The Curator of Leading Boutique Brands
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During my time at the University of Georgia's Terry College of Business, Scientific Management was one of my favorite subjects and one that I excelled at. Further, my favorite topic within the subject was that of assembly lines. The breakdown of a process into small, duplicative parts that can be performed efficiently over time was something that just resonated with me. In business, and life really, I've continued that study.
This month's cover story subject is Xponential Fitness, founded in 2017, and led by Founder and CEO, Anthony Geisler. The company is a machine, plain and simple, and as such, there is much to study and learn from. As a curator of nine leading boutique brands, Xponential has a playbook, and they run it to perfection. Now, with over 1,850 locations open, serving 405,000 members, and over 2,000 more locations in the pipeline, Xponential has become a force in the industry. And, as one would expect, Xponential has gone public, recently completing an IPO.
Keep in mind, all of this has occurred in four years! So, sit back, put your seatbelt on and get ready to go for quite a ride as we interview Anthony Geisler, CEO of Xponential Fitness.
An Interview With Anthony Geisler, CEO of Xponential Fitness
Club Insider (C.I.) - Please tell us about your career prior to entering the health and fitness industry. When and how did you enter the health and fitness space?
Anthony Geisler (AG) - I've been in health and fitness for 20 years, and I'm 45, so not much of a career before this space. I graduated from the USC Entrepreneur Program in 1999, and a couple of years later, I ended up buying LA Boxing. I had joined as a member out of college. There was one location, and I was a member there for a year. I realized I really loved the health and fitness space, so I ended up putting a deal together to buy the company from the original two founders.
After that, I opened a second and a third location. Then, after opening the third location, I was out of capital. I didn't have any wealthy parents or uncles or anything like that, so I was bootstrapping everything up to that point. And, at that point, I was kind of too small to be big and too big to be small. SBA didn't want me; I didn't have any assets they could leverage. So, the situation really led me into franchising. I ended up meeting a franchise broker, a kind of franchise consultant. And, unfortunately, I told him that I had saved $85,000 so far.
I took all the money I made from store one to do store two. Then, the money from stores one and two to do store three. Now, I had three, and I was saving money from stores one, two and three to do store four. That was $85,000. So, I told him, 'All I have is $85,000,' because I thought it was going to be hundreds of thousands of dollars, if not millions to set the company up. So, of course, he was very nice and took my $85,000...
He helped me set it up, but I later found out that, today, we can do it for about $15,000 to $20,000. So, we began franchising, and I really bet it all with that. I really like the setup of franchising because it creates a true partnership between us and the franchisee. With that, LA Boxing took off, and we sold 200 of them.
I then got a call from the Fertitta brothers, who owned Ultimate Fighting Championship (UFC) and UFC Gym. They liked our model and were curious if we were buying or building. They were opening big boxes that were each about 40,000 square feet and $3,500,000. That level of real estate is hard to come by and a lot of capital to put up, so they liked the idea of the small box franchise model. Then, when they dug into it, they liked the unit-level economics of what we did for a franchisee and how it was to be a franchisor. So, I sold LA Boxing to the Fertitta brothers at UFC Gym, and I became President of UFC Gym for about 14 or 15 months. I helped rebrand all the LA Boxing locations into UFC Gyms, then I sold the remainder of my equity and moved on.
C.I. - When and how did you create Xponential Fitness?
AG - In March of 2015, I purchased Club Pilates. And, almost two years to the date from there, in 2017, I created Xponential Fitness.
C.I. - Please tell us a little bit about each brand, number of units open/sold, etc.
AG - Let me start by explaining that we look at modality first. We want to be in stretching, indoor rowing, cycling, right? So, we look at the modalities. Then, we talk to various small corporate-based operators in those modalities to pick the right one. When we come in to do a deal, we take their corporate stores and those become our first franchisees. So, the day we close on buying the brand, we are open with some franchises. That's the play we run and have duplicated multiple times:
Club Pilates was the first brand, and when I bought it in 2015, it had about two dozen locations, primarily all in Southern California. It was created by Allison Beardsley. She loves Pilates but hated business, so the business sort of grew up around her because members and instructors wanted to open their own Club Pilates locations. She had done these license agreements with franchisees that we eventually turned into actual franchise agreements. When I found her company, she was ready to exit the business and move to Lake Tahoe, so I ended up buying it and took over. Today, it has approximately 650 locations open with 965 licensed locations, so it has experienced pretty good growth. I bought it for $2 million in a private sale six years ago, and today, the value of this brand has increased substantially and represents the largest business in our portfolio in terms of revenue. It is also nine times larger than its next largest competitor.
Year Acquired: 2015
Locations Open: 649
Locations Sold: 965
Cyclebar was a brand in the market that had about a hundred locations open and a couple hundred sold. Of those hundred, 75 were losing money when we bought the brand. That's why they were trying to sell it. We ended up coming in and buying the franchisor. We have built that now to 231 open and 477 sold across the country, and it is twice the size of the next largest competitor.
Year Acquired: 2017
Locations Open: 231
Locations Sold: 477
After that, we acquired Row House and StretchLab almost simultaneously:
Row House was an indoor rowing concept out of Manhattan, and we ended up getting in touch with the owners, Debra Strougo and Eric Von Frohlich, to put a deal together.
Year Acquired: 2017
Locations Open: 90
Locations Sold: 309
StretchLab was operating in Southern California and L.A., so that was more convenient because it was local.
Year Acquired: 2017
Locations Open: 122
Locations Sold: 371
AKT is our dance inspired brand, and it had three locations open in the Manhattan area when we acquired it.
Year Acquired: 2018
Locations Open: 24
Locations Sold: 107
YogaSix had about 13 locations when we found it, and we ended up buying the company and turning those 13 into franchises the day it closed. Since then, we've sold over 500 and have over a hundred open.
Year Acquired: 2018
Locations Open: 105
Locations Sold: 514
STRIDE was acquired at the end of 2018 from co-founders Katie Ownbey and Misa Dugally who had a studio in Pasadena, California.
Year Acquired: 2018
Locations Open: 6
Locations Sold: 76
Pure Barre was bought from L Catterton in 2018. Before we acquired the brand, even though it had a positive EBITDA, it was not performing to its true potential. We saw a real opportunity to go in there, changing the Point-of-Sales system and CRM, creating a membership sales culture because they didn't have that, and all the 500+ locations open looked different. It had five CEOs in five years so there was no real, consistent leadership. We were able to step in to provide leadership and support, layering in our model, to grow and expand the network of studios. From that, we saw a number of franchisees expand further, too.
To start, we looked at the 43 people in their organizational chart and identified areas of opportunity to restructure the support being provided to owners. We chose to keep the Training & Technique Team in place as that is the core of the brand's success: it's technique. We hired an additional 20 people and based them all in Irvine, California. We spent about $20 million to rebrand all the locations so they all look the same. We brought in new technology, new computer systems, new flooring, new counters, vinyl, paint, etc. Just a whole new look and feel to the business. We did that on our dime for the franchisees, so they were excited about that. And, we got all that complete within a year, which was amazing.
We ended up increasing profitability by approximately $20 million in two years with Pure Barre and also increased same-store sales by double digits inside that first year. Now, there are almost 600 open and over 700 licensed locations.
Year Acquired: 2018
Locations Open: 599
Locations Sold: 713
Rumble was our latest acquisition in March this year. They had 13 going on 14. They were just opening in Chicago pre-COVID, then COVID put a pause on that. So, we took their locations and turned those into our first 13 franchises. We are very pleased with the launch of Rumble and franchise sales, with more than 70 licenses sold already and a Master Franchise Agreement in Australia.
Year Acquired: 2021
Locations Open: 13
Locations Sold: 71
C.I. - That's an incredible buildup in such a short time! In total, how many units are open and how many are in the pipeline? What is the time horizon for those to be open?
AG - As of today, we have over 1,850 studios operating across nine leading brands globally (48 states in the United States, Canada and five countries internationally). And, there are over 1,500 licenses signed and paid for, so they're contractually obligated to open in North America. Then, on top of that, there's over 730 licenses contractually obligated to be sold internationally across nine international countries. So, that's over 2,200 contractually obligated and paid for studios to open. Approximately sixty of those must be sold by the end of 2021 internationally.
C.I. - What are the benefits of offering such a variety of concepts to current or potential franchisees, as well as the end user?
AG - Offering a variety of concepts to owners, both current and prospective ones coming into the system, allows them to build a portfolio of diversified and complementary modalities. I think it's self-evident what we're doing. Then, leveraging the Xponential Playbook and corporate support at the brand level and the shared services level makes the difference, things like Accounting and Finance, Construction, Retail Design, Marketing, Operations, Membership Sales, Certification Instruction Training, etc.
For the end user, in Q4 of last year, we launched XPASS. It offers our consumers access to all brands across the portfolio. Simply put, sign up at one brand and you get access to all the brands. It allows us to attract and retain customers that are seeking variety. The stats we see show that people own multiple boutique fitness memberships and are paying for those. This allows our customers to introduce themselves to new brands and verticals in our system. I don't think a lot of people know that Xponential owns all these brands. They may know our brands, but they don't know that Xponential is part of that. So, we have launched XPASS in over 1,000 studios in more than 40 states and are further rolling that out.
C.I. - Speaking of the end user, how many members do you have system-wide?
AG - As of Q2, our studios had over 405,000 members, and we consider members those who are paying us monthly. In 2020, across our system, we had over 850,000 unique consumers, and they completed 20 million workouts. So, during COVID, we were still able to process over $440 million in systemwide sales. Almost half a billion dollars going in the pockets of franchisees across the nation, which is what allowed them to fare so well and allowed us to fare as well as we did. So, when comparing the end of the second quarter of 2021 to January 31, 2020, even without taking into account our newest brand, Rumble, our business had recovered to 103% of actively paying members, 98% of total visits and a nearly 90% run-rate AUV. Thus far in Q3, this positive trajectory has continued. In July, we recorded our highest-ever monthly system-wide sales, and our August results to-date remain solid. So far in August, compared to the end of Q2, we've seen an increase in our total memberships and our actively paying members, both overall and at a per studio level.
C.I. - That's fantastic to hear! I'm sure each brand has its own mission and value proposition, especially related to attracting franchisees, but as a collection, as a company, what is your mission, value proposition and key market differentiators?
AG - Our Mission at the Franchisee Level is to make highly specialized workouts motivating and community-based environments accessible to everyone. With all of our brands, we built them to really be welcoming to first-time users. I think this is especially important for some brands and even modalities. Five or six years ago, Pilates used to not really be accessible to everyone, but today, it is much more accessible and appealing. I feel like CycleBar is a place you go to do indoor cycling for the first time. With certain other brands outside of Xponential, you already need to know how to do it...
So, for us, we want to build that community-based bridge. We want it to be accessible to everyone. Thus, the membership experience is part of the business, and we know the incredible power community plays in fostering that experience. As a franchise system, we're deeply rooted in our communities, different to corporate-based systems. With corporate brands, people don't know the owners, but in a franchise system, they know the owners. Their kids play together and go to school together. And, it's this kind of community base that allowed us to fare so well during COVID as people continued to stay with us.
Ultimately, it's an intensive experience, and it's complemented by increased levels of personal attention and guidance. That's the boutique space we are able to offer in the physical world and then offered in our on-demand and live digital workouts. We believe we're positioned better, really, than anyone else. We have the best of both worlds (physical and digital), and nine brands to deliver with. This kind of lineup is quite honestly something others don't have.
Our Mission at the Franchisor Level is to provide exceptional support to best position our franchisees for success and allow our franchisees to reach out to more and more members. Ultimately, Xponential is a franchisor in the business of opening studios and processing royalty. A franchisee is in the business of opening studios and bringing in revenue. But, none of us can do that without the member. So, making sure that we support the franchisee in a way where they can engage with the member and keep the member is the business.
If you break it down, the whole business is fairly simple. You spend money to market in order to acquire leads. We support the franchisee and show them how to do that. The lead is generated, so then the sales desk should be compelling enough to get them in to try a class. Then, the class should be so good that they want to sign up. Once they're a member, we should do a job that is commensurate with what they're paying for. They should look at their $150 a month, and if we are creating $150 a month of value for them, they should stay, right? So, then, it becomes the game of bringing more people in and keeping them so the membership can continue to grow.
C.I. - I love that breakdown. In business school, Scientific Management was one of my favorite subjects. We studied assembly lines, and the reason they are so effective is that each part of the assembly line does its job, and it does its job to a high enough standard that the next one can do its job. That's exactly what you've laid out there.
AG - Yes, exactly.
The X Factor
C.I. - The year 2017 wasn't very long ago, so what has been the key to the essentially exponential success of Xponential Fitness?
AG - We kind of call it the X Factor now. It's the 'It' factor that we have, and that is our ability to execute the Xponential Playbook. It's nothing more than that. We are a sales marketing and operations engine. We are that assembly line that you're talking about. We're just disguised as yoga or boxing or dance or rowing, whatever it might be. So, all of our brands, when we find them, go through the process. All our brands already have an amazing product: the workout itself. We just need to lend our ongoing support and that X Factor to the business as we scale it. That allows us to then focus on brand consistency and driving/converting leads, as I talked about, and retaining the member once we've converted them and keeping them happy.
Giving them the best possible member experience we can give them causes them to stay, and that is simply what we do. We don't create brands from the ground up. I don't think to invent, 'Hey, indoor rowing!' The modality already exists. Instead, we find great brands that are in the industry, and we buy those great brands. Then, we scale them and operate them better than anyone in the industry, in my opinion. And, there's certainly no one in the space with nine brands. So, now, XPASS is something we're able to do that nobody else can do, and if anybody tries to do it, they are years and tens of millions of dollars of technology behind. We've really developed our own in-house 'class pass' that we can put our brands on, and that'll be the only way people would be able to consume them.
Think of it this way. People are great chefs, but they may not be great restaurateurs. We're great restaurateurs, so we're out in the marketplace trying to find people who are great chefs. Moving the example back to health and fitness, they've got great workouts and may be able to develop a handful of locations. But, they've never really gotten to any real size or scale. We provide that, and we're also able to go into something like Pure Barre, which was private equity-owned for half a decade, and fix everything in twelve months. We can come in, lay that X Factor over an existing business and move the needle, no pun intended, exponentially, in a short period of time.
C.I. - This, of course, set the company on a direct trajectory to an IPO, which was recently completed after a second attempt (the first being prior to the pandemic). Related to the IPO process, please share some of the key elements, process points, key decisions to be made, etc.
AG - There's a lot, so I'll keep it to a high level. The IPO process itself is a lot of legal work and accounting work. A lot of brainpower goes into getting it done. That's why when people go public, other people say, 'Congratulations.' It's a lot to get done. We were working to get it done before COVID, so that is a big testament to the team that we have. If you look at the journey of Xponential over the last 18 months, we were in a position where we were about to go public, but instead, we temporarily closed all of our locations. Then, we reopened them all, opened 300+ new locations and have gone public. I think that was an amazing feat, and we were able to do it in the market as it exists today.
C.I. - That's incredible! Well, I guess the real question then is: Do you ever sleep? Good Lord!
AG - Yes, but not a lot. I would say the best thing that happened to me was, in 2015, buying Club Pilates and going back to work. After UFC, I took about a year off and just stayed at home with my wife, literally watching the grass grow (laughing). I tell people that. I literally got up every morning and stayed in my pajamas in my backyard, which is a grass lawn, and my wife would bring me oatmeal and a hot tea. We would just sit there, stare at the lawn and literally watch grass grow. She was pregnant at the time, so we experienced that process together. Then, I went back to work in 2015. Now, looking back on the past six years, it's pretty amazing to see what has come of it.
It's no coincidence, though, that my daughter was born in 2015, and then, I bought Club Pilates the same year. So, you're right; I haven't slept much in the last six years. But, primarily, it's because the kids have me up. We have a three-year-old and a six-year-old now, and they pretty much trade off on who's going to wake me up in the middle of the night, if not both of them. So, it's very likely that, if you work with me or for me, you will get 2AM, 4AM, definitely 6AM emails. The kids wake me up, so I think, 'All right, let me check my email! Do what I can get done.'
C.I. - What is Xponential's ticker symbol? Which exchange? Current market cap?
AG - NYSE: XPOF. If you look at our market cap, on average, it's about $550 million. What's missing from that $550 million is a $200 million convert that we did with Michael Dell from Dell Computer. So, you would add that $200 million on top of the $550 million. That isn't obvious. Some of the press has written about it, Orange County Business Journal, for example, who actually read our documents and figured that out.
C.I. - What does the infusion of capital mean for the company in terms of operations? What does it mean for your original investors? What level of debt does the company currently have?
AG - I think, for us, and me, doing the IPO was really just kind of the next step, right? For the business and the journey, it was the next evolution. And, it was really a coming out party. Like I said earlier of Xponential, I might tell someone, 'I'm the Founder and CEO of Xponential Fitness.' And, he asks, 'What's that?' But, people know Pure Barre, Club Pilates, CycleBar, Rumble or something else, so he will say, 'Oh, yes, I know those! I'm a member of yours!' But, he doesn't know what Xponential is, so this is kind of like a coming out party.
A good example of this elsewhere is that a lot of people don't know about Driven Brands, which owns Meineke, Aamco, etc. They're kind of the Xponential of automotive. Someone might think he's leaving one brand and going to a competitor or something, right? They love one brand and went to another, but they're the same people. Another example is Darden Restaurants. Everyone has been to Olive Garden, but not everyone knows that Darden owns all these different restaurants, like LongHorn Steakhouse, The Capital Grille, etc. Going back to UFC and the Fertitta family, not many know that Tilman Fertitta owns Morton's and Mastro's and Bubba Gump. So, I think it was a big coming out party for Xponential.
As far as debt, the infusion of capital we brought in, which ultimately ended up being about $120 million, was used to pay down debt. We just used it for that. There was nothing secondary, and I didn't take anything out of the business. I'm not a seller at $12 a share...
C.I. - What changes or challenges have you experienced in becoming a public CEO compared to being a private CEO?
AG - I'm new to the business of being a public CEO, but I'm happy to say that it hasn't been much different. Outside of my drive level going up, I'm very excited to be done going public and getting back to business. Additionally, I'm very excited to get out of COVID because what excites me is growing and building the business. Whether that's continuing to build the brands we have, buying new brands, etc., those things excite me. And, I've got a list a mile-long in the Notes section of my cellphone of things I'm working on to make the business better. So, I'm happy to be back in and operating the business after what's been basically a year and a half. When you think about the lead-up to COVID, trying to go public, then COVID itself, and then, this IPO, I haven't really been running the day-to-day of this business in about 18 months.
It's a great testament to our team, though, because I have Sarah Luna and Ryan Junk as my President and COO, respectively. They came in about halfway through last year, and they've been amazing! It's been almost a year now that they've been running the day-to-day, and they've done a great job. It allows me to be creative and say, 'Hey, the business should be doing this and this.' I kind of analyze the theory or the thesis and then push it down to Ryan and Sarah for execution. So, that's what we're doing right now.
I take being public very seriously and people putting in their money very seriously. Now, we are a public business, and I want to compete in the public business sector and go after higher achievements. We want to trade as Planet Fitness does as the only real comp in the industry.
C.I. - That's fantastic. To close this illumi-nating and really motivating interview, what does the future hold for Xponential, let's say 3 - 5 years out?
AG - Three to five years out, we know what that looks like because we've got thousands of stores to open. And, we've got thousands of franchisees that we need to focus on. So, it's really just going to be what we do today to continue to grow our studios now, across the portfolio of the United States and internationally.
We believe we can have large totals, and there's a lot of addressable markets out there. There are a lot more studios to sell, a lot more studios to open and a lot more system-wide sales to do in the studios that we do have open. So, we've got to make our current business bigger and better, and we've got to build the overall portfolio domestically and internationally. That's where I'll be focused. More studios open, which means more franchises sold. And, in doing that, we're going to continue to expand our portfolio of brands. We'll continue to do that and then expand XPASS as we discussed. Additionally, expanding digital domestically and internationally.
So, we pretty much know what life looks like. Selling more, opening more, making more of what we already have open and then growing our XPASS across all brands and on the network to grow our digital footprint across the U.S. and world, which allows us to penetrate markets in which we currently do not reside. I'll tell you right now; there aren't a lot of those. 60% of the U.S. population lives within 10 miles of one of our stores. We've got a lot of spread, but we've got a lot more to do and are excited about the opportunity ahead as well.
C.I. - Well, we look forward to seeing where it goes, and Club Insider will be here to report on it.
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Thank you very much to Anthony Geisler for the time and opportunity to speak with him about Xponential Fitness. Thank you also to Kate Doyle-Kwon and Robyn Kruder for their truly next level assistance throughout this entire process. Finally, thank you for reading!