Q1 2024 Xponential Fitness Inc Earnings Call

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Operator: Greetings and welcome to the Xponential Fitness First Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Greetings and welcome to the exponential fitness first quarter 'twenty 'twenty four earnings conference call. At this time, all participants are in a listen only mode.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Avery Wanamaker from Vesta Relations. Thank you, Operator.

A brief question and answer session will follow the formal presentation.

Anyone should require operator assistance during the conference. Please press Star then zero on your telephone keypad.

As a reminder, this conference is being recorded.

Investor Relations: It is now my pleasure to introduce your host if you want a makeup from Investor relations. Thank you you may begin. Thank you operator, good afternoon, and thank you all for joining our conference call to discuss exponential fitness first quarter 2024 financial results I am joined by Anthony Geisler to Chief Executive Officer, Sarah Luna present.

Avery Wanamaker: Good afternoon, and thank you all for joining our conference call to discuss Xponential Fitness' first quarter 2024 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 investors 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.

Investor Relations: And John Malone, Chief Financial Officer, a recording of this call will be posted on the investors section of our website at Investor got 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 are forward looking statements based on.

Avery Wanamaker: These are forward-looking statements based on management's current expectations and involve risks and uncertainties that could cause 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.

John Malone: Management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from such expectations.

Investor Relations: For a more detailed description of these risks and uncertainties. Please refer to our recent and subsequent filings with the SEC.

Investor Relations: 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. Thanks, Avery.

Investor Relations: 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.

Investor Relations: 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 referred to global figures unless otherwise noted.

Investor Relations: Now I'll turn the call over to Anthony guys are Chief Executive officer of exponential fitness.

Anthony Geisler: And thank you all for joining us this afternoon. After closing 2023 with solid momentum, we've had a strong start to 2024 with adjusted EBITDA margins expanding to 38% of revenue, fueled by continued growth in our studio footprint and leaner operating expenses. As of the end of Q1, we had 3,156 studios operating globally, with 6,365 licenses sold across our portfolio. In the first quarter, we completed the acquisition of Lyndora and are on plan with the integration activities.

Anthony Geisler: Thanks, Dave and thank you all for joining US. This afternoon. After closing 2023 was solid momentum we've had a strong start to 2024 with adjusted EBITDA margins expanding to 38% of revenue fueled by continued growth in our studio footprint and leaner operating expenses.

Anthony Geisler: As of the end of Q1, we had 3156 studios operating globally with 6365 licenses sold across our portfolio.

Anthony Geisler: In the first quarter, we have completed the acquisition of Lynda Ora and are on plan with the integration activities and Sarah will speak to shortly we're very encouraged with the initial demand for the indoor franchises. We have already sold almost 40 licenses since we started selling the door in March and we are particularly encouraged to see the strong demand coming from both existing and new franchisee groups.

Anthony Geisler: As Sarah will speak to shortly, we are very encouraged by the initial demand for Lyndora franchises. We have already sold almost 40 licenses since we started selling Lyndora in March, and we are particularly encouraged to see the strong demand coming from both existing and new franchisee groups. During the quarter, total members in North America grew 17% year-over-year to 783,000, while our total visits increased 18% to a total of 14.9 million in-studio visits for Q1.

Anthony Geisler: During the quarter total members in North America grew 17% year over year to 783000, while our total visits increased 18% to a total of $14 9 million in studio visits for Q1.

Anthony Geisler: This drove North American system-wide sales to over 400 million in the quarter, an increase of 25% over the first quarter of 2023. North American run rate average unit volumes of 596,000 in the first quarter increased 9% from 547,000 in the prior year period, while same-store sales increased 9% for Q1. Same-store sales for studios older than 36 months came in at 10%, primarily due to continued growth in our scaled brand. During the first quarter, net revenues totaled $79.5 million, an increase of 12% year-over-year.

Anthony Geisler: This drove north American system wide sales to over 400 million in the quarter, an increase of 25% over the first quarter of 2023, North American run rate average unit volumes of 596000 in the first quarter increased 9% from 547000 in the prior year period, while same store.

Anthony Geisler: Sales increased 9% for Q1 same store sales for studios older than 36 months came in at 10% primarily due to continued growth in our scaled brands. During the first quarter net revenues totaled $79 5 million, an increase of 12% year over year adjusted EBITDA totaled 29.8.

Anthony Geisler: Adjusted EBITDA totaled $29.8 million, or 38% of revenue, up 30% from $22.9 million, or 32% of revenue, in the first quarter of 2023. As we discussed previously, optimizing growth in existing studios drives profitability in our asset-light, highly-leverageable franchising model. In addition, along with our transition studio strategy shift complete, we remain firmly on track to reach our targeted 40% adjusted EBITDA margins this year and growing to 45% by 2026. Let's now discuss another key growth driver, the increase in our franchise studio base. We ended the quarter with 3,156 global open studios, opening 111 gross new studios during Q1, with 85 in North America and 26 in international markets.

Anthony Geisler: Or 38% of revenue up 30% from $22 9 million or 32% of revenue in the first quarter of 2023.

Anthony Geisler: As we discussed previously optimizing growth and existing studios drives profitability and our asset light highly leveraged of all franchising model in.

Anthony Geisler: In addition, along with our transition studio strategy shift complete we remain firmly on track to reach our targeted 40% adjusted EBITDA margins this year and growing to 45% by 2026, let's now discuss another key growth driver of the increase of our franchise studio base.

Anthony Geisler: We ended the quarter with 3156 Global Open studios opening 111 gross New studios during Q1 with 85 in North America, and 26 and international markets.

Anthony Geisler: As mentioned on our last call and in line with typical seasonality cadence, we expect openings to be more back-end weighted with a gradual increase in each quarter of 2024. We currently have over 400 North American leases and LOIs signed for studios not yet open, which will result in new studios in the coming quarter. We sold 173 licenses globally in the first quarter, and our pipeline remains robust, with almost 2,000 licenses sold and contractually obligated to open in North America, plus an additional over 1,000 Master Franchise Agreement obligations.

Anthony Geisler: As mentioned on our last call and in line with typical seasonality cadence, we expect openings to be more back end weighted with a gradual increase in each quarter of 2024.

Anthony Geisler: We currently have over 400, North American leases and LOI signed for studios not yet opened which result in new studios in the coming quarters. We sold 173 licenses globally in the first quarter and our pipeline remains robust with almost 2000 licenses sold and contractually obligated to open it in North America plus an additional.

Anthony Geisler: All over 1000 Master franchise agreement obligations.

Anthony Geisler: We also continue to expand our overall TAM. Along with a growing addressable market for our brands, the acquisition of Lindora has increased our access to the broader health and wellness market. Buxton's latest analysis illustrates our current TAM in the United States alone is at approximately 8,400 studios. Buxton estimates room for an additional over 800 Club Pilates locations in the United States, and Lindora is now included at over 1,000 potential locations.

Anthony Geisler: We also continue to expand our overall Tam along with a growing addressable market for our brands. The acquisition of one door has increased our access to the broader health and wellness market.

Anthony Geisler: Boston's latest analysis illustrates our current Tam in the United States alone is at approximately 8400 studios Buxton estimates round for an additional over 800 club pilates locations in the United States and the door is now included at over 1000 potential locations as exponential continues to grow we continue to focus on optimization.

Anthony Geisler: As Xponential continues to grow, we continue to focus on optimizing our portfolio of brands and remain open to opportunities to both acquire and divest brands that align with the desired long-term growth trajectories of our business. At this time, we are not including any further locations for AKT or Row House in the 8,400-location TAM estimate, and Stride has also been removed from TAM following its divestiture in the first quarter. Turning to our international expansion efforts, at the end of the first quarter, we have over 1,000 studios obligated to open under master franchise agreements. In April, we opened our 400th international studio.

Anthony Geisler: <unk> of our portfolio of brands and remain open to opportunities to both acquire and divest brands that align with the desired long term growth trajectories of our business.

Anthony Geisler: At this time, we are not including any further locations for AK to your ROE housed in the 8400 location Tam estimate and stride has been removed from Tam also following us divestiture in the first quarter.

Anthony Geisler: We are starting to build a significant presence in select international markets, which will help drive consumer awareness and economies of scale. For example, we have over 220 studios in Australia. In Japan, we now have 50 Club Pilates studios open. The same master franchisee who has overseen the development of those 50 locations has an additional 115 Club Pilates locations to be developed in Japan, 130 locations to be developed across our Cycle Bar, Rumble, and AKT brands in Japan, as well as development rights in Singapore.

Anthony Geisler: Turning to our international expansion efforts at the end of the first quarter. We have over 1000 studios obligated to open under Master franchise agreements in April we opened our four hundreds international studio we are starting to build a significant presence in select international markets, which will help drive consumer awareness and economies of scale.

Anthony Geisler: For example, we have over 220 studios in Australia, and Japan, We now have 50 club Pilates Studios opened there.

Anthony Geisler: The same master franchisee, who is overseeing development of those 50 locations has an additional 115 club pilates locations to be developed in Japan, 130 locations that would be developed across our cycle bar Rumble and AK tea brands in Japan, as well as development rights in Singapore, Our recently hired international President and <unk>.

Anthony Geisler: Our recently hired international president and team have been focused on supporting our existing master franchise relationships while continuing to seek out new markets for our brand's expansion. In the first quarter alone, our master franchisees sold 53 new sub-franchise licenses. Our international business made up 31% of license sales and 23% of new openings in the first quarter. I'd also like to mention how pleased we are to have recently completed our first board meeting with our newest director, Jeffrey Lawrence.

Anthony Geisler: <unk> had been focused on supporting our existing master franchise relationships, while continuing to seek out new markets for our brands expansion in the first quarter alone our master franchisees sold 53, new sub franchise licenses, our international business made up 31% of license sales and 23% of new openings in the first quarter.

Anthony Geisler: I'd also like to mention how pleased we are to have recently completed our first board meeting with our newest director Jeffrey Lawrence Geoff brings decades of leadership experience at some of the most well known consumer brands. In addition to his deep financial acumen and track record of value creation. He brings expertise in executing franchise expansions on a global scale.

Anthony Geisler: Jeff brings decades of leadership experience at some of the most well-known consumer brands. In addition to his deep financial acumen and track record of value creation, he brings expertise in executing franchise expansions on a global scale. Jeff previously served as Executive Vice President and Chief Financial Officer at Domino's Pizza, where he supported the brand through its technological transformation and global expansion, and he currently serves on the board of Shake Shack.

Anthony Geisler: Oh, Jeff previously served as executive Vice President and Chief Financial Officer of Domino's Pizza, where he supported the brand through its technological transformation and global expansion and he currently serves on the board of Shake Shack, we expect he will be a great asset to exponential as we continue expanding globally and I look forward to working with him on her.

Sarah Luna: We expect he will be a great asset to Xponential as we continue expanding globally, and I look forward to working with him on our strategic initiatives moving forward. In summary, Xponential had another strong quarter as we executed against our four key growth drivers: Selling Franchises, Opening Studios, Increasing AUVs, and Optimizing SG&A. And with that, I'll pass the call on to Sarah.

Anthony Geisler: Strategic initiatives moving forward.

Anthony Geisler: In summary, exponential had another strong quarter as we execute against our four key growth drivers selling franchises opening studios, increasing au vs and optimizing SG&A and with that I'll pass the call onto Sara.

Sarah Luna: Thank you, Anthony. Our studios are a critical part of our members' routines, and their continued interest in our brands is demonstrated by our first quarter total visits and total actively paying members in North America. We saw strong growth in both metrics, both overall and at a per-studio level. Total actively paying members and total visits both grew by 18% year over year. Average active members per studio and average studio visits per member also increased, while membership freezes remained low and declined year over year.

Sara: Thank you Anthony our studios are a critical part of our members routines and their continued interest in our brands as demonstrated by our first quarter total visits and total actively paying members in North America, we saw strong growth in both metrics, both overall and at a per studio level total actively paying members in total.

Sara: That's both grew by 18% year over year average active members per studio and average studio visits per member also increased while membership freezes remained low declining year over year.

Sarah Luna: Running a portfolio of consumer-facing brands, it is imperative that we keep the consumer's interests front of mind and ensure our offerings and class formats remain relevant to what members are looking for. Changing a class format to one that better aligns with our members' interests is one way we can produce a meaningful, positive change in AUV. We introduced a new strength-focused class format at CycleBar in January, which has been received very positively.

Sara: Running a portfolio of consumer facing brands. It is imperative that we keep the consumer's interests front of mind and ensure our offerings in class formats remain relevant to what members are looking for change.

Sara: Changing our class format to one that better aligns with our member's interest is one way we can produce a meaningful positive change in ANZ.

Sara: We introduced a new strength focused class format at cycle bar in January which has been received very positively.

Sarah Luna: On average, CycleBars that adopted this class format witnessed a strong increase in AUVs during Q1. Similarly, PureBar Studios that have adopted the new strength training class format, DEFINE, have exhibited strong increases. We're also excited about the growth prospects of our newest brand, Lendora. Xponential is now approved to sell Lendora in 44 states, and we have launched the brand across major broker networks.

Sara: On average cycle bars that adopted this class format witnessed a strong increase in <unk> during Q1.

Sara: Similarly, pure Barre studios that have adopted the new strength training class format to fine have exhibited strong increases were also excited about the growth prospects of our newest brand Linde Dora exponential is now approved to sell indoor it in 44 States and we've launched the brand across major broker networks as Anthony mentioned since the beginning.

Sarah Luna: As Anthony mentioned, since beginning to sell the brand in March of this year, we've already sold almost 40 licenses. In Q1, we put a Lendora-specific team in place that is ready to lead the charge for growth. In addition to growing the number of Lyndora locations, we also have several initiatives underway to improve service and product offerings, as well as the overall customer experience, to ultimately drive higher AUVs and unit-level profitability. Our existing Lyndora locations have seen month-over-month gross revenue increases every month since our January acquisition.

Sara: To sell the brand in March of this year, we've already sold almost 40 licenses in Q1, we put ohlendorf specific team in place that is ready to lead the charge for growth.

Sara: In addition to growing the number of <unk> locations. We also have several initiatives underway to improve service and product offerings as well as the overall customer experience to ultimately drive higher avs and unit level profitability, our existing Linda locations have seen month over month gross revenue increases every month since our January Aqua.

Sarah Luna: We are currently expanding Hormone Replacement Therapy, or HRT, and Testosterone Replacement Therapy, or TRT, across the Lyndora studio base. HRT is a medical treatment used to balance and supplement hormone levels in the body, which can involve replacing hormones that the body is no longer producing adequately or adding hormones to address specific health concerns.

Sara: <unk>, we are currently expanding hormone replacement therapy, or H R T and testosterone replacement therapy or TRT across ohlendorf studio base.

Sara: H R T as a medical treatment used a balance and supplement hormone levels in the body, which could involve replacing hormones that the body is no longer producing adequately or adding hormones to address specific health concerns TRT is used primarily to address symptoms of low testosterone levels and mountain Linda offers HRT antiart.

Sarah Luna: TRT is used primarily to address symptoms of low testosterone levels in men. Lyndora offers HRT and TRT services through recurring memberships subject to a prescription provided by a licensed medical professional. Finally, we are in the process of constructing a mobile app and upgrading Lyndora's website to improve our members' experience, enhance marketing, and accelerate lead generation. I'll now turn the call over to John to discuss our quarterly financial results in more detail. John?

Sara: T services through recurring memberships subject to a prescription provided by a licensed medical professional.

Sara: Finally, we are in the process of constructing a mobile app and upgrading lenders website to improve our members' experience enhanced marketing and accelerate lead generation I'll now turn the call over to John to discuss our quarterly financial results in more detail John.

John P. Meloun: Thanks, Sarah. And thank you to everyone for joining the call. First quarter North America system-wide sales of 401.1 million were up 25% year over year. The growth in North American system-wide sales was driven by the 9% same store sales within our existing base of open studios that continue to acquire new members, as well as new studio openings. Additionally, 96% of the system-wide sales growth came from volume, or new members, which has remained consistent with historical performance, and 4% came from price.

John Malone: Thanks, Sarah and thank you to everyone for joining the call first quarter North America system wide sales of $401 1 million were up 25% year over year the growth in North American system wide sales was driven by the 9% same store sales within our existing base of open studios that continue to acquire new members.

John Malone: As well as new studio openings further 96% of our system wide sales growth came from volume or new members, which has remained consistent with historical performance and 4% coming from price.

John P. Meloun: We are still anticipating same-store sales will normalize to mid to high single-digit percentages in 2024. On a consolidated basis, revenue for the corridor was $79.5 million, up 12% year-over-year. 73% of revenue for the corridor was recurring, which we defined as including all revenue streams except for franchise territory fee revenues 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.

John Malone: We are still anticipating same store sales will normalize to mid to high single digit percentages in 2024 products.

John Malone: On a consolidated basis revenue for the quarter was $79 5 million up 12% year over year, 73% of revenue for the quarter was recurring which we define as including all revenue streams, except for franchise territory fee revenues that equipment revenues given these materially occur upfront before a stereo opens.

John Malone: <unk>.

John Malone: All five of the components that make up our revenue grew during the quarter.

John P. Meloun: Franchise revenue was $41.8 million, up 27% 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 Franchise Territory Fee revenue was due to accelerated revenue recognition on terminated licenses, including those from the Stride brand. Equipment revenue was $13.9 million, up 6% 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 $8.2 million, up 14% year-over-year.

John Malone: Franchise revenue was $41 8 million up 27% year over year. This growth was primarily driven by an increase in royalty revenue.

John Malone: <unk> sales reached all time highs.

John Malone: In addition, an increase in franchise territory fee revenue was due to accelerated revenue recognition on terminated licenses, including those from the stride brand.

John Malone: Equipment revenue was $13 9 million up 6% year over year.

John Malone: 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.

John Malone: Merchandise revenue was $8 2 million up 14% year over 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 increased compared to the prior year. Franchise marketing fund revenue of $7.8 million was up 26% 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, XPath, and XPlus, amongst other items, was $7.9 million, down 30% from the prior year period.

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

John Malone: Franchise marketing fund revenue of $7 8 million was up 26% year over year, primarily due to continued growth in system wide sales from a higher number of operating studios in North America.

John Malone: Lastly, other service revenue, which includes sales generated from company owned transition studios rebates from processing stereo system wide sales beat to be partnerships ex paas and <unk> plus amongst other items was $7 9 million down 30% from the prior year period.

John P. Meloun: The decline in the period was primarily due to our strategic move away from company-owned transition studios. However, Importantly, the savings related to the city operating expenses exceeded the decline in revenue, resulting in improved EBITDA margins. Turning to our operating expenses, cost of product revenue was $14.4 million, up 3% 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, as well as increased cost of goods sold on higher merchandise revenue. Cost of franchise and service revenue was $5.1 million, up 27% year-over-year.

Sara: The decline in the period was primarily due to our strategic move away from company owned transition studios last year, resulting in a lower other service revenues importantly, the savings related to the studio operating expenses exceeded the decline in revenue, resulting in an improved EBITDA margins.

Sara: Turning to our operating expenses cost of product revenue were $14 4 million up 3% year over year. The increase was primarily driven by a higher volume of equipment installations for new studio openings at a higher mix of equipment intensive brands in the period as well as increased cost of goods sold on higher merchandise revenues.

Sara: Cost of franchise and service revenue were $5 1 million up 27% year over year. The increase was driven by higher franchise sales commissions that were accelerated from terminated licenses, including those from our stride brand.

John P. Meloun: The increase was driven by higher franchise sales commissions that were accelerated from terminated licenses, including those from the Stride branch. Selling general and administrative expenses of $37.2 million, or up 7% year-over-year. The increase in SG&A was primarily associated with restructuring costs from settling leases on company-owned transition studios, where we have ceased operations. As previously discussed, we have shifted our strategy on company-owned transition studios, which will decrease run rate SG&A expenses and improve EBITDA margins.

Sara: Selling general and administrative expenses of $37 2 million or up 7% year over year. The increase in SG&A was primarily associated with restructuring costs from settling leases I'm company owned transition studios, where we have ceased operations as previously discussed we have shifted our strategy on company owned transition studio.

Sara: Which will decrease run rate SG&A expenses and improve EBITDA margins, but number of company owned transition studios have declined from 86 at the end of the first quarter of 2023, So only one studio remaining as of the end of the first quarter of 'twenty 'twenty four with some of these studios having back in re franchise to new owners.

John P. Meloun: The number of company-owned transition studios declined from 86 at the end of the first quarter of 2023 to only one remaining as of the end of the first quarter of 2024. With some of these studios having been refranchised to new owners and some having been closed permanently, the net operating losses associated with the company-owned transition studios have been materially eliminated. For the non-operating lease liabilities that are being treated as a one-time restructuring, we are planning to enter into settlement agreements with landlords by the end of the year.

Sara: So I'm, having been closed permanently but net operating losses associated with our company owned transition studios have been materially eliminated.

Sara: For the non operating lease liabilities that are being treated as one time restructuring we are planning to enter settlement agreements with landlords by the end of the year.

John P. Meloun: The investments we are making to streamline operations back to a pure franchise model will optimize forward-looking SG&A expenses, resulting in enhanced margin levels. Depreciation and amortization expenses were $4.4 million, an increase of 6% from the prior year period. Marketing fund expenses were $6.5 million, up 30% year-over-year, driven by increased spending because of higher franchise marketing fund revenue.

Sara: The investments, we are making to streamline operations back to a pure franchise model will optimize forward looking as G&A expenses, resulting in enhanced margin levels.

Sara: Depreciation and amortization expenses was $4 4 million, an increase of 6% from the prior year period.

Sara: Marketing expenses were $6 5 million up 30% year over year, driven by increased spending because of higher franchise marketing fund revenue.

John P. Meloun: 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.

Sara: As a reminder, each of our franchise locations contributed 2% of sales to our marketing fund therefore, as the number of city owes in system wide sales grow our marketing fund increases.

Sara: Since we are obligated to spend marketing funds and increase in marketing fund revenue will always translate into increase in marketing fund expenses overtime.

John P. Meloun: Acquisition and transaction expenses were $4.5 million, down 71% from the first quarter of 2023. 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 $4.4 million in the first quarter, or a loss of $0.30 per basic share, compared to a net loss of $15 million, or a loss of $1.38 per basic share, in the prior year period.

Sara: Acquisition and transaction expenses were $4 5 million down 71% from the first quarter of 2023 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 mark to market that.

Sara: Arne out each quarter at a crew for the earn out we recorded a net loss of $4 4 million in the first quarter or a loss of 30 cents per basic share compared to a net loss of $15 million or a loss of $1 38 per basic share in the prior year period. The improved net loss was a result of five.

John P. Meloun: The improved net loss was a result of $5.6 million of higher overall profitability, an $11.2 million decrease in non-cash contingent consideration, primarily related to the Rumble acquisition, and a $2.1 million decrease in non-cash equity-based compensation expense, offset by an $8.1 million increase in restructuring costs from our company-owned Transition Studio and $0.3 million increase in loss on brand divestment. We continue to believe that adjusting for that income is a more useful way to measure the performance of our business.

Sara: $6 million of higher overall profitability at 11.2 million decrease in noncash contingent consideration primarily related to the rubble acquisition and a $2 1 million decrease in noncash equity based compensation expense.

Sara: Offset by an $8 1 million increase in restructuring costs from our company owned transition studio and point $3 million increase a loss on brand divestiture.

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

John P. Meloun: A reconciliation of net income to a just net income is provided in our earnings press release. Adjusted net income for the first quarter was $9.1 million, which excludes $4.5 million in acquisition and transaction expenses primarily related to the non-cash contingent consideration for the rubble acquisition, $0.6 million related to the first quarter remeasurement of the company's tax receivable agreement, $0.3 million related to the loss on divestiture of stride, and $8.1 million in restructuring and related charges.

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

Sara: Adjusted net income for the first quarter was $9 1 million, which excludes the $4 5 million in acquisition and transaction expenses, primarily related to the noncash contingent consideration for the rubble acquisition point 6 million related to the first quarter Remeasurement of the company's tax receivable agreement point.

Sara: 3 million related to the loss on divestiture of stride and the $8 1 million of restructuring and related charges.

John P. Meloun: This results in adjusted net earnings of $0.15 per basic share on a share count of 31.1 million shares of Class A common stock after adjusting for income attributable to non-controlling interest and dividends on preferred shares. Adjusted EBITDA was $29.8 million in the first quarter, up 30% compared to $22.9 million in the prior year period.

Sara: This results in adjusted net earnings of 15 cents per basic share on a share count of $31 1 million shares of class a common stock after adjusting for income attributable to noncontrolling interest and dividends on preferred shares.

Sara: Adjusted EBITDA was $29 8 million in the first quarter up 30% compared to $22 9 million in the prior year period adjusted EBITDA.

John P. Meloun: Adjusted EBITDA margin grew to approximately 38% in the first quarter compared to 32% in the prior year period. As Anthony mentioned, we have positioned the company for higher margins and increased operating leverage going forward, and we continue to expect margins to reach 40% this year. An attractive element of our franchise business model is the ability to generate substantial free cash flow. During Q1, our unlevered free cash flow conversion exceeded 90% of adjusted EBITDA as we require minimal capital expenditures to grow the business. It is worth mentioning that the company has approximately $160 million in federal and state net tax loss carry-forwards that will result in a minimal cash tax burden for the coming years.

Sara: EBITDA margin grew to approximately 38% in the first quarter compared to 32% in the prior year period as Anthony mentioned, we have positioned the company for higher margins and increased operating leverage going forward and we continue to expect margins to reach 40% this year.

Sara: An attractive element of our franchise business model is the ability to generate substantial free cash flow during Q1, our unlevered free cash flow conversion exceeded 90% of adjusted EBITDA as we require minimal capital expenditures to grow the business. It is worth mentioning that the company has approximately 160 million.

Sara: Ian in federal and state net tax loss carryforwards that will result in a minimal cash tax burden for the coming years.

John P. Meloun: Our anticipated interest expense in 2024 will be approximately $45 million, assuming no additional debt paydown, and we assume negligible working capital impacts on cash flow. For the full year, we would expect levered-adjusted EBITDA cash flow conversion of over 60%, excluding any effects of preferred dividends and one-time restructuring, and will convert to over 70% in the coming year. We will continue to prioritize CAS usage on settling leases from our transition studios. As we make progress on settling these leases, we will assess when the appropriate time will be to begin executing on our stock repurchase program.

Sara: Our anticipated interest expense in 'twenty 'twenty four will be approximately 45 million assuming no additional debt pay down and we assume negligible working capital impacts our cash flow for.

Sara: For the full year, we would expect Levered adjusted EBIT cash flow conversion of over 60%, excluding any effects for preferred dividends and one time restructuring and will convert to over 70% in the coming years.

Sara: We will continue to prioritize cash usage unsettling leases from our transition studios.

Sara: As we make progress on settling these leases we will assess when the appropriate time will be to begin executing on our stock repurchase program.

John P. Meloun: Turning to the balance sheet, as of March 31, 2024, cash, cash equivalents, and restricted cash were $27.2 million, down from $28.1 million as of March 31, 2023. Material cast usage in the period included the $8.5 billion acquisition of Lindora and the previously discussed $4.5 million restructuring lease settlement. Total long-term debt was $331.4 million as of March 31, 2024, compared to $266.7 million as of March 31, 2023.

Sara: Turning to the balance sheet as of March 31, 2024, cash cash equivalents and restricted cash were $27 2 million down from $28 1 million as of March 31 2023.

Sara: Material cash usage in the period included the $8 5 billion acquisition of window Aura and the previously discussed $4 5 million restructuring lease settlements.

Sara: Total long term debt was $331 4 million as of March 31, 2024, compared to $266 7 million as of March 31, 2023. The increase in total long term debt is primarily due to the repurchase and immediate retirement of approximately two 6 million shares under our accelerated <unk>.

John P. Meloun: The increase in total long-term debt is primarily due to the repurchase and immediate retirement of approximately 2.6 million shares under our Accelerated Share Repurchase Program in Q3 and Q4 of 2023. Now, let's discuss our outlook for 2024. Based on current business conditions and our expectations as of the date of this call, we are reiterating guidance for the current year as follows. We expect 2024 Global News Studio openings to be in the range of 540 to 560.

Sara: Share repurchase program in Q3, and Q4 of 2023.

John P. Meloun: This range is in line with prior year studio. 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 America 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.

Sara: 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 reiterating guidance for the current year as follows we expect 'twenty 'twenty four global news studio openings to be in the range of 540 to 560. This range is in line with prior.

John P. Meloun: This range translates into roughly 40% adjusted, even a margin at the midpoint. We anticipate revenue adjusted even higher and new studio openings will gradually increase throughout the year, similar to the ramps in 2023, and we continue to anticipate same store sales will normalize to a high single digit by the fourth quarter. We expect total SG&A to range from $135 to $140 million, or $110 to $115 million when excluding the one-time lease restructuring charges, and under $100 million when further excluding stock-based costs.

Sara: Your studio openings.

Sara: North America system wide sales to range from 1.715 billion to 1.715 billion or 22% increase at the midpoint from the prior year and the highest North America system wide sales in our history.

Sara: Total 2024 revenue is expected to be between 340 million to 350 million, an 8% year over year increase at the midpoint of our guided range.

Sara: Adjusted EBITDA is expected to range from 136 million to $140 million or 31% year over year increase at the midpoint of our guided range.

John P. Meloun: This range translates into roughly 40% adjusted EBITDA margin happened mid point.

Sara: We anticipate revenue adjusted EBITDA and new studio openings will gradually increase throughout the year similar to the ramps in 2023, and we continue to anticipate same store sales will normalize to a high single digit by the fourth quarter we.

Sara: We expect total SG&A to range from $135 million to $140 million range or $110 million to $115 million range. When excluding the one time lease restructuring charges and under 100 million when further excluding stock based costs.

John P. Meloun: 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 expenditure will be primarily focused on the integration of Lyndora and maintenance of other technology investments to support our digital offerings. For the full year, our tax rate is expected to be mid to high single digits, the share count for purposes of the 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.

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

Sara: Going forward capital expenditure will be primarily focused on the integration of Linda and maintenance on other technology investments to support our digital offerings for.

Sara: 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 billion and $1 $9 million in quarterly dividends to be paid related to our convertible preferred stock.

John P. Meloun: A full explanation of our share count calculation and associated pro forma EPS and adjusted EPS calculation 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. This concludes today's prepared remarks. Thank you all for your time today.

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

Speaker Change: This concludes today's prepared remarks. Thank you all for your time today, we will now open the call for any questions operator.

Operator: We will now open the call for any questions. Operator. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question and answer session. You may press star then too if you would like to remove your question from the line. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Operator: Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. You May Press Star then two if you would like to turn maybe a question from Nicky So.

Speaker Change: So participants using speaker equipment and may be necessary to pick up your handset before pressing the stock east.

John Edward Heinbockel: Your first question: John Heinbockel from Guggenheim Partners. Please go ahead. Hey, John, I wanted to start with, I know you talked about the free cash flow conversion rate, but maybe we could talk about the dollar amount. Right, so I think the idea might have been 60 or 65 million dollars in free cash flow in 24. Is that about the right number? And then sort of suggested your commentary that that will be focused on debt reduction. No buyback.

Speaker Change: Your first question comes from John Hind Buckles from Guggenheim Partners. Please go ahead.

John P. Meloun: Writer or minimal buyback. And then, you know, what's your latest thought on the timing of, possibly, a financial crisis. Is that, do you think that's very late this year or not likely at all? A couple of questions there. So the first part about cash production, yeah, so the cash generation this year is going to be around that $65 million range. The use of cash, and again, this is pre-restructuring, right? The intent of how we deploy the cash is going to be to address the lease liabilities first and foremost on the transition studios.

Speaker Change: Hey, John just wanted to start with I know you talked about the free cash flow conversion rate, but maybe.

Speaker Change: Talking about the dollar amount.

Speaker Change: So I think the idea might've been 60 or $65 million is a free cash flow dollars and and 24.

Speaker Change: Is that about the right number and then sort of suggested your commentary that the that will be focused on debt reduction.

Speaker Change: With no buyback this year right or minimal buyback.

Speaker Change: And then you know what's your what's the latest thought on timing of possibly a financing.

Speaker Change: Is that do you think that's very late this year or not likely at all.

Speaker Change: Yeah.

Speaker Change: A couple of questions. There. So the first part about the cash production yet so the cash generation.

Speaker Change: This year is going to be around that $65 million a range either the use of cash and again this is pre restructuring right.

John P. Meloun: Kind of how we deploy the cash is going to be to address the lease liabilities first and foremost on the transition studios.

John P. Meloun: As far as the stock repurchase, there is the opportunity for us to do some of the repurchasing in the second half of the year, as we talked about in the last earnings call, but we want to prioritize getting rid of the lease liabilities first. In regards to refinancing, we did get an extension done earlier this year through 2026. We are continuing to monitor and look at interest rates and look at opportunities for us to get a refinancing done that would allow us to take advantage of lower interest rates as they start to set in.

Speaker Change: As far as the stock repurchase are there is the opportunity for us to do some of the repurchasing in the second half of the year as we talked about in the last earnings call, but we want to prioritize getting rid of the lease liabilities first in regards to the refinancing we did get an extension done.

Speaker Change: Earlier this year throughout 2026th we are continuing to monitor and look at interest rates to look at opportunities for us to get our refinancing done and that would allow us to take advantage of lower interest rates as they start to set in obviously with some of the more recent announcements it seems like they're kind of holding flat, but we.

John P. Meloun: Obviously, with some of the more recent announcements, it seems like they're kind of holding flat, but we are looking at opportunities and where we could potentially draw down on the interest rate and get more of a long-term fixed financing in place at a much cheaper cost. And then, maybe secondly, for Anthony, right, if you think about the thousand locations that Buxton has for Londora.

Speaker Change: We are looking at opportunities, where we could potentially draw down on our on the interest rate and get a more of a long term fixed fee.

Speaker Change: Financing in place at a much cheaper cost.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Secondly, in France, and you're right. If you think about the the thousand locations with Buxton has prelim Dora.

Anthony Geisler: I'm sort of curious, how do you think that stage is? I know you've sold 40, and you have to sell them, right? They'll be front-loaded sales, and then you'll open them later. But how do you think that plays out right over the next two or three years? And, I guess, does that cannibalize at all the interest in opening other brands? Do you think so?

Speaker Change: I mean, how do you just.

John P. Meloun: Just sort of curious how do you think that stages. I know you sold 40, you've got is you've got to celebrate there'll be frontloaded selling and then you'll open them later, but how do you think that plays out right over the next two three years and I guess would you does that cannibalize it all.

Anthony Geisler: No, it's just because it expands the TAM. There's no cannibalization on selling. [inaudible] Now, there's definitely no cannibalization on selling other licenses, and the majority of our franchise sales come from about 500 independent franchise sales brokers we have across the country. And they're generating new lead flow of people that are not in the exponential system. You know, people that could be looking at, well, anything franchised, you know, kind of across the country. So there's definitely no cannibalization in there.

Anthony Geisler: Franchisee interest in opening other brands do you think no. It just because it expands the Tam there's no cannibalization on on selling other licenses.

Anthony Geisler: No there's definitely no cannibalization on selling other licenses in the majority of our franchise sales come from about 500, plus franchise sales brokers, we have independents across the country and they're generating new lead flow of people that are not in the exponential system.

Anthony Geisler: You know people that could be looking at well anything franchised.

Anthony Geisler: Across the country. So there's there's definitely no cannibalization in there Buxton has a high level of integrity and what they do and they do their Tam work and so you know we tend to see the numbers the very conservative with them. For instance, you know original club Pilates was just a bit short of a thousand.

Anthony Geisler: Buxton has a high level of integrity in what they do, and they do their TAM work. And so, you know, we tend to see the numbers be very conservative with them. For instance, you know, the original Club Pilates was just a bit short of 1000 in total. And today we've got about 50% more than that, even pre-sold, right, with 1000 already open. And so what we find is that we're very constrictive in the beginning on how many we sell and where we sell them.

Anthony Geisler: In total and today, we've got about 50% more than that even pre sold right with 1000 already open and so what we find is that for.

Anthony Geisler: Very constructive in the beginning on how many we sell where we sell them and as we get those stores out and get them opened we see a vs. You know be stable. An increase then we're willing to release more and more Tam. So if you look at kind of club Pilates now several years later.

Anthony Geisler: And as we get those stores out and get them open, we see AUVs, you know, be stable and increase, then we're willing to release more and more TAM. So if you look at Club Pilates now, several years later, you know, Club Pilates' TAM continues to increase by about 100-ish or so new units every year on the TAM. So, you know, we expect that Club Pilates TAM will get to 2000. Buxton's comment to us when they ran the cohorts for Lindora based on the Lindora current membership was that they were synonymous with Stretch Lab and Club Pilates.

Anthony Geisler: Tam continues to increase by about 100 ish or so a new units every year on the Tam. So you know we expect that complies Tam will gets 2000 foxtons comment to us when they ran the co hearts.

Speaker Change: For Linda or are based on all of them into our current membership.

Anthony Geisler: They were synonymous with stretch lab in club Pilates. So you know we expect that we will see the Tam of Glendora head to those numbers, which will be somewhere in the 500 to 2000 range over time and provided that we get out we get the stores open but the 40.

Megan Christine Alexander: So, you know, we expect that we will see the TAM of Lindora head to those numbers, which will be somewhere in the, you know, 1500 to 2000 range over time, provided that, you know, we get out, we get the stores open, but the 40, close to 40 you're seeing today that are sold, you'll start to see those open, some of those open in Q4, most likely this year. So that's probably what you would see. All right, thank you. Thank you. The next question comes from Megan Alexander from Morgan Stanley. Please go ahead. Hey, good afternoon.

Megan Christine Alexander: Close to 40, you're seeing today that are sold you'll start to see those open.

Speaker Change: Some of those open in Q4, most likely of this year.

Speaker Change: So that that's probably what you would see.

Speaker Change: Alright, thank you.

Megan Christine Alexander: Okay.

Megan Christine Alexander: Thank you.

Megan Christine Alexander: Next question comes from Megan Alexander from Morgan Stanley. Please go ahead.

John P. Meloun: Thanks for taking our question. I wanted to ask about the comp a little bit. You know, you talked about a low double digit type expectation when you guided in February. So were you running low double digits then?

Megan Christine Alexander: Hey, good afternoon. Thanks for taking my question wanted to ask about the comp a little that you know you talked about a low double digit type expectation. When you guided in February. So were you running low double digit then ended the comps decelerate over the balance of the quarter or.

Megan Christine Alexander: Where are you expecting the comp to accelerate.

Megan Christine Alexander: And it did and I guess can you just give us a little bit more color over the cadence of that comp during the quarter and maybe what drove the downside versus your expectations.

John P. Meloun: And did the comp decelerate over the balance of the quarter? Or were you expecting the comp to accelerate, and it didn't?

Speaker Change: Sure I can jump in on that one so for studios that were over 36 months maturity. We did see double digit same store sales comp the majority at 9% of the system at 9% it was a little bit lower than what we were aiming for and we mentioned in our Q4 call that we expected this number to normalize.

John P. Meloun: From the 2023 mid teens growth rate to double digit.

John P. Meloun: I'm, sorry to the low double and high single growth rates in 2020 for them, but really what we saw in Q1 was we had a great quarter from a key P. I standpoint, so visitations and membership trends where high freezes were low but.

John P. Meloun: But we did see a pull forward in packages sold in Q4, primarily.

John P. Meloun: And touch lab as well as per buyer, who had really successful black Friday promotions. So we did see a little bit of pull forward and that will start to normalize you know over the next quarter or so.

John P. Meloun: Okay, and then John I think you talked about normalizing still to that high single digit type level by the end of the year I mean, depending on your definition, 9% could be high single digit. So how has your expectation for two to four Q changed at all on the comp and how should we think about.

John P. Meloun: I guess, can you just give us a little bit more color over the cadence of that comp during the quarter? And maybe what drove the downside versus your expectations? I can jump in on that one.

John P. Meloun: So for studios that were over 36 months of maturity, we did see double-digit things for sales comp. The majority at 9% or the system at 9%, it was a little bit lower than what we were aiming for. We mentioned on our Q4 call that we expected this number to normalize from the 2023 mid-teens growth rates to double digit, or sorry, to low double and high single growth rates in 2024. But really, what we saw in Q1 was we had a great quarter from a KPI standpoint.

John P. Meloun: You know maybe can you talk a little bit about the exit rate and how should we think about QQ.

John P. Meloun: So visitations and membership trends were high, freezes were low, but we did see a pull forward in packages sold in Q4, primarily in Stretch Lab as well as PeerBar, who had really successful Black Friday promotions. So we did see a little bit of a pull forward that will start to normalize over the next quarter or so. Okay, and then John, I think you talked about normalizing still to that high single-digit type level by the end of the year. I mean, depending on your definition, 9% could be high single-digit.

Speaker Change: Yeah, I think when you look at the Q from Q1 to Q2, how to think about it I think what the assumption that I'm using right now based off of your information is you'll probably see something similar to Q1 and Q2 it'll stay flat.

John P. Meloun: So has your expectation for two to four Q changed at all on the comp? And how should we think about, You know, maybe can you talk a little bit about the exit rate, and how should we think about 2Q? Yeah, I think when you look at the, you know, from Q1 to Q2, how to think about it, I think the assumption that I'm using right now based on the information is you'll probably see something similar to Q1. In Q2, it'll stay flat, in the assumption I'm using.

John P. Meloun: In the US it is the assumption I'm using again the it really comes down to the packages that were sold in Q4 between peer of ours stretch lab when those people either re up or if they join as members and then that will be kind of a because of the size and scale that'll be an influencer in Q2 I do believe for the full year that you are still looking in the mid to high.

John P. Meloun: Again, it really comes down to the packages that were sold in Q4 between Purivar and Stretchlab when those people either re-up or if they join as members, and then that'll be kind of a – because of the size and scale, that'll be an influencer in Q2. I do believe for the full year that you're still looking in the mid to high single digits by Q4, but the overall year, I still believe it is going to be a high single-digit same-store sales comp. I got it.

John P. Meloun: Single digits by Q4, but the overall year I still believe it's going to be a high single digit.

John P. Meloun: Same store sales comp.

Speaker Change: Got it thank you.

John P. Meloun: Okay.

John P. Meloun: Okay.

Ryan Robert Meyers: Thank you. Thank you. Your next question comes from Ryan Meyers from Lake Street Capital Markets. Please go ahead.

John P. Meloun: Thank you. The next question comes from Ryan Meyers from Lake Street Capital markets. Please go ahead.

Anthony Geisler: Hey guys, thanks for taking my question. The first one for me is, you know, Anthony, you talked about adding strength to the cycle bar and pure bar. That drove sort of 80 feet in the early quarter.

Ryan Robert Meyers: Hey, guys. Thanks for taking my question first one for me.

Anthony Geisler: Talked about adding street into cycle bar impure bar.

Ryan Robert Meyers: That drove sort of the easy during the quarter I was just wondering what kind of Optionality you guys have to do that within other brands.

Anthony Geisler: I'm just wondering what kind of optionality you guys have to do that within. I mean, some brands like BFT obviously already have it. And so, you know, we don't really need to drive that into club Pilates today.

Anthony Geisler: So, you know, we'd be putting it into those brands where it makes sense where it doesn't, which kind of drives really all that we have today. You know, we already have strength training and brands like Row House and things of that nature. So we won't be, of course, doing it in anything.

Anthony Geisler: Well I mean, some brands like B F T. Obviously already have it.

Anthony Geisler: And so you know we don't we don't really need to drive that in the club pilates today. So you.

Anthony Geisler: Now we'd be putting it into those brands, where it makes sense, where it wasn't which.

Anthony Geisler: Which kind of drives really all that we have today you know we already have.

Anthony Geisler: <unk> training and brands like row house, and and things of that nature. So we won't be of course doing it than anything.

John P. Meloun: You know, like, you know, Lendora or Stretch Lab or things of that nature. So that's where we are with that. Got it. And then I was wondering if you've seen any changes to the opening mix by brand as we progress throughout this year and then maybe how you think about that in the next year, especially now that we have the wind door acquisition. Yeah, I could take that.

Speaker Change: And I like that.

Speaker Change: Linda or or stretch lab or things of that nature. So that's where we are on that.

Speaker Change: Got it and then just wondering if you can talk about if you've seen any changes to the opening mixed by brand.

Speaker Change: Progress throughout this year and then maybe how you think about that into next year, especially as now that we have the window or acquisition.

John P. Meloun: You know, in Q1, one of the largest openers was Club Pilates. It actually was the highest number of openings domestically for Club Pilates in the last five quarters. So it was a little bit overindexed in CP in Q1.

Speaker Change: Yeah, I can take that at the Q1, one of our largest openers was club pilates and its actually was the highest number of openings domestically for Coke what is in the last five quarters. So it was a little bit over indexed in C. P and Q1 I think when you look at the overall mix in 2020 or as we go through the quarters.

John P. Meloun: I think when you look at the overall mix in 2024, as we go through the quarters, you'll see about a third of the openings still being Club Pilates, which is very similar to last year. And then, as you move forward, you know, Stress Lab will make up about 25% of the mix. And then Yoga 6 has shown really strong performance from an AUV perspective lately, but also from an openings perspective. You know, I think that will be in the 5% to 10% range of the total openings.

John P. Meloun: You'll see about a third of the openings still being core pilates, which is very similar to last year and then as you move forward.

John P. Meloun: Stress I will make up about 25% of the mix and then yoga six has shown really strong performance from an EV perspective lately, but also from an openings perspective, I think that'll be in the 5% to 10% range of the total openings and then both rumbling DFT I think we'll be in the 5% to 10% range for us.

John P. Meloun: And then both Rumble and BFT, you know, I think they will be in the 5% to 10% range for this year. And then the balance is made up of the other brands. So when you look at it, you know, a third of Club Pilates, maybe about 25% of Stretch Lab, and then between Yoga 6, Rumble, and BFT, about 5% to 10% of the total mix. So you're seeing kind of a concentration of the openings among those brands. I got it.

John P. Meloun: This year and then the balance is made up of the other brand. So when you look at it you know a third club Pilates, maybe about 25% stretch lab and then between yoga six rumbling DFT about 5% to 10% of the total mix. So youre seeing kind of a concentration of the openings among those brands.

John P. Meloun: Thank you for taking my questions. Thank you. Your next question... and Jonathan Komp from BAAD, please go ahead. Yeah, thank you. Good afternoon.

Speaker Change: Got it thank you for taking my question.

John P. Meloun: Yeah.

John P. Meloun: Okay.

Jonathan Robert Komp: Thank you. The next question comes from Jonathan comes from Baird. Please go ahead.

Jonathan Robert Komp: John, if I could follow up just on the full year profit outlook, know that the full year is for about a 40% adjusted EBITDA margin. So could you maybe just share any more insights or any other color to call out? as we think about the progression from mid-37% in Q1 to 40% for the year. Yeah, it hasn't changed much from the first earnings call or, I guess, the last earnings call, in Q4-1 of last year. You know, we said mid to high, you know, 30 to 50 to 40% in Q1. It should get close to crossing 40%, if not crossing 40%, in Q2. Q2 to Q3 will be relatively flat.

Jonathan Robert Komp: Yeah. Thank you good afternoon, John if I could follow up just on the full year profit outlook I know that the four years for about 40% adjusted EBITDA margin. So could you maybe just share any more insights or any other color or to call out as we think about the progression from a you know mid mid 37% in Q1.

Jonathan Robert Komp: 40, 40% for the year.

Speaker Change: Yeah, Yeah. It hasnt changed much from the first earnings call or the I guess the last earnings call. The Q4, one of last year, we said mid to high <unk>.

Jonathan Robert Komp: 35% to 40% in Q1, it should get close to crossing 40% if not crossing 40% in Q2.

Jonathan Robert Komp: Q2 to Q3 will be relatively flat to summer months or are you a little bit more if you look at the cadence of how 2023 performed Youll see Q2, and Q3, you know stay relatively flat in performance to each other and then in Q4, we have a lot of life or a lot of equipment installs that happened in Q4, which was a little bit margin dilutive being that.

John P. Meloun: The summer months are, you know, a little bit more, if you look at the cadence of how 2023 performed, Q2 and Q3, you know, stay relatively flat in performance against each other. And then in Q4, we have a lot of equipment installs that happen in Q4, which is a little bit margin dilutive, being that, you know, they range in that 30 to 35% margin range. So it has a little bit of a dilutive impact on top of our national conferences in the fourth quarter.

John P. Meloun: They range in that 30% to 35% margin range. So it has a little bit of a dilutive impact on top of our national conferences in the fourth quarter. So you'll see 38% in Q1 expect to see north of 40 to low 40, percents in Q2 and Q3.

John P. Meloun: So you'll see, you know, 38% in Q1, expect to see north of, you know, 40 to, you know, the low 40% in Q2 and Q3. And then in Q4, it will be a little bit pulled back a little bit because of the convention and just the equipment install dilution in the fourth quarter. And then when you roll into 2025, you'll see it be in the mid to low 40% range and climb from there over the next eight quarters as we, you know, we are still on track to achieving 45% by 2026.

John P. Meloun: And then in Q4, it'll be a little bit of a pullback a little bit because of the convention is just the equipment install.

John P. Meloun: Install dilution in the fourth quarter and then when you roll into 2025, you'll see us to be in the mid to low 40% range and climb from there over the next eight quarters. As we you know we still are on track to achieving the 45% by 2026, so it'll be a kind of a grind from here you know each quarter getting a one or 2% better.

John P. Meloun: So it will be kind of a grind from here, you know, each quarter getting 1% or 2% better from a cadence perspective. Okay, great. And then just one separate question, maybe for Anthony or Sarah.

Speaker Change: You know from a cadence perspective.

Jonathan Robert Komp: We noticed the FDDs this year and they included a concept level monthly churn, which I believe was new. Just wanted to maybe follow up, but I don't know if you could share any color as we think about differences in churn by concept, maybe what drives the path, or maybe it's a follow-up as you think about churn overall across the system. Any comments on what you're seeing or any trends, positive or negative, from a churn perspective? Thank you. Yeah, I'll take the lead on this one.

Speaker Change: Okay, Great and then just one separate question, maybe for Anthony or Sarah we noticed the S. T D's this year.

Speaker Change: <unk> concept level monthly churn, which I believe was you just wanted to maybe follow up but I don't know if you could share any color as we think about differences in churn by concept, maybe what would drive that.

Jonathan Robert Komp: Or.

Speaker Change: And maybe as a follow up if you think about churn overall across the system any comments on what you're seeing or any any trends positive or negative from a churn perspective.

Speaker Change: Thank you.

John P. Meloun: When you look at the brands, I mean, on average, you're seeing somewhere between 5% to 7% churn across the brands. And those are really the core brands where you see that. But we typically look at churn after 12 months because that's really when the core customer is kind of attached to the brand or their location. In that case, you see attrition rates in the low single-digit digits. We always look at between 2% and 4%.

Speaker Change: Yeah, I'll take the I'll take the lead on this one the when you look at the brands I mean on average you're seeing somewhere between 5% to 7% churn.

John P. Meloun: Across the brand.

John P. Meloun: Some of the and those are really in the core brands, where do you see that and then what we typically look at churn from 12 months. After 12 months, because that's really when the core customer is kind of attached to the brand or their their location in that case, you see you know attrition rates in the low single percentage digits, Yeah, we always look at between 2%.

John P. Meloun: To 4% when you look at it within 12 months I mean, you get your new year's resolution type people that come in and you get your vacation type people that are trying to get ready for summer months weddings, those kind of things. So you do see in that you know, let's call it 5% to 7% churn on some of our more scale brands.

John P. Meloun: When you look at it within 12 months, I mean, you get your New Year's resolution type people that come in, you get your vacation type people that are trying to get ready for summer months, weddings, those kinds of things. So you do see, let's call it 5% to 7% churn on some of our more popular brands. But when you look at the post 12 months kind of core consumer, it's the low single percentage digits on a monthly basis.

John P. Meloun: But when you look in the post 12 months kind of core consumer at all low single percentage. They just thought on monthly basis.

John P. Meloun: And has that held stable, you know, the last few quarters and into 2024? Yeah, when we look at the trends, you really haven't seen, even since kind of post-COVID, the consumer kind of behaviors have been very stable, even from a freeze perspective, an attrition perspective, you know, it's been very consistent. So we haven't seen overall trade downs in what consumers are spending.

John P. Meloun: And has that held stable you know in the last few quarters and into 2020 for any any changes that you've noticed.

John P. Meloun: Yeah, when we look at the trends you really haven't seen even since kind of post COVID-19.

John P. Meloun: The consumer kind of behaviors have been very stable, even from a freeze perspective and attrition perspective.

John P. Meloun: It's been very consistent so we haven't seen overall trade downs and what the consumers are spending. So if you look at a four pack APAC.

John P. Meloun: So if you look at a four-pack, eight-pack, you know, unlimited, what we are seeing is that we're getting a higher price on a pack in Q1 of 2024 versus Q1 of 2023, but the consumers and what they're purchasing or their wallet spend has been up, you know, as we've progressed through the quarter. So, in essence, we're able to take a little bit more price as new members come on, old members are traded out, you know, because utilization and capacity are less in the studios, we're getting more wallet share on the new consumers than we did a year ago, but very, very stable utilization and a very stable kind of price. Visit Patterns from the Consumers Okay, thanks again.

John P. Meloun: Unlimited what you we are seeing is up there we're getting more price on a on a pack.

John P. Meloun: As you know in Q1 of 2024 versus Q1 of 2023, but the consumers and what their purchasing or their wallet spend is up as we progressed through the quarter. So in essence, we're able to take a little bit more price as new members come on all members of trade out because utilization and capacity is loss and the studios we're getting.

John P. Meloun: More wallet share on the new consumers that we did a year ago, but very very stable utilization and very stable kind of.

John P. Meloun: Visit patterns from the consumer.

Speaker Change: Okay. Thanks.

John P. Meloun: Thanks again.

Chris O'connell: Thank you. Your next question comes from Chris O'Connell from Stifle. Please go ahead.

John P. Meloun: Thank you. Your next question comes from Chris <unk> from Stifel. Please go ahead.

John P. Meloun: Thanks, good afternoon. John, just as a follow-up to an earlier comment, is comp currently trending similar to the first quarter level? Or does it need to improve to get to that level? from 10Q2 is what you're asking for?

Chris O'connell: Thanks, Good afternoon, John just as a follow up to an earlier comment is the comp currently trending similar to the first quarter level or does it need to improve to get to that level.

John P. Meloun: From the 10-Q, two is what you're asking for yes, yeah. We haven't provided any like forward looking Q2 comments, but the assumption you know that we're looking for is that Q2 will be similar to Q1 from a comp perspective and then.

John P. Meloun: Yeah. Yeah, I haven't provided any, like, forward-looking Q2 comments, but the assumption, you know, that we're looking for is that Q2 will be similar to Q1 from a comp perspective. And then, you know, I still see the full year around that high single digit, but I do expect, as we roll into Q4, it'll taper down to the mid to high singles. When you look at what comps were pre-COVID, the eight quarters pre-COVID, in a much more normal environment, they averaged 8%, you know, the eight quarters prior to COVID.

John P. Meloun: I still see the full year around that that high single digit, but I do expect as we roll into Q4, it'll it'll taper down to the mid to high single when you look at what comps were pre COVID-19 the eight quarters pre COVID-19 as we're in a much more normal environment they averaged 8%.

John P. Meloun: You know the eight quarters prior to Covid. So that's kind of the assumption that I'm using going forward. In my model is is that they will you know even though they're at 9%.

John P. Meloun: So that's kind of the assumption that I'm using going forward in my model is that they will, you know, even though they're at 9%, they were modeling 9% for Q2, I think getting back to that, let's call it 5% to 8% by Q4, again, being somewhat conservative in the way I do my modeling, is the assumption I'm using. Okay.

John P. Meloun: And we're modeling 9% for Q2, I think getting back to that let's call it 5% to 8% by Q4 again being somewhat conservative in the way I do my modeling is the assumption on the USA.

John P. Meloun: Yeah, I was thinking more of the current trend. Is the current trend currently around the level you saw in the first quarter? Or are you expecting it to accelerate from this to get to that high single-digit level? It's possible. We're looking at, you know, obviously the impacts of, you know, we've got Lindor in the mix. We, you know, Stride's no longer in the mix.

Speaker Change: Okay, Yeah, I was thinking more of like the current trend is the current trend currently at around the level you saw in the first quarter or do you are you expecting it to accelerate from this.

John P. Meloun: Get to the to get to that high single digit level.

John P. Meloun: Possible. We're looking at you know obviously the impacts of you know we've got Linda in the mix, we strive to go longer in the mix. We're opening a lot of stress lives in club Pilates.

John P. Meloun: We opened a lot of stretch lines and club Pilates last year. So they started to go into the club this year as we, as we, you know, go through the quarter. So in order to make the model work, I understand what you're asking.

John P. Meloun: Last year. So they are starting to enter the club this year as we as we.

John P. Meloun: For the quarter so in order to make the model work I understood. What you were asking yes, you'd have to probably see a slight uptick in Q2.

John P. Meloun: Yes, you'd probably have to see a slight uptick in Q2 to get to that full-year 9%. So it's probably a safe assumption. But for conservatism, you know, I think in my, again, in my model, I'm looking at it from Q1 to Q2, it's probably going to be in the same range, you know, in Q2 as it was in Q1. Costs are minus one percent, so yes. Okay, we noticed the run rate average unit volume essentially held flat on a sequential basis relative to the fourth quarter.

John P. Meloun: To get to that full year, 9%, so it's probably a safe assumption.

John P. Meloun: But for conservatism I think.

John P. Meloun: Again in my model I'm looking at it Q Q1 to Q2.

John P. Meloun: It's probably going to be in the same range.

John P. Meloun: In Q2 as it was in Q1.

John P. Meloun: So yes.

John P. Meloun: Can you talk about what drove that dynamic? Yeah, that was what Sarah was kind of mentioning, is when you look at the Black Friday deals that were offered in Q4, PureBar and StretchLab had really strong AUVs in the fourth quarter. So, they were, in essence, pulling in a lot of sales into the fourth quarter that you normally would have expected to get in Q1. So, consumers were attached to those promos.

John P. Meloun: I mean, we noticed the run rate average unit volume essentially held flat on a sequential basis relative to the fourth quarter can you talk about what drove that dynamic.

John P. Meloun: Yeah that was once there was it was kind of mentioning is when you look at our Black Friday deals that were offered in Q4 Pier bar and so that's why I've had really strong ease in the fourth quarter. So they were in essence pulling in a lot of sales into the fourth quarter that you normally would have expected to get in Q1.

John P. Meloun: So consumers attached to those promos. So the sales for Q1 for pure Barre et cetera, being a larger brand weren't there in Q1, because they were already there in Q4. So we expect you know visitation was really high and that's you know what kind of lead us to believe that you know when you look at these promotions, let's just say they did too well but.

John P. Meloun: So, the sales for Q1 for PureBar and StretchLab, being a larger brand, weren't there in Q1 because they were already there in Q4. So, we expect, you know, visitation was really high, and that's, you know, what kind of led us to believe that, you know, when you look at these promotions, let's just say they did too well, but that's a good thing because you brought in consumers sooner So, now it's a function of, as these consumers visit the studios, trying to get them converted into a membership.

John P. Meloun: That's a good thing because you brought in consumer sooner. So now it's a function of as these consumers visit the city I was trying to get them converted into a membership. So you get the reoccurring revenue from the Black Friday promotion, so youre seeing a little bit of a flatness in Q4 to Q1 from Q4, but it's based off of the pre.

John P. Meloun: So, you get the recurring revenue from the Black Friday promotion. So, you're seeing a little bit of a flatness in Q1 from Q4, but it's based on the promotions of those brands. Club Pilates didn't do a lot of promotions where they saw a spike.

John P. Meloun: Most of the growth brands.

John P. Meloun: All parties didn't do a lot of promotions, where they saw a spike it was pretty.

Chris O'connell: It was pretty normal run rate activity, but in those other brands, they had a little bit more promo, probably drove more package type volume, which impacted Q1 because it pulled into Q4. Okay, that's helpful. And then, I think you mentioned Buxin added 800 Club Pilates locations to the TAM. And I'm just curious what the main enablers of that expansion were in terms of either demographics or psychographics that you're capturing. Yeah, when we, as I said earlier on the call for another question, when we look at original TAM, we keep cannibalization percentages from ourselves and other competitors very low.

Chris O'connell: Normal run rate activity, but in those other brands they had a little bit more promo probably drove more package type volume, which impacted Q1, because it pulled into Q4.

Chris O'connell: Okay. That's helpful. And then I think you mentioned books and added 800.

Chris O'connell: As you've seen with that brand, as we've expanded over the last nine years, the AUV has climbed from 250 to a million. So, you know, that means, ultimately, it was, you know, a little too conservative, potentially, to begin with, meaning we kept cannibalization very low and kept density of our core customers very high in that surrounding area.

Anthony Geisler: And so what we'll do is we'll start to release that by a point or two, a percentage point or two, and see what the TAM does, sell that additional TAM, let more stores open, and make sure we're kind of properly doing it. One of the designators in there is designed for a certain AUV. That was originally designed, that brand was originally designed at 605 AUV, and, you know, it's obviously well above that at about a million.

Anthony Geisler: One of the designated and there is a design for a certain a V a.

Anthony Geisler: So, you know, we can play with AUV, potential AUV of the store, cannibalization, and density. But we don't want to do that early on oversell an area and, you know, see AUVs either be flat or go backward. If that's helpful. Thank you. Your next question comes from Alex Perry from Bank of America. Please go ahead.

Alexander Thomas Perry: Hi, thanks for taking my questions here. I guess I wanted to follow up on the studio opening cadence for the year. Should we expect sort of the same percent of openings in each quarter versus last year? And then how many net studio openings this year? So I think the gross number stayed the same. Has your expectation of net studio openings changed at all? So we guided 540 to 560 for the full year, which is right in line with 2023 at the midpoint. The cadence is still at 45% in the first half and 55% in the second half from a kind of a cadence perspective.

John P. Meloun: So you'll see Q1 being the lowest quarter, which was similar to Q1 of 23. It'll build in Q2, and slightly build in Q3. And then Q4, again, just like last year, we saw a large volume of openings as people can actually get started for the new year from a New Year's resolution standpoint. You typically see that in franchising, and we expect to have that same phenomenon in 2024. And from a net perspective, we don't have a lot of historical data on closures.

John P. Meloun: When you look at the number of closures in Q1, you know, it's just over a half percent. So, cumulatively, as you build through the year, you know, when you look at franchising, we're still kind of in the mindset that, you know, the 3% to 5% on the high end is kind of a normal range. We've modeled 3% into the way we did our guidance, but 3% to 5% is how we're thinking about it.

John P. Meloun: Q1, on a pro rata basis, is favorably ahead of schedule, meaning lower closures than that assumption. So, you know, we'll continue to drive the business, support franchisees, and get studios open and help studios that are struggling improve AUVs so they don't close. So, $5.50 is the midpoint, 45% first half, 55% second half, and think of closures at around 3% for the full year. And from a dollar's perspective, obviously, the cohort of, you know, the AUV of cohorts that are closing is totally different than the cohort of AUVs that are opening. So, you can't really model them on a one-for-one KPI net unit basis in the model, or you'll be off.

John P. Meloun: That makes a lot of sense. And then, can you just remind us of sort of the financial implications of the winding down of the transition studios? Like, what is the net savings expectation that you're expecting for the year?

John P. Meloun: And is that sort of coming in line with how you were thinking about it three months ago? Yeah, as far as if you pro forma 2023 and assume that there were no transition studios last year, your revenue would be about $25 million lighter. Your other service revenue line would be about $25 million lighter, and your SG&A on the normal four-wall operating expenses would be about $37 million lower.

John P. Meloun: So the net net EBITDA impact last year was around $12 million. So if you assume this year, you're kind of starting at $117 million as your starting point adjusted EBITDA and then building to the $136 to $140 range that we guided this year. That's incredibly helpful.

Jeffrey Wallin Van Sinderen: Best of luck going forward. Thank you. Your next question? Jeff and Sinderen from B Riley Securities. Please go ahead.

John P. Meloun: Thanks. So just to clarify on AUV, when you look at it comprehensively for the enterprise, does your guidance bake in an AUV increase in Q2 and the remainder of the year, or maybe what should we expect for AUV progression for the remainder? Yeah, the model does assume that AUVs will continue to increase in 2024 on a quarterly basis. You know, as we look at Q1 and how we finished the quarter at, you know, that, you know, five, kind of that mid or the high 570s, I do believe that as you kind of move into the latter half of, you know, 2024, you'll start to see us push into the higher ranges from an AUV perspective, trying to cross over into the, you know, 600,000 and driving our way towards 700,000.

John P. Meloun: I don't believe you'll get to, based on the assets, the brands we have today, and the mix, I don't think you'll cross 700 at this point in 2024. But I do think you'll start to threaten the high 600s as we progress through this year.

John P. Meloun: A lot of the growth you got to remember is, you know, Club Pilates has kind of been in that 900 to a million dollar range. You know, your Stretch Labs, we opened a lot of Stretch Labs last year. You know, those studios get to, you know, a 600 AUV very quickly as we open up more Rumbles, BFTs, and now we have Lendors that will start to show up in the later part of this, you know, Q4 kind of timeframe, albeit a very small sample set. But it is just studios entering at high AUVs. Those will continue to pull up the overall AUV. Brands like Yoga 6 have done very well over the last couple of quarters.

John P. Meloun: They've actually kind of accelerated a little bit from an openings perspective. The AUV continues to grow there. We got a really great response to Pura Bar.

John P. Meloun: So those AUVs, you're getting a lot of support from all the brands that are at scale doing fairly well. So, you know, AUVs right now as they sit today, you know, they were relatively flat in Q4. But, you know, with the studios that start entering the six months of age, and they enter the calculation probably, you know, midway through the year, they'll start pulling up the AUV because they're performing very well right out of the gate. Okay, that's helpful.

John P. Meloun: Age and they enter the calculation probably midway through.

John P. Meloun: The year they'll start pulling up.

John P. Meloun: Because they are performing very well right out of the gate.

John P. Meloun: And then, of course, you sold 40 Lendora licenses, and I'm sure you're selling more as we speak. Can you give us any more color around sort of the trends in other... [inaudible] This is a breakdown of new licenses sold in Q1. Yeah, of the 173 licenses sold in Q1, about 55% of them were Club Pilates, so there were about 100 that we sold of Club Pilates. Again, over-indexed in Club Pilates, Lyndora, as you mentioned, and then BFT; there were about 20 BFTs that were sold in the first quarter.

Speaker Change: Mhm, Okay. That's helpful. And then of course, you sold 41 door licenses and I'm sure you're selling more of as we speak.

John P. Meloun: Hum.

John P. Meloun: Can you give us any more color around the sort of the trends in other.

John P. Meloun: Our brands in terms of the composition of new licenses sold in Q1.

John P. Meloun: Yeah of the 173 licenses sold in Q1 about 55% of them are club Pilates. So there was about 100 that we sold of club Pilates.

John P. Meloun: Again over indexed in club Pilates, Linda as you mentioned.

John P. Meloun: And then <unk> there was about 20 be ftes that were sold in the first quarter stretch lab had about 15 and pure bars. We mentioned the performance in Pier Bar has led to do license. They also we saw 11, new license sales in pure Barre.

John P. Meloun: Stretch Lab had about 15, and Pura Bar, as we mentioned, the performance of Pura Bar has led to new license sales, so we saw 11 new license sales in Pura Bar, so the balance was with the rest of the brands, but 173 licenses in Q1, with about 55% of them in Club Pilates.

John P. Meloun: With about 55% of them in club Pilates, you know, it's not a surprise given where the license sales are coming from because they're coming from brands that are performing very well with high avs. So franchisees are very.

John P. Meloun: It's not a surprise, given where the license sales are coming from, because they're coming from brands that are performing very well with high EVs, so franchisees are very motivated to buy more licenses, and whether you're a new franchisee or an existing one, trying to expand your existing portfolio. Great, great to hear. I'll take the rest offline.

John P. Meloun: You know motivated to buy more licenses and.

John P. Meloun: Whether you're a new franchise here at existing trying to expand your existing portfolio.

Speaker Change: Okay, great great to hear I'll take the rest offline. Thank you.

Jeffrey Wallin Van Sinderen: Thank you. Thank you. Your next question comes from Warren Cheng from Evercore ISI. Please go ahead.

Speaker Change: Thank you. Your next question comes from Mark Warren Cheng from Evercore ISI. Please go ahead.

Jeffrey Wallin Van Sinderen: Okay.

Jeffrey Wallin Van Sinderen: Yeah.

Warren Cheng: Your line is now live. Please ask your question about the guys. Hi, John. Hi, Anthony.

Warren Cheng: I just wanted to I just want to follow up on your comment that you saw some pull forward of some of the PureBar and StretchLab packages in 4.2. So it sounds like you're talking about a mismatch between when those numbers bought their packages and when they use them. And they bought them earlier because the sales were so good. So if we look at, Oh yeah, so I just wanted to clarify, if we instead looked at, instead of looking at revenues, if we just looked at visits, or a stretch log, and a career bar, was that in line with what you expected, uh, pretty much?

Warren Cheng: Hi, guys, Hi, John Hi, Anthony.

Warren Cheng: Sounds like you were talking about a mismatch between windows numbers bottler packages and when they use them and he bought some really weird because of sales were so good.

Warren Cheng: Yes, visits were up in the first quarter, and that was the one thing we were interested in, because when we heard on other earnings calls, people kept talking about weather. So we knew it wasn't weather, because at the end of the day, visitation was really high, so people wouldn't come to your studios if they couldn't get to them. So when we look across, you know, on a national scale, we didn't see visits fall off. We actually saw class offerings high.

John P. Meloun: We saw visitations high. So when you look at Q1 of 2024 versus Q1 of 2023, visitation was up 6% on average per studio. So you actually had more engagement from consumers in Q1. So it really, you know, led you down the path that when you look at the individual brands, just Pura Bar and StretchLab had this kind of effect where we did see sales, in essence, get pulled into Q4 versus Q1.

John P. Meloun: So it's a good thing, because you got the revenue faster earlier. The consumers are now using whatever they've purchased, and with the expectation now that the franchisees have the opportunity to convert them to members and get them more onto that, you know, recurring membership from a growth perspective. Gotcha. And then my follow up is on Lyndora. It's great to see 40 licenses signed out of the gate here. Can you help us understand what you expect a normalized AUV to look like?

Anthony Geisler: Because I know those open at a pretty high AUV in your... I mean, look, they're, um... AUVs are close to a million bucks. They're about $980 and change.

Anthony Geisler: So, we haven't really gotten our hands around or on to tech lead flow, closing percentages, attrition, all the things that we do really well as a sales and marketing engine. So all that stuff is just starting to get implemented. Our teams are together, starting to work together, all that kind of stuff. I don't think we've really seen a lift, really, from us yet, in stores, but yeah, we kind of built it into the model, and to Anthony's point, there are a lot of learning curves when we start nationally deploying this. Right now, the assumption we've built into our models, they perform very much like StretchLab, you know, which is better on that 600k AUV.

John P. Meloun: It's above the 500 that we designed from a unit economics perspective, but similar to StretchLab is how we've kind of modeled their growth curve. You know, we've always tended to lean on the conservative side, but, you know, the consumers are, and the franchisees kind of map very similar to our Club Pilates kind of franchisees and members. So, you know, we'll see how they perform, but right now, we're just assuming they get to 600. The existing portfolio that joined when we acquired, as Anthony mentioned, they're just under a million, so if they do anything north of 600, it's upside for the business. Gotcha. Thanks, guys.

John P. Meloun: The consumers are and the franchisees kind of Mt very similar to like our core Pilates got our franchisees our members so well see how they perform but right now we're just assuming they get to 600.

John P. Meloun: The existing portfolio that we you know that joined when we acquired the as Anthony mentioned, there just right under a million. So if they do anything north of 600, it's upside for the business.

Speaker Change: Gotcha. Thanks, guys. Good luck.

John P. Meloun: Okay.

Warren Cheng: Good luck. Thank you. Your next question comes from Korinne Wolfmeyer on behalf of Piper Sandler. Please go ahead.

Speaker Change: Thank you.

Speaker Change: Question comes from Corinne will smile from Piper Sandler. Please go ahead.

Korinne N. Wolfmeyer: Hey, good afternoon, guys. Thanks for taking the question. My first one is not to harp on this poll forward much, but I am curious when you like things laid out.

Korinne N. Wolfmeyer: Hey, good afternoon, guys. Thanks for taking the question.

Korinne N. Wolfmeyer: My first one is not to harp on this pull forward of promotions too much but I am curious when you laid out expectations a couple of months ago.

Korinne N. Wolfmeyer: Did you already recognized that there was this pull forward or is this kind of a new realization and then what's the historic you're talking about like a conversion to a full time members. What's the historic conversion you've seen with these types of promotions and what gives you confidence that these people will end up converting.

John P. Meloun: Months ago, did you already recognize that there was this pull forward? Or is this kind of a new realization? And then what's the historic, you're talking about like a conversion of full-time members, what's the historic conversion you've seen with these types of promotions? And what gives you confidence that these people will end up converting?

John P. Meloun: From a, from a, I guess, from a guidance perspective, no, I would say we did not anticipate. It's hard to tell because when you look at every Q4, you know, over the last couple of years, the promotions do very well, and we've approached them differently year to year, like we used to do more promotions in Club Pilates. We really don't do that anymore because the demand is so high, you don't really need So, in January and February, it did appear to us that, hmm, things did look a little lighter, you know, people kept talking about weather, but we weren't, we weren't seeing weather as the issue, but then all of a sudden, in March, you saw the AUVs start to climb again, and we're like, okay. So, we kind of looked back at the data, and these two brands just really stood out seen The franchises have done really well, so we, a good percentage of these.

John P. Meloun: From a from a I guess sort of a guidance perspective, no I would say we did not anticipate it's hard to tell because when you look at every Q4, you know over the last couple of years, the promotions do very well and we've approached them differently year to year like we used to do more promotions and club Pilates, we really don't do that anymore because the demand is so high.

John P. Meloun: You don't really need to as youre trying to fill capacity and brands.

John P. Meloun: Offer different things, you'll get different reactions. So in January and February it did appear to us that things did look a little bit lighter.

John P. Meloun: People keep talking about whether we werent, we werent single weather as the issue, but then also in March you saw.

John P. Meloun: Yes.

John P. Meloun: Start to climb again, and we're like Okay. So then we kind of look back at the data and these two brands just really stood out from a performance perspective.

John P. Meloun: The key there with promotions as Youre getting people into your studios using your studios and falling in love with the product and it gives the franchisees and add that to convert them. So we typically have seen Q4, and Q1 being our strongest quarters and that early on in Q2. So.

John P. Meloun: The jury's out as far as you know whether or not we will see that same impact this year as we kind of come back into more of a normal environment since COVID-19.

John P. Meloun: But you know again those brands have done really well so we expect.

John P. Meloun: A good percentage of these consumers.

John P. Meloun: Consumers will either re-up their package if that's how they approach the business or convert to a member. Thank you. And then on Lindora, can you just give us a little bit of color on where these lights will end up building and where you're expecting the new units to get built up? Is it still more California or are you starting in the southern states?

John P. Meloun: Consumers will either re up their package if that's how they approach the business or convert to a member.

Speaker Change: Got it. Thank you and then online Dora can you just give us a little bit of color on where these licenses well in that building and like where where you're expecting the new units you guys. All composite Fillmore, California are you starting to see interest in other states.

Anthony Geisler: Yeah, we've sold across, I think it was six, six or seven ownership groups across six or seven different states. So it's starting to spread to the Midwest and the East. Great. Thank you. Thank you. Your next question comes from J.P. Willems from Russ MKM. Please go ahead.

Speaker Change: Yeah, we sold across I think it.

John P. Meloun: It was six or seven ownership groups across six or seven different states. So it's starting to spread to the Midwest and east coast.

J.P. Willems: Great. Thank you.

J.P. Willems: Thank you. Your next question comes from J P. One from rough Am Kan. Please go ahead.

J.P. Willems: Thanks for taking the time. First, I believe, and you can correct me if I'm wrong, I believe you're changing the online booking platform, and maybe that's already underway, but could you just elaborate a bit on sort of how big of an IT challenge that is? kind of what you're doing to prepare for that and prepare franchisees for that, and then just what the advantages are. Yeah, I can definitely speak to that.

J.P. Willems: Hi, Thanks for taking my questions.

Speaker Change: If I could first start I believe and you correct me if I'm wrong I believe you're changing online booking platform and maybe that's already underway, but could you just elaborate a bit on sort of how big of an I T challenge that is kind.

Speaker Change: Kind of what Youre doing to prepare for that and prepare franchisees for that and then just what the advantages are of switching.

Anthony Geisler: So we had an exclusive agreement with our point of sale vendor, ClubReady. We are now out of that exclusive agreement and have the opportunity to go out to market for an RFP. Really, the ClubReady system is a booking and point of sale management system. What we've done over the last couple of years is we've built all of our consumer-facing applications and websites on top of the ClubReady infrastructure.

Speaker Change: Yeah, I can definitely speak to that so we have we had an exclusive agreement with our point of sales under our club Buddy.

Anthony Geisler: We are now out of that exclusive agreements and have the opportunity to go out to market for an RFP is really the cloud ready system is a booking and point of sale management system. So what we've done over the last couple of years as we sell all of our consumer facing applications and website on top for quantify any infrastructure.

Anthony Geisler: So in terms of the transition.

Anthony Geisler: So in terms of the transition, we now won't be needing our customers to learn a new booking system or new application. We'll actually lift our entire customer ecosystem and plug a new point of sale system underneath it or behind it. So we've done a lot of work already to ensure that we're minimizing any sort of disruption that could occur. I think what you'll see is maybe some learning curves at the front desk or operationally at the studio level.

Anthony Geisler: We won't be needing our customers to learn a new booking system or a new application will actually lifts our entire customer.

Anthony Geisler: Ecosystem, and a new point of sale system underneath it or behind it since then a lot of work already.

Anthony Geisler: To ensure that we're minimizing any sort of disruption that could occur.

Anthony Geisler: What you'll see is some learning curve.

Anthony Geisler: The front desk or.

Anthony Geisler: Operationally at the CEO level.

Anthony Geisler: But we've got about a three-year period of time to do that. We've got about a minimum of 18-month runway to be able to select a good partner, put some tests in place, and then ultimately decide a go-forward pathway. And this would be for domestic operations.

Anthony Geisler: But we've got about a minimum of 18 months runway to be able to select a good partner.

Anthony Geisler: Some tests in place and then ultimately define our go forward pathway and this would be for domestic operation. We are open of course, a global solution, but this is primary primarily focused on our domestic.

Anthony Geisler: Operation.

Anthony Geisler: Yeah.

Speaker Change: Great. That's very helpful. And then maybe just stepping back in terms of kind of a high level industry thought and maybe more geared towards you Anthony.

J.P. Willems: We are open to, of course, a global solution, but this is primarily focused on our domestic operations. And then maybe just stepping back in terms of kind of a high-level industry thought and maybe more geared towards you, Anthony, you know, the Orange Theory merger a few months ago, and I think just this last week there were some potential rumors about Blueberry considering a sale. Is there any follow through on this in terms of the boutique fitness industry? Any considerations regarding those news items?

J.P. Willems: The Orange theory merger, a few months ago and I think just this last week there were some potential rumors about bear east considering a sale.

J.P. Willems: Is there any read through on this in terms of the boutique fitness industry and just any considerations are regarding those there's news items.

Anthony Geisler: No, I think they're kind of mutually exclusive. You know, Dave and Chuck have been running Self Esteem and Orange Theory for a long time. They're great operators, but they've been running that business for a long time. Rorica's owned both of those for a while. And I think you can see publicly, right, they merged those together, and I think they took a $480 million whole business securitization out of there. So, you know, I think they just merged those together because it's kind of left pocket, right pocket for work.

J.P. Willems: No I think they're kind of mutually exclusive.

Anthony Geisler: You know, Dave and chocolate and running self esteem and Orange theory for a long time, they're great operators, but they've been running that business for a long time broke his own.

Anthony Geisler: Both of those for a while and I think you can see publicly right. They merge those together I think took a $480 million.

Anthony Geisler: All business securitization out of there. So yeah I think they I think they just merge those together because it's kind of left pocket right pocket for work, but put together so it's more compelling and obviously orange series, an amazing brand and Dave's great operator.

Anthony Geisler: But put together, it's, it's more compelling. And obviously, Orange Theory is an amazing brand, and Dave's a great operator. And they could bring, you know, kind of him and Chuck together under, like, really under one roof.

Anthony Geisler: And they can bring you know kind of him in shock together under like really together under one roof.

Anthony Geisler: And I think theyre looking for somebody to kind of run both of those as well. So I think that that's totally separate north castle's one varies for awhile now they owned it pre COVID-19.

Anthony Geisler: And I think they're looking for somebody to kind of run both of those as well. So I think that that's totally separate. You know, Northcastle's owned Barry's for a while now; they owned it pre-COVID. And then, you know, kind of came through COVID.

Anthony Geisler: And I think like any private equity firm, they're, you know, they're looking to close out their fund and, you know, see some upside from their acquisition. But other than that, I mean, I think those are two, you know, two separate kinds of things happening. But nothing, really, that I can see really to read into those together. Yeah, fair enough.

Anthony Geisler: And then kind of came through Covid and I think like any private equity firm. There you know they are looking to close out their fund and you now see some upside from there their acquisition, but other than that I imagine.

Anthony Geisler: I think those are two two separate kind of things happening, but nothing nothing that I see really done to read into those together.

J.P. Willems: Thank you and best of luck. Thank you. There are no further questions at this time. I would now like to turn the floor back over to Anthony Geisler for closing remarks. Thank you everyone for joining today's earnings call and for your support. We look forward to seeing many of you at upcoming investor conferences in May and June, and we'll speak to you again on our Q2 earnings call in August. Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: Okay, Yeah fair enough. Thank you and best of luck that afford.

J.P. Willems: Thank you.

J.P. Willems: Okay.

J.P. Willems: Yeah.

Anthony Geisler: Thank you everyone for joining today's earnings call and for your support we look forward to seeing many of you at upcoming Investor conferences in May and June and we will speak to you again on our Q2 earnings call in August.

J.P. Willems: Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.

J.P. Willems: Hum.

J.P. Willems: Yeah.

J.P. Willems: Hum.

J.P. Willems: Mhm.

J.P. Willems: Hum.

J.P. Willems: Hum.

J.P. Willems: [music].

J.P. Willems: Hum.

J.P. Willems: [music].

J.P. Willems: Hum.

J.P. Willems: [music] mhm.

J.P. Willems: Hum.

J.P. Willems: [music].

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J.P. Willems: Hum.

J.P. Willems: [music].

J.P. Willems: Yeah.

J.P. Willems: [music].

J.P. Willems: Hum.

J.P. Willems: Mhm.

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J.P. Willems: Uh huh.

J.P. Willems: Oh.

J.P. Willems: [music].

J.P. Willems: Hum.