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Presentation

Xponential Fitness, Inc. misses on earnings expectations. Reported EPS is $-0.2 EPS, expectations were $0.15.

Operator: Good afternoon, ladies and gentlemen. And welcome to Xponential Fitness, Inc. 2025 Q1 earnings call. Also note that this call is being recorded on Thursday, May 8, 2025. I would like to turn the conference over to Patricia Nearer from ADDO Investor Relations. Please go ahead.

Patricia Nearer: Thank you, operator. Good afternoon, thank you all for joining our conference call to discuss Xponential Fitness’ first quarter 2025 financial results. I’m joined by Mark King, Chief Executive Officer, and John Meloun, Chief Financial Officer. A recording of this call will be posted on the Investors section of our website at investors.xponential.com. We remind you that during this conference call, we will make certain forward-looking statements, including discussions of our business outlook and financial projections. These forward-looking statements are based on management’s current expectations and involve risks and uncertainties that could cause our actual results to differ materially from such expectations.

For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligations to update the information provided on today’s call. In addition, we will be discussing certain non-GAAP financial measures in this conference call. We use non-GAAP measures because we believe they provide you information about our operating performance that should be considered by investors in conjunction with 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 remarks refer to global figures unless otherwise noted.

As a reminder, in order to ensure period-over-period comparability and consistent with our reporting methods since IPO, we present all KPIs on a fully pro forma basis. Meaning, for full KPI history presented, we only include brands that are under our ownership as of the current reporting period. For the period ended March 31, 2025, this includes BFT, Club Pilates, CycleBar, Pure Barre, Rumble, StretchLab, and Yoga Six. I will now turn the call over to Mark King, CEO of Xponential Fitness.

Mark King: Thanks, Patricia, and good afternoon to everyone. The business performed as expected this quarter. We demonstrated solid KPIs, completed our updated financing agreement, and filed our franchise disclosure documents, all while continuing to focus on optimizing operations, franchisee health, and setting up the company for long-term success. In the first quarter, North American system-wide sales of $467 million were up 18% year over year. North America quarterly run rate average unit volumes of $659,000 were up 8% year over year. Total members stood at 865,000 at quarter end, up 12% year over year, and same-store sales were up 4%. Our core focus remains optimizing our operations. As part of this effort, last month, we welcomed our new Chief Marketing Officer, Luis Ocasion.

Luis brings 25 years of experience in marketing and business operations, having previously served as President North America and Global CMO for Instant Brands, where she led and executed marketing commercialization strategies. Prior to that, she held leadership roles in the toy and entertainment industries at companies such as Warner Brothers, Spin Master, and Mattel. At Xponential, Luis hit the ground running. One of the first areas she is focusing on is a review of media strategies to ensure marketing funds are managed efficiently. We have also brought on Fabian Lopez, who has been supporting us as interim Chief Human Resource Officer since earlier this year, and we are thrilled to welcome her into the role full-time. The CHRO function is at the heart of reorganizing the company.

Fabian brings 25 years of leadership experience across multiple industries and organizations, from startups to Fortune 100 companies. With exposure to public company environments and franchising, she has a proven track record in organizational transformation, strategic human resources, talent strategy, and scaling HR infrastructure to support rapid growth. In addition to these two senior management appointments, we have undertaken a comprehensive reorganization of our resources and remain highly focused on strengthening our operations so that we can more effectively serve our franchisees. Notably, we are launching a new field operations function with plans to have 12 field managers in place across North America by quarter end. This is the first for the company, marking a significant development in operational support.

These individuals will work closely with our franchisees to drive best practices across studios and support new studios in launching successfully. These field roles are reallocated rather than new hires, meaning that for every employee in the field, we are eliminating a headcount at HQ. Turning to franchise sales and new studio openings, we are making good progress on the franchise disclosure documents or FDDs. We filed all FDDs except for Pure Barre at the end of the first quarter, and we have had them available in all 36 states that don’t require registration. We are also actively selling in the majority of the 14 registration states under FDD registration or exemption. On the international front, we are continuing to support our established and growing master franchisee base.

We now have boots on the ground in London, with plans to have a physical presence in Asia later this year. Some of the international markets where we’re seeing particular success include Spain, Portugal, France, Japan, and Australia. Xponential is very focused on providing a high level of support to master franchisees, ensuring that we have the right relationships in place for long-term international success. In summary, we are making significant efforts to optimize operations, and we are executing with urgency to better support and serve franchisees. While we acknowledge there’s more work ahead, we’re confident that we have the right strategy, team, and infrastructure in place to adequately support our franchisees and drive long-term sustainable growth.

We look forward to sharing more about our key initiatives and operational enhancements at our upcoming Analyst and Investor Day on May 29. With that, I’ll turn it over to John.

John Meloun: Thanks, Mark, and thank you to everyone for joining the call. Let’s now turn to an overview of our first quarter results. We ended the quarter with 3,298 global open studios, opening 116 gross new studios during Q1, with 93 in North America and 23 internationally. There were 51 global studio closures in the first quarter, or about 1.5%, representing an annualized closure rate of 6%. The elevated closures in the period were mostly in CycleBar and StretchLab. We sold 21 licenses during Q1, which were all international and largely concentrated in Club Pilates. During Q1, there were no North America licensed sales while we completed the 2025 annual renewal of our franchise disclosure documents. Our base of licenses sold and contractually obligated to open is over 1,500 studios in North America, and we also have over 1,000 international master franchise obligations.

These licenses will provide a foundation for future new studio openings. However, as noted last quarter, we anticipate that one-third of our global licenses contractually obligated to open are lagging over twelve months behind the applicable development schedule. As a result, we have begun an active campaign to give these franchisees an opportunity to open the lagging studios, or alternatively, these licenses will be terminated. The termination of these licenses will result in a recognition of additional EBITDA as they occur, which is consistent with our historical practices. There is no cash flow associated with the termination of these licenses as we receive payment upfront at the time of sale. Under US GAAP, we are simply required to accelerate the recognition of the license fee revenue and associated commissions that we would normally amortize over the term of the license, typically ten years.

First Quarter North America system-wide sales of $467 million were up 18% year over year, with growth driven primarily by the 4% same-store sales increase within our existing base of open studios, coupled with growth from our net new studio openings. North America run rate average unit volumes of $659,000 in the first quarter increased 8% from $609,000 in the prior year period. The increase in AUV was largely driven by a higher number of actively paying members, higher pricing for new members, and the continued favorable trend of proportionate studio openings coming from our scale brands, which make up 95% of the system-wide sales and 94% of our open studios in North America. On a consolidated basis, revenue for the quarter was $76.9 million, down 4% from $79.7 million in the prior year period, which included $1.4 million in revenue from company-owned studios.

80% of revenue for the quarter was recurring, which we define as including all revenue streams except for franchise territory revenues and equipment revenues, given these materially occur upfront before the studio opens. Turning to the components that make up revenue, franchise revenue for the quarter was $43.9 million, up 5% year over year. This growth was primarily driven by an increase in royalty revenue system-wide sales, supported by year-over-year memberships and visits increasing 12-14%, respectively. In the period, we had offsetting lower revenue recognized from franchise license sales as we temporarily paused our normal maintenance on terminating franchise licenses, which accelerates revenue recognition while we organize the activation campaign previously mentioned.

Equipment revenue was $11.1 million, declining by 20% year over year. This decrease was primarily a result of a 22% year-over-year lower volume of North American installations in the period compared to the same period prior year. Merchandise revenue of $6.3 million was down 25% year over year. The decrease year over year was due to lower sales volumes, vendor rebates, and price discounts as the company focused on reducing inventory levels. We continue to explore alternatives for our retail operations that will result in greater profitability for Xponential, improved service levels for our franchisees, higher frequency of inventory turns, and merchandise offerings that more closely align with our members’ interests. Given the current discussions on tariff impacts, I wanted to point out that we typically apply a cost-plus markup in the purchasing, setting prices, and reselling of equipment and merchandise.

Directionally, we do believe there will be some higher costs in the procurement process, but as designed in the way we set pricing, we believe we can largely mitigate the impact on margin percentages. Franchise marketing fund revenue of $9.3 million was up 18% 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 rebates from processing studio system-wide sales, brand access partnerships, company-owned studios, XPass, and XPlus, among other items, was $6.4 million, down 19% from the prior year period. The decline in the period was primarily due to lower brand access fee revenues and from lower package and membership revenues due to the company shifting its strategy in 2023 to no longer operate company-owned studios.

Turning to our operating expenses for the quarter, the cost of product revenue was $12 million, down 18% year over year. The decrease was primarily driven by the lower volume of equipment installations and merchandise sales during the period. Merchandise inventory levels at quarter-end remain in line with the prior year-end, which we believe is now a more manageable position to turn inventory over more frequently. The cost of franchise and service revenue was $4.1 million, down 19% year over year. The decrease in franchise sales commission was largely due to the temporary pause of franchise license terminations and associated commission expense acceleration while we organize the previously mentioned activation campaign. Selling, general, and administrative expenses of $45.5 million were 24% higher year over year.

The increase in SG&A was primarily driven by an increase in legal judgment and settlements. In the period, we recorded an incremental accrual of $15 million in addition to the $10 million previously accrued in Q4 of 2024, for a total of $25 million related to the potential settlement of a threatened franchise class action, subject to entry into a definitive settlement agreement. Half of this amount will be paid upon court approval, and the remaining half will be paid out in even increments annually from 2026 through 2028. We currently expect at least $5 million of the settlement to be recovered from our professional insurance policies. At present, we have entered into lease settlement agreements of approximately $30.7 million and have paid approximately $30.5 million through the first quarter.

As of March 31, 2025, we have approximately $14.5 million of lease liabilities yet to be settled. We expect most of the remaining liabilities will be settled during the remainder of 2025. Moving on to depreciation and amortization, the expense was $3 million, down 33% compared to the prior year period. Marketing fund expenses were $9.4 million, up 44% year over year, driven by higher system-wide sales and the associated marketing fund revenue contributions. In the period, we did accelerate approximately $1 million in marketing expenditure that was planned in future periods to drive increased leads and ensure that the year has gotten off to a good start. As the number of studios and system-wide sales grows, it is expected that our marketing fund spend will increase.

Since we are obligated to spend marketing funds, an increase in fund revenue will always translate into an increase in marketing fund expense over time. Acquisition and transaction credit was $8.6 million compared to an expense of $4.5 million in the prior year period. 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 the earn-out each quarter and adjust our accruals accordingly. We recorded a net loss of $2.7 million in the first quarter, or a loss of 10¢ per basic share, compared to a net loss of $3.8 million or a net loss of $0.29 per basic share in the prior year period. The change in net loss was the result of $1.2 million of lower profitability, a $15.5 million increase in litigation expenses, a $1.9 million increase in impairment of goodwill and other assets, a $900,000 increase in transformation initiative costs, and a $700,000 increase in other miscellaneous costs offset by a $13.2 million decrease in acquisition and transaction expense, which includes non-cash contingent consideration primarily related to the Rumble acquisition, a $7.3 million decrease in restructuring-related charges, and a $900,000 decrease in equity-based compensation and related taxes.

We continue to believe that adjusted net income is a more useful way to measure the performance of our business. A reconciliation of net income and loss to adjusted net income and loss is provided in our earnings press release. Adjusted net loss for the quarter was $7.7 million, which excludes $8.6 million in acquisition and transaction income, a $1.1 million expense related to the remeasurement of the company’s tax receivable agreement, $1.9 million related to the impairment of goodwill and other noncurrent assets, a $100,000 loss on brand divestitures and wind-down, and $600,000 of restructuring and related charges. This results in an adjusted net loss of $0.20 per basic share on a share count of 33.9 million shares of Class A common stock.

Adjusted EBITDA was $27.3 million in the first quarter, down 9% compared to $29.9 million in the prior year period, due to the accelerated marketing fund spend that was pulled into the quarter. Adjusted EBITDA margin was 35.5% in the first quarter, down from 37.5% in the prior year period. Turning to the balance sheet, as of March 31, 2025, cash, cash equivalents, and restricted cash were $42.6 million, up from $27.2 million as of March 31, 2024. For the quarter, net cash provided by operating activities was $5.8 million, which includes $600,000 in lease settlements. Net cash used in investing activities was $1 million, with $900,000 for purchases of property and equipment and intangible assets, and $100,000 for issued notes receivable. The cash generated from financing activities was $5 million, which included a $10 million borrowing on long-term debt offset primarily by $1.5 million in a payment on long-term debt and debt issuance costs, a $1.8 million payment on preferred stock dividends, $900,000 related to the share settlement of restricted stock units, a $500,000 payment of contingent consideration for the Pure Barre acquisition, and a $300,000 payment for distribution to pre-IPO LLC members.

Total long-term debt was $379.1 million as of March 31, 2025, compared to $331.4 million as of March 31, 2024. The increase in long-term debt is primarily due to the company drawing $10 million in additional debt in the first quarter of 2025 for general working capital purposes and $25 million in additional debt in the third quarter of 2024 to address the lease termination payments on previously owned studios and for general working capital purposes. Let’s now discuss our outlook for 2025. Based on current business conditions and our expectations as of the date of this call, we are lowering guidance on global net new studio openings and reiterating guidance for system-wide sales, total revenue, and adjusted EBITDA for the current year as follows.

We project North America system-wide sales to range from $1.935 billion to $1.955 billion, representing a 13% increase at the midpoint from the prior year. We expect 2025 global net new studio openings, which is net of closures, to be in the range of 60 to 80, representing a 29% decrease at the midpoint from the prior year. We now expect the number of closures to be 6% to 8% of the global system this year as a percentage of the total open studios, with a longer focus to reduce global closures to the low to mid-single digits as a percentage of the total global system. Total 2025 revenue is expected to be between $315 million to $325 million, representing no change year over year at the midpoint of the guided range. Adjusted EBITDA is expected to range from $120 million to $125 million, representing a 5% year-over-year increase at the midpoint of our guided range.

This range translates into roughly a 38% adjusted EBITDA margin at the midpoint. We expect total SG&A to range from $145 million to $155 million. When further excluding the one-time lease restructuring charges, regulatory and legal defense expenses, we are expecting SG&A of $115 million to $120 million in a range of $99 million to $104 million when further excluding stock-based costs. In terms of capital expenditures, we anticipate approximately $10 million to $12 million for the year, or approximately 3% of revenue at the midpoint. For the full year, our rate is expected to be mid to high single digits. Share count for purposes of earnings per share calculation to be 34.8 million and $1.9 million in quarterly cash dividends related to our convertible preferred stock.

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 end of our earnings press release, as well as our corporate structure and capitalization FAQ on our investor website. We anticipate our unlevered free cash flow conversion to be approximately 90% of adjusted EBITDA as we require minimal cash capital expenditures to grow the business. We expect that our anticipated interest expense in 2025 will be approximately $49 million, tax expenses to be approximately $10 million, including the cash usage for tax receivable agreement and tax distributions for pre-IPO LLC members, and approximately $8 million in cash dividends related to our convertible preferred stock, resulting in levered adjusted EBITDA cash flow conversion of 37%.

This concludes today’s prepared remarks. Thank you all for your time today. We will now open the call for questions.

Operator: Thank you, sir. If you have any questions, please press star 1 now. First question will be from Randy Konik at Jefferies. Please go ahead.

Randy Konik: Yes. Thanks for taking my questions. I guess, Mark, we heard a lot and John, we’ve heard a lot during the call, a lot of numbers. But can we just kind of boil it all down to just broad strokes of what we’re trying to get done here over the next few months before the Analyst Day? What do you want to take away from all these actions that are occurring? Are we basically at a point where the closure rate is starting to subside? The openings are going to start to stabilize? You’re talking about more efficiency in the headquarters. I just want to get a real kind of overarching theme coming out of this quarter and into the next few quarters that you’re going to be focused on. That’d be super helpful. Thanks.

Mark King: Hey, Randy, this is Mark. I’ll take the first part of it, maybe John can follow up. I think what we’re in the middle of, Randy, is really a transformation of our business. From a very aggressive sales-focused company to one that’s building the foundation of efficiency and effectiveness, starting from the way we sell licenses, the way we help choose franchisees, to the opening of studios. Putting people out in the field, these operations people to help franchisees get open, get started, audit their operations as we go forward. So I think it’s building the foundation for long-term sustainable growth. I think that’s what we’re trying to get accomplished here. And it’s affecting everything that we do. We’ve taken more time on the FDDs. We were out of the market for quite a few months, which will affect license sales.

It’ll affect openings in the back half of the year because we were out of circulation for four or five months in license sales. But I think all of these steps are necessary for us to prepare the company to be a very solid growing company as we go forward.

John Meloun: Yeah. And just to add to that, Randy, I think what you’re seeing in 2025 is going to be more of a stabilization of the business. You know, when you look at the guide on revenue and EBITDA, it’s relatively flat to 2024. But the one thing that as we go through this transformation, you’re not seeing a degradation in the overall financial health of the business. It’s just more of a stabilization. So as some of these things Mark spoke about and as we start to improve the operation of the overall business, but also the health of the franchisee, that’s when the company itself will return to growth. So ’25 is more of a stabilization, and we’ll elaborate on some of the more detailed information around that at Analyst Day, which will eventually lead to how we look at ’26 and ’27 beyond where the company returns to growth.

But the key takeaway for 2025 is the business is healthy. We are executing. We continue to open up studios. And the franchisee health should only get better with some of the things that we’re trying to do here in ’25.

Randy Konik: Thanks. And then just on the revised openings for the year, how many of those are Club Pilates? And then maybe Mark, when you’ve kind of started to continue to get assessed different concepts in the portfolio, maybe is there a way to get some color on where you have, obviously beyond Club Pilates, where you have probably the most conviction and confidence in? Where’s the other highest level of confidence and conviction thus far that you’ve kind of sorted through when you’re looking at the different concepts? Thanks.

Mark King: Well, I’ll take the second part of that question first, Randy. We’re very bullish on Yoga Six. We’ve had a really good quarter with Yoga Six on same-store sales. We have more interest in openings. So we feel really good about Yoga Six. Pure Barre also has had really great tailwinds in Q1, same-store sales, memberships, visits, all the things that would indicate the health of those brands. StretchLab is struggling. That’s not new. We’ve talked about that the last couple of quarters. We have all hands on deck with StretchLab. We believe very much in the concept. We’re looking at everything from the size of the studio. We’re working with franchisees hand in hand to look at the size of the studios, how do we train flexologists more rapidly at lower cost, looking at a pricing strategy, looking at the labor model. So we really like StretchLab because the consumer feedback is so good, but we need to fix that model.

John Meloun: And a follow-up on the openings. Club Pilates will be over half of the openings this year. It’ll also reflect most of the license sales as well, over half the license sales. And then as we’ve talked about on previous calls, you’ll see good growth in StretchLab, Body Fit Training, and then Yoga Six. So those are kind of the four core brands that are really contributing to the increased new studio or gross new studio openings and largely where you’ll see the license sales come from as well.

Randy Konik: Super helpful. Thanks, guys.

Operator: Thank you. Next question will be from Joe Altobello at Raymond James. Please go ahead.

Joe Altobello: Thanks. Hey, guys. Good afternoon. I guess first question on the closures. I think, John, you mentioned you’re expecting a 6% to 8% closure rate this year. If I use the midpoint, I think that’s around 225 closures versus 65, which I think was the midpoint of your prior guidance. So where’s the additional closures coming from? Which brands are they coming from?

John Meloun: Yeah. The closures that we saw in Q1 were largely in CycleBar and StretchLab. You know, and then we’d look at kind of the portfolio. That’s probably where you’ll still see some of the concentration. And I think BFT will probably be the third spot in that on the international front. So the Q1 kind of distribution will largely look like the full year based on how we’re seeing it today.

Joe Altobello: Right. And just a follow-up on that, the license sales, you mentioned, I think it was 21 in the quarter. Do we model the ramp this year for that metric?

John Meloun: You’ll get to, you know, based off of, I mean, license sales are always based off of what you could sell. Right? But I think we’ll target probably about 100 a quarter going forward. So as we get into market and start being able to sell across all the states domestically plus your international, you’re probably looking at about a hundred license sales a quarter.

Joe Altobello: Perfect. Thank you.

John Meloun: Yeah. Joe, just to add that the distribution will obviously have a pretty high concentration in Club Pilates both domestically and internationally.

Joe Altobello: Thanks. Thank you.

Operator: Next question will be from John Heinbockel at Guggenheim. Please go ahead.

John Heinbockel: So Mark, I know the 12 field ops. Right? So they’re gonna work across multiple brands. You know, maybe and obviously, I’m not sure they have to spend a lot of time on Pilates, but how do you envision them spending their time impacting the business? And then, I guess, is there something to be said for skinnying down the portfolio further right, so that they’re not diluted or the reference are not diluted as much?

Mark King: Yeah. Thanks for the question, John. I think they’re going to have a huge impact. One, it was surprising that we didn’t have field ops people, and I understand that we had them in the past. But, anyway, when I came, we didn’t have any. I think there’s multiple things that are gonna help franchisees with. Specifically, I think they will help new franchisees as they prepare to open their studios. The presale training, the staff, really helping these franchisees, new franchisees, understand what it takes to operate a successful studio. So I think that’s number one. Number two then is as they go forward those first six months to a year, what are really the watchouts? And we’re also gonna have the field ops visit probably once a quarter.

So it will be a really active group. So I think they’re gonna really help them get started on a positive note. Going forward, I think we really need to audit every one of our studios to make sure they’re following the playbooks, if they’re not, why aren’t they? Can we help them? So it’s not only training them, it’s coaching them. And it’s also auditing the studio so that we make sure that they’re following the playbooks.

John Heinbockel: And then, when you think about the thousand studios that are sort of in arrears, so to speak. Right? They’re delayed. I mean, how do you assess how many of those are viable? Right? And I would assume very few of those are Club Pilates. But what is the process, right, for getting in touch with franchisees, getting a resolution, terminating them, refranchising? Seems like that would be a laborious process that might take a while.

John Meloun: Yeah. So I’ll take that one. We hired Tim, our new COO, and that’s why we kind of took a pause on terminating licenses in the first quarter because he wanted to really evaluate and go through that a little bit laborious kind of process to understand what does that backlog look like. You know, the first step is obviously gonna be assessing who’s behind and why. And then two, there’s gonna be an active campaign to start communicating with these franchisees and finding out what is the hurdle, the reason why they’re not moving forward. You know, I do believe that some of these will be activated. Some of these franchisees simply just stop moving forward because, you know, in Club Pilates, if, you know, these things require work, they’re not you just don’t open them up and they run themselves.

So if they bought three licenses and they got two and they’re financially doing well and they’re choosing not to open the third one because there’s no real rush, they’re making enough money. Like, that’s one end of the spectrum, and then there’s the other end of the spectrum where they opened up one and they’re not profitable, and hence, they don’t want to open up their second or third. So there’s varying reasons as to why these franchisees haven’t moved forward, and Tim will need to go through that portfolio of delinquent franchisee licenses and determine what we need to do. But the one thing that we need to do, all good franchise systems should do, is make sure that the snow is current, that we are actively maintaining it because the last thing we want to do is tie up dirt that could be productive with a franchisee if indeed, we can get one open if the existing franchisee doesn’t want to.

So it’s gonna take some time. It is a process that we’re going through. I probably could elaborate more on that at the Analyst Day and the coming progress that we’re making, but, you know, right now, we’re taking the time to make sure we do it strategically. Think about it the right way and create a process that, you know, we can continually maintain our backlog every quarter. Now to that point, we have historically and routinely gone through and done terminations in our historical numbers as well as practices. So we just chose to take a pause in Q1 while Tim got his feet on the ground and stepped into his role.

John Heinbockel: Thank you.

Operator: Thank you. Next question will be from Chris O’Cull at Stifel. Please go ahead.

Chris O’Cull: Yeah. Thanks. Mark, I had a question on StretchLab. I was just curious if you think they’ve been underinvesting in marketing to kind of generate leads and whether you think franchisees could afford to increase their marketing budget or if the company might need to support them?

Mark King: Yeah. Thanks, Chris. And hello, Chris. How are you? It’s a really good question. And we’ve done several things in Q1 to help the franchisees. We’ve actually doubled their local marketing spend in one of the months, I think it was March, to help drive leads. We are considering investing more money of our own as we go forward. We also have some reserve unspent marketing funds in StretchLab that we will deploy this year to help them. And I also think that the addition of our new CMO, who’s really looking at how we’re spending money locally and the agencies that we’re using to make sure that we’re maximizing the amount of that local spend. So all of that, Chris, is under review. I think we’re finding some low-hanging fruit that I think will impact the business, but probably won’t be till the second half of the year. But I think there is some light at the end of the tunnel in terms of starting to get StretchLab going in the right direction.

Chris O’Cull: It is interesting you mentioned that you’re considering a different pricing model for the brand, and I was just wondering if you’re considering like a monthly membership model where members may receive a discount per session. And I’m kind of thinking like a massage envy type model. Is that something you might consider for the brand?

Mark King: Chris, we’re considering a lot of things. That is definitely one of them. We’re also considering a membership fee where there’s other activities inside that generate revenue through the membership and they can stop in for a five-minute stretch, ten-minute stretch, some other things that we are looking at adding to the studio, but definitely looking at a monthly membership.

Chris O’Cull: That’s great. Thanks, guys.

Operator: Next question will be from Jonathan Komp at Baird. Please go ahead.

Jonathan Komp: Yes. Hi, good afternoon. Can I just follow up on the change in the unit outlook for the year? Can you maybe just highlight if there’s some factors that are impacting the ability to forecast on a near-term basis or I’m just curious what’s driving that, you know, the change in outlook there.

John Meloun: It’s two factors. One, it’s not having license sales in Q4 and Q1 has created a little bit of a bottleneck as you get towards the end of the year because there was some expectation to get more units open in the fourth quarter that you may have sold out license in Q4 of 2024 or in Q1 of 2025. So not having those license sales, that does impact the growth funnel in the short term. So as we’ve kind of gotten through Q1 and looked at who and the movement and who’s active and not active, we wanted to make an adjustment for that. And then we did see slightly higher closures in the first quarter than we had anticipated. So that being said, we made an adjustment for that. So over time, I think, as some of the more of the unprofitable franchisees that exist in the portfolios, those kind of fall out, you should see a deceleration in closures.

The guide change in this quarter was simply just to say, listen, let’s just be a little bit more conservative, take down the guide, based off of these two factors, one being the higher closures in Q1, and then just the ability to get some of these franchisees open by the end of the year. We just didn’t want to put pressure on the system and force studios to get open faster than they’re ready to.

Jonathan Komp: And when you think about the visibility today to the new outlook, the 160 to 180 on a net basis, any way to just quantify your confidence or your visibility to that level today?

John Meloun: Pretty good. I think the confidence, I mean, you’ll see the way the openings are gonna be, it’s gonna be about fifty-fifty, about 50% of the gross opening or net openings will be in the first half and 50 in the second half. We are looking at it on a brand-by-brand basis and then on a studio-by-studio basis assessing financial performance and health. And really trying to assess where we think we could help franchisees out and save them, I guess, is the right way to put it, and where are the ones where it’s probably not likely that they’ll be able to persist. So confidence, I would say, is pretty high at the 160 to 180 guide. I think it’s a pretty high level of confidence that that’s where we’ll come in for the year.

Jonathan Komp: Okay. And then just last one for me. When John, on the follow-up on the when you terminate the licenses and recognize for the accounting purposes, the revenue and profit from that. Is that a material number on an annual basis that is that something you include in the guidance typically? Or would that be sort of how to model upside? Thanks again.

John Meloun: Yeah. I mean, when you look at our historical numbers, it’s been in our historical numbers. It’s probably a couple of million dollars of revenue a quarter, typically. And then you get, you know, a million and change or so of EBITDA. You get, for every license, there is revenue and there is an offsetting commission. So there is a net let’s call it roughly 50% margin that flows through. But it has been in our historical numbers, you know, don’t have a number for this year, because, you know, we’re actively going through the backlog, but, you know, typically in our prior quarters, it’s been about a couple million each quarter of revenue and a million or so in EBITDA.

Jonathan Komp: Got it. Okay. Thanks again.

Operator: Thank you. Next question will be from Korinne Wolfmeyer at Piper Sandler. Please go ahead.

Korinne Wolfmeyer: Thanks. Good afternoon. Thanks for taking the question. First, I’d like to touch on just tariffs and what kind of exposure from equipment and, you know, pieces of the unit build could be exposed to tariffs and how impacted could the franchisee see with that? Thank you.

Mark King: Thanks, Korinne. This is Mark. I’ll take that one. So there’s really two impacts. We’ve been looking at tariffs obviously as every other company has for the past few weeks and there’s a direct impact and there’s also an indirect impact. So let me take the direct first. First of all, 80% of our revenue is recurring. So the only thing really affected in the direct is about 20% of our revenue, and that’s on merch sales and the equipment sales to the franchisees. Our supply chain team has been working diligently with all of our vendors to minimize the impact. We have a pretty good view of the impact. It’s minimal at this point. It’s very fluid. It’s actually getting better week in and week out. Because we’re finding vendors that want to work with us, and they absorb some, and we absorb some, and we’ll pass some of that along.

As John mentioned in his opening remarks on the cost-plus. So I think that’ll be minimum impact. Like John said, half the studios that open are Club Pilates, and we’re seeing almost no impact on those in terms of affecting those. So we feel really good that we’ve got our arms around it and have very limited impact both on franchisees and on us. And then in terms of the indirect, what’s gonna happen in the marketplace with consumers, we’ve proven to be pretty resilient during COVID, inflation, and other macro challenging times. So, well, again, at this point, we haven’t seen any impact of tariffs on memberships or visits or anything. So we’re concerned about it enough to be looking at it every day. But at this point, we feel pretty confident we have our arms around it.

Korinne Wolfmeyer: Thank you. And I guess kind of building off of that point, any color you can give us on kind of what’s baked in at the low end versus the high end of guidance regarding the consumer? And then any direction you can give us on how you’re thinking about the same-store sales cadence over the remainder of the year?

John Meloun: Yes, I’ll take that. I mean, as far as the guide, we haven’t seen any shift in consumer behaviors. I mean, when you look at Q1, and even as of, you know, through April, you know, you’ve seen the visitation remain strong. The total members have continued to grow. There hasn’t been a shift in consumer demand that we’ve seen. Typically, Q1 is one of your better quarters simply because there’s a lot of New Year’s resolution. And then you also benefit from the consumer kind of utilizing some of the promotions we do in the fourth quarter. So I haven’t seen a drop-off in consumer behavior. You know, as we said previously, you know, we still expect, you know, same-store sales to stay in that mid-single-digit kind of range.

So in that 3% to 5% kind of range, you know, throughout the rest of this year. So I’m not expecting any material shifts. And you gotta remember the majority of the system-wide sales, over 95% of it is coming from our scaled brands. So Club Pilates, StretchLab, Yoga Six, Pure Barre. So these are brands that have shown consistent same-store sales performance. You know, we continue to open up more studios in those brands. So there shouldn’t be we’re not expecting to see any shift with the consumer.

Korinne Wolfmeyer: Thanks so much.

Operator: Next question will be from Jeff Van Sinderen at B. Riley Securities.

Richard Magnusen: Hello. This is Richard Magnusen in for Jeff Van Sinderen. Thank you for taking our call. Regarding the franchise disclosure documents, can you remind us what the most important changes are that’ll affect the franchisees and talk about any feedback response you got so far? And then also maybe a good estimate of the pent-up demand during that period?

Mark King: Richard. Hi, Richard. This is Mark. Yeah. We did a really thorough job at looking at specifically the build-out cost. We worked with vendors. We took our time to really do the right job to be as accurate as we can. There were some increases across all the brands in terms of build-out costs, but we feel we’re much more realistic. At this point, we haven’t really had any negative feedback or pushback from franchise or people that are opening. So we feel good about the work that we’ve done, and going forward, I think it’ll be more accurate for franchisees.

Richard Magnusen: Okay. And then it was the fact that the time period that they had to wait for these documents, was there any estimate of a pent-up demand on the pilot franchisees?

John Meloun: There was in Club Pilates. I mean, there’s obviously, there’s any opportunity to purchase one of the Club Pilates licenses. People will stick around for that. And a lot of the purchases come from existing franchisees who own an existing studio in one of the brands. So, yes, there was some pent-up demand. We have filed all the FDDs except for Pure Barre, which we’re in the process of doing that largely in 36 of the states. You know, we’re actively selling, and then I think in, you know, we disclosed in the call on the slide the brands and the states that are still pending review, you know, which ones those are. So the good news is we are now actively selling again and returning to adding more licenses to the backlog. The hope now is that, you know, Q2 license sales will translate into new studio openings, probably more likely in the first quarter of 2026.

Richard Magnusen: Alright. Thank you.

Operator: Next question is from J.P. Wollam at ROTH Capital Markets. Please go ahead.

J.P. Wollam: Great. Hi, guys. I appreciate you taking my questions. We could maybe start with the field ops team. I think you said in there that the goal is to have them kind of rolled out by end of the month or end of the quarter. But if you could just kind of help us understand, like, how soon can they really get in and be impactful? And is there sort of an immediate focus as they get out of the gate? You know? Are they immediately going to kind of your lowest 10% performers and you think that you could see upside by the end of the year? Like, how are you thinking about how soon of an impact they can have?

Mark King: Thanks for the question, J.P. So we’ll roll out 12 field ops people by the end of the quarter. We have another tranche of 12 towards the end of the third quarter, and then the final group will be out by the end of the year or January. So when we’re fully built out, we’ll have around 40 field ops people. I think the impact will be immediate, and you’re very perceptive. Yes. I think they will start with the franchisees that are struggling the most to go in and really identify why they’re struggling, build a plan out with them to get the franchisee and their business headed in the right direction. So I believe once all 40 are out working, it will have an immediate impact on the system, but it’s going to take us about three quarters to get everyone out in the field. But I think by the time we get through July and August, we’re gonna see an impact on the franchisees where these 12 initial field ops people will be deployed.

J.P. Wollam: Understood. Appreciate the color. And then if I could kind of a bit of a follow-up to the conversation about license sales. You know, if we step out and sort of take a high-level view, you know, understanding that you guys kind of want to be a bit more selective and make sure you have the right franchisee partners, but can you just kind of talk about how inbound license leads are trending? Are there any changes that you’re seeing out there with the relationship to brokers or with how people view the relationship to Xponential as a whole? Any kind of high-level themes you’re seeing there?

Mark King: Sure. So first of all, we’re not working through the broker network anymore. So we’re building out our own team. We do our own marketing through different mediums to find people that are interested in being a franchise. We work through a lot of the existing franchisees and their recommendations, and we have a very seasoned development person, Eric Simon, who’s really brought a lot of expertise and experience to the process. Secondly, we’re also looking at, with some of our scale brands, reaching out to private equity. And there’s quite a bit of interest from well-capitalized private equity that are looking at white space and how they would come in, which would really have access to capital, access to operating, and really commitment to building out.

So we’re really looking at the entire process, but right now, we’re just getting started, to be honest. Especially since the FDDs just are now out and we’re able to sell. But the initial response from the team is, I would say, positive.

J.P. Wollam: Great. Thanks for taking my questions, and best of luck.

Mark King: Thanks. Thank you.

Operator: Next question will be from Owen Ricard of Northland Capital Markets. Please go ahead.

Logan: Hey, this is Logan on for Owen. Thanks for taking our question. First, how should we think about new studio openings in 2025? What’s that pace going forward? And when should we expect a pullback?

John Meloun: New studio openings, what you’ll see is, as I mentioned earlier, it’ll be about 50% in the first half and 50% in the second half. So it’ll be a pretty flat cadence quarter to quarter. In the first quarter this year, we had about 116 openings. Remember, we didn’t rush openings in the fourth quarter, even though we got the equipment installed. So you did see a little bit higher kind of rollover from the prior year of openings. But from this point forward, you should see, you know, in that 80 to 90 range each quarter as far as openings. So it should be about fifty-fifty roughly. Again, the concentration is definitely gonna be in Club Pilates with over half the openings. And then you’ll see StretchLab, Yoga Six, and BFT primarily in the international space as where they’ll come from.

Logan: Got it. That’s helpful. Then, last one from us. Can you provide some color on your international expansion plans? Any updates there, changes in your methodology? Or what markets are your top priorities?

Mark King: Thanks. Well, the methodology really is to find really qualified master franchise franchisees. We require them to both own and operate some studios along with selling sub-franchise agreements. We’re focused on countries that we believe have big upside and opportunity. And right now, we’ve done a really great deal down in Mexico, so we look for that to start to build out this year. We’re really seeing some really good momentum in Portugal, Spain, big interest in France and Germany. We’re very, very strong in Australia, and we’re really building Club Pilates out in Japan. But those are the major markets right now.

Logan: Thanks for your update, guys. Congrats on the quarter.

Mark King: Thanks. Thank you.

Operator: And at this time, Mr. King, we have no other questions registered. Please proceed, sir.

Mark King: Thank you again, everyone, for joining today’s call. We look forward to seeing many of you at some of the upcoming marketing events, including our Analyst Investor Day, which will be hosted at the New York Stock Exchange later this month.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.