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Greetings, and welcome to the Xponential Fitness Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Avery Wanamaker [ph], Investor Relations. Please go ahead.

Thank you, operator. Good afternoon and thank you all for joining our conference call to discuss Xponential Fitness Second Quarter 2023 Financial Results. I am joined by Anthony Geisler, Chief Executive Officer; Sarah Luna, President; and John Meloun, Chief Financial Officer. A recording of this call will be posted on the 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. 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 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 Fitness.

Thanks, Avery, and good afternoon, everyone. We appreciate you joining our second quarter earnings conference call. I'm proud to share yet another consistent quarter of results to continue to highlight the strength of our business and the health of our franchisees. On the call today, we will address several key concepts aimed at providing additional clarity on the business. We will also be speaking about these items in more detail at our Analyst and Investor Day on September 6, when we will provide a full overview of the business and financial performance, layout company strategy and discuss longer-term growth metrics. Let's turn to our second quarter results. Xponential franchisees now operate nearly 2,900 studios globally with over 5,800 licenses sold across our 10 leading fitness brands. We have franchise, master franchise and international expansion agreements in 19 countries outside of North America. Total members across North America saw growth of 29% year-over-year to a total of 697,000 at the end of the second quarter. Over 90% of these customers are actively paying members. Along with growth in our membership base, North American studio visits for the second quarter increased by 32% year-over-year, reaching a total of $12.9 million. This drove record North American system-wide sales of $341 million, which represents a 37% increase over the second quarter of 2022. Q2 North American run rate average unit volumes of $561,000 were up 17% from $480,000 in Q2 of 2022, our 12th straight quarter of AUV growth. We continue to believe that AUV growth is the most direct measure of our franchise systems health. North America same-store sales growth remained strong at 15% in the second quarter, and we are particularly pleased with the performance of our more mature cohort with studios over three years old increasing same-store sales by 16%. Now that we are further removed from COVID-impacted time periods, we believe this metric has begun to normalize. John will speak about these calculations in more detail shortly. Turning to revenue. For the quarter, net revenue totaled $77.3 million, an increase of 30% year-over-year. Adjusted EBITDA totaled $25.3 million in Q2 or 33% of revenue, up 43% from $17.6 million or 30% of revenue in the prior year period. Let's now turn to our four strategic growth areas. I'll discuss the first three and then turn the call over to Sarah to discuss the fourth. Beginning with the increase of our franchise studio base, we ended Q2 with 2,892 global open studios opening 141 net new studios in the second quarter. We sold 234 licenses globally in Q2 2023, with about 30% of licenses bought by existing franchisees, bringing total sold licenses to 5,872. We also continue to have an increasing pipeline with almost 2,000 licenses sold and contractually obligated to open on a global basis, excluding our master franchise agreement obligations. We are always pleased when an existing franchisee purchases additional licenses as it reinforces their satisfaction with our model and the success of their businesses. In fact, over 56% of our studios have owners who have purchased multiple Xponential licenses. Looking at this in a bit more detail, our average franchisee has bought 2.6 licenses with 1.3 studios currently open. Turning to our next growth driver, international expansion. We have over 1,000 studios obligated to open under master franchise agreements. Of note, just recently, we announced the signing of a master franchise agreement in France for our Club Pilates brand, which represents our 19th country outside of North America. The agreement gives the master franchisee the opportunity to license a minimum of 75 Club Pilates studios in France over the next 10 years and is indicative of Xponential's approach to international expansion, wherein we partner with world-class experienced operators who can rapidly scale our brands. As a reminder, our MFAs are structured to provide Xponential with high-margin flow-through. We typically receive a percentage of revenue share with very little corresponding SG&A. Xponential is currently targeting approximately 50 countries with our 10 existing brands or potentially 500 different MFA opportunities, which provide significant white space for future growth. Our third key growth driver is to expand margins and drive free cash flow conversion. Adjusted EBITDA margins again increased to 32.6% during the second quarter, demonstrating continued operating leverage. As we continue to scale, holding company-owned transition studios will create headwinds when optimizing margins. Therefore, going forward, we no longer will take on company-owned transition studios. As of the date of this call, we are operating 38 company-owned transition studios and have nine corporate LA Fitness studios under our Club Pilates and StretchLab brands. We plan to continue operating these nine studios in order to prove out the LA Fitness nontraditional studio concept. The company-owned transition studios currently generated immaterial amount of net operating loss. We plan to refranchise these studios down to 0, and we will no longer take on any company-owned transition studios going forward. We are confident this shift in strategy will drive additional leverage to SG&A expenses while also benefiting AUVs in the long run. Importantly, as John will speak to shortly, we are raising guidance on several of the guided metrics for the year. We remain on track to achieve adjusted EBITDA margins in the 35% to 39% range by year-end and adjusted EBITDA margins of 40% in 2024. We look forward to providing an overview of the business and financial performance, layout company strategy and discuss longer-term growth metrics at our Analyst and Investor Day on September 6 at the New York Stock Exchange. With that, I'll pass the call on to Sarah to discuss our fourth and final growth driver, increasing our same-store sales and AUVs.

Thank you, Anthony. We drove strong in-studio performance in the second quarter and further built out our ecosystem of B2B partnerships, strengthened our omnichannel fitness offering and continued refining our XPASS and XPLUS services. During the second quarter, North America visitation rates grew 32% year-over-year, and our North America actively paying membership base grew to over 628,000 members. With our product continuing to be very sticky and playing an integral role in our members' lifestyle, Xponential continues to retain its membership base. Xponential aims to ensure that members have access to a boutique fitness experience that matches their individual needs and interests. Let's now discuss how our omnichannel offerings help drive customer engagement, resulting in higher same-store sales and AUVs. Our XPASS offering is one way we enhance customer engagement by having frictionless access to all 10 of our brands on a single recurring monthly membership platform. Inception to date, there have been over 60,000 bookings made on XPASS. XPASS is beneficial for both consumers and franchisees. It provides consumers with flexibility to snack across fitness modalities while driving new lead generation for in studio memberships. This quarter, we will be introducing an advertising channel into the XPASS app to give Xponential studio customers access to third-party exclusive offers, launching in categories such as mental health, apparel and healthy foods. This initiative will drive further benefit to our members while serving as another means for driving incremental lead flow to the studios. XPLUS is the second critical element of our omni-channel approach. XPLUS allows our customers to access digital classes at all 10 of our brands from the comfort of their own home and as a supplement to in-person classes at our studios. Many of our subscribers also hold in studio memberships, including those who have subscriptions through their brick-and-mortar memberships. We are constantly developing new content for our XPLUS platform, and we're excited to see this digital channel continue to translate into increased consumer stickiness and brand affinity. Also, during the quarter, we solidified an XPLUS licensing deal with our master franchisor for BFT, which enables us to offer on-demand classes to members across 250 international BFT locations. We are excited to introduce our omnichannel experience to global consumers and expect to pursue similar licensing deals with other MFAs. B2B partnerships like our relationship with Princess Cruises are the third key element of Xponential's omnichannel strategy. These partnerships provide a means of reaching new audiences, generating revenue and creating lead flow with little or sometimes negative acquisition costs. As of the end of Q2, Pure Barre, YogaSix and StretchLab have been launched across the entire fleet of Princess Cruise ships. In addition, in September, we will have our first one-of-a-kind sea-going retreat for Club Pilates, which is to set sale in Alaska. Club Pilates classes will be offered by top-notch instructors amidst Alaskan glaciers and mountains and in conjunction with Royal Princess' culinary entertainment and activity options. This experience is already selling itineraries and we intend to launch future retreats across our other brands. The renewal we announced with Lululemon in June is another great example of a B2B partnership that is helping to grow Xponential. Members of Lululemon studio can stream a diverse range of workouts featuring Pure Barre, Rumble, AKT and YogaSix-classes as well as take advantage of discounted classes at the brick-and-mortar locations of these brands across North America. The cross-promotional offering is an efficient and effective way of introducing new customers to our brands and building an enduring interest in Xponential Fitness' modalities. In the second half of 2023, we will continue to explore additional B2B partnerships to enhance our XPLUS and XPASS offerings to further build out our omnichannel fitness capabilities. Through these offerings, we look forward to expanding the breadth and depth of tools available to our franchisees to bring people into the Xponential ecosystem, drive higher customer retention and create a world-class fitness experience. As a portfolio company, we have the ability to leverage our scale, our vendor relationships, our omnichannel offerings and partnerships across all our brands to ultimately achieve the goal of driving more members into the franchisee studios. Importantly, our performance data validates this as studio-level KPIs continue to grow each quarter. Thank you again for your time. I'll now turn the call over to John to discuss our second quarter results and 2023 outlook.

Thanks, Sarah. It's great to speak with everyone today. Before diving into our results for the quarter, I'd like to discuss our calculations for average unit volumes and same-store sales, both of which have been consistently defined and calculated throughout our history. I will also provide clarity on historical and go-forward treatment of studio closures under KPI reporting and how they would be categorized as well as provide an overview on how to think about brand level economics. Starting with North American quarterly run rate average unit volumes. We define this as the average quarterly sales activity for all studios that are at least six months old, at the beginning of the respective quarter multiplied by four to get an annualized number. Studios with zero sales in the period as well as our 19 LA Fitness locations are and have always been excluded from this calculation. With that said, inclusion of zero sales studios in nontraditional locations would not result in a material difference to AUVs. For Q2 2023, our calculation for run rate AUV of $561,000 included 99% of our entire North American studio base older than six months. When including 100% of studios, run rate AUV would have been just 1% lower. Similarly, when calculating our North American same-store sales, we have followed the industry standard practice of including only studios that have 13 months of continuous sales activity as disclosed in our SEC filings. Our Q2 2023 same-store sales of 15% included 97% of our North American studio base older than 13 months. For Q2 2022, same-store sales of 25% included 98% of these studios. Turning to the go-forward treatment of studio closures under KPI reporting. Any studio that does not have sales for nine consecutive months will now be deemed closed for KPI reporting purposes. We have provided a full reconciliation of studio accounts under this new method in the 10-Q. It's important to note that applying this new method to historical figures results in minimal differences. Turning to brand level data. Xponential has always taken a portfolio approach to its brands where there is a diversification of modality and varying levels of revenue performance depending on the maturity of the brand. We will be providing more detail on the unit level economics that underpin our portfolio of brands, which we will discuss at our upcoming Analyst and Investor Day. It is important to point out that our well-established brands in North America at scale, meaning brands that have over 150 open studios in North America, which include Club Pilates, StretchLab, Pure Barre, CycleBar and YogaSix represent more than 90% of our total studio base at quarter end and generate weighted average AUVs of approximately $578,000. These brands have existed for several years and have had time to develop a strong following among members, typically driving higher AUVs. Our five growth brands, which include Row House, Rumble, BFT, STRIDE and AKT account for less than 10% of our studio base in North America at quarter end. These brands have had the benefit of Xponential support system for shorter time periods, yet continue to mature in the brand awareness and membership base. Our established brands generated 16% Q2 2023 same-store sales and make up 94% of North American system-wide sales. As the brands mature, the studio AUVs and corresponding franchisee profitability will improve as the largely uniform operating expenses are leveraged, noting some slight variations driven by labor and other expense items. Our brands have roughly the same monthly operating expenses, and these expenses can vary across designated market areas. For example, rent and labor costs in New York City would typically be higher compared to Louisville, Kentucky. The exception to the operating expenses occurs more frequently in our StretchLab and Pure Barre brands. StretchLab has a higher labor cost given the mostly one-on-one model, but also generates higher AUVs. Pure Barre has more of an owner-operator model that allows the owner to internalize some of the expenditures they would otherwise have for labor. In some instances, franchisees of lower AUV concepts have transitioned from semi absentee to owner operator in order to reduce labor costs and internalize more of their overall spend. Now turning to our results for the second quarter. North America system-wide sales of $341.3 million were up 37% year-over-year. The growth in North American systemwide sales was driven primarily by the 15% same-store sales in the existing base of open studios that continue to acquire new members, coupled with 115 new North American studios that opened in the second quarter. On a consolidated basis, revenue for the quarter was $77.3 million, up 30% year-over-year. Reoccurring revenue for the quarter was 74%, which we have consistently defined to include all revenue streams, except for franchise license sales and equipment revenues given these materially occur upfront before studio opens. That being said, all five of the components that make up our revenue grew during the quarter. Franchise revenue was $35.1 million, up 27% year-over-year. This growth was primarily driven by an increase in royalty revenue as member visits and system-wide sales reached all-time highs. In addition, we saw increased instructor training revenues and higher monthly tech fees that will continue to increase as we open more studios domestically. Equipment revenue was $14.4 million, up 17% year-over-year. This increase in equipment revenue is the result of continued higher volumes of global equipment installations in addition to a higher mix of equipment-intensive brands like BFT and Rumble. Merchandise revenue was $8.4 million, up 24% year-over-year. The increase during the quarter was primarily driven by a higher number of operating studios and increased foot traffic compared to the prior year. Franchise marketing fund revenue of $6.6 million was up 34% year-over-year, primarily due to strong system-wide sales from a higher number of open studios in North America. Lastly, other service revenue, which includes rebates from processing studio system-wide sales, B2B partnerships, XPASS and XPLUS amongst other items, was $12.8 million, up 62% from the prior year period. The increase in the period was primarily due to increased revenue from sales generated in our company-owned transition studios, increased rebates from the processing of studio-level system-wide sales and our higher revenues from our B2B partnerships. Turning to our operating expenses. Cost of product revenue were $14.2 million, up 5% year-over-year. The increase was primarily driven by a higher volume of equipment installations for new studio openings and a higher mix of equipment-intensive brands in the period. Cost of franchise and service revenue were $3.7 million, down 18% year-over-year. The decrease was driven by fewer license terminations in Q2 of 2023. Selling, general and administrative expenses of $44.4 million were up 52% year-over-year. As a percentage of revenue, SG&A expenses were 57% of revenue in the second quarter, up from 49% in the prior year period. As Anthony spoke to earlier, we expect our shift in strategy regarding company-owned transition studios will begin to have a positive impact in the second half on this line item and drive leverage in SG&A. We are already executing on the plans to ramp down these studios and we'll share additional details on the positive impact this will have at the Analyst and Investor Day. Depreciation and amortization expense was $4.3 million, an increase of 20% from the prior year period. Marketing fund expenses were $5.5 million, up 34% year-over-year, driven by the increased spend afforded by higher franchise marketing fund revenue. Acquisition and transaction expenses were a credit of $31.3 million versus a credit of $31.6 million in the second quarter of 2022. As I noted on prior earnings calls, the contingent consideration is related to the Rumble acquisition earn-out and is driven by the share price at quarter end, we mark-to-market the earnout each quarter and accrue for the earnout. We recorded net income of $27.5 million in the second quarter compared to a net income of $31.5 million in the prior year period. The slightly lower net income was the result of $5.3 million of higher overall profitability, offset by a $0.4 million increase in noncash contingent consideration primarily related to the Rumble acquisition, a $1.6 million increase in noncash equity-based compensation expense and a $7.2 million increase in write down of brand assets associated with taking on a number of Rumble founder company-owned transition studios in the period. We continue to believe that adjusted net income is a more useful way to measure the performance of our business. A reconciliation of net income to adjusted net income is provided in our earnings press release. Adjusted net income for the second quarter was $4.2 million, which excludes the $31.3 million gain in fair value of noncash contingent consideration, a $0.7 million liability increase related to the second quarter remeasurement of the company's tax receivable agreement and the $7.2 million noncash write-down of brand assets. This results in adjusted net earnings of $0.05 per basic share on a share count of 33 million shares of Class A common stock after accounting for income attributable to noncontrolling interest and dividends on preferred shares. Adjusted EBITDA was $25.3 million in the second quarter, up 43% compared to $17.6 million in the prior year period. Adjusted EBITDA margin grew to 33% in the second quarter compared to 30% in the prior year period. As a reminder, our 2023 outlook anticipates adjusted EBITDA margins reaching the 35% to 39% range, and we expect this number to grow to 40% in 2024. Turning to the balance sheet. As of June 30, 2023, cash, cash equivalents and restricted cash were $40.2 million, up from $29.3 million as of June 30, 2022. Total long-term debt was $265.6 million as of June 30, 2023, compared to $131.7 million as of June 30, 2022. The increase in total long-term debt is primarily due to the repurchase of 85,340 shares of convertible preferred stock at a price of $22.07 per share announced in January. These shares prior to the repurchase would have been convertible into 5.9 million shares of Class A common stock. As mentioned on previous earnings calls, the company remains focused on optimizing our capital structure. If market conditions prove favorable, the company intends to pursue a whole business securitization of our repeating revenue streams, which will provide cheaper access to fixed rate financing in place of our existing floating term loan debt. Now turning to our outlook. Based on current business conditions and higher levels of performance in the second quarter, we are increasing our full-year 2023 guidance for system-wide sales, revenue and adjusted EBITDA, and we are reaffirming guidance for new studio openings as follows. We expect 2023 global new studio openings to remain unchanged in the range of 540 to 560. This range represents the highest number of studio openings in our company's history and an 8% increase at the midpoint over 2022. We now expect North America systemwide sales to range from $1.385 billion to $1.395 billion, up from the previous $1.37 billion to $1.38 billion or a 35% increase at the midpoint from the prior year. Total 2023 revenue is now expected to be between $295 million to $305 million, up from the previous $290 million to $300 million, a 22% year-over-year increase at the midpoint from the prior year. Adjusted EBITDA is now expected to range from $102.5 million to $106.5 million, up from $102 million to $106 million, a 41% year-over-year increase at the midpoint from the prior year. This range translates into a roughly 34.8% adjusted EBITDA margin at the midpoint. In terms of capital expenditures, we anticipate approximately $10 million to $12 million for the year or approximately 4% of revenue at the midpoint. Going forward, capital expenditures will be primarily focused on the BFT integration, XPASS and XPLUS new features and maintenance on other technology investments to support our digital offerings. 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 32.7 million and $1.9 million in quarterly dividends to be paid related to our convertible preferred stock. A full explanation of our share count calculation and associated pro forma EPS and adjusted EPS calculations can be found in the tables at the back of our earnings press release as well as our corporate structure and capitalization FAQ on our Investor website. Finally, before turning the call over for questions, I want to communicate that our Board of Directors on August 1 has authorized a new up to $50 million share repurchase. Our lender, MSD Capital has already amended our term loan financing agreement and is funding the capital to complete the repurchase. Pro forma, adjusting for this incremental $50 million in term loan debt, the company will have less than 3x net debt-to-adjusted EBITDA for the full-year 2023 based on the midpoint of our guided range. Thank you for your time today and for your support of Xponential. We will now open the call for questions. Operator?

Thank you, sir. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Randy Konik of Jefferies. Please go ahead.

Hey guys, thanks for a very thorough presentation, lots of good data for us to dig in on. So I guess one thing that really struck me on the AUV side was, A, it's very strong. And then, B, you talked about strength in visitation growth during the quarter. So maybe could you give us some perspective if you think about that AUV strength quarter-over-quarter -- in the quarter year-over-year. Can you give us some -- bounce it out with how much is like visitation growth, some pricing, maybe mix shift with the higher AUV concepts. Just want to get your perspective on what's driving that overall number?

Yes, I'll take that. So the system-wide sales growth that you saw from Q1 to Q2, again, as consistent with prior quarters, you're getting 95% of system-wide sales growth, two different ways. One, from obviously opening up new studios. But two, it's volume, it's not price. So it's simply the 95%, 5% did that calculation, reaffirming Q2 is very similar, that is 95% volume. And in visitation, when you think about visitation in the summer months, you typically see more families take vacations. So visitation was flat roughly to Q1, but you still have the benefit of growing systemwide sales and members. So you'll see that kind of in the early part of Q3 as well. July is more of a summer travel month, while kids are out of school, parents tend to take more vacation. So visitation in the summer months is relatively flat. But when you look at historical patterns and seasonality, August and September, you see when kids come back to school, parents usually have more time and they kind of return back to their workout regimens. But visitation is still greater than Q1, but it is flat when you look at it from like June to July.

Understood. And then on the additional country, I guess, France up to 19 countries now, maybe give us some flavor on what's been developed so far? How that's been going? What maybe differences you're seeing from your MFAs in the different regions or countries? And then kind of how you're thinking about the pace of new country openings, let's say, over the next three to five years? That would be very helpful. Thank you.

Yes, I can take that one. We've got a lot of development out there in terms of potential. We mentioned that there's 50 countries that we've identified, times 10 brands, so 500 total MFAs that we can go out and develop and pursue. In terms of the recent MFAs, we've got Switzerland, Ireland as well as France. Those are existing franchise partners of our domestic studios that have decided to open abroad, which is really exciting to see. And they're in the early stages of going out and looking for leases and developing out those studios. So we should know soon how they perform, but we feel very confident in the performance of our franchise partners, given that they're strong performers domestically.

And to follow that up, Randy, like looking into the future in regards to your question around what does the openings internationally look like compared to domestic, it's going to follow suit. We've been -- right now, the total mix is around 90:10, with 90% domestic, 10% international, but we've been selling and opening closer to 75:25. So assuming long-term metrics, north of 500 units a year, you could probably assume about 25% of those will come internationally over the coming years.

Super helpful. Again, thanks for all the data guys. Appreciate it.

Thank you. The next question is from Joe Altobello of Raymond James. Please go ahead.

Thanks guys. Good afternoon. First question, I want to dig a little deeper into studio economics. What percentage of your studios that are open more than a year or longer than a year are profitable on a four-wall basis?

Yes. So when we talk about studio economics, you'll typically see in the first 12 months, studios ramp to about $380,000-ish, which is above the breakeven level, and we've provided that information before. So the majority of our studios arrive at that in the first year. And then they typically comp in the mid- to high single-digits after that, we saw 8% on average pre-COVID. The model largely reflects that, that studios get to -- studios get to, like I said, $380,000 in their first year, and then they typically comp around 8% after that per year.

Okay. Helpful. And then maybe a second question. You mentioned that you do expect to get transition studios down to zero at some point. What time frame are you thinking about?

Yes. Well, Joe, as we said, the studios or the actual unit count of the studios are down about half from what they were in Q1 and recently in Q2. So the remaining balance in the portfolio doesn't lose any material money. So we've never looked at the unit count of studios as an indication of franchisee health, the unit number itself. It's always what are the NOLs and what is the headwind to SG&A that we're concerned with. We're not concerned with the actual number. And so the stores that we have now, the 30-plus stores that are kind of our four-wall brick-and-mortar stores don't lose a lot of money for us. And so there's not a lot of pressure to offload those right away, but we will be doing that in balance and making sure that the winners and the losers that are left in that portfolio are giving us the least amount of headwind, and that's what we're focused on, right, is SG&A and NOLs. So in other words, we don't want to sell the winners to be left with all the losers and that's been the strategy from the beginning. And so if I had to throw a guess out there, we're targeting by the end of the year or kind of Q1 of next year. But we want to do good deals that are accretive to the company. Some of these stores, we've bought for a lot less than what they're actually worth. And so we'll be going out making sure that we do the best deals possible for the company. But given that there's not a lot of leakage, we're not trying to necessarily offload them real quickly. And then the nine LA Fitness's we're operating, eight of which are Club Pilates and one of which is a StretchLab. We'll continue to probably operate those a little bit longer as we're just proving out that concept because franchisees want to see that the concept works. We do have several franchisees that are operating LA Fitness's and doing very well with them, but we want to be operating them here locally in Southern California.

Okay, thanks guys.

Thank you. The next question is from Alex Perry of Bank of America. Please go ahead.

Hi, thanks for taking my questions here. I guess just first to follow-up on some of the earlier questions. Can you talk about sort of franchisee profitability and cash-on-cash returns sort of by concept versus pre-COVID? Is it fair to say sort of like the clubs that have the concepts with the most tenure like Club Pilates have better cash-on-cash returns and maybe like a Row House or some of the more nascent concepts. Just any more color you can give us on sort of the economics by concept would be really helpful. Thanks.

Yes, Alex. So we will double-click on that in the Investor Day. We debated whether or not this was the right forum to dive into that. And just -- it's too much data to try and do in a five-minute kind of Q&A session. But to think about it, we've talked about 40% cash-on-cash returns at certain levels of AUVs. We are seeing a lot of our brands produce more than that from an AUV perspective, and we continue to keep climbing. The scale brands for sure as we talked on the call, north of $575,000 roughly on a weighted average AUV. So their cash-on-cash returns are much higher than the ad design model, which we've largely spoke about. You have brands in the, we'll call it, not at scale, BFT, Rumble. Those are already coming out opening at $500,000-plus AUVs in year one. So you could actually expect to see the cash returns better there. We do have brands in the unscaled like STRIDE, Row House, AKT. They're different model, and I talked to into in the call in relation to how those studios can operate at lower AUVs, we get generate similar margins if they go to more of an owner-operator model versus a semi-absentee model. So definitely, we'll provide a lot more detail on that in the Investor Day and get more clarity to you guys so you could see it more at a brand level, how we think about the business and how they're performing. So I would say, stay tuned on that, but we're excited to kind of delve into that in about a month.

Perfect. And then I guess, just my follow-up question, is a two-parter. How much visibility is there in the unit growth outlook for this year? Is that sort of based on leases that have already been signed. So you have a high degree of confidence there? And then maybe one more for you, John. Just the $7.2 million add-back of write-down of brand assets, can you just give us a little more color what that is, that would be really helpful. Thanks.

Yes. I'll start with the $7.2 million. In Q2, the original Rumble founder studios, those were as part of our agreement when we purchased that business, they would be exiting at a certain point. That happened in Q2. We did assume those studios. So the ones in a lot of the major markets, we have those. So we will be looking to get those refranchised over time. So that was one of the -- that was what the $7.2 million reflects. In essence, when we bought the brand, the intangibles were assigned to the franchise agreements because that's what was outstanding. Now that we own the studios, the franchise agreements are no longer outstanding. Therefore, you would not hold them onto your balance sheet from an accounting perspective. And apologies, what was the first question?

Just the visibility into the growth outlook for this year?

Yes, so really strong. I mean we've always talked about the fact that lease signings is the greatest early indicator of how many studios you're going to have open. We consistently signed and have been consistently signing lease agreements from the beginning of this year. We knew how many we signed kind of going into -- in Q3 and Q4, so how many were coming into this year. So for our perspective, the visibility and so the openings is very strong. We usually have about a good six to nine month forward-looking view. So we can almost tell you not only what's going to happen in Q3 and Q4, but we pretty much have a good idea in Q1 of next year already. So the guidance around city openings, we said at the beginning of the year, it's been unchanged. We've moved guidance around in regards to revenue and adjusted EBITDA and systemwide sales. We've raised those as we've continued to perform in Q1 and Q2, but we haven't moved the studios because the visibility we have is pretty strong. I mean, it's pretty structured in the sense that when somebody signs a franchise agreement, they go out, they acquire a lease, and there is that six to eight months where they're building up a studio and getting open. So you're always kind of looking at things a couple of quarters ahead of time. So once we sign the lease, we already know in about two quarters when that studio is going to open. So it's pretty static from that perspective. So a short answer to your question, I feel really strong and really good about the guidance that we put out there for new studio openings this year.

Perfect. That's really helpful. Best of luck going forward.

Thank you.

Thank you. The next question is from Brian Harbour of Morgan Stanley. Please go ahead.

Yes, thanks. Good afternoon. John, could you just comment on SG&A expense given where you're running year-to-date and then any impact of the kind of the transition studio strategy?

Yes. Great question. So SG&A in Q2 was higher than it was in Q1. That has to do with the number of transition studios that we had on the books. Looking forward into Q3 and Q4, as we've made this shift in strategy as we start lowering SG&A costs because we don't have the operating cost of rent and labor in our SG&A. You'll expect SG&A to start coming down over time. So in the second half, you'll see that apparent pretty quickly. So the way you can kind of think about it is we were -- I think it was close to high 50% range in Q2. I would expect to see as we ramp down these studios that the SG&A as a percent of total revenue will hit below 30%. So it is a function of how quickly we kind of ramp down these studios. As Anthony mentioned, the goal -- loose goal that we kind of talked about is it'd be great to have them all done by the end of the year, but you will see it get into the low 30% range as we kind of refranchise these studios back out.

Okay. Yes, makes sense. And just with that, are you -- how will it change going forward in the sense that are you just going to take a more active role in kind of brokering franchisee to franchisee deals? Do you think that there might be occasional closures if you can't kind of find a suitable buyer? Like how might we see the impact of that?

Yes. As we said in the earnings script, we will be triaging, I guess, studios differently in the sense that if we feel that we can in a reasonable amount of time, get the studio either refranchised or turned around, we will invest resources and the time to do that. If the studio -- there are situations where studios just no longer make sense if they were in a large grocery anchor that the inquiry moved or the center just kind of for whatever reason, doesn't really have a lot of foot traffic, it would be in the best interest of the franchisee to relocate that to a better location. But in situations where it's just not a viable studio anymore, I think you will start seeing the company look to closures as a path. But in the short term, we're going to go ahead and focus on getting the studios ramp down on our side, and then we'll work with franchisees to assess what's the best option for them in operating their studio going forward. But yes, we will be assisting obviously, with tools and resources from a sales perspective, make sure they're following the model, look at relocations, if it's more of a center issue to kind of address studios on a case-by-case basis.

Okay, thank you.

Thank you. The next question is from Jonathan Komp of Baird. Please go ahead.

Yes, hi, thank you. Good afternoon everyone. I want to just ask about the same-store sales trend that you're seeing. And first quarter, you were at 20%, second quarter at 15%, strong numbers, but obviously, different ways you could interpret the trend and trajectory. So can you give any more insight in terms of the trend that you're seeing for same-store sales? And then any color what we should expect going into the back half?

Yes. So first quarter, obviously, 20%, as you mentioned, 15% in the second quarter. I do see, obviously, system-wide sales as they continue to grow. I do expect to see same-store sales normalize over time. I mentioned on previous calls that I do believe in 2023, you're still benefiting from a pretty strong growth perspective on studios getting into -- as they kind of grow into maturities, we continue to open more studios, you're going to see elevated same-store sales over the coming quarters. Mid- to high single digits is still my long-term kind of guidance or expectation on how studios will perform. But I do expect 2023 to be in the mid-teens, the 15%, 16% range in same-store sales, you look in the second half of this year. As I mentioned, Q3 is typically a strong quarter when you look at it quarter-on-quarter, and you see strong growth. So I do expect Q3 and Q4 to stay somewhat elevated as you benefit from people, as I mentioned, the seasonality going back to -- kids going back to school, parents start going back to their workouts from vacation. And then also in Q4, we always have our Black Friday holiday promotions, and we typically see strong sales in that quarter. So I expect 16%-ish range for the full-year. I think Q3 and Q4, you'll see around that level as well. And then as you kind of roll into 2024, as we kind of continue to monitor, assess, measure, see how studios are opening up, we'll get a better idea. But long-term, mid- to high single-digits as you start looking beyond 2023.

Got it. That's helpful color. And then I want to follow-up to ask about the Board's decision to initiate the buyback program and to do so with taking on incremental debt. Just -- any thoughts to the process there and weighing the different options relative to using internally generated cash or further simplifying the capital structure. I know you bought back some of the preferred shares in the past or the convertible debt. So just any additional thoughts on the thought process and how the Board may have settled on the path that it did.

Yes. I mean, we finished the quarter with $40 million in cash. Obviously, we announced a $50 million repurchase. The long-term goal was always to kind of put in place a more efficient capital structure with the securitization. So we had always talked about the preferred shares and wanting to repurchase those. It's all -- to me, it's all fungible, whether it's Class A, Class B preferred. The ultimate goal is to have as few shares out there as possible, I guess, from an antidilutive perspective. So for us, the way we looked at it is the debt was available to us. We have a great partner, MSD, who offered to say, "Listen, we'll be willing to give you guys the capital to do the shares", because they also see this as shareholders from their perspective, but they also see it as the stock being undervalued at these levels. So it was easy access for us to get the cash. What we ideally would have loved to just done all the repurchase of shares on the preferred under a securitized model, yes, that makes it easier, but given the timing and the share price, we'll go ahead and take the debt in the short-term. We were going to refinance that out anyway. So to me, it's just a timing issue of being able to do it now at a lower price and taking advantage of that. Yes. And not to mention our leverage is pretty low. We're just over 2x. So even borrowing the $50 million, we're still at roughly just under 3x levered. So it makes it easy for us to do it.

Got it, I appreciate the color. Thanks again.

Thank you. The next question is from Ryan Meyers of Lake Street Capital. Please go ahead.

Hey guys. Thanks for taking my questions. First one for me. Just wondering if you can comment on if you've seen any changes in the willingness of potential franchisees to open up more studios?

Yes. So I have some data on that related to the number of licenses we sold. I mean the licenses we sold in Q2, about a third of them came from existing franchisees. When you look at the number of studios that opened in Q2, 50% of them came from existing franchisees. So you're continuing to see new franchisees opening studios and buying licenses. But the existing franchisee and installed base we have, they -- most of them buy around three licenses. They're continuing to open those license. And again, like I said, half of them that opened in the quarter were existing franchisees and a third of the license sales that we sold this quarter came from existing franchisees. So they're continuing to come back to buy more.

Got it. That's helpful color. And then can you maybe talk about how multiunit franchisees perform relative to single franchisees? Is there any differences there? Just kind of as a follow-up to my last question.

Yes. Typically, what you see is franchisees that own multiple locations that benefit to them as they get to -- they get the economies of scale, right? So there's the ability from like a marketing perspective to market across all three of those versus just one specifically. So there's actually benefits to the franchisee operating more even from a General Manager perspective, you could manage that across three. So you get the benefit of sharing labor resources, coverage in case of an instructor called out. So there's actually a lot of benefits for our operating multiple. Not to mention if you open one, you typically will open the second one better and the third one better than that because you get the benefit of kind of experience and learnings from the first one to the second one to the third one. So you typically see franchisees open their second one, they actually performed better out of the gate because they have all these lessons that they've learned and actually opening the first one.

Got it, that makes sense. Thanks for taking my questions.

Thank you very much. The next question is from John Heinbockel of Guggenheim. Please go ahead.

Hey guys, this is Julio Marquez on for John Heinbockel. If you guys could touch on -- you mentioned the improved costs in product and franchise revenue. But if you think about profitability of product equipment, how could that improve at scale? Any levers that we can pull there? And then to follow-up, any thoughts on the weekly KPIs? Any signs of changing member behavior would be great. Thank you.

Yes. In regards to retail equipment margins, we did kind of back -- coming out of COVID, we spent some time with our equipment manufacturers and made sure that as there were supply chain issues that we had the sufficient equipment packages available to meet the demand of the number of studios we're opening. So we -- in lieu of negotiating, them kind of passing on price increases, what we did is we did more firm commitments on volume to manage price increases. So we've done a good job of stabilizing prices across our equipment, roughly, again, 30% margin. When you look at retail, we use a mix of both branded and nonbranded vendors. The branded vendors like Allo as an example, franchisees could order directly from the vendor. In return, we get rebates for volume associated with the purchases and facilitating that relationship. We have an entire warehouse here in Tustin, California, where we actually inventory both branded and unbranded as well that our franchisees have the ability to buy at a lower cost than they could if they went to certain vendors directly because we have pre-negotiated costs with them. And then they in return, our franchisees could turn around and sell the wholesale inventory they purchased for us at a retail price and make margin. Typically, we recommend somewhere closer to 40% to 50% retail margins if they follow the recommendations we provide. So our margins, equipment, retail combined is 30%. I largely believe that will remain unchanged. And that's really intended -- the margins we make are really intended to manage the supply chain, which is everything from vendor negotiations to the cost of warehouse to the cost of the staff doing the packing and shipping and all -- a lot of the inbound freight from getting it from our suppliers. So largely margins will remain unchanged into the future.

Awesome. Thanks. And just very quickly on the weekly KPIs. Any changes that you're seeing?

Weekly KPIs, yes, following up on that now. As I mentioned, visitation is, I would say, seasonally flat due to the summer months. We haven't seen any like increases in cancellations. You do typically see in the month of July more freezes on your memberships because people are out of town. So rather than getting charged their monthly membership, they could avoid paying it while they're on vacation. You typically see August and September, that ramps back up. Year-on-year, when you look at July of 2023 versus July of 2022, our freezers are actually less than they were prior year. So it does show that members are still staying somewhat engaged more so than they were last year in the same month of July, but it is more of a seasonal impact, but nothing indicates any sort of shift or change in our member behavior. It's just more seasonal. So August and September, we'll be able to have a better indication of how people have come back and return back to the studios. But classes, system-wide sales, same-store sales continue to show really strong momentum into Q3.

Awesome, thank you.

Thank you. The next question is from Warren Cheng of Evercore. Please go ahead.

Hey, good evening, John and Anthony. I was wondering what kind of cost inflation franchisees are seeing in their cost to rebuild. So one of your publicly traded competitors talked about some pretty significant increases in the cost of rebuild. Obviously, you reiterated your studio opening, guys. But I'm just curious what level your franchisees are seeing as they build new stores compared to year?

Yes. In percentage, we're all going to see the same kind of thing. But in real dollars for us, it's not massive. And the reason is, is when you think of our box, it's 1,500 square feet, not 15,000 or 25,000 or 50,000 or if it's a lifetime, it can be bigger than that. And so they build a lot of -- there's a lot of showers and bathrooms and things like that. So it's a much bigger box. So there's a lot more walls, there's a lot more electricity, here's a lot more plumbing, which means a lot more engineering and planning and all that stuff. And so it's -- the percentages will be the same, but the build-outs are really cheap, just given the size and the scale that they are. If you think even the most complex builds, you really have two walls or three walls, you're really building a box inside a box. So in some cases, you're building a wall just straight across the back or you're building a wall that comes out of the middle and goes to the left. And so there's just -- there's not a lot of walls, a lot of dry walls. There's something like a StretchLab, Club Pilates, Pure Barre, YogaSix. There's not a lot of electric work that has to get done in the StretchLab, for instance, which is a lot of our openings this year. The only thing that really plugs in is the front computer. And then our little maps program is on an iPad that stands there. But those are only kind of the two pieces of electric. So not a lot of electric wiring, you have a single bathroom or a men's and women's bathroom depending on the size of the box. So not a lot of work to do, so it has less dollar impact.

That makes sense, thanks Anthony. My follow-up question was just on Randy's question earlier on the higher visitation. How are members, these new members finding your studios? You've developed a lot of new sources of generation recently. I'm just curious if there's sort of ones that are most fruitful for driving visitation, driving the numbers?

Yes, great question. We're leveraging all of our B2B partners, of course, constantly improving SEO and digital marketing efforts, but really looking at the overall blended CAC and making sure that we've got grassroots initiatives that are coupled with digital marketing initiatives that are coupled with our B2B partnerships. So all of that is now starting to really tick and push leads into the studios. Of course, our XPASS and XPLUS also are net new leads bringing into that as well and then recycling those leads through those channels to kind of bring them back to life so that they're excited to come back into our studios again.

Thank you. Good luck.

Thank you. The next question is from Jeff Van Sinderen of B. Riley Securities. Please go ahead.

Hi, everyone. Just to clarify regarding the company-owned studio count decline from Q1 to Q2. All of those studios were sold, correct?

It was flat from Q1 to Q2, roughly around 85 studios we had in -- at the end of Q1 and the same amount in Q2. The studios that we talked to in the earnings release earlier was the ones that we've already sold. So we've already -- about half of those have already been sold off to a new operator. So we're on the way of already kind of executing on that strategy to unload and refranchise the studios that we have.

But to be more detailed, no they weren't closed, they were sold to existing franchisees.

Okay. Okay. I just want to clarify that. Thank you. And then I know this is maybe something you want to save till the Analyst Day, but just want to ask anyway regarding your individual brands. Can we say that all of your brands are comping positive with increasing AUV? And then I guess any insight you could share around retention, member add metrics around any of the individual brands that were maybe stand up favorably or not as favorably?

Yes. So when you look at Q2, and let me explain something, BFT as a brand actually had a negative comp, but that's because there's really only like a handful of studios. And one of the original studios when we bought the brand, which is in Santa Monica, it does like $1 million plus in AUV. So you start opening more younger brands that are pulling in -- or more studios that are in the comp and naturally will just kind of average out. So when you look at -- if you take that out of the mix, nine out of the -- excuse me, eight of the nine remaining brands all had positive same-store sales in the quarter with one with a negative, and it was like minus 2%. And it was a brand that has, I would say, it's an unscaled brand that doesn't have a lot of studios open. So it's really just noise.

Okay. So we would think that as that one scales, it should start to comp positive and so forth.

Yes. As you get more and more, I guess, you can say data points, we've continued to see -- and it was just in that quarter that it was, I would say, flat at 2% on a nominal number of studios, but kind of reinforcing that our scaled brands, they generate -- they're 90% of the studios that are open and 90% plus of the system-wide sales are generated out of more of a concentration of five brands.

Okay. Well, that's helpful. Sounds pretty healthy to me. Thanks for taking the questions.

Thank you very much.

Thank you. The next question is from George Kelly of ROTH Capital Partners. Please go ahead.

Hello everyone. Thanks for taking my questions. So first one for you, John, in your prepared remarks, you talked about a lot of your studios being owner-operated. So I was just curious if you have sort of a ballpark estimate of your total studio base, what percent of them are operated that way -- or asked another way, if that's too much to tell, which brands are most concentrated there?

Yes. To give you a comment, that's really directed more at the Pure Barre brand pre-acquisition. As I mentioned, most of our -- the sales we do in Xpo's, we recommend franchisees by three, right, because they get the economies of scale and the benefit of operating multiple locations. Pure Barre, originally when we acquired the brand, most of the franchisees that existed bought-one -- it's more of -- it's not like a three to -- one franchisee for three studios, as more one franchisee to one studio. The model at which they -- I wasn't here back then, but it appears the model that they did is they would be owner operator kind of model. So it's largely the Pure Barre count, that you could say fits that. Now when you look at post Xpo acquisition, the AUVs for the Pure Barre franchisees that have opened up post our acquisition is much higher. It largely reflects the overall Xpo average from that perspective. So it is just a difference in whether or not a franchisee is running their studio more as a personal business versus kind of something that generates a lot more sales than they run it to try and build, I would say, a mini enterprise of two to three units to generate more profits. So different benefit model, different strategy. Now the one thing that's really interesting about our model and we proved this out during COVID is the model does have flexibility where if a franchisee does want to be more involved in the day-to-day operations and work within the studio, they have the ability to do that and lower their OpEx costs. But largely, we promote a semi-absentee kind of model from an operations perspective and encourage franchisees to operate more than just one studio.

Okay. Excellent. And then second question for you is on XPASS, I think that you said there's been 60,000 cumulative bookings through XPass. So curious if I heard that right. And the part two is -- what is your plan to accelerate that business? As you're looking at 2024, beyond like are we getting to the point where you've seen enough where you feel comfortable maybe boosting marketing spending or something else behind it? And that's all I had. Thank you.

You did hear that correctly. So we've had 60,000 bookings to date, and we'll actually have more to talk about and dive into at the Analyst Day coming up in September. We've got some new initiatives there with XPASS.

Okay, understood. Thanks.

Thank you. Our next question is from Korinne Wolfmeyer of Piper Sandler. Please go ahead.

Hey, good afternoon team. Thanks for taking the question. Congrats on the quarter. So just quickly, just one for me. I wanted to touch a little bit on the CAC, and maybe this is more of an Investor Day question as well. But can you just talk about like is there a way to quantify the level of kind of like that negative CAC you are getting from your B2B partnerships. Obviously, that other category has been growing nicely, and I see some of that is baked into that. And then as you think about the longer-term trajectory of these B2B partnerships and that negative CAC you're generating, how are you thinking about the longer-term opportunity and how big that really can get over time? Thanks.

Yes, it's really going to depend on each of the partnerships and the type of lead flow that they are bringing in. We've already got partnerships like ClassPass, which brings in lead flow and then some of our other B2Bs that will have new leads coming into the system are kicking off. To put it into perspective, we did see that year-over-year. There was a decline in CAC and CPL. So from an annual standpoint, we're seeing things moving in the right direction, specifically given that our B2B partnership and our strategic business division really just launched about a year or so ago. So now those deals are done, they're launching, and we're starting to see the benefit of that across the system.

Thank you.

Thank you very much. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the floor back over to Anthony Geisler for closing comments.

Thanks again for joining today's earnings call and for your support. As we alluded to earlier, we'll be hosting an Analyst and Investor Day on Wednesday, September 6 at the New York Stock Exchange. At the event, we plan to give the investment community an in-depth look at our business and drill down further on the company's long-term strategic initiatives and growth opportunities. We hope to see many of you there and for those unable to attend in person, a live video webcast will be available on our Investor Relations website. In closing, we remain very bullish on the direction of Xponential Fitness is heading and look forward to continuing to support our franchisees, partners and customers every step of the journey. Thank you.