Q3 2023 Xponential Fitness Inc Earnings Call

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Good day and welcome to the exponential fitness Inc. 3rd quarter 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance please Figually conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions.

Good day and welcome to the exponential Fitness, Inc. Third quarter 2023 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to every one of Makar senior associate.

To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note this event is being recorded.

I would now like to turn the conference over to Avery Wanamaker, Senior Associate, Addo Investor Relations. Please stand by.

Yes.

<unk> Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and thank you all for joining our conference call to discuss exponential fitness third quarter 2023 financial results. I am joined by Anthony Geisler, Chief Executive Officer, Sarah Luna, President, and John Malone, Chief Financial Officer. A recording of this call will be posted on the investor section of our website at investor.exponential.com.

Thank you operator, good afternoon, and thank you all for joining our conference call to discuss exponential fitness third quarter 2023 financial result.

I am joined by Anthony Geismar, Chief Executive Officer, Arizona.

And John Malone, Chief Financial Officer.

A recording of this call will be posted on the investors section of our website at Investor Dot exponential Dot com.

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.

We remind you that during this conference call, we will make certain forward looking statements, including discussion 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 from such expectations.

For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligations to update the information provided on today's call.

For a 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.

In addition, we will be discussing certain non-GAAP financial measures in this conference call.

These 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.

A reconciliation of these non-GAAP measures comparable GAAP measures is included in the earnings release that was issued earlier today prior to this call.

Please note that all numbers reported in today's prepared remarks referred to global figures unless otherwise noted. I will now turn the call over to Anthony Geisler, each executive officer of exponential fit.

Please note that all numbers reported in today's prepared remarks referred to global figures unless otherwise noted I will now turn the call over to Anthony Guy for you for Executive officer of Exponentials. It.

Thank you, Avery, and thanks to everyone for joining our third quarter earnings conference call. As the leading global boutique fitness franchise or exponential, again, produced strong results as quarters, we continue to operate our business efficiently while providing our end customers with the workouts they find vital to their routine. We are encouraged by the strength of our consumer and our KPIs are continuing to show consistent and healthy growth.

Thank you Amy and thanks to everyone for joining our third quarter earnings Conference call.

A leading global boutique fitness franchise or exponential again produced strong results. This quarter as we continue to operate our business efficiently, while providing our end customers want to work I'll say find vital to their routine. We are encouraged by the strength of our consumer and our kpis are continuing to show consistent and healthy growth.

At the end of the third quarter, exponential franchisees operated nearly 3,000 studios globally with over 6,000 licenses sold across our 10 brands. Momentum has continued into the fourth quarter.

At the end of the third quarter exponential franchisees operated nearly 3000 studios globally with over 6000 licenses sold across our 10 brands momentum has continued into the fourth quarter.

Exponential has made international growth a priority, and our efforts have continued to bear fruit in the form of new master franchise agreement.

Exponential has made international growth a priority and our efforts have continued to bear fruit in the form of new Master franchise agreements are existing Kuwait Master franchise partner has recently signed a new Master franchise agreement to develop club Pilates Rumble French lab in 8-K T in Qatar.

Our existing Kuwait Master Franchise partner has recently signed a new Master Franchise agreement to develop Club Pilates, Rumble, Stretch Lab, and AKT in Qatar.

We now have franchise, master franchise, and international expansion agreements in 23 countries around the globe. We will discuss our international strategy in more detail shortly.

Now have franchise Bachelor franchise and international expansion agreements in 23 countries around the globe will discuss our international strategy in more detail shortly.

Our membership and visitation trends continue to demonstrate the strength and resiliency of our membership base. During the third quarter, total members across North America grew 26% year-over-year to a total of 726,000, with 92% of these customers continuing to be actively paying members.

Membership in visitation trends continued to demonstrate the strength and resiliency of our membership base during the third quarter total members across North America grew 26% year over year to a total of 726000 with 92% of these customers they deem to be actively paying members.

Consumers also continue to flock to the overall boutique fitness industry. According to Ursus 2023 report, boutique fitness now accounts for 42% of all gym memberships today with estimated growth of 17% by 2025. As the largest player in the boutique fitness market, we are confident or brands are well positioned to capture a large share of this growth.

Tumors also continue to flock to the overall boutique fitness industry. According to <unk> 2023 report boutique fitness now accounts for 42% of all gym memberships today with estimated growth of 17% by 2025 as the largest player in the boutique fitness market. We are confident our brands are well positioned to capture a large share of this.

Growth.

Additionally, current adoption of weight loss drugs such as Ozempic have shown early tailwinds for our business model with Morgan Stanley analysts recently citing a survey that showed people's greater propensity to get active after beginning injection.

Additionally, current adoption of weight loss drugs, such as those Mpeg have shown early tailwind for our business model with Morgan Stanley analysts recently, citing a survey that showed people's greater propensity to get active after be getting injections.

Our visitation rates remain strong with North American Studio visits for the third quarter up 30% year over year, to a total of 13.1 million.

Our visitation rates remained strong with North American studio visits for the third quarter up 30% year over year to a total of $13 1 million.

This drove North American system wide sales to $357 million during the period, an increase of 35% over the third quarter of 2022.

This drove north American system wide sales to $357 million during the period, an increase of 35% over the third quarter of 2022.

Q3 North American run rate average unit volumes of 564,000 increased 15% from 489,000 in Q3 of 2022. While the third quarter typically sees a slight sequential slowing of growth impact due to seasonality related to summer vacations and travel, we still delivered our 13th straight quarter of AUV growth.

Q3, North American run rate average unit volumes of 564000 increased 15% from 489000 in Q3 of 2022.

The third quarter typically sees a slight sequential slowing of growth impact due to seasonality related to summer vacation and travel we still delivered our 13th straight quarter of ANV growth.

In addition, September and October AUVs of 570,000 and 576,000 respectively provided momentum heading into Q4 which tends to be our best performing quarter from an AUV perspective. We are seeing encouraging early trends thus far in the fourth quarter with same store sales up again 15% in October and visitation rates up 29% year over year and approximately 5% compared to September .

In addition September and October <unk> of 570000, and 576000, respectively provided momentum heading into Q4, which tends to be our best performing quarter from an <unk> perspective.

We are seeing encouraging early trends, thus far in the fourth quarter with same store sales up again, 15% in October and visitation rates up 29% year over year and approximately 5% compared to September.

Third quarter of North American same store sales growth at 15% were consistently strong with the previous quarter and remained well above our long-term targeted level.

Third quarter, North American same store sales growth of 15% were consistently strong with the previous quarter and remained well above our long term targeted level.

Studios over three years old also saw remarkable growth with same store sales increasing by 15% during the quarter. Further demonstrating the resilience of the teak fitness consumers and the healthy growth profile of our more mature studios.

He goes over three years old also saw remarkable growth with same store sales increasing by 15% during the quarter further demonstrating the resilience of boutique fitness consumers and a healthy growth profile of our more mature studios.

Turning to revenue, for the quarter, net revenue totaled $80.4 million, an increase of 26% year-over-year. As John will discuss in a moment, these better-than-expected results and our visibility to Q4 drove us to increase our revenue guidance for 2023.

Turning to revenue for the quarter net revenue totaled $80 4 million, an increase of 26% year over year as John will discuss in a moment these better than expected results and our visibility into Q4 drove us to increase our revenue guidance for 2023.

Adjusted EBITDA total 26.5 million in Q3 or 33% of revenue, up 33% from 20 million or 31% of revenue in the prior year period.

Adjusted EBITDA totaled $26 5 million in Q3, or 33% of revenue up 33% from 20 million or 31% of revenue in the prior year period I.

I will now turn to our strategic growth drivers. I'll discuss the first three and then turn the call over to Sarah to discuss the fourth.

I will now turn to our strategic growth drivers I will discuss the first three and then turn the call over to Sarah to discuss the fourth.

Beginning with the increase of our franchise studio base, we ended Q3 with 2,980 global open studios, opening 127 new studios in the third quarter, comprised of 100 in North America and 27 international. As presented in our Analysts and Investor Day in September , our pipeline of future openings is predictable based on visibility in the lease signings.

Beginning with the increase of our franchise studio base. We ended Q3 with 2980 Global Open Studios opening 127, New studios in the third quarter comprised of 100, and North America and 27 International as presented at our analyst and Investor Day in September our pipeline of future openings.

It's predictable based on visibility into lease signings as of September we have 442 leases in LOI signed for studios not yet opened in Q3 alone franchisees signed 123 leases in North America, which adds to our evergreen backlog of studio openings as a reminder, in the fourth quarter, we can see.

As of September , we have 442 leases and LOIs signed for studios not yet open. In Q3 alone, franchisees signed 123 leases in North America, which adds to our evergreen backlog of studio openings. As a reminder, in the fourth quarter, we consistently produce a high volume of new studio openings as franchisees want to take advantage of growing their membership bases as consumers set New Year's health resolutions, and this year will be no different.

Suddenly produce a high volume of new studio openings as franchisees want to take advantage of growing their membership basis as consumer set new year's health resolution and this year will be no different.

We sold 216 licenses globally during the quarter. Our increasing pipeline includes over 2,000 licenses sold and contractually obligated to open on a global basis, plus an additional over 1,000 master franchise agreement obligations giving us clear visibility on openings over the next several years.

We sold 216 licenses globally during the quarter, our increasing pipeline includes over 2000 licenses sold and contractually obligated to open on a global basis.

An additional over 1000 master franchise agreement obligations, giving us clear visibility on openings over the next several years.

Turning to our second growth driver, international expansion, considering the continued importance of international as a key growth driver, we created a new position of President of International. We're excited to announce the addition of Bob Kaufman, who will be our first President of International.

Turning to our second growth driver international expansion, considering the continued importance of international is a key growth driver. We created the new position of President of International we're excited to announce the addition of Bob Kaufman, who will be our first president of international.

Bob has over 25 years of experience leading global franchising for franchisors across 50 countries.

Rob has over 25 years of experience, leading global franchising for franchise owners across 50 countries. He has held various roles, including senior Vice President of business development and international Franchising of Tower Records.

He has held various roles, including Senior Vice President of Business Development and International Franchising, a Tower Records, Vice President of Global Franchise Development and Operations for the Coffee Bean and Tea Leaf, and most recently Senior Vice President of Franchise Operations at Mathinesium, a brick and mortar education franchise system with over 1,100 locations across 10 countries, which was acquired by Rorke Capital Group in 2021.

This president of global franchise development and operations for the coffee bean and tea leaf and most recently as senior Vice President of franchise operations at Mathnasium, a brick and mortar education franchise system with over 1100 locations across 10 countries, which was acquired by Roark capital group in 2021.

Bob is a true industry veteran with a longstanding history of international franchising success, and we're thrilled to have him lead our already impressive international team of individuals who have joined us from Orange Theory, Anytime Fitness, and the International Health Racket and Sports Club Association, or Ursa, among other companies.

Bob is a true industry veteran with a long standing history of international franchising success, and we're thrilled to have him lead our already impressive international team of individuals who have joined us from Orange theory, anytime fitness and the International Health Racquet Sports Club Association or <unk> among other companies.

As of quarter end, we have over 1,000 studios obligated to open under master franchise agreements and we continue expanding into new markets.

As of quarter end, we have over 1000 studios obligated to open under Master franchise agreements and we continue expanding into new markets. In addition to the new Master franchise agreement recently signed in Qatar for our AK T Club Pilates Rumble and stretch lot brands. We have also expanded further into a.

In addition to the new master franchise agreement recently signed in Qatar for our AKT Club Pilates Rumble and Stretch Lab brands, we have also expanded further into Asia and Europe with new multi-unit franchise agreements for BFT in Hong Kong, Malaysia, Scotland, and Spain. We look forward to signing more deals around the globe and expanding our presence.

In Europe with new multi unit franchise agreements for BST in Hong Kong, Malaysia, Scotland, and Spain, we look forward to signing more deals around the globe and expanding our presence.

Growth in our international business comes with nearly 100% EBITA margin as we deploy an asset light model and receive a percentage of revenue share with minimal corresponding SG&A importantly.

Growth in our international business comes with nearly 100% EBITDA margins as we deploy an asset light model and receive a percentage of revenue share with minimal corresponding S-GNA. Importantly, there remains ample white space to continue growing our presence around the globe.

<unk> ample white space to continue growing our presence around the globe.

Our third key growth driver is to expand margins and drive free cash flow conversion. Adjusted EBITDA margins increased to 33% during the third quarter, and will improve further as we continue to grow our higher margin revenue stream, and ultimately decrease our selling general and administrative expenses.

Our third key growth driver is to expand margins and drive free cash flow conversion.

Adjusted EBITDA margins increased to 33% during the third quarter and will improve further as we continue to grow our higher margin revenue stream and ultimately decrease our selling general and administrative expenses.

As discussed during our Annals and Investor Day presentation, in the third quarter, the company has continued the process of refranchising our portfolio of company-owned transition studios with the goal of getting to zero studios operating in a net-loss position by year end.

As discussed during our analyst and Investor day presentation in the third quarter. The company has continued the process of Refranchising our portfolio of company owned transition studios with a goal of getting to zero studios operating at a net loss position by year end, we have made solid progress and as of the end of the third quarter, we have reduced the number of <unk>.

We have made solid progress, and as of the end of the third quarter, we have reduced the number of company-owned transition studios to 22 traditional studios as well as nine LA fitness locations that we intend to operate as we prove out that business model.

Company owned transition studios to 'twenty, two for additional studios as well as nine la fitness locations that we intend to operate as we prove out that business model.

Executing this strategy of either refranchising or closing our existing company-owned transition studios, and if not taking on any new company-owned transition studios will lead to higher operating leverage in EBITDA Margin.

Executing this strategy of either Refranchising, our closing our existing company owned transition studios and have not taking on any new company owned transition studios will lead to higher operating leverage and EBITDA margins.

During Q3, we've had 39 overall studio closures, including 24 units in North America, of which 11 were franchise, and 15 units internationally. Taking this into account, the closure rate of the last six years to date would represent a nominal annual percentage per year.

During Q3, we've had 39 overall studio closures, including 24 units in North America of which 11 were franchised and 15 units internationally, taking this into account the closure rate over the last six years to date would represent a nominal annual percentage per year.

I'd now like to briefly provide an update around our M&A strategy. As discussed at Analyst Day, we're continuously evaluating targets. We've been pleased with what we have been seeing. Any transactions we'd pursue would be funded from cash available on our balance sheet. We continue to be focused on smaller targets with significant growth potential in white space.

Now I'd like to briefly provide an update around our M&A strategy as discussed at analyst day, we're continuously evaluating targets. We've been pleased with what we've been seeing any transactions, we'd pursue would be funded from cash available on our balance sheet. We continue to be focused on smaller targets with significant growth potential and white space.

In summary, we're pleased with another strong quarter and the continual momentum we are seeing in Q4. And with that, I'll pass the call on to Sarah.

In summary, we are pleased with another strong quarter and the continued momentum we are seeing in Q4 and with that I'll pass the call on to Sarah.

Thank you Anthony.

Thank you, Anthony. Despite an increase in interest rates, restart and student loan repayments, and various geopolitical events, visitation rates in the third quarter grew 30% year over year. In our North America, actively paying membership base grew to over 667,000 members. Our studios continue to play an integral role in our members' lifestyles, and we have not seen an increase in frozen memberships or monthly terms.

An increase in interest rates restarting to student loan repayments and various geopolitical events visitation rates in the third quarter grew 30% year over year, and our North America actively paying membership base grew to over 667000 members. Our studios continue to play an integral role in our members' lifestyles and we've not seen in any.

Kris and frozen memberships or monthly churn.

The exponential team generated strong in-studio performance in the third quarter on the back of an expanded ecosystem of B2B partnerships.

The exponential team generated strong in city of performance in the third quarter on the back of an expanded ecosystem of B to B partnership as.

as well as further refinements to our XPASS and XPlus services. We continue to enhance our Omni Channel Fitness offerings to allow our members to access our classes and content in the format and location that works best for them.

As well as further refinements to our ex cat and ex plus services, we continue to enhance our Omnichannel service offerings to allow our members to access our classes and content in the format and location that works best for them exponential Omnichannel boutique offerings helped drive customer engagement and lead flow, which ultimately result in higher.

Exponentials on the channel, Boteque Offerings help drive customer engagement and lead flow, which ultimately result in higher same-store sales, system-wide sales, and AUV.

Same store sales system wide sales and a disease.

We're also increasingly focused on maximizing organic forms of customer acquisition and interactions that serve as a compliment to our paid marketing strategy.

We are also increasingly focused on maximizing organic forms of customer acquisition and interactions that serve as a complement to our paid marketing strategy.

Enhanced Organic Growth Initiatives will drive greater brand awareness and lead generation. And by way of example, we have over 20 retail partners, including Lou Leman, Namedx, Thura Vida and Aloyoga, that service our franchise series by offering a wholesale merchandise.

Enhanced organic growth initiatives will drive greater brand awareness and lead generation and by way of example, we have over 20 retail partners, including Blue Lemon nomadic PURA Vida and allo yoga that severance or a franchisee as they offering of wholesales merchandize.

Through these retail partnerships, we received some exclusive perks, build brand awareness, generate revenue, and maximize the franchise city's footprint by driving ancillary revenue. This operation is a stable part of our business and allows our customers to engage with us in a different way than they do when attending class.

Through these retail partnerships, we've received some exclusive perks build brand awareness generate revenue and maximize our franchise cdos footprint by driving ancillary revenue.

This operation is a stable part of our business and allows our customers to engage with us in a different way than they do when attending class.

With that, let's now discuss a few of our most recent initiatives.

With that let's now discuss a few of our most recent initiatives.

Our newly announced loyalty program, Class Points, which is embedded in our mobile app, will help to gamify our members' experience. And most importantly, drive wellness and retention. Members can earn points by attending classes and engaging in various positive behaviors in the studio. The points earned correlate to their loyalty status, giving the member various benefits across the exponential ecosystem.

Our newly announced loyalty program class points, which isn't added in our mobile App will help to gamify, our members' experience and most importantly drive wellness and retention members can earn points by attending classes and engaging in various positive behaviors in the studio.

<unk> earned correlate to their loyalty status, giving the member various benefits across the exponential ecosystem, we engaged IBM to help US design. This loyalty program and they've recently concluded phase one of their analysis and recommendation.

We engaged IBM to help us design this loyalty program, and they've recently concluded phase one of their analysis and recommendation. To date, we are on track to deploy early next year.

We are on track to deploy early next year.

Accidental plus is an important part of our omnichannel strategy. Through x plus, members can access visual classes at all ten of our brands from the comfort of their own home, and as a supplement to in-person classes at our studios.

Exponential pluses and important part of our Omnichannel strategy.

X plus members can access digital classes at all 10 of our brands from the comfort of their own home and as a supplement to in person classes at our studios.

After working closely with meta, for nearly a year to develop a leading edge next reality fitness experience, accidental plus launched on MetaPlast.

After working closely with meta for nearly a year to develop a leading edge next reality fitness experience accidental plus launched on that a class.

Through augmented reality, users will be able to take digital versions of exponential classes with a level of realism that was not previously possible. And this app will help to introduce new audiences to exponential brands and drive new members to our studios.

Through augmented reality users will be able to take digital versions of exponential classes with a level of realism that was not previously possible and this app will help to introduce new audiences to exponential as brands and drive new members of our studios.

Initially, the Exponential Plus app will have virtual content from Club Pilates, Stretch Lab, and Pure Bar. In the coming months, we will launch additional brands.

Initially the exponential plus Apple had virtual content from club Pilates stretch lab and pure bar in the coming months, we will launch additional brands.

Our recently announced impasse partnership is an exciting new relationships through which didn't pass subscribers will have access to the exponential brand exponential will gain access to Jim passes more than 2 million subscribers in over 15000 corporate customers through this partnership didn't pass members will be able to book into classes with excess inventory.

Our recently announced Genpass Partnership is an exciting new relationship through which Genpass subscribers will have access to exponential brands. Exponential will gain access to Genpass's more than 2 million subscribers and over 15,000 corporate customers. Through this partnership, Genpass members will be able to book into classes with excess inventory.

Exponential benefits by offering spots and pre-existing classes to the new base of potential numbers while driving incremental studio revenue and filling classes to maximize capacity.

Exponential benefits by offering spots and preexisting classes to a new base of potential numbers, while driving incremental studio revenue and filling classes to maximize capacity.

Our studios have been onboarded to the Jim Pass platform, and the launch of the consumers will take place in the fourth quarter.

Our studios have been on boarded to the gym Paas platform and the launch that consumers will take place in the fourth quarter.

Our partnership with Princess Cruises also continues to progress. With Pierre-Barr, Yogurt Six, Stretch Lab, Clop Pilates, and Cycle Bar, now launched across the entire Princess fleet. And the remaining brands plan to launch in 2024. We successfully concluded our first branded cruise in September , a seven-day Alaskan retreat featuring Clop Pilates themed workouts throughout the cruise, as well as destination Pilates experiences. Our franchise partners enjoy high margins from B2B revenue sources.

Our partnership with Princess Cruises also continues to progress with pure Barre Yoga sex stretch last couple of hours and cycles are now launched across the entire Princess fleet and the remaining brands plan to launch in 2024.

We successfully concluded our first branded cruise in September a seven day Alaskan retreat, featuring club Pilates seemed to work out throughout the crews as well as destination pilates experiences.

Our franchise partners enjoy high margins from B to B revenue sources.

In the fourth quarter of 2023, we will further build out our network of B2B partnerships and enhance X-Pass and X Plus to drive organic growth via referrals and increase customer retention.

In the fourth quarter of 2023, we will further build out our network of VW partnerships and enhance ex task X plus.

Organic growth via referrals and increase customer retention.

As of what folio brands, we will continue to leverage our scale on the channel offerings and partnerships to drive new customer acquisition. Exponentials new relationship with VaynerMedia will also help to further accelerate our marketing efforts and better utilize our marketing spend. Our key performance indicators continue to validate that our approach to organic growth is working.

As the portfolio of brands, we will continue to leverage our scale omni channel offerings and partnerships to drive new customer acquisition.

The nature of the new relationship with vein or media will also help to further accelerate our marketing efforts and better utilize our marketing spend are.

Our key performance indicators continue to validate that our approach to organic growth is working.

Lastly, as we closed out 2023, we are excited to host our franchisees and business partners at our annual Expo Convention being held in early December in Las Vegas.

Lastly, as we close out 2023, we are excited to host our franchisees and business partners at our annual Expo Convention being held in early December in Las Vegas.

Over 1,300 participants have already RSVP'd. The convention is a great way for exponential franchisees to get together, discuss our growth strategies, share best practices, and learn more about our brand. We look forward to seeing our franchisees and vendor partners there, and are appreciative of those who sponsor the event. Thank you again for your time. I'll now turn the call over to John to discuss our third quarter results and 2023 outlook.

Over 1300 participants have already our S. E T. At the convention is a great way for accidental franchisees to get together and discuss our growth strategies share best practices and learn more about our brands.

Look forward to seeing our franchisees and vendor partners, there and are appreciative of those who sponsored the event.

You again for your time I'll now turn the call over to John to discuss our third quarter results and 2023 outlook.

Thanks, Sarah, and thank you to everyone for joining the call. Beginning with our third-quarter results, North America's system-wide sales of $356.7 million were up 35% year over year. Even considering headwinds related to our strategic decision, the refranchised and-or-close transition studios during the quarter.

Thanks, Sarah and thank you to everyone for joining the call beginning with our third quarter results North America system wide sales of $356 7 billion were up 35% year over year, even considering headwinds related to our strategic decision to re franchise Anadarko's transition studios during the quarter.

The growth in North American system white sales was driven primarily by the 15% same store sales within our existing base of open studios that continue to acquire new members coupled with 127 growth new studio opening.

The growth in North American system wide sales was driven primarily by the 15% same store sales within our existing base of opened studios.

To acquire new members, coupled with 127 gross new studio openings.

Further, 95% of the growth came from volume, or new members which have remained consistent with historical performance, and 5% coming from price.

Further 95% of the growth came from volume or new members, which has remained consistent with historical performance with 5% coming from price.

On a consolidated basis, revenue for the quarter was $80.4 million, up 26% year-over-year. 78% of the revenue for the quarter was recurring, which we have consistently defined to include all revenue streams except for franchise license sales and equipment revenues, given these materially occur up front before our city will open.

On a consolidated basis revenue for the quarter was $80 4 million up 26% year over year.

78% of the revenue for the quarter was recurring which we have consistently defined to include all revenue streams, except for franchise license sales and equivalent revenues given these materially occur upfront before studio Holton.

All five of the components that make up our revenue grew during the quarter. Franchise revenue was $36.4 million, up 21% year over year. This growth was primarily driven by an increase in royalty revenue as member visits and system-wide sales reached all-time highs.

All five of the components that make up our revenue grew during the quarter franchise.

Franchise revenue was $36 4 million up one 1% year over year. This growth was primarily driven by an increase in royalty revenue as member visits and system wide sales reached all time highs.

In addition, we saw higher monthly tech fees and increased instructor training revenues that will continue to increase as we open more studios domestically.

In addition, we saw higher monthly taxis and increase the instructor trading revenues that will continue to increase as we open more studios domestically.

Equipment revenue was $12.6 million, up 7% year-over-year. This increase in equipment revenue is the result of higher volumes of global installations, in addition to a higher mix of equipment-intensive brands like BFT and Rumble.

Well equivalent revenue was $12 6 million up 7% year over year.

This increase in equipment revenue as a result of higher volumes of global installations. In addition to a higher mix of equivalent intensive brands like the F. T N Rumble.

Virginice revenue was 8.5 million, up 35% year over year. The increase during the quarter was primarily driven by a higher number of operating studios and inventory purchases by existing studios to address the demand for retail as consumer foot traffic has grown compared to the prior year.

Merchandise revenue was $8 5 million up 35% year over year.

The increase during the quarter was primarily driven by a higher number of operating scenarios and inventory purchases by existing studios to address the demand for retail is consumer foot traffic has grown compared to the prior year.

Franchise marketing fund revenue of $6.9 million was up 34% year-over-year, primarily due to continued growth in system-wide sales from a higher number of open studios in North America.

Franchise marketing fund revenue of $6 9 million was up 34% year over year, primarily due to continued growth in system wide sales from a higher number of open studios in North America.

Lastly, other service revenue, which includes rebates from processing studio system-wide sales.

Lastly, other service revenue, which includes rebates from processing video system wide sales.

B2B partnerships, XPASS, and X plus amongst other items was 16 million up 52% from the prior year period.

We need to be partnerships ex path that X plus amongst other items was $16 million up 52% from the prior year period. The increase in the period was primarily due to increased revenues from sales generated in a company called transition studios increased rebates from the processing of the deal level.

The increase in the period was primarily due to increased revenues from sales generated in our company own transition studios.

Increased rebates from the processing of studio level system wide sales and higher revenues from our b2b partnership

System wide sales and higher revenues from our <unk> partnerships.

As a reminder, as we decrease the number of company-owned transition studios, the revenue generated from them will decrease in this revenue line.

As a reminder, as we decrease the number of company owned transition videos, but revenue generated from that will decrease in this revenue line.

Turning to our operating expenses, cost of product revenue were 12.7 million of 7% year over year. The increase was primarily driven by a higher volume of equipment installations for new studio openings and a higher mix of equipment intensive brands in the period.

Turning to our operating expenses.

Product revenue were $12 7 million up 7% year over year.

The increase was primarily driven by a higher volume of equipment installations for new studio openings and a higher mix of equipment and types of brands in the period.

Cost of franchise and service revenue were $3.6 billion, down 26% year-over-year. The decrease was driven by lower costs of advertised franchise license commissions in the period.

Pasta franchise and service revenue were $3 6 billion down 26% year over year.

Decrease was driven by lower costs for advertising franchise license commissions in the period.

selling general and administrative expenses of $48.6 million or up 48% year over year. The increase in SG&A was primarily the result of higher operating costs in the period associated with company-owned transition studios and restructuring costs for studios where we have ceased operation.

Selling general and administrative expenses of $48 6 million were up 48% year over year. The increase in SG&A was primarily the result of higher operating costs in the period associated with company owned transition studios are restructuring costs for studios, where we have ceased operation.

As previously discussed, we are shifting our transition to video strategy, which we anticipate over time will decrease aschina expenses and improve EBITDA margins.

As previously discussed we are shifting our transition video strategy, which we anticipate over time will decrease our SG&A expenses and improved EBITDA margins.

So largest liability we are working through is our commercial leads.

The largest liability we are working through as our commercial leases.

We anticipate the restructuring will continue in the fourth quarter and in 2024. And we'll be finalized once we have settled any outstanding leases with landlords.

We anticipate the restructuring will continue in the fourth quarter and in 2024 and will be finalized once we have settled any outstanding leases with landlords.

The investments, we are making to streamline operations to a franchise only model will optimize forward looking SG&A expenses.

The investments we are making to streamline operations to a franchise-only model will optimize forward looking SGNA expenses, resulting in increased margin level.

<unk> and increased margin levels.

In 2023, that operating losses associated with transition studios were expected to be approximately 10 million, which we expected to go away in 2024.

In 2023, net operating losses associated with transition studios were expected to be approximately $10 million, which we expect to go away in 2024.

Depreciation and amortization expenses was $4.2 million, an increase of 1% from the prior year period.

Depreciation and amortization expenses was $4 2 million, an increase of 1% from the prior year period.

Marketing fund expenses were 5.8 million, up 37% year over year, driven by increased spend because of higher franchise marketing fund revenue.

Marketing fund expenses were $5 8 million up.

37% year over year, driven by increased spend because of higher franchise marketing fund revenue.

As a reminder, each of our franchise locations contributes 2% of sales to our marketing fund. Therefore, as the number of studios and system-wide sales grow, our marketing fund increases.

As a reminder, each of our franchise locations contributed 2% of sales who are marketing funds. Therefore, as the number of studios and system wide sales grow our marketing fund increases.

Since we are obligated to spend marketing funds, an increase in marketing fund revenue will always translate into an increase in marketing fund expenses over time.

Since we are obligated to spend marketing funds and increase in marketing fund revenue will always translate into an increase in marketing expenses over time.

Acquisition and transaction expenses were a credit of 1.9 million versus an expense of 16.3 million in the third quarter of 2022.

Acquisition and transaction expenses were a credit of $1 9 million versus an expense of $16 3 million in the third quarter of 2022.

As I have noted on prior earnings calls, the contingent consideration is related to the rumble acquisition earnout and is driven by the share price at quarter end. We mark to market the earnout each quarter and accrue for the earnout.

As I have noted on prior earnings calls the contingent consideration is related to the Rumble acquisition earn out and is driven by the share price at quarter end.

Mark to market the earn out each quarter and accrued for the earn out.

We recorded a net loss of 5.2 million in the third quarter, compared to a net loss of 13.1 million in the prior year period. The lower net loss was the result of an $18.2 million decrease in non-tash contingent consideration primarily related to the rubble acquisition.

We recorded a net loss of $5 2 million in the third quarter compared to a net loss of $13 1 million in the prior year period.

The lower net loss was the result of an $18 $2 million decrease in noncash contingent consideration primarily related to the rubble acquisition.

and 0.7 million decrease in non-cash equity-based compensation expense.

<unk> 7 million decrease in noncash equity based compensation expense.

Offset by 3.4 million of lower overall profitability a 6.7 million increase in restructuring costs from our company owned transition studios and 0.9 million increase in write down of brand-up.

Offset by $3 4 million of lower overall profitability, a $6 7 million increase in restructuring costs from our company owned transition videos and point 9 million increase in write down of brand often.

We continue to believe that adjust in that income is a more useful way to measure the performance of our business.

We continue to believe that adjusted net income is a more useful way to measure the performance of our business.

A reconciliation of net income to adjust to net income is provided in our earnings press release.

A reconciliation of net income to adjusted net income is provided in our earnings press release.

Adjust the net income for the third quarter with 6 billion, which excludes the 1.9 million gain and fair value of non-cash contingent consideration, a 1.8 million liability increase related to the third quarter remeasurement of the company's tax receivable agreement, the 4.6 million write down of Goodwill and Brandafits, and the 6.7 million restructuring charts.

Adjusted net income for the third quarter was $6 billion, which excludes the $1 9 million gain in fair value of noncash contingent consideration of $1 8 million liability increase related to the third quarter Remeasurement of the company's tax receivable agreement of $4 6 million write down of goodwill and brand outfit.

And the $6 7 million restructuring charge.

This results in a just a net earnings of $0.9 per base of share on a share count of 32.3 million shares of class A common stock after accounting for income, attributable to non-controlling interest and dividends on preferred shares.

This results in adjusted net earnings of nine cents per basic share on a share count of $32 3 million shares of class a common stock after accounting for income attributable to noncontrolling interest and dividends on preferred shares.

Adjusted EBITDA was 26.5 million in the third quarter. Top 33% compared to 20 million in the prior year period.

Adjusted EBITDA was $26 5 million in the third quarter.

<unk> 33 per cent compared to $20 million in the prior year period.

The adjusted EBITDA margin grew to 33% in the third quarter compared to 31% in the prior year period. As a reminder, our 2023 outlook anticipates adjusted EBITDA margins reaching the 35-39% range by year end, and we expect margins to grow to over 40% in 2024.

Adjusted EBITDA margin grew to 33% in the third quarter compared to 31% in the prior year period.

As a reminder, our 2023 outlook anticipates adjusted EBITDA margins, reaching the 35% to 39% range by year end, and we expect margins to grow to over 40% in 2024.

Turning to the balance sheet as of September 30th, 2023, cash, cash equivalence, and restricted cash were 51.9 million, up from 30.9 million as of September 30th, 2022.

Turning to the balance sheet as of September 30th twenty-three cash cash equivalents and restricted cash were $51 9 million up from $30 9 million as of September 30th 2022, total long term debt was $329 7 million as of September 30th 40.

Total long-term debt with 329.7 million has a September 30th, 2023, compared to 136.5 million has a September 30th, 2022. The increase in total long-term debt is primarily due to the repurchase of 85,340 shares of convertible preferred stock at a price of $22.7 per share announced in January .

<unk> 23, compared to $136 5 million houses September 30th or 'twenty two.

Increase in total long term debt is primarily due to the repurchase of 85340 shares of convertible preferred stock at a price of $22 seven per share announced in January he shares prior to the repurchase would've been convertible into $5 9 million shares of class a common stock.

These shares prior to the repurchase would have been convertible into 5.9 million shares of a class A common stock.

Also during the quarter, our Board of Directors approved a $50 million stock repurchase program to repurchase shares of the company's Class A common stock. This was completed at an average price of $19.24 and 2.6 billion commonane shares were repurchased.

Also during the quarter, our board of directors approved a $50 million stock repurchase program to repurchase shares of the company's class a common stock. This was completed at an average price of $19 or 24, So a $2 6 billion terminate shares were repurchased.

As mentioned on previous earnings calls, the company remains focused on optimizing our capital structure by lowering our cost of borrowing. While we are continuing to work through a possible fixed rate whole business materialization, we are in parallel pursuing other financing alternatives, given the current high rate environment.

As mentioned on previous earnings calls the company remains focused on optimizing our capital structure by lowering our cost of borrowing.

While we are continuing to work through a possible fixed rate whole business securitization. We are in parallel pursuing other financing alternatives given the current high rate environment.

Now turning to our outlook.

Based on current business conditions, we are raising our full year 2023 guidance for revenue and tightening the top end ranges for new studio openings, system light sales, and adjusted EBITDA as follows.

Based on current business conditions, we are raising our full year 2023 guidance for revenue and tightening the top end ranges for new studio openings systemwide sales and adjusted EBITDA as follows.

We expect 2023 global new studio openings in the range of 550 to 560 up from the previous 540 to 560 and representing a 9% increase at the midpoint over 2022.

We expect 2023 global new studio openings in the range of $5 50 to $5 60.

<unk> from the previous 540 to $5 60, representing a 9% increase at the midpoint over 2022, we.

We expect North America system like sales to range from 1.39 billion to 1.395 billion up from the previous 1.385 to 1.395 and representing a 35 percent increase at the midpoint from the prior year.

We expect North America system wide sales to range from 1.39 billion to $1 395 billion up from the previous 1.385, So 1.395 and representing a 35% increase at the midpoint from the prior year.

Total 2023 revenue is expected to be between 305 million to 310 million, up from the previous 295 to 305 billion, and representing a 26% year-over-year increase at the midpoint from the prior year.

Total 2023 revenue is expected to be between 305 million to $310 million up from the previous 295 to 305 billion, representing a 26% year over year increase at the midpoint from the prior year.

A Judford EBITDA is expected to range from 104.5 million to 106.5 million, off from the previous 102.5 million to 106.5 million, and representing a 42% year-over-year increase at the midpoint from the prior year.

Adjusted EBITDA is expected to range from $104 5 million to $106 5 million from the previous hotter and $2 5 million to $106 5 billion, representing a 42% year over year increase at the midpoint from the prior year.

This range translates into roughly 34.3% adjusted even a margin at the midpoint.

This range translates into roughly 34, 3% adjusted EBITDA margin at the midpoint.

I would also like to call out consistent with prior year four's quarters. We do anticipate elevated SNA expenses in Q4, 2023, because of our annual franchise convention. Our annual franchise convention is anticipated to add roughly five million in SNA expenses, noting that we do have approximately three and a half million in sponsorship revenue expected in our other revenue line, which will partially offset this expense down to approximately 1.5 million.

I would also like to call out consistent with prior year fourth quarters, we do anticipate elevated SG&A expenses in Q4 2023, because of our annual franchise convention. Our annual franchise convention is anticipated to add roughly $5 million and SG&A expenses, noting that we do have approximately three.

And a half million in sponsorship revenue expected in our other revenue line, which will partially offset this expense down to approximately $1 5 million.

In terms of capital expenditures, we anticipate approximately 10 million to 12 million for the year, or approximately 4% of revenue at the midpoint.

In terms of capital expenditures, we anticipate approximately 10 million to 12 million for the year or approximately 4% of revenue at the midpoint.

Going forward, capital expenditures will be primarily focused on new digital platform features across our portfolio. Ex-Path, the next plus new features, and maintenance on other technology investments to support our digital office.

Going forward capital expenditures will be primarily focused on new digital platform features across our portfolio.

X pass, but X plus new features and maintenance on other technology investments to support our digital offering.

For the full year, our tax rate has expected to be mid to high single digits.

For the full year, our tax rate is expected to be mid to high single digits there.

Air count for purposes of earnings per share calculation to be 31.7 million and 1.9 million in quarterly dividends be paid related to our considerable preferred stocks.

Air Count for purposes of earnings per share calculation to be $31 7 million and $1 9 million in quarterly dividends to be paid related to our convertible preferred stock.

A full explanation of our share calculations and associated pro-forming EPS and adjusted EPS calculations can be found in the table at the back of our earnings press release as well as our corporate structure and capitalization FAQ on our investor website.

Full explanation of our share count calculation and associated pro forma EPS and adjusted EPS calculations can be found in the table at the back of our earnings press release as well as our corporate structure and capitalization of third Q on our Investor website.

Thank you for your time and for your support of exponential. We will now open the call for any questions. Operator?

Thank you for your time and for your support of exponential we will now open the call for any questions operator.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.

We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please.

Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Randy Connick with Jeffries.

The first question comes from Randy <unk> with Jefferies. Please go ahead.

Hey guys, good afternoon and thanks for taking my question. Questions, I guess like first, when I just wanted to do perspective of how we should be thinking about opening mixed by banner and geography as we go into the balance of the year and beyond, just give us a perspective of how things will be changing from the mixed perspective. Thanks.

Hey, guys. Good afternoon, and thanks for taking my question a question. So I guess my first one I just wanted to get some perspective on how we should be thinking about.

Opening mixed by banner and geography as we go into.

The balance of the year and beyond just give us some perspective of how things will be changing from a mixed perspective. Thanks.

Yeah, thanks, Randy. I'll take that one. So in the third quarter, we opened up 127 new studios. Kind of the breakdown of banner in the quarter was 41 in club Pilates. Stretch live in, I had 36, BFT at 17. Rumble was 11, yoga six at 10, and all the other brands made up the balance of the 12. As you kind of look into Q4.

Yeah, Thanks, Randy I'll take that one so in the in the third quarter, we opened up a 127 New studios.

Kind of the breakdown of banner in the quarter was <unk> 41 in club Pilates stressful.

Stressful I haven't I have 36 P. M. T. O 17, Rumble was 11 yoga shakes out time and all the other brands made up the balance of the 12.

As you kind of look into Q4 and into 2020 for Q4 will look much like Q3 as far as the mix of studios, but as you get into 2024, you know as we guided the street in our Investor Day presentation. You know, we still are holding about $5 to 600 city. It was a year keep you know probably 'twenty 'twenty four will be.

Clean in the 2024 Q4 will look much like Q3 as far as the mix of studios.

But as you get into 2024, you know, as we guided the street in our investor day presentation, you know, we still are holding about five to 600 videos a year. You know, probably 2024 will be mid-500s to high 600 or to high culture to 600 with BFT and Rumble making up about 25% of those openings.

Mid five hundreds to high 600 parents out to high closer to 600, with DFT and rumbled, making up about 25% of those openings are club pilates will still be holding at about a third of the total openings next year, certainly I have 25% and then the balance of the brands will make up the other 17%.

uh, called Pilates will still be holding at about a third of the total openings next year.

Stretch the lab 25% and then the balance of the brands will make up the other 17%.

I'm a little helpful. Um, from a domestic and international perspective, you could probably assume the 80-20 rule will still apply with 80% on the domestic side about 20% international.

Literal helpful.

From a domestic and international perspective, you could probably assume that 80 20 rule will still apply with 80% on the domestic cited about 20% international.

Got you super helpful. And then I guess my last question would be, now how are we thinking about just how the Q3 cohorts, cohort kind of performed relative to, you know, how you've seen other cohorts perform on the path?

Got you Super helpful. And then I guess my last question would be how are we thinking about just how the Q3 cohorts cohort kind of performed relative to how you've seen other cohorts performed in the past.

Yeah, we've continued to monitor that. We've seen strength in the 2023 cohort. When you look at Q1, Q2, Q3 on a simple average, the brands are performing at a, actually over a 550,000 AUV for their respective months. So the videos that opened up in...

Yeah, we continue to monitor that we have seen strength in the 'twenty to 'twenty three cohort. When you look at Q1 Q2 Q3 on a simple average of the brands are performing at a hold back actually over a 550000, a UV for their respective months. So the studios that opened up in.

So, you know, in the third quarter, they're doing about a 360,000, given that only three months old. But then as you get to the videos that opened up in QCU, that I've gotten to six months.

So you know in the third quarter, they're doing about a 360000, given that's the only three months old, but then as you get to the studios that opened up in Q2 that I've gotten to six months in the studio that opened up in Q1 that are now in nine months you know, they're there at 500 or five five excuse me five 500, so youre seeing on average a simple average as they mature they are good.

and the videos that opened up in Q1 that are now at nine months, you know, they're at 500 or 5500, excuse me, 500 500.

So you're seeing on average a simple average as they mature, they're getting low into that 550, which has been designed AUV level.

Well into that 550, which is the designed a UV level point.

Pointing out Pure Bar as a brand that's done exceptionally well, we're seeing those brands, Pure Bar doing really well as far as.

Pointing out pier bar as a brand that's done exceptionally well, we're seeing those brands.

We're doing really well as far as coming out of the gate, where it's opening up a 500 K a UV on a simple average across the board. So peer of ours doing really well, obviously club pilates has been really strong as we've entered 2023 you know across the board most of the studios that are opening.

coming out of the gate where it's opening up, you know, at 500 KAUV on a simple average across the board. So, Peerbar's doing really well. Obviously, Club Paladis has been really strong as we've entered 2020-23. You know, across the board, most of the studios that are opening, BFT, Rumble, you're seeing, you know, that 500,000 rough kind of starting point.

T Rumble Youre seeing you know that 500000 rough kind of starting point as designed so we expect as the studios continue to mature that will see a continued decline, especially in these younger girls brands and then obviously in the in the scaled brands as we continue to open up more.

You know, as designed so you know, we expect as the studios continue to mature that we'll see a of these continue to climb, especially in these younger growth brands and then obviously in the in the scaled brands as we continue to open up more.

Yeah.

Super helpful. Thanks, guys.

The next question comes from John Heinbachel with Guggenheim. Please go ahead.

The next question comes from John Hind Buckle with Guggenheim. Please go ahead.

Hi, guys, this is Julian Marquez on for John Heimbachel. Yeah, if you could give us some color on maybe trends in number of frequency throughout the quarter on visitation and maybe potential pricing power by cohort, you know, just based on the strong engagement that you guys are, you know, reporting here for some of the more recent openings. And then I have a quick follow-up after that.

Hey, guys. This is really more Kazan on for Jon Hi, Bajo.

Yes, if you could give us some color on maybe trends in member frequency throughout the quarter on visitation and maybe.

Central pricing power by cohort just based on.

Yeah, Sean engagements that you guys are reporting here for some of the.

More recent openings and then I'll have a quick follow up after that thank you.

I mean, when you look at the visitation in Q3, it's the highest it's been ever in the company's history with over 13 million visits, you know, in the quarter.

Yeah, I mean, when you look at the visitation in Q3, it's the highest it's been ever in the company's history with over 13 million visits in the quarter.

you know as far as pricing is concerned by cohorts uh... you know you can see in the same store sales we did fifteen percent for all studios over thirteen months and then fifteen percent for all studios over thirty six months it's been very consistent

As far as pricing is concerned it by cohorts.

You can see in the same store sales, we did 15% for all studios over 13 months and then 15% for all studios over 36 months, it's been very consistent with price being only about 5% of the growth in system wide sales with 95% more on volume so new members being added.

with price being only about 5% of the growth and system-wide sales, but 95% more on volume. So new members being added. You know, you gotta remember as we sign up members, they establish their price, their membership price, and it's locked in. The only way it would go up is if they went ahead and canceled and rejoined because we are always taking price as utilization in this video increases.

You got to remember as we sign up members.

They establish their price to their membership price and it's locked in are the only way. It would go up as if they went ahead and cancelled and rejoined because we obviously are always taking price as utilization in the city of increases.

So 5% was priced across all the cohorts. Is a simple way to look at it.

5% was price across all the cohorts is a simple way to look at it.

Awesome, thank you, that's very helpful. And just a little bit more, I think you guys mentioned discussing alternative financing, alternative is a whole business incurionization. What's that process looking like? And do give us a ballpark and you know, kind of raise the rates that you're seeing there. Thank you.

Awesome. Thank you that's very helpful and just a little bit more Oh, and I think you guys mentioned discussing alternative financing alternatives a whole business securitization you know what that once that process is looking like.

Can you give us a ballpark on you know.

It kind of race.

The rates that you're seeing there.

Yes.

Yeah, so we've been working with a bank on a whole business securitization. We've also been looking at alternatives. Right now we're seeing about mid to high single digit percentage rates on a whole business securitization.

Yeah. So we've been working with a bank on a whole business securitization. We've also been looking at alternatives right now were seeing about mid to high single digit percentage.

Percentage rates on a whole business securitization.

As far as the process, you know, the goal is obviously to get that taking care of or refinanced. I get our term low refinance as soon as possible given the rising interest rates on our term loan. Today we're sitting right around 12%. I think we're in a good position to, you know, get something done by the end of the year.

As far as the process you know the goal is obviously to get that taken care of or refinanced.

Term loan refinance as soon as possible given the rising interest rates on our term loan today, we're sitting at right around 12% I think we're in a good position to get something done by the end of the year.

Awesome. Thank you very much.

The next question comes from Ryan Myers with Lake Street Capital Park Market. Excuse me, please go ahead.

The next question comes from Ryan Meyers with Lake Street Capital markets Excuse me. Please go ahead.

Hey guys, thanks for taking my questions. First one for me, if you think about that 40% adjusted EBITDA margin in 2024, how much of that is just gaining overall leverage versus how much of that coming from the right sizing of the company on stores?

Hey, guys. Thanks for taking my question first one for me if you think about that 40% adjusted EBITDA margin in 2024, how much of that is just gaining overall leverage versus how much of that.

Coming from the right sizing of the company owned stores.

Yeah, the key to kind of getting an instant bump in our leverage or our Justitiba margin is the transition studios.

Yeah, the key to the key to kind of getting an instant bump in our leverage our adjusted EBITDA margin is the transition studios.

you know, ramping those down to zero or ultimately none with any operating losses. So we will carry a handful of studios into 2024, particularly like the LAF studios. We do have a handful of rumble signature studios that were operating that. You know, we do eventually plan on selling those. So we do have a couple of interested buyers that we're looking at, but the majority of the adjusted EBITDA pop that you'll see in 2024 will instantly be kind of realized by getting those studios down to zero.

Ramping those down to a.

Zero or ultimately none with any operating losses. So we will carry a handful of studios into 'twenty 'twenty four, particularly like the L. I F Studios, we do have a handful of Rumble signature studios that were operating that yeah. We do eventually plan on selling those so we do have a couple of interested buyers that were looking at but the majority of the adjusted.

EBITDA pop that Youll see in 'twenty 'twenty, four will instantly be kind of realized by getting those studios.

<unk> zero, you know from that perspective, when you look at SG&A.

you know, from that perspective, when you look at SGNA, you know, next year, you know, we should be around 30% SGNA, as a percent of revenue, excluding stock-based comp. So you'll a considerable, you know, kind of decrease in SGNA spend in 2024.

Next year.

Should be around 30% SG&A as a percentage of revenue excluding stock based comp. So you know a considerable you know kind of decrease in SG&A spend in 2024.

Okay, got it. That's helpful. And then you guys called out membership churn, basically being unchanged. Can you just remind us what that is? And then if there's any difference between the scaled and growth brands as far as membership churn goes?

Okay got it that's helpful. And then you guys called out membership churn basically being unchanged can you just remind us what that is and then if there's any difference between the scale and growth brands as far as membership churn goes.

Yeah across all the brands, it's in the low single digits. So it's in the kind of one 1% to 3% given the the month typically in this in the in the scaled brands, there's pretty low churn.

Yeah, across all the brands, it's in the low single digits. So it's in the, you know, kind of one, one to three percent given the month.

you know, typically in the in the in the scale brands, there's pretty low turn when you look at it. We do look at it as of members that stick around after 12 months. You do get some volatility under 12 months as people, whether it's New Year's resolution or people getting ready for vacation or weddings or whatever it may be where they're trying to.

When you look at it we do look at it as of members that stick around after 12 months you do get some volatility under 12 months as people, whether it's new year's resolution or people getting ready for vacation or weddings or whatever it may be where they're trying to I guess get better for you know kind of a quick fix kind of mentality, but at the end of the day that the churn is pretty low.

I guess get fitter for a quick fix mentality.

At the end of the day, the turn is pretty low at the scale brands.

Low <unk>.

The scale brands and you do see some volatility in less than 12 months, you know across the brands, we've never really disclosed volatile or you don't.

and you do see some volatility in less than 12 months. You know, across the brands, we've never really disclosed a chance brand by brand, but it has been remained pretty consistent since these brands have been operating.

<unk> a brand by brand, but it has been remained pretty consistent since these brands have been operating.

Right great. Thanks for taking my questions.

The next question comes from Maoring Chang with Evercorae Si. Please go ahead.

The next question comes from Warren Cheng with Evercore ISI. Please go ahead.

Hey, good evening guys. The first question is for John . It's actually just a follow up on the last question. Would you be able to quantify for us the amount of S-GNA, those transition studios are going to carry for this year? And given that that's going to be a tailwind next year on the S-GNA line, would flat S-GNA dollar growth be in the rental possibility for next year?

Hey, Good evening guys. First question is for John It's actually just a follow up on the last question would you be able to quantify for us the amount of SG&A. Those transition studios are going to carry you for this year and given that that's going to be a tailwind next year on the SG&A line would flat SG&A dollar growth in the realm of possibility for next year.

Yeah, the way you should think about, I'll answer the question on SGNA for next year. You know, SGNA next year is, like I said, it's probably gonna be around the 30% of revenue excluding stock waste comp.

Yeah. The way you should think about I'll talk I'll answer the question on SG&A for next year. Your SG&A next year is like I said, it's probably going to be at around the 30% of revenue excluding stock based comp.

There is opportunity as we continue to kind of optimize our SGNA as we scale into 24, 25, 26, where I do feel it will remain relatively flat.

There is opportunity as we continue to kind of optimize our all our SG&A as we scale into 'twenty four 'twenty five 'twenty six or I do feel it'll remain relatively flat.

You know, maybe it's a three to five percent increase a year in the outer years as we as we grow and at head count And just like we did this year with international adding presidents to really make sure we have the right resources focused on the business

Maybe it's a 3% to 5% increase a year in the outer years as we as we grow and add head count and just like we did this year with international adding president So really make sure. We have the right resources focused on the business you know this year when you look at SG&A.

You know, this year when you look at SGNA, you know, you're probably talking, probably around 40 million of SGNA would come out related to the company owns.

Youre, probably talking probably around $40 million of SG&A would come out.

Related to the company owned studios.

You know, you got to remember we did in this quarter take a restructuring charge of the lease liability. So that would be included in that number. But next year you could probably think of the S-GNA, you know, in 2024, you know, a sub $100 million number excluding stock.

You got to remember we did in this quarter take a restructuring charges and lease liability. So that would be included in that number but next year you could probably think of.

On the <unk>.

SG&A in 2024.

$100 million number excluding stock based comp.

Thanks, John and Anthony I'm curious, if you've given any thought on the topic of GOP ones.

Thanks, John . And Anthony, I'm curious if you've given any thought on the topic of GLP1s, given it's pretty transformative on weight and increasingly having an effect on fitness activity too. Have you seen any impact on your business and is there any sort of strategy to engage the GLP1 population?

It's just pretty transformative on weight and increasingly having a an effect on fitness activity too. So have you seen any impact on your business and is there any sort of strategy to engage the G. O P. One population as it continues to grow pretty quickly here.

Yeah, absolutely. I'm not sure if you saw the Morgan Stanley study that was done, but pretty great tailwinds that we have kind of coming out of that. Obviously, hard to quantify. We're not doing survey work as people sign up and asking them what they're on or what they're doing. But we're definitely leaning into that and we understand that.

Yeah absolutely.

I'm not sure if you saw the Morgan Stanley.

A study that was done them, but are you now pretty great tailwind that we have.

You know kind of coming out of that obviously hard to quantify we're not you know we're not doing survey work as people sign up and asking them you know what they're on or are what they are doing.

But are you now where we're definitely leaning into that and we understand that and you know that we're getting unique users.

You know, that we're getting unique users from that. So. So.

From that so.

Great. Thanks, guys. Good luck.

Okay.

[laughter].

Yeah.

The next question comes from Megan Alexander of Morgan's family. Please go ahead.

The next question comes from Megan Alexander of Morgan Stanley. Please go ahead.

Good timing there I suppose.

Good timing there, I suppose. Maybe I could just ask a little bit, you know, more near term, but, you know, the ebitov flow through on the full year guide was it a touch muted relative to the revenue? And is there anything in particular to call out there? You mentioned transition studios, franchise convention. You know, is there anything related to timing going on with that with either of those relative to your expectations?

Maybe I could just ask a little bit more near term, but you know the EBIDTA flow through on the full year guide was a touch muted relative to the revenue.

Is there anything in particular to call out there you mentioned transition studios franchise convention.

Anything related to timing going on with that with either of those relative to your expectations.

Yeah, in Q3, we had planned in the Q3 forecast cycle to have ramped down some of the transition studios a little bit faster than we have. Our end goal is to get as many of those studios into the hands of qualified operators. It did take a little bit longer to do in Q3 than I get the kind of the ramp down schedule that we were.

Yeah. In Q3, we had planned you know and in the coming into Q3 or four kind of cycle to have ramped down some of the transitions that he was a little bit faster than we have you know our end goal is to get as many of those studios into the hands of qualified operators and it did take a little bit longer to do in Q3, then I guess the kind of the ramp.

The schedule that we were had them out there and so it did have a slightly.

head mapped in. So it did have a slightly muting impact, I guess, as you called it in Q3 and into Q4.

Muting impact I guess as you as you called it in Q3 and into Q4.

But overall, our goals to get those studios re-franchised. As I mentioned earlier in the calls, as we do get those done, and the faster we do it, the more we'll see the margin expansion, we'll continue to play out. So in the fourth quarter, we're trying to be as aggressive as possible in getting those re-franchised back out.

But overall you know the you know our goal is to get those studios re franchise. We do is we as I mentioned earlier on the calls you know as we do get those done and the faster we do it the more we will see the margin expansion will continue to play out so in the fourth quarter. You know, we'll be we're trying to be as aggressive as possible in getting those re franchise back out.

You know, we do see line of sight to a 35 to 39 percent adjusted even a margin fourth quarter.

We do see line of sight to a 35% to 39% our adjusted.

Adjusted EBITDA margin fourth quarter. However.

However, you know at the end of the day my goal is obviously to drive as much adjusted even a dollars to the bottom line as possible So from our perspective

However at the end of the day My goal is obviously to drive as much adjusted EBITDA dollars to the bottom line as possible so from our perspective.

you know, if we, if we, you know, come in slightly under 35% but deliver more dollars and than great, but you know, as it stands right now, we think the full year at 106.5.

If we come.

Come in slightly under 35%, but deliver more dollars in great, but as it stands right now we think the full year at $106 five.

Percent and looking at the fourth quarter being right around that, you know

Percents and looking at the fourth quarter being right around that you know mid to mid to high 35% range that you'll see the margin is very doable Oh.

mid the high 35% range of just the state of margin is very doable as we continue to execute and get those studios refranchised.

As we continue to execute and get those studios refranchising.

Okay, that's helpful. And you know, I understand you don't want to provide detail for each brand, but maybe you could just help us in the context of the 15% comp. You know, were there any outliers to the up or down side? And maybe, you know, given update on how some of the brands that maybe have been lagging like cycle bar or performance.

Okay. That's helpful and I understand you don't want to provide detail for each brand, but maybe you could just help us in the context of the 15% comp were there any outliers to the up or downside and maybe give an update on how some of the brands that maybe have been lagging like cycle bar are performing.

Yeah, absolutely. So when you look cycle bar in particular, when you look at...

Yeah, absolutely. So when you look cycle bar in particular, when you look at.

you know same store sales and these are all domestic numbers you know same cycle bar had a 7% same store sales in the third quarter so it was not a uh... you know uh... it was again with a good quarter a positive quarter for cycle bar

Same store sales and these are all domestic numbers say cycle bar had a 7% same store sales in the third quarter. So it was not a you know.

Again, it was a good quarter a positive quarter for cycle bar. Some standout brands that may not be so surprising as you know club Pilates did 20%, which was really strong pure Barre again continues to be really.

Some standout brands that may not be so surprising as club Pilates did 20% which was really strong.

PRR again continues to be a really strong performer, but being the number of studios, they have 15%. You know, Yoga 6 was 11%.

A really strong performer being the number of studios they have 15% yoga six was 11% you know rumbles and some of our startup brands, 15%. So across the board you're seeing really good performance and the brands that have a lot of studios opened are of good quality number of studios open.

you know, you know, rumbles and some of our startup brands, 15%. So across the board, you're seeing really good performance in the brands that have, you know, a lot of studios open or a good quality number of studios open.

You know, and again, as I talked about cohort.

And again as I talked about cohorts you know when you look at the the studios, we opened and in Q3, they're already at 360000, a month three you know the Q2 is at $5 59 by excuse me 581 by month.

You know, when you look at the, the, the studios we opened in, in Q3, they're already at 360,000 AUV at month three.

you know, the Q2 is at, you know, 559 by, excuse me, 581 by month.

and then you're getting to the Q1s, you know, they're at 553 by month nine. So you're really seeing really good strong openings and sales curves on all these brands, you know, as we've opened them in 2023. And I think it really is attributed to just, you know, the overall consumer where they're...

Six and then you're getting to the Q1s. You know there are $5 53 by month nine so you're really seeing really good strong openings and sales curves on all of these brands.

We've opened up in 2023, and I think it really is attributed to just the overall consumer where they are directing their spend.

directing their spend. I think when it comes to some of the macro issues that people are reading in the headlines, it just hasn't shown up in our numbers or our KPIs as a place where

I think when it comes to some of the macro issues that people are reading in the headlines. It just hasn't shown up in our numbers or our kpis as a place where.

You know, people are looking to cut.

People are looking to cut it.

You know, we're actually seeing more members show up, and the studios that were open are performing very well and again showing really strong comps, so.

<unk> seen more members show up in the city is that we're open are performing very well and again showing really strong comps so.

Awesome. Thank you very much.

The next question comes from Jeff Vincindarin with V. Riley. Please go ahead.

The next question comes from Jeff <unk> syndrome with B Riley. Please go ahead.

Hi everyone, just wanted to see if maybe we can circle back to seasonality for a minute. Just wondering if the monthly visits, the member ads, anything unusual you're experiencing, kind of the monthly progression there, or has it been as usual through November to date?

Hi, everyone. Just wanted to see if maybe we can circle back to seasonality for a minute just wondering if the monthly visits the member adds anything unusual you're experiencing at kind of the monthly progression there or has it been as usual through November to date.

Yeah, I mean visitation has been very consistent you do see in Q2, a slight falloff because people kind of focus on travel and probably when kids are out of school. There is there's more of that going on but as you ramp into kind of Q.

I mean, visitation has been very consistent. Yeah, we have. You do see in Q2 a slight fall off because people kind of focus on, you know, travel and probably when kids are out of school, there's more of that going on. But as you ramp into kind of.

Q4, you know, you get the September October , you see the visitation and utilization start going back up.

Q4, you know when you get to September October you see the visitation and utilization to start going back up. So there is seasonality in Q3 from a visitation perspective, because people are distracted with the vacationing, but Q4 is.

So, there is seasonality in Q3 from a visitation perspective because people are distracted with vacationing, but Q4 and actually Q4 and Q1 are particularly strong.

And actually Q4, and Q1 are particularly strong.

quarters for us as far as not only sales but new members and utilization. As we look at October , visits are already up 5% off of

Quarters for us as far as not only sales, but new members and utilization as we look at October visits are already up 5% off of.

You know the previous period so that's you know, a really good sign and October is not even our strongest month. It's November So we're really excited about the quarters heading as we close out the year

The previous periods. So that's a really good sign in October is not even our strongest months. It's November so.

We're really excited about are the quarters heading as we close out the year.

okay great and i think he said two hundred and sixteen or so licenses sold just one of you could share the composition of licenses sold you know you don't usually break it up

Okay, Great and I think you said 216, or so licenses sold just wondering if you could share the composition of licenses sold I know you don't usually break that out but.

Yeah, yeah, yeah, I have that for you. Club Pilates, so of the 216 Club Pilates was 123. Still remains a really strong brand as far as sales. Stress Lab we had 23, BFT was 48. We had 7 Rumbles and 8 Yoga 6s. And the balance of the brands make up the other 7. And of that, 170 were domestic, but 46 international.

How about for you.

Club Pilates, so of the $2 60 and club Pilates was 123.

<unk> remains a really strong brand as far as sales stress lab twenty-three PMT was 48, seven rumbles and eight yoga sixes and the balance of the brands make up the other seven and of that 170 were international domestic but 46 international.

So about an 80 20.

Thanks very much for taking my questions. Yep.

46 international Okay. Thanks, very much for taking my questions.

The next question comes from Joe Altra Belo from Raymond James. Please go ahead.

next question comes from Joe Altevello from Raymond James. Please go ahead.

Hey guys, good afternoon. First question maybe for you, Anthony, on M&A, E-POPs, you know, recently about adding, you know, at least maybe one additional brand this year. Is that still the expectation? And what sort of acquisitions are you looking?

Hey, guys. Good afternoon first question, maybe for you at any on M&A, you talked recently about adding at least maybe one additional brand. This year is that still the expectation and what sort of acquisitions are you are you looking at at this point.

Hey, Joe Thanks for the question Yeah. No. We are a we are still working on that you know I had talked about a few weeks ago I talked about saying, we get something done this year and I'm still confident in making that happen. So we've kind of taken targets down from a a wide.

Hey Joe, thanks for the question. Yeah, no, we are. We are still working on that. You know, I had talked about, you know, a few weeks ago. I talked about saying we get something done this year and I'm still confident in making that happen. So we've kind of taken targets down from a wide range down to a narrow range and then we're, you know, completing off on that narrow range. So we're.

The range down to a narrow range and then we're you know completing off on that narrow range. So there are.

Still the same answer as before, but we are working through the same stuff. So still be cash out of the company. We're not issuing stock. We're not taking on new debt and we'll be buying something with a lot of growth opportunity, something that we're not currently in the space of. And something in that, 1500, 2,000 square foot retail box.

Still it still the same answer as before but where.

Sure.

Working through the same stuff, so still the cash out of them.

The company, we're not issuing stock we're not taking on new debt.

And we'll be buying something with a lot of growth opportunity.

That we're not currently in the space of and something in that 1500, 2000 square foot retail box.

type situation so can't give you much uh... much more color than that without telling exactly what i'm doing uh...

Situation, so I can't give you much.

Much more color than that without telling you exactly what I'm doing but.

But those are all the parameters. Understood. Appreciate it. And maybe just a second question, in terms of other service revenue, obviously up pretty significantly. And I think it sounds like a lot of that was attributable to transition studios. But the number of transition studios seem to come down from Q2 to Q3. So help us understand the dynamics of that.

But those are all the parameters.

Understood I appreciate it and maybe just the second question in terms of other service revenue, obviously up pretty significantly and I think it sounds like a lot of that was attributable to the transition of studios.

The number of fitness studios seem to come down from Q2 to Q3, So hope as I understand.

The mix of that.

Yeah, going back to the answer I gave the I guess you could say the the slope of the ramp down of those is kind of what drove that we had expected. You know, it's not a linear slope to the bottom. It is, you know, as fast as we could move. So we did have studios on a little bit longer in the 3rd quarter than we had anticipated. So, when you think about other service revenue, there was about 8Million of.

Yes going back to the answer I gave those I.

I guess, you can say about the slope of the D ramped out of those as kind of what drove that.

We had expected it it's not a linear slope to the bottom. It is this fastest.

So we can move so we did have studios on a little bit longer in the third quarter than we had anticipated. So when you think about other service revenue there was about $8 million of.

revenue in the other service revenue line attributed to

Revenue in the other service revenue line attributed to.

the studios and again they came down later so the KPI came off but the revenue was there longer. As you kind of roll into you know Q4 you know they're still they'll probably be somewhere between what was you know we did about 4.4 million in Q1 to 6.2 in Q2 so I think Q4 will be in that range as far as you know the revenue the studios will generate as we ramp them down.

The studios and again they came down later, so the kpis came off but the revenue was there longer.

As you kind of roll into it.

Q4, theres still they'll probably be somewhere between what was.

We did about $4 4 million in Q1 to $6. Two in Q2. So I think Q4 will be in that range as far as the revenue the studios will generate as we ramp them down.

So you will see a decline on that specific portion of the other service revenue, but keep in mind in the fourth quarter We have the benefit of the franchisee convention where we generate

So you will see a decline on that specific portion of the other service revenue, but keep in mind in the fourth quarter, we had the benefit of the franchisee convention, where we generate.

sponsorship rebates from our vendors so that will offset and keep the other service revenue line relatively flat to where we were in Q3 so we are ramping down, you know we do anticipate getting to

Sponsorship rebates from our vendors, so that will offset and keep the other service revenue on relatively flat to where we were in Q3. So we are ramping down we do anticipate getting too.

You know, a really low number by the end of the year from a annualized standpoint, but the 4th quarter still will be probably sitting between where Q1 and Q2 was.

A really low number by the end of the year from a annualized standpoint, but the fourth quarter still will be probably sitting between where Q1 and Q2 us.

Okay.

Got it thank you.

The next question comes from Corinne Wolfmeyer with Piper Sandler. Please go ahead.

The next question comes from Corrine Wolf Meyer with Piper Sandler. Please go ahead.

Hey, good afternoon. Thanks for taking the questions. My first one is, I think, John , maybe you touched on October same-store sales trends of being about 15%. As you laid out your guide for the remainder of the year, can you touch on what kind of same-store sales growth you're anticipating for the next couple quarters? I mean, what kind of deceleration, if any, are you expecting or next couple months? What kind of deceleration are you expecting into November and December , if any?

Hey, good afternoon, thanks for taking the questions.

The first one is I think John maybe you touched on October same store sales trends have been about 15% as you laid out your guide for the remainder of the year can you touch on what kind of same store sales growth you're anticipating for the next couple of quarters I mean, what kind of a deceleration if any are you expect.

A couple of months.

What kind of be salaries are you expecting to November and December if any.

Yeah, so always.

Yeah, so always, this is always a good battle between me and Anthony. He keeps continuing to beat me on expectations here, but the fourth quarter, I think you're going to still see mid teams kind of level for same-store sales.

Always a good battle between me and Anthony.

It keeps us continuing to beat me on on expectations here, but the fourth quarter I think youre going to still see mid teens kind of level for same store sales you know I'm still a believer that overtime as we continue to ramp.

you know, I'm still a believer that over time as we continue to ramp, you know, the same store sales will normalize to the mid to high single digits. Again, I've been very conservative on that statement and been wrong in the right direction, I guess, every time. But I do think as you roll into early 2024 and fast forward to Q4, you'll see it ramp down to, you know, mid to low teens, down to the mid to high single digits by the end of next

The same store sales will normalize to the mid to high single digits again, I've been very conservative on that statement and then wrong in the right direction I guess every time, but I do think as you as you roll into.

Early 2024, and fast forward to Q4, Youll see it ramped down too.

The mid to low teens down to the mid to high single digits by the end of next year. That's that's the way I'm kind of doing the business, but again I'm trying to predict.

That's that's the way I'm kind of viewing the business. But again, I'm trying to predict how members will react in a post coven world versus a free coven world. That was the mid to high single digits was the pre coven world. So, I'm assuming it gets back to that, but I've been proven wrong, you know, you know, every quarter since the pandemic's been over. So.

No.

Members will react in a post COVID-19 world versus the pre Covid World that was the mid to high single digits was the pre Covid world. So I'm, assuming it gets back to that but I've been proven wrong.

You know every quarter since you know depend on the extent over so but.

My forecast and outlook assumes a conservative mid-dysing of digits by the end of 2020.

My my forecast and outlook assumes a conservative mid to high single digits by the end of 2024.

Got it Super helpful. And then just on the closed studios this quarter I mean, it did seem a little bit heavier than we've seen in the past and I know you talked about having more studios, obviously, it's going to the closures are going to increase a little bit but can you just add a little bit of color on what drove the bulk of those closures this quarter.

Got it super helpful. And then just on the closed studio, this quarter, I mean, it did seem a little bit heavier than we've seen in the past. And I know as you talk about having more studios, obviously it's going to, the closures are going to increase a little bit. But you just add a little bit of color on what drove, you know, the bulk of those closures this quarter and how we should be thinking about, you know, closures heading into the early parts of 2024.

And how we should be thinking about you know closures heading into the early parts of 2024.

Yeah, I mean, the majority of those are the backlog, the transition studios that we had that we talked about that we were going to refranchise and or close. So.

Yeah, I mean, the majority of those are the the backlog the transition studios that we had that we talked about that we're gonna Refranchising indoor close so it's.

It's heavier now than it normally will be, and normalizing going forward as we work through those studios. So it's a shift in strategy. It's not indicative of a normal go forward once we're done getting through this transition phase.

It's not it is heavier now than it normally will be normalizing.

Going forward as we work through those studios.

Is it a shift in strategy.

A.

Not indicative.

Indicative of like a a normal go forward once we're done getting through this.

Pennant transition phase.

Got it thank you.

The next question comes from Jonathan Compton with Baird. Please go ahead.

The next question comes from Jonathan <unk> with Baird. Please go ahead.

Yeah, hi. Good afternoon. Thank you. John , can I just follow up on the restructuring costs in the quarter? Could you just maybe share a little more detail? Are those all cash or non cash? How much are you expecting in total? And just how should that flow going forward?

Yeah, Hi, good afternoon, and thank you John can I just follow up on the restructuring costs in the quarter could you just made.

Maybe share a little more detail are those all cash or noncash.

Are you expecting that in total and just how should that flow going forward.

Yeah, so the restructuring charges in the quarter are reflective of the studios that Anthony just talked about. The ones that we've already closed and the ones that we are ceasing operations that we take a, you know, a charge or liability for exiting the leases.

Yeah. So the restructuring charges in the quarter are reflective of the Cdos that Anthony just talked about the ones that we've already closed and the ones that we are ceasing operations that we take a.

A charge or a liability for exiting the leases kind of a back of the now can we kind of assume about 18 months to exit the leases is the way we're approaching it so any of the costs associated with shutting down studios exiting leases in the quarter. It was roughly around $7 million I think was $6 six was the actual number.

kind of a back of the napkin, we kind of assume about 18 months to exit the leases is the way we're approaching it. So any of the costs associated with shutting down studios exiting leases in the quarter, it was roughly around, you know, $7 million. I think 6.6 was the actual number.

So that's the majority of the cost. We look at it as one time just to get off the leases and get the studios completely closed down. You know, as we continue to do that, it might take, you know, we do expect to see it in Q3, some additional activity as well as potentially into the first half of 2024, as we work with landlords to figure out exactly what we sell on the leases for. But given our experience, are my experience having done this in the past? Typically it's about 18 months worth of lease.

So.

That's the majority of the costs, we look at it as one time just to get off the the leases and get the studios completely.

Closed down.

We continue to do that it might take we do expect to see it in Q3, some additional activity as well as potentially into the first half of 'twenty 'twenty four as we work with landlords to figure out exactly what we settled releases for but given our experience or my experience having done. This in the past typically it's about 18 months worth of leases.

I think total benefit to the company by doing this, as I mentioned in the earnings script, is it's about a $10 million just to even up benefits on an annualized basis, roughly. So it does have very meaningful margin impacts in 2024 by us going through this restructuring.

I think total.

Benefit to the company by doing this as I mentioned in the earnings script is it's about a $10 million adjusted EBITDA benefits on an annualized basis roughly so it does have very meaningful margin impacts in 2024 by us going through this restructuring.

Okay. Thank you for that and then just.

Separate question, but Anthony, I don't know if you could discuss the Lululemon relationship any further. I know that's changed recently, but you know, at the time, you know, a month or so ago, you highlighted opportunity to deepen and expand the relationship that's remaining. So just any thoughts there. And then, John , are you willing to talk about just longer term or international, how much, you know, broad strokes, you know, revenue or EBITDA you might be able to generate from the international activity? Thanks again.

Separate question, but yes.

Anthony I don't know if you could discuss the Lulu lemon relationship any further I know that it's changed recently, but you know at the time, a month or so ago, you highlighted opportunity that deepen and expand the relationship. That's remaining so just any thoughts there and then John are you willing to talk about just longer term international how much.

<unk> broad.

Broad strokes revenue or EBITDA, you might be able to generate from the international activity.

Thanks again.

Yeah, so we continue to do great business with with Lululemon. I mean, the biggest part of our business with them was the actual collaboration on the retail that we sell across the studios globally. So that, you know, that still remains intact. And we're we're still doing great business with that.

Yeah. So we continue to do great business with with Lulu Lemon I mean, the biggest part of our business with them was the actual collaboration on the retail.

We sell across the studios globally. So that you know that still remains intact and we're still doing great business with that.

The digital studio business part was nice to have, and of course we would love to keep that.

You know the digital studio business part was nice to have and you know of course, we would we would love to keep that but obviously you know mirror was not something that was a successful venture ultimately for Lulu and so you know it made sense for them to shut that down.

But obviously, you know, mirror was not something that was a successful venture ultimately for Lulu. And so, you know, it made sense for them to shut that down, um, and, you know, give it over to Peloton. And, and that was exactly what they did. And so, you know, Lulu still paid us a hundred percent of our money. Um, and so, you know, they did everything right. Everything they were supposed to do by us.

And give it over to peloton and <unk> and that was exactly what they did and so you know Lulu still paid us 100% of our money.

And so you know they did everything right and everything they were supposed to do by us and so we saw the really great relationship with them and how we work with them daily ultimately so everything's great there.

and so we still have a really great relationship with them and, you know, we work with them daily ultimately, so everything's great there. And, you know, to answer your question

As you know the answer to your question regarding the international.

You know, as we talked about, I mean, we will see about, you know, 75, 25 or, you know, between that and 80 to 20 percent growth over the next couple of years between domestic and international. You got to remember on the international side though, it's a rev share model right, so we don't get the same full 100 percent benefit of.

You know as we talked about I mean, we will see about.

70, 525 or between 80% to 20% growth over the next couple of years between domestic and international you got to remember on the international side, though it's a Rev share model right. So we don't get the same 400 per cent benefit of of the revenue and adjusted EBITDA, We get on the U S side and the fact that the U S is growing in multiples.

of the revenue and adjusted EBITDA we get on the U.S. side, and the fact that the U.S. is growing multiples faster than the international.

<unk> faster than the international today.

Today, international about 5% of the EBITDA contribution, you'll given the growth of...

Today International about 5% of the EBITDA contribution given the growth of <unk>.

studios opening internationally, you will see the EBITDA double over the coming years, but as a percent of the total, you know, it moves from five to seven, right, because you're just seeing so much accelerated growth on the U.S. side. So you will see dollar growth internationally, but percentage-wise as a total, you know, is only going to move, you know, a percent or two in the next two to three years.

The city is opening internationally, you will see the EBITDA double over the coming years, but as a percent of the total you know it moves from five to seven right because you're just seeing so much accelerated growth on the U S side. So you will see dollar growth internationally, but percentage wise as a total.

Is only going to move up a percent or two in the next two to three years.

Alright, Thanks again.

The next question comes from J.P. Wallum with Roth Capital Partners. Please go ahead. Hi everyone.

The next question comes from J P <unk> with Roth Capital Partners. Please go ahead.

Hi, everyone. Thanks for taking my question Tonight.

Maybe if I could first just follow up on the international side. If we talk about the new hire, the president of international, could you maybe just expand on sort of what is really the goal for his role there? Is there anything that was kind of

Maybe if I could first just follow up on the international side, if we talk about the the new hire that president of International could you maybe just expand on sort of what is really the goal for his role there.

Is there anything that you know was kind of just becoming too big or too cumbersome.

too big or too cumbersome that it was necessary to put someone in that role or could you just expand on that a little bit?

It was necessary to put someone in a role or could you just expand on that a little bit.

Yeah, I think it was both upside opportunity and downside risk aversion, right? Um, ultimately we had about a team of five or six, so we're doing an amazing job over there with a lot of international experience. So a lot of really great players, um, but not necessarily a great coach to kind of band everything together. And so we really wanted to professionalize that department and make sure that, you know, it had a lot of infrastructure, so it could really operate.

Yeah, I think it was both upside opportunity and downside risk at version right. Ultimately we had about a team of five or six so we're doing an amazing job over there with a lot of international experience said a lot of really great players.

But not necessarily a great coach to kind of band everything together.

And so we really wanted to professionalize that department and make sure that you know it had a lot of infrastructure. So it can really operate.

like our domestic business so that we can increase franchise sales, increase franchise openings.

Like our domestic business. So that we can increase franchise sales increased franchise openings.

You know, make sure that franchisee health internationally is doing very well. You know, a lot of franchisee oars in the US start off with, you know, great brand, great concept.

I'll make sure that franchisee health internationally is doing very well.

A lot of franchise doors in the U S start off with you know great brand Great concept and then over time, they get some international interest and its just kind of a nice to have.

And then over time they get some international interest and it's just kind of a nice to have.

and we were much like that prior to the BFT acquisition and then we acquired BFT, you know, really set our eyes over under national.

We were much like that prior to the V. F. T acquisition, and then when we acquired B S T.

You know really set our eyes over on international twofold, one the massive opportunity.

twofold. One, the massive opportunity it is over there, you know, done properly. And then two, if not done properly, the risk that would be there if, you know, if we didn't, you know, build a great business, exactly like it would be if you started franchising domestically, right, when you have a lot of interest. And so, we wanted to make sure we were able to harness all the international interests we were getting properly, build the right infrastructure to make sure that we executed and rolled out.

It is over there you know done properly and then two if if not done properly and the risk that would be there. If you know if we did then.

Build a very business exactly like it would be if you started franchising domestically right. When you have a lot of interest and so we want to make sure we were able to harness all the international interest we were getting properly build the right infrastructure to make sure that we executed and rolled out franchise sales franchise openings equipment packages.

you know, franchise sales, franchise openings, equipment packages.

AUVs, Franchisee Health, the exact same business we do here. So we are really looking for someone that would be me outside of the United States. And we did a lot of, we've got a lot of really great candidates. We did a lot of interviewing over the last month, group interviews, individual interviews.

These franchisee health the exact same business, we do here. So we're really looking for someone that would be me outside of the United States and we did a lot of we've got a lot of really great candidates. We did a lot of interviewing a over the last months group interviews individual interviews and person staff with the candidates that they did.

in-person stuff with the candidates that did really well, and so we spent a lot of time on it, and then had the team interview the coach to make sure that we really built a good player-coach situation there, so something that's really sustainable, predictable, and that can grow. So those were the goals that we were hiring for, so it just made a lot of sense.

Really well and so we spent a lot of time on it.

And then.

I had the had the team and a review of the coach to make sure that you know there really built a good player coach situation there.

So something that's really sustainable predictable and that can grow.

So those those are the goals that we were hiring for so it just made a lot of sense.

Got it, yeah, that's very helpful. And then just one quick follow-up. As we start to think about next year and really how to continue pressing on AUVs and same-store sales growth, I'm wondering if you can maybe.

Got it yeah. That's very helpful. And then just one quick follow up as we start to think about next year and really how to continue pressing on <unk> same store sales growth.

I'm wondering if you can maybe I.

either kind of stack rank or give us some insight on how we should think about what will be the most impactful as we think across some of the different initiatives. So, you know, thinking about X-PASS, thinking about GYMPASS, some of the loyalty that Sarah touched on. Can you maybe just give us a sense of what you think are kind of the most meaningful of those different items?

They're kind of stack rank or.

Give us some insight on how we should think about what will be the most impactful as we think across some of the different initiatives. So you know thinking about ex past thinking about Jim past them at the loyalty that Sarah touched on can you maybe just give us a sense of what you think are kind of the most meaningful of those different items.

Thank you.

Yeah. So I'll dive into one of the examples. So Peerbar is an example.

Yeah. So.

I'll I'll dive into one of the examples so pure Barre as an example with opportunity to rollout a new class, which is paramount to find them and as we did that we started to see that demand increased in all crops.

We had the opportunity to roll out a new class, which was peer-referred defined.

And as we did that, we started to see that demand increased across the studios that had wolfed out and followed the program, so just overall demand was high at Pure Bar. So we went back and did a pricing exercise.

Both al and followed the program. So just overall demand was high at Pier bar.

And did a pricing exercise and increased pricing at.

an increase pricing at a good portion of the studio, it's 20% or more, went up in a new pricing tier across the country. So we're able to take advantage of pricing and...

A good portion of the shoe he is 20% or more went up in a new pricing tier across the country. So we're able to take advantage of.

And drive brick and mortar and membership and then the aggregator partnerships that we have are supplemental to those.

drive brick and mortar memberships and then the aggregator partnerships that we have are supplemental to those direct exercises that we do at the studio level. You know, each day we're working with franchise partners to help manage their supply and demand and increase their pricing where it makes sense.

Those direct exercises that we do at the studio level you know each day, we're working with franchise partners to help manage their supply and demand and increase their pricing where it makes sense.

The aggregators just help us fill capacity or maximize capacity just a little bit more so that we're ensuring that every single class is as profitable as it can be. As you know, our classes, we've already paid for the instructor, the door's already open, lights are on, music is going, so every incremental booking is going to be a profitable booking for the franchise partner.

The Aggregators just help us fill them capacity or maximize capacity just a little bit more so that we're ensuring that every single class is as profitable as it can be and as you know our classes. We've already paid for the instructor of the doors already open lights around music, it's going so every increment.

It'll booking is going to be a profitable booking for the franchise partner.

Yes.

Got it.

Moving forward. Thank you.

Thank you.

The next question comes from Alex Perry with Bank of America. Please go ahead.

The next question comes from Alex Perry with Bank of America. Please go ahead.

Hi, thanks for taking my questions here. Just first, can you talk to us a little bit about royalty rates? Should we expect sort of average royalty rates to continue to increase as you make shift towards clubplates and stretch labs, which are coming in at higher royalties? Thanks.

Hi, Thanks for taking my questions here, just first can you talk to us a little bit about royalty rates should we expect sort of average royalty rates to continue to increase as you've mixed shift towards club qualities that stretch labs, which are which are coming in at higher royalties. Thanks.

Yeah, I mean, obviously like any business on supply and demand the more demand we see for you know from our plot as consumer the more demand, we see for store openings and franchise sales.

I mean, obviously, like any business on supply and demand, the more demand we see for, you know, from our Pilates consumer, the more demand we see for store openings and franchise sales.

You know, we were able to, you know, really obtain an 8% there. And so, we're able to do that at Stretch Lab, you know, we'll most likely be doing that at our acquisition target as that comes in at 8%. And so, yes, the company is working to shift its way.

We were able to you know really obtain and an 8% there and so we're able to do that its stretch lab.

Dino will most likely be doing that at our acquisition target is that comes in.

At 8% and so yes. The company is is working to shift.

Its way toward 8%.

Perfect. That's really helpful. And then just my follow-up question, maybe, John , how should we think about sort of equipment revenue in the outer years, sort of the mix between, you know, what's a similar number of openings, but potentially a mixed shift towards higher equipment brands? Does that mean, you know, we'll continue to get sort of equipment revenue growth, or how should we think about that?

Yeah.

Perfect. That's really helpful. And then just my follow up question, maybe John how should we think about sort of equipment revenue in the outer years.

Sort of the mix between whats similar number of openings for potentially a mix shift towards higher equipment brands does that mean, we will continue to get sort of equipment revenue growth or how should we think about that thanks.

Yeah, I mean, as we start to open more BFTs and Rumbos, as I mentioned, about 25% of the openings next year will be in those brands, more equipment intensive.

Yeah, I mean, as we started to open more <unk> and run those as I mentioned about 25% of the openings next year will be in those brands more equipment intensive you will see an average equipment package revenue increase so you will see that in the coming years.

you will see an average equipment package revenue increase. So you will see that, you know, in the coming years.

But you gotta look at, you know, when the majority of the lion share of openings this year and next year is still falling in stretch lab and club Pilates. So you know, directionally, yes, it'll go up over time, but it's a function of, you know, club Pilates and stretch labs slowing down, which is not the case. It continues to accelerate. So in theory, yes, as we open more BFTs and rumbles, you will see that, but you know, it's they've got to overcome.

You got to look at when the.

Any of the lion's share of openings. This year and next year is still falling in stress lab and club pilates. So.

Directionally, yes, it will go up over time.

But it's a function of club plays in stress up slowing down which is not the case if it continues to accelerate so.

In theory, yes, as we open more be a teaser rumbles you will see that but.

<unk> got to overcome the majority that we're currently seeing in some of the other brands one thing to point out on the equipment package.

the majority that we're currently seeing in some of the other brands. One thing to point out on the equipment.

you'll notice that the margins in Q2 and Q3 have remained really strong. We've done a lot of work on the supply chain side to kind of optimize, use our purchasing power to drive pricing. So, as we continue to

You'll notice that the margins in Q2 and Q3 have remained really strong we've done a lot of work.

On the supply chain side to kind of optimize use our purchasing power to drive pricing. So as we continue to.

you know, open 500 to 600 studios a year, you know, you will see very consistent margins going forward, elevated above where they were previously. So yes, overall, you should see a slightly higher ticket price given the higher equipment intensive brands, and you should also see a higher margin driven by that higher equipment intensive brands, but also some of the work that we're doing on the supply chain front to optimize and use our purchasing power to drive pricing. So perfect.

Opened $5 to 600 studios a year.

You will see very consistent margins going forward.

Elevated above where they were previously so yes.

Yes, overall, you should see a slightly higher ticket price given the higher equivalent intensive brands and you should also see a higher margin driven by that.

Great returns with brands, but also some of the work that we're doing on the supply chain front to optimize and use our purchasing power to drive pricing.

Perfect. That's incredibly helpful Best of luck going forward. Thank.

Thank you.

This concludes our question and answer session I would like to turn the conference back over to Anthony Geissler for any closing remarks.

This concludes our question and answer session. I would like to turn the conference back over to Anthony Geisler for any closing remarks.

Thank you to everyone for joining today's earnings call and for your support and I'd also like to acknowledge our franchisees and our team for their continued strong execution. We look forward to seeing many of you at upcoming marketing events and we'll speak to again on our Q4 and year end earnings call.

Thank you everyone for joining today's earnings call and for your support. And I'd also like to acknowledge our franchisees and our team for their continued strong execution. We look forward to seeing many of you at upcoming marketing events and we'll speak to you again on our Q4 and year end earnings call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Okay.

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