In 2019, when HCM last interviewed Anthony Geisler, Xponential Fitness had just acquired Stride Fitness and reached eight modalities. “That’s it now,” Geisler told us, explaining that he wanted to be the biggest and the best in each rather than enter crowded health and fitness segments.

Fast-forward to 2023 and Xponential’s line-up of boutique brands now numbers 11, with metabolic health specialist Lindora, boxing brand Rumble Boxing and group strength training concept BFT added to the portfolio over recent years, while a new agreement has recently been struck to develop brick and mortar studios with dance brand Kinrgy.

Now present in 23 countries, Xponential has around 3,000 studios open – of which around 400 are outside the US – and approximately 6,000 sold. Total studio revenue is projected to reach nearly US$1.4bn this year and a new studio opens every 15 hours.

We asked Geisler to bring us up to date on the business.

How are your brands doing?
Club Pilates is on a roll and everyone likes to focus on this because it’s our oldest and smartest brand. Of our approximately 3,000 studios, just over 900 are Club Pilates, meaning this brand brings in around a third of our revenues. That’s just maths as a royalty business.

These studios are performing strongly. In 2019, the average Club Pilates was generating revenues of around US$550k a year. Now it’s US$900k+ and growing. To give you an idea, in Q3 of this year, the average studio that’s three+ years old was up 15 per cent on Q3 2022.

That figure is still climbing and we don’t yet know what the peak will be. There may be a day when a 1,500sq ft Club Pilates is doing a million-plus dollars a year, which I don’t think anyone would have predicted in a post-COVID world.

However, Xponential would still be an amazing company even if you took Club Pilates out of the equation. Let’s look at Pure Barre, for example, where the average studio has been open for seven-and-a-half years and where they’re also up double digits compared to Q3 2022 – we’re talking 10–15 per cent.

These are owner-operator sites where the franchisee works at the studio, which is the model we inherited when we bought the Pure Barre brand and is different from our other brands, which operate on the semi-absentee ownership model.

YogaSix is doing great as well, and StretchLab is doing phenomenally well. People thought it was ridiculous when I bought that brand. They’d tell me there was no such thing as a stretching gym and asked why anyone would pay to have somebody stretch them for 25 or 50 minutes. My answer: the same reason people don’t massage themselves. It’s pretty hard to do. We’ve now sold over 900 StretchLab licences, with over 400 open, and the AUVs (average unit volumes) are over US$600k.

Of course, it takes time to get new acquisitions running to Xponential standards. You can’t compare Club Pilates – which I acquired in 2015 as Xponential’s first brand – to Rumble Boxing, which we bought two years ago.

The way I talk about it, if I have a five-year-old and an eight-year-old and you ask me which is smarter, it had better be the eight-year-old. If not, it’s not the five-year-old that has a problem. So, come back to me and see how Rumble is doing when I’ve owned it for eight years.

We also continue to work on our less mainstream modalities such as dancing, rowing and running. Row House, for example, has almost 100 open studios. That’s exciting in the fitness and franchise worlds – a lot of people don’t make it to 100 open units – but then there’s a rest-of-franchise-world standard and there’s an Xponential standard. If we don’t see a path to, say, 500 open studios for each of our brands, we ask ourselves if there’s a better use of our time and our capital.

So your portfolio could change?
We bought BFT and Rumble Boxing since our last HCM interview and have just bought our 11th brand – Lindora, the metabolic health and wellness brand and done a licencing deal with dance brand Kinrgy.

But the whole idea of a portfolio of brands is that things ebb and flow. We still have demand, with franchisees lining up for franchises, but some modalities aren’t as mainstream as, say, yoga and boxing. Others aren’t as hot as they used to be: indoor cycling is down about 25 per cent post-COVID, for example.

This is the beauty of the portfolio play: we’re able to go in, buy brands and see which work very well and which don’t. We then have the ability to divest the brands that don’t work to our standard, but which may work to somebody else’s.

We don’t have a strict timeline on how quickly a brand needs to perform. It isn’t a time bomb. But we do take a holistic look at each business: how we see the brand functioning in the US, internationally and online; the leadership and how we’ve gelled with the team; how much time and capital we’re putting into it.

We’re always evaluating our portfolio as a whole to ensure we have the optimal mix of brands. Those brands may change over time, depending on factors such as consumer preferences, how each brand is performing and our overall strategy; as a public company, we have a duty to maximise value for shareholders and invest our time and capital wisely, while also remaining committed to our franchisees and providing them with the support they need to succeed.

We’re unlikely to shut down a brand. Each of our brands has inherent IP, a customer base and studios that produce royalties. You wouldn’t just shut that down. That said, if something doesn’t make sense any more in the context of our broader capital allocation, we may consider selling it down the line.

We’d obviously make sure whoever we sold the brand to would step into our shoes and adequately support the franchisees. And with the value we place on strong performers and motivated entrepreneurs, if we were to make a change to our portfolio in the future, we would look for opportunities to keep those high performers within the Xponential family.

In 2019, you told us Club Pilates was almost sold out...
When you’re just starting out with a brand, you’re virtually taking a guess at how many studios you can have without AUVs going backwards to a point where franchisees aren’t making good returns.

In 2019, we assumed the US had capacity for 900–1,000 Club Pilates locations, but over time more territories have become available. We also understand more about our customers and their behaviours the more studios we open and the more customers we have. In turn, we can revisit our figures.

We’ve now opened over 900 Club Pilates and the AUV has almost doubled. That allows us to say ‘OK, let’s try 200 more.’ As things stand in 2023, we think the US could support around 1,700 Club Pilates studios, and there’s still a lot of demand among franchisees, but every year we’ll go through systematically and update our available studio count.

We’ve also partnered with LA Fitness to launch clubs-in-club – another way for us to expand our total addressable market. We’re using this approach to help existing franchisees expand their territories. They might have a StretchLab or a Club Pilates down the street from an LA Fitness; creating a space for that brand within LA Fitness means they can address thousands more people and create more capacity for their members.

Do you work with aggregators?
First of all, we aggregate ourselves through our own XPass platform. Across the US, 66 per cent of the population lives within 10 miles of one of our studios. Typically, in most suburban areas, it’s more like two miles. XPass allows people to search on the app, see what’s available nearby and go and do that class.

XPass is discounted compared to normal membership, but you’re not getting access to the top classes. You’re getting what’s left – Wednesday at 9.00am rather than Monday at 5.00pm – to help our franchisees fill their classes. It’s been a good aggregator to help us address a different market: people who like the boutique experience, but who are happy going to different brands and modalities rather than having a fixed 'Pilates at 5.00pm on a Monday'-type routine.

We also now work with corporate wellbeing platform Gympass, which advertises excess inventory to its 15,000+ corporate customers and two million subscribers. When Gympass users attend classes, our franchisees get paid on a per-class rate. Once again, the idea is to sell the last spaces in class, not the first. Those final spaces are the most profitable because the class is happening anyway.

We made it very simple for our franchisees a couple years ago. We told them: ‘You don’t have to look at your profit and loss statement. Just look at each class. If there’s an empty seat, you’re not doing your job. You have to fill all the seats.’ Then the question is simply: how do you do that? And you can do it with aggregators such as XPass, Gympass and ClassPass, as well as through partnerships with healthcare partners – we work with United Healthcare, among others – so their insurance customers use our studios. We see healthcare providers as aggregators too.

The majority of our business is subscription-based – we have almost 700,000 people paying us a recurring monthly membership, 25 per cent on four classes a month, 25 per cent on eight and 50 per cent on unlimited – and this eats up the lion’s share of our inventory. But as I say, it’s about filling the last seats.

You use surge pricing. Tell us more.
It isn’t surge pricing as you’d see with an airline, where as they get down to the last few seats, the prices go up. It’s not dynamic pricing for a class. It’s pricing based on demand generally.

We have five pricing tiers across the country and it’s driven by analytics. Before we open a new studio, we look at the studios we already have there, as well as the competition and what they’re charging. We then determine a starting tier for the business. Say they start at tier three and they’re selling steadily and their waitlist is normal, we’ll leave them at tier three. But if it’s too easy for them to sell a membership – if their closing ratio is basically too high for the area – and there are too many people waiting in line to take a class, simple logic says they’re not charging enough and we’ll shift them to tier two. If it still doesn’t calm down, the analytics will shift to them to tier one.

With a boutique class-based product, supply is fixed, so as demand ratchets up, so does price. For Club Pilates and our other older brands, we’re probably in tier negative eight at this point!

Does digital help meet demand?
We do have XPlus, which offers digital content from our 10 brands, as well as other things to make it sticky.

Although some members pay to consume Xponential digitally, we aren’t trying to cannibalise our physical business. We see digital as a supplementary offering and lead generation tool, including marketing to digital users if we go into a new market physically.

We have our own 8,000sq ft production studio and film there all day, every day. Then we make sure each video is played as many times as possible, not only ‘selling’ the content to our own XPlus app but also partnering with the likes of Meta, Google Play and LG televisions; with Four Seasons for its hotel gyms; and with Princess Cruises, where our content is now available in 23,000 onboard staterooms.

People don’t like re-runs, so we produce a lot of videos and sell them multiple times as new content.

As part of our partnership with Princess Cruises, in addition to digital content, we also have physical studios onboard – Rumble Boxing studios, StretchLab, YogaSix on your way to the Bahamas, CycleBar classes on the bow of a ship overlooking the ocean. We know who does these classes, too, so we can market our studios to them after their cruise.

How about VR?
We’ve done a deal with Meta to create Xponential in the virtual world and have worked with Litesport to develop Club Pilates, Pure Barre and StretchLab in three different formats – VR, Mixed Reality and also something called pass-through, which allows the user to see a real-time view of their surroundings. Members pay US$9.99 a month to get access.

Litesport has used hand-tracking technology to deliver the controls, which means users have their hands free to use equipment, in the studio or at home, while doing the workout.

We expect to deliver AKT, BFT, Row House and Stride in these formats – in 2024.

What’s next for Xponential?
We’ll just continue to do what we say we’re going to do. If you look at the numbers, we’ve done that or better across the board since we went public.

The business plan for us is pretty simple. We’re in the royalty business, and we can’t drive additional royalties without selling more studios and getting them open. So really, the pillars are selling more franchises, opening more studios and driving revenue in the open studios. Those are the three things we do.

As a listed company, we then take the revenue we generate and try and make the business run as efficiently as possible, to kick out the best margins we possibly can.

We’ll certainly continue to buy brands, open studios and grow. We’re opening 500–600 studios a year, so in five years there’ll be another 3,000 studios on top of the 3,000 we already have open.

Around 20 per cent of our openings are now outside the US, with master franchise agreements per brand per market, so in five years I envisage 1,200 of our 6,000 studios to be international.

We’ve recently brought in Bob Kaufman as president of our international business, heading up what was already a strong team. So far the majority of our international studios are in APAC, with six of our 10 brands present there. Club Pilates is doing amazingly well in Japan, for example, and we have BFT, Rumble Boxing, CycleBar, Club Pilates and StretchLab in Australia.

The UK has been a soft market [for franchises] post-COVID, so we’re not rushing there. We’ll see how it goes with BFT in the UK. And then across Europe we’ve just been planting a few flags: Germany, Austria, Portugal, Spain. We’ll see how those studios perform before we move forward.

Has the Fuzzy Panda report had any lasting impact?
It’s done absolutely nothing other than create negative excitement.

As a listed public company, we work closely with our auditing partner Deloitte and Touche and our inside and outside legal advisors every day. There’s no way to manipulate our numbers. They are real and our results speak for themselves. The short-seller report was an attempt to attack our business, but our June, July, August and September numbers were great. We’ve just reported some of October’s numbers and they’re even better. We beat revenue and EBITDA again this quarter.

We told the markets we’d hit the high end of our forecast range this year and we have, with US$106m EBITDA and margins that are starting to reach mid-30 per cent compared to 18 per cent two years ago.

The efficiency of the company has almost doubled. In terms of income per site, our Q3 average was US$564k. It was US$570k in September and US$576k in October, and we expect it to pass US$600k by the end of this year or beginning of next. Same-store sales are also up around 15 per cent year-on-year, where pre-COVID that figure was always around 8–9 per cent.

The markets here have certainly been rough over the last 24 months, and ours hasn’t been a perfect journey, but through it all we’ve kept focused on performing and driving strong results. That approach has worked well for us so far and it’s where our focus will remain going forward.