Q1 2022 Xponential Fitness Inc Earnings Call
Greetings and welcome to exponential fitness, Inc. First quarter 2022 earnings conference call.
At this time all participants are in listen only mode. If anyone should require operator assistance.
During the conference. Please press Star Zero on your telephone keypad as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Kimberly Astrachan from Investor Relations.
Please go ahead ma'am. Thank you operator, good afternoon, and thank you all for joining our conference call to discuss exponential fitness, Inc. First quarter 2022 finance Jericho.
I am joined by Anthony Guy Clark, Chief Executive Officer, Sarah Liv enough precedent and John Malone, Chief Financial Officer.
Our recording 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 make 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 to differ materially from such expectations.
For more detailed description of these risks and uncertainties. Please refer to our recent and subsequent filings with the SEC.
We assume no obligation to update the information provided on today's call.
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 release that was issued earlier today prior to this call.
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 fitness.
Thanks, Kimberly and good afternoon, everyone. We appreciate you joining our first quarter earnings call exponential fitness is the largest global franchise or a boutique fitness workout brands as of the end of the first quarter, our franchisees and Master franchise partners collectively operated over 2220 studios and <unk>.
Countries around the world across 10, leading brands and major workout modalities. 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 <unk> grow and as we increase the number of studios, we become more profitable given that the royalties generated from system wide sales are virtually 100% margin flow through and given our SG&A platform scales.
Let's take a moment to review our first quarter financial highlights before turning to discuss our progress against our core growth strategies.
We are pleased with our financial and operation execution in the first quarter.
On the heels of a very strong fourth quarter exponential fitness entered 2022 with great momentum.
First quarter actively paying members in visitation rates in North America increased by approximately 60% and 45% respectively year over year.
Sequentially. These figures also showed solid growth in both improved 17% compared to the fourth quarter of 2021.
Our Q1, North American system wide sales grew for the seventh consecutive quarter up 70% year over year.
Importantly performance during the first quarter continued to strengthen month over month.
We reached a significant milestone in the month of March with monthly run rate North American AAV of 477000 rebounding to the peak pre Covid quarterly run rate <unk>.
We expect that <unk> will continue to increase with the ongoing execution of our growth strategies.
Quarter to date, we continue to see positive momentum in our system. While we are in a period of unprecedented inflation and macroeconomic pressures. Our member counts are increasing both overall and at the individual studio level as our customers continue to prioritize their health.
Further we believe our model is more insulated from macroeconomic pressures as our customers who in general are on reoccurring membership packages do not view fitness as discretionary spend and our membership fees tend to be a relatively small piece of their overall budgets base.
Based on this solid performance, we posted net revenue of $54 million, increasing 73% year over year, and adjusted EBITDA of $14 4 million or 29% of revenue compared to $3 6 million or 12% of revenue in the prior year period.
Compared to the prior quarter adjusted EBITDA improved by $5 9 million an increase of 68%.
This drove adjusted EBITDA margins to nearly double quarter over quarter.
With that as a background on the quarter, let's move to our four key strategic areas of growth beginning with our first two growth levers increasing our franchise studio base across all of our brands in North America, and expanding our brands in studio base internationally.
We ended the quarter with 2229 Global studios, the largest studio count in our company's history.
<unk> opened 99 net new studios in the first quarter as expected we remain on track to open over 500, New studios this year.
We also experienced strong demand for our franchise licenses selling 260 licenses globally in Q1.
In North America, we have over 1800 licenses sold and contractually obligated to open and have a replenishing pipeline of organic new studio expansion offering us four to five years of visibility into our long term growth.
Another driver of North American studio growth as our nationwide partnership with La fitness, giving us the exclusive right to open our exponential fitness brand studios within La fitness locations with a minimum development commitment of 350 franchise locations over five years.
While still early we're seeing strong interest from franchisees.
In terms of international growth, we now have almost 1000 studios obligated to be opened internationally paving the way for further expansion.
I am happy to announce that during the first quarter. We added two additional countries to our international presence, Mexico and the U K.
In Mexico, we signed a new master franchise agreement or MSA for three of our brands stretch lab.
And Rumble DFT has also sold its first license in the UK, marking our first entry point into the country.
As a reminder, our msas are structured to provide exponential with virtually 100% margin flow through.
To support our international expansion, we are very pleased to announce that Dan Adelstein has recently joined exponential fitness as our senior Vice President of International development. His main focus will be supporting our real estate development and studio openings. Dan previously served as the senior Vice President of International development at Orange theory fitness.
<unk>.
On the M&A front the integration of <unk> remains on track as a reminder, <unk> supports our global growth trajectory with over 170 franchise studio is currently open and an additional 180 studios sold and contractually obligated to open globally.
Lastly in terms of future M&A, we will continue to opportunistically evaluate potential brands in new modalities, taking a disciplined approach to capital allocation I'd like to now pass the call on to Sarah to discuss our third growth driver, increasing our same store sales in <unk>.
Thank you Anthony as many of you know I've been working closely with our teams to develop new ways to expand our class offerings to current and prospective members. While also increasing overall retention levels across our boutique fitness network having.
Having a wider reach into offering a robust experience will allow us to continue enjoying growth in our studios, resulting in improved az's and overall system wide sales.
I'd like to take a moment now to speak to these efforts in further detail, but first a quick refresher.
As previously discussed the key to exponential fitness is ongoing success is our ability to proactively manage the health of our franchise system and collectively collaborate with franchise partners to bring a best in class video experience to communities worldwide.
We continuously track our core kpis, using our technological capabilities and data analytics tools to understand our business performance in real time.
Beyond looking at these key performance indicators, we also monitor our ability and success of connecting with new and existing members through our omnichannel boutique fitness offering in which we provide both in person and digital classes across our brands beginning.
Beginning with our in person offering X pass provides subscribers access across our U S studio locations under a single monthly recurring subscription.
<unk> has been a powerful engagement platform for us, helping us attract new retain existing and Reengage previously turned to consumers.
X pass does this by offering a comprehensive fitness program with flexibility across premium fitness modalities and geographies.
<unk> has officially launched nationwide in Q4 of last year and its primary goal is to sell underutilized classes.
By driving more bookings into existing classes ex pass helps our cdos increased revenue and profit.
In Q1 2022, the first full quarter of ex pass being fully rolled out we significantly reduced our customer acquisition costs and simultaneously increased customer order values with the introduction of new plans.
These operational improvements specifically focused on increasing profitability and have resulted in X pass already breaking even for the quarter on a relatively small bookings of about 10000 classes.
We are optimistic about <unk> differentiated nature and expect that ex pass will help us continue to optimize our franchise system in 2022.
In terms of digital engagement X plus which officially launched in April we will offer all 10 of our brands thousands of live and on demand digital work outs on a single platform.
Subscribers now have even greater access to our robust fitness portfolio to supplement our in person class attendance.
To further promote brand engagement and drive revenue and customers into our studios. The platform allows users to find nearby exponential studio locations and contact the cdos for class schedules and memberships.
In addition, as a standalone digital platform that interfaces with consumers around the world ex plus is highly conducive to <unk> subscription options and direct marketing partnerships.
We believe we are ideally suited to help our corporate partners maximize their health and wellness programs and we are enthusiastic about the opportunity to access a large number of new customers efficiently and at scale.
Finally, subsequent to the end of the quarter, we announced the expansion of our digital offering in collaboration with Lulu Lemon and its home gym technology the mirror.
Beginning this fall four of our brands pure Barre Rumble yoga, <unk> and AK T will create original fitness programming content for the mirror.
We are thrilled to introduce exponential the offerings to the mirror community and believe this partnership will help us increase brand awareness and reduce overall customer acquisition costs, given that Lulu lemon mirror and exponential all target a similar customer demographic.
This is just the beginning and we will provide updates on the progress of our collaboration in future quarters.
With that I'd like to turn the call back to Anthony to speak to our final growth driver.
Thanks Sara.
As is evident our 10 brands have created a diverse portfolio that differentiates us from any other fitness franchisor.
Our complementary brands and modalities have been carefully curated to ensure longevity and long term sustainable growth trajectories, both protecting our position as the industry leader and boutique fitness franchising and providing the scale and breadth needed to participate in meaningful <unk> opportunities.
Our partnership with Lulu, Lemon and mirror as well as the previously announced partnership with La fitness and other business to business offerings are all expected to drive incremental revenue opportunities.
Contributions from our first three growth levers as just discussed 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 to date.
As previously mentioned, our adjusted EBITDA margins nearly doubled from Q4 2021 to Q1 2022, reaching 29%.
We continue to expect our adjusted EBITDA margin will be in the low 30% range for the full year 2022 strengthened by the growth and maturation of our business.
In summary, we are very pleased with our solid start to 2022 exponential is well positioned for continued growth as we open New studios drive same store sales and expand our operating margins.
These factors combined with the ongoing execution of our four strategic growth initiatives continue to solidify our position as the largest and most differentiated global franchise or in the boutique fitness industry.
Thank you again for your time I'll now turn the call to John Malone to discuss our first quarter results and our guidance in more detail.
Before John begins I am thrilled to let you all know that John recently won the Orange County business Journal public company's CFO of the year Award.
John was selected in a competitive process for his remarkable leadership at exponential.
On behalf of our entire company and board of Directors I would like to highlight how proud we are of John and thank him for his great contributions to our company.
Thanks, Anthony for the kind words and good afternoon, everyone. It's great to speak with you today as we discuss exponential strong start to 2022.
First quarter, North American system wide sales of $224 5 million were up 70% from $131 9 million in the first quarter of 2021.
This number again represented an exponential record and it was driven by new member growth, adding new studios and strong visitation across all our brands.
On a consolidated basis revenue for the quarter was $50 4 million up 73% from $29 1 million in the prior year period.
All five of the components that makeup revenue grew during the quarter.
Franchise revenue was $25 5 million up 85% from $13 8 million in the prior year period.
The growth was largely driven by higher royalties as well as a significant increase in franchise license fees.
Equivalent revenue was $7 8 million up 91% from $4 1 million in the prior year period.
This increase in equipment revenue was largely driven by a higher number of equipment installed along with a greater concentration of installs within equipment intensive brands.
Exponential maintains a diversified supply chain most of which is based here in the United States. We have been focused on procuring equipment to avoid any slowing or disruption for future openings to that end I am pleased to note that we have secured the equipment packages required for brands with a high volume of new studio openings expected.
In the coming quarters, such as club Pilates and cycle bar.
In addition, while we operate on a cost plus basis. The advanced purchases also ensures that we protect our equipment costs against inflationary adjustments.
Merchandise revenue was $6 1 million up 44% from $4 2 million in the prior year period.
The improvement during the quarter was primarily driven by a higher number of studio openings, along with increased foot traffic across all our studios.
Franchise marketing fund revenue of $4 4 million was up 79% from $2 5 million in the prior year period, primarily due to strong system wide sales and average unit volume growth.
Lastly, other service revenue was $6 6 million up 45% from $4 5 million in the prior year period.
The increase in other service revenue in the quarter was primarily driven by an increase in credit card rebates and revenues from transfer studios that we temporarily owned for short periods.
Turning to our operating expenses cost of product revenues were $9 6 million up 79% from $5 3 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 2 million up 83% from $2 3 million in the prior year period.
The increase during the quarter continued to be driven by costs related to franchise sales commissions and some technology fee revenues from a higher number of studios operating.
Selling general and administrative expenses of $33 $9 million were up 104% from $16 6 million in the prior year period. This increase was largely due to costs associated with public company expenses and higher noncash equity based compensation as well as expenses related to a litigation settlement.
As a percentage of revenue SG&A expenses were 67% of revenue in the first quarter compared to 57% in the prior year period keep in mind, when considering our SG&A as a percentage of revenue. The current year period includes stock based compensation expenses, which was not included.
In the prior year.
Depreciation and amortization expense was $3 5 million, an increase of 70% from $2 1 million in the prior year period.
Marketing fund expenses, which include expenses related to corporate marketing were $4 4 million up 66% from $2 6 billion in the prior year period. The increase was driven by a higher spend afforded by higher marketing fund revenue and due to lower spend in the prior year period due to the pandemic.
Acquisition and transaction expenses totaled $9 $5 million versus <unk> 4 million in the first quarter of 2021.
The increase in acquisition expenses due to $9 5 million in contingent consideration primarily related to our acquisition of Rumble.
As I noted on our Q4 call. The Rumble contingent consideration is driven by our share price.
Mark to market each quarter at a crew for the earn out.
Net income is reduced however, the share count will not increase until these shares actually vest.
We recorded a net loss of $15 2 million in the first quarter compared to net loss of $4 8 million in the prior year period the.
The increase in net loss during the quarter is primarily the result of the previously mentioned noncash contingent consideration related to our acquisition of ruble and increased equity based compensation.
All set by higher revenue income and associated margins.
We continue to believe that the adjusted net income figure is a more useful way to measure the performance of the business, which we provided in our earnings release for reference.
On an adjusted basis for the first quarter, excluding the $9 5 million of noncash contingent consideration along with the <unk> 3 million related to the Remeasurement of the tax receivable agreement. According to our up sea structure adjusted net loss totaled $5 3 million compared to an adjusted net loss of $4 6 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 exponential fitness, Inc, which is $2 6 million and we reduced this number by $1 6 million to account for the dividend paid on our preferred shares.
This results in an adjusted net loss of <unk> 19 per diluted share on a share count of 22 7 million shares.
Adjusted EBITDA was $14 5 million in the first quarter compared to $3 6 million in the prior year period.
Adjusted EBITDA margin grew to 29% in the first quarter compared to 12% in the prior year period.
As Anthony noted, our 2022 outlook anticipates adjusted EBITDA margins of over 30% and long term, we expect this number to grow to over 40%.
Turning to the balance sheet as of March 31, 2022, cash and cash equivalents were $15 8 million up from $7 3 million as of March 31 2021.
Total long term debt was $130 3 million as of March 31, 2022, compared with $191 6 million as of March 31 2021.
Before turning to our outlook I'd like to briefly discuss our recently announced secondary offering which closed on April 11th 2022.
The selling shareholder was <unk> invesco or HW, which is controlled by Mark <unk>, the chairman of our board.
<unk> is the company's private equity sponsor and has been invested in exponential fitness since 2018.
Prior to the April 2022, offering <unk> owns $24 2 million shares or approximately 52% of the total class a and b shares outstanding.
<unk> sold five 2 million shares in the recent secondary offering and now owns $19 1 million shares or approximately 41% of the class a and b shares outstanding.
The secondary offering has increased our public float by nearly 50%.
Exponential fitness did not receive any proceeds from this sale and neither Anthony nor any other members of management sold any shares in the offering.
Given the company is cash flow positive there's no current need to raise capital to support our long term growth strategy.
Moving to our outlook based on current business conditions at our expectations as of today, we reiterate our full year 2022 guidance 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 openings in our company's history.
We project North American Systemwide sales to range from 995 to $1 5 million or $1 billion at the midpoint, which represents a 41% increase from the prior year and the highest north American system wide sales 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 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. It will be primarily focused on integrating <unk> 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.
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 in the mid to high single digits share count for purposes of earnings per share calculation to be $25 1 million and $3 $25 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 the tables at the back of our earnings press release.
Thank you again for your time today and for your support of exponential. We look forward to speaking with you on our next earnings call. We will now open the call for questions operator.
Okay.
Thank you very much.
Those gentlemen at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on the telephone keypad.
A confirmation tone will indicate your line is in the question queue.
First Todd too 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.
We have our first question from the line of Joe.
Ultra below with Raymond James Please go ahead.
Hey, guys good afternoon.
I guess a couple of quick questions in terms of 99, New Studios you opened in the quarter.
Could you help us understand how that broke down between North America International and same question for the 500 to 520 is expecting to open this year, how does that break down between North America and international.
Hey, Joe Yeah. So when it comes to the domestic versus international about 23 or about 25% of the studios where international about 75% were domestic.
On the international front, primarily driven by the ft.
So international domestic international.
International <unk> was about 23 studios in total and then when you look out in domestic front stretch lab.
<unk> had 22 clubs.
<unk> 17, yoga $6 14 cycle bar eight so pretty much are kind of the scale brands that we have that are well above the 150 kind of threshold for total open studios are pretty much driving the significant amount of growth domestically and then some of the younger growth brands like Rumble in stride.
They're on the still on the early growth stage, so they had less studio openings, but about 75%, where domestic and 25% international and that's for the full year as well John .
No that was just for Q1.
Our mix should be about the same for the full year.
Okay, and then if I look at your guidance and I know its you know its may 12, and it's still relatively early in the year, but if I look at 2021.
On revenue for example, Q1 represented about 19% of your full year revenue.
We are north of $50 million in Q1, so why wouldn't we see the same sort of cadence this year.
It seems like you guys are assuming maybe a UBS level off or are you just being conservative at this point.
In regards to like the revenue spread and how it will build throughout the year I mean, a large driver of the revenue will be coming from equipment packages as we continue to scale and open more studios in the second half of the year than the first half of the year. So you will see revenue continue to scale throughout the quarters.
From a perspective of conservatism, we always maintained we want to definitely over or under promise over deliver from our perspective <unk> continued to climb the expectation is they will continue to decline throughout 2022.
So from our perspective, the guidance and outlook, we put out there we want to make sure we hit that.
Based off of what we put out at this point in time, if we if we see over performance in the P&L as we walk through the quarters, we'll make adjustments to our outlook as necessary, but at this point in time, we feel the outlook and the guidance. We've provided for 2022 is there is a fair representation of what we know with high degree of confidence will be.
To hit.
Thanks Scott.
Thank you we have next question from the line of John <unk> with Guggenheim Partners. Please go ahead.
Okay. So let me maybe start.
If you look at the last time, you guys with the 477 to <unk> and I know the the brands are all different.
How might members per studio and per member spend.
Then last time on a go forward basis, which of those two do you think will grow faster members or per member spend.
And so we are seeing that the numbers.
<unk> is increasing especially as it matures they have a little bit in juarez.
In relation.
With the with the CDM buying the retail and just putting more of their dollars and individuals studio.
So we are seeing that come back retail sales with the CD levels have started to increase.
So so far things are looking.
Very good.
Okay.
Secondly, just remind us.
Particularly North America.
As you saw in licenses.
Those are commitments to open whether they're one or multiple over what time period and I ask that because as the.
If you think about the pipeline is that just going to continue to grow right and it will be five to six years and an even more what.
What do you think there at some point, we get at least a little bit of a catch up in.
And actual studio openings right. So youll do five to $5 20, this year that that.
Ends up growing nicely overtime, right pipeline flattening out or going down.
Yes, I think youll see that pipeline continue to grow obviously sales should be will outpace store openings and terminations right, which is what ends up being in the pipeline of course during Covid, we felt that it wasn't good business to be terminating franchise agreements while people weren't allowed to be open.
So there was kind of.
A year and a half to two years call it of not real terminations and we started to fire those back up end of Q3 early Q4 with franchisees.
So youre starting to see us.
Moving the needle a bit.
On openings.
This year versus last year.
Okay. Thank you.
Thank you we have next question from the line of Brian Harper with Morgan Stanley . Please go ahead.
Yeah.
Yeah, Thanks, Hi, guys.
On the on the E V recovery, obviously, we only see it across all of your 10 brands. So I guess I'm just curious whether each brand has fully recovered at this point or if there's any elements of brand mix thats kind of.
The effect of that any of that are doing better or perhaps some of the lagging.
Yeah.
Yeah. So when you think you'd look at <unk> in general from Q4 to Q1, we continued to grow.
In the first quarter and we expect <unk> now with March.
The month of March <unk> now meeting the highest point pre COVID-19 on a quarterly Adv level brands like club Pilates and stretch lab continue to set new records as far as.
Increasing <unk> prior to Covid, our average <unk> never really hit its peak in a lot of our younger brands. They had just started growing so we don't know where the top end of of across all our brands, where the Suvs will ultimately get to.
On a number of the brands and we don't break it down or disclose that across all 10, but we are seeing a lot of the brands already getting back to pre COVID-19 levels. There's a few that.
Still haven't actually got back to pre Covid, but we have no concerns about them eventually getting there.
But as we mentioned in prior calls for the most part on average across all our systems.
At this point, we have a high degree of confidence we will exceed pre COVID-19 levels before the end of Q2.
Okay, Yeah that makes sense.
I guess similar question just.
For instance, the economics of those kind of recovered to pre COVID-19 levels in tandem with <unk>.
Or is there any element of cost inflation that is limited that or maybe also if you think about returns has there been an increase in equipment prices I'm, just trying to kind of compare those two as you've certainly seen a very strong it you'd be recovery here.
Yes expenses remain the same as they really were in pre COVID-19 levels.
Be it that the two largest expenses or rent, which is locked in by at least if anything it got better during the pandemic because a lot of our leases were able to renegotiate.
And then labor.
Don't have minimum wage employees really it is not our model. So now if an instructor makes $40 $50 a class or whatever they may make in that location at that giving modality or time.
Minimum wage goes up $1 or two they're not coming back to make 51 or $52.
So we didn't really see any labor rate hikes, and we definitely didn't see any increases in rent during the COVID-19 period, if anything landlords, we're happy just to get rent.
And those are the two biggest components until you kind of start to get into our royalty which of course is set and then you're then youre down into discussing stuff like utilities and things of that nature.
Yeah.
Thank you.
Okay.
Thank you we have next question from the line of Alex Perry with Bank of America. Please go ahead.
Hi, Thanks for taking my questions. So just first can you give me.
Maybe give us a little more color on the Loo IBM partnership maybe in terms of sort of the economics of that partnership and then.
Are you doing anything with them on the apparel side aside from providing content.
Yes, we haven't disclosed the dollar amount.
In that agreement, but it was a onetime payment.
And yes, we were already selling.
Lululemon apparel, but of course, it just it makes sense that.
We're on a mission lemon definitely as well as on a mission to make sure that as a part of this partnership we saw more retail.
Yeah.
Perfect that makes lot of sense.
And then maybe one for John I think the core SG&A came in a bit higher than expected.
What's driving that any anything to call out there and then I think maybe you added back stock based comp last quarter, but not this quarter, maybe sort of just help us square way that adjusted EBITDA and SG&A numbers on the quarter. Thanks.
Yes, so as far as.
SG&A there the one thing that was impacting SG&A this quarter, that's we call it onetime in nature.
Litigation, which we settled with.
The AK tube founder was undisclosed amount.
But that is included in SG&A.
Quarter, We also did get an ERC credit in the quarter, which was.
Offset which we added back as well so we did provide in the earnings release, a walk or bridge of all of the AD back items stock based comp expense was added back.
As part of our EBITDA, our adjusted EBITDA calculation and it was about $15 2 million in the quarter.
Elevated above normal run rate levels, which we expect to be around $3 6 million a quarter going forward, but we had some equity that vested associated with.
Some performance conditions for shareholders that own stock at the IPO.
Okay.
Got it should we do it very helpful.
As I mentioned on previous calls, we do expect our SG&A to say than that.
$65 million to $70 million range for the quarter, roughly 33% of revenue, so still holding to that and operating to that model.
Gotcha that makes sense. Thank you.
Okay.
Thank you we have next question from the lineup Warren Cheng with Evercore ISI. Please go ahead.
Hey, good evening gentlemen.
Yes.
I wanted to ask about your corporate partnerships just a follow up so your announcement with Lulu mere last months I thought was very creative voluntary.
Fitness.
Also I thought was pretty innovative.
A customer acquisition perspective.
Is there a concerted effort our team in place pursuing more of these types of partnerships I know Dan's working more on the <unk> kind of bulk sales partnerships, but I was curious if there is a team working.
On partnerships more like what you did with Lulu and Elisa kits.
Yes, it's a good it's a good question. We we started doing these brand partnerships when COVID-19 happened.
Because we had nothing else that we're really working on when the stores were closed.
Trying to generate cash and use the assets that we had like access to our network, which was an asset that kind of looks intangible, but it's an asset that we have and so we started doing these brand partnerships during COVID-19.
Did them with various vendors.
And then we ended up hiring Steve from the La Chargers football team here locally because we realize that the NFL and MLB in NHL and all the other teams have been doing these brand partnerships for decades.
And so we looked at that and said well, we could be doing that too and so that was what we did so actually hired Steve from the charges to come in and build that department and he really works hand in hand, with Garrett who's running <unk> plus and Dan.
Who is running the <unk> pass.
To find creative ways to do these corporate partnerships that could use the <unk> pass could use X plus could use brand access sometimes can use all three so you are correct that there is a ongoing monitored effort to do these these types of brand partnerships.
Okay.
Got you and just to follow up on the last question I am I hearing you right that there isn't a revenue or cost share arrangement with the Lulu partnership it's really more of a brand partnership and.
Plug in for customer acquisition.
Yes, it's both of those I mean, they did they did pay us real dollars for that access so it's not just a <unk>.
Marketing partnership so we were paid to do that deal, but there is not a a rev share going forward on the subscription basis.
Because of what we did upfront on that but there are partnerships on the retail side and.
Marketing side that'll that'll continue forward outside of the original access fee.
Got you. Thank you and good luck.
Yes.
Thank you.
Next question from the line of Peter Keith with Piper Sandler. Please go ahead.
Hey, this is Matt on for Peter Keith.
Just a quick one.
Maybe get an update on <unk>.
And then behind that trend.
We're kind of assuming January .
Got it.
Later in Q1.
How was April .
We're seeing that.
Yeah.
So far in April we're seeing new members.
Cancellation.
Churn that we're seeing at the CEO level inclusive of freezes and so far the trends are increasing.
We're very pleased with the CDO performances.
Okay great.
And then I mentioned in the prepared remarks.
Can you believe you're a little bit.
Thank you.
Released youre.
Yeah.
Excuse me 60, operator.
Good to hear you very properly could you. Please use your handset or speak a little closer to my thank you.
Alright can you hear me better now.
Yes, much better. Please go ahead.
Okay, sorry about that.
Mentioned in your prepared remarks that you believe you're a little insulated from macro pressure.
And maybe can you maybe walk us through is there any pressure that you might think you would see from new franchisees doing during a recession.
Is there any risk of that pulling back I appreciate it.
Okay.
Yes, I mean look if.
If we went into a recession, which were not in one but if we went into a recession.
Typically what we'll see is you'll see some pressure on franchise sales.
But when I went through the recession in OE and boutique fitness franchise, and which is something that.
Nobody else can really say in the industry.
Went through that you see franchise sales start to slow we actually see openings continue and the reason you see that is because people are leaving their jobs or don't have their jobs. They are looking for a job they're looking for something to open that's going to generate income for themselves.
And so we actually back when I owned La boxing in 2008 and owned that business through 2012, when I sold it successfully and the reason I sold in 2012 was because the business was actually doing much better in 2012 and it was an OE.
So that's what's good and much like in that business is the same with Expo, we have a massive backlog of already prepaid for pre contracted territories and franchises and so.
People would convert their 401K's or taking investment money that they had and then they would now virtually by themselves the job off of a franchise that they already owned and already paid for so yes franchise sales can slow but of course, we don't generate our revenue.
From franchise sales, we generate our revenue on reoccurring revenue, which comes from open stores and royalty and equipment packages that get it going we used to see landlords actually putting up the equipment package money as additional tenant improvement allowances on leases.
And our way to nine and 10.
<unk> partnered with large Reits at that point so.
We're not in a recession, we don't really know what that looks like and in 2022 or if we ever get there, but we do have the team on staff that that lived through 2008 as the majority of my team from 2008 is still with me.
Yeah.
That's very very helpful. I appreciate it.
Thank you.
We have next question from the line of J P. <unk> with Roth Capital Partners. Please go ahead.
Hello, everyone and thank you for the time Tonight and John Congrats on the award.
Wanted to quickly start with a question on ex Pats.
Full quarter kind of under the belt I was just curious if you guys are noticing any trends kind of about user engagement between brands and then also I think there was a comment about.
Subscribers, there and I was curious if you could comment on what percent were kind of dead lead the originally.
If you have those kind of mixed numbers. Thank you.
Hi, Yes, we are continuing to see the ex pass continues to be a great funnel for new customers.
Seeing that 15% of account holders are still brand new to the ecosystem and they are coming into our studios for the very first time.
And we're also seeing that 60% of account holders were previously lapsed from an external brand or deemed inactive CDN sales staff member and Theyre coming back into the ecosystem through ex path.
This was a really great quarter in that we were fully launched and we have over 80% of our Cds that have opted in.
Seeing more inventory on the system and we're booking now things are looking really good on the ex pass front.
Great. Thank you.
15% were brand new to the ecosystem, yes.
Yes, that's correct.
Great. Thank you very much.
Then second question would just be kind of on cadence of studio openings.
In Q1, it looks like Youre 99 openings and I think prior comments, maybe where that openings, we're going to be towards the back half of the year, but I was just curious.
Have the equipment packages ready for new openings have you seen any other kind of delays and timelines, whether that's labor challenges or costs in build out has there been any delays on the timeline. Thank you.
Yes, yes.
As we mentioned on the previous earnings call, we expected around 20% of our openings will be in the first quarter, which is exactly where we came in at and we said that percent will grow to 30% by Q4. So it will be a continued trending a studio openings and.
In regards to delays one of the things that we did is we did go ahead and acquire all of the equipment packages to ensure that one we kind of insulate ourselves from any inflationary risks on cost of equipment.
Again that helps the franchisees out because it keeps costs down for them They get studios open but.
And ensures that we have the packages in the supply chain or logistic issues.
Citi was getting open I think the only place that we've seen some delays is more on the micro level within certain markets as far as.
Getting certification or building permits and stuff from a construction standpoint, but it hasnt materially disrupted the ability for us to get open so we're still.
Confidence in our ability to get North of 500 Studios open.
This year.
Great. Thank you very much for the time.
Okay.
Thank you we have next question from the line of Jonathan Komp with Baird. Please go ahead.
Yes, hi, good afternoon. Thank you I wanted to ask about new unit performance could you maybe further quantify just what youre seeing for new unit <unk>.
<unk> up over the last few quarters are looking.
Looking back into 2021, and then as we go forward should we be thinking any any sort of mix changes. If you will I know you had a lot of yoga six.
<unk> sold prior to the pandemic as an example, so just thinking about the new unit productivity going forward.
Yes, we are seeing the end cities are opening at the <unk>.
Cohort post COVID-19 that are opening stronger than they did even pre COVID-19 and so we are seeing some great tailwind coming out of Covid a lot of interest from customers that are coming into their peak fitness for the very first time.
Seeing a lot of openings across yogurt snacks and yogurt is a very popular modality that is attracting glenn.
Customer interest in membership levels as well.
And as John had mentioned earlier, just higher portion of the mix is attributed to our scaled brands.
Which already has great brand awareness and interest.
Opening very strongly with them.
Higher level of members and spend right now.
Yes, that's great and then maybe a separate question for John just looking at free cash flow. It looks like you've had lower cash flow generation relative to the adjusted EBITDA. So could you maybe just highlight any if there's any sort of timing differences impacting the balance sheet I know you mentioned maybe some.
Karen.
Equipment inventory and just.
More thoughts on what you would expect operating or free cash flow for the year.
From a from an optics perspective, it looks like we're using cash, but we're using it in the right places to ensure that we have growth in the future. So we kind of looked at as we saw inflation in some of those things starting to pop up in supply chain. We wanted to make sure that we invested in having the equipment the merchandise.
Coming.
Into the U S or into the markets, where we need them. So we don't floor opening so from a club pilates perspective, and a cycle bar perspective, we went ahead and prepaid for a lot of equipment packages that'll get studios opened for the rest of this year. So we did burn some cash in that sense, but it's really investing in future openings in future revenue streams and then we did have.
In the quarter as I mentioned earlier.
Our confidential settlements related to our AK tube founder, we use cash to settle that agreement. So overall the business was cash flow generative, but we've made some investments primarily to drive future revenue and subtle illegal.
Issue.
And should we expect to see.
Incremental investments over the next few quarters throughout the year or just any.
Your thoughts on you know what.
The full year might look like.
So I mean from a going forward perspective, I mean, we have our free cash flow conversion is high.
Asset light, so we're not going to be investing a lot of capital in Capex I think we're.
About five 5% to $7 million range of Capex is will hold for the full year as you go quarter to quarter to quarter through the rest of this year.
Cash generation in piling up on the balance sheet is the expectation now if we have to make additional investments to ensure we have <unk>.
Equipment, our merchandise will continue to do that but at this point in time the high volume opening brands that were expected.
Made that investment now so I would anticipate through the next coming quarters that cash flows continue to increase from what I would consider the low point in Q1.
Okay.
Okay Best of luck. Thank you.
Thank you.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I'd like to turn the call back to Anthony Geisler CEO for closing remarks over to you Sir.
Thanks, again for joining our call today and for your support of exponential I'd like to thank the entire exponential fitness team and our franchisees for your hard work and dedication to our business I would also like to note that we have an active marketing schedule coming up in May and June later this month, we'll be participating in the inaugural credit Suisse wellness investment summit.
And the 20 <unk> annual B Riley Securities Consumer Investor Conference in early June we'll be attending Baird's 2022, global consumer technology and services conference and the Stifel 2022 Cross sector Insight conference. Finally in late June we will be participating at the Jefferies Consumer conference. We're excited for.
Great opportunities to meet our investors in person and hope to see many of you at these events. Thank you and make it a great day.
Thank you very much Sir ladies and gentlemen. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
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