| Correction of Previously Issued Financial Statements |
Note 2 – Correction of Previously Issued Financial Statements
As previously disclosed in Note 2 of Notes to Consolidated Financial Statements within Part II, Item 8 “Financial Statements and Supplementary Data” in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, subsequent to the issuance of the Company's condensed consolidated financial statements for the period ended June 30, 2024, the Company identified misstatements impacting previously issued financial statements. The Company concluded that the aggregate impact of all the errors did not result in a material misstatement of previously issued condensed consolidated financial statements as of and for the three and six months ended June 30, 2024. The accompanying condensed consolidated financial statements as of and for the three and six months ended June 30, 2024, have been corrected from amounts previously reported. The Company has also corrected related amounts within the accompanying footnotes.
The identified misstatements impacting the condensed consolidated financial statements for the three and six months ended June 30, 2024 include the following, for which the amounts described below are the net impact:
A.
Rebates – Certain agreement terms had not been properly or timely communicated to be considered for their accounting impact resulting in misstatements including overstatement of costs of product revenue of $27 and understatement of costs of product revenue of $223 for the three and six months ended June 30, 2024, respectively. Additionally, there was an understatement of merchandise revenue of $252 and an overstatement of merchandise revenue of $113 for the three and six months ended June 30, 2024, respectively.
B.Revenues – The Company’s evaluation of certain revenue contracts did not appropriately evaluate the accounting for all key terms and conditions, resulting in:
1.
An understatement of other service revenue of $134 for the three and six months ended June 30, 2024.
2.
An understatement of merchandise revenue of $537 and costs of product revenue of $429 for the six months ended June 30, 2024.
1.
Cost of product revenue – Certain costs and fees related to inventory were not properly expensed in the appropriate period, resulting in an understatement of cost of product revenue of $1,094 and $157 for the three and six months ended June 30, 2024, respectively.
2.
Impairment of assets – Company did not properly assess the disposition of the Stride brand subsequent to the balance sheet date as an impairment indicator as of the balance sheet date, resulting in an overstatement of selling, general and administrative expenses of $338 and an understatement of cost of product revenue for inventory write downs of $64 for the six months ended June 30, 2024.
3.
Legal accruals – Certain legal liabilities had not been communicated to be considered for their accounting impact resulting in an overstatement of selling, general and administrative expenses of $328 for the six months ended June 30, 2024.
4.
Equipment inventory – Equipment inventory which had been received by the Company was not properly recorded resulting in an understatement of cost of product revenue of $95 for the six months ended June 30, 2024.
5.
Cost of product revenue – The Company improperly recognized deferred costs related to equipment resulting in an understatement of $273 of costs of product revenue for the six months ended June 30, 2024.
6.
Invoices – The Company did not properly account for certain vendor invoices, including not recognizing expenses in the period incurred, resulting in an overstatement of costs of franchise and service revenue of $74 and an understatement of selling, general and administrative expenses of $128 for the six months ended June 30, 2024.
D.The Company has also corrected certain other rounding and immaterial reclassifications that were identified.
The impact of the correction of errors to the Company's condensed consolidated statement of operations for the three and six months ended June 30, 2024 and the condensed consolidated statement of changes to stockholders' equity (deficit) and the condensed consolidated statement of cash flows for the six months ended June 30, 2024 are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Operations |
|
Three Months Ended June 30, 2024 |
|
|
|
As Previously Reported |
|
|
Adjustments |
|
|
Reference |
|
As Corrected |
|
Revenue, net: |
|
|
|
|
|
|
|
|
|
|
|
Merchandise revenue |
|
$ |
5,882 |
|
|
|
252 |
|
|
A |
|
$ |
6,134 |
|
Other service revenue |
|
|
6,310 |
|
|
|
134 |
|
|
B1 |
|
|
6,444 |
|
Total revenue, net |
|
|
76,517 |
|
|
|
386 |
|
|
|
|
|
76,903 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
Costs of product revenue |
|
|
12,866 |
|
|
|
1,067 |
|
|
A, C1 |
|
|
13,933 |
|
Total operating costs and expenses |
|
|
78,925 |
|
|
|
1,067 |
|
|
|
|
|
79,992 |
|
Operating income |
|
|
(2,408 |
) |
|
|
(681 |
) |
|
|
|
|
(3,089 |
) |
Loss before income taxes |
|
|
(13,530 |
) |
|
|
(681 |
) |
|
|
|
|
(14,211 |
) |
Net loss |
|
|
(13,662 |
) |
|
|
(681 |
) |
|
|
|
|
(14,343 |
) |
Less: Net loss attributable to noncontrolling interests |
|
|
(4,560 |
) |
|
|
(220 |
) |
|
|
|
|
(4,780 |
) |
Net loss attributable to Xponential Fitness, Inc. |
|
$ |
(9,102 |
) |
|
$ |
(461 |
) |
|
|
|
$ |
(9,563 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share of Class A common stock: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.29 |
) |
|
$ |
(0.01 |
) |
|
|
|
$ |
(0.30 |
) |
Diluted |
|
$ |
(0.29 |
) |
|
$ |
(0.01 |
) |
|
|
|
$ |
(0.30 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Operations |
|
Six Months Ended June 30, 2024 |
|
|
|
As Previously Reported |
|
|
Adjustments |
|
|
Reference |
|
As Corrected |
|
Revenue, net: |
|
|
|
|
|
|
|
|
|
|
|
Merchandise revenue |
|
$ |
14,055 |
|
|
|
424 |
|
|
A, B2 |
|
$ |
14,479 |
|
Other service revenue |
|
|
14,172 |
|
|
|
134 |
|
|
B1 |
|
|
14,306 |
|
Total revenue, net |
|
|
156,038 |
|
|
|
558 |
|
|
|
|
|
156,596 |
|
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
Costs of product revenue |
|
|
27,257 |
|
|
|
1,242 |
|
|
A, B2, C1, C2, C4, C5, D |
|
|
28,499 |
|
Costs of franchise and service revenue |
|
|
10,955 |
|
|
|
(74 |
) |
|
C6 |
|
|
10,881 |
|
Selling, general and administrative expenses |
|
|
74,144 |
|
|
|
(535 |
) |
|
C2, C3, C6, D |
|
|
73,609 |
|
Total operating costs and expenses |
|
|
151,058 |
|
|
|
633 |
|
|
|
|
|
151,691 |
|
Operating income |
|
|
4,980 |
|
|
|
(75 |
) |
|
|
|
|
4,905 |
|
Loss before income taxes |
|
|
(17,933 |
) |
|
|
(75 |
) |
|
|
|
|
(18,008 |
) |
Net loss |
|
|
(18,018 |
) |
|
|
(75 |
) |
|
|
|
|
(18,093 |
) |
Less: Net loss attributable to noncontrolling interests |
|
|
(6,049 |
) |
|
|
(1 |
) |
|
|
|
|
(6,050 |
) |
Net loss attributable to Xponential Fitness, Inc. |
|
$ |
(11,969 |
) |
|
$ |
(74 |
) |
|
|
|
$ |
(12,043 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Changes to Stockholders' Equity (Deficit) |
|
As Previously Reported |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital |
|
|
Receivable
from Member/
Shareholder |
|
|
Accumulated
Deficit |
|
|
Noncontrolling interests |
|
|
Total Equity (Deficit) |
|
|
Balance at December 31, 2023 |
|
$ |
521,998 |
|
|
$ |
(15,426 |
) |
|
$ |
(630,127 |
) |
|
$ |
(77,547 |
) |
|
$ |
(202,794 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
(2,867 |
) |
|
|
(1,489 |
) |
|
|
(4,356 |
) |
|
Conversion of Class B shares to Class A shares |
|
|
(9,264 |
) |
|
|
— |
|
|
|
— |
|
|
|
9,264 |
|
|
|
— |
|
|
Payment received from shareholder |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Balance at March 30, 2024 |
|
|
506,017 |
|
|
|
(15,775 |
) |
|
|
(632,994 |
) |
|
|
(69,807 |
) |
|
|
(214,251 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
(9,102 |
) |
|
|
(4,560 |
) |
|
|
(13,662 |
) |
|
Conversion of Class B shares to Class A shares |
|
|
(2,851 |
) |
|
|
— |
|
|
|
— |
|
|
|
2,851 |
|
|
|
— |
|
|
Balance at June 30, 2024 |
|
$ |
507,986 |
|
|
$ |
(16,135 |
) |
|
$ |
(642,096 |
) |
|
$ |
(71,721 |
) |
|
$ |
(223,658 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital |
|
|
Receivable
from Member/
Shareholder |
|
|
Accumulated
Deficit |
|
|
Noncontrolling interests |
|
|
Total Equity (Deficit) |
|
|
Balance at December 31, 2023 |
|
$ |
(691 |
) |
|
$ |
(14 |
) |
|
$ |
(4,052 |
) |
|
$ |
(1,981 |
) |
|
$ |
(6,738 |
) |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
387 |
|
|
|
219 |
|
|
|
606 |
|
|
Conversion of Class B shares to Class A shares |
|
|
427 |
|
|
|
— |
|
|
|
— |
|
|
|
(427 |
) |
|
|
— |
|
|
Payment received from shareholder |
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
Balance at March 30, 2024 |
|
|
(264 |
) |
|
|
— |
|
|
|
(3,665 |
) |
|
|
(2,189 |
) |
|
|
(6,118 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
(461 |
) |
|
|
(220 |
) |
|
|
(681 |
) |
|
Conversion of Class B shares to Class A shares |
|
|
(53 |
) |
|
|
— |
|
|
|
— |
|
|
|
53 |
|
|
|
— |
|
|
Balance at June 30, 2024 |
|
$ |
(317 |
) |
|
$ |
— |
|
|
$ |
(4,126 |
) |
|
$ |
(2,356 |
) |
|
$ |
(6,799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Corrected |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital |
|
|
Receivable
from Member/
Shareholder |
|
|
Accumulated
Deficit |
|
|
Noncontrolling interests |
|
|
Total Equity (Deficit) |
|
|
Balance at December 31, 2023 |
|
$ |
521,307 |
|
|
$ |
(15,440 |
) |
|
$ |
(634,179 |
) |
|
$ |
(79,528 |
) |
|
$ |
(209,532 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
(2,480 |
) |
|
|
(1,270 |
) |
|
|
(3,750 |
) |
|
Conversion of Class B shares to Class A shares |
|
|
(8,837 |
) |
|
|
— |
|
|
|
— |
|
|
|
8,837 |
|
|
|
— |
|
|
Payment received from shareholder |
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
— |
|
|
|
14 |
|
|
Balance at March 30, 2024 |
|
|
505,753 |
|
|
|
(15,775 |
) |
|
|
(636,659 |
) |
|
|
(71,996 |
) |
|
|
(220,369 |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
(9,563 |
) |
|
|
(4,780 |
) |
|
|
(14,343 |
) |
|
Conversion of Class B shares to Class A shares |
|
|
(2,904 |
) |
|
|
— |
|
|
|
— |
|
|
|
2,904 |
|
|
|
— |
|
|
Balance at June 30, 2024 |
|
$ |
507,669 |
|
|
$ |
(16,135 |
) |
|
$ |
(646,222 |
) |
|
$ |
(74,077 |
) |
|
$ |
(230,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statement of Cash Flows |
|
Six Months Ended June 30, 2024 |
|
|
|
As Previously Reported |
|
|
Adjustments |
|
|
Reclassification |
|
|
As Corrected |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(18,018 |
) |
|
$ |
(75 |
) |
|
$ |
— |
|
|
$ |
(18,093 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash lease expense |
|
|
3,937 |
|
|
|
172 |
|
|
|
— |
|
|
|
4,109 |
|
Change in tax receivable agreement liability |
|
|
— |
|
|
|
— |
|
|
|
862 |
|
|
|
862 |
|
Gain from disposal of assets |
|
|
(6,660 |
) |
|
|
15 |
|
|
|
— |
|
|
|
(6,645 |
) |
Changes in assets and liabilities, net of effect of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
1,715 |
|
|
|
(556 |
) |
|
|
— |
|
|
|
1,159 |
|
Inventories |
|
|
1,451 |
|
|
|
2,858 |
|
|
|
— |
|
|
|
4,309 |
|
Prepaid expenses and other current assets |
|
|
(2,386 |
) |
|
|
(529 |
) |
|
|
— |
|
|
|
(2,915 |
) |
Operating lease liabilities |
|
|
(2,699 |
) |
|
|
(266 |
) |
|
|
— |
|
|
|
(2,965 |
) |
Deferred costs |
|
|
2,051 |
|
|
|
273 |
|
|
|
— |
|
|
|
2,324 |
|
Accounts payable |
|
|
3,419 |
|
|
|
500 |
|
|
|
— |
|
|
|
3,919 |
|
Accrued expenses |
|
|
35 |
|
|
|
(2,743 |
) |
|
|
— |
|
|
|
(2,708 |
) |
Other current liabilities |
|
|
3,197 |
|
|
|
(4,185 |
) |
|
|
— |
|
|
|
(988 |
) |
Deferred revenue |
|
|
(11,404 |
) |
|
|
337 |
|
|
|
|
|
|
(11,067 |
) |
Other liabilities |
|
|
(4,319 |
) |
|
|
4,185 |
|
|
|
(862 |
) |
|
|
(996 |
) |
Net cash provided by operating activities |
|
|
5,696 |
|
|
|
(14 |
) |
|
|
— |
|
|
|
5,682 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payment received from shareholder |
|
|
— |
|
|
|
14 |
|
|
|
— |
|
|
|
14 |
|
Net cash used in financing activities |
|
|
(5,012 |
) |
|
|
14 |
|
|
|
— |
|
|
|
(4,998 |
) |
|