Financial Data and Key Metrics Changes - Adjusted EBITDA margins expanded to 38% of revenue, up from 32% in Q1 2023, driven by growth in studio footprint and leaner operating expenses [7][28] - Net revenues totaled $79.5 million, a 12% increase year-over-year [9] - Adjusted EBITDA was $29.8 million, up 30% from $22.9 million in the prior-year period [28] - The company recorded a net loss of $4.4 million, significantly improved from a net loss of $15 million in Q1 2023 [25] Business Line Data and Key Metrics Changes - North American system-wide sales increased by 25% to over $400 million, with same-store sales up 9% [8][20] - The company ended the quarter with 3,156 global open studios, having opened 111 new studios during Q1 [10] - Franchise revenue grew by 27% year-over-year to $41.8 million, driven by increased royalty revenue [20] Market Data and Key Metrics Changes - Total members in North America grew 17% year-over-year to 783,000, with total studio visits increasing by 18% to 14.9 million [8] - International business accounted for 31% of license sales and 23% of new openings in Q1 [12] Company Strategy and Development Direction - The acquisition of Lindora is expected to enhance access to the broader health and wellness market, with a total addressable market (TAM) in the U.S. estimated at approximately 8,400 studios [11] - The company is focused on optimizing its portfolio of brands and remains open to acquisition and divestiture opportunities [11] - The company aims to reach 40% adjusted EBITDA margins this year and grow to 45% by 2026 [9][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the initial demand for Lindora franchises, with nearly 40 licenses sold since March [7] - The company anticipates same-store sales will normalize to mid-to-high single-digit percentages in 2024 [20] - Management expects gradual increases in revenue and adjusted EBITDA throughout the year, similar to 2023 [32] Other Important Information - The company has approximately $160 million in federal and state net tax loss carry-forwards, resulting in a minimal cash tax burden for the coming years [29] - Total long-term debt increased to $331.4 million as of March 31, 2024, primarily due to share repurchases [31] Q&A Session Summary Question: Free cash flow conversion and debt reduction focus - The company expects around $65 million in free cash flow for 2024, prioritizing debt reduction over stock buybacks [37][38] Question: Lindora's market potential and franchisee interest - Management indicated no cannibalization of franchisee interest from Lindora, expecting the TAM to grow significantly over the next few years [39][40] Question: Same-store sales expectations and quarterly cadence - Same-store sales for Q1 were slightly lower than expected, with management anticipating normalization to high single digits by Q4 [44][45] Question: Changes in opening mix by brand - Club Pilates had the highest number of openings in Q1, with expectations for a similar mix throughout 2024 [50][66] Question: Full-year profit outlook and adjusted EBITDA margin progression - Management expects adjusted EBITDA margins to reach around 40% for the year, with a gradual increase in subsequent quarters [53][54]

| --- | --- | --- | --- | --- | --- | --- | |-------|--------------|---------|------------|-------|-------|---------| | | | | | | | | | AI、T | CLUB PILATES | lindora | pure barre | | | YOGASIX | LEGAL DISCLAIMER 2 The information contained in this presentation is provided solely for the purpose of acquainting the readers with Xponential Fitness, Inc. (the "Company," "Xponential" or "we") and its business operations, strategies and financial performance. This presentation and any accompanying oral statements ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section provides the company's unaudited financial statements, management's discussion, market risk disclosures, and internal controls for the reporting period [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited condensed consolidated financial statements for Q1 2024, reflecting total revenues of **$79.5 million**, a net loss of **$4.4 million**, and strategic brand changes Q1 2024 Key Financial Metrics | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | **Total Revenue, net** | $79,521 | $70,690 | | **Operating Income (Loss)** | $7,388 | $(7,207) | | **Net Loss** | $(4,356) | $(14,979) | | **Net Loss per Share (Basic & Diluted)** | $(0.30) | $(1.38) | Balance Sheet Summary | Metric | March 31, 2024 (in thousands) | Dec 31, 2023 (in thousands) | | :--- | :--- | :--- | | **Total Assets** | $508,442 | $528,698 | | **Total Liabilities** | $599,927 | $616,832 | | **Total Stockholders' Deficit** | $(214,251) | $(202,794) | Cash Flow Summary | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $2,695 | $11,351 | | **Net Cash used in Investing Activities** | $(9,204) | $(2,385) | | **Net Cash used in Financing Activities** | $(3,367) | $(18,201) | | **Cash, Cash Equivalents, and Restricted Cash (End of Period)** | $27,218 | $28,135 | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, the Lindora acquisition, Stride divestiture, Q1 2024 restructuring charges of **$6.9 million**, and ongoing legal and SEC matters - On January 2, 2024, the Company acquired Lindora Franchise, LLC, a wellness brand franchisor, for cash consideration of **$8.5 million**, plus up to **$1.0 million** in contingent consideration[73](index=73&type=chunk) - On February 13, 2024, the Company divested the Stride brand for no consideration and recognized a loss on divestiture of **$279,000**[78](index=78&type=chunk) - The company initiated a restructuring plan in Q3 2023 to exit company-owned transition studios, recognizing total restructuring charges of **$6.9 million** during Q1 2024[162](index=162&type=chunk)[163](index=163&type=chunk) - The company is involved in a federal securities class action lawsuit filed in February 2024 and is cooperating with an SEC investigation that began in December 2023[152](index=152&type=chunk)[154](index=154&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=46&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2024 financial performance, noting a **12.5%** revenue increase to **$79.5 million**, strategic brand changes, and Adjusted EBITDA growth to **$29.8 million** [Key Performance Indicators](index=49&type=section&id=Key%20Performance%20Indicators) Key performance indicators for Q1 2024 include system-wide sales of **$401.1 million**, **3,156** global studios, and a **9%** increase in same-store sales Key Performance Indicators (Q1 2024 vs. Q1 2023) | Indicator | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | **System-wide sales ($ millions)** | $401.1 | $321.9 | | **Global studios operating** | 3,156 | 2,762 | | **New studio openings (global)** | 111 | 116 | | **Same store sales** | 9% | 19% | | **AUV (LTM) ($ thousands)** | $621 | $525 | Global Studio Count Change (Q1 2024) | Metric | Count | | :--- | :--- | | **Studios at beginning of period** | 3,072 | | **New studio openings** | 111 | | **Studios no longer operating** | (27) | | **Studios at end of period** | 3,156 | [Results of Operations](index=56&type=section&id=Results%20of%20Operations) Total revenue for Q1 2024 increased by **12.5%** to **$79.5 million**, driven by franchise growth, resulting in an operating income of **$7.4 million** Revenue by Source (Q1 2024 vs. Q1 2023) | Revenue Source | Q1 2024 ($ millions) | Q1 2023 ($ millions) | % Change | | :--- | :--- | :--- | :--- | | Franchise revenue | $41.8 | $33.0 | 26.7% | | Equipment revenue | $13.9 | $13.1 | 6.2% | | Merchandise revenue | $8.2 | $7.2 | 14.1% | | Franchise marketing fund revenue | $7.8 | $6.2 | 26.1% | | Other service revenue | $7.9 | $11.3 | (30.1)% | | **Total revenue, net** | **$79.5** | **$70.7** | **12.5%** | - The increase in franchise revenue was driven by a **9%** rise in same-store sales and **405** net new global studio openings since March 31, 2023[202](index=202&type=chunk) - Acquisition and transaction expenses decreased by **$11.2 million (71%)**, primarily representing a smaller non-cash change in contingent consideration compared to the prior year[212](index=212&type=chunk) [Non-GAAP Financial Measures](index=61&type=section&id=Non-GAAP%20Financial%20Measures) Adjusted EBITDA, a key non-GAAP measure, increased to **$29.8 million** in Q1 2024, reflecting adjustments to net loss for various non-operating items Reconciliation of Net Loss to Adjusted EBITDA | Line Item (in thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | **Net loss** | **$(4,356)** | **$(14,979)** | | Interest expense, net | $11,182 | $7,341 | | Income tax benefit | $(47) | $(123) | | Depreciation and amortization | $4,436 | $4,197 | | **EBITDA** | **$11,215** | **$(3,564)** | | Equity-based compensation | $3,942 | $6,056 | | Acquisition and transaction expenses | $4,515 | $15,742 | | Restructuring and related charges | $8,064 | $— | | Other adjustments | $1,815 | $4,638 | | **Adjusted EBITDA** | **$29,830** | **$22,872** | [Liquidity and Capital Resources](index=63&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2024, the company held **$16.7 million** in cash and equivalents, with **$331.4 million** in term loans outstanding, maintaining sufficient liquidity for the next twelve months - As of March 31, 2024, the company had **$16.7 million** of cash and cash equivalents, excluding **$10.5 million** of restricted cash[223](index=223&type=chunk) - The total principal amount outstanding on the Term Loans was **$331.4 million** at March 31, 2024[228](index=228&type=chunk) - Net cash provided by operating activities decreased to **$2.7 million** in Q1 2024 from **$11.4 million** in Q1 2023[231](index=231&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=65&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks primarily from variable interest rates on its **$331.4 million** debt, where a **1%** change impacts annual interest expense by approximately **$3.3 million** - The company is exposed to interest rate risk on its **$331.4 million** of variable-rate debt outstanding as of March 31, 2024[238](index=238&type=chunk)[239](index=239&type=chunk) - A hypothetical **1%** change in interest rates would change the company's annual interest expense by approximately **$3.3 million**[239](index=239&type=chunk) [Controls and Procedures](index=65&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[241](index=241&type=chunk) - There have been no changes in internal control over financial reporting during the quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, internal controls[242](index=242&type=chunk) [PART II. OTHER INFORMATION](index=66&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides details on legal proceedings, risk factors, and exhibits filed with the Form 10-Q [Legal Proceedings](index=66&type=section&id=Item%201.%20Legal%20Proceedings) This section details ongoing legal matters, including a federal securities class action lawsuit, a shareholder derivative lawsuit, and an SEC investigation initiated in December 2023 - The company is a defendant in a federal securities class action lawsuit filed in February 2024 alleging violations of the Exchange Act[152](index=152&type=chunk) - The company is cooperating with an SEC investigation that began on December 5, 2023, after the SEC requested certain information and documents[154](index=154&type=chunk) [Risk Factors](index=66&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - There have been no material changes to the Risk Factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023[246](index=246&type=chunk) [Exhibits](index=67&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Sixth Amendment to the Credit Agreement and various officer certifications - Key exhibits filed include the Sixth Amendment to the Credit Agreement and certifications from the Principal Executive Officer and Principal Financial Officer[252](index=252&type=chunk)

Exhibit 99.1 Xponential Fitness, Inc. Announces First Quarter 2024 Financial Results IRVINE, Calif. –(BUSINESS WIRE)– Xponential Fitness, Inc. (NYSE: XPOF) ("Xponential" or the "Company"), one of the leading global franchisors of boutique health and wellness brands, today reported financial results for the first quarter ended March 31, 2024. All financial data included in this release refer to global numbers, unless otherwise noted. All KPI information is presented on an adjusted basis to include historical ...

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)

Financial Data and Key Metrics Changes - Net revenue for Q2 2023 totaled $77.3 million, representing a 30% year-over-year increase [12] - Adjusted EBITDA reached $25.3 million, up 43% from $17.6 million in the prior year, with an adjusted EBITDA margin of 33% compared to 30% in the previous year [55] - North American system-wide sales increased by 37% year-over-year to $341 million [10][44] Business Line Data and Key Metrics Changes - North American studio visits increased by 32% year-over-year, totaling 12.9 million visits [10] - Average unit volumes (AUV) in North America rose to $561,000, a 17% increase from $480,000 in Q2 2022 [11] - Same-store sales growth in North America was 15% for Q2 2023, with studios over three years old seeing a 16% increase [11] Market Data and Key Metrics Changes - Total members in North America grew by 29% year-over-year, reaching 697,000, with over 90% being actively paying members [9] - The company operates nearly 2,900 studios globally, with 5,800 licenses sold across 10 fitness brands [9] Company Strategy and Development Direction - The company is focusing on increasing its franchise studio base, with 141 new studios opened in Q2 2023 and a total of 2,892 studios globally [13] - International expansion is a key growth driver, with over 1,000 studios obligated to open under master franchise agreements, including a recent agreement in France [15] - The company plans to refranchise its company-owned transition studios down to zero, aiming to optimize margins and reduce SG&A expenses [19][51] Management's Comments on Operating Environment and Future Outlook - Management raised guidance for system-wide sales, revenue, and adjusted EBITDA for the full year 2023, reflecting strong performance in Q2 [58] - The company expects adjusted EBITDA margins to reach 35% to 39% by year-end and 40% in 2024 [20][55] - Management anticipates that same-store sales will normalize over time, with expectations of mid-teens growth for the second half of 2023 [100] Other Important Information - The company announced a new share repurchase program of up to $50 million, funded by amended term loan financing [63] - Cash, cash equivalents, and restricted cash increased to $40.2 million as of June 30, 2023, compared to $29.3 million a year earlier [56] Q&A Session Summary Question: Insights on AUV strength and visitation growth - Management indicated that 95% of system-wide sales growth is driven by volume rather than price, with visitation flat in summer months but expected to increase as kids return to school [66][68] Question: Development in new countries and pace of openings - The company has identified 50 countries for potential expansion, with existing franchise partners opening studios abroad, and expects about 25% of future openings to be international [70][72] Question: Studio profitability and transition studios - Most studios ramp to approximately $380,000 in their first year, with a target to reduce transition studios to zero by the end of the year or Q1 next year [74][78] Question: Franchisee profitability and cash-on-cash returns - Established brands like Club Pilates have higher cash-on-cash returns compared to newer concepts, with detailed insights to be provided at the upcoming Investor Day [82][84] Question: Visibility into unit growth outlook - The company has strong visibility into unit growth based on signed leases, with a structured approach to openings [88][90] Question: SG&A expenses and transition studio strategy - SG&A expenses are expected to decrease in the second half of the year as the company ramps down transition studios, aiming for SG&A to fall below 30% of total revenue [94]