Q4 2021 INmune Bio Inc Earnings Call
Greetings and welcome to the exponential fitness, Inc, fourth quarter and fiscal year 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
I will now turn the conference over to your host Ken Astrachan Investor Relations you may begin.
Thank you operator, good afternoon, and thank you all for joining our conference call to discuss exponential fitness its fourth quarter and full year 2021 financial results I am joined by Anthony <unk>, Chief Executive Officer, John Malone, Chief Financial Officer, There isn't enough President will also be available during the question and answer portion of this call.
A recording of this call will be posted on the investors section of our website at investor that exponential dotcom.
We remind you that during this conference call, we will be making certain forward looking statements, including discussions of our business outlook and financial projections. These forward looking statements are based on management's current expectations and involve risks and uncertainties that could cause our actual results could differ materially problems such.
<unk>.
For a more detailed description of these risks and uncertainties. Please refer to our recent and subsequent filings with the SEC.
Assume no obligation to update the information provided on today's call.
Please note that the fourth quarter and full year 2021 financial results discussed today do not include contribution from DFT prior to the acquisition in October 2021, unless commented on as being stated on a pro forma basis.
In addition, we will be discussing certain non-GAAP financial measures in this conference call.
We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide.
A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings press release that was issued earlier today prior to this call. Please.
Please also note that all numbers reported in today's prepared remarks refer to global figures unless otherwise noted.
I will now turn the call over to Anthony Geisler, Chief Executive officer of exponential better.
Thanks, Kimberly and good afternoon, everyone. We appreciate you joining our fourth quarter and full year earnings conference call exponential fitness as a largest global franchise or boutique fitness workout brands through our franchisees and master franchise agreements. We operate over 2100 studios in 12 countries around the world, We owned 10, leading brands.
Across all major workout modalities with our newest additions, including boxing and functional training our business model is straightforward we license our boutique studio operations share our business processes and branding with franchisees and exchange charge royalties and other fees for our services as our studio au views grow and as we increase the <unk>.
<unk> studios, we become more profitable given that the royalties generated from our system wide sales are virtually 100% margin flow through and given our SG&A platform scales. We're extremely proud of the operational accomplishments that drove our record financial performance in 2021, which further provides us great momentum into 2022.
On a pro forma basis, including our two new brands Rumble and P. F. T. Exponential sold 955 franchise licenses and opened 334, New studios across nine countries. Our 2021 new studio cohort of 238, North American Studios added almost $50 million to the over 700 million and system.
<unk> sales generated in 2020 , one we deployed our ex pass membership offering across the system signed a strategic partnership with L. A fitness and reported record financial results for the full year exponential posted net revenues of 155 million, increasing 45% year over year and adjusted EBITDA of 27.
Or 18% of full year revenue compared to $10 million or 9% of revenue in the prior year period.
We attribute our success to the system, we have created to our dedicated franchisees as well as our employees are international Master franchise partners, our members and vendors that together support our studios in December the same community of over 2000 individuals' travel to Las Vegas from all over the world to attend our annual franchise convention.
Yeah.
At our annual convention, we recognize franchisees for their hard work share best practices provide training showcase vendors exhibits and aligned on our goals to carry forward the momentum for the coming year.
I'd like to thank all those who contributed last year for your hard work and commitment to achieving our mission of making boutique fitness accessible to everyone.
We finished 2021 with a strong fourth quarter performance as our business remained resilient to the omicron surge that began in late November . This resilience is evident in our fourth quarter actively paying members in visitation rates, which increased by approximately 70% and 50% respectively year over year.
We also experienced strong demand for our franchise licenses selling 301 licenses in Q4 pro forma for B S T.
This brought our 2021 quarterly averaged almost 250 licenses sold per quarter or a run rate of almost 1000 licenses sold creating a solid new studio growth opportunity as we head into 2022, driven primarily by our younger brands.
While omicron continued to dominate the headlines early this year, we have experienced minimal impacts to our business and our growth momentum continues in fact average unit volumes or au vs quarter to date have continued to increase driven by higher active members and increased member visits we are confident our business remains on track.
To fully recover run rate a vs to their pre pandemic levels in the first half of 2022.
Our recovery to pre pandemic levels and beyond continues to be driven by four key strategic areas of growth I'd like to discuss our progress in each of these areas beginning with growing same store sales and a <unk>.
I am pleased to note that our Q4, North American system wide sales grew for the sixth consecutive quarter, increasing 76% year over year.
We ended the year with North American Q4 run rate <unk> of $446000 up 56% compared to 2020.
The key to our ongoing success is our ability to proactively manage the health of our franchise system.
You've heard me discuss before that we track our core kpis continuously by leveraging our technology capabilities and data analytics tools to better understand real time business performance and ensure our franchisees drive continued engagement whether through in person classes or through our new digital platform X plus.
X plus which provides live and on demand access to sought after workouts and thousands of studio locations around the world will launch this quarter advertisements announcing the launch began in December to develop consumer awareness. Our brands have started to pre sell subscriptions to the new platform and are seeing early success.
X plus is the evolution of our previous platform go our new Standalone App combines all of exponential fitness as digital offerings in a single platform, providing subscribers greater access to a robust fitness portfolio. The new platform also enables exponential to offer business to business subscription options as well as <unk>.
Correct marketing partnerships to further promote engagement the app allows users access to book classes at nearby exponential studio locations.
Another key sales drivers are ex Paas offering which provides access to all of our brands under a single monthly reoccurring subscription.
As I noted during the fourth quarter, we met our milestone goal of fully deploying X pass across the United States ex pass continues to be a great funnel for new customers with more than 15% of account holders, having never interacted with one of our brands prior to joining ex pass and nearly 60% of account holders being previously lapsed from an exponential.
Brand or deemed inactive by studio sales staff.
We are optimistic about our differentiated offering and expect ex path to contribute more meaningfully to our business in 2022.
Finally, we are thrilled to announce the recent hiring of our ex past President Dannelly, Dan previously he was vice President and head of global strategy and analytics that Jim pass and before that he was head of strategy and analytics at Groupon. Our next two growth levers are to increase our franchise studio base across all brands in north.
America and expand our brands in studio base internationally.
We entered 2022 with the largest studio count in our company's history and expect to open over 500, New studios. This year opening over 500 studios in a year would be a company record and is a testament to our strong pipeline and the resilience of our franchisees that we are primed to achieve such a milestone.
Today, we have over 1800 licenses contractually obligated to open in North America. If we were to never sell an additional license, we'd still be able to nearly double our north American studio count over the next several years on these license obligations alone.
That said the approach we took of adding brands to our portfolio over time has now provided us with a replenishing pipeline of organic new studio expansion offering us four to five years of visibility into our long term growth and based on our latest white space study conducted by Buxton, a leading consumer intelligence technology and services company.
We have the white space for approximately 7900 studios in the U S alone nearly quadruple our current total number of open studios.
Our international growth also remains solid as of the end of the fourth quarter, including the F. T. We now have over 2100 Global studios with over 175 of them operating outside of North America. Additionally, we now have almost 1000 studios obligated to be opened internationally paving the way for future growth.
Our master franchise agreements are structured to provide exponential with virtually 100% margin flow through.
Another organic studio growth driver for exponential as our nationwide partnership with La fitness, which we announced in October through this partnership we have the exclusive right to open our exponential fitness brand studios within La fitness locations with a minimum development commitments of 350 franchise locations over five years.
We are providing existing franchisees, who have an la fitness location within their protective territory the opportunity to open another exponential studio within that specific gym location.
We are still in the early stages of watching in these locations, but have already opened our first few initial studios and look forward to speaking more on their progress on future calls.
On the M&A front during the fourth quarter, we announced that we welcomed our 10th brand B F. T. A community based high energy functional training offering <unk>.
P F T transforms our global growth trajectory at time of acquisition, adding over 130 franchise Studios across Australia, New Zealand, Singapore, and the U S. Along with an additional 150 studios previously sold and contractually obligated to open in the next 12 months.
As it relates to the V. F. T integration, we're on track and have already started selling franchise licenses in North America I'm also happy to announce we named Blue D. Francisco as President of V. F T.
Lew previously served as president of our stretch lab brand growing it to over 150 open studios to date domestically and selling more than 570 licenses. Since we acquired the brand. We will also has extensive international experience in Australia, New Zealand, where B F. T has a very strong presence having sold 80 studios in these regions throughout.
Our master franchise agreements.
Leveraging the leadership bench strength in our brands, we have promoted for Dean Baker, who has served as the vice president of sales and second in command for stretch lab to backfill the stretch lab president role.
Looking ahead on the M&A front, we will continue to opportunistically evaluate potential brands and new modalities, taking a disciplined approach to capital allocation.
Our founding we have strategically and thoughtfully curated our portfolio of the 10 best in class boutique fitness brands, we believe our diverse portfolio differentiates us from any other franchise or and provides stability to our business model <unk>.
Investing in exponential is not just an investment in a single company instead, we liken ourselves to investing in a diversified portfolio of the best boutique fitness companies, they're proven rigorous diligence process used to assemble our portfolio has ensured that we welcome complementary brands and modalities with longevity and long term sustainable growth.
Trajectories protecting our position as the industry leader in boutique fitness franchisee.
Contributions from our first three growth levers coupled with continued operating excellence will support our fourth growth lever expanding our operating margins and driving free cash flow conversion.
The asset light nature of our franchise model together with the many benefits we experienced because of our scale and shared services platform has supported our margins today.
This year, we expect our adjusted EBITDA margins will expand from approximately 17% at year end 2020 one to over 30% in 2022 strengthened by the continued growth and maturation of our business.
In summary, we're very pleased with our fourth quarter results and the continued momentum of our business. We expect to achieve solid system wide sales growth in 2022, driven by the continued recovery in au vs. We're experiencing in our current North American studio base and by our aggressive pipeline of planned new studio openings as is clear from the 22.
Two outlook John will discuss shortly exponential is well positioned to continue executing our four growth levers as we opened new studios drive same store sales expand our operating margins and create value for all stakeholders.
Thank you again for your time I'll now turn the call over to John Malone to discuss our fourth quarter results in fiscal 2022 guidance John .
Thanks, Anthony and good afternoon, everyone. It's great to speak with you and share details on our strong fourth quarter results to close out the year.
Fourth quarter, North American system wide sales of $213 million were up 76% from $121 million in the fourth quarter of 2020 and represent exponentially highest system wide sales quarter ever.
We saw solid visitation at all our brands, most notably co parties and stretch lab.
On a consolidated basis revenue for the fourth quarter was $49 4 million up 78% from $27 8 million in the prior year period.
All five of the components that make up revenue grew during the quarter franchise revenue was $23 million up 87% from $12 3 million in the prior year period. The strong results were largely driven by higher royalties as well as a significant increase in franchise license fees.
Equipment revenue was $7 million up 80% from $3 9 million in the prior year period. This increase in revenue was largely driven by a higher number of equipment installed along with a greater concentration of installed within equipment intensive brands.
Merchandise revenue was $6 5 million up 47% from $4 4 million in the prior year period.
The improvement during the quarter was primarily driven by a higher number of studios open along with increased foot traffic across all our studios.
Franchise marketing fund revenue of $4 1 million was up 85% from $2 2 million in the prior year period, primarily due to strong system wide sales and average unit volume growth.
Lastly, other service revenue was $8 8 million up 78% from $4 9 million in the prior year period. The increase in other service revenue in the quarter was primarily driven by sponsorship revenues generated from our annual franchise conference Anthony discussed earlier on the call.
And by revenue generated from our temporary one corporate studios.
Turning to our operating expenses cost of product revenue were $9 3 million up 71% from $5 4 million in the prior year period.
The increase during the quarter was driven by higher equipment and merchandise revenues in the period.
Cost of franchise and service revenue were $4 1 million up 117% from $1 9 million in the prior year period.
The increase during the quarter continued to be driven by costs related to franchise sales commissions and from technology fee revenues because of a higher number of studios operating.
Selling general and administrative expenses of $32 7 million were up 93% from $17 million in the prior year period. This increase was largely due to cost associated with public company expenses and higher noncash equity based compensation, our annual convention, which was in person this year versus digital.
Last year and operating costs from the company owned city is that we're in transition.
As a percentage of revenue SG&A expenses were 66% of revenue in the fourth quarter compared to 61% in the prior year period.
Depreciation and amortization expense was $3 3 million, an increase of 67% from $2 million in the prior year period.
Marketing fund expenses, which include expenses related to corporate marketing were $3 7 million up 80% from 2 million in the prior year period.
The increase was driven by higher spend afforded by higher marketing fund revenue as well as lower spend in 2020 with videos were required to be closed due to the pandemic.
Acquisition and transaction expenses totaled $23 1 million versus no spend in the fourth quarter of 2020 the.
The increase in acquisition expenses is related to our acquisition of BMT, along with $22 4 million in contingent consideration.
Primarily related to our acquisition of rubble.
As I noted on our Q3 2021 call we value. This rumble contingent consideration on a mark to market basis, each quarter and accrue for the earn out.
Net income is reduced however, the share count will not increase until the shares vest.
We recorded a net loss of $29 8 million in the fourth quarter compared to a net loss of $5 1 million in the prior year period.
Net loss during the quarter is primarily the result of the previously mentioned contingent consideration related to our acquisition of Rumble.
I would like to note that it is difficult to forecast the impact of the contingent consideration since it is fully dependent on the trading price of our stock at the end of the period.
As such we believe that the adjusted net income figure is a more useful way to measure the performance of our business.
On an adjusted basis for the fourth quarter, excluding the $22 4 million of noncash contingent consideration along with $1 $3 million related to the Remeasurement of the tax receivable agreement according to our up sea structure.
Adjusted net loss totaled $6 1 million compared to an adjusted net loss of $5 1 million in the prior year period.
In order to calculate adjusted net loss per share we isolate the portion of the net loss is attributable to the exponential fitness, Inc, which is $3 million.
And we reduced this number by $1 6 million to account for the dividends paid on our preferred shares.
This results in an adjusted net loss of 21 cents per diluted share on a share count of $22 6 million shares.
Adjusted EBITDA was $8 6 million in the fourth quarter compared to $3 3 million in the prior year period, adjusted EBITDA margin grew to 17% in the fourth quarter of 2021 compared to 12% in the prior year period.
In future periods, we expect to realize significant margin improvements with greater than 30% margins in 2022 and over 40% long term as we expand our franchise studio base and leverage our shared services platform across each of our boutique fitness brands in.
In summary for 2021, we surpassed pre COVID-19 revenue with $155 1 million for the full year, which was 45% higher than 2020 and 20% higher than 2019.
Adjusted EBITDA totaled $27 3 million for the full year, which was 179% higher than 2020, and 66% higher than 2019 as our revenue growth outpaced our operating expenses and resulted in increased operating leverage.
Turning to the balance sheet as of December 31, 2021 cash and cash equivalents were $21 3 million up from $11 3 million as of the end of last year.
Total long term debt was $130 9 million as of December 31, 2021, compared with $181 8 million at the end of 2020.
Based on current business conditions, and our expectations as of today, our full year 2022 guidance is as follows.
We expect our total 2022 global new studio openings to be in the range of 500 to 520. This represents the highest number of studio openings in our company's history. We.
We project North American system wide sales to range from 995 million to 1.005 billion or 1 billion at the midpoint, which represents a 41% increase from the prior year also by far the highest in our history.
Total 2022 revenue is expected to be between 201 million to $211 million, an increase of 33% from 2021 at the midpoint of our guided range.
Adjusted EBITDA is expected to range from 67 million to 71 million, a 153% year over year increase at the midpoint of our guided range, we anticipate our capital expenditure budget for 2020 to be approximately $5 million to $7 million and it will be primarily focused on.
Integrating BMT onto our website and mobile applications completing the build out of a rumble studio with the remainder being allocated to maintenance and other technology investments to support our digital platforms.
In terms of SG&A. The investments we have made in our business have increased the scalability of our model.
We require nominal additional SG&A expenses to support our growth of the business.
In addition, our SG&A expenses in 2022 will also benefit from no longer operating the company own studios reacquired during the COVID-19 pandemic.
Based on the visibility today SG&A, excluding equity based compensation for 2022 will be roughly 33% of total revenues at the midpoint of the range.
For the full year, we expect our tax rate to be approximately 5% share count for purposes of earnings per share calculation to be $22 6 million and $3 to $5 million in quarterly dividends to be paid related to our 200 million convertible preferred stock.
A full explanation of our share count calculation and associated pro forma EPS and adjusted EPS calculations can be found in a table at the back of our earnings press release.
In terms of more recent performance following a strong Q4, we are pleased with our early Q1 results.
These system wide sale visitation and membership counts continue to increase demonstrating both new and existing members remain committed to in person community based workouts.
In summary, we are very happy with our fourth quarter and full year 2021 results Importantly, Exponentials momentum has continued into 2022 and we are confident in the growth trajectory of our company.
Thank you again for the time today and for your support of exponential. We look forward to speaking with you on our next earnings call well now open the call for questions operator.
At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Our first question is from Randy <unk> with Jefferies. Please proceed with your question.
Hey, guys. Thanks, I have a couple of questions. So first on the on the 2022 opening guidance you know as you talked about I think it is the highest in your history and well above your long term I guess annual guidance. So maybe give us some perspective on what's driving that much higher number for 2022.
Which is great and then do you think that is something where we could expect.
Essentially a higher number of annual openings above your long term kind of guide or long term annual guidance trend line going forward because of strengths and franchisee partners and then availability of real estate.
Yeah, Hey, thanks, Randy for that so I mean, what's kind of driving the spike that you will see in 2022 is really being driven by the number of license sales. We had in 2021, plus some pent up demand related to that.
The Covid period, when the studios were closed so as you can see we almost open to a thousand on a run rate basis in 2021, and we typically sell multipack. So about a third of those will roll into 2022 as openings when we acquired <unk> They had.
Also had already sold in.
Over 100 additional licenses I think the number was closer to 150 at that time. So we will see a significant amount of openings related to U S. Domestic from the license sales plus the international front with <unk> continuing to build out in the Asia Pacific region.
Lastly on the U.
U S Studios as you mentioned or as we mentioned earlier that the la fitness deal that we put together will contribute.
Studios per that build out agreement that we have so all three of those things will contribute in 2022.
As we talk about our long term target we put out there around 250 to 350 long term, we view that as out five years, assuming we don't acquire any new businesses and drive new lead generation with license sales.
We look at the $2 50 to $3 50 is a long term steady state. After we go through what I would consider a heavy growth phase over the next couple of years.
That was Super helpful. And then my last question would be.
Any more granularity or let's say just color around what you're seeing in let's say new member adoption of our new member growth versus.
Higher utilization from existing members just want to get some color on any trends you can kind of share with us beyond the statements you've shared in the scripted remarks would be helpful. And then any kind of color you can give us around utilization rates between suburban markets versus urban markets would be super helpful. As well thanks guys.
Happy to take that Randy and we're starting to see that our member members are coming back with strong utilization of our current classes.
She is our offering more classes. They are seeing more participants more foot traffic as a result membership sales are at an all time high as well as our retail sales. So things are looking really good and continued to perform strongly into the early part of the year.
And just on suburban versus urban.
No not too much of a difference in terms of what we're seeing you know obviously some of the mandates affected in various cities in different parts of the country.
We are starting to see that everyone's coming back at full force and there isn't any notable call outs on.
Suburban versus urban underperforming or over performing.
Awesome. Thanks, guys.
Our next question is from Brian <unk> with Morgan Stanley . Please proceed with your question.
Yeah, Hey, guys, maybe just to follow up on the point about the opening guidance. It is.
Is there any other color you can provide on kind of how much of that is international just so we can link it to your guidance on kind of system sales is it safe to assume that there is call. It 150 175, if we kind of take the B FTE numbers plus plus some other studios I'm just trying to kind of link those two figures and how we should think about that.
Yeah, I think from an international versus domestic I think I would put the majority I would say close to.
About 66% or 70% will come from domestic and then about a third with the <unk> business and the other international Msas.
We'll generate the additional balance of the openings and then you know kind of pre asking the question related to like the cadence of openings it'll definitely be skewed to the back half of the year assume about 20% of the openings will come in the first quarter and it'll ramp up to about 30% by Q4, so it'll be a ramping to the second half.
Okay, Great. That's helpful. Maybe just.
On the Refranchising to just curious if that was completed in 2021.
It was yes, we were able to sell through all of our corporate Cdos. We do have a small subset of studios that we considered concessionary studios. The studios that we re franchised Mccann our portfolio for a very very short amount of time. So we're back to a normal pre pandemic levels have really healthy.
Interest in both across our franchise broker network as well as internally for taking over those Refranchising C. D S.
We're back to healthy and steady state performance with those locations.
Okay. Thanks very much.
Our next question is from Alex Perry with Bank of America. Please proceed with your question.
Hi, Thanks for taking my question and congrats on a strong quarter I guess just first.
On the margins how should we think about the equipment.
Nice gross margins for this year are you seeing cost increases there given you know a lot of the inflationary headwinds that others have called out in our U S.
So are you expecting to pass that along to the franchisees. Thanks.
Yeah.
Yeah. Thank you this is Anthony.
No material inflation.
Our equipment and yes, the the mild amount that we are seeing.
Yes, it's true we are on a cost plus basis, and you know kind of always have been.
So now whether that had to deal with increased gas prices in previous years or decreased gas prices or whatever it might be we've always been on a cost plus basis and we continued to operate at that same way.
Yeah.
That's really helpful. And then just circling back to the studio opening can you maybe help us parse through sort of what brands are driving that and I guess, just so we can get a sort of a sense of if it's more sort of equipment heavy brands versus equipment by.
Any more color you can give us there.
So on the on the distribution of the brands I mean, we look at it from where the opening is really coming from and we have our growth brands, which include the club Pilates are pure Barre cycle.
Cycle bar those are where the majority of the openings are going to come from in the <unk>.
From a growth perspective, the scale brands will contribute a much smaller percentage of the total openings in 2022, I think the distribution is going to be closer to about again about two thirds on the growth brands.
One third on the excuse me two thirds on the scale brands in.
One third on the girlfriends.
And probably knows that.
The equipment packages aren't materially different so it's not like we have one brand where the equipment packages to extra three X you know the other brands so yeah.
You know fairly agnostic across brands on the equipment side of things given.
Given the size of the brands and the margins that are in there.
Perfect. That's really helpful best of luck going forward.
Thank you.
Our next question is from Joe also Bello with Raymond James. Please proceed with your question.
Guys good afternoon.
First question is on the White space opportunity you guys mentioned earlier I think its 7900.
Potentially here in the U S. I think that's up about 1000 from the last time, you talked about that number so maybe help us understand what's driving that how much is that.
Oh that is P. F E N and how much of that is sort of the.
The underlying growth of the business.
Yeah, I mean, the majority of that is our recent acquisition.
<unk> of B S. T. So so that's what you know what Lindsay the additional piece to it. So okay. That's helpful and maybe a couple of other ones.
Maybe talk about trends youre seeing in terms of member churn number one and number two.
Have your franchise, if you talk about how having any issues hiring or retaining instructors.
Yeah, the churn still steady state as it has been about 1.5% after 12 months.
Saying that we've had since the IPO and continuing forward.
There are what I'll call minor pockets of places in the U S, where there's been some labor stress, but nothing material nothing that affected the overall franchise system just more.
Business challenges that we've had to overcome over the years labor has always been the toughest part of any business hiring and training and maintaining employees has always been a challenge, but now are our average employees are not minimum wage employees and these are not people that typically work full time.
Our instructor Ozal will work 10 hours, a week or 12 hours a week so.
You know, even if you if you're having to pick somebody after you're not having to pick up somebody for full time and if you do lose somebody you're losing 10 hours a week of labor or 12 hours a week labor not 50 or 60.
Okay, great. Thanks, guys.
Our next question is from Peter Keith with Piper Sandler. Please proceed with your question.
Hey, good afternoon, great results guys.
Maybe labor is an issue the other thing we're hearing about more so is on real estate. So with this pace of unit growth, that's certainly exciting, but what what the rent rates out. There are you seeing with your franchisees that are they're just going to be some stepped up costs and perhaps are more difficult to get prime locations.
Yeah, we're not we're not seeing a massive increase we're signing more leases than we than we ever have.
Right now and so you know, there's there's definitely available real estate out there of course, we're only we're taking 500 square feet 200 square feet 18 million square feet stuff like that.
And so we're not.
We're not we're not seeing a slowdown in available real estate or you know costly real estate to point, where it costs us out of out of our model.
Okay. Good and then Anthony it in the script you had talked about with your your App and you teased out <unk> sales and I Wonder if you could just expand upon that and do you have any corporate relationship set up is this a relatively new initiative and how might that.
Function within your business.
Yes, so we are.
Part of our our hiring of Dan was his past agri brought in especially at a gym past and I think one of the biggest differentiators between Jim pass in class paths for instance is that Jim passed as a <unk> model and so bring.
Bringing him in as well as bringing in Steve. This in our corporate partnership that we announced last quarter and having the two of them work together.
We're going out to corporate partnerships that we have.
Selling X passes on a <unk> basis.
Much like Jim pass did.
In the past.
Okay sounds good thanks, so much.
Of course.
Our next question is from Jonathan Komp with Baird. Please proceed with your question.
Yeah, Hi, Thank you I wanted to follow up on the recent trends that you discussed couldn't seem continued strength.
The number of the metrics.
How should we read that did you did you maybe not feel an impact or a different impact from omicron. This time in January or is it that you saw an impact early in the year and have seen some reacceleration. If you could maybe just.
Shed some more light on the recent trends and then how does that inform your view looking forward.
Fully recovering that you'd beads.
Yes. It's a good question. We are we had noted we didn't see an impact.
You know from Delta.
When we were there.
At the IPO and the system is recovering.
Cross the avs are at 94% of pre Covid levels members visits are up 70% and 50% year over year and we currently expect to reach our 2019 a V. In the first half of 2022.
But I didn't see anything material from Delta.
Nor do we see anything material from omicron.
Okay, Great that's encouraging and then maybe a broader question you've announced.
Number of initiatives in the last 12 months I know you've been talking about on your ex pass nationwide Alley fitness exponential plus you know you've had it would be up to you could you could you maybe just.
Sure some broader perspective as you look forward in 'twenty two in the next few years, which which of those has the biggest potential and how should we be thinking about that.
The financial impact of those new pieces of the business that you've added.
I mean, I think as the business continues to grow.
No.
F T our physical.
Piece of the business will always contribute a lot.
The go platform now X plus platform for US has always been a value add.
The axe passes.
Massive differentiator.
And now we have somebody at the helm of that running that so we'll see how this year.
Kind of goes out and contributes.
Contributions in 2021 were nominal as we only had it rolled out fully by the fourth quarter, but we do expect the X pass to have a more meaningful contribution this year.
But it should still assume its you know its in the early innings from a growth and maturity perspective. So we'll start to scale in 2022, but I would say from any of the businesses you would.
You mentioned the physical business.
Always like a DFT or one of the brands are the major contributors to what we do.
Okay, Great. That's very helpful. Thanks again.
Absolutely.
Our next question is from George Kelly with Roth Capital. Please proceed with your question.
Hey, everybody. Thanks for taking my questions. So just a couple for you.
First on your guidance for 2022, it implies a really big ink.
Incremental margin and so I was hoping you could sort of break it down between you know what.
What would be a normalized incremental margin just on the core business and then what kind of benefit are you getting from the refranchising that sounds like it's pretty much complete.
Yes so.
Let's break that down so kind of like the normalized margin. We mentioned long term that we see the business operating at about 40% once we kind of hit on more of a mature growth perspective, so 40% adjusted EBITDA margins as our long term.
We kind of view on the business, we were about 18% in 2021 quickly growing too.
It should be just about under 30% in the first quarter. So that the business is going to quickly leverage the majority of that Leverages coming from the studios that we don't.
Operate anymore from the Covid impact that we had in 2021 and then in addition, contributing now higher system wide sales and <unk> with more studios opened throwing that on top is really driving that really quick ramp to.
There are roughly 30% adjusted EBITDA margins early in 2022, now we expect to get into a higher than 30% as we progressed through the four quarters of this year.
But the significant amount of increase is really driven by not having the corporate studios and the system wide sales growth, which again, 100% margin our royalty flow through so.
A large contributor for us fairly quickly.
Long term again, as I mentioned greater than 40%.
But I assume that it will take long I mean this refranchising trumped. This year is helping a lot and then getting from 30 to 40 will tick tick a bit long I mean, it wont happen in the fall.
That's going to be more of a kind of steady steady pets upwards.
And then.
Second question for you I think I had asked you on that I, just want to make sure I'm clear on that when I say, 40% its not going to it's not the expectation for 2022, but.
But I do see the business progressing pretty strongly into 'twenty three 'twenty four ish range, where we would expect to see around that 40% range.
Okay well, Okay. That's helpful. And then second question for me is on expense.
So just curious now that it's sort of fully up and running and you've got leadership installed there Hello aggressive are you going to get behind that marketing and telling everyone about it and are there any kind of metrics you can share about usage, what you've seen so far.
Yeah.
Yeah on the marketing front, you know, we're still learning and got them out we went out pretty conservative way last year and.
Tested various pay.
Yeah advertising platforms.
We actually pulled back our spend earlier this year as we started to learn more and become a little bit more session. We were able to drive kicked down a month over month.
December January into February so trying to be very efficient with how we're spending and also looking at the way that we're maximizing and that flywheel effect within the ecosystem and Dan will be focused on.
So really driving business to business partnerships and leveraging them.
Book memberships through X pass so we're really looking at the platform is bringing in incremental revenue and incremental members and we're finding that you know that 15% that are brand new to the external ecosystem.
We are converting to brick and mortar memberships.
Pretty pretty quickly. So we're encouraged by the early results. We definitely don't want to go out and have to pay for every single lead that comes in and convert so you know we're trying to be creative with the way that we attract new members into the system and ultimately introduce them into the franchise studios.
Okay. That's helpful. Thank you.
Thank you.
We have reached the end of the question and answer session and I will now turn the call over to CEO , Anthony Geissler for closing remarks.
Thank you and thanks again for joining our call and for your support of exponential I'd like to once again, thank the entire X financial fitness team and our franchisees for their hard work and dedication to our business I'd like to note that over the next two weeks, we'll be participating at the Raymond James Institutional investors conference in Orlando, Florida, The Bofa Securities consume.
And retail Technology Conference in New York City, and a 34th annual Roth Conference in Orange County, California, and we hope to see many of you. There. In addition, this being our first year as a public company. We plan to host an in person annual shareholder meeting at our headquarters in Irvine, California on May 11th of this year.
We believe this will be a valuable opportunity for those who are interested to tour our headquarters and our state of the art digital production facilities.
All our registered shareholders are cordially invited to attend we will be providing more information and details on registration over the coming weeks and we hope to see many of you there. Thank.
Thank you for being on our call today.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
Yes.
Okay.
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And then.
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