Zack Buckley on Xponential Fitness $XPOF

Episode Summary

Executive Summary: The episode features Andrew Walker interviewing Zach Buckley about Exponential Fitness (XPOF), a franchisor of boutique fitness brands led by Club Pilates, Pure Barre, and CycleBar. Zach argues XPOF combines strong unit economics, recession/inflation resilience, visible growth, and an underappreciated valuation, with optionality from acquisitions, XPass, and B2B partnerships.

Main Topics: Zach Buckley’s investing background (Priority: 4/5): Zach explains how reading value investing classics, managing family capital early, and playing professional poker shaped his probabilistic, data-driven approach to investing and portfolio sizing. What Exponential Fitness owns and why it matters (Priority: 5/5): The discussion lays out XPOF’s portfolio of 10 boutique fitness brands, with Club Pilates, Pure Barre, and CycleBar driving most of the business. Zach argues the franchise model makes the company inflation-resistant and relatively recession-resistant. Why the market is skeptical of fitness franchises (Priority: 5/5): Andrew raises the history of failed public fitness companies and fad-risk concerns. Zach counters that XPOF’s diversified brand set, management quality, and track record are materially different from prior failed gym concepts. Valuation and growth math (Priority: 5/5): The hosts debate enterprise value, EBITDA, and forward multiples. Zach argues the stock looks inexpensive relative to growth, with potential for multiple expansion if execution remains strong. Management quality and capital allocation (Priority: 4/5): Zach emphasizes CEO Tony Geiso’s long industry history, ownership stake, and ambition. He views the team as creative and disciplined, especially in brand building and partnership execution. XPass, partnerships, and operating synergies (Priority: 4/5): They discuss XPass and partnerships with Princess Cruises, Lululemon, Mirror, LA Fitness, and beverage brands as ways to generate leads, grow AUVs, and broaden the customer funnel across brands. Risks: franchisee economics, recession, and acquisitions (Priority: 5/5): The conversation probes whether unit economics are overstated, whether smaller franchisees can scale, whether a recession or rising rates could slow growth, and whether future acquisitions could become distracting or risky.

Key Arguments: XPOF is attractive because it owns dominant boutique fitness brands in high-growth niches, rather than a single fad concept. The company is structurally resilient because franchise royalties are recurring, inflation-resistant, and less capital intensive than owning gyms directly. Management has an unusually strong track record: Club Pilates expanded from 12 studios to 750, and the team has historically executed well on acquisitions and scaling. The market is still skeptical due to the poor public history of fitness companies, which keeps valuation below what growth and quality should warrant. XPass and corporate partnerships can expand customer acquisition without requiring heavy capital investment, improving long-term economics. The company’s growth is visible through a large contractually signed pipeline, making revenue and EBITDA easier to model than many public growth stories. Franchisee economics appear attractive enough to support expansion, since franchisees can earn meaningful cash-on-cash returns and acceptance into the system is highly selective. A recession is less likely to materially damage demand because the target customer is affluent and fitness is seen as a high-priority, sticky expense.

Data Points: Company brands: 10 - Zach says Exponential Fitness operates 10 boutique fitness brands. Total locations: 2,300+ - The company’s combined studio count across brands. Club Pilates studios: 750 - Largest brand and main growth engine. Pure Barre studios: ~600 - Second-largest brand in the portfolio. CycleBar studios: just over 250 - Third-largest brand by studio count. IPO date: July 2021 - Andrew notes XPOF went public in 2021. Current enterprise value: ~$1.3 billion - Andrew’s estimated EV based on cap structure adjustments. 2022 EBITDA guidance midpoint: ~$70 million - Andrew cites midpoint guidance for the year. Forward EV/EBITDA: ~19x - Valuation discussion based on current EV and EBITDA guidance. Next-year EBITDA estimate: ~$100 million - Zach’s near-term outlook for EBITDA. Next-year EV/EBITDA: ~13x - Based on his $100 million EBITDA view. Long-term earnings/free cash flow per share: $2.50-$3.00 - Zach’s five-year projection for EPS or FCF per share. Potential stock price in five years: $75-$100 - Zach’s valuation scenario using higher future earnings and peer multiples. Adjusted EBITDA margin expansion: 30% to 45% - Zach says scale should lift margins over the next few years. Annual new studio openings target: 500+ - Long-term growth target from management. Same-store sales growth: mid-to-high single digits - Zach cites historical/pre-COVID norms and future expectations. Contractually signed pipeline: ~2,600 studios - Zach says this pipeline is already signed and supports predictability. Club Pilates growth: 12 studios to 750 studios - Used as proof of brand scaling ability. Club Pilates AUV growth: $250,000 to $750,000 - Shows strong unit economics improvement over time. Initial investment per studio: ~$350,000 - Zach’s estimate of average studio buildout cost. Year-two annual revenue per studio: ~$500,000 - Average revenue per studio in year two. Labor cost per month: ~$10,000 - One of the largest studio-level expenses. Rent cost per month: ~$10,000 - Another major studio-level expense. Franchisee cash-on-cash return: ~40% - Management’s claim about average unit economics. Franchisee annual income estimate: $125,000-$150,000 - Zach says most franchisees earn within this range. Franchisee acceptance rate: ~2% - Zach uses this to argue the opportunity is attractive and selective. XPass contribution to leads: ~15% of new lead generation - Zach cites XPass as a meaningful source of customer acquisition. Club Pilates royalty rate: 6% to 8% - Andrew references the royalty burden on franchisees. Ownership concentration: ~45% held by insiders - Zach says Tony Geiso, the chairman, and other insiders own a large stake. Industry growth rate: ~6% CAGR since 1999 - Used to show boutique fitness as a durable growth category. Projected industry growth: ~6% CAGR next 4-5 years - Zach cites industry projections continuing at a similar pace. Planet Fitness valuation: ~33x earnings - Used as a peer comp to justify possible multiple expansion. Expected XPOF IRR: 30%+ over five years - Zach’s base-case return expectation for the stock.

Pivotal Quotes: "I think they're buying the best concepts in various areas and then they're managing them and growing them extremely well." — Zach Buckley: Explaining why XPOF’s multi-brand portfolio should outperform failed single-concept fitness companies. "I think the market is not expecting the EBITDA multiple to expand over time." — Zach Buckley: His core thesis on why the stock is mispriced and can rerate as execution continues. "People will go on welfare before they'll give up their boutique fitness." — Andrew Walker quoting management: Used to illustrate the argument that boutique fitness is a low-priority expense cut only in extreme stress.

Implications: If XPOF continues executing, it could rerate from a skeptical IPO-era valuation toward a premium franchise multiple. The story depends on brand durability, disciplined acquisitions, and continued studio growth, but the interview suggests a potentially attractive risk-adjusted setup for investors.