UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 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 001-40638 Xponential Fitness, Inc. (Exact name of Registrant as specified in its Charter) Delaware 84-4395129 (State or other jurisdictio ...

Xponential Fitness, Inc. (NYSE:XPOF) Q4 2023 Earnings Conference Call February 29, 2024 4:30 PM ET Company Participants Avery Wannemacher - Senior Associate, Addo IR Anthony Geisler - CEO Sarah Luna - President John Meloun - CFO Conference Call Participants Randy Konik - Jefferies John Heinbockel - Guggenheim Partners Jonathan Komp - Robert W. Baird Megan Alexander - Morgan Stanley Joe Altobello - Raymond James Ryan Meyers - Lake Street Capital Markets Korinne Wolfmeyer - Piper Sandler Alex Perry - Bank of ...

Financial Data and Key Metrics Changes - For Q3 2023, net revenue totaled $80.4 million, an increase of 26% year-over-year [16] - Adjusted EBITDA was $26.5 million, representing a 33% increase from $20 million in the prior year, with an adjusted EBITDA margin of 33% compared to 31% in the previous year [58] - The company recorded a net loss of $5.2 million, improved from a net loss of $13.1 million in the prior year [56] Business Line Data and Key Metrics Changes - North American system-wide sales reached $357 million, up 35% year-over-year, driven by a 15% same-store sales growth [12][44] - Franchise revenue was $36.4 million, up 21% year-over-year, primarily due to increased royalty revenue [46] - Equipment revenue increased by 7% to $12.6 million, while merchandise revenue rose by 35% to $8.5 million [47][48] Market Data and Key Metrics Changes - Total members in North America grew 26% year-over-year to 726,000, with 92% being actively paying members [10] - North American studio visits increased by 30% year-over-year, totaling 13.1 million visits [12] - The boutique fitness industry is projected to grow by 17% by 2025, with Xponential positioned to capture a significant share of this growth [10] Company Strategy and Development Direction - The company is prioritizing international growth, with franchise agreements in 23 countries and new master franchise agreements in Qatar [9][23] - A new position of President of International has been created to enhance international expansion efforts [21] - The company aims to refranchise its portfolio of company-owned transition studios to improve operating leverage and EBITDA margins [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strength of consumer demand and the resilience of the membership base despite economic challenges [7][30] - The company raised its full-year 2023 guidance for revenue and adjusted EBITDA, anticipating continued strong performance in Q4 [62] - Management noted that the adoption of weight loss drugs like Ozempic has positively influenced consumer activity levels [11] Other Important Information - The company has a stock repurchase program approved for $50 million, with shares repurchased at an average price of $19.24 [60] - The company anticipates elevated SG&A expenses in Q4 due to the annual franchise convention, expected to add approximately $5 million in expenses [64] Q&A Session Summary Question: Opening mix by banner and geography - The company opened 127 new studios in Q3, with a breakdown of 41 in Club Pilates, 36 in BFT, and others [69] Question: Performance of Q3 cohort relative to past cohorts - The 2023 cohort is performing well, with average AUVs increasing as studios mature [72] Question: Trends in member frequency and pricing power - Q3 visitation was the highest in company history, with pricing contributing only 5% to system-wide sales growth [78] Question: SG&A impact from transition studios - SG&A is expected to be around 30% of revenue in 2024, with significant reductions anticipated as transition studios are refranchised [91] Question: Impact of GLP-1 drugs on business - Management acknowledged potential tailwinds from GLP-1 drugs, noting increased engagement from users [92] Question: Other service revenue dynamics - Other service revenue was significantly impacted by transition studios, with $8 million attributed to them in Q3 [109]

Studio Operations and Growth - As of September 30, 2023, there were 2,596 studios open in North America, with franchisees committed to opening an additional 2,031 studios[164]. - The total number of operating studios in North America increased from 2,175 at the end of September 2022 to 2,596 at the end of September 2023, representing a growth of approximately 19.5%[171]. - Internationally, the number of studios operated increased from 266 at the end of September 2022 to 384 at the end of September 2023, marking a growth of approximately 44.3%[172]. - The number of operating studios globally increased to 2,980 by the end of Q3 2023, up from 2,481 at the end of Q3 2022, representing a growth of 20.2%[173]. - The number of studios obligated to open internationally under master franchise agreements (MFAs) totaled 1,042 as of Q3 2023, compared to 920 in Q3 2022, showing a growth of 13.3%[174]. - The company reported a net increase of 344 new studio openings for the nine months ended September 30, 2023, compared to 355 in the same period of 2022[175]. - The company opened 127 new studios in Q3 2023, slightly down from 128 in Q3 2022[173]. - Cumulative franchise licenses sold globally reached 6,088 by the end of Q3 2023, an increase from 5,193 in Q3 2022, marking a growth of 17.2%[173]. Financial Performance - Total revenue for the three months ended September 30, 2023, was $80.4 million, an increase of $16.7 million or 26% compared to $63.8 million in the same period of 2022[189]. - Total revenue for the nine months ended September 30, 2023, was $228.5 million, an increase of $54.8 million or 31.5% compared to $173.7 million in the same period of 2022[205]. - Franchise revenue increased to $36.4 million, up $6.4 million or 21% from $30.0 million in the prior year, driven by a 15% increase in same store sales and 499 net new studio openings globally[190]. - Franchise revenue increased to $104.5 million, up $21.4 million or 25.7% from $83.1 million in the prior year, driven by a 17% increase in same store sales and 499 new studio openings[206]. - Equipment revenue rose to $12.6 million, an increase of $0.8 million or 7%, with global equipment installations totaling 116 compared to 136 in the prior year[191]. - Equipment revenue rose to $40.1 million, an increase of $8.2 million or 25.5% compared to $31.9 million in the previous year, attributed to 395 global equipment installations[207]. - Other service revenue grew to $16.0 million, an increase of $5.5 million or 52%, mainly from a $6.1 million rise in package and memberships revenue[194]. - Other service revenue surged to $40.1 million, up $15.1 million or 60.3% from $25.0 million, primarily due to increased package and memberships revenue[210]. - Adjusted EBITDA for Q3 2023 was $26.5 million, compared to $20.0 million in Q3 2022, reflecting a 32.5% increase[174]. - Adjusted EBITDA for Q3 2023 was $26.5 million, up 32.5% from $20.0 million in Q3 2022[227]. - Net income for the nine months ended September 30, 2023, was $7.4 million, compared to $3.2 million in the same period of 2022[186]. - Net income for Q3 2023 was a loss of $5.2 million, an improvement from a loss of $13.1 million in Q3 2022[227]. Costs and Expenses - The company recognized restructuring charges of $6.3 million during the three and nine months ended September 30, 2023, primarily for write-offs and losses related to abandoned assets[166]. - Total operating costs and expenses decreased slightly by $1.2 million or 1.7% to $73.0 million compared to $74.2 million in the prior year[195]. - Selling, general and administrative expenses increased by $15.7 million or 48% to $48.6 million, largely due to restructuring charges and increased salaries[197]. - Selling, general and administrative expenses increased to $127.9 million, up $31.8 million or 33% from $96.1 million, primarily due to restructuring charges and increased salaries[214]. - Marketing fund expense was $16.3 million, an increase of $3.6 million or 28% compared to $12.7 million in the prior year, consistent with the increase in franchise marketing fund revenue[216]. - Costs of product revenue increased to $12.7 million, up $0.9 million or 7%, with costs as a percentage of related revenue decreasing to 60% from 66%[195]. - Acquisition and transaction expenses (income) showed a significant decrease to ($1.9) million from $16.3 million, a change of $18.2 million or 112%[199]. Cash Flow and Financing - Cash and cash equivalents as of September 30, 2023, totaled $43.7 million, excluding $8.2 million of restricted cash[228]. - Net cash provided by operating activities for the nine months ended September 30, 2023, was $38.2 million, compared to $37.5 million in the same period of 2022[245]. - Cash provided by operating activities increased to $38.2 million in the nine months ended September 30, 2023, from $37.5 million in the same period of 2022, reflecting a $0.7 million increase[246]. - Cash used in investing activities decreased to $8.6 million in the nine months ended September 30, 2023, compared to $11.6 million in the same period of 2022, primarily due to reduced cash used for purchasing intangible assets[247]. - Cash used in financing activities decreased to $15.1 million in the nine months ended September 30, 2023, from $16.3 million in the same period of 2022, driven by an increase in cash received from long-term debt borrowings of $183.7 million[248]. - The company incurred $15.1 million in net cash used in financing activities for the nine months ended September 30, 2023[245]. - The total principal amount outstanding on the Term Loans was $329.7 million as of September 30, 2023[241]. - An accelerated share repurchase program was executed for $50.0 million, resulting in the repurchase of 2,598,877 shares at an average price of $19.24 per share[244]. - Cash used for the ASR Program amounted to $50.4 million in the nine months ended September 30, 2023[248]. - The company received $8.1 million from a shareholder during the financing activities in the nine months ended September 30, 2023[248]. Restructuring and Future Plans - The restructuring plan is expected to yield annualized gross savings of approximately $9.0 million to $12.0 million once completed[168]. - The company plans to continue investing in its brands and integrated services to support franchisees and enhance consumer experiences[170]. - The company is negotiating lease terminations that may result in net gains from lease liability decreases, with cash outflows expected through 2024[167]. - The company aims to increase same store sales and average unit volumes (AUVs) by helping franchisees acquire new members and expand ancillary revenue streams[170]. Debt and Compliance - Interest expense for the nine months ended September 30, 2023, was $27.2 million, an increase of $18.2 million or 201% compared to $9.1 million in the prior year, due to higher average debt balances and interest rates[219]. - Interest expense for the nine months ended September 30, 2023, was $26.1 million, compared to $7.9 million in the same period of 2022[227]. - The company expects available cash and cash generated from operations to meet anticipated debt service requirements for at least the next twelve months[229]. - The company was in compliance with all covenants under the Credit Agreement as of September 30, 2023[234]. Off-Balance Sheet Arrangements - The company has off-balance sheet arrangements consisting of guarantees of lease agreements for franchisees, with a maximum total commitment of approximately $3.1 million[249]. - As of September 30, 2023, an accrual of $0.2 million has been recorded for the potential obligation under a standby letter of credit issued to a third-party financing company[250]. - The estimated fair value of guarantees related to off-balance sheet arrangements was not material as of September 30, 2023[249]. - The company experienced unfavorable changes in working capital totaling $3.7 million, primarily related to prepaid expenses and deferred revenue[246]. - There have been no significant changes to the company's critical accounting policies and estimates since the last annual report[251].

FORM 10-Q Cover Page [Filing Information](index=1&type=section&id=Filing%20Information) The company files its Q2 2023 quarterly report as an accelerated filer and emerging growth company - This is the Quarterly Report on Form 10-Q for Xponential Fitness, Inc, for the period ended **June 30, 2023**[2](index=2&type=chunk) - The company is classified as an **'accelerated filer'** and an **'emerging growth company'**[3](index=3&type=chunk) Outstanding Shares (as of July 31, 2023) | Class of Stock | Shares Outstanding | | :--------------- | :----------------- | | Class A Common | 33,455,003 | | Class B Common | 16,510,913 | Table of Contents [Table of Contents Overview](index=2&type=section&id=Table%20of%20Contents%20Overview) The report is structured into two parts covering financial information and other corporate disclosures - The report is structured into two main parts: **Part I (Financial Information)** and **Part II (Other Information)**[6](index=6&type=chunk) - Part I includes Financial Statements, Management's Discussion and Analysis, Market Risk, and Controls and Procedures[6](index=6&type=chunk) - Part II covers Legal Proceedings, Risk Factors, Unregistered Sales of Equity Securities, and other disclosures[6](index=6&type=chunk) PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and accompanying notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and liabilities increased, driven by growth in right-of-use assets and long-term debt Key Financial Position Metrics | Metric (in millions) | June 30, 2023 | December 31, 2022 | | :------------------- | :------------ | :---------------- | | Total assets | $545.1 | $482.7 | | Total liabilities | $567.9 | $382.7 | | Total stockholders' deficit | $(204.5) | $(208.1) | - Significant increases in **Right-of-use assets** ($85.6 million from $30.1 million) and **Long-term debt** ($257.5 million from $133.0 million) contributed to asset and liability growth[9](index=9&type=chunk) - **Redeemable convertible preferred stock** decreased to **$181.7 million** from $308.1 million[9](index=9&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Revenue grew for both three and six-month periods, but net income declined due to higher operating costs and interest expense Statement of Operations Summary | Metric (in millions) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total revenue, net | $77.3 | $59.6 | $148.0 | $109.9 | | Operating income | $36.5 | $36.1 | $29.2 | $21.4 | | Net income | $27.5 | $31.5 | $12.5 | $16.3 | | Net income per share (Diluted) | $0.09 | $0.50 | $0.08 | $0.26 | - **Interest expense** significantly increased, rising from $2.9 million to **$8.6 million** for the three months and from $5.7 million to **$16.6 million** for the six months[12](index=12&type=chunk) - Acquisition and transaction income, a non-cash item, remained substantial at **$(31.3) million** for the three months and **$(15.5) million** for the six months[12](index=12&type=chunk) [Condensed Consolidated Statements of Changes to Stockholder's Equity (Deficit)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20to%20Stockholder's%20Equity%20(Deficit)) Key equity movements include net income, equity-based compensation, and a significant adjustment from the repurchase of preferred stock - Net income attributable to Xponential Fitness, Inc for the three months ended June 30, 2023, was **$18.4 million**, and for the six months, it was **$8.4 million**[15](index=15&type=chunk) - Equity-based compensation for the six months ended June 30, 2023, was **$11.2 million**[15](index=15&type=chunk) - The company repurchased preferred stock, leading to a deemed contribution from redemption of convertible preferred stock of **$12.7 million** for the six months ended June 30, 2023[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased, while financing cash outflow grew due to preferred stock redemption and tax payments Cash Flow Summary | Cash Flow Activity (in millions) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $30.6 | $26.2 | | Net cash used in investing activities | $(5.6) | $(5.6) | | Net cash used in financing activities | $(22.1) | $(12.6) | | Increase in cash, cash equivalents and restricted cash | $2.8 | $7.9 | - Key financing activities in 2023 included **$126.1 million** in borrowings from long-term debt, **$130.8 million** in payments for redemption of preferred stock, and **$8.1 million** in tax payments related to restricted share units[21](index=21&type=chunk) Supplemental Cash Flow Information | Metric (in millions) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------- | :----------------------------- | :----------------------------- | | Interest paid | $15.0 | $5.0 | | Income taxes paid | $1.1 | $2.0 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on accounting policies, acquisitions, debt, leases, and other financial statement components [Note 1 – Nature of Business and Operations](index=10&type=section&id=Note%201%20%E2%80%93%20Nature%20of%20Business%20and%20Operations) Xponential Fitness is a holding company that franchises ten boutique fitness brands and manages a growing number of transition studios - Xponential Fitness, Inc is a holding company that franchises ten boutique fitness brands, including **Club Pilates, CycleBar, and StretchLab**[28](index=28&type=chunk) - As of June 30, 2023, the Company operated **84 company-owned transition studios**, compared to 14 in 2022[28](index=28&type=chunk) - The Company consolidates the financial results of XPO LLC and XPO Holdings, allocating a portion of net income/loss to noncontrolling interests[29](index=29&type=chunk)[30](index=30&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=11&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) This note details accounting policies for its single reportable segment, fair value, and earnings per share, with no material impact from new standards - The Company operates in one reportable segment, with international revenue of **$7.0 million** for the six months ended June 30, 2023[34](index=34&type=chunk) - Restricted cash, primarily for marketing funds and a letter of credit, totaled **$7.1 million** at June 30, 2023[37](index=37&type=chunk) - The adoption of new accounting standards for credit losses and business combinations did not have a material impact on the financial statements[39](index=39&type=chunk)[54](index=54&type=chunk)[56](index=56&type=chunk) Allowance for Credit Losses Activity (in thousands) | Activity | Accounts Receivable | Notes Receivable | Total | | :--------------------------------- | :------------------ | :--------------- | :----- | | Balance at January 1, 2023 | $865 | $719 | $1,584 | | Bad debt expense recognized | $716 | $181 | $897 | | Write-off of uncollectible amounts | $(459) | — | $(459) | | Balance at June 30, 2023 | $1,122 | $900 | $2,022 | [Note 3 – Acquisitions and Dispositions](index=14&type=section&id=Note%203%20%E2%80%93%20Acquisitions%20and%20Dispositions) The company acquired 14 Rumble studios, resulting in goodwill and an intangible asset write-down, and refranchised 34 transition studios - On June 5, 2023, the Company acquired **14 Rumble studios** from the original founder sellers, which will operate as company-owned transition studios[59](index=59&type=chunk) - The acquisition resulted in **$4.9 million in goodwill** and a **$7.2 million write-down** of intangible assets related to franchise agreements[60](index=60&type=chunk)[62](index=62&type=chunk) - During the six months ended June 30, 2023, the Company **refranchised 34 company-owned transition studios**, compared to 15 in the prior year[65](index=65&type=chunk) Preliminary Estimated Fair Values (in thousands) | Item | Amount | | :--------------------------------- | :----- | | Accounts receivable | $154 | | Inventories | $98 | | Property and equipment | $1,113 | | Right-of-use assets | $42,016| | Goodwill | $4,866 | | Deferred revenue | $(4,002)| | Lease liabilities | $(44,244)| | Reduction to receivable from shareholder | $1 | [Note 4 – Contract Liabilities and Costs from Contracts with Customers](index=16&type=section&id=Note%204%20%E2%80%93%20Contract%20Liabilities%20and%20Costs%20from%20Contracts%20with%20Customers) Contract liabilities, mainly deferred franchise fees, increased to $147.4 million, while deferred contract costs totaled $48.2 million Contract Liabilities | Type (in millions) | June 30, 2023 | December 31, 2022 | | :------------------- | :------------ | :---------------- | | Franchise and area development fees | $121.4 | $116.2 | | Brand fees | $5.2 | $6.6 | | Equipment and other | $20.8 | $18.6 | | Total deferred revenue | $147.4 | $141.5 | | Non-current portion | $112.8 | $109.5 | | Current portion | $34.6 | $32.0 | Estimated Future Revenue Recognition (in millions) | Period | Franchise Development Fees | Brand Fees | Total | | :---------------- | :------------------------- | :--------- | :----- | | Remainder of 2023 | $4.0 | $2.5 | $6.5 | | 2024 | $8.4 | $1.8 | $10.2 | | 2025 | $9.0 | $0.4 | $9.4 | | 2026 | $10.2 | $0.4 | $10.6 | | 2027 | $10.5 | — | $10.5 | | Thereafter | $79.4 | — | $79.4 | | Total | $121.4 | $5.2 | $126.6 | - Deferred contract costs (commissions) were approximately **$48.2 million** at June 30, 2023 ($3.8 million current, $44.4 million non-current)[72](index=72&type=chunk) [Note 5 – Notes Receivable](index=18&type=section&id=Note%205%20%E2%80%93%20Notes%20Receivable) The company provides financing to franchisees, with the total principal balance of notes receivable decreasing to $3.0 million - Notes receivable from franchisees are for equipment purchases, franchise fees, or establishment of new studios[73](index=73&type=chunk)[74](index=74&type=chunk) - The principal balance of notes receivable decreased from **$3.3 million** at December 31, 2022, to **$3.0 million** at June 30, 2023[75](index=75&type=chunk) - The company evaluates collectability and establishes an allowance for doubtful accounts based on franchisee ability to pay and economic conditions[75](index=75&type=chunk) [Note 6 – Property and Equipment](index=19&type=section&id=Note%206%20%E2%80%93%20Property%20and%20Equipment) Net property and equipment increased to $21.2 million, driven by investments in software and leasehold improvements Property and Equipment Summary | Type (in millions) | June 30, 2023 | December 31, 2022 | | :------------------- | :------------ | :---------------- | | Furniture and equipment | $4.4 | $4.2 | | Computers and software | $17.9 | $14.1 | | Vehicles | $0.6 | $0.2 | | Leasehold improvements | $9.1 | $7.5 | | Construction in progress | $2.1 | $3.1 | | Less: accumulated depreciation | $(12.9) | $(10.6) | | Total property and equipment | $21.2 | $18.5 | - Depreciation expense for the six months ended June 30, 2023, was **$2.6 million**, an increase from $1.7 million in the same period of 2022[76](index=76&type=chunk) [Note 7 – Goodwill and Intangible Assets](index=19&type=section&id=Note%207%20%E2%80%93%20Goodwill%20and%20Intangible%20Assets) Goodwill increased due to an acquisition, while net intangible assets decreased from a write-down and ongoing amortization - Goodwill increased by **$4.9 million** to **$170.6 million** at June 30, 2023, primarily from the acquisition of 14 Rumble studios[77](index=77&type=chunk) Intangible Assets Summary | Type (in millions) | June 30, 2023 Net Amount | December 31, 2022 Net Amount | | :----------------- | :----------------------- | :--------------------------- | | Trademarks (definite-lived) | $17.4 | $18.5 | | Franchise agreements | $31.4 | $44.0 | | Reacquired franchise rights | $1.4 | — | | Web design and domain | $0.2 | $0.2 | | Deferred video production costs | $2.0 | $1.9 | | Total definite-lived | $52.5 | $64.6 | | Trademarks (indefinite-lived) | $72.6 | $72.6 | | Total intangible assets | $125.1 | $137.2 | - A **$7.2 million write-down** of franchise agreements was recorded in connection with the Rumble studios acquisition[78](index=78&type=chunk) - Amortization expense for the six months ended June 30, 2023, was **$5.8 million**[78](index=78&type=chunk) [Note 8 – Debt](index=20&type=section&id=Note%208%20%E2%80%93%20Debt) The company's long-term debt increased to $265.9 million with an interest rate of 11.74%, and it remains in compliance with all covenants - The company's debt includes a senior secured term loan facility with several incremental term loans added in 2021, 2022, and 2023[80](index=80&type=chunk)[86](index=86&type=chunk)[87](index=87&type=chunk)[88](index=88&type=chunk) - The interest rate on borrowings was **11.74%** at June 30, 2023[81](index=81&type=chunk) - The company was in compliance with all customary affirmative and negative debt covenants as of June 30, 2023[84](index=84&type=chunk) Principal Payments on Long-Term Debt (in millions) | Period | Amount | | :---------------- | :----- | | Remainder of 2023 | $2.1 | | 2024 | $4.3 | | 2025 | $259.5 | | Total | $265.9 | [Note 9 – Leases](index=21&type=section&id=Note%209%20%E2%80%93%20Leases) Operating lease right-of-use assets and liabilities increased significantly, with total lease expense rising to $6.1 million for the period Lease Information | Metric (in millions) | June 30, 2023 | December 31, 2022 | | :--------------------- | :------------ | :---------------- | | ROU assets, net | $85.6 | $30.1 | | Lease liabilities, short-term | $14.7 | $3.8 | | Lease liabilities, long-term | $77.6 | $30.6 | - Total lease expense for the six months ended June 30, 2023, was **$6.1 million**, compared to $2.3 million in the prior year[96](index=96&type=chunk) - Lease liabilities arising from new ROU assets for the six months ended June 30, 2023, were **$62.2 million**[96](index=96&type=chunk) Maturities of Lease Liabilities (in millions) | Period | Amount | | :-------------------------- | :----- | | Remainder of 2023 | $14.1 | | 2024 | $17.2 | | 2025 | $17.9 | | 2026 | $18.1 | | 2027 | $17.4 | | Thereafter | $40.1 | | Total future lease payments | $124.9 | | Less: imputed interest | $32.6 | | Total | $92.3 | [Note 10 – Related Party Transactions](index=23&type=section&id=Note%2010%20%E2%80%93%20Related%20Party%20Transactions) Transactions include a receivable from a shareholder, revenue from officer-owned franchises, and an investment involving a board member - The company has a receivable from a shareholder (Rumble Seller) which increased by **$4.4 million** for the six months ended June 30, 2023[100](index=100&type=chunk) - Spartan Fitness, which owns 66 Club Pilates studios, received an investment from a special purpose vehicle controlled by a company board member[103](index=103&type=chunk) - Revenue from affiliates (franchisees who are officers) was **$0.3 million** for the six months ended June 30, 2023, down from $1.3 million[104](index=104&type=chunk) [Note 11 – Redeemable Convertible Preferred Stock](index=24&type=section&id=Note%2011%20%E2%80%93%20Redeemable%20Convertible%20Preferred%20Stock) The company repurchased $130.8 million of its convertible preferred stock, resulting in a $12.7 million deemed contribution - The Convertible Preferred Stock has a **6.50% quarterly cash coupon** or a **7.50% Paid-in-Kind (PIK) rate**[105](index=105&type=chunk) - On January 9, 2023, the company repurchased 85 shares of Convertible Preferred Stock for **$130.8 million**, resulting in a **$12.7 million deemed contribution**[110](index=110&type=chunk) - The preferred stock is recorded at its maximum redemption value, which was **$181.7 million** at June 30, 2023, down from $308.1 million[111](index=111&type=chunk) [Note 12 – Stockholder's Equity (Deficit)](index=25&type=section&id=Note%2012%20%E2%80%93%20Stockholder's%20Equity%20(Deficit)) Equity changes were driven by a secondary public offering and exchanges of LLC units for Class A common stock - In February 2023, selling stockholders sold **5,750 shares of Class A common stock** in a secondary public offering[112](index=112&type=chunk) - Continuing Pre-IPO LLC Members exchanged **1,593 LLC units** for Class A common stock during the six months ended June 30, 2023[112](index=112&type=chunk) XPO LLC Ownership (as of June 30, 2023) | Owner | Units Owned | Percentage | | :----------------------- | :---------- | :--------- | | XPO Inc | 33,220 | 67 % | | Noncontrolling interests | 16,592 | 33 % | | Total | 49,812 | 100 % | [Note 13 – Equity Compensation](index=26&type=section&id=Note%2013%20%E2%80%93%20Equity%20Compensation) Total RSU compensation expense increased to $11.2 million for the period, with $26.4 million remaining to be recognized - Profit interest units, converted to Class B shares post-IPO, resulted in **$17 thousand** of expense for the six months ended June 30, 2023[118](index=118&type=chunk) - Liability-classified RSUs, tied to EBITDA targets, generated **$0.9 million** in expense for the six months ended June 30, 2023[119](index=119&type=chunk) - Total compensation expense for equity-classified RSUs was **$11.2 million** for the six months ended June 30, 2023, with **$26.4 million** of unamortized expense remaining[124](index=124&type=chunk)[125](index=125&type=chunk) RSU Activity (Six Months Ended June 30, 2023) | Activity | Shares | Weighted Average Grant Date Fair Value per Share | | :------------------------------- | :----- | :--------------------------------------------- | | Outstanding at December 31, 2022 | 2,102 | $18.25 | | Issued | 321 | $25.04 | | Vested | (767) | $27.42 | | Forfeited, expired, or canceled | (22) | $20.00 | | Outstanding at June 30, 2023 | 1,634 | $19.48 | [Note 14 – Income Taxes and Tax Receivable Agreement](index=28&type=section&id=Note%2014%20%E2%80%93%20Income%20Taxes%20and%20Tax%20Receivable%20Agreement) The company maintains a full valuation allowance against deferred tax assets, resulting in a near-zero effective tax rate - The company is taxed as a corporation on its **67% economic interest** in XPO Holdings[126](index=126&type=chunk) - The effective tax rate for the six months ended June 30, 2023, was **0.1%**[127](index=127&type=chunk) - A **full valuation allowance** has been established against deferred tax assets as of June 30, 2023, due to uncertainty of realization[128](index=128&type=chunk) - The company has not recorded **$79.3 million** of the TRA liability as of June 30, 2023, due to uncertainty regarding the realization of related deferred tax assets[134](index=134&type=chunk) [Note 15 – Earnings Per Share](index=29&type=section&id=Note%2015%20%E2%80%93%20Earnings%20Per%20Share) Basic and diluted EPS were lower than the prior year, partly due to the anti-dilutive effects of certain securities - The company applies the **two-class method** to allocate undistributed earnings or losses for EPS calculation[136](index=136&type=chunk) - Potentially dilutive effects of Class B common stock and convertible preferred shares were **anti-dilutive** for certain periods in 2023[139](index=139&type=chunk) EPS Summary | EPS Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Basic EPS | $1.44 | $3.28 | $0.16 | $1.86 | | Diluted EPS| $0.09 | $0.50 | $0.08 | $0.26 | [Note 16 – Contingencies and Litigation](index=31&type=section&id=Note%2016%20%E2%80%93%20Contingencies%20and%20Litigation) Legal claims related to the BFT acquisition were favorably resolved, and contingent consideration from acquisitions decreased - Legal claims related to the BFT acquisition, including patent and trademark infringements, were **favorably resolved** in April 2023[141](index=141&type=chunk) - Contingent consideration from acquisitions decreased by **$15.2 million** for the six months ended June 30, 2023, to **$12.5 million**[144](index=144&type=chunk) - The company guarantees lease agreements for certain franchisees, with a maximum obligation of **$3.3 million** as of June 30, 2023[149](index=149&type=chunk) - An accrual of **$0.2 million** has been recorded for a potential obligation under a standby letter of credit for franchisee loans[148](index=148&type=chunk) [Note 17 – Subsequent Events](index=32&type=section&id=Note%2017%20%E2%80%93%20Subsequent%20Events) Subsequent to the quarter, the board approved a $50 million share repurchase program funded by an additional $65 million in term loans - On August 1, 2023, the board approved a **$50 million accelerated share repurchase program (ASR)** for Class A common stock[150](index=150&type=chunk) - On August 3, 2023, the company secured an additional **$65 million in term loans** to fund the ASR and for general corporate purposes[150](index=150&type=chunk) - Quarterly principal payments on the Credit Agreement loans will increase to **$1.19 million** starting September 30, 2023[150](index=150&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial results, key performance indicators, liquidity, and capital resources for the reporting period [Company Overview and Business Model](index=33&type=section&id=Company%20Overview%20and%20Business%20Model) Xponential Fitness is the largest global franchisor of boutique fitness brands, with over 2,800 studios open worldwide - Xponential Fitness, Inc is the largest global franchisor of boutique fitness brands, with a diversified platform of **ten brands**[151](index=151&type=chunk)[152](index=152&type=chunk) - As of June 30, 2023, there were **2,520 studios open in North America** and **372 internationally**[153](index=153&type=chunk) - Franchisees are contractually committed to open over **1,900 additional studios** in North America, with obligations for another **1,045 international studios**[153](index=153&type=chunk) - The company's business model is primarily franchising, with company-owned transition studios being temporary holdings for resale[155](index=155&type=chunk) [Factors Affecting Our Results of Operations](index=33&type=section&id=Factors%20Affecting%20Our%20Results%20of%20Operations) Performance is influenced by new studio licensing, opening timelines, same-store sales growth, and overall consumer demand - Growth depends on licensing new qualified franchisees, selling additional licenses to existing franchisees, and opening studios[156](index=156&type=chunk) - Revenue growth is significantly affected by the number of studios open and operating[159](index=159&type=chunk) - Long-term revenue prospects are driven by increasing same-store sales, which are influenced by total memberships and marketing efforts[159](index=159&type=chunk) - International and domestic expansion, including acquisitions and partnerships, is a key growth strategy[159](index=159&type=chunk) - Consumer demand, competition, and macroeconomic factors can impact operating results[159](index=159&type=chunk) [Key Performance Indicators](index=34&type=section&id=Key%20Performance%20Indicators) The company tracks system-wide sales, studio openings, AUV, and same-store sales to measure business performance Key Performance Indicators Summary | KPI (in millions, except percentages and counts) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | System-wide sales | $341.3 | $249.8 | $659.0 | $474.3 | | New studio openings globally, gross | 144 | 128 | 261 | 228 | | Studios operating globally (end of period) | 2,892 | 2,354 | 2,892 | 2,354 | | Licenses sold globally (end of period) | 5,872 | 4,935 | 5,872 | 4,935 | | AUV (LTM as of period end, in thousands) | $539 | $456 | $539 | $456 | | Same store sales | 15 % | 25 % | 18 % | 35 % | | Adjusted EBITDA | $25.3 | $17.6 | $48.1 | $32.1 | - A new definition for 'studios no longer operating' was introduced, excluding studios with no sales for nine consecutive months or more[158](index=158&type=chunk) [System-Wide Sales](index=37&type=section&id=System-Wide%20Sales) System-wide sales, representing gross sales from all North American studios, increased by 39% to $659.0 million for the six-month period - System-wide sales represent gross sales by all studios in North America, including franchisee sales not recognized as company revenue[166](index=166&type=chunk) - This metric is used to understand royalty revenue (approx **7% of sales**) and marketing fund revenue (approx **2% of sales**)[166](index=166&type=chunk) - System-wide sales for the six months ended June 30, 2023, were **$659.0 million**, up from $474.3 million in the prior year[162](index=162&type=chunk) [New Studio Openings](index=37&type=section&id=New%20Studio%20Openings) Global new studio openings, a key growth driver, increased to 261 for the six months ended June 30, 2023 - New studio openings are a critical component of the company's growth strategy[167](index=167&type=chunk) - Global new studio openings for the six months ended June 30, 2023, totaled **261**, compared to 228 in the same period of 2022[162](index=162&type=chunk) [Studios No Longer Operating](index=37&type=section&id=Studios%20No%20Longer%20Operating) A studio is classified as no longer operating if it has no sales for nine consecutive months or more - A studio is considered 'no longer operating' if it has **no sales for nine consecutive months** or more[168](index=168&type=chunk) - Such studios can re-enter the operating count if they subsequently generate sales[168](index=168&type=chunk) [Number of Studios Operating](index=37&type=section&id=Number%20of%20Studios%20Operating) The total number of studios operating globally increased to 2,892 as of June 30, 2023 - The total number of studios operating globally at the end of June 30, 2023, was **2,892**, up from 2,354 in 2022[162](index=162&type=chunk) - This count includes a limited number of company-owned transition studios[169](index=169&type=chunk) [Non-Traditional Studio Locations](index=37&type=section&id=Non-Traditional%20Studio%20Locations) The company operates 34 non-traditional studio locations globally, such as those within other fitness centers or on cruise ships - Non-traditional studio locations are those not operated as standalone facilities[170](index=170&type=chunk) - The company currently operates **34 non-traditional studio locations** globally[170](index=170&type=chunk) [Licenses Sold](index=38&type=section&id=Licenses%20Sold) Cumulative global franchise licenses sold reached 5,872, indicating a strong pipeline for future studio openings - Cumulative global franchise licenses sold reached **5,872** as of June 30, 2023, up from 4,935 in the prior year[162](index=162&type=chunk) - There are **1,045 studios contractually obligated to open internationally** under Master Franchise Agreements[162](index=162&type=chunk) - The average time from franchise agreement signing to first studio opening was approximately **10.5 months** for recent franchisees[171](index=171&type=chunk) [Average Unit Volume](index=38&type=section&id=Average%20Unit%20Volume) Last twelve months Average Unit Volume (AUV) for North American studios increased to $539 thousand, indicating improved studio economics - LTM AUV for traditional North American studios was **$539 thousand** as of June 30, 2023, an increase from $456 thousand in the prior year[162](index=162&type=chunk) - AUV growth is primarily driven by changes in same-store sales and new studio openings[172](index=172&type=chunk) [Same Store Sales](index=38&type=section&id=Same%20Store%20Sales) Same-store sales for North American studios increased by 18% for the six-month period, showing continued growth from the existing studio base - Same store sales for the six months ended June 30, 2023, increased by **18%**, compared to 35% in the prior year[162](index=162&type=chunk) - This metric includes traditional North American studios with at least **13 consecutive months of sales**[173](index=173&type=chunk) [Results of Operations (Three Months Ended June 30, 2023 and 2022)](index=39&type=section&id=Results%20of%20Operations%20(Three%20Months%20Ended%20June%2030,%202023%20and%202022)) Q2 revenue grew 29.9%, but net income decreased due to higher SG&A expenses, an asset write-down, and increased interest expense [Revenue](index=40&type=section&id=Revenue_3M) Total Q2 revenue increased by 29.9% to $77.3 million, driven by same-store sales growth and new studio openings Q2 Revenue by Type | Revenue Type (in millions) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change ($) | Change (%) | | :------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Franchise revenue | $35.1 | $27.6 | $7.5 | 27.2 % | | Equipment revenue | $14.4 | $12.4 | $2.0 | 16.5 % | | Merchandise revenue | $8.4 | $6.8 | $1.6 | 24.4 % | | Franchise marketing fund revenue | $6.6 | $4.9 | $1.7 | 34.0 % | | Other service revenue | $12.8 | $7.9 | $4.9 | 62.2 % | | Total revenue, net | $77.3 | $59.6 | $17.8 | 29.9 % | - The increase in franchise revenue was driven by a **15% increase in same-store sales** and **538 net new studio openings** globally[179](index=179&type=chunk) - Other service revenue increased significantly due to a **$4.6 million rise** in revenue from company-owned transition studios[183](index=183&type=chunk) [Operating Costs and Expenses](index=41&type=section&id=Operating%20Costs%20and%20Expenses_3M) Total Q2 operating costs rose 74.6% to $40.9 million, primarily due to a $15.1 million increase in SG&A expenses Q2 Operating Costs and Expenses | Type (in millions) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change ($) | Change (%) | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Costs of product revenue | $14.2 | $13.5 | $0.7 | 5.2 % | | Costs of franchise and service revenue | $3.7 | $4.5 | $(0.8) | (18.3) % | | Selling, general and administrative expenses | $44.4 | $29.3 | $15.1 | 51.6 % | | Depreciation and amortization | $4.3 | $3.6 | $0.7 | 19.8 % | | Marketing fund expense | $5.5 | $4.1 | $1.4 | 33.9 % | | Acquisition and transaction income | $(31.3) | $(31.6) | $0.4 | (1.2) % | | Total operating costs and expenses | $40.9 | $23.4 | $17.5 | 74.6 % | - **SG&A expenses increased by $15.1 million**, driven by higher salaries, occupancy costs, bad debt expense, and a **$3.7 million intangible asset write-down**[186](index=186&type=chunk) - Costs of franchise and service revenue decreased by **$0.8 million** due to lower franchise sales commissions[185](index=185&type=chunk) [Other (Income) Expense, net](index=42&type=section&id=Other%20(Income)%20Expense,%20net_3M) Total Q2 other expense surged 259.3% to $8.8 million, driven by a $5.8 million increase in interest expense Q2 Other (Income) Expense | Type (in millions) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change ($) | Change (%) | | :------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Interest income | $(0.5) | $(0.4) | $(0.1) | 26.6 % | | Interest expense | $8.6 | $2.9 | $5.8 | 201.0 % | | Other expense | $0.7 | — | $0.7 | NA | | Total other expense, net | $8.8 | $2.4 | $6.3 | 259.3 % | - **Interest expense increased by $5.8 million (201.0%)** due to higher average debt balances and interest rates[191](index=191&type=chunk) - Other expense of **$0.7 million** was primarily related to Tax Receivable Agreement (TRA) expense[192](index=192&type=chunk) [Income Taxes](index=42&type=section&id=Income%20Taxes_3M) Q2 income tax expense decreased by 94.0% to $0.1 million Q2 Income Taxes | Metric (in millions) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change ($) | Change (%) | | :------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Income taxes | $0.1 | $2.2 | $(2.1) | (94.0) % | [Results of Operations (Six Months Ended June 30, 2023 and 2022)](index=42&type=section&id=Results%20of%20Operations%20(Six%20Months%20Ended%20June%2030,%202023%20and%202022)) For the first half, revenue grew 34.7%, but net income declined due to higher SG&A and a substantial increase in interest expense [Revenue](index=42&type=section&id=Revenue_6M) Total revenue for the six-month period increased 34.7% to $148.0 million, fueled by strong same-store sales and studio growth H1 Revenue by Type | Revenue Type (in millions) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change ($) | Change (%) | | :------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Franchise revenue | $68.1 | $53.1 | $15.0 | 28.2 % | | Equipment revenue | $27.5 | $20.2 | $7.4 | 36.5 % | | Merchandise revenue | $15.6 | $12.8 | $2.7 | 21.3 % | | Franchise marketing fund revenue | $12.8 | $9.4 | $3.5 | 36.9 % | | Other service revenue | $24.0 | $14.4 | $9.6 | 66.4 % | | Total revenue, net | $148.0 | $109.9 | $38.1 | 34.7 % | - Franchise revenue increased due to an **18% rise in same-store sales** and **538 net new studio openings** globally[198](index=198&type=chunk) - Other service revenue increased by **$9.6 million**, primarily from higher vendor commissions and revenue from company-owned transition studios[202](index=202&type=chunk) [Operating Costs and Expenses](index=44&type=section&id=Operating%20Costs%20and%20Expenses_6M) Total operating costs for the six-month period rose 34.1% to $118.8 million, driven by a $16.1 million increase in SG&A H1 Operating Costs and Expenses | Type (in millions) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change ($) | Change (%) | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Costs of product revenue | $28.3 | $23.1 | $5.1 | 22.3 % | | Costs of franchise and service revenue | $7.7 | $8.8 | $(1.0) | (11.8) % | | Selling, general and administrative expenses | $79.3 | $63.2 | $16.1 | 25.4 % | | Depreciation and amortization | $8.5 | $7.1 | $1.4 | 20.0 % | | Marketing fund expense | $10.5 | $8.4 | $2.0 | 24.1 % | | Acquisition and transaction income | $(15.5) | $(22.1) | $6.6 | (29.8) % | | Total operating costs and expenses | $118.8 | $88.6 | $30.2 | 34.1 % | - **SG&A expenses increased by $16.1 million**, primarily due to higher salaries, occupancy costs, bad debt expense, and a **$3.7 million intangible asset write-down**[205](index=205&type=chunk) - Costs of franchise and service revenue decreased by **$1.0 million** due to lower franchise sales commissions[204](index=204&type=chunk) [Other (Income) Expense, net](index=45&type=section&id=Other%20(Income)%20Expense,%20net_6M) Total other expense for the six-month period grew 239.2% to $16.7 million, driven by a $10.9 million increase in interest expense H1 Other (Income) Expense | Type (in millions) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change ($) | Change (%) | | :------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Interest income | $(1.2) | $(0.8) | $(0.4) | 44.4 % | | Interest expense | $16.6 | $5.7 | $10.9 | 189.9 % | | Other expense | $1.3 | — | $1.3 | NA | | Total other expense, net | $16.7 | $4.9 | $11.8 | 239.2 % | - **Interest expense increased by $10.9 million (189.9%)** due to higher average debt balances and interest rates[210](index=210&type=chunk) - Other expense of **$1.3 million** was primarily related to Tax Receivable Agreement (TRA) expense[211](index=211&type=chunk) [Income Taxes](index=45&type=section&id=Income%20Taxes_6M) Income tax expense for the six-month period decreased by 93.3% to $10 thousand H1 Income Taxes | Metric (in millions) | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | Change ($) | Change (%) | | :------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Income taxes | $0.01 | $0.15 | $(0.14) | (93.3) % | [Non-GAAP Financial Measures](index=46&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA increased by 50% to $48.1 million for the six-month period, reflecting strong operating performance - Adjusted EBITDA is a non-GAAP measure adjusted for items like equity-based compensation, acquisition income, and litigation expenses[215](index=215&type=chunk) - **Adjusted EBITDA** for the six months ended June 30, 2023, was **$48.1 million**, a **50% increase** from $32.1 million in the prior year[217](index=217&type=chunk) Adjusted EBITDA Reconciliation | Metric (in millions) | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | $27.5 | $31.5 | $12.5 | $16.3 | | Interest expense, net | $8.1 | $2.4 | $15.4 | $4.9 | | Income taxes | $0.1 | $2.2 | $0.0 | $0.2 | | Depreciation and amortization | $4.3 | $3.6 | $8.5 | $7.1 | | EBITDA | $40.0 | $39.7 | $36.5 | $28.4 | | Adjustments | $(14.8) | $(22.1) | $11.6 | $3.7 | | Adjusted EBITDA | $25.3 | $17.6 | $48.1 | $32.1 | [Liquidity and Capital Resources](index=47&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity with $33.1 million in cash and believes it can meet obligations for the next twelve months - As of June 30, 2023, the company had **$33.1 million in cash and cash equivalents**, plus $7.1 million in restricted cash[218](index=218&type=chunk) - Management anticipates that available cash and operating cash flows will be adequate to meet obligations for at least the next twelve months[219](index=219&type=chunk) - The total principal amount outstanding on the Term Loans under the Credit Facility was **$265.9 million** at June 30, 2023[230](index=230&type=chunk) - The company was in compliance with all covenants under the Credit Agreement as of June 30, 2023[224](index=224&type=chunk) [Credit Facility](index=47&type=section&id=Credit%20Facility) The company's senior secured term loan facility has been amended multiple times to provide additional funding for corporate purposes - The Credit Agreement includes a senior secured term loan facility with several incremental term loans added since 2021[220](index=220&type=chunk)[227](index=227&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk) - Borrowings bear interest at LIBOR/Reference Rate plus a margin, resulting in a rate of **11.74%** at June 30, 2023[221](index=221&type=chunk) - The company repurchased **$130.8 million** of Convertible Preferred Stock in January 2023, funded by an incremental term loan[229](index=229&type=chunk)[231](index=231&type=chunk) - The company was in compliance with all customary affirmative and negative covenants as of June 30, 2023[224](index=224&type=chunk) [Cash Flows](index=48&type=section&id=Cash%20Flows) Operating cash flow increased to $30.6 million, while financing activities used $22.1 million, primarily for preferred stock redemption H1 Cash Flow Summary | Cash Flow Activity (in millions) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $30.6 | $26.2 | | Net cash provided by (used in) investing activities | $(5.6) | $(5.6) | | Net cash provided by (used in) financing activities | $(22.1) | $(12.6) | | Net increase in cash, cash equivalents and restricted cash | $2.8 | $7.9 | [Cash Flows from Operating Activities](index=49&type=section&id=Cash%20Flows%20from%20Operating%20Activities) Net cash from operating activities increased by $4.4 million, driven by higher net income after non-cash adjustments - Net cash provided by operating activities increased by **$4.4 million** to **$30.6 million** for the six months ended June 30, 2023[234](index=234&type=chunk) - The increase was due to **$9.0 million** from higher net income (after adjustments), partially offset by unfavorable working capital changes[234](index=234&type=chunk) [Cash Flows from Investing Activities](index=49&type=section&id=Cash%20Flows%20from%20Investing%20Activities) Net cash used in investing activities remained stable at $5.6 million for the six-month period - Net cash used in investing activities was **$5.6 million** for the six months ended June 30, 2023, consistent with the prior year[235](index=235&type=chunk) - Changes included decreased cash used in issuing notes receivable, offset by other investing activities[235](index=235&type=chunk) [Cash Flows from Financing Activities](index=49&type=section&id=Cash%20Flows%20from%20Financing%20Activities) Net cash used in financing activities increased to $22.1 million due to preferred stock redemption and tax payments on RSUs - Net cash used in financing activities increased by **$9.5 million** to **$22.1 million** for the six months ended June 30, 2023[236](index=236&type=chunk) - Key uses of cash included **$130.8 million** for preferred stock redemption and **$8.1 million** for taxes related to restricted share units[236](index=236&type=chunk) - These uses were partially offset by **$126.1 million** in borrowings from long-term debt[236](index=236&type=chunk) [Off-Balance Sheet Arrangements](index=49&type=section&id=Off-Balance%20Sheet%20Arrangements) Off-balance sheet arrangements consist of franchisee lease guarantees and a standby letter of credit for franchisee loans - The company guarantees lease agreements for certain franchisees, with a maximum total commitment of approximately **$3.3 million**[237](index=237&type=chunk) - A standby letter of credit for franchisee loans has a **$0.2 million** accrual for potential obligations[238](index=238&type=chunk) [Critical Accounting Policies and Estimates](index=49&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) There have been no significant changes to the company's critical accounting policies and estimates since its 2022 Annual Report - No significant changes to critical accounting policies and estimates were reported since the December 31, 2022, Annual Report on Form 10-K[239](index=239&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There are no applicable quantitative and qualitative disclosures about market risk for this reporting period - No quantitative and qualitative disclosures about market risk are applicable for this reporting period[241](index=241&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes in internal control - The company's disclosure controls and procedures were evaluated as **effective** at the reasonable assurance level as of June 30, 2023[242](index=242&type=chunk) - **No material changes** in internal control over financial reporting occurred during the quarter ended June 30, 2023[243](index=243&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal contingencies is incorporated by reference from Note 16 of the financial statements - Information regarding legal contingencies is incorporated by reference from **Note 16** of the Condensed Consolidated Financial Statements[246](index=246&type=chunk) [Item 1A. Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report - **No material changes** to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022, were reported[247](index=247&type=chunk) - Operations could be affected by additional unknown factors or factors currently considered immaterial[247](index=247&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds to report[248](index=248&type=chunk) [Item 3. Defaults Upon Senior Securities](index=51&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[249](index=249&type=chunk) [Item 4. Mine Safety Disclosures](index=51&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company's operations - Mine safety disclosures are not applicable[250](index=250&type=chunk) [Item 5. Other Information](index=51&type=section&id=Item%205.%20Other%20Information) There is no other information to report for the period - No other information to report[251](index=251&type=chunk) [Item 6. Exhibits](index=52&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including policies, waivers, and officer certifications - Exhibits include the Non-Employee Director Compensation Policy, waivers to the credit agreement, and certifications from executive officers[253](index=253&type=chunk) - Inline XBRL documents are also included as exhibits[253](index=253&type=chunk) SIGNATURES [Signatures](index=53&type=section&id=Signatures) The report is duly signed by the Chief Financial Officer on behalf of the company - The report was signed by **John Meloun, Chief Financial Officer** of Xponential Fitness, Inc, on **August 7, 2023**[257](index=257&type=chunk)

Xponential Fitness, Inc. (NYSE:XPOF) Q2 2023 Earnings Conference Call August 3, 2023 4:30 PM ET Company Participants Anthony Geisler - Founder, Director and Chief Executive Officer Sarah Luna - President John Meloun - Chief Financial Officer Conference Call Participants Randal Konik - Jefferies Joseph Altobello - Raymond James Alexander Perry - Bank of America Brian Harbour - Morgan Stanley Jonathan Komp - Baird Ryan Meyers - Lake Street Capital Julio Marquez - Guggenheim Partners Warren Cheng - Evercore IS ...

Xponential Fitness, Inc. (NYSE:XPOF) Q1 2023 Earnings Conference Call May 4, 2023 4:30 PM ET Participants Kimberly Esterkin - Investor Relations Anthony Geisler - Chief Executive Officer Sarah Luna - President John Meloun - Chief Financial Officer Analysts Jeff Van Sinderen - B. Riley Alex Perry - Bank of America John Heinbockel - Guggenheim Securities Randy Konik - Jefferies Joe Altobello - Raymond James Sean Rooney - Citigroup Warren Cheng - Evercore Ryan Meyers - Lake Street Capital Markets Jonathan Komp ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 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: 001-40638 Xponential Fitness, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 84-4395129 (State or other jurisdi ...

[PART I](index=4&type=section&id=PART%20I) This section details Xponential Fitness's business model, competitive strengths, growth strategies, brand portfolio, franchise operations, studio footprint, and regulatory environment, along with associated risk factors, property details, and legal proceedings [Business](index=4&type=section&id=Item%201.%20Business) Xponential Fitness, Inc. is the largest global franchisor of boutique fitness brands, operating a diversified platform of ten brands, driven by its "Xponential Playbook" to optimize studio performance [Overview](index=4&type=section&id=Overview) Xponential Fitness operates as the largest global franchisor of boutique fitness brands, leveraging its "Xponential Playbook" to support franchisees and drive studio performance, with a significant global growth pipeline - Xponential Fitness is the largest global franchisor of boutique fitness, operating a diversified platform of ten brands including Club Pilates, CycleBar, StretchLab, and Pure Barre[13](index=13&type=chunk) - The company utilizes a proven operational model, the "Xponential Playbook," to support franchisees in areas such as site selection, pre-opening support, training, and technology systems to drive studio performance[15](index=15&type=chunk)[17](index=17&type=chunk) - The business model is designed to generate a weighted average Average Unit Volume (AUV) of approximately **$500,000** in the second year of operations with studio-level operating margins of **25-30%**[18](index=18&type=chunk) - As of December 31, 2022, the company had a strong growth pipeline with franchisees contractually committed to open an additional **1,939** studios in North America and master franchisees obligated to sell licenses for **1,094** international studios[20](index=20&type=chunk) [Our Competitive Strengths](index=5&type=section&id=Our%20Competitive%20Strengths) The company's competitive advantages include a diversified portfolio of ten leading boutique fitness brands, significant scale as the largest U.S. franchisor, an asset-light model with recurring revenue, attractive studio-level economics, and a strong pipeline for future organic growth - The company possesses a diversified portfolio of ten leading boutique fitness brands across various verticals, which is a significant competitive advantage in a fragmented market[25](index=25&type=chunk) - Xponential is the largest boutique fitness franchisor in the U.S. with over **2,301** studios, leveraging its scale for brand recognition, real estate access, and favorable vendor relationships[27](index=27&type=chunk)[28](index=28&type=chunk) - The company benefits from an asset-light franchise model with multiple predictable and recurring revenue streams, with approximately **71%** of revenue considered recurring in 2022[33](index=33&type=chunk) - The franchise model offers attractive studio-level economics, with a relatively low initial investment of about **$350,000** and a target unlevered cash-on-cash return of approximately **40%**[34](index=34&type=chunk) - As of December 31, 2022, the company had sold **5,450** franchise licenses globally, indicating a strong and visible pipeline for future organic growth[36](index=36&type=chunk) [Our Growth Strategies](index=8&type=section&id=Our%20Growth%20Strategies) The company's primary growth strategies focus on expanding its franchised studio base in North America, increasing system-wide same-store sales and average unit volume, improving operating margins, and accelerating international expansion through digital platforms and cross-selling initiatives - Primary growth strategies include expanding the franchised studio base in North America, driving system-wide same-store sales and AUV, expanding operating margins, and growing internationally[40](index=40&type=chunk)[42](index=42&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) - The company aims to increase same-store sales by acquiring new customers, increasing membership penetration, and driving consumer spending through dynamic pricing, cross-selling, and digital platform engagement[43](index=43&type=chunk) - International expansion is a key focus, with **312** studios open internationally as of year-end 2022 and master franchise agreements in place for an additional **1,094** studios to be sold[46](index=46&type=chunk) - The company is leveraging its digital platform, Xponential+, and membership option, XPASS, to enhance consumer engagement, cross-sell brands, and generate incremental revenue[47](index=47&type=chunk) [Our Brands](index=10&type=section&id=Our%20Brands) Xponential Fitness manages a diverse portfolio of ten leading boutique fitness brands, each specializing in different workout modalities, contributing to its extensive global studio network and franchise licenses sold Brand Portfolio and Studio Count (as of Dec 31, 2022) | Brand | Description | Global Studios Open | Global Licenses Sold | | :--- | :--- | :--- | :--- | | Club Pilates | Largest Pilates brand in the U.S. | 826 | 1,280 | | Pure Barre | Largest Barre brand in the U.S. | 638 | 760 | | CycleBar | Largest indoor cycling brand in the U.S. | 282 | 553 | | StretchLab | Assisted stretching services | 305 | 817 | | Row House | Largest franchised indoor rowing brand | 96 | 331 | | YogaSix | Largest franchised yoga brand | 170 | 575 | | Rumble | Boxing-inspired full-body workout | 42 | 351 | | AKT | Dance-based cardio and strength training | 34 | 119 | | Stride | Treadmill-based cardio and strength | 18 | 93 | | BFT | Functional and strength-based training | 230 | 571 | [Our Franchise Model](index=13&type=section&id=Our%20Franchise%20Model) The company's capital-efficient franchise model leverages local expertise and a comprehensive operational playbook to rapidly expand its global footprint, characterized by multi-unit ownership and predictable recurring revenue streams from long-term agreements - The franchise model leverages local market expertise and the Xponential Playbook to grow the global footprint in a capital-efficient manner, scaling from 2018 to 2022 at a **25% CAGR**[75](index=75&type=chunk) - As of Dec 31, 2022, **81%** of licenses in North America were owned by multi-unit franchisees, and **54%** of all franchisees owned more than one license[76](index=76&type=chunk) - Franchise agreements have an initial ten-year term, with options to renew, and franchisees pay an initial franchise fee and ongoing monthly royalty fees based on gross sales[81](index=81&type=chunk)[83](index=83&type=chunk) [Studios](index=15&type=section&id=Studios) Xponential Fitness maintains a substantial global studio footprint, primarily through franchised locations, while strategically managing a small number of company-owned transition studios intended for refranchising Studio Count by Location (as of Dec 31, 2022) | Location | Number of Studios | | :--- | :--- | | U.S. & D.C. | 2,301 | | Canada | 28 | | International | 312 | | **Total** | **2,641** | - The company operates a small number of company-owned transition studios (**55** as of Dec 31, 2022) for a limited time while facilitating transfers to new or existing franchisees[92](index=92&type=chunk) [Government Regulation](index=20&type=section&id=Government%20Regulation) The company operates under a complex framework of government regulations, including federal and state franchise sales laws, labor laws, consumer protection regulations for health clubs, and data privacy laws, requiring strict compliance - The company is subject to the FTC Franchise Rule and various state franchise sales laws, which regulate the offer and sale of franchises and require specific disclosures in a Franchise Disclosure Document (FDD)[130](index=130&type=chunk) - Operations are also governed by labor laws (e.g., Fair Labor Standards Act), consumer protection regulations for health clubs, and data privacy laws like GDPR and CCPA[132](index=132&type=chunk)[134](index=134&type=chunk)[136](index=136&type=chunk) [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company faces numerous risks, primarily related to its reliance on the financial success of its franchisees, potential growth strategy failures, and disruptions in financing, alongside challenges in brand reputation, international expansion, competition, macroeconomic downturns, key personnel reliance, and various legal and regulatory compliance issues, including data privacy and franchise laws, further complicated by its organizational structure and substantial indebtedness - **Business & Industry Risks:** The company's financial results are directly affected by the operational and financial success of its franchisees, where negative economic conditions or failure of franchisees to perform could harm revenue[146](index=146&type=chunk)[147](index=147&type=chunk) - **Growth & Expansion Risks:** The growth strategy depends on opening new studios, which faces challenges like financing availability, site selection, and competition, while expansion into new and international markets carries increased risks due to unfamiliarity and different economic conditions[148](index=148&type=chunk)[158](index=158&type=chunk)[160](index=160&type=chunk) - **Operational & Legal Risks:** The company relies heavily on a single information systems provider (ClubReady) and faces risks related to data security and privacy laws (e.g., CCPA, GDPR), in addition to being subject to extensive franchise regulations and potential litigation[212](index=212&type=chunk)[217](index=217&type=chunk)[223](index=223&type=chunk) - **Financial & Structural Risks:** The company has substantial indebtedness with restrictive covenants, and its holding company structure makes it dependent on distributions from its subsidiary (XPO Holdings) to meet obligations, including payments under the Tax Receivable Agreement (TRA)[256](index=256&type=chunk)[260](index=260&type=chunk)[275](index=275&type=chunk) [Properties](index=60&type=section&id=Item%202.%20Properties) The company's corporate headquarters are located in a leased 35,000 square foot office in Irvine, California, with additional leased spaces for a digital production studio, training locations, and a warehouse, while also operating 55 company-owned transition studios in leased properties intended for refranchising - Corporate headquarters are in Irvine, CA, under a lease expiring in 2032[320](index=320&type=chunk) - The company leases approximately **55,000** square feet of warehouse space in Tustin, CA, and a **6,800** square foot digital production studio[320](index=320&type=chunk) - As of December 31, 2022, the company held leases for **55** company-owned transition studios, which it is actively seeking to refranchise[321](index=321&type=chunk) [Legal Proceedings](index=60&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 17, "Contingencies and Litigation," in the Notes to Consolidated Financial Statements - Details on legal proceedings are provided in Note 17 of the financial statements[323](index=323&type=chunk) [PART II](index=61&type=section&id=PART%20II) This section covers the market for the company's common equity, management's discussion and analysis of financial condition and results of operations, the consolidated financial statements, and internal controls and procedures [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=61&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's Class A common stock is traded on the New York Stock Exchange (NYSE) under the ticker symbol "XPOF," with no current cash dividends paid on its Class A common stock, and any future dividends are at the discretion of the board of directors - Class A common stock trades on the NYSE under the symbol "XPOF"[327](index=327&type=chunk) - The company does not currently pay cash dividends on its Class A common stock, and future dividend declarations are at the board's discretion[328](index=328&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=62&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal year 2022, Xponential Fitness saw significant growth, with total revenue increasing **58.0%** to **$245.0 million**, driven by a **25%** increase in same-store sales and the opening of **511** net new studios globally, achieving operating income of **$15.1 million** and net income of **$2.9 million**, with Adjusted EBITDA growing substantially to **$74.3 million** [Key Performance Indicators](index=65&type=section&id=Key%20Performance%20Indicators) This section presents a summary of key operational and financial metrics, including system-wide sales, global studio count, average unit volume, same-store sales, and Adjusted EBITDA, illustrating the company's performance trends Key Performance Indicators (2020-2022) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | System-wide sales | $1,033.2M | $709.7M | $442.7M | | Global studios operating (eop) | 2,641 | 2,130 | 1,796 | | Global licenses sold (cumulative) | 5,450 | 4,424 | 3,469 | | AUV (run-rate) | $522k | $446k | $287k | | Same store sales | 25% | 41% | (34%) | | Adjusted EBITDA | $74.3M | $27.3M | $9.8M | [Results of Operations](index=69&type=section&id=Results%20of%20Operations) This section provides a detailed analysis of the company's financial performance, highlighting significant increases in total revenue, a turnaround from operating loss to income, and a substantial improvement in net income for the fiscal year 2022 Consolidated Results of Operations (in thousands) | Metric | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | **Total revenue, net** | **$244,954** | **$155,079** | **$106,592** | | Total operating costs and expenses | $229,818 | $185,898 | $98,798 | | **Operating income (loss)** | **$15,136** | **($30,819)** | **$7,794** | | **Net income (loss)** | **$2,875** | **($51,440)** | **($13,640)** | - Total revenue increased by **58.0%** in 2022 compared to 2021, primarily due to a **25%** increase in same-store sales and **511** net new global studio openings[361](index=361&type=chunk)[362](index=362&type=chunk) - Operating income was **$15.1 million** in 2022, a significant improvement from an operating loss of **$30.8 million** in 2021, driven by higher revenues and a large decrease in acquisition and transaction expenses[358](index=358&type=chunk)[372](index=372&type=chunk) - Net income for 2022 was **$2.9 million**, compared to a net loss of **$51.4 million** in 2021, with the improvement driven by strong revenue growth and lower interest expense[358](index=358&type=chunk)[374](index=374&type=chunk) [Non-GAAP Financial Measures](index=76&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures, specifically Adjusted EBITDA, to the most directly comparable GAAP financial measure, providing additional insights into the company's operational profitability - Adjusted EBITDA is defined as EBITDA adjusted for non-cash and other items such as equity-based compensation, acquisition expenses, management fees, and litigation expenses[397](index=397&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net income (loss) | $2,875 | ($51,440) | ($13,640) | | Interest expense, net | $11,212 | $23,545 | $21,065 | | Income taxes | $526 | $783 | $369 | | Depreciation and amortization | $15,315 | $10,172 | $7,651 | | **EBITDA** | **$29,928** | **($16,940)** | **$15,445** | | Adjustments | $44,324 | $44,263 | ($5,638) | | **Adjusted EBITDA** | **$74,252** | **$27,323** | **$9,807** | [Liquidity and Capital Resources](index=77&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's financial position, including its cash and cash equivalents, debt obligations, and cash flow activities, to determine its ability to meet short-term and long-term financial commitments - As of December 31, 2022, the company had **$32.0 million** of cash and cash equivalents and believes this, along with cash from operations, is adequate to meet needs for the next twelve months[401](index=401&type=chunk)[402](index=402&type=chunk) - The company's primary debt is a senior secured term loan facility with a total principal amount of **$137.7 million** outstanding as of December 31, 2022[413](index=413&type=chunk) Summary Cash Flow (in thousands) | Cash Flow | 2022 | 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $51,670 | $14,451 | | Net cash used in investing activities | ($14,613) | ($50,635) | | Net cash (used in) from financing activities | ($21,007) | $46,205 | [Critical Accounting Estimates](index=81&type=section&id=Critical%20Accounting%20Estimates) This section outlines the significant accounting policies and estimates that require management's subjective judgment, such as revenue recognition, business combinations, asset impairment, and equity-based compensation, which materially impact the financial statements - Key critical accounting estimates include revenue recognition, business combinations, impairment of long-lived assets (including goodwill), acquisition-related contingent consideration, and equity-based compensation[431](index=431&type=chunk) - For franchise revenue, initial fees are deferred and recognized on a straight-line basis over the franchise term (typically 10 years), while royalties are recognized as franchisee sales occur[434](index=434&type=chunk)[435](index=435&type=chunk)[438](index=438&type=chunk) - Goodwill is tested for impairment annually or when indicators exist, and in Q3 2022, a goodwill impairment of **$3.4 million** was recorded for the AKT reporting unit due to a decline in forecasted cash flows[460](index=460&type=chunk)[461](index=461&type=chunk) [Financial Statements and Supplementary Data](index=88&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the audited consolidated financial statements for Xponential Fitness, Inc. for the fiscal year ended December 31, 2022, including the Consolidated Balance Sheets, Statements of Operations, Statements of Changes to Stockholders' Equity, and Statements of Cash Flows, along with the accompanying notes, with an unqualified opinion from Deloitte & Touche LLP [Consolidated Balance Sheets](index=90&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position at specific points in time, detailing its assets, liabilities, and stockholders' equity, providing a snapshot of its financial health Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$482,691** | **$415,544** | | Cash, cash equivalents and restricted cash | $37,370 | $21,320 | | Goodwill | $165,697 | $169,073 | | **Total Liabilities** | **$382,678** | **$349,123** | | Long-term debt, net | $133,039 | $127,983 | | Deferred revenue, net | $109,465 | $95,691 | | **Total Stockholders' Deficit** | **($208,062)** | **($210,469)** | [Consolidated Statements of Operations](index=91&type=section&id=Consolidated%20Statements%20of%20Operations) This section reports the company's financial performance over a period, summarizing its revenues, expenses, and net income or loss, reflecting its profitability Consolidated Statement of Operations Highlights (in thousands) | | 2022 | 2021 | | :--- | :--- | :--- | | Total revenue, net | $244,954 | $155,079 | | Operating income (loss) | $15,136 | ($30,819) | | Net income (loss) | $2,875 | ($51,440) | | Net loss per share of Class A common stock - Basic & Diluted | ($0.87) | ($2.85) | [Consolidated Statements of Cash Flows](index=93&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the cash generated and used by the company over a period, categorized into operating, investing, and financing activities, illustrating its liquidity and solvency Consolidated Cash Flow Highlights (in thousands) | | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51,670 | $14,451 | | Net cash used in investing activities | ($14,613) | ($50,635) | | Net cash (used in) provided by financing activities | ($21,007) | $46,205 | | **Net increase in cash, cash equivalents and restricted cash** | **$16,050** | **$10,021** | [Controls and Procedures](index=130&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2022, and also assessed the effectiveness of internal control over financial reporting using the COSO 2013 framework, concluding it was effective, with no attestation report from the independent registered public accounting firm as an emerging growth company - Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were effective[725](index=725&type=chunk) - Based on the COSO 2013 framework, management concluded that internal control over financial reporting was effective as of December 31, 2022[728](index=728&type=chunk) [PART III](index=132&type=section&id=PART%20III) This section incorporates by reference detailed information regarding the company's directors, executive officers, corporate governance practices, executive compensation, security ownership, and related party transactions from its proxy statement [Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership](index=132&type=section&id=Item%2010%2C%2011%2C%2012%2C%2013%2C%2014) The information required for Items 10 through 14, covering directors, executive officers, corporate governance, executive compensation, security ownership of certain beneficial owners and management, certain relationships and related transactions, director independence, and principal accounting fees and services, is incorporated by reference from the company's Definitive Proxy Statement for its 2022 Annual Meeting of Stockholders, to be filed within 120 days of the fiscal year-end - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's upcoming Definitive Proxy Statement[735](index=735&type=chunk)[736](index=736&type=chunk)[737](index=737&type=chunk)[738](index=738&type=chunk)[739](index=739&type=chunk) [PART IV](index=133&type=section&id=PART%20IV) This section includes a list of all exhibits filed as part of the Annual Report on Form 10-K and notes the omission of financial statement schedules and a Form 10-K summary [Exhibits, Financial Statement Schedules](index=133&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, which are included in Item 8, and notes that financial statement schedules are omitted as they are not applicable, also providing an index of all exhibits filed as part of the Annual Report on Form 10-K - This section contains the list of exhibits filed with the Form 10-K[742](index=742&type=chunk) [Form 10-K Summary](index=135&type=section&id=Item%2016.%20Form%2010-K%20Summary) No summary is provided for the Form 10-K - Item 16 is not applicable[748](index=748&type=chunk)

Financial Data and Key Metrics Changes - For the full year 2022, the company achieved net revenue of approximately $245 million, representing a 58% year-over-year increase [14] - Adjusted EBITDA for 2022 totaled $74.3 million, or 30.3% of revenue, an increase of 172% from $27.3 million, or 17.6% of revenue in the prior year [14] - Fourth quarter net revenue was $71.3 million, up 44% year-over-year, with adjusted EBITDA of $22.2 million, compared to $8.6 million in the prior year period [31][41] Business Line Data and Key Metrics Changes - Franchise revenue for the fourth quarter was $32.2 million, up 40% year-over-year, driven by increased member visits and system-wide sales [32] - Equipment revenue was $11.5 million, up 64% year-over-year, primarily due to higher volumes of global equipment installations [33] - Merchandise revenue increased by 22% year-over-year to $8 million, driven by a higher number of operating studios and increased foot traffic [33] Market Data and Key Metrics Changes - North American studio visits for the 12 months ending December 2022 increased by 32% year-over-year, reaching a total of 39.2 million [12] - North American system-wide sales increased 46% in 2022, surpassing $1 billion for the first time in the company's history [12] - Total members across North America increased by approximately 32% year-over-year in 2022 to a total of 590,000, with membership surpassing 600,000 in January 2023 [11] Company Strategy and Development Direction - The company aims to increase its franchise studio base, having opened 511 net new studios globally in 2022, with a goal of 540 to 560 new studio openings in 2023 [15][45] - The company is expanding internationally, with over 1,000 studios obligated to be opened, including recent master franchise agreements in Portugal and Japan [17] - The company plans to expand adjusted EBITDA margins to the 35% to 39% range in 2023, targeting 40% in 2024 [19][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the business, noting strong same-store sales growth and a loyal customer base [7][11] - The company anticipates continued growth in system-wide sales and membership, despite potential macroeconomic headwinds [45][88] - Management highlighted the importance of community and customer engagement in driving retention and reducing churn [20][29] Other Important Information - The company reported a net loss of $0.4 million in the fourth quarter, compared to a net loss of $29.8 million in the prior year period [39] - Cash, cash equivalents, and restricted cash were $37.4 million as of December 31, 2022, up from $21.3 million a year earlier [42] - The company completed a secondary offering of 5 million shares, which closed on February 10, 2023 [44] Q&A Session Summary Question: Can you provide insights on international prospects and growth? - Management noted that prior to COVID, international growth was limited, but recent acquisitions and pre-COVID efforts have led to significant expansion [50][52] Question: What levers does the company have for pricing power? - Management indicated that as the business scales, there is potential to increase royalty rates and optimize operational costs to enhance margins [56][58] Question: What could drive upside to EBITDA margins in 2023? - Strong AUV growth and continued studio openings are expected to contribute significantly to margin expansion [62][64] Question: Can you elaborate on the XPASS membership and its impact? - Management stated that while XPASS is not a major revenue driver yet, it is effective in generating awareness and acquiring new customers [65] Question: How are macroeconomic factors affecting studio openings? - Management acknowledged some macro headwinds but emphasized that financing and location acquisition have not been significant issues [88][90]