration from acquisitions – In connection with the Reorganization Transactions, the Parent merged with and into the Member. The Company recorded contingent consideration equal to the fair value of the shares issued in connection with the Rumble acquisition of $
|
|
Three Months Ended March 31, |
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2026 |
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2025 |
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Risk free interest rate |
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% |
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% |
||
Expected volatility |
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% |
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% |
||
Expected term (in years) |
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During the three months ended March 31, 2026 and 2025, the Company recorded a decrease of $
In connection with the October 2021 acquisition of BFT, the Company agreed to pay contingent consideration to the Seller consisting of quarterly cash payments based on the sales of the franchise system and equipment packages in the U.S. and Canada, as well as a percentage of royalties collected by the Company, provided that aggregate minimum payments of $
29
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
In connection with the January 2024 acquisition of Lindora, the Company agreed to pay contingent consideration to the seller subject to the achievement of certain milestones. Payment of additional consideration is contingent on Lindora reaching two milestones based on a certain gross sales target and the number of operating clinics during the 15-month and 24-month period following the acquisition date, respectively. At the acquisition date, the Company determined that the fair value of the estimated contingent consideration liability was $
Letter of credit – In July 2022, the Company entered into an agreement with a third-party financing company, who provides loans to the Company's qualified franchisees, pursuant to which the Company serves as guarantor for such loans. In addition, the Company issued a $
Lease guarantees – The Company has guaranteed lease agreements for certain franchisees. The Company’s potential obligation, as a result of its guarantees of leases, is approximately $
Note 15 – Restructuring
In the third quarter of 2023, the Company began a restructuring plan that involves exiting company-owned transition studios and other measures designed to reduce costs to achieve the Company’s long-term margin goals and focus on pure franchise operations. The plan was approved and initiated in the third quarter of 2023 and was expected to conclude in 2025; however, the ultimate timing of the completion of the restructuring plan will depend on lease termination negotiations, which is expected to continue throughout 2026. During the fourth quarter of 2023 the Company's restructuring plan was expanded due to the addition of Rumble company-owned transition studios to the restructuring plan and a refranchising plan that was terminated by the Company due to the refranchisor’s non-compliance with the franchise agreements and the subsequent closure of certain studios. This refranchise termination resulted in the Company incurring losses for contract termination expenses, other expenses associated with exiting the studios, and loss contingencies related to the refranchisor’s unpaid payroll. The Company expects to recognize additional restructuring charges throughout 2026 totaling between approximately $
30
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
The components of the restructuring charges were as follows:
|
|
Three months ended March 31, |
|
|||||
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|
2026 |
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|
2025 |
|
||
Impairment and accelerated amortization of right-of-use assets |
|
$ |
|
|
$ |
|
||
Contract termination and other associated costs |
|
|
|
|
|
|
||
Loss on lease terminations and sale or disposal of assets, net (1) |
|
|
|
|
|
( |
) |
|
Other restructuring costs |
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|
|
|
|
|
||
Total restructuring charges, net |
|
$ |
|
|
$ |
|
||
The restructuring charges are recorded within the following financial statement captions on the Company’s condensed consolidated statements of operations:
|
|
Three months ended March 31, |
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2026 |
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2025 |
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Total restructuring charges, net |
|
$ |
|
|
$ |
|
||
The following table provides the components of and changes in the Company’s restructuring charges, included in accounts payable and accrued expenses on the condensed consolidated balance sheets:
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Balance at December 31, 2025 |
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$ |
|
|
Charges incurred |
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|
( |
) |
Payments |
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|
( |
) |
Balance at March 31, 2026 |
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$ |
|
|
Note 16 – Segment Information
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) for purposes of making operating decisions, allocating resources to an individual segment and in assessing performance. The Company’s is the Company’s CODM.
The Company generated $
31
Xponential Fitness, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(amounts in thousands, except per share amounts)
The following table presents the financial information for the Company’s
|
Three Months Ended March 31, |
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2026 |
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2025 |
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Total revenue, net |
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$ |
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$ |
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Less: |
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Costs of product revenue |
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Costs of franchise and service revenue |
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Marketing and promotion |
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Salary and wages |
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Professional services (including legal and accounting) |
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Rent and occupancy |
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Marketing fund expense |
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Acquisition and transaction income |
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( |
) |
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( |
) |
Other segment items(1) |
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Equity-based compensation |
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Depreciation and amortization |
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Impairment of goodwill and other noncurrent assets |
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Interest income |
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( |
) |
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( |
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Interest expense |
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Income taxes |
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Segment net income (loss) |
|
$ |
( |
) |
|
$ |
( |
) |
Note 17 – Subsequent events
Subsequent to the three months ended March 31, 2026, the Company borrowed $
32
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements. Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such. Without limiting the foregoing, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “should,” “would,” “could,” “will,” “likely” and the negative thereof and similar words and expressions are intended to identify forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto and the other financial information included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2025. Our actual results and timing may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the section titled “Factors Affecting Our Results of Operations” and “Risk Factors” and in our Annual Report on Form 10-K for the year ended December 31, 2025.
Overview
Xponential Fitness LLC (“XPO LLC”), the principal operating subsidiary of Xponential Fitness, Inc. (“XPO Inc.”), and together with its subsidiaries, (the “Company” or “we,” “us,” and “our”), is one of the leading global franchisors of boutique health and wellness brands. Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being a 85.1% ownership interest in XPO LLC through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”).
We operate a diversified platform of five brands spanning across verticals including Pilates, barre, stretching, strength training and yoga. In partnership with its franchisees and master franchisees, XPO LLC offers energetic, accessible, and personalized workout experiences led by highly qualified instructors in studio locations throughout the North America Region and internationally, with franchise, master franchise and international expansion agreements in 49 U.S. states, Puerto Rico and 28 additional countries as of March 31, 2026. The Company's portfolio of brands includes Club Pilates, the largest Pilates brand in the United States; StretchLab, a concept offering one-on-one and group stretching services; YogaSix, the largest franchised yoga brand in the United States; Pure Barre, a total body workout that uses the ballet barre to perform small isometric movements, and the largest barre brand in the United States; and BFT, a functional training and strength-based program.
As of March 31, 2026, 2,629 studios were open in the North America Region (consists of Canada, the United States and U.S. Territories) and franchisees were contractually committed to open 789 additional studios under existing franchise agreements. In addition, as of March 31, 2026, we had 508 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 750 new studios, of which master franchisees have sold 182 licenses for studios not yet opened as of March 31, 2026.
During the three months ended March 31, 2026 and 2025, we generated revenue outside the United States of $2.2 million and $2.6 million, respectively. As of March 31, 2026 and December 31, 2025, we did not have material assets located outside of the United States. No franchisee accounted for more than 10% of our revenue. We operate in one segment for financial reporting purposes.
33
Recent Developments
Lindora Divestiture
On September 19, 2025, we entered into an agreement with a buyer to divest the Lindora brand, including the intellectual property, franchise rights and franchise agreements for open studios, and retained certain liabilities, including liabilities related to litigation, pre-litigation, and disputes as of the closing of the divestiture. We expect to receive total consideration of up to $6.0 million based on 7% of the monthly cash-basis gross revenue of the legacy studio locations, which was recorded at the estimated fair value of $3.8 million at the divestiture date. We believe the divestiture allows us to better focus and utilize our resources on our core brands and other opportunities which better align with our long-term strategies.
Rumble and CycleBar divestiture
On July 24, 2025, we entered into an agreement with a buyer to divest the CycleBar and Rumble brands, including the intellectual property, franchise rights and franchise agreements for open studios, and retained certain liabilities, including liabilities related to known litigation, pre-litigation, and disputes as of the closing of the divestiture. We received total consideration of $7.0 million, consisting of $2.0 million received in the three months ended September 30, 2025, and a $5.0 million promissory note. From the divestiture date through full repayment of the note, we also received franchise royalty payments from CycleBar and Rumble brands. During the quarter ended December 31, 2025, we received total consideration of $4.7 million in cash and retained royalties of $0.4 million, which was applied against the promissory note, resulting in the note being paid in full. We believe the divestiture allows us to better focus and utilize our resources on our core brands and other opportunities which better align with our long-term strategies.
Retail supply agreement
On July 3, 2025, we and Fit Commerce, a California Corporation (“FC”), entered into a Retail Supply Agreement (the “Agreement”) which became effective as of December 1, 2025 (the “Effective Date”). The Agreement relates to the outsourcing of our retail merchandising, including the manufacturing and distribution, of any retail item sold by a franchisee, subject to terms and conditions outlined in the Agreement. In addition, FC purchased $4.5 million of our existing retail inventory on the Effective Date of the Agreement. This strategic initiative shifted management of the franchisee retail experience from our in-house teams to a dedicated e-commerce provider, allowing us to focus on core business priorities.
Pursuant to the Agreement, FC will pay us domestic and foreign commissions as well as direct-to-customer commissions (each, a “Commission” and collectively, “Commissions”) in connection with the sale of products to us or our franchisees. The domestic Commissions will be paid by FC to us based on each contract year (prorated for any partial contract year) in aggregate amount of approximately $50.0 million over the five-year period subject to certain adjustments provided in the Agreement, which includes an element of variability in the consideration to which we are entitled. We recognizes revenue on the Commissions in the period in which the Commissions are earned, the consideration is deemed collectible, and the variability is resolved. We record revenue related to the commissions within other service revenues on the condensed consolidated statements of operations. On November 10, 2025, the Company entered into an amendment to the Agreement, pursuant to which certain non-material modifications were made to the provisions governing the purchase of the Company's existing retail inventory.
Paused offering or selling franchises
On April 26, 2024, we received a request for information from the Office of the Attorney General of the State of Maryland related to our compliance with Maryland’s Franchise Registration and Disclosure Law. As a result of the inquiry, we have been unable to offer and sell franchises in Maryland, except in cases where an exemption permitted sales to persons who met specific criteria. The Maryland matter is ongoing.
Additionally, we previously received notice of investigation from the State of Washington's Department of Financial Institutions (“DFI”), the Virginia Division of Securities and Retail Franchising (“VDSRF”), and the Office of the Attorney General of the State of New York (“NYAG”) related to our compliance with relevant state franchise laws. On August 12, 2025, without admission of wrongdoing, we entered into a consent order with DFI to resolve the matter. Similarly, on February 12, 2026, without admission of wrongdoing, the Company signed a settlement order with VDSRF to resolve the matter, which the VDSRF will be countersigning shortly. The NYAG matter is ongoing.
34
In March 2025, the 2025 Franchise Disclosure Documents (“FDDs”) were issued for the BFT, Club Pilates, CycleBar, Pure Barre, Rumble, Stretch Lab, and Yoga Six franchise programs, and then amended in August 2025 and again on February 19, 2026 for the BFT, Club Pilates, Pure Barre, Stretch Lab, and Yoga Six franchise programs. As a result, offers and sales of franchises are temporarily paused in the following registration states-- California, Hawaii, Illinois, Minnesota, New York, North Dakota, Rhode Island, Virginia, and Washington —until each state completes its review and registration of the amended FDDs. Pure Barre, however, may continue selling in Illinois and New York because it qualifies for an exemption. Separately, offers in Maryland are paused due to an ongoing regulatory inquiry. In all listed states, sales may proceed where an applicable exemption permits sales to persons who meet specific criteria.
In April 2026, we issued 2026 FDDs for the BFT, Club Pilates, Pure Barre, Stretch Lab, and Yoga Six franchise programs. The franchisors can offer and sell franchises in most states using the 2026 FDDs and continue pursuit of registration of the FDDs from the few remaining states that still require registration. In the remaining states that require registration of the FDDs, we will continue to pause all sales until registration is obtained from the relevant regulatory agencies, except in cases where an exemption permits sales to persons who meet specific criteria. Sales will resume promptly following such approvals, subject to any applicable waiting periods. Any inability to sell licenses for an extended period can result in slowed growth and could result in a reduction in anticipated royalty or franchise revenue, which in turn may materially and adversely affect our business, results of operations, cash flows and financial condition.
Restructuring Plan
In the third quarter of 2023, we began a restructuring plan that involves exiting company-owned transition studios and other measures designed to reduce costs to achieve our long-term margin goals and focus on pure franchise operations. The plan was approved and initiated in the third quarter of 2023 and was expected to conclude in 2025; however, the ultimate timing of the completion of our restructuring plan will depend on lease termination negotiations, which is expected to continue throughout 2026. During the fourth quarter of 2023, our restructuring plan was expanded due to the addition of Rumble company-owned transition studios to the restructuring plan and a refranchising plan that was terminated by the Company due to the refranchisor’s non-compliance with the franchise agreements and the subsequent closure of certain studios. This refranchise termination resulted in us incurring losses for contract termination expenses, other expenses associated with exiting the studios, and loss contingencies related to the refranchisor’s unpaid payroll. During the three months ended March 31, 2026 and 2025, we recognized total restructuring charges of $1.1 million, net of gains, and $2.4 million, net of gains, respectively, primarily for contract termination and other associated costs, loss (gain) on lease terminations and sale or disposal of assets, impairment of right-of-use assets and other restructuring charges.
We expect to recognize additional restructuring charges throughout 2026 totaling between approximately $9.2 million to $12.9 million for rent expense, including amortization of the right-of-use assets and accretion of the operating lease liability, lease termination gains or losses, and other variable lease costs related to company-owned transition studios and other restructuring charges. We are considering subleases or negotiating lease terminations for operating leases for certain studios for which we have lease liabilities recorded and the expected cash payments and expenses to exit the lease may be greater than expected rent expense for that period, depending on the outcome of lease negotiations. Cash outflows related to these lease terminations are expected to be incurred throughout 2026. As of March 31, 2026, there were seven leases held by us related to divested brands that account for $5.6 million of our total lease liabilities.
Once completed, we estimate annualized savings of approximately $13.5 million to $15.5 million as a result of the restructuring plan. However, we may not be able to fully realize the cost savings and benefits initially anticipated from the restructuring plan, as we may not be able to reach agreement with contractual counterparties or the charges may be greater than expected. Any reduction in the amount of annualized savings we expect to achieve would negatively impact our business. See Note 15 of Notes to Condensed Consolidated Financial Statements for additional information.
Factors Affecting Our Results of Operations
In addition to the impact of the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025, we believe that the most significant factors affecting our results of operations include:
35
Key Performance Indicators
In addition to our financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), we regularly review the following key metrics to measure performance, identify trends, formulate financial projections, compensate our employees, and monitor our business. While we believe that these metrics are useful in evaluating our business, other companies may not use similar metrics or may not calculate similarly titled metrics in a consistent manner.
All metrics in this “Key Performance Indicators” section are presented on an adjusted basis to remove historical information of CycleBar and Rumble prior to their divestitures by the Company in July 2025 and Lindora prior to its divestiture in September 2025. Historical information has not been adjusted to reflect the wind down of AKT. All references to these metrics in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” use this same basis of reporting, unless noted otherwise.
The following table sets forth our key performance indicators for the three months ended March 31, 2026 and 2025:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
|
|
($ in thousands) |
|
|||||
System-wide sales |
|
$ |
436,915 |
|
|
$ |
429,059 |
|
Number of new studio openings globally, gross |
|
|
66 |
|
|
|
106 |
|
Number of studios operating globally (cumulative total as of period end) |
|
|
3,137 |
|
|
|
2,971 |
|
Number of licenses sold globally (cumulative total as of period end) |
|
|
5,399 |
|
|
|
5,212 |
|
Number of licenses contractually obligated to open internationally (cumulative total as of period end) |
|
|
750 |
|
|
|
746 |
|
AUV (LTM as of period end) |
|
$ |
688 |
|
|
$ |
692 |
|
Quarterly AUV (run rate) |
|
$ |
662 |
|
|
$ |
685 |
|
Same store sales growth |
|
|
(6 |
%) |
|
|
6 |
% |
36
The following tables present additional information related to our studio and license key performance indicators for the three months ended March 31, 2026 and 2025:
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2026 |
|
|||||||||
|
|
North America Region |
|
|
International |
|
|
Global |
|
|||
Total operating studios: |
|
|
|
|
|
|
|
|
|
|||
Studios operating at beginning of period |
|
|
2,606 |
|
|
|
491 |
|
|
|
3,097 |
|
New studio openings, net (3) |
|
|
23 |
|
|
|
17 |
|
|
|
40 |
|
Studios operating at end of period |
|
|
2,629 |
|
|
|
508 |
|
|
|
3,137 |
|
Franchise licenses sold: |
|
|
|
|
|
|
|
|
|
|||
Franchise licenses sold (total beginning of period) |
|
|
4,443 |
|
|
|
928 |
|
|
|
5,371 |
|
New franchise license sales |
|
|
12 |
|
|
|
16 |
|
|
|
28 |
|
Franchise licenses sold (total end of period) |
|
|
4,455 |
|
|
|
944 |
|
|
|
5,399 |
|
Development fee payments on future franchise licenses: |
|
|
|
|
|
|
|
|
|
|||
Development fee payments on future franchise licenses (total end of period) (1) |
|
|
73 |
|
|
|
— |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|||
Studios obligated to open internationally under Master Franchise Agreements ("MFAs"): |
|
March 31, 2026 |
|
|||||||||
Gross studios obligated to open under MFAs |
|
|
|
|
|
1,258 |
|
|
|
|
||
Less: studios opened under MFAs |
|
|
|
|
|
508 |
|
|
|
|
||
Remaining studios obligated to open under MFAs |
|
|
|
|
|
750 |
|
|
|
|
||
Licenses sold by master franchisees, net (2) |
|
|
|
|
|
182 |
|
|
|
|
||
|
|
Three Months Ended March 31, |
|
|||||||||
|
|
2025 |
|
|||||||||
|
|
North America Region |
|
|
International |
|
|
Global |
|
|||
Total operating studios: |
|
|
|
|
|
|
|
|
|
|||
Studios operating at beginning of period |
|
|
2,446 |
|
|
|
450 |
|
|
|
2,896 |
|
New studio openings, net (3) |
|
|
58 |
|
|
|
17 |
|
|
|
75 |
|
Studios operating at end of period |
|
|
2,504 |
|
|
|
467 |
|
|
|
2,971 |
|
Franchise licenses sold: |
|
|
|
|
|
|
|
|
|
|||
Franchise licenses sold (total beginning of period) |
|
|
4,376 |
|
|
|
816 |
|
|
|
5,192 |
|
New franchise license sales |
|
|
— |
|
|
|
20 |
|
|
|
20 |
|
Franchise licenses sold (total end of period) |
|
|
4,376 |
|
|
|
836 |
|
|
|
5,212 |
|
|
|
|
|
|
|
|
|
|
|
|||
Studios obligated to open internationally under Master Franchise Agreements ("MFAs"): |
|
March 31, 2025 |
|
|||||||||
Gross studios obligated to open under MFAs |
|
|
|
|
|
1,197 |
|
|
|
|
||
Less: studios opened under MFAs |
|
|
|
|
|
451 |
|
|
|
|
||
Remaining studios obligated to open under MFAs |
|
|
|
|
|
746 |
|
|
|
|
||
Licenses sold by master franchisees, net (2) |
|
|
|
|
|
189 |
|
|
|
|
||
37
System-Wide Sales
System-wide sales represent gross sales by all studios in the North America Region. System-wide sales includes sales by franchisees that are not revenue realized by us in accordance with GAAP. While we do not record sales by franchisees as revenue, and such sales are not included in our consolidated financial statements, this operating metric relates to our revenue because we receive approximately 7% and 2% of the sales by franchisees as royalty revenue and marketing fund revenue, respectively. We believe that this operating measure aids in understanding how we derive our royalty revenue and marketing fund revenue and is important in evaluating our performance. System-wide sales growth is driven by new studio openings and increases in same store sales. Management reviews system-wide sales weekly, which enables us to assess changes in our franchise revenue, overall studio performance, the health of our brands and the strength of our market position relative to competitors.
New Studio Openings
The number of new studio openings reflects the number of studios opened during a particular reporting period. We consider a new studio to be open once the studio begins offering classes. Opening new studios is an important part of our growth strategy. New studios may not generate material revenue in the early period following an opening and their revenue may not follow historical patterns. Management reviews the number of new studio openings in order to help forecast operating results and to monitor studio opening processes.
Studios No Longer Operating
A studio is considered no longer operating and excluded from the total number of studios operating if (a) the Company has reason to believe, after reasonable inquiry, that the studio is permanently closed, with no plans for re-opening or relocation, or (b) it has no sales for nine consecutive months or more, whichever comes first. If a studio deemed to be no longer operating subsequently generates sales at a future date, it re-enters the operating studio count (and the number of studios no longer operating is reduced). Studios classified as no longer operating are deemed permanently closed. Furthermore, studios no longer operating also includes de-branded studios (studios that exit our franchise system and continue to operate independently under non-Xponential branding).
Number of Studios Operating
In addition to the number of new studios opened and studios no longer operating during a period, we track the number of total studios operating at the end of a reporting period. This number represents studios that have already opened, are generating revenue, and are regularly holding classes, though this number could include some number of studios that have temporarily suspended operations, but that are not permanently closed and have not yet met the definition for a studio no longer operating. The number of studios that have temporarily suspended operations is an immaterial percentage of our total studio base. Please see the table in the “Same Store Sales” section, sub header “North America studios contributing to same store sales.” The line “studios without 13 months of consecutive sales as of the last month that had positive sales within the period being measured” is an indicator for the number of the North America Region traditional location studios that are older than 13 months, and that have had a recent or current disruption in sales, but that are still included in the number of studios operating count. For the three months ended March 31, 2026, this represented 0.2% of our North America studio base, respectively, compared to 0.2% for the three months ended March 31, 2025, respectively. While all our franchised studios are licensed to franchisees, we operate a company-owned transition studio under the Rumble brand, which was divested in the third quarter of 2025 (the table below excludes this studio). Typically, when we take possession of a studio following a franchisee ceasing to operate it we prepare it to be licensed to a new franchisee. Management reviews the number of studios operating at a given point in time in order to help forecast system-wide sales, franchise revenue and other revenue streams.
The following tables contain information about changes in the number of our North America operating studios for the three months ended March 31, 2026 and 2025. respectively:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
North America Region franchisee-owned studios |
|
|
|
|
|
|
||
Studios operated at beginning of period |
|
|
2,606 |
|
|
|
2,446 |
|
New studio openings |
|
|
43 |
|
|
|
85 |
|
Studios no longer operating |
|
|
(20 |
) |
|
|
(27 |
) |
Studios operated at end of period |
|
|
2,629 |
|
|
|
2,504 |
|
38
The following table sets forth the total number of operating studios internationally for the three months ended March 31, 2026 and 2025:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
International studios |
|
|
|
|
|
|
||
Studios operated at beginning of period |
|
|
491 |
|
|
|
450 |
|
New studio openings |
|
|
23 |
|
|
|
21 |
|
Studios no longer operating |
|
|
(6 |
) |
|
|
(4 |
) |
Studios operated at end of period |
|
|
508 |
|
|
|
467 |
|
The following table sets forth the total number of operating studios globally for the three months ended March 31, 2026 and 2025:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Total studios |
|
|
|
|
|
|
||
Studios operated at beginning of period |
|
|
3,097 |
|
|
|
2,896 |
|
New studio openings |
|
|
66 |
|
|
|
106 |
|
Studios no longer operating |
|
|
(26 |
) |
|
|
(31 |
) |
Studios operated at end of period |
|
|
3,137 |
|
|
|
2,971 |
|
Non-Traditional Studio Locations
Non-traditional studio locations refers to studios that are not operated as standalone studio locations. There are currently 2 non-traditional studio locations globally, which are comprised of studios operated inside of other fitness facilities and on cruise ships.
Licenses Sold
The number of licenses sold in the North America Region and globally reflect the cumulative number of licenses sold by us (or, outside of the North America Region, by or to our master franchisees), since inception through the date indicated. The number of licenses sold is not reduced by terminations. The number of licenses sold does not generally include license renewals or licenses issued in connection with a change in ownership of operating studios. Licenses contractually obligated to open refer to licenses sold net of opened studios and terminations. Licenses contractually obligated to be sold internationally reflect the number of licenses that master franchisees are contractually obligated to sell to franchisees to open internationally that have not yet opened as of the date indicated. The number of licenses contractually obligated to open is a useful indicator of the number of studios that may open in the future, although it is not certain that these studios will open. Management reviews the number of licenses sold and the number of licenses contractually obligated to open to help monitor and forecast studio growth, system-wide sales and revenue streams.
As of March 31, 2026, we estimate approximately 35% of our global license obligations are over 12 months behind the applicable development schedule due to various circumstances and are currently inactive. This delay in development has resulted in delays in studio openings and may also lead to increased terminations, which could have a negative long-term impact on our business and operating results.
39
Development fee payments on future franchise licenses
As part of a multi-unit agreement, franchisees purchase an initial franchise license and make nonrefundable development fee payments to reserve the right to open additional studios. The number of development fee payments on future franchise licenses sold in the North America Region reflect the number of development fee payments received by us and unused as of period end. The number of development fee payments on future franchise licenses is not included in the licenses sold count. The remaining balance of the franchise license fee for each additional studio is due upon site selection for the studio and signing of a franchise agreement by the franchisee. The number of development fee payments on future franchise licenses is a useful indicator of the number of additional licenses that may be sold in the future, although it is not certain that these development fee payments will result in a sold license. Management reviews the number of development fee payments on future franchise licenses to help monitor and forecast license sales and studio growth.
Average Unit Volume
AUV is calculated by dividing sales during the applicable period for all studios contributing to AUV by the number of studios contributing to AUV. All traditional studio locations in the North America Region are included in the AUV calculation, as long as they meet certain time since opening and sales criteria (as defined immediately below). In particular, AUV (LTM as of period end) and Quarterly AUV (run rate) are calculated as follows:
We measure sales for AUV based solely upon monthly sales as derived through the designated point-of-sale system. AUV is impacted by changes in same store sales, studio openings and studio closures. Management reviews AUV to assess studio economics.
The following table reconciles our North America Region operating studios for the three months ended March 31, 2026 and 2025, respectively, to the total studios contributing to both AUV (LTM as of period end) and Quarterly AUV (run rate):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
North America Region studios contributing to AUV (LTM as of period) |
|
|
|
|
|
|
||
Operating studios (end of period) |
|
|
2,629 |
|
|
|
2,504 |
|
Studios no longer operating but generated sales in the period |
|
|
5 |
|
|
|
6 |
|
Less: studios less than 13 months old |
|
|
(232 |
) |
|
|
(382 |
) |
Less: non-traditional studio locations |
|
|
(2 |
) |
|
|
(4 |
) |
Less: studios without 13 months of consecutive sales as of measurement date |
|
|
(4 |
) |
|
|
(8 |
) |
Total |
|
|
2,396 |
|
|
|
2,116 |
|
|
|
|
|
|
|
|
||
North America Region studios contributing to Quarterly AUV (run rate) |
|
|
|
|
|
|
||
Operating studios (end of period) |
|
|
2,629 |
|
|
|
2,504 |
|
Studios no longer operating but generated sales in the period |
|
|
25 |
|
|
|
39 |
|
Less: studios less than 6 months old |
|
|
(151 |
) |
|
|
(252 |
) |
Less: non-traditional studio locations |
|
|
(2 |
) |
|
|
(4 |
) |
Less: studios with no sales in the period |
|
|
— |
|
|
|
— |
|
Total |
|
|
2,501 |
|
|
|
2,287 |
|
Same Store Sales
Same store sales refer to period-over-period sales comparisons for the base of studios. We define the same store sales to include monthly sales for any traditional studio location in the North America region. If the studio has generated at least 13 months of consecutive positive sales and opened at least 13 calendar months ago as of any month within the measurement period, the respective comparable months will be included. We measure same store sales based solely upon monthly sales as derived through the designated point-of-sale system. This measure highlights the performance of existing studios, while excluding the impact of new studio openings. Management reviews same store sales to assess the health of the franchised studios.
40
The following table reconciles our North America Region operating studios for the three months ended March 31, 2026 and 2025, respectively, to the total studios contributing to same store sales:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
North America Region studios contributing to same store sales |
|
|
|
|
|
|
||
Operating studios (end of period) |
|
|
2,629 |
|
|
|
2,504 |
|
Studios no longer operating but generated sales in the period |
|
|
18 |
|
|
|
26 |
|
Less: studios less than 13 months old |
|
|
(232 |
) |
|
|
(382 |
) |
Less: non-traditional studio locations |
|
|
(2 |
) |
|
|
(4 |
) |
Less: studios without 13 months of consecutive sales as of the last month that had positive sales within the period being measured |
|
|
(4 |
) |
|
|
(6 |
) |
Total |
|
|
2,409 |
|
|
|
2,138 |
|
Results of Operations
The following table presents our condensed consolidated results of operations for the three months ended March 31, 2026 and 2025:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
|
|
(in thousands) |
|
|||||
Revenue, net: |
|
|
|
|
|
|
||
Franchise revenue |
|
$ |
41,154 |
|
|
$ |
43,894 |
|
Equipment revenue |
|
|
4,351 |
|
|
|
11,104 |
|
Merchandise revenue |
|
|
653 |
|
|
|
6,255 |
|
Franchise marketing fund revenue |
|
|
8,712 |
|
|
|
9,269 |
|
Other service revenue |
|
|
5,844 |
|
|
|
6,361 |
|
Total revenue, net |
|
|
60,714 |
|
|
|
76,883 |
|
Operating costs and expenses: |
|
|
|
|
|
|
||
Costs of product revenue |
|
|
3,630 |
|
|
|
11,972 |
|
Costs of franchise and service revenue |
|
|
3,262 |
|
|
|
4,097 |
|
Selling, general and administrative expenses |
|
|
30,040 |
|
|
|
45,545 |
|
Impairment of goodwill and other noncurrent assets |
|
|
— |
|
|
|
1,915 |
|
Depreciation and amortization |
|
|
2,252 |
|
|
|
2,956 |
|
Marketing fund expense |
|
|
11,674 |
|
|
|
9,357 |
|
Acquisition and transaction income |
|
|
(3,187 |
) |
|
|
(8,638 |
) |
Total operating costs and expenses |
|
|
47,671 |
|
|
|
67,204 |
|
Operating income |
|
|
13,043 |
|
|
|
9,679 |
|
Other expense (income): |
|
|
|
|
|
|
||
Interest income |
|
|
(637 |
) |
|
|
(619 |
) |
Interest expense |
|
|
14,494 |
|
|
|
11,388 |
|
Tax receivable agreement expense |
|
|
— |
|
|
|
1,084 |
|
Total other expense |
|
|
13,857 |
|
|
|
11,853 |
|
Loss before income taxes |
|
|
(814 |
) |
|
|
(2,174 |
) |
Income taxes |
|
|
6 |
|
|
|
485 |
|
Net loss |
|
$ |
(820 |
) |
|
$ |
(2,659 |
) |
41
The following table presents our condensed consolidated results of operations for the three months ended March 31, 2026 and 2025 as a percentage of revenue:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
Revenue, net: |
|
|
|
|
|
|
||
Franchise revenue |
|
|
68 |
% |
|
|
57 |
% |
Equipment revenue |
|
|
7 |
% |
|
|
14 |
% |
Merchandise revenue |
|
|
1 |
% |
|
|
8 |
% |
Franchise marketing fund revenue |
|
|
14 |
% |
|
|
12 |
% |
Other service revenue |
|
|
10 |
% |
|
|
9 |
% |
Total revenue, net |
|
|
100 |
% |
|
|
100 |
% |
Operating costs and expenses: |
|
|
|
|
|
|
||
Costs of product revenue |
|
|
6 |
% |
|
|
16 |
% |
Costs of franchise and service revenue |
|
|
5 |
% |
|
|
5 |
% |
Selling, general and administrative expenses |
|
|
49 |
% |
|
|
59 |
% |
Impairment of goodwill and other noncurrent assets |
|
|
— |
% |
|
|
2 |
% |
Depreciation and amortization |
|
|
4 |
% |
|
|
4 |
% |
Marketing fund expense |
|
|
19 |
% |
|
|
12 |
% |
Acquisition and transaction income |
|
|
(5 |
)% |
|
|
(11 |
)% |
Total operating costs and expenses |
|
|
79 |
% |
|
|
87 |
% |
Operating income (loss) |
|
|
21 |
% |
|
|
13 |
% |
Other expense (income): |
|
|
|
|
|
|
||
Interest income |
|
|
(1 |
)% |
|
|
(1 |
)% |
Interest expense |
|
|
24 |
% |
|
|
15 |
% |
Tax receivable agreement expense |
|
|
— |
% |
|
|
1 |
% |
Total other expense |
|
|
23 |
% |
|
|
15 |
% |
Loss before income taxes |
|
|
(2 |
)% |
|
|
(2 |
)% |
Income taxes |
|
|
— |
% |
|
|
1 |
% |
Net loss |
|
|
(2 |
)% |
|
|
(3 |
)% |
Comparison of the three months ended March 31, 2026 and 2025
The following is a discussion of our consolidated results of operations for the three months ended March 31, 2026 versus the three months ended March 31, 2025.
Revenue
|
|
Three Months Ended March 31, |
|
|
Change from Prior Year |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
$ |
|
|
% |
|
||||
|
|
($ in thousands) |
|
|
|
|
||||||||||
Franchise revenue |
|
$ |
41,154 |
|
|
$ |
43,894 |
|
|
$ |
(2,740 |
) |
|
|
(6.2 |
)% |
Equipment revenue |
|
|
4,351 |
|
|
|
11,104 |
|
|
|
(6,753 |
) |
|
|
(60.8 |
)% |
Merchandise revenue |
|
|
653 |
|
|
|
6,255 |
|
|
|
(5,602 |
) |
|
|
(89.6 |
)% |
Franchise marketing fund revenue |
|
|
8,712 |
|
|
|
9,269 |
|
|
|
(557 |
) |
|
|
(6.0 |
)% |
Other service revenue |
|
|
5,844 |
|
|
|
6,361 |
|
|
|
(517 |
) |
|
|
(8.1 |
)% |
Total revenue, net |
|
$ |
60,714 |
|
|
$ |
76,883 |
|
|
$ |
(16,169 |
) |
|
|
(21.0 |
)% |
Total revenue, net. Total revenue was $60.7 million in the three months ended March 31, 2026, compared to $76.9 million in the three months ended March 31, 2025, a decrease of $16.2 million, or 21%. The decrease in total revenue was primarily due to lower equipment revenue due to a decrease in equipment installations and lower merchandise revenue.
42
Franchise revenue. Franchise revenue was $41.2 million in the three months ended March 31, 2026, compared to $43.9 million in the three months ended March 31, 2025, an decrease of $2.7 million, or 6%. Franchise revenue consisted of franchise royalty fees of $31.9 million, franchise territory fees of $3.3 million, technology fees of $3.3 million and training fees of $2.7 million in the three months ended March 31, 2026, compared to franchise royalty fees of $32.5 million, franchise territory fees of $3.9 million, technology fees of $4.4 million and training fees of $3.1 million in the three months ended March 31, 2025. The decrease in franchise royalty fees was primarily due to a decrease in same store sales coupled with a decrease due to brand divestitures in 2025. The decrease in franchise territory fees is primarily attributed to divestiture of brands in 2025, coupled with a decrease of $0.4 million, or 48%, in revenue recognized as a result of franchise agreement terminations year-over-year to $0.4 million in the three months ended March 31, 2026, compared to $0.8 million in the prior year period.
Equipment revenue. Equipment revenue was $4.4 million in the three months ended March 31, 2026, compared to $11.1 million in the three months ended March 31, 2025, a decrease of $6.8 million, or 61%. Most equipment revenue is recognized in the period when the equipment is installed. The decrease in equipment revenue was primarily due to a decrease in global equipment installations in the three months ended March 31, 2026, compared to the prior year period, driven by a decrease in studio openings compared to the prior year period and consistent with the decrease in franchise license sales in recent periods.
Merchandise revenue. Merchandise revenue was $0.7 million in the three months ended March 31, 2026, compared to $6.3 million in the three months ended March 31, 2025, a decrease of $5.6 million, or 90%. The decrease in merchandise revenue was primarily due to the change in strategy to outsource our retail merchandise inventory and lower overall demand from studios compared to the prior period.
Franchise marketing fund revenue. Franchise marketing fund revenue was $8.7 million in the three months ended March 31, 2026, compared to $9.3 million in the three months ended March 31, 2025, a decrease of $0.6 million, or 6%. The decrease was primarily due to a decrease in same store sales and the impact of divested brands compared to the prior year period.
Other service revenue. Other service revenue was $5.8 million in the three months ended March 31, 2026, compared to $6.4 million in the three months ended March 31, 2025, a decrease of $0.5 million, or 8%. The decrease was primarily due to a $0.3 million decrease in vendor commission and brand access fee revenues and less than $0.1 million decrease in package and memberships revenue.
Operating Costs and Expenses
|
|
Three Months Ended March 31, |
|
|
Change from Prior Year |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
$ |
|
|
% |
|
||||
|
|
($ in thousands) |
|
|
|
|
||||||||||
Costs of product revenue |
|
$ |
3,630 |
|
|
$ |
11,972 |
|
|
$ |
(8,342 |
) |
|
|
(69.7 |
)% |
Costs of franchise and service revenue |
|
|
3,262 |
|
|
|
4,097 |
|
|
|
(835 |
) |
|
|
(20.4 |
)% |
Selling, general and administrative expenses |
|
|
30,040 |
|
|
|
45,545 |
|
|
|
(15,505 |
) |
|
|
(34.0 |
)% |
Impairment of goodwill and other noncurrent assets |
|
|
— |
|
|
|
1,915 |
|
|
|
(1,915 |
) |
|
|
(100.0 |
)% |
Depreciation and amortization |
|
|
2,252 |
|
|
|
2,956 |
|
|
|
(704 |
) |
|
|
(23.8 |
)% |
Marketing fund expense |
|
|
11,674 |
|
|
|
9,357 |
|
|
|
2,317 |
|
|
|
24.8 |
% |
Acquisition and transaction income |
|
|
(3,187 |
) |
|
|
(8,638 |
) |
|
|
5,451 |
|
|
|
(63.1 |
)% |
Total operating costs and expenses |
|
$ |
47,671 |
|
|
$ |
67,204 |
|
|
$ |
(19,533 |
) |
|
|
(29.1 |
)% |
Costs of product revenue. Costs of product revenue was $3.6 million in the three months ended March 31, 2026, compared to $12.0 million in the three months ended March 31, 2025, a decrease of $8.3 million, or 70%, compared to a decrease in related revenues of 71%. The decrease in cost of product revenue was primarily driven by a reduction in global equipment installations and strategic shift to outsource retail merchandise inventory during the three months ended March 31, 2026, compared to the prior year period. Costs of product revenue as a percentage of related revenue increased to 73% in the three months ended March 31, 2026, from 69% in the comparable prior year period.
Costs of franchise and service revenue. Costs of franchise and service revenue was $3.3 million in the three months ended March 31, 2026, compared to $4.1 million in the three months ended March 31, 2025, a decrease of $0.8 million, or 20%. The decrease was primarily due to a $0.3 million decrease in franchise sales commissions and a $0.3 million decrease in costs related to brand access fee revenue. This decrease is consistent with the decrease in related franchise territory revenue.
43
Selling, general and administrative expenses. Selling, general and administrative expenses were $30.0 million in the three months ended March 31, 2026, compared to $45.5 million in the three months ended March 31, 2025, a decrease of $15.5 million, or 34%. The decrease was primarily attributable to a decrease in legal expenses of $12.3 million (including nonrecurring insurance credits of $2.2 million in the current period) related to various legal matters including government investigations; a decrease in salaries and wages of $1.7 million; a decrease of $1.3 million in equity-based compensation expense due to an increase in forfeitures over the prior year period; $0.1 million decrease in bad debt expense and a net decrease in other variable expenses of $1.0 million; partially offset by a $0.4 million increase in loss on guaranty of franchisee third-party loans and higher restructuring and related charges of $0.5 million in the current year period.
Impairment of goodwill and other noncurrent assets. Impairment of goodwill and other noncurrent assets was $0.0 million in the three months ended March 31, 2026, compared to $1.9 million in the three months ended March 31, 2025, a decrease of $1.9 million due to impairment of right-of use assets.
Depreciation and amortization. Depreciation and amortization expense was $2.3 million in the three months ended March 31, 2026, compared to $3.0 million in the three months ended March 31, 2025, a decrease of $0.7 million, or 24%. The decrease was primarily due to a decrease in fixed assets related to impairment of software assets and a decrease in intangible assets due to impairments during the year ended December 31, 2025.
Marketing fund expense. Marketing fund expense was $11.7 million in the three months ended March 31, 2026, compared to $9.4 million in the three months ended March 31, 2025, an increase of $2.3 million, or 25%. The increase reflected the timing of incremental marketing spend, as the Company front-loaded more investment in the first quarter of 2026 compared with the first quarter of 2025. Marketing fund expenses are recorded as incurred, which may not occur in the same period as the recognition of franchise marketing fund revenue. For the three months ended March 31, 2026, marketing fund revenue was $3.0 million lower than marketing fund expense.
Acquisition and transaction expense (income). Acquisition and transaction income was $3.2 million in the three months ended March 31, 2026, compared to $8.6 million in the three months ended March 31, 2025, a decrease of $5.5 million, or 63%. These charges primarily represent the non-cash change in contingent consideration related to 2021 and 2024 business acquisitions.
Other (Income) Expense, net
|
|
Three Months Ended March 31, |
|
|
Change from Prior Year |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
$ |
|
|
% |
|
||||
|
|
($ in thousands) |
|
|
|
|
||||||||||
Interest income |
|
$ |
(637 |
) |
|
$ |
(619 |
) |
|
$ |
(18 |
) |
|
|
2.9 |
% |
Interest expense |
|
|
14,494 |
|
|
|
11,388 |
|
|
|
3,106 |
|
|
|
27.3 |
% |
Tax receivable agreement expense |
|
|
— |
|
|
|
1,084 |
|
|
|
(1,084 |
) |
|
|
(100.0 |
)% |
Total other expense, net |
|
$ |
13,857 |
|
|
$ |
11,853 |
|
|
$ |
2,004 |
|
|
|
16.9 |
% |
Interest income. Interest income primarily consists of interest on notes receivable and interest income received from various interest-bearing bank accounts, which was $0.6 million in the three months ended March 31, 2026, compared to $0.6 million in the three months ended March 31, 2025.
Interest expense. Interest expense was $14.5 million in the three months ended March 31, 2026, compared to $11.4 million in the three months ended March 31, 2025, an increase of $3.1 million, or 27%. Interest expense consists of interest on long-term debt, accretion of earn-out liabilities and amortization and write off of deferred loan costs and debt discount. The increase was primarily due to higher average debt balances in the current year period, partly offset by lower average interest rates on our credit agreement.
Other expense. Other expense consists of TRA expense, which was $0.0 million in the three months ended March 31, 2026, compared to $1.1 million in the three months ended March 31, 2025. The decrease was due to the absence of TRA expense in the current period. There is no TRA expense, as the Company recorded pretax book loss after discrete items for the three months ended March 31, 2026 , as compared to pretax book income for the three months ended March 31, 2025.
44
Income Taxes
|
|
Three Months Ended March 31, |
|
|
Change from Prior Year |
|
||||||||||
|
|
2026 |
|
|
2025 |
|
|
$ |
|
|
% |
|
||||
|
|
($ in thousands) |
|
|
|
|
||||||||||
Income taxes |
|
$ |
6 |
|
|
$ |
485 |
|
|
$ |
(479 |
) |
|
|
(98.8 |
)% |
Income taxes (benefit). Income taxes was (0.7%) of our share of pre-tax book income in the three months ended March 31, 2026, compared to (22.3%) of pre-tax book loss in the three months ended March 31, 2025.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, is helpful to investors because it provides consistency and comparability with past financial performance. In addition, our management uses non-GAAP measures to compare our performance relative to forecasts and to benchmark our performance externally against competitors. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate and present similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measure as tools for comparison. A reconciliation is provided below for the non-GAAP financial measures to the most directly comparable financial measures stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.
We believe that the non-GAAP financial measures presented below, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook.
Adjusted EBITDA
We define adjusted EBITDA as EBITDA (net income/loss before interest, taxes, depreciation and amortization), adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include equity-based compensation and related employer payroll taxes, acquisition and transaction expenses (income) (including change in contingent consideration and transaction bonuses), litigation expenses (consisting of legal and related fees for specific proceedings that arise outside of the ordinary course of our business net of insurance reimbursements), fees for financial transactions, such as secondary public offering expenses for which we do not receive proceeds (including bonuses paid to executives related to completion of such transactions) and other contemplated corporate transactions, expense related to the remeasurement of our TRA obligation, expense related to loss on impairment or write down of goodwill and other noncurrent assets, loss and expenses related to brand divestitures and wind down (including expenses directly related to the divested or wound down brands for arrangements that existed prior to divestiture or wind down), transformation initiative costs (primarily consisting of third-party professional consulting fees related to modifications of our business strategy and cost saving initiatives), and restructuring and related charges incurred in connection with our restructuring plan that we do not believe reflect our underlying business performance and affect comparability. For the three months ended March 31, 2026, loss and expenses due to brand divestitures and wind down (excluding impairments) primarily represents net expenses of $0.2 million in connection with brand divestitures and outsourcing of our retail merchandising and loss on franchisee loan guarantees of $0.8 million related to divested brands. EBITDA and adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry.
We believe that adjusted EBITDA, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of operations because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period.
45
The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the three months ended March 31, 2026 and 2025:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
|
|
(in thousands) |
|
|||||
Net loss |
|
$ |
(820 |
) |
|
$ |
(2,659 |
) |
Interest expense, net |
|
|
13,857 |
|
|
|
10,769 |
|
Income taxes |
|
|
6 |
|
|
|
485 |
|
Depreciation and amortization |
|
|
2,252 |
|
|
|
2,956 |
|
EBITDA |
|
|
15,295 |
|
|
|
11,551 |
|
Equity-based compensation |
|
|
1,984 |
|
|
|
3,281 |
|
Employer payroll taxes related to equity-based compensation |
|
|
44 |
|
|
|
115 |
|
Acquisition and transaction income |
|
|
(3,187 |
) |
|
|
(8,638 |
) |
Litigation expenses |
|
|
4,040 |
|
|
|
16,189 |
|
Financial transaction fees and related expenses |
|
|
189 |
|
|
|
303 |
|
TRA remeasurement |
|
|
— |
|
|
|
1,084 |
|
Impairment of goodwill and other noncurrent assets |
|
|
— |
|
|
|
1,915 |
|
Loss and expenses due to brand divestitures and wind down (excluding impairments) |
|
|
960 |
|
|
|
81 |
|
Transformation initiative costs |
|
|
— |
|
|
|
889 |
|
Restructuring and related charges (excluding impairments) |
|
|
1,088 |
|
|
|
555 |
|
Adjusted EBITDA |
|
$ |
20,413 |
|
|
$ |
27,325 |
|
Liquidity and Capital Resources
As of March 31, 2026, we had $12.2 million of cash and cash equivalents, excluding $9.3 million of restricted cash consisting of marketing fund restricted cash of $8.5 million and a standby letter of credit guarantee.
We principally require cash to fund day-to-day operations, finance capital investments, service our outstanding debt and address our working capital needs. Additionally, we require cash to fund the investments in our data warehouse project and other investments to become a data driven company. Based on our current level of operations, we believe that our available cash balance and the cash generated from our operations will be adequate to meet our anticipated debt service requirements and obligations under our TRA, capital expenditures, payment of tax distributions and working capital needs for at least the next twelve months beginning May 8, 2026 and beyond such twelve month period based on our current business plans. Our ability to continue to fund these items and continue to reduce debt could be adversely affected by the occurrence of any of the events described under “Risk Factors”, as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our credit facility or otherwise to enable us to service our indebtedness, including our credit facility, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend or refinance the credit facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.
Credit Facility
On December 8, 2025 (the “Closing Date”), we entered into a Financing Agreement with HPS Investment Partners LLC, as administrative agent and collateral agent, and the lenders party thereto (the “Credit Agreement”), which consisted of a term loan facility in a principal amount of $525 million (the “ Closing Date Term Loans”) and a revolving credit facility in a principal amount of $25 million (the “Revolving Loans”). Our obligations under the Credit Agreement are jointly and severally guaranteed by XPO Holdings and certain subsidiaries of XPO Holdings (collectively, the “Guarantors”, and together with the us, the “Loan Parties”) and are secured by a first priority lien on substantially all of our assets, subject to customary exceptions. The net proceeds from the Credit Agreement was used (i) to repay all outstanding indebtedness under the prior credit agreement, (ii) to repurchase all outstanding shares of the redeemable convertible preferred stock and (iii) to pay the Transaction Expenses (as defined in the Credit Agreement). The proceeds of the Revolving Loans will be used by the Company for working capital and general corporate purposes.
46
The Credit Agreement contains various conditions to borrowing and certain customary affirmative and negative covenants, including, without limitation, covenants that restrict our ability to incur debt, grant liens, make investments, make restricted payments and dispose of assets. The Credit Agreement includes a financial covenant requiring us to maintain a Total Net Leverage Ratio (as discussed further in the Credit Agreement) not to exceed a certain threshold (pursuant to the table as set forth in Section 7.12 of the Credit Agreement) as of the last day of each Test Period (as defined in the Credit Agreement) commencing with March 31, 2026. The Credit Agreement also contains customary events of default. The Closing Date Term Loans and the Revolving Loans will both mature five years after the Closing Date. As of March 31, 2026 the Company was in compliance with these covenants.
Commencing with the fiscal quarter ending March 31, 2026, and subject to customary adjustments, we will be required to repay (a) on the last Business Day (as defined in the Credit Agreement) of each March, June, September and December (each a “Principal Payment Date”), an aggregate principal amount equal to (i) 0.25% of the aggregate principal amount of all Closing Date Term Loans outstanding on the Closing Date, in respect of the first four Principal Payment Dates (commencing March 31, 2026), (ii) 0.75% of the aggregate principal amount of all Closing Date Term Loans outstanding on the Closing Date, in respect of the next four Principal Payment Dates (i.e., commencing on March 31, 2027) and (iii) 1.25% of the aggregate principal amount of all Closing Date Term Loans outstanding on the Closing Date, in respect of each Principal Payment Date thereafter (i.e., commencing on March 31, 2028). The amount of the quarterly principal payments pursuant to the Credit Agreement was $1.3 million during the three months ended March 31, 2026.
The total principal amount outstanding on the Closing Date Term Loans was $523.7 million at March 31, 2026. See Note 7 of Notes to Consolidated Financial Statements for additional information about our debt.
Material Cash Requirements
At March 31, 2026, there had been no material changes in our cash requirements from known contractual and other obligations as disclosed in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2025.
Cash Flows
The following table presents summary cash flow information for the three months ended March 31, 2026 and 2025:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2026 |
|
|
2025 |
|
||
|
|
(in thousands) |
|
|||||
Net cash provided by (used in) operating activities |
|
$ |
(21,689 |
) |
|
$ |
5,818 |
|
Net cash provided by (used in) investing activities |
|
|
(621 |
) |
|
|
(997 |
) |
Net cash provided by (used in) financing activities |
|
|
(2,083 |
) |
|
|
5,010 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
$ |
(24,393 |
) |
|
$ |
9,831 |
|
Cash Flows from Operating Activities
In the three months ended March 31, 2026, cash used in operating activities was $21.7 million, compared to cash provided by operating activities of $5.8 million in the three months ended March 31, 2025, a decrease in cash provided of $27.5 million. Of the change, $1.1 million was due to higher net income after adjustments to reconcile net loss to net cash provided by (used in) operating activities and $7.6 million in favorable changes in working capital related to accounts receivable, prepaid expenses and other current assets, deferred costs and deferred revenue, offset by $36.2 million in unfavorable changes in working capital related to inventories, accounts payable, accrued expenses, other current liabilities and other assets in the three months ended March 31, 2026, compared to the three months ended March 31, 2025.
47
Cash Flows from Investing Activities
In the three months ended March 31, 2026 and 2025, cash used in investing activities was $0.6 million and $1.0 million, respectively. The change year over year of $0.4 million was primarily attributable to the decrease in cash used to issue notes receivable of $0.2 million in the current year and increase in cash received of $0.2 million from notes receivable collections in the current year.
Cash Flows from Financing Activities
In the three months ended March 31, 2026, cash used in financing activities was $2.1 million, compared to cash provided of $5.0 million in the three months ended March 31, 2025, representing a year over year deterioration of $7.1 million. The decrease in cash provided was primarily attributable to net borrowings on long-term debt of $8.5 million and cash used for payments of preferred stock dividend of $1.8 million in the prior year. In addition, in the current period compared to the prior period, cash used decreased due to lower payments for distributions to Pre-IPO Members of $0.2 million and lower payments for taxes related to net share settlement of restricted share units of $0.3 million.
Off-Balance Sheet Arrangements
As of March 31, 2026, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees. Our potential obligation under these agreements is approximately $4.4 million and would only require payment upon default by the primary obligor. We determined the fair value of these guarantees at inception was not material, and as of March 31, 2026 no accrual has been recorded for our potential obligation under the guaranty arrangements. See Note 14 of Notes to Condensed Consolidated Financial Statements for more information regarding these operating leases and guarantees.
In July 2022, we entered into an agreement with a third-party financing company, who provides loans to our qualified franchisees, pursuant to which we serve as guarantor for such loans. In addition, we issued a $0.8 million standby letter of credit in connection therewith, which represents a portion of our potential aggregate liability under the guaranty. The standby letter of credit is contingent upon the failure of franchisees to perform according to the terms of underlying contracts with the third party. We deposited cash in a restricted account as collateral for the standby letter of credit. The estimated fair value of these guarantees at inception was not material, and as of March 31, 2026, a $1.8 million accrual has been recorded for our potential obligation under this guaranty arrangement. See Note 14 of Notes to Condensed Consolidated Financial Statements for more information.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2025.
48
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market risk represents the risk to our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily due to potential interest rate risk and potential increases in inflation. We do not hold financial instruments for trading purposes.
Interest Rate Risk
We are exposed to changes in interest rates as a result of the outstanding balance under our Credit Agreement. Our primary exposure is an increase in SOFR, which increases the interest rate we pay on the outstanding principal balance of our debt. The nature and amount of our long-term debt can be expected to vary as a result of future business requirements, market conditions and other factors. Any increases in our outstanding indebtedness will amplify the effects of increased interest rates.
As of March 31, 2026, the outstanding principal balance, net of exit fee, of $523.7 million on the Credit Agreement was subject to variable interest rates. Based upon a sensitivity analysis, a hypothetical 1% change in interest rates on our debt outstanding would change our annual interest expense by approximately $5.2 million.
Foreign Currency Risk
We operate internationally; however, our franchise agreements, including international agreements, are primarily denominated and settled in U.S. dollars. Accordingly, we do not believe we have material exposure to foreign currency exchange risk for the three months ended March 31, 2026 and 2025 since we operate primarily in the United States for the periods presented. Accordingly, we believe we do not have a material exposure to foreign currency risk. We may continue to increase our international footprint, which may increase our exposure to foreign currency exchange risk.
Inflation Risk
As of March 31, 2026, we do not believe that inflation has had a material effect on our business, financial condition or results of operations. However, to the extent inflation results in rising interest rates and has other adverse effects on the market, it may have an adverse impact on our operating results and financial condition.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Interim Chief Financial Officer (our principal executive officer and principal financial officer, respectively), of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended as of March 31, 2026.
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements, including the possibility of human error, the circumvention or overriding of controls, or fraud.
Based upon this evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that as of March 31, 2026, as a result of the material weaknesses in our internal control over financial reporting discussed in the Company’s annual report on Form 10-K for the year ended December 31, 2025, our disclosure controls and procedures were not effective.
Management has concluded that, notwithstanding the material weaknesses described below, the Company’s condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial position, results of operations and cash flows as of the date, and for the periods presented, in conformity with U.S. GAAP.
Changes in Internal Control over Financial Reporting
Except as described in “Management’s Plan for Remediation Plan Status Update” below, there have been no changes in our internal control over financial reporting during the quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
49
Management's Plan for Remediation Status Update
As previously disclosed in Item 9 of our Annual Report on Form 10-K for the year ended December 31, 2025, management identified a material weakness associated with the sufficiency of resources. Specifically, the material weakness relates to our ability to enforce accountability and the assignment of roles and responsibilities across Company personnel. The Company did not maintain a sufficient complement of accounting, financial reporting, and technology personnel, and the lack of sufficient resources contributed to our failure to (i) consistently operate certain of our internal controls, and (ii) establish and maintain information technology general controls, including designing controls pertaining to system development lifecycle, change management, user access rights, and maintaining appropriate segregation of duties over systems that are critical to the Company’s internal control over financial reporting.
As of March 31, 2026, we have made progress against the remediation plan that we previously disclosed under Part II, Item 9A. Controls and Procedures in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025. While we believe that our remediation plan, once fully implemented, is sufficient to remediate the material weaknesses, such a conclusion cannot be reached until applicable controls have been designed, implemented and have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. As of March 31, 2026, this evaluation of remediation activities remains ongoing.
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PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
The material set forth in Note 14 (pertaining to information regarding legal contingencies) of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.
Item 1A. Risk Factors.
The Company has included in Part 1, Item 1A of Part 1 of its Annual Report on Form 10-K for the year ended December 31, 2025, a description of certain risks and uncertainties that could affect the Company's business, future performance or financial condition (the “Risk Factors”). There have been no material changes to the Risk Factors, except as described below. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.
Our review of strategic alternatives may not result in a transaction and could adversely affect our business, operations and stock price.
As previously disclosed in the Company's current report on Form 8-K filed on April 7, 2026, our Board of Directors has initiated a review of strategic alternatives intended to maximize stockholder value, which may include a sale of the Company, a merger, or another strategic or financial transaction. This review is ongoing and there can be no assurance that the process will result in the consummation of any transaction, or that any transaction that may be completed will be on terms favorable to our stockholders, or at all.
The strategic review process may cause uncertainty among our employees, franchisees, lenders, business partners and other stakeholders, which could adversely affect our ability to retain and motivate personnel, maintain franchisee engagement, or execute our operational initiatives. In addition, the process may divert the attention of our Board and management from the ongoing operation of the business at a time when consistent execution remains critical to our performance.
Speculation regarding the outcome of the strategic review, including the possibility that no transaction will be completed, may also contribute to increased volatility in the market price of our Class A common stock. Further, if the review does not result in a transaction, we may be subject to negative perceptions from investors or other stakeholders regarding our strategic direction.
The availability, timing and valuation of any strategic alternative may be adversely affected by our operating performance, franchisee economics, brand concentration, regulatory exposure and other risks described in this Quarterly Report and in our Annual Report on Form 10‑K, any of which could limit perceived strategic options or reduce potential transaction value.
Our recent Board and management changes, including a reduced number of independent directors, could disrupt our governance, strategic review process and overall business operations.
We have experienced significant changes in the composition of our Board of Directors and senior management over recent periods, including the departure of multiple directors and executive officers. As a result, our Board currently operates with a smaller number of directors, including a reduced pool of independent directors, and relies on a limited number of individuals to satisfy applicable independence and committee composition requirements.
While we believe our current Board composition satisfies applicable requirements, any additional departures of independent directors could require us to reconstitute Board committees, seek waivers or extensions from the New York Stock Exchange, or otherwise take remedial action, which could disrupt our governance processes and create uncertainty. These risks may be heightened during the pendency of our review of strategic alternatives, when continuity, independence and availability of directors are particularly important.
Further, frequent or unexpected changes in Board or management composition may adversely affect the consistency of our strategic direction, internal controls, decision‑making processes and oversight of management, and could negatively impact investor, franchisee or employee confidence in the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
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Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
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Item 6. Exhibits.
Exhibit Number |
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Description |
10.1* |
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Employment Agreement dated October 11, 2025, between Xponential Fitness, LLC and Gavin O’Connor. + |
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10.2* |
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Consulting Agreement dated March 16, 2026, between Xponential Fitness, LLC and Robert K. Julian. + |
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31.1* |
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31.2* |
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32.1** |
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32.2** |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** Furnished herewith.
+ Denotes management contract or compensatory plan, contract or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Xponential Fitness, Inc. (Registrant) |
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Date: May 8, 2026 |
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By: |
/s/ Robert K. Julian |
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Robert K. Julian |
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Interim Chief Financial Officer (Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer) |
54
ATTACHMENTS / EXHIBITS
XBRL TAXONOMY EXTENSION SCHEMA WITH EMBEDDED LINKBASES DOCUMENT