Q4 2023 Xponential Fitness Inc Earnings Call

Operator: Greetings and welcome to the Xponential Fitness Fourth Quarter 2023 Earnings Conference. At this time, all participants are in a... a brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Greetings and welcome to the exponential fitness fourth quarter 2023 earnings conference call.

At this time all participants are in a listen only mode.

Brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Avery Wanamaker from Investor Related. Thank you.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host every wanamaker from Investor Relations. Thank you you may begin.

Avery Wanamaker: Thank you, operator. Good afternoon, and thank you all for joining our conference call to discuss Xponential Fitness' fourth quarter and full year 2023 financial results. I am joined by Anthony Geisler, Chief Executive Officer, Sarah Luna, President, and John Meloun, Chief Financial Officer. A recording of this call will be posted on the investor section of our website at investor.xponential.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. 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.

Thank you operator, good afternoon, and thank you all for joining our conference call to discuss exponential fitness fourth quarter and full year 2023 financial results.

I am joined by Anthony Geismar, Chief Executive Officer, Sarah Luna, President 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 dotcom.

We remind you that during this conference call, we will make certain forward looking statements, including discussions of our business outlook and financial projections. These forward looking statements are based on management's current expectations and involve risks and uncertainties that could cause our actual results to differ materially from such expectations.

For 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.

Avery Wanamaker: In addition, we will be discussing certain non-GAAP financial measures at this conference. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release that was issued earlier today prior to this call. Please also note that all numbers reported in today's prepared remarks refer to global figures unless otherwise noted. I will now turn the call over to Anthony Geisler, Chief Executive Officer of Xponential Fitment. Thanks, Avery, and thank you all for joining us this afternoon.

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.

It is included in the earnings release that was issued earlier today prior to this call.

Please also note that all numbers reported in today's prepared remarks refer to global figures unless otherwise noted.

I will now turn the call over to Anthony Geisler, Chief Executive officer of exponential for us.

Thanks, Ed and thank you all for joining us this afternoon during 2023 we experienced substantial growth in revenue and adjusted EBITDA, while further streamlining our business and better positioning exponential for an even stronger year in 2024, as the largest health and wellness franchise or as of year end, we had 3016.

Anthony Geisler: During 2023, we experienced substantial growth in revenue and adjusted EBITDA, while further streamlining our business and better positioning Xponential for an even stronger year in 2024. As the largest health and wellness franchisor, as of year end, we had 3,062 studios operating globally, with 6,255 licenses sold across our portfolio. In 2023, we opened an average of 1.5 new studios each day, and we have the pipeline to continue at that rate in 2024. North America Run Rate Average Unit Volume, or AUVs, continue to rise, and Xponential members have time and time again demonstrated their consistent commitment to their health and wellness routines. During the year, total members across North America grew 21% year over year to 717,000, while our visitation rates increased 31% to a total of 51.5 million in studio visits in 2023.

Two studios operating globally with 6255 licenses sold across our portfolio and.

In 2023, we opened an average of one and a half new studios each day and we have the pipeline to continue at that rate in 2024.

North America run rate average unit volume or a V has continued to rise and exponential members have time and time again demonstrated our consistent commitment to their health and wellness routines. During the year total members across North America grew 21% year over year to 717000, while our visitation rates increased 31.

Per cent to a total of $51.5 million in studio visits for 'twenty to 'twenty three that's.

Anthony Geisler: This drove North American system-wide sales to over $1.4 billion in 2023, an increase of 36% over 2022. North American run rate average unit volumes of 590,000 increased 13% from 522,000 in 2022, while same-store sales increased 16% for 2023. Same-store sales growth was strong across our studio vintages and not limited to just new studios.

This drove north American system wide sales to over $1 4 billion in 2023, an increase of 36% over 2022 North America run rate average unit volumes of 590000 increased 13% from 52202022, while same store sales increased 16% for 2023.

<unk> same store sales growth was strong across our studio vintages and not limited to just new studios in fact studios older than three years increased 17% in 2023, demonstrating the value of adhering to our operating model and the durability of our modalities.

Anthony Geisler: In fact, studios older than three years increased 17% in 2023, demonstrating the value of adhering to our operating model and the durability of our modality. We are pleased to see this continued growth at the studio level, and while we do not yet know the maximum potential of our AUVs, over 350 North American studios across our portfolio achieved 1 million or higher AUV in Q4, with another 160 exceeding 900,000. While these high AUVs are predominantly concentrated in Club Pilates, there are studios in Stretch Lab, Rumble, Pura Bar, Yoga 6, and Psycho Bar, and of course, Lyndora, that have crossed the 1 million AUV threshold.

We are pleased to see this continued growth at the studio level and while we do not yet know the maximum potential of our au vs. Over 350, North American studios across our portfolio achieved 1 million or higher a V. In Q4 with another 160 exceeding 900000, while these higher you visa.

Predominantly concentrating club pilates, there our studios and stretch lab Rumble pure Barre yoga sex and cycle bar and of course, when Dora that have crossed the 1 million au V threshold.

Anthony Geisler: We remain focused on driving AUVs higher as we execute on our in-studio growth strategies. Beginning with revenue, in 2023, net revenue totaled $318.7 million, an increase of 30% year over year. Adjusted EBITDA totaled $105.3 million, or 33% of revenue, up 42% from $74.3 million, or 30% of revenue in 2022. As we continue to open more studios, our model continues to scale, enabling us to leverage our centralized back office and improve margin. Though the 2023 margins were shy of the 35% we sought as we worked through our restructuring efforts, we remain on track to reach our 40% target in 2024. Let's now turn to our first strategic growth driver, the increase in our franchise studio base. We ended 2023 with 3,062 global open studios, opening 557 new studios during the year, with 438 in North America and 119 international. We currently have over 400 leases and LOIs signed for studios not yet open.

We remain focused on driving a UV is higher as we execute on our in studio growth strategies, beginning with revenue in 2023 net revenue totaled $318 7 million, an increase of 30% year over year, adjusted EBITDA totaled $105 3 million or 33% of revenue.

Oh up 42% from $74 3 million or 30% of revenue in 2020 two as we continue to open more studios our model continues to scale, enabling us to leverage our centralized back office and improve margin.

The 'twenty two 'twenty three margins were shy of the 35% we saw it as we work through our restructuring efforts, we remain on track to reach our 40% target in 2020 four.

Let's now turn to our first strategic growth driver the increase of our franchise studio base. We ended 2023 with 3062 Global Open Studios opening 557, New studios during the year with 438 in North America and 119 International.

We currently have over 400 leases in LOI signed for studios not yet opened.

Anthony Geisler: We sold 805 licenses globally in 2023, and our pipeline includes almost 2,000 licenses sold and contractually obligated to open in North America, plus an additional over 1,000 master franchise agreement obligations. We were particularly encouraged to see that almost half of our 2023 North American studio openings came from existing franchisees with existing open studios, highlighting our franchisees' continued reinvestment in and commitment to our brand portfolio. While this phenomenon was most prevalent in Club Pilates, it was also true across all of our other scaled brands, including Psychobar, Purebar, Yoga 6, and Stretchlab, as well as Rumble 2.

We sold 805 licenses globally in 2023, and our pipeline includes almost 2000 licenses sold and contractually obligated to open in North America, plus an additional over 1000 Master franchise agreement obligations, we were particularly encouraged to see that almost half of our 2023 and north American studio openings.

Came from existing franchisees with existing open studios, highlighting our franchisees continued reinvestment in and commitment to our brand portfolio.

While this phenomenon was the most prevalent in club Pilates. It was also true across all of our other scaled brands, including cycle bar peer var yoga sex and stretch labs as well as Rumble too. Despite the brand's relatively young age we already had existing franchisees open additional locations in 2023.

Anthony Geisler: Despite the brand's relative young age, we already had existing franchisees open additional locations in 2023. We take pride in the support we provide to our franchise operators, and we kicked off this year by holding franchisee forums with franchisee-selected representatives from each brand to discuss what they believe is and isn't working. The franchisee reps were selected by a popular vote by each brand's franchisees and have started spending time in person at our headquarters to formulate a targeted action strategy that we plan to execute on by the end of Q2. We are encouraged by the conversations and the opportunity to further streamline our support and offerings across the system, and we plan to continue holding regular strategy sessions with these franchisee representatives. We have already started franchising our recently acquired brand, Lendora, a leading metabolic health provider.

We take pride in the support we provide to our franchise operators and we kicked off this year by holding franchisee forums with franchisees selected representatives from each brand to discuss what they believe is and isn't working the franchisee wraps were selected by a popular vote by each brand's franchisees and have started spending time in person at our headquarters to a formula.

Targeted action strategy that we plan to execute on by the end of Q2.

We are encouraged by the conversations and the opportunity to further streamline our support and offerings across the system and we plan to continue holding regular strategy sessions, where these franchisee representatives.

We have already started franchising, our recently acquired brands Linde, Dora a leading metabolic health provider.

Anthony Geisler: The health and wellness market is large and growing and supported by strong secular trends. Lindora has ideally positioned us to continue tapping into the broader consumer demand for holistic and comprehensive approaches to health. We believe consumers increasingly understand the connection between regular fitness routines, metabolic health, nutrition, and overall well-being and pursue lifestyles that align to those values. Through Lyndora, we are able to offer consumers a more comprehensive wellness solution. We see the Lyndora acquisition as the foundation for our long-term broader strategic expansion into health and wellness, and we're excited at the growth prospects in this market. There are 42.5 million addressable households for Lindora.

Health and wellness market is large and growing and supported by strong secular trends Linda has ideally positioned us to continue tapping into the broader consumer demand for holistic and comprehensive approaches to health.

We believe consumers increasingly understand the connection between regular fitness routines metabolic health nutrition, and overall, well being and pursue lifestyles that align to those values.

Trailing door, we are able to offer consumers a more comprehensive wellness solution, we see the window or acquisition is the foundation for our long term broader strategic expansion into health and wellness and were excited at the growth prospects in this market.

There are $42 5 million addressable households for Linde Dora.

Anthony Geisler: Based on using existing Xponential trade areas nationwide, we are finding that 69% of the 42.5 million of Lindora's national core member households are captured by an existing Xponential Fitness Studios trade area. Lindora has a lot of runway where Expo has already proven to be successful. We're actively working with Buxton, a data-driven real estate analysis company, to identify clinic potential across the U.S. Foxton from Preliminary Work sees the greatest similarities between the Lindora member profile and our current Club Pilates and Stretch Lab member profile. Stockton expects that the TAM for Lendora will be similar to the TAM of our other brands.

Based on using existing exponential trade areas nationwide, we are finding that 69% of the $42 5 million of Linde doors National core member households are captured by an existing exponential fitness studios trade area.

Linda has a lot of runway, where expo has already proven to be successful, we're actively working with box and a data driven real estate analysis company to identify the clinic potential across the U S.

Buxton from preliminary works sees the greatest similarities between the window or a member profile than our current club Pilates and stretch lab member profiles box unexpected that the Tam for Linda or will be similar to the Tam of our other brands.

Anthony Geisler: As a company, we continuously evaluate our portfolio to ensure profitable growth, optimize global customer experiences, and drive long-term value creation for our stakeholders. We think about successful portfolio construction not just from the perspective of acquiring new brands and opening new studios but also from the perspective of ensuring alignment with our three-year financial growth target. As part of our optimization efforts, we recently announced the divestiture of Stride Fitness to Stride Fitness Franchising, Inc., which is owned by Sean Grove, the current president of Rumble Boxing.

As a company and we continuously evaluate our portfolio to ensure profitable growth optimize global customer experiences and drive long term value creation for our stakeholders.

We think about successful portfolio construction not just from the perspective of acquiring new brands and opening New studios, but also from the perspective of ensuring alignment with our three year financial growth targets as part of our optimization efforts, we recently announced the Divesture of stride fitness just drive fitness Franchising, Inc, which is owned by Sean Grove.

The current president of Rumble boxing.

Anthony Geisler: Stride accounted for less than 1% of our studio base and system-wide sales in 2023, and after considering potential alternatives for Stride, we found this transaction was the best option for both Xponential and the Stride brand. We are particularly pleased to transition Stride to an experienced franchise owner and operator. Another optimization effort that will result in immediate margin expansion is the refranchising of company-owned transition studios and the elimination of related operating losses. We had previously committed to fully exiting our portfolio of company-owned transition studios, and as of today, we have only a small number of corporate studios remaining. It's also worth noting that as part of no longer operating studios and wanting to concentrate our resources around the growth of our traditional studios, we have exited our corporate-owned LA Fitness locations in the first quarter of 2024. Note that existing franchised LA Fitness locations will continue operating.

Tried accounted for less than 1% of our studio base and system wide sales in 2023 and after considering potential alternatives for stride. We found this transaction was the best option for both exponential and the stride brand, we're particularly pleased to transition strides or an experienced franchise owner and operator.

Another optimization effort that will result in immediate margin expansion is the Refranchising of company owned transition studios and the elimination of related operating losses. We had previously committed to fully exiting our portfolio of company owned transition studios and as of today, we have only a small number of corporate studios remaining.

It's also worth noting that as part of no longer operating studios and one thing to concentrate our resources around the growth of our traditional studios, we have exited our corporate owned la fitness locations in the first quarter of 'twenty 'twenty four note that existing franchised la fitness locations will continue operating.

Anthony Geisler: Finally, I wanted to provide an update on our litigation with Club Ready. Xponential has resolved this litigation at the end of 2023 and is in the process of launching an RFP to ensure that our studios have access to best-in-class point-of-sale technology. Let's now discuss our second growth driver, international expansion. During 2023, we expanded into seven new countries, bringing our total country count to 23. At year end, we have over 1000 studios obligated to open under master franchise agreements, and we'll continue expanding our brands into new and existing countries under the leadership of our recently hired international president and team. Earlier this year, we announced that Pure Barn Yoga 6 is entering the Japanese market through a master franchise agreement with Sung Park Co., who is the current master franchisee for Stretch Lab in Japan.

Finally, I wanted to provide an update on our litigation was called Brady exponential has resolved. This litigation at the end of 'twenty two 'twenty three and is in the process of launching an RFP to ensure that our studios have access to best in class point of sale technology, Let's now discuss our second growth driver international expansion during 2023 weeks.

Spanning into seven new countries, bringing our total country count to 23.

At year end, we have over 1000 studios obligated to open under Master franchise agreements and we'll continue expanding our brands into new and existing countries under the leadership of our recently hired international President and team.

Earlier this year, we announced the pier bar and yoga six are entering the Japanese market through a master franchise agreement with sang Park co who is the current master franchisee for stretch lab in Japan.

Anthony Geisler: This brings our brand count in the country to seven, the largest count of Xponential brands outside of North America. Japan has demonstrated strong demand for our concepts, where Club Pilates alone has opened 45 locations with the potential of an additional more than 100 studios obligated to open for Club Pilates alone. We are encouraged to see that even though our average club quality studio in Japan is less than a year old, with most of them having opened in 2022 and 2023, run rate AUVs are already well exceeding 500,000. From a brand evolution perspective, these AUVs are already well exceeding the performance that we saw for club Pilates domestically in year three of operation. As a reminder, our international business provides Xponential with nearly 100% margin flow through.

This brings our brand count in the country to seven the largest count of exponential brands outside of North America, Japan.

Japan has demonstrated strong demand for our concepts where club Pilates alone has opened 45 locations with a potential of an additional more than 100 studios obligated to open for club Pilates alone.

We are encouraged to see that even though our average called party studios in Japan is less than a year old with most of them, having opened in 2020, two and 2020 three run rate a vs are already well exceeding 500000.

I'm a brand evolution perspective. These avs are already well exceeding the performance that we saw for a club pilates domestically in year three of operations.

As a reminder, our international business provides exponential with nearly 100% margin flow through.

Anthony Geisler: The model is asset light, with Xponential receiving a revenue share from the master but carrying minimal corresponding SG&A given that the studio SG&A and CapEx are fully funded by the master franchisee. In summary, we are proud of our 2023 performance and the strategic realignment we have achieved, and we are entering 2024 from a position of strength. We remain on track to achieve the projections laid out in our Analyst and Investor Day in September of last year, and we expect our refocus on core operating activities to result in strong cash flow and significant margin expansion in 2024 and beyond. Before turning the call over to Sarah, I'd like to take a moment to highlight our annual Franchisee Convention, which took place in Las Vegas in early December.

The model is asset light with exponential receiving a revenue share from the master, but carrying minimal corresponding SG&A given that the studio SG&A and Capex is fully funded by the master franchisee.

In summary, we are proud of our 'twenty to 'twenty three performance and the strategic realignment we have achieved.

And we are entering 2024 from a position of strength, we remain on track to achieve the projections laid out at our analyst and Investor day in September of last year, and we expect our refocus on core operating activities to result in strong cash flow and significant margin expansion in 'twenty 'twenty four and beyond.

Before turning the call over to Sara I'd like to take a moment to highlight our annual franchisee convention, which took place in Las Vegas in early December during the event over 2000 attendees came together to celebrate achievements in 2023 share best practices and set the strategy for 'twenty 'twenty four it is always great to experiencing excite.

Anthony Geisler: During the event, over 2,000 attendees came together to celebrate achievements in 2023, share best practices, and set the strategy for 2024. It is always great to experience the excitement of the event and speak with franchisees from all over the world. Thank you to our franchisees and employees for all your hard work and dedication, which have helped make Xponential Fitness what it is today. And with that, I'll pass the call on to Sarah.

<unk> of the event and speak with franchisees from all over the world.

<unk> to our franchisees and employees for all your hard work and dedication, which have helped make X financial fitness, what it is today and with that I'll pass the call on to Sarah.

Sarah Luna: Thank you, Anthony. Xponential will continue to produce exceptional results within the fourth quarter of 2023. With visitation rates in North America growing 27% year over year, and our North American actively paying membership base growing 22% year over year. Our studios are an essential part of our members' weekly routines, and as such, frozen memberships have remained consistently low.

Thank you Anthony exponential continued to produce exceptional results within the fourth quarter of 2023 with visitation rates in North America growing 27% year over year, and our North American actively paying membership base growing 22% year over year.

Our cdos are an essential part of our members weekly routines and as such frozen memberships have remained consistently low we've.

Sarah Luna: We've continued to see strong visitation trends so far in the first quarter of 2024. New member acquisition and retention is important for growing and sustaining AUVs, and we know that customer experience and satisfaction ultimately drive engagement. Over the last few months, we have focused our efforts on introducing new class formats at a few of our brands and repurposing existing equipment as a means of engaging and retaining members. New and improved class formats create a better experience for our members, and we are excited to continue innovating within our studios so that we stay both relevant and cutting-edge. In 2023, we introduced a new class format at PureBar that resulted in 15% North America's same-store sales growth for the year. We are also testing the rebranding of AKTs into Kinergy Studios with new dance class formats and studio branding, launching in March, in an effort to replicate the success we had at PureBar. Julianne Ho, who is well known among dancing enthusiasts from Dancing with the Stars, is behind the Kinergy concept, which we believe will help revitalize our dance methodology.

We've continued to see strong visitation trends so far in the first quarter of 2024.

New member acquisition and retention is important for growing and sustaining a disease and we know that that customer experience and satisfaction ultimately drive engagement over the last few months, we have focused our efforts on introducing new class formats at a few of our brands and repurposing existing equipment as a means of engaging Andrew.

Painting members.

New and improved class formats create a better experience for our members and we are excited to continue innovating within our studios. So that we stay both relevant and cutting edge in 2023, we introduced a new class format at Pier bar that resulted in 15% North America same store sales growth for the year.

We are also testing the rebranding of 8-K T's <unk> studios with a new dance class formats and studio branding launching in March in an effort to replicate the success, we had at pure Barre.

Ho, who is well known among dancing enthusiasts from dancing with the stars is behind the Kinner G concept, which we believe will help revitalize our dance modality.

Sarah Luna: Julianne has been instrumental in helping drive awareness for the Rebrand, engaging and energizing her network, both in person and online. Similarly, at CycleBar, we launched a new strength-focused class format this January. The strength class was the highest utilized class in January, which helped drive the 11% year over year increase in North American visits per studio and resulted in the highest number of visits per studio since COVID. In addition, except for Lyndora, all Xponential fitness brands are now available on GymPass. We are excited to have access to the GymPass membership network, which allows our studios to fill access inventory and further expose Xponential's brands to an even greater audience. Now turning to Lyndora, for over 50 years, Lyndora has helped tens of thousands of people live healthier lives through its suite of services that support metabolic health, including weight management programs that incorporate nutrition, lifestyle, and the latest innovations in weight loss medications, IV hydration, hormone replacement therapy, and other services.

Iliad has been instrumental in helping drive awareness for the rebrand engaging and energizing her network both in person and online.

Literally at cycle bar, we launched a new strength focus class format. This January.

The strength class was the highest utilized class in January which helped drive the 11% year over year increase in North American visits per studio and resulted in the highest number of visits per studio since COVID-19.

In addition, except for Linda all exponential fitness brands are now available on Gen. Paas. We are excited to have access to the gym pass membership network, which allows our studios to sell excess inventory and further expose exponentials brands to an even greater audience.

Now turning to Linda for over 50 years, Linda has helped tens of thousands of people live healthier lives through its suite of services that support metabolic health, including weight management programs that incorporate nutrition lifestyle and the latest innovations and weight loss medications IV hydration hormone replacement therapy and other services.

Sarah Luna: As a reminder, the Lyndora transaction is immediately accretive to earnings and EBITDA, enhances Xponential's AUV, and catalyzes future unit growth. At present, Lindora has 31 locations with run rate AUVs of roughly $900,000 as of Q4, and January showing particularly strong performance. 30 of the 31 locations are located in Southern California, which gives Xponential a large amount of white space to sell new franchises, as virtually all geographies in North America are untapped.

As a reminder, the window our transaction is immediately accretive to earnings and EBITDA enhances exponential the Avi and catalyzes future unit growth at.

At present, Linda has 31 locations with run rate Aves, a roughly $900000 as of Q4 and January showing particularly strong performance.

30 of the 31 locations are located in southern California, which gives an exponentially large amount of white space to sell new franchises as virtually all geographies in North America are untapped.

Sarah Luna: Since acquisition, we have already built a pipeline of prospective franchisees who have expressed interest in acquiring the rights to develop Lundor franchises. Unit level economics are compelling, with the average cost to build a Lindora being an approachable upfront investment and in line with our other concepts. A clinic is approximately the same size as our current average studio footprint of 1,500 to 2,000 square feet.

Since acquisition, we've already built a pipeline of prospective franchisees, who have expressed interest in acquiring the rights to develop window our franchises.

Unit level economics are compelling with the average cost to build ohlendorf being an approachable upfront investment and in line with our other concepts.

<unk> is approximately the same size as our current average studio footprint of 1500 to 2000 square feet. As a result clinics can be placed in the same retail locations as our other brands such as large shopping centers and grocery anchored real estate, which allows us to leverage our existing real estate and brokerage relationships in.

Sarah Luna: As a result, clinics can be placed in the same retail locations as our other brands, such as large shopping centers and grocery-anchored real estate, which allows us to leverage our existing real estate and brokerage relationships. In fact, one of Lyndor's locations already shares a shopping center with an existing Xponential studio. Lyndora has a diverse revenue base that is comprised of subscription memberships, nutrition products, medications, and other services, leaving us with several avenues to pursue additional AUV growth. Lyndora can also serve as a distribution platform for any new health and wellness concepts that emerge and has been at the forefront of the latest metabolic health developments since the 1970s.

In fact, one of Linde toys locations already shares a shopping center with an existing exponential studio.

Linda has a diverse revenue base that is comprised of subscription memberships nutrition products medications and other services, leaving us with several avenues to pursue additional AZ growth Linda.

Glendora can also serve as a distribution platform for any new health and wellness concepts that emerge and have been at the forefront of our latest metabolic health developments since the 19 seventies, while investors have frequently asked us about <unk> exposure to increase interest in weight loss medications. We think it is worth noting that the company operated successfully.

Sarah Luna: While investors have frequently asked us about Lyndora's exposure to increased interest in weight loss medications, we think it is worth noting that the company operated successfully at $900,000 AUVs prior to the introduction of the most recent weight loss medications in March of 2023. We expect Lyndora to offer a cross-selling opportunity with our existing studios. Working out is an essential part of any weight loss regimen, and we expect to fully capitalize on the opportunity to bring Lyndora members into our boutique fitness studios. On the flip side, many of our members are interested in nutritional offerings, and we are thrilled to now have a brand to refer them to. It really is a win-win situation.

At $900000 vs. Prior to the introduction of the most recent weight loss medications in March of 2023.

We expect Linda to offer a cross selling opportunity with our existing studios.

Looking out is an essential part of any weight loss regimen, and we expect to fully capitalize on the opportunity to bring Lin Dora members into our boutique fitness studios. Conversely, many of our members are interested in nutritional offerings and we are thrilled to now have a brand to refer them to.

It really is a win win.

John P. Meloun: Thank you for your time today. I'll now turn the call over to John to discuss our fourth quarter results and 2024 outlook. Thanks, Sarah, and thank you to everyone for joining the call. In the fourth quarter, North America system-wide sales of $384.6 million were up 31% year-over-year. The growth in North American system-wide sales was driven primarily by the 14% same-store sales within our existing base of open studios that continue to acquire new members, coupled with 169 gross new studio openings. Further, 94% of the system-wide sales growth came from volume or new members, which has remained consistent with historical performance, and 6% came from price. On a consolidated basis, revenue for the quarter was $90.2 million, up 27% year over year. 75% of 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 a studio opens. All five of the components that make up our revenue grew during the quarter.

For your time today I'll now turn the call over to John to discuss our fourth quarter results and 2020 for outlook.

Thanks, Sarah and thank you to everyone for joining the call in the fourth quarter North America system wide sales of $384 6 million or up 31% year over year the growth in North American system wide sales was driven primarily by the 14% same store sales within our existing base of open studios that.

To acquire new members, coupled with 169 gross new studio openings further 94% of our system wide sales growth came from volume or new members, which has remained consistent with historical performance and 6% coming from price.

On a consolidated basis revenue for the quarter was $90 2 million up 27% year over year.

75% other 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 upfront before a studio opens.

All five of the components that make up our revenue grew during the quarter franchise revenue was $39 1 million up 22% year over year. This growth was primarily driven by an increase in royalty revenue our system wide sales reached all time highs. In addition, an increase in monthly tech fee revenue.

John P. Meloun: Franchise revenue was $39.1 million, up 22% year over year. This growth was primarily driven by an increase in royalty revenue as system-wide sales reached all-time highs. In addition, an increase in monthly tech fee revenue and instructor training revenue was due to more studios operating domestically. Equipment revenue was $16.4 million, up 42% year-over-year. This increase in equipment revenue is the result of a higher mix of equipment-intensive brands which have a higher price point compared to the same period the previous year. Merchandise revenue was $10.1 million, up 27% year over year.

And instructor training revenue was due to more studios operating domestically.

Equipment revenue was $16 4 million up 42% year over year. This increase in equipment revenue as a result of a higher mix of equipment intensive brands, which have a higher price point compared to the same period prior year.

Merchandise revenue was $10 1 million up 27% 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.

John P. Meloun: 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 grew compared to the prior year. Franchise marketing fund revenue of $7.5 million was up 29% year-over-year, primarily due to continued growth in system-wide sales from a higher number of operating studios in North America. Lastly, other service revenue, which includes sales generated from company-owned transition studios, rebates from processing studio system-wide sales, B2B partnerships, XPAS, and XPlus, amongst other items, was $17.1 million, up 24% from the prior year period. The increase in the period was primarily due to higher revenues from our B2B partnerships. We significantly decreased the number of company-owned transition studios last year, resulting in the revenue generated from them stopping, along with the cost of operating the studios.

Franchise marketing fund revenue of $7 5 million was up 29% year over year, primarily due to continued growth in system wide sales from a higher number of operating studios in North America.

Lastly, other service revenue, which includes sales generated from company owned transition studios rebates from processing the studio system wide sales <unk> partnerships ex pass and X plus amongst other items was $17 1 million up 24% from the prior year period.

The increase in the period was primarily due to higher revenues from our <unk> partnerships, we significantly decreased the number of company owned transition studios last year, resulting in the revenue generated from them ceasing along with the cost of operating the studios. This will ultimately result in improved margins for exponential going forward.

John P. Meloun: This will ultimately result in improved margins for Xponential going forward. Turning to our operating expenses, the cost of product revenue was $17 million, up 39% 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 during the period. Costs of franchise and service revenue were $4.6 million, down 5% year over year. The decrease was driven by lower costs of amortized franchise license commissions during the period. Selling general and administrative expenses of $50.8 million were up 47% year-over-year.

Turning to our operating expenses cost of product revenue were $17 million up 39% 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.

Cost of franchise as service revenue were $4 6 million down 5% year over year. The decrease was driven by lower cost of advertise franchise license commissions in the period selling.

Selling general and administrative expenses of $50 8 million were up 47% 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 operations as pre.

John P. Meloun: 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 operations. As previously discussed, we have shifted our transition studio strategy, which will decrease SG&A expenses and improve EBITDA margins. Since we announced this shift at the end of the second quarter of 2023, the number of company-owned transition studios has declined from 84 to only four studios remaining as of the date of this call, with some of these studios being re-franchised to new owners and some closing permanently. Within SG&A, the largest liability we continue to work through is our commercial leases.

As we've discussed we have shifted our transition studio strategy, which will decrease SG&A expenses and improved EBITDA margins.

Since we announced this shift at the end of the second quarter of 2023. The number of company owned transitioned studios has declined from 84 to only four studios remaining as of the date of this call with some of these studios being re franchise to new owners and some closing permanently.

Within SG&A the largest liability we continue to work through as our commercial leases. We expect this onetime restructuring will continue in 2024 and will be finalized once we have settled the remaining outstanding leases with landlords.

John P. Meloun: We expect this one-time restructuring will continue in 2024 and will be finalized once we have settled the remaining outstanding leases with landlords. The investments we are making to streamline operations back to a pure franchise model will optimize forward-looking SG&A expenses, resulting in increased margin levels. In 2023, net operating losses associated with Transition Studios were approximately $10 million, which will be materially gone in 2024. Additionally, as projected on our third quarter 2023 call, our annual franchise convention added approximately $5 million in sequential SG&A expenses, which were largely offset by sponsorship revenues from the event that brought the net expenses down to $1.5 million for the fourth quarter. The impairment of goodwill and other assets was $4.8 million and was primarily due to the company-owned Rumble Studios being reclassified as held for sale and the resulting write-down of leasehold improvements, reacquired franchise rights, and goodwill. Depreciation and amortization expense was $4.2 million, an increase of 2% from the prior year period.

The investments, we are making to streamline operations back to a pure franchise model will optimize forward looking SG&A expenses, resulting in increased margin levels in 2023, net operating losses associated with transition studios were approximately $10 million, which will be materially gone in 2024.

Additionally, as projected on our third quarter 2023 call. Our annual franchise convention added approximately $5 million in sequential SG&A expenses, which were largely offset by sponsorship revenues from the event that brought the net expenses down to $1 5 million for the fourth quarter.

Impairment of goodwill and other assets was $4 8 million and was primarily due to the company owned Rumble studios being reclassified as held for sale and the resulting write down of leasehold improvements reacquired franchise rights and goodwill.

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

John P. Meloun: Marketing fund expenses were $6.4 million, up 39% year-over-year, driven by increased spending 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. 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. Acquisition and transaction expenses were a credit of $0.5 million versus an expense of $8.2 million in the fourth quarter of 2022.

Marketing fund expenses were $6 4 million up 39% year over year, driven by increased spending because of higher franchise marketing fund revenue.

As a reminder, each of our franchise locations contributed 2% of sales to our marketing fund therefore, as the number of studios and system wide sales grow our marketing fund increases since we are obligated to spend marketing funds and increase in marketing fund revenue will always translate into an increase in marketing fund expenses over.

Time.

Acquisition and transaction expenses were a credit of <unk> 5 million versus an expense of $8 2 million in the fourth quarter of 2022 as I have noted on prior earnings calls. This includes the contingent consideration activity, which is related to the Rumble acquisition earn out and is driven by the share price at quarter end, we <unk>.

John P. Meloun: As I have noted on prior earnings calls, this includes contingent consideration activity, which is related to the Rumble acquisition earn out and is driven by the share price at quarter end. We mark to market the earn out each quarter and accrue for the earn out. We recorded a net loss of $9.1 million in the fourth quarter, or earnings of $0.10 per basic share, compared to a net loss of $0.4 million, or a loss of $1.13 per basic share, in the prior year period.

To mark of the earn out each quarter and accrue for the earn out.

We recorded a net loss of $9 1 million in the fourth quarter or earnings of 10 cents per basic share compared to a net loss of <unk> 4 million or a loss of <unk>.

<unk> 13 per basic share in the prior year period, the higher net loss was the result of an $8 8 million increase in restructuring costs from our company owned transition studios $6 6 million of lower overall profitability and a $4 9 million increase in impairment of goodwill and other assets.

John P. Meloun: The higher net loss was the result of an $8.8 million increase in restructuring costs from our company-owned transition studios, $6.6 million of lower overall profitability, and a $4.9 million increase in impairment of goodwill and other assets, offset by an $8.8 million decrease in non-cash contingent consideration primarily related to the Rumble acquisition and a $2.8 million decrease in non-cash equity-based compensation expense. The impairment of goodwill and other assets, as previously mentioned, was primarily due to the company-owned Rumble Studios being reclassified as held for sale. 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 the net income is provided in our earnings press release. Adjusted net income for the fourth quarter was $4.2 million, which excludes the $0.5 million gain in the fair value of non-cash contingent consideration.

Offset by an $8 8 million decrease in noncash contingent consideration primarily related to the Rumble acquisition and a $2 8 million decrease in noncash equity based compensation expense.

The impairment of goodwill and other assets as previously mentioned was primarily due to the company owned Rumble studios being reclassified as held for sale. 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 adjusted net income is provided in our <unk>.

Earnings Press release, adjusted net income for the fourth quarter was $4 2 million, which excludes $2 5 million gain in fair value of noncash contingent consideration.

John P. Meloun: A $0.1 million liability increase related to the fourth quarter remeasurement of the company's tax receivable agreement, a 4.9 million impairment of goodwill and brand assets, and an 8.8 million restructuring charge. This results in adjusted net earnings of 8 cents per diluted share on a share count of 55.4 million shares of Class A common stock after accounting for income attributable to non-controlling interest and dividends on preferred shares. Adjusted EBITDA was $30.7 million in the fourth quarter, up 38% compared to $22.2 million in the prior year period.

I'll point 1 million liability increase related to the fourth quarter Remeasurement of the company's tax receivable agreement.

The $4 9 million impairment of goodwill and brand assets and the $8 8 million restructuring charge.

This results in adjusted net earnings of eight cents per diluted share on a share count of $55 4 million shares of class a common stock after accounting for income attributable to non controlling interest and dividends on preferred shares.

<unk> EBITDA was $30 7 million in the fourth quarter of 38% compared to $22 2 million in the prior year period.

John P. Meloun: Adjusted EBITDA margins grew to 34% in the fourth quarter compared to 31% in the prior year period. As Anthony mentioned, we have positioned the company for higher margins by increasing operating leverage going forward, and we continue to expect margins to reach 40% in 2024. Going forward, we'd like to provide a comprehensive summary of our annual results each year that will include more granular brand-level metrics and data. However, it is important to note that this additional data will only be provided during our Q4 calls.

Adjusted EBITDA margins grew to 34% in the fourth quarter compared to 31% in the prior year period.

As Anthony mentioned, we have positioned the company for higher margins by increasing the operating leverage going forward and we continue to expect margins to reach 40% in 2024 going forward, we'd like to provide a comprehensive summary of our annual results. Each year that will include more granular brand level metrics and data it is important.

Note that this additional data will only be provided during our Q4 calls.

John P. Meloun: At times, I will discuss our scaled brands in our portfolio, or those brands with greater than 150 studios operating in North America, which currently include Club Pilates, PsychoVar, PureVar, Stress Lab, and YogaSix. In 2023, the strongest license sales occurred for Club Pilates with 361, Stretch Lab with 159, and BFT with 149. These three brands represented 83% of the 805 licenses sold this year. Most license sales occurred in North America, with 78% and the balance of 22% internationally.

At times I will discuss our scaled brands in our portfolio or those brands with greater than 150 Studios operating in North America, which currently include club Pilates cycle bar pure Barre stress lab and yoga six.

In 2023, the strongest license sales occurred in club Pilates with 361 stress lab with 159 and <unk> with 149.

These three brands represented 83% of the 805 licenses sold this year.

Most license sales occurred in North America, with 78% and the balance of 22% internationally.

John P. Meloun: For openings, Club Pilates with 167, Stress Lab with 163, and BFT with 71 represented 72% of the 557 new studio openings this year. Like license sales, new studio openings largely occurred in North America with 79% and the balance of 21% internationally. System-wide sales are driven mainly by the number of studios operating and the maturity of those studios. It is expected that the brands with a growing number of studios will continue to generate higher proportions of our system-wide sales as AUVs increase. Our scale brands represented 92% of North American studios operating at year end and contributed 95% of the system-wide sales in 2023. Club Pilates, with 905 studios operating at year-end, contributed 52% of our total system-wide sales for the year, with PureBar at 638 and StretchLab at 436 studios operating, making up approximately 30%. Run rate average unit volumes continued to be strong. Amongst the scale brands and overall, PureBar had the highest year-over-year increase and was up 24%, with Club Pilates and Yoga 6 up 15% and 13% respectively. Cyclebar AUV decreased 1% year over year, negatively impacted by studios that had low sales and subsequently closed in the fourth quarter of 2023.

For openings club Pilates with 167 stress lab with 163 and PMT with 71 represented 72% of the 557, new studio openings. This year like license sales new studio openings largely occurred in North America, with 79% and the balance of 'twenty.

1% internationally.

System wide sales are driven directionally by the number of studios operating and the maturity of those studios. It is expected that the brands with a growing number of studios will continue to generate higher proportions of our system wide sales as <unk> increase our.

Our scaled brands represented 92% of North American studio operating at year end and contributed 95% of our system wide sales in 2023.

Hello, Pilates with 905 studios operating at yearend contributed 52% of our total system wide sales for the year with pure Barre at 638 and stress out about 436 studios operating making up approximately 30% run rate average unit volumes continued to be strong amongst the scale.

<unk> and overall pure Barre had the highest year over year increase and was up 24% with club Pilates and yoga, six up 15% and 13% respectively cycled.

<unk> decreased 1% year over year negatively impacted by studios that had low sales and subsequently closed in the fourth quarter of 2023.

John P. Meloun: Stretchlab AUVs decreased 4% year-over-year, primarily driven by a higher number of young, ramping studios entering the AUV calculation given the high number of new openings in that brand. However, same store sales across all the scale brands were positive in every quarter throughout 2023, with Club Pilates, Pure Bar, and Yoga 6 again realizing the highest increase. Going forward, total same-store sales are expected to normalize from the 2023 mid-teens growth rates to the low double and high single-digit growth rates in 2024. Turning to the balance sheet, as of December 31, 2023, cash, cash equivalents, and restricted cash were $37.1 million, down from $37.4 million as of December 31, 2022. Total long-term debt was $328.5 million as of December 31, 2023, compared to $137.7 million as of December 31, 2022.

Dress lab, Hey, you these decreased 4% year over year, primarily driven by a higher number of young ramping studios entering the E V calculation given the high number of new openings in that brand.

Same store sales across all of the scale brands were positive in every quarter throughout 2023 with club Pilates Pier bar and yoga six again, realizing the highest increases.

Going forward total same store sales are expected to normalize from the 'twenty two 'twenty three mid teens growth rates to the low double and high single digit growth rates in 2024, turning to the balance sheet as of December 31, 2023, cash cash equivalents and restricted cash were $37 1 million DAU.

<unk> from $37 4 million as of December 31, 2022, total long term debt was $328 5 million as of December 31, 2023, compared to 137.7 million pounds of December 31 2022.

The 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 of 2023.

John P. Meloun: 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 $22.07 per share, announced in January of 2023. These shares, prior to the repurchase, would have been convertible into 5.9 million shares of Class A common stock. While we assessed a possible whole business securitization as an option to achieve a lower interest rate, given the current high rate environment and not wanting to enter into a fixed longer-term commitment, we recently completed a two-year extension on our term loan with our current lender to preserve our optionality. The extension gives us the ability to float down with interest rates while, in parallel, preparing the company to opportunistically enter into a lower fixed cost arrangement later.

These shares prior to the repurchase would've been convertible into $5 9 million shares of class a common stock, while we assessed a possible whole business securitization as an option to achieve a lower interest rate given the current high rate environment and not wanting to enter into a fixed longer term commitment. We recently completed a.

Two year extension on our term loan with our current lender to preserve our optionality.

The extension gives us the ability to float out with interest rates, while in parallel preparing the company to opportunistically enter into a lower fixed cost arrangement later.

Let's now discuss our outlook for 2024.

Based on current business conditions, and our expectations as of the date of this call. We are initiating guidance for the current year as follows.

John P. Meloun: Let's now discuss our outlook for 2024. Based on current business conditions and our expectations as of the date of this call, we are initiating guidance for the current year as follows. We expect 2024 global new studio openings to be in the range of 540 to 560. This range is in line with the prior year's studio openings and relatively equal at the midpoint over 2023. We project North America system-wide sales to range from $1.705 billion to $1.715 billion, or a 22% increase at the midpoint from the prior year and the highest North American system-wide sales in our history. Total 2024 revenue is expected to be between $340 million and $350 million, an 8% year-over-year increase at the midpoint of our guided range. Adjusted EBITDA is expected to range from $136 million to $140 million, a 31% year-over-year increase at the midpoint of our guided range.

We expect 2024 global new studio openings to be in the range of 540 to 560. This range is in line with the prior year studio openings and relatively equal at the midpoint over 2023.

We project North America system wide sales to range from $1 705 billion to $1 715 billion or 22% increase at the midpoint from the prior year and the highest north American system wide sales in our history.

Total 2024 revenue is expected to be between 340 million to $350 million and 8% year over year increase at our midpoint of our guided range.

Adjusted EBITDA is expected to range from $136 million to a $140 million or 31% year over year increase at the midpoint of our guided range. This range translates into a roughly 40% adjusted EBITDA margin at the midpoint.

It is worth noting that we anticipate Q1 will be the lowest revenue adjusted EBITDA and have the fewest new studio openings corridor for 2024 and will gradually increase throughout the year similar to the ramp in 2023.

John P. Meloun: This range translates into roughly a 40% adjusted EBITDA margin at the midpoint. It is worth noting that we anticipate Q1 will be the lowest revenue adjusted EBITDA and have the fewest new studio openings quarter for 2024, and will gradually increase throughout the year, similar to the ramp in 2023. And as I just mentioned, we anticipate same-store sales in Q1 will be in the low double digits and will normalize to the high single digits by the fourth quarter. We expect total SG&A to range from $135 million to $140 million, or $110 million to $115 million when excluding the one-time lease restructuring charges, and under $100 million when further excluding stock-based costs. In terms of capital expenditure, we anticipate approximately $9 million to $11 million for the year, or approximately 3% of revenue at the midpoint.

And as I just mentioned, we anticipate same store sales in Q1 will be in the low double digits and will normalize to the high single digits by the fourth quarter.

We expect total SG&A to range from $135 million to $140 million range.

Or hunter in time to $115 million range, when excluding the onetime lease restructuring charges and under 100 million when further excluding stock based costs.

In terms of capital expenditure, we anticipate approximately 9 million to $11 million for the year or approximately 3% of revenue at the midpoint.

Going forward capital expenditures will be primarily focused on the integration of <unk> and maintenance of other technology investments to support our digital offerings.

John P. Meloun: Going forward, capital expenditures will be primarily focused on the integration of Lendora and maintenance of other technology investments to support our digital offering. For the full year, our tax rate is expected to be mid to high single digits, the share count for purposes of earnings per share calculation to be $31.5 million, and $1.9 million in quarterly dividends to be paid related to our convertible preferred stock. A full explanation of our share count calculation and associated pro forma EPS and adjusted EPS calculations can be found in the tables at the back of our earnings press release as well as in our corporate structure and capitalization FAQ on our investor website.

For the full year, our tax rate is expected to be mid to high single digits share count for purposes of earnings per share calculation to be $31 5 million and $1 $9 million in quarterly dividends to be paid related to our convertible preferred stock.

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

Finally, before turning the call over for questions I want to communicate that the company is in the process of putting in place a new two year and up to $100 million share repurchase program given the high cash generation expected over the coming years, we want to be in a position to opportunistically use access operating.

John P. Meloun: Finally, before turning the call over to questions, I want to communicate that the company is in the process of putting in place a new two-year and up to $100 million share repurchase program. Given the high cash generation expected over the coming years, we want to be in a position to opportunistically use excess operating cash to buy back shares at low valuations. This share repurchase program will not impact the company's ability to execute on opportunistic M&A targets and will be 100% funded using excess operating cash and not through additional leverage. Thank you all for your time today. We will now open the call for any questions. Operator?

Cash to buy back shares at low valuations. This share repurchase program will not impact the company's ability to execute on opportunistic M&A targets and will be 100% funded using excess operating cash and not through additional leverage.

Thank you all for the time today, we'll now open the call for any questions operator.

Thank you.

And at this time, well conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Operator: And at this time, we'll conduct our question. If you would like to ask a question, please press Star One. Confirmation Tone, Online, stars. Unknown, for again to ask a question. Star. Our first question. Randy Konik with.

Information tone will indicate that your line is in the question queue.

You May press Star two if you would like to remove your question from the queue.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again to ask a question press star one on your telephone keypad.

Our first question comes from Randy <unk> with Jefferies. Please state your question.

Randal J. Konik: Hey guys, thanks a lot. I'm on a plane, so hopefully, you can hear me.

Hey, guys. Thanks, a lot amount of claims so hopefully you can hear me.

Anthony Geisler: I guess, Anthony, I want to ask you about portfolio construction. You announced the divestiture of Stride. You've got some learnings from the recent acquisition in the wellness area with Rendora, so just maybe kind of give us your thoughts on how you're approaching your strategic direction going forward around potentially other areas of the portfolio, potentially, I don't know, not trimming, and how you think about areas of focus for potential acquisitions going forward, whether it be fitness or wellness. Just give us some thoughts. That would be super helpful.

I guess, Anthony I wanted to ask you about our portfolio construction.

You announced the divestiture of stride, you've got some learnings of recent the recent acquisition and the wellness area with Dora.

Maybe kind of give us your thoughts on how you're approaching your <unk>.

BTG direction going forward around potentially other areas of the portfolio potentially I don't know I'm, assuming are not trimming and how you think about areas of focus for potential acquisitions going forward, whether it be yes, or wellness are just give us some thoughts there would be super helpful. Thanks, guys.

Randal J. Konik: Thanks, guys. Yeah, thanks, Randy. I think managing the portfolio will always continue to be opportunistic. And so, you know, if we are able to repurpose labor or, you know, dollars or focus, whether that be into acquiring a new brand like Lendora or, you know, kind of reutilizing labor out of a brand like Stride into another brand, we'll continue to do that. And so, you know, like any good portfolio, you would expect Xponential over the years to expand and contract from a brand perspective, but you'll find everything continuing to be, of course, in health and wellness. But as we, you know, continue to forge forward, we'll be focusing on what makes the most sense to focus on and modalities and verticals that make the most sense to focus on.

Yeah. Thanks, Randy I think managing the portfolio will always continue to be opportunistic and sell you know if we are able to repurpose labor or you know dollars or focus whether that be into acquiring a new brand like Linda Ora and or you know kind of re utilizing les.

Or out of a brand like stride into another brand, we will continue to do that and so I think like any good portfolio you would expect.

Exponential over the years to expand and contract.

From a brand perspective, but you'll find everything continuing to be of course in health and wellness.

But as we continue to forge forward, we'll be focusing on what makes the most sense to focus on and modalities in verticals that makes the most sense to focus on.

John P. Meloun: And just, I guess, lastly, John, maybe you can repeat the metrics you gave us around. You talked about a certain percent, a certain number of studios had AUVs above a million, a certain number above 900,000. I just want to get those repeated, if you can, and then give us some perspective on, if you think about younger businesses, Lendora, Rumble, etc., it would just seem like just through mix, you should be able to get those total company AUVs to continue to rise, along with some healthy productivity improvements in the existing core as it is. So I just want to get some thoughts there on, A, just repeat the numbers that you Thanks.

Great and just I guess lastly, John maybe you can repeat the metrics you gave us around you talked about a certain percentage of a certain number of studios I had <unk> above a million dollars a certain number or a ballpark 900000 I just wanted to get those repeated if you can and then give us some perspective on.

If you think about the younger businesses, all indoor Oh, its rumble et cetera.

It would just it would just seem like just mix you should be able to get those total company <unk> to continue to rise along with some healthy productivity improvements in the existing <unk>.

As it is so just wanted to get some thoughts there on aged repeat the numbers that you gave earlier and be just give us some perspective on <unk> having opportunities right.

Through mix, but also lives through additional productivity gains.

Yeah, so starting with the the prior statistics. The vs are 350 that are over a $1 million and we have another 160 that are already over 900000, So you're roughly you know well over 500000 that are or 500.

John P. Meloun: Yeah, so starting with the prior statistics, the AUVs are 350 that are over 1 million, and we have another 160 that are already over 900,000. So you're roughly, you know, well over 500,000 that are 500 that are over, you know, kind of a 900 plus. And then you look at the brands that those are in; these are the brands where you have strong AUVs, you know, and you have a lot of openings coming from those as well. So, one thing also, remember, it's not just in like the Club Pilates and the Rumbles and some of those stress lab brands; you also have high AUV performance and pure bars and yoga sixes. And, you know, that's really encouraging because those brands typically have a higher age, but we're starting to see more openings in those brands as well.

Better over kind of the 900, plus and then you look at the brands that those are in these are the these are the brands where you have strong <unk>.

And you have a lot of openings coming from as well. So you know one thing also remember its not just in like the club Pilates and the rumbles and in some of those stress on our brands do you also have higher you'd be performance and peer of ours in yoga sixes.

And.

That's really encouraging because those those brands typically have a higher.

Age, but we're starting to see more openings and in those brands as well, so you're kind of seeing a little bit of a resurgence in growth. There. When you think about <unk> in total.

John P. Meloun: So you're kind of seeing a little bit of a resurgence and growth there. When you think about AUVs in total and the influence over time and the ability for AUVs to grow, again, you got to refocus back on where in the brands are you seeing the most amount of growth in the future. There was a slide up there kind of showing, you know, where we opened and sold licenses in 2023. And the concentration going forward is very similar.

And the influence over time and the ability for <unk> to grow again, you got to refocus back on where the brands are are you seeing the most amount of growth on future. You know there was a slide up there kind of showing.

Where we opened and sold licenses in 2023 and the concentration going forward is very similar so you will see core Pilates continue to open up you know studios at a healthy pace of very high a UV stretch lab a lot of openings are very high a UV youre starting to see the rumbles and B a T has come into the mix of very high AAV.

John P. Meloun: So you will see Club Pilates continue to open up, you know, studios at a healthy pace, a very high AUV; stretch lab, a lot of openings, a very high AUV; you're starting to see the Rumbles and BFTs come into the mix, a very high AUV. And you will see those, those, those brands really drive up with volume, the AUV. The thing that's also very comforting is when you look at it from a portfolio approach, you have brands like yoga six, which had really strong same-store sales. So you expect to see as we open more of those, not only that the new studios are competing and growing at a very healthy pace from a cohort perspective, but you're also seeing the older studios continue to grow at a healthy percentage as well.

So you will see those those those brands really drive up with volume, but the thing. That's also very comforting is when you look at it from a portfolio approach you have brands like yoga, six which had really strong same store sales. So you would expect to see as we open more of those not only about the new studios are comping.

And growing at a very healthy pace from a cohort perspective, but you're also seeing the older Studios continue to grow at a healthy percentage as well. So pure Barre same thing really strong 2023 growth really strong same store sales a huge installed base of open studios, so kind of going back to the question you asked Anthony about our portfolio.

John P. Meloun: So pure bar, same thing, really strong 2023 growth, really strong same-store sales, and a huge installed base of open studios. So, you know, kind of going back to the question you asked Anthony about a portfolio approach, we're really focusing our resources and energies around these brands that are at scale, that have a lot of licensed sales already sold and a lot of openings to come, because that's where the AUVs are really going to be driven by the health of those brands. So that's what we're going to focus our energy on. Very helpful.

Oh approach, we're really focusing our resources and energies around these brands that are at scale that have a lot of license sales already sold and a lot of openings to come because that's where that these are really going to be driven from the health of those of those brands. So that's what we're going to focus our energy.

Yeah.

Anthony Geisler: Thanks, guys. Our next question comes from John Heinbockel, partner. Hey, Anthony, let me start with Londora, right?

Very helpful. Thanks, guys.

Our next question comes from John <unk> with Guggenheim Partners. Please state your question.

Hey, Anthony let me start with on the door right. So that that would suggest maybe a thousand potential unit potential to start with.

John Edward Heinbockel: So that would suggest maybe 1000 potential units to start with. That's fair. How do you think that kind of ramps in terms of opening? And then the maturation curve, right? When you think about year one of AUV through year four or five, remind us how that looks versus the other brands. Yeah, I mean, Club Pilates started, if I remember the exact number was like 938, I think that Buxton started, you know, like six, seven years ago.

That's fair.

How do you think that kind of ramps in terms of openings.

And then the maturation curve right when you think about your one.

Through your four five.

A mind us how that looks versus the other brands.

Yes, I mean <unk> started if I remember the exact number was like 938 I think the Buxton did you know like six seven years ago.

Anthony Geisler: And obviously, we have 1000, approximately open of that today, plus about another 500 sold. So the TAM continues to expand over time as the modalities expand, and the brand expands, not at the cost of AUV, because as you've seen, Club Pilates from 2015 to 2024, a nine-year period while you've watched TAM expand by 50-60% so far, you've also seen the AUV climb from what was originally about 2 So, you know, you can get an additional 50-60% TAM while you're also seeing a 4x growth of AUV. You know, when you speak about Lendora, yes, you can see over time that those will be mostly the same, much like Stretch Lab, where, you know, it started in the 500 range, and now we have 800-plus sold, almost 500 open. So you'll continue to see that TAM expansion. And so, you know, that's kind of what I think you'll expect over time. Lendora, obviously, is starting with, you know, about a $900-million AUV. That's where Club Pilates started 250.

Obviously, we have a thousand.

Approximately open of that today plus about another 500 sold so the Tam continues to expand over time as the modalities expand in the brand expands.

Not at the cost of a V because as you've seen club pilates from 2015 to 2024, a nine year period, while you've watched Tam expand by 50, 60%. So far you've also seen the a UV climb from what was originally about 250000 to about $1 million. So.

You can get additional 50, 60% Tam while you're also seeing a forex growth of <unk>.

You know when you speak about one door yes.

Yes, you can see over time.

Those will be most of the same much like stretch lab or you know it started in the 500 range and now we have 800 plus sold almost 500 open. So youll continue to see that that Tam expansion.

And so you know that's that's kind of what I think you'll expect over time, Linda or obviously is starting with you know about a 900 million dollar EV.

You know as workload Plotty started to 50. So the idea is to go into Linda or drive focus on sales and conversion add things like apparel.

John P. Meloun: So the idea is to go into Lendora, drive focus on sales and conversion, add things like, you know, apparel, which we believe will do very well in there that they don't have now as a part of their retail mix, and, you know, continue to grow the AUV at that brand. So, you know, the first 18 to 24 months are really franchise sales of a brand, and then you'll start to see openings for Lendora from a franchise-y perspective. Obviously, the 31 will be existing this whole year, but by the end of the year, you'll start to see Q4 openings of Lendora in 2024. But you'll see the majority of openings in, you know, 2025, 2026, 2027, as we kind of sell and then build out the model. And then maybe the follow-up for, maybe for John, right? So it looks like, at least by my math, around $60 million of free cash flow in 2024. That's fair.

Which we believe will do very well in there that they don't have now is a part of their retail mix.

And continuing to grow the AAV at that brand. So the first 18 to 24 months are really franchise sales.

Of our brand and then so you're starting to see openings for Linda or from a franchise perspective, obviously, the 31 will be existing this whole year, but by the end of the year, you'll start to see Q4 openings of law, Dora and 'twenty 'twenty, four but youll see the majority of openings and 'twenty five 'twenty six 'twenty.

Seven as we can.

You know Sal and then build out the model.

And then the follow up for John right. So it looks like by my math around $60 million of free cash flow in 'twenty four.

Is that fair and then how do you think about executing the buyback.

John P. Meloun: And then how do you think about executing the buyback? consistent versus ASR given where the shares sit today? Yeah, so in regards to free cash flow, yeah, I've kind of estimated that free cash flow generation will be about 60 to 70% of the adjusted EBITDA number, probably closer to the 70% numbers is kind of where I'm estimating it. As far as the buyback, you know, what we want to do is we want to put the company in a position where, you know, we have a very capex-light business; we will generate And I talked about that at investor day back in September, you know, what do we do with that capital? We prioritize, you know, the growth of this business and look at M&A to kind of continue to grow the top line and bottom line.

Consistent versus ASR, given where they sit today.

Yeah. So in regards to free cash flow yeah.

Estimated free cash flow generation will be about 60% to 70% of the adjusted EBIT, a number probably closer to the 70% numbers is kind of where I'm estimating it.

As far as the buyback you know what we want to do is we want to put the company in a position where we have a very capex light business, we will generate a significant amount of cash going forward as I said I talked about that and then in the Investor day back in September.

We do with that capital you know, we prioritize the growth of this business and looking at M&A to kind of continue to grow topline and bottom line, but when we are in a position where you know there's nothing you know Opportunistically. We're gonna go ahead and be purchasing what do you do with that capital buying back shares at this at the current valuation there are pretty attractive.

John P. Meloun: But when we are in a position where, you know, there's nothing, you know, opportunistically, we're going to go ahead and be purchasing, what do you do with that capital, buying back shares at this, you know, at the current valuation that is pretty attractive, you know, so that the timing and cadence of that, you know, you'll probably see more activity kind of ramp up, you know, throughout this And then probably in 2025, you know, there will be a healthy amount of buyback opportunity there, you know, but, you know, we are conscious of our current debt and interest rates. But, you know, as I mentioned, we got the extension done with MSD, and therefore, it's kind of a variable arrangement where it will float down over time.

So the timing and cadence of that you know you'll probably see.

More activity kind of ramp up throughout this year and then probably in 2025.

You'll be a you know a healthy amount of buyback opportunity there.

But you know we.

We are conscious of our current debt and an interest rates, but you know as I mentioned, we got the extension done with M. S. D and therefore, it's kind of a variable arrangement, where it'll slow down over time. So we are we are paying attention to that too versus paying down debt versus stock and that's why we're doing it in an opportunistic way where we have.

John P. Meloun: So we are paying attention to that too versus paying down debt versus stock. And that's why we're doing it in an opportunistic way where we have the ability to control where we direct cash that's in the best interest of the company. But, you know, we are in a good position that the cash will, the business will be highly cash generative, so it gives us the opportunity to do stock buybacks opportunistically. Thank you. The next question comes from Jonathan Komp, with Robert W. Berry. Yeah, good afternoon.

<unk> ability to control, where we have direct cash.

As in the best interests of the company, but we are in a good position that the cash will the business will be highly cash generative.

It gives us the opportunity to do <unk> stock buybacks opportunistically.

Thank you.

Our next question comes from Jonathan Komp with Robert W. Baird. Please state your question.

Yeah, Hi, good afternoon. Thank you John I, just wanted to follow up could you give a little more color as we think about the SG&A.

Jonathan Robert Komp: Thank you. John, I just wanted to follow up. Can you give a little more color as we think about the SG&A dollar run rate you spoke about in the decline and in the underlying rate X one-offs and stock compensation? Could you just give a little more color, you know, the corporate studio impact and anything else? That's going into the projection there.

SG&A dollar run rate you spoke to and the.

A decline in the underlying rate ex one offs and stock compensation can you just give a little more color on the corporate studio impact than anything else.

That's going into the projection there.

John P. Meloun: Yeah, I mean, when you look back at 2023, one of the reasons why SG&A was higher was because of the transition studios. So we spent, you know, a lot of resources and energy in the back half of 2023 focusing on getting studios refranchised where it made sense; where it didn't make sense, we closed down studios. You know, I talked about the true run rate of our SG&A being in that 110 to $115 million range. That's where it is when you exclude the, you know, kind of the P&L impact of kind of breaking these leases with landlords. So, you know, those are one-time events in nature.

Yeah, I mean, when you look back at 2023, one of the reasons why yesterday was higher was because of the transition studios. So we spent a lot of resources and energy in the back half of 2023, focusing on getting studios re franchised, where it made sense, where it doesn't make sense. We you know we closed down studios I talked about the <unk>.

True run rate of our SG&A being in that $110 million to $115 million range, that's where it is when you exclude the B S.

The P&L impact of kind of breaking these leases with landlords. So you know those are onetime in nature. So we will be in that kind of one time to $1 $15 million range for SG&A. When you take out stock based comp your sub 100 year old.

John P. Meloun: So we will be in that kind of 110 to $115 million range for SG&A. When you take out stock-based comp, you know, you're sub 100. You know, over time, I think SG&A as a percent of revenue, you know, in a, I can say, the most efficient state or, you know, after you exclude stock-based comp, will be in that, you know, kind of mid-high 20s percent of revenue range. So we, you know, we look at the restructuring costs and the lease liability as one time. So we're excluding it from the purposes of our normal run rate for SG&A, which, you know, should be in that 110 to $115 million range with stock-based comp, and without stock-based comp, under a hundred million for the full year next year or in 2021. Right, thanks for that detail.

Over time, I think SG&A as a percent of revenue you know in a what I can say at most efficient state or after you exclude stock based comp will be in that kind of mid high twenties.

You know percent of revenue range. So we look at the restructuring costs and a lease liability as one time. So we're excluding it from the purposes of our normal run rate for SG&A, which should be in that $110 million to $115 million range with stock based comp without stock based comp under 100 million for the full year next year.

In 2024.

Okay.

Great. Thanks for that detail and then one follow up just wanted to ask about the rumbold brand that looks like.

Anthony Geisler: And then one follow-up question, just wanted to ask about the Rumble brand; it looks like you sold fewer licenses than you opened in 2023, so just wanted to ask about the health of that brand, what you see going forward for Rumble. Thank you. Yeah, the brand is fine.

You sold fewer licenses relative than the number that you had opened in 2023, but I just wanted to ask.

Sort of the health of that brand, what you see going forward for Rumble.

Yeah.

Yeah. The brand is fine I mean people are there's 10 brands 11 brands now are you now minus try it again, so there's there's 10 brands to choose from.

Anthony Geisler: I mean, people are there are 10 brands, 11 brands now, or, you know, minus stride again, so there's 10 brands to choose from. So, you know, we're not like we're driving one brand. And so that's kind of where the brand is from a franchise sales perspective. You'll find that in franchise sales, in general, you will sell a brand that we've been selling Rumble since, you know, I think we bought it in March prior to going public. So after two and a half to three years, you know, that's what you'll kind of see as you start to tap out the TAM, right? I mean, we've been selling that business for almost, it'll be three years this March. And then BFT after that, and Lendora after that.

So it's not like where we are driving one brand.

And so that's a.

That's kind of where the brand is from a franchise sales perspective, you'll find that in franchise sales in general you will sell a brand like we've been selling rumbles since I think we bought it March prior to going public. So after two and a half to three years you know that's that's what youll kind of see as you saw.

Start to tap out the Tam right I mean women selling that business for almost it'll be three years. This march.

And then B F T after that and the door. After that so you know you don't want to see us selling 5000 rumbles on because that means that we would be saturating the market right. So.

Anthony Geisler: So, you know, you don't want to see us selling, you know, 5000 Rumbles because that means that we'd be saturating the market, right? So nothing really to read into their same store sales up 11%. So, you know, the brand is doing fine.

Nothing really to read into their same store sales up 11%. So now brand is doing fine yeah, we're working with franchisees to engineer cheaper openings makes that item seven less expensive. So we can get you know some open as we've been going and operating more.

Jonathan Robert Komp: You know, we're working with franchisees to engineer cheaper openings, make the item seven less expensive. So we can get, you know, some open as we go and operate more. Like any brand, we know what it's like to own 100 of a lot of things, but we don't know what it's like to operate 100 Rumbles. And so as you get from, you know, zero to 100, there are learnings that go on, and you find ways to, you know, value engineer the openings, so the openings are less expensive but still don't have an impact on AAV. So you keep capacity the same, but you start to find ways that you can get the stores open for less money and then continue to operate them. So that that's great. Great, thanks again. Thank you, and our next question comes from Megan Alexander. Thank you very much.

You know like in any brand, we know what it's like to own 100 of a lot of things, but we don't know what it's like to operate 100 rumbles and so as you get from zero to 100, there are learnings that go on and you find ways to.

You know value engineer the openings of the openings are less expensive, but still don't have an impact on a V. So you keep capacity the same but you start to find ways that you can get the stores open.

For less money and then continue to operate them.

So that that's great.

Okay.

Great. Thanks again.

Thank you and our next question comes from Meghan Alexander with Morgan Stanley. Please state your question.

Hey, Thanks, very much first question I'm, just wondering if you could give some color on any quarter to date Kpis January is typically positive from a seasonality perspective, but I think we're all well aware weather has not been ideal. So I was hoping you could just give us any more color on what you're seeing maybe as it relates to member adds.

Megan Christine Alexander: First question I just was wondering. Thank you all, and then how the comp is trending relative to the low double digit you talked about for the first quarter. Yeah, so we've been watching this and evaluating, you know, the KPIs that drive kind of the Q1 activity. You know, overall, we've looked at system-wide sales performance in January and February, same-store sales, active members, visits, total new members, and cancellations. We haven't seen any real variability from prior year that stands out like there's something different with the consumer in the way they're acting. You know, January and February were a little bit lighter than we were kind of expecting from our upside case, but overall, the business is strong. You know, the AUVs are still delivering.

Quarter to date, and then how the comp is trending relative to the low double digit you talked about for the first quarter.

Yeah. So we've been watching this and evaluating the kpis that drive kind of the Q1 activity you know overall when we've looked at system wide sales performance in January and February same store sales active members visits total new members cancellations, we haven't seen any real variability from prior year that stands.

Out like there's something different.

Different with the consumer and the way they are acting.

Is January and February was a little bit lighter than we were kind of expecting from our our upside case, but overall the business is strong.

John P. Meloun: There's nothing that says that there's anything, you know, meaningfully off from a growth perspective on Q1. Same-store sales, you know; I talked about that. You know, those will normalize over time as we expect. I still expect to see 2024 go from a low double-digit to a high single-digit from Q1 to Q4. So, based off of that, you could expect to see, you know, again, a low double-digit decline in the first quarter. That's where our models are kind of wrapped around, and, you know, the new members and the growth that we're seeing at the studio level support that. So, there's no, like, smoking gun, like anything's wrong.

These are still delivering there's nothing that says that theres something meaningfully off from from a growth perspective on Q1 same store sales you know I talked about that those will normalize over time as we expect no I thought you do expect to see 2024 go from a low double digit to high single.

You know from Q1 to Q4, so based off of that you could expect to see you know a kind of low double digits in the first quarter, that's where our models are kind of wrapped around and you know the.

The new members in and the growth that we're seeing at the studio level support that so there's there's no like smoking gun like anythings wrong and definitely.

Megan Christine Alexander: It definitely is in line with our expectations and what we've kind of modeled out in relation to our guidance. Okay, great. Thank you.

It's in line with our expectations and what we've kind of modeled out relates to our guidance.

Okay, great. Thank you and then as a follow up I think if my math is correct. It looks like you may be closed 94 stores in the fourth quarter, a pretty big step up from the third quarter. I know there were some transition studios left but it still implies a pretty sizable number beyond that so can you just help us.

John P. Meloun: And then as a follow up, I think if my math is correct, it looks like you may close 94 ish stores in the fourth quarter, pretty big step up from the third quarter. I know there were some. You're expecting gross open 540 to 560. What should that look like on a net?

Understand what those closures were and then how do we think about that run rate in 'twenty four or I guess, maybe said differently, you're expecting gross to open 540 to $5 60, what should that look like on a net basis.

Megan Christine Alexander: Yeah, when you look at the fourth quarter, it was 87 studios that were closed in the fourth quarter, and a fair amount of those were related to the transition studios that we discussed as part of our strategy. So you could probably look at that as more of like a backlog of studios that, you know, we had acquired. When you kind of take the, you know, 131 studios that have closed from inception to date of this company and extrapolate that back, you're looking at really like a 3% closure rate, you know, per year. So that kind of is our historical trend. So when you think about 2024, that's how we're kind of thinking about it going forward. You know, we'll get more information quarter to quarter as we continue to operate. But right now, the best kind of indicator of the future is obviously the past.

Yeah. When you when you look at the fourth quarter. It was 87 studios that were closed in the fourth quarter you know our firm.

Fair amount of those were related to the transition studios that we discussed as part of our our strategy. So you could probably look at that as more of like a backlog of studios that we had acquired.

You kind of take the 131 studios that have closed inception to date of this company and extrapolate that back Youre looking at really like a 3% closure rate per year, so that kind of as our historical trend. So when you think about 2024, that's how we're kind of thinking about it going forward.

We will get more information quarter to quarter as we continue to operate but right now the best kind of indicator of future is obviously the past so we're going to probably say, it's probably in that low single digit percentage of total studios.

Joseph Nicholas Altobello: So we're probably going to say it's probably, you know, in that low single digit percentage of total studios. Thank you, and our Joe Altobello. Thanks, you guys.

Got it.

Thank you and our next question comes from Joe Alpha Bello with Raymond James Please state your question.

Anthony Geisler: Good afternoon. First question, I'm curious about any takeaways that you may have had from the franchisee convention that you hosted in December and your conversations with your franchisees? Was there anything that was on the top of their minds? Yeah, you know, it's interesting, Joe, that you bring that up. I'm always super invigorated at convention time because I'm actually getting to be with franchisees and operators. And that's what I enjoy doing, operating. And so, you know, from that, I kind of looked at that, I looked at a kind of micro convention we had in November with Cycle Bar owners in Texas when we launched our new training program there, just like we did in Pure Bar. You kind of see the excitement that's there at a convention, the excitement that's there when we all get together, and really just kind of honed in on what really happens there, which is communication.

Thanks, Hey, guys. Good afternoon first question I'm curious any takeaways that you may have had from the franchisee convention that you hosted in December and having conversations with your franchisees was there anything that was on top of their mind.

Yeah, you know it's interesting generally you bring that up I'm I'm always super invigorated at the convention time, because I'm actually getting to be with franchisees and operators and that's what I enjoy doing is operating and so you know from that is that kind of looked at that and looked at the kind of micro convention, we had in November with cycle.

Bar owners in Texas, when we launched our new <unk>.

Training program there just like we did in pure Barre.

And you kind of see that excitement that's there at convention excitement is there and we all get together and really just kind of honed in on what really happens there is communication.

Anthony Geisler: And, you know, franchisees knowing what we're doing every day, us knowing what they're doing every day, and really working together. And so, in January, I launched the franchise forums, where the franchisees actually self-nominated five representatives to come to the corporate office and sit and meet with me all day. We kind of transcribed notes from that, and created to-do lists from that.

And you know franchisees, knowing what we're doing everyday us knowing what they're doing every day and really working together and so in January I launched the franchise forums, where the franchisees actually self nominated five representatives.

To come to the corporate office and setting meet with me all day, we kind of transcribed nodes from that created to do list from that and then we're completing those to do list between now and the end of Q2, so things that we can do in six minutes or six days or six weeks, we will do that.

Anthony Geisler: And then we're completing those to-do lists between now and the end of Q2. So things that we can do in six minutes, or six days, or six weeks, we will do. Things like technology development or things of that nature with third-party vendors that we may not control could take six months. But the idea around that is I met with, you know, 50 franchisees, 50 plus franchisees, for, you know, several hours. In the aggregate, it was about 7080 hours of one on one with franchisees. And now we have the 10 to do lists that we need.

Things like technology development or things of that nature with third party vendors that we may not control could take six months.

But the idea around that as I met with 50 franchisees 50 plus franchisees.

Or you know several hours.

And in aggregate. It was it was about 70 to 80 hours of one on one with franchisees.

And now we have the tend to do lists that we need and that to do list is sitting with the base and we're constantly updating it on a daily basis. So franchisees are getting to see is the communications exactly what were working on daily.

Anthony Geisler: And that to-do list is sitting, you know, with the base, and we're constantly updating it on a daily basis. So franchisees are getting to see the communication, see exactly what we're working on daily to move the needle so that they know that they are heard and that we are working in their best interest. So, you know, we've been doing that, and it's been going very well.

To move the needle so that they know that they are heard and that we are working in their best interest. So.

We've been doing that and it's been it's been going very well.

Joseph Nicholas Altobello: So we're very excited about that. And then in the first week of July, we'll be doing the same exact thing again and completing another six month list. So by the time we get back to that convention that you were talking about, we've had, you know, two full two-set quarters, so a whole year of doing, you know, two big to-do lists at every brand. And so when you look at that expo wide, I mean, you're really talking about 1000s of tasks over a one-year period. To help align between, you know, franchise or franchisee on what's working and what's not working, and simply do more of what's working and do less of what's not working. Very helpful.

So we're very excited about that and then the first week of July we'll be doing the same exact thing again and completing another six months less the amount of time to get back to that convention that you were talking about we've had two full two set corridors. So a whole year of doing too big to do list every brand.

So when you look at that Expo wide I mean, you're really talking about thousands of TASS over a one year period to help align between you know franchise or franchisee on what's working what's not working and simply do more of what's working and do less of what's not working and fix it.

Got it very helpful and just a follow up on that in terms of the the openings for this year I think previously you had said.

Anthony Geisler: Just to follow up on that, in terms of the openings for this year, I think previously you had said that BFT and Rumble would represent about a quarter of 2024 openings. Is that still the case, and are you expecting any Lindoors to open this year, or is that more of a 25 event? Yeah, I mean, we're in the process of opening or selling Lindor right now. So the kind of cycle when you buy a brand is a lot of upfront selling. And then you see, you know, in that six to nine months, by the time they find a location and do the build out, they get open, possibly to see, you know, a handful, maybe two handfuls of units in the fourth quarter of this year.

The PFT and Rumble would represent about a quarter of 2024 openings is that still the case and are you expecting any lenders open this year or is that more of a 25 of them.

We're in the process of opening or selling Linda right now so the kind of the cadence when you buy a brand as you a lot of upfront selling and then you see in that six to nine months by the time, they find a location and do the build out they get open possibly to see you know a handful maybe two handfuls of units in the fourth quarter of this year.

Anthony Geisler: When you look at the spread of where the openings are going to come from in 2024, you know, we opened 30% in CP in 2023; you'll likely see a high volume similar to that. We had about 30% in Stretchlab; you'll see, you know, a similar cadence to that. And then obviously, there'll be more BFTs and more Rumbles, you know, probably in that 10 to 15% range as well. And then the rest sprinkled across the rest of the brand. So largely, the studio mix that you saw in 23, that should be the expectation for 2024. And then, you know, an additional handful of Lindoras will come into the mix.

When you look at the spread of where the openings are going to come from in 2024, we opened 30% and in CP in 2023, you'll likely see a high volume similar to that we had about 30% and stretch lab, you'll see similar cadence of that and then obviously there'll be more <unk> and more rumbles.

You know probably in that.

10% to 15% range as well and then the rest are sprinkled across the rest of the brands. So largely the the studio mix that you saw in 'twenty three that should be the expectation for 2024, and then you know an additional handful of linde doors.

Joseph Nicholas Altobello: It's also good to note, Joe, that the Rumbles, we're already seeing existing franchisees opening additional Rumbles this year. So, you know, that that brand will, you know, maybe have some additional upside as people kind of, you know, kind of get in and rolling out kind of all of all of those stores. So all the high brands are starting to see those kind of reopenings even earlier on. Got it.

Will come into the mix. It's also good to note Joe that the rumbles, we're already seeing our existing franchisees opening additional rumbles. This year. So that that brand will you now maybe have some additional upside is as people kind of.

Kind of get in and rolling out.

Kind of all of our all of those stores. So all of the high AAV brands or are starting to see those.

Kind of reopening even earlier on.

Ryan Robert Meyers: Okay. Thank you, guys. Thank you, and our next question comes from Ryan Meyers. Unknown Speaker 0.0.0.0.

Got it okay. Thank you guys.

Thank you and our next question comes from Ryan Meyers with Lake Street Capital markets. Please state your question.

Anthony Geisler: Hey guys, thanks for taking my questions. First one for me: So if you think about the 2024 guide, just wondering if you can talk about some areas where you think you potentially see some upside there come in at the height of the range, if not better, if there's anything that you know you would expect to see come in throughout the year. I mean, when you look at revenue, you know, the things that will be fairly flat are equipment revenues, right? Because we're really just replacing revenue. You know, we opened 557 units in 2023; we're guiding about the same amount at the midpoint for 2024. So that line itself will be pretty just replacement revenue. The upside opportunities are always system-wide sales.

Hey, guys. Thanks for taking my questions first one for me. So if you think about the 'twenty 'twenty four guide just wondering if you could talk about some areas, where you think you could potentially see some upside there come in at the height of the range if not better if there's anything that you would expect to see come in throughout the year.

I mean, when you look at the revenue you know the things that'll be fairly flat as equipment revenues right, because we're really that just replacement revenue.

We opened 557 units in 2023, we're guiding you know about the same amount at the midpoint for 2024. So that's that line itself will be pretty just replacement revenue.

<unk> opportunities are always system wide sales, we continue to look at ways.

Ryan Robert Meyers: You know, we continue to look at ways to, as Anthony mentioned, as he met with all the different brands, ways to improve performance at the brand level. Mix is always helpful to, you know, if we continue to get more Club Pilates open faster and get them up to scale faster up to kind of their base AUV, that's encouraging. So, you know, I told Anthony, this year is all about getting studios open, driving strong same-store sales, controlling SG&A, and getting the margin expansion that we, you know, went through the restructuring last year to achieve. So the opportunities are really same-store sales and openings. We have done a lot of work on equipment and retail, you know, to optimize that.

Waste as Anthony mentioned as he met with all the different brands are ways to improve performance at the brand level.

Mix is always helpful. Too if we continue to get more club pilates open faster and get them up to scale faster up to kind of go to their base.

That's encouraging so I told Anthony you know this year is all about getting studios open driving strong same store sales controlling SG&A and getting the margin expansion that we went.

Went through the restructuring last year to achieve so the the opportunities aren't really same store sales in openings. We have done a lot of work on equipment and retail you know to optimize that.

Ryan Robert Meyers: So we're investing resources into that part of the operation to see how we could further support franchisees and drive better retail for them to encourage more sales at the in-studio. So that could be another opportunity, too, as we sell more retail through our warehouse and on our online malls for them. So there are some opportunities, but same-store sales, the royalty generation, that's the ticket. Got it.

So we're investing resources into that part of the operation to see how we could further support franchisees and drive better retail for them to.

To encourage more sales at <unk>.

In studio.

So that could be another opportunity to as we saw more retail through our warehouse and our online malls for them. So there's there are some opportunities, but same store sales the royalty generation.

Ticket.

Ryan Robert Meyers: That's helpful. And then I wondered if you can comment on whether you've seen any changes in the willingness of new franchisees to open up more studios or purchase more licenses? No, when you look at, I mean, Q4 is probably your kind of your best indicator for 2023. In Q4, we opened 160 units in Q4 alone, and we opened 90 in December. So you know, if you look at the average of 2023, it was a store every other day. And you'll get the average of December; it was twice that number three a day.

Got it that's helpful. And then I'm wondering if you can comment on if you've seen any changes in the willingness of new franchisees to open up more studios or purchase more licenses.

Now when you look at I mean, Q4 is probably your kind of your best indicator or 2023 and Q4, we opened 160 units approximately in Q4 alone and we opened 90 in December.

So if you look at the average of 2023. It was a store every other day and you'll get the average of December It was twice that three a day. So obviously if there was you know.

Anthony Geisler: So obviously, if there were, you know, franchisees weren't wanting to open, then you wouldn't have seen the last month of the last reported quarter be the best the company has ever done and 2x the kind of system average. So that's, you know, that's pretty, pretty good. And also, half of those openings, approximately for the year, were done from existing franchisees. And when you look at the backlog of our sold already prepaid for not open licenses, about 66%, or roughly two-thirds of those are from existing franchisees. I got it.

These werent wanting to open then you wouldn't have seen the last month of the last reported quarter be the best the company has ever done in two weeks the kind of system average. So that's you know that's pretty pretty good.

Also half of those openings approximately for the year were done from existing franchisees and when you look at the backlog of our sold already prepaid for not open licenses about 66% or roughly two thirds of those are from existing franchisees.

Ryan Robert Meyers: Thank you for taking my questions. Thank you. Our next question is Korinne Wolfmeyer from Korinne Wolfmeyer on Hello, good afternoon.

Got it thank you for taking my questions.

Thank you.

Our next question comes from Corinne Wolf Meyer with Piper Sandler. Please state your question.

Korinne N. Wolfmeyer: Thanks for taking the questions. The first one for me is, can you just expand a little bit more on your decision to divest stride? What really went on, I don't know what was behind that, and I know it's a small part of the mix.

Hey, good afternoon, thanks for taking the questions.

First one from me is can you just expand a little bit more on your decision to divest dried well.

Really.

What was behind that and I know, it's a small part of the next.

Anthony Geisler: I'd be curious about your thoughts and the reasoning behind that. And then going forward, you know, is there a risk that maybe additional brands you might have to divest that may be struggling or a little bit weaker to allow you to lean into some of the larger brands? Yes, thank you. Yeah, I mean, there's no have to divest, just like there's no have to buy. So we don't have to do one or the other; we look at the portfolio and decide what is the best optimization of labor and resources. So, for instance, our president of stride is going to be running a portion of Lindora. You know, we've shifted some of the, you know, took 100% of the stride labor and put that into different parts of exponential.

Just curious your thoughts and the reason behind that and then going forward.

Is there risk that maybe additional brands you might have to divest that may be struggling here, a little bit weaker to allow you to lean into some of the larger brands.

Yes. Thank you, yes, I mean theres no half two.

Divesting just like Theres no have to buying.

So we don't have to do one or the other we look at the portfolio and decide what is the best optimization of labor and resources. So for instance, our president of stride is going to be running a portion of Linde Dora.

We've shifted some of the took a 100% of the stride labor.

And put that into different parts of exponential.

Anthony Geisler: And labor being the the, like any business, getting great employees to do a great job is probably the number one hurdle. And so you know, when you have employees, you can repurpose into different brands or different parts of exponential and kind of focus on core business or other, you know, parts of the businesses, whether it be the most recent M&A, where, you know, we've kind of stacked a deck over there where we have our pure bar, CMO, that we've moved over and put a stride CMO up in under pure bar, and we've taken the president of stride and put them into Lindora into a second spot position, we've taken Lou, who was the originally founding member of stretch lab, and then BFT, now to run Lindora, we brought back Martin, who is a CMO stretch lab, put him into Lindora.

And labor being the like any business getting great employees to do a great job is probably the number one hurdle and so when you have employees you can repurpose into different brands or different parts of exponential and kind of focus on core business or other parts of the businesses whether it be the most recent M&A.

Where we've kind of stack the deck over there, where we have our pure Barre CMO.

We've moved over and put out our stride CMO up and under Pier bar and we've taken the president of stride and put them into la Dore into a second spot position, we've taken Lou who was the originally founding member of stretch lab and then DFT now to run island door Oh, we brought back Martin who is the CMO stretch lab put them into <unk>.

Anthony Geisler: So, you know, being able to repurpose labor is really the driver for us. It's not that it has some massive effect on, you know, EBITDA or the business; it's really us focusing on scale to drive more impact. And, you know, our high value AUV brands are what will be our high value AUV brands. So it makes sense if you have something like Lindora, where the AUV is 1 million, and you have 31 units. Do I want to purposely labor there?

<unk> so.

To repurpose labor is really the driver for us it's not that it has some massive effect on.

<unk>.

Now on EBITDA or the business, it's really us focusing on scale to drive more impact.

You know our high value <unk> brands or what will be our high value AAV brands. So it makes sense. If you have something like Glendora, where that <unk> is $1 million and you have 31 units do I Wanna purpose labor there do I Wanna purpose labor on another brand that May have 17 units today and in <unk>, that's a third of them.

Korinne N. Wolfmeyer: Do I want to purposely labor on another brand that may have 17 units today and an AUV that's a third of that or whatever it might be? Right. And so that's where I want to swap out one brand for another.

That or whatever it might be right and so that's where I want to swap out one brand for another I'd, rather have 31 clubs doing $1 million. Each then have a.

Anthony Geisler: I'd rather have 31 clubs doing $1 million each than have, you know, 17 clubs doing 350 with the same amount of labor. So it's really about repurposing the labor. And so, over time, if we think it's an opportune time for us to do something, we will. We had three people that were bidding on stride. And, you know, we assessed what made the most sense for the franchisees for our partners on a go forward basis. And so, you know, with that, Sean Grove, who was president of Rumble, had already expressed an interest in retiring. He was a franchise lawyer by trade. He's been a franchise lawyer, and franchisee operator in boutique fitness for almost 20 years now. And, you know, he would like to retire and do something he enjoys doing. And he really loved when he did rumble boxing. He loved the rumble training product, which is a lot like stride.

<unk> 17 clubs doing $3 50, with the same labor. So it's really about repurposing the labor and so yes over time, if we think it's opportunistic for us to do something we will we had.

Three people that were bidding on stride and we assess what made the most sense for the franchisees for our partners on a go forward basis, and so with that Sean Grove, who was president.

President of Rumble I've already expressed an interest in retiring a it was a franchise lawyer by training. He has been a franchise attorney franchisee, operator, and boutique fitness for almost 20 years now and he would like to retire and do something he enjoys doing and he really loved.

You did rumble boxing he loved the Rumble training product, which is a lot like stride and so he has always had an interest in stride. He bought the number one stride franchise store in Pasadena, California, which does about 1 million Bucks a year and so as the owner of that and wanted to run the franchise or kind of it is sort of a second lease on life.

Korinne N. Wolfmeyer: And so he's always had an interest in stride. He bought the number one stride franchise store in Pasadena, California, which earns about a million bucks a year. And so he's the owner of that and wanted to run the franchise or kind of in his sort of second least important life. And that made a lot of great sense for the franchisees and the stride future. So when I was doing those franchisee forums, where we had the stride representatives there, we also had Sean there. So we had a full integration with Sean and those franchisees to make sure that, you know, we send everything off in the right way and take care of the franchisees. Got it. That's super helpful. Thanks for all the detail.

And that made a lot of great sense for the franchisees and the stride stride future. So when I was doing those franchisee forums, where we had the stride. Our representatives. There. We also had Sean there. So we've had a full integration with Sean and those franchisees to make sure that you know, we we send everything off in the right way.

And take care of the franchisees.

Got it that's super helpful. Thanks for all the detail and then John maybe can you expand a little bit on the cadence of EBITDA margin over the course of the I think you said.

Korinne N. Wolfmeyer: And then, John, maybe could you expand a little bit on the cadence of EBITDA margin over the course of the year? I think you said maybe from a dollar perspective, it's going to be a little bit lighter here in Q1. But can you talk about from a margin perspective, will that also be a ramp throughout the year? Or should it be kind of like even keeled quarter to quarter?

Maybe from a dollar perspective, it's going to be a little bit lighter here in Q1, but can you talk about from a margin perspective will that also be a ramp throughout the year should it be kind of like even keeled corner to corner.

John P. Meloun: Thank you. Yeah, a great question. I was hoping somebody was going to ask me that.

Yeah, Great question I was hoping somebody was going to ask me that.

Korinne N. Wolfmeyer: When you look at Q1, or maybe the first half and second half of 2024, the way you should think about studio openings, revenue, EBITDA, from a dollar perspective, it is going to be more like 45% in the first half, 55% in the second half. Studio openings and revenue or EBITDA will be about 20% in the first quarter. So if you take the 550, it's roughly about 150 openings in the first quarter. It's probably the right way to think.

When you look at Q1, you know and maybe first half second half of 2024. The way you should think about studio openings revenue EBITDA from a dollar perspective, it is going to be more like 45% in the first half 50%, 55% in the second half.

<unk> studio openings and the revenue city.

City openings will be about 20, 20% in the first quarter. So if you take the $5 50, it's roughly about 115 openings in the first quarter, it's probably the right way to think and then that'll ramp up much.

John P. Meloun: And then that'll ramp up, you know, much like it did in 2023, with the most number of openings in the fourth quarter. The benefit of EBITDA margins is almost instant from the perspective of, you know, we did the work we needed to do last year to get rid of the transition studios or close them, and re-franchise them. So the SG&A cost has come down significantly. So you will probably see that Q1 will be the lowest EBITDA margin quarter, you know, probably roughly in the mid-high 30s. So, you know, let's call it 37% to give you an estimate there.

Much like it did in 2023.

With the most amount of openings in the fourth quarter.

The benefit of EBITDA margins is almost instant from the perspective of we did the work we needed to do last year to get rid of the transition studios or close them Refranchising. So the SG&A cost has come down significantly. So you will see probably Q1 will be the lowest EBITDA margin quarter.

Probably roughly in the mid <unk> or the mid high <unk>, So let's call. It 37% to give you an estimate there as you roll into Q2, and Q3, that's where the 40% plus will start to come into play so I do expect to see EBITDA margins.

Korinne N. Wolfmeyer: As you roll into Q2 and Q3, that's where the 40% plus will start to come into play. So I do expect to see EBITDA margins in Q2, Q3, and Q4, it'll be in that – we'll start with a 4 versus a 3. Your actual dollar margins will ramp throughout the year. So you can expect to see EBITDA in Q1 probably closer to what it was in Q4 of last year in 2023, and then that'll ramp throughout the quarters by, you know, a couple million each quarter. So it'll be a progressive from studio openings, from a revenue perspective, to an EBITDA perspective, and from a margin perspective. Very helpful.

Q2, three and four you know it would be and that will start with a four versus three.

Your actual dollar margins will ramp throughout the year. So you could expect to see EBITDA in Q1, probably closer to what it was in Q4 of last year of 2023, and then that'll ramp up throughout the quarters by you know a couple of million each quarter. So it'll be a progressive from a studio openings from a revenue perspective to the EBIT for <unk>.

Active and from a margin perspective.

Alexander Thomas Perry: Thank you. Thank you. And our next question comes from Alex Perry with Bank of America. Hi, thanks for taking my questions.

Very helpful. Thank you.

Thank you and our next question comes from Alex Perry with Bank of America. Please state your question.

Hi, Thanks for taking my questions. I guess, just first can you talk to us about your monthly churn rate and if you've seen any changes in that recently thank you.

John P. Meloun: I guess just first, can you talk to us about your monthly churn rate and if you have seen any changes in that recently? Thank you. Yeah, when it comes to churn, it's been very consistent. We do measure it after 12 months.

Yeah, when it comes to the churn it's been very consistent we do measure it after 12 months. So we typically look at churn and it's in the low single digits as a percent. So there hasn't been any really change in any kind of consumer behavior. We did again as we've even looked into the first quarter of this year.

Alexander Thomas Perry: So, we typically look at churn, and it's in the low single digits as a percent. So, there hasn't really been any change in any kind of consumer behavior. We did, again, as we even looked into the first quarter of this year. Very consistent, you know, from looking at it to Q1 of 2023. But, you know, it's been very consistent in that 1% to 3% range of churn. Nothing, you know, nothing of any deviation from what we've seen historically.

Very consistent.

From from looking at it to Q1 of 2023.

But it's been very consistent in that 1% to 3% range turn nothing.

Nothing.

Nothing of of deviation from what we've seen historically.

John P. Meloun: Perfect. And then, just my last one, can you just give us some more color on why openings sort of build throughout the year? Is this just sort of the normal seasonality of when franchisees generally open? And what sort of gives you confidence in the, you know, the sort of gross opening numbers that are based on, you know, signed leases and LOIs? Just a little more color on the opening progression would be very helpful. Yes, of course, Alex.

Perfect and then just my last one can you just give us some more color on why opening sort of build throughout the year is this just sort of the normal seasonality of when franchisees generally open in and what sort of gives you confidence in the you know the.

Gross opening number or is that based on signed leases and allies I'm just a little more color on the opening progression would be very helpful. Thank you.

Yes of course, Alex Yeah, as you see and I said earlier on the call. There was actually a 169 openings in Q4, which is a massive quarter and 90 openings in December so the run rate for the year is about a club every 15 hours.

Anthony Geisler: Yeah, as you see, and I said earlier on the call, there were actually 169 openings in Q4, which is a massive quarter, and 90 openings in December. So the run rate for the year is about a club every 15 hours, and the run rate for December was three a day.

And the run rate for December was three a day. So there's a big push always in Q4 and fitness as I'm sure you're aware.

Anthony Geisler: So, you know, there's always a big push in Q4 in fitness, as I'm sure you're aware, for people to want to be open in January. So franchisees tend to work a lot harder to get deals done by year end. Same with landlords.

For people that want to be open in January so franchisees tend to work a lot harder.

To get deals done by yearend same with landlords, we deal with a lot of massive public real estate investment trusts and so they want to get deals on their books by 12 31, so landlords have a willingness to want to signed leases by 12 31 versus one one and so when you have a.

Anthony Geisler: We deal with a lot of massive public real estate investment trusts, and so they want to get deals on their books by 1231. So landlords have a willingness to sign leases by 1231 versus 11.

Anthony Geisler: And so when you have the willingness of franchisees, the lease or and leasee coming together by the same date, at 1231, you'll see a lot more openings and negotiations happening for the last half of the year than you see in the first half. And yes, we have over 400 LOIs and leases currently signed that we have names, addresses, phone numbers, dates of openings for by brand across the country, much like we gave you at Investor Day in September, where we showed the list of ones that we have. We always have an ongoing visibility of about 400, 450 domestic units and then about another hundred plus on the international side.

Willingness of franchisees really sore and Lee C coming together by the same data at 12 31, you'll see a lot more openings negotiations happening for the last half of the year than you see in the first half and yes, we have over 400 L. O I's and leases currently signed that we have names addresses phone.

Numbers dates of openings for by brand across the country. Much like we gave you at the Investor Day in September where we showed the list of ones that we have we always have an ongoing visibility of about 400 450 domestic units.

And then about another 100 plus on the international side and that's how we get to that.

Anthony Geisler: And that's how we get to that, you know, kind of 500 to 600 or 557 that we did last year. If you kind of look at the ability of that, I believe, and John can correct me if I'm wrong, but I think we got it to 5600 at the beginning of the year, and we tightened that into 550 to 560 later in the year, and we landed at 557. We had four openings the day after on January 1st. So we would have hit 561 if we had four people that would have, you know, had a class schedule.

Kind of 500 to 600 or 557 that we did last year. If you kind of look at the ability of that I believe and John can correct me, if I'm wrong, but I think we guided to five 600 at the beginning of the year and we tightened that into $5 50 to 560 later in the year and we landed at $5 57, we had four openings and the day after on January <unk>.

First so we would've had 561, if we went out for people that would have had a class schedule, but given new year's day. Some people tend to wait to the second of January.

Anthony Geisler: But given New Year's Day, some people tend to wait until the 2nd of January. So you can see from what we've been guiding to historically and what we've been hitting in the real world, we obviously have very great visibility into what we're able to see in the future. www.globalonenessproject.org. Perfect. That's very helpful. Best of luck going forward. And our next question comes from Jeff Van.

So you can see from what we've been guiding to historically, what we've been hitting in the real world. We obviously have a very great visibility into what we're able to see in the future.

Perfect. That's very helpful best of luck going forward.

Thank you.

And our next question comes from Jeff Van <unk> with B Riley. Please state your question.

Hi, everyone. So I wonder if you can speak a little bit more about the performance of the newly opened units over the last few months of what Youre seeing there.

John P. Meloun: So I wonder if you can speak a little bit more about the performance of the newly opened units over the last few months and what you're seeing. Yeah, great question. You know, we've obviously monitored the cohorts by every quarter, and the one consistent data point is by month three, when you look at the studios that have opened, you know, in Q1, Q2, Q3, and Q4, by month three, you know, most of these studios are doing 40 to 45,000 plus on average, which gives us really strong comfort that they're getting to that 500k-ish range AUV almost immediately after doing the grand opening. You know, I just looked at the data prior to this call to make sure we had the most up-to-date information, and all those cohorts from every quarter last year are doing very strong.

Yeah, Great question.

Obviously, we monitor the cohorts by every quarter and the one consistent data.

Data point is by month three when you look at the studios that have opened in Q1, Q2, Q3 and Q4 by month three most of the studios are doing 40% to 45000 plus on average.

Which gives us really strong comfort that theyre getting to that 500, K ish range <unk> almost immediately after doing the grand opening so that's been very consistent I just looked at the data prior to this call to make sure. We have the most up to date information and all of those cohorts from every quarter last year doing strong. So it does show you that when you look at how.

John P. Meloun: So, it does show you that, you know, when you look at how we're opening studios, we are doing a better job every quarter as we go by of getting studios up to ramp faster, which is important for franchisees because it gets them to break even faster and increase profitability faster. And at 500k AUV, in the average design model, it gets them, you know, into the target market range that is needed for the franchisees to make, you know, that 25 to 30% margin. So, very healthy 2023 cohorts doing better than the 2022 and 21, you know, as we also talked about, you know, same-store sales in some of these 36-plus-month studios, you know, mid-teens, double digits. So, again, it's not even the young brands that are kind of starting strong. It's even the younger studios that are starting strong. It's the older ones as well that continue to compete at a healthy rate. Okay, great to hear from you. And then just circling back to Lendora for a minute.

We are opening studios, we are doing a better job.

Every quarter as we go by to getting studios up to ramp faster, which is important for franchisees because it gets them to breakeven faster and profitability faster than a 500 kv.

The average design model it gets them into the target Margaret range.

That is needed to for the franchisees to make you know about 25% to 30% margin. So.

Very healthy 2023 cohort doing better than the 2022 and 'twenty one.

As we also talked about.

Same store sales in some of these 36 plus months videos.

Mid teens double digits. So again, it's not even the young brands that are kind of starting strong with even the or the yoga studios that are starting strongest the older ones as well that continue to comp at a healthy rate.

Okay, Great to hear and then just circling back to <unk> for a minute I'm wondering I know you mentioned the comparable unit size and I'm wondering would it make sense.

Anthony Geisler: I'm wondering, I know you mentioned the comparable unit size, and I'm wondering, would it make sense to aim to co-locate real estate along with your existing fitness brands when you open Lendora? We've looked at that over the years. And you know, what you ultimately really end up saving is kind of front desk space. You know, if you co-locate, you still have an imagine if you co-located a brand that had 20 people in class and 30 people in class, you're still going to have 50 people coming in the door and out the door at five o'clock and six o'clock, right? And so you save some front desk costs, the cost of a front desk, but you still need to hire double the staff or you won't be able to sell to, you know, 20 people coming out of a class. So, you don't really save on that. We don't have any massive kind of locker room or shower facilities.

<unk> M to co locate real estate, along with your existing fitness brands when you open the doors.

We've looked at that over the years and you know what you what you ultimately really end up saving as kind of a front desk space.

If you co locate you still have an imagine if you're co located.

<unk> that had 20 people in class and 30 people in class Youre still going to have 50 people coming in the door and out the door at five o'clock and six o'clock right and so you save some front desk the cost of a front desk, but you still need to put double the staff or you won't be able to sell to 20 people coming out of a class. So you don't really save on that.

We don't have massive kind of locker room or shower facilities and you wouldn't want to just have one mens and womens bathroom or two unisex bathrooms for that much volume, nor where the city. Let you. So you end up building two boxes that are exactly the same with no cost savings the same labor with them.

Anthony Geisler: And you wouldn't want to just have one men's and one women's bathroom or two unisex bathrooms for that much volume, nor would the city let you. So you end up building two boxes that are exactly the same with no cost savings, the same labor with a wall in the middle, and you take the wall down. So it's just not, it's not really helpful, right? You have the same equipment, you have all those things. And then if the franchisee in the future wanted to sell off one brand and keep the other brand, they wouldn't be able to; they'd have to sell them both together. So it's harder, it's harder to do.

Wall in the Middle and you take the wall down. So it's just not it's not really helpful. Right. You have the same equipment do you have all those things and then with the franchisees in a future wanted to sell off one brand and keep the other brands they wouldn't be able to then have to sell them both together.

So it's harder it's harder to do and if all the brands were born at the same time than franchisees can kind of pick and choose a buffet, but since we've had these brands over a nine year period.

Anthony Geisler: And if all the brands were born at the same time, then franchisees could kind of pick and choose from a buffet. But since we've had these brands over a nine-year period, you know, today, you wouldn't be able to just choose what you want to co-locate amongst brands because those brands have been sold to other people. So you know, you could incrementally add maybe a Lindora today, or a BFT a couple years ago, or rumble a few years ago. But sometimes it's harder to do, especially in major DMAs.

Today, you wouldn't be able to just choose what you want to co locate amongst brands because those brands have been sold to other people. So you know you can incrementally add maybe a lender today or a b F. T. A couple of years ago or Rumble, a few years ago, but.

It's sometimes it's harder to do especially in major D. M S.

Warren Cheng: Okay, that makes sense. Thanks for taking my question. Of course, thank you.... Our next question comes from Warren Cheng with Evercore ISI. Hey, good evening, guys. I've got another one on Lendora and just the opportunity you see there.

Oh, Okay makes sense, thanks for taking my questions.

Thank you.

Our next.

Question comes from Warren Cheng with Evercore ISI. Please state your question.

Hey, good evening, guys I've got another one on Linde Dora and just the opportunity you see there.

Anthony Geisler: So it's a bit of a different modality than we've done before. You talked in the prepared remarks about a broader expansion into health and wellness. Obviously, there's an interesting GLP-1 angle there. Is there anything different about how you're going to deploy that particular asset and unlock the opportunity there? Yeah, I mean, obviously, it's very similar. You know, the footprint is similar.

A little bit of a different modality than we've done before you've talked in the prepared remarks about.

Potentially a broader expansion into health and wellness. Obviously, there is an interesting one angle there.

Is there anything different about how you're going to deploy that particular asset and unlike temperature opportunity there.

Yes, I mean, obviously, it's very similar the footprint is similar so there's you know Linda or is next to exponential brands currently.

Warren Cheng: So there's, you know, Lyndor is next to Xponential brands currently. So, you know, from start to day one, the real estate is the same landlords, the same size square foot box and build. You know, as you move forward, at the end of the day, it's about generating a lead, closing that lead, making them a member, and then putting them on a subscription base, which is what Lyndor does. You know, the GLP is one part of the business, and we think that will continue to expand. However, for 50 years, Lyndor has been, you know, achieving 8900 k AUVs without the GLP business. So, you know, that'll be a part of the business that will expand HRT will most likely expand over time, as I indicated earlier, kind of apparel retail sales, we imagine will expand given that the average member at Lyndor spends more than the average member in our fitness brands.

So from start from day, one the real estate is the same landlords the same size square foot box and build.

As you move forward at the end of the day, it's about generating a lead and closing that lead and making them a member and then putting them on a subscription base, which is what Linda where it does.

On the G. L. P. One part of the business and we think that will continue to expand however for 50 years, Linda has been achieving eight 900 K <unk>.

Without G L P.

Business, so that'll be a part of the business that will expand HRT will most likely expand.

Over time as I indicated earlier kind of apparel retail sales are we imagine will expand given that the average member Ed Linde Dora spends more than the average member in our fitness brands. So there's kind of more more wallet share. There if you will than the fitness products because people that have shown up at the door.

Warren Cheng: So there's just kind of more, more wallet share there, if you will, than the fitness product because people that have shown up at Lyndor typically have tried some version of, you know, weight loss, whether that be diet and exercise or both in the past. And so, when they come to Lyndor, they're willing to spend whatever they need to spend to get the ultimate result because it's typically not the first place people go. So, that kind of gives you some color.

<unk> have tried typically some version of you know weight loss, whether that'd be diet and exercise are both in the past and so when they come to Linda or are there kind of willing to spend whatever they need to spend to get the ultimate result is typically not the first place people go so.

Anthony Geisler: And then just one follow-up on a comment you made in your prepared remarks about half of North America openings coming from existing franchisees. Very roughly speaking, do you know what it was three to five years ago? Is that significantly different? And is there noticeably better performance, AV, or profit, on the second or third or fourth studio relative to? Yeah, we don't I don't have that data. We could obviously pull it, but I don't have that prepared today. So I don't want to steer you directionally one way or another. However, my feeling would say that it's probably been consistently the same kind over time. But, yeah, we don't have anything, you know, prepared for that today.

It gives you some color.

Thanks, and then just one follow up on a comment you had in your prepared remarks about half of our North America openings coming from existing franchisees very roughly speaking do you know what that was three to five years ago is that significantly different and is there a noticeably better performance easier profit on the second or third or four studios relative to.

Two kind of cohort of first studios.

Yeah, we don't I don't have that data, we can obviously pull it but I don't have that prepared today. So I don't want to steer you directionally, one way or another.

However, my feeling would say that it's probably been consistently the same.

Kind of over time, but.

But yeah, we don't have anything prepared for that today.

Warren Cheng: And in regards to the performance on the first versus the second, you typically see performance better in the second and third units because there's the art of learning from mistakes, so you don't make the same mistakes when you launch the first time or the second time as you made the first time, as far as how you market, you know, and there's also opportunities to leverage operations and instructors as you open, you know, your second club body to your first. So you typically see performance improve, you know, after multiple units. Thanks. We had a great fourth quarter.

And in regards to the performance on the first versus second you typically see performance better in the second and third units because there is there is the art of learning from mistakes. So you don't make the same mistakes in the when you launched the first time or second time as you've made the first time as far as like how you market and there's also opportunities to leverage operations and instructors.

As you open you know your second car bodies versus your first so you typically see performance improve.

After multiple units.

Thanks, Great quarter and good luck.

Warren Cheng: Good luck. Great, thank you.... Unknown Speaker. Kelly with Rothschild.

Great. Thank you.

Our next question comes from George Kelly with Roth and Cam. Please state your question.

Kelly: Hi guys, thanks for taking my questions. So, I have two quick modeling questions for you. The first...

Hi, guys. Thanks for taking my questions.

So two quick modeling questions for you the first.

John P. Meloun: Your target for SG&A is the 110 to 115 for this year. I'm curious, are you already pretty much there? Or is there going to be a material kind of step down in SG&A throughout the company? And then, second question for you. In response to one of the earlier questions, John, I think you said you expected... Unknown Speaker's free cash flow is expected to be approximately 60 to 70, maybe closer to 70% of EBITDA. That's just a bit higher than I would have anticipated. So I'm curious if there's anything this year that's unusual that's benefiting that flow through free cash flow. Yeah, let me answer those two questions for you.

Your target for SG&A, the 110 to $1 15 for this year I'm curious are you already there pretty much or is there going to be a material step down in SG&A throughout the year.

And then second question for you.

In response to one of the earlier questions. John I think you said you expect.

Free cash flow to be approximately 60 to 70, maybe closer to 70% of EBITDA.

That's just a bit higher than I would've anticipated. So I'm curious if there's anything this year, that's unusual that's benefiting that flow.

Flow through to free cash flow.

Yeah, Let me answer the two questions for you. So the SG&A will be slightly higher in Q1 simply because we're as Anthony mentioned Theres a handful of Av.

John P. Meloun: So, the SG&A will be slightly higher in Q1, simply because, as Anthony mentioned, there's a handful of transition studios that we're just working through. So, slightly higher SG&A in Q1, but virtually we're there, getting back to, you know, that 110 to 115 range by Q2, Q3 and Q4, that should be pretty normal run rate. The only thing you have in the fourth quarter, obviously, is the convention that we do every year for our franchisees.

Transitions videos that we're just working through.

So slightly higher SG&A in Q1, but virtually where there.

Getting back to that 110 to $1 15 range by Q Q2, Q3, and Q4 that should be pretty normal run rate. The only thing that you have in the fourth quarter, obviously as the convention.

That we do every year for our franchisees so that does add some additional cost in the fourth quarter, but.

John P. Meloun: So, that does add, you know, some additional costs in the fourth quarter. But, you know, in essence, the work that we did at the end of last year is done, and the benefit of the margin expansion will show up pretty quickly in Q1, and then we can get to, like I said, that 40% adjusted, even margin range in Q2. Keep in mind that as we work through the leases with the landlords, that's all about time and settling with them.

In essence, the work that we did at the end of last year.

<unk> has done and the benefit of our margin expansion will show up pretty quickly in Q1, and then gets it like I said that 40% adjusted EBITDA margin range in Q2 keep in mind that as we work through the leases with the landlord. So that's all about time and settling with those so those we're looking at is a onetime restructuring charge so there'll.

John P. Meloun: So, those we're looking at as a one-time restructuring charge. So, there'll be SG&A, but we'll add it back for margin purposes, like we did in 2023. The second question you had, what was it again? Just remind me. Yeah, sure that your free cash flow is 60 to 70. But is there anything unusual about it? It's just a bit higher. No, I mean, nothing unusual about that

And SG&A, but we'll add it back for merger purposes like we did in 2023.

The second question you had what was that again just remind me.

Yes sure that.

Your free cash flow 60 to 70 per EBITDA and is there anything unusual it's just a bit higher than I would have anticipated.

No I mean, nothing unusual about that when you think about where the margin is coming from and this is again, where I was really trying to stress. This in the Investor day is over time as we continue to open up more studios and drive revenue. The gross profit of this business gets better and better and it's really on the back of royalties.

John P. Meloun: When you think about where the margin is coming from, and this is again where I was really trying to stress this at the investor day, over time, as we continue to open up more studios and drive revenue, the gross profit of this business gets better and better, and it's really on the back of royalties. So the key for us is to, again, as I mentioned, in 2024, the goal is to get studios open, and support franchisees to drive AUVs and same-store sales because the incremental margin flow through is incredible, and that goes right to the bottom line in cash. So we're not in this for the one-time revenue of license sales; we're not in it, you know, obviously, there's equipment margins and all that. But at the end of the day, it's long-term, recurring revenue that we're looking for. So the Cash Flow Generation of that 60 to 70%, leaning more towards the 70, is what should be expected. It's just, again, it's a juicier margin revenue mix that we're getting over time.

So the key for US is to clearly again as I mentioned in 2024. The goal is get studios opened support franchisees to drive a UV is in same store sales because the incremental margin flow through is incredible.

And that goes right to the bottom line in cash. So we're not we're not in this for the one time revenue of license sales were not and you know obviously, there's equipment margins and all that but at the end of the day. Its long term reoccurring revenue that were that were looking for so the.

The cash flow generation of about 60 to 70 per cent leaning more towards the seven years is what should be expected. It's just again, it's it's a juicy or margin revenue mix that we're getting over time.

Okay, understood. Thank you. There are no further questions at this time. I'll hand the floor back. Thank you to everyone for joining today's earnings call and for your support. We look forward to seeing many of you at the upcoming marketing events, and we'll speak to you again on our Q1 earnings call in May. Thank you.

Okay understood. Thank you.

Okay.

<unk>.

There are no further questions at this time I'll hand, the floor back to management for closing remarks.

Yeah.

Thank you to everyone for joining today's earnings call and for your support we look forward to seeing many of you at the upcoming marketing events and we will speak to you again on our Q1 earnings call in May.

Thank you. This concludes today's conference all parties may disconnect have a good day.