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What changed in Xponential Fitness, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Xponential Fitness, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+995 added−444 removedSource: 10-K (2024-03-04) vs 10-K (2023-03-06)

Top changes in Xponential Fitness, Inc.'s 2023 10-K

995 paragraphs added · 444 removed · 325 edited across 3 sections

Item 1. Business

Business — how the company describes what it does

111 edited+32 added−11 removed101 unchanged
Biggest changeMaster franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,094 studios, of which master franchisees have sold 236 licenses for studios not yet opened as of December 31, 2022. 9 Our Brands We have curated a portfolio of ten brands that span a variety of popular fitness and wellness verticals, including Pilates, barre, cycling, stretching, rowing, yoga, boxing, dancing, running and functional training.
Biggest changeOur Brands During 2023 we had a curated a portfolio of ten brands that span a variety of popular fitness and wellness verticals, including Pilates, barre, cycling, stretching, rowing, yoga, boxing, dancing, running and functional training. With our acquisition of the Lindora Franchisor in January 2024, the Lindora brand is now part of the Xponential brand portfolio going forward.
Using our model, we expect this to typically occur 6-12 months after studio opening. We believe that studios typically have opportunity to continue growing and maturing beyond that point. We believe the continued growth of the franchisee system reflects the attractiveness of our unit economic model.
Using our model, we expect this to typically occur 6-12 months after studio opening. We believe that studios typically have the opportunity to continue growing and maturing beyond that point. We believe the continued growth of the franchisee system reflects the attractiveness of our unit economic model.
We have also developed the XPASS, which allows consumers to participate in all of our diversified workout options while enjoying a consistent, high-quality studio experience across brands under a single monthly subscription. Franchisees have the opportunity to purchase merchandise for sale in studios and online.
We have also developed XPASS, which allows consumers to participate in all of our diversified workout options while enjoying a consistent, high-quality studio experience across brands under a single monthly subscription. Franchisees have the opportunity to purchase merchandise for sale in studios and online.
Government Regulation We and franchisees are subject to various federal, state, provincial and local laws and regulations affecting our business. We are subject to a trade regulation rule on franchising, known as the FTC Franchise Rule, promulgated by the U.S.
Government Regulation We and our franchisees are subject to various federal, state, provincial and local laws and regulations affecting our business. We are subject to a trade regulation rule on franchising, known as the FTC Franchise Rule, promulgated by the U.S.
We work closely with franchisees to optimize membership offerings based on local consumer demand, demographics and other market factors in order to maximize our share of wallet. 8 • Utilize XPASS to enhance consumer experience and engagement while more effectively cross-selling across our brands: We implemented XPASS in 2021, a membership option that offers our consumers access to multiple brands across the Xponential portfolio under a single monthly subscription.
We work closely with franchisees to optimize membership offerings based on local consumer demand, demographics and other market factors in order to maximize our share of wallet. • Utilize XPASS to enhance consumer experience and engagement while more effectively cross-selling across our brands: We implemented XPASS in 2021, a membership option that offers our consumers access to multiple brands across the Xponential portfolio under a single monthly subscription.
Our new Xponential+ digital platform is expected to significantly enhance our member experience and further increase our brands’ reach, accessibility and subscriber engagement. • Expanding additional revenue streams within our franchised studios: We believe we have the opportunity to increase consumer spending at our franchised studios by expanding our offering of branded and third-party retail products across apparel and other health and wellness categories.
Our new Xponential+ digital platform is expected to significantly enhance our member experience and further increase our brands’ reach, accessibility and subscriber engagement. 9 • Expanding additional revenue streams within our franchised studios: We believe we have the opportunity to increase consumer spending at our franchised studios by expanding our offering of branded and third-party retail products across apparel and other health and wellness categories.
Our model is generally designed to generate, on average under normal conditions, a weighted average AUV of $500,000 in year two of operations and studio-level operating margins ranging between 25% and 30%, resulting in an unlevered cash-on-cash return of approximately 40%. A studio reaches “base maturity” when it has annualized monthly revenues of approximately $400,000.
Our model is generally designed to generate, on average under normal conditions, a weighted average AUV of $500,000 in year two of operations and studio-level operating margins ranging between 25% and 30%, resulting in an unlevered cash-on-cash return of approximately 35% to 40%. A studio reaches “base maturity” when it has annualized monthly revenues of approximately $400,000.
Beginning on the day that a studio starts generating revenue from its business operations, franchisees are required to pay us a monthly royalty fee based on gross sales. 14 Attractive Franchisee Return Profile The Xponential Playbook is designed to help franchisees achieve compelling AUVs, strong operating margins and an attractive r eturn on their invested capital.
Beginning on the day that a studio starts generating revenue from its business operations, franchisees are required to pay us a monthly royalty fee based on gross sales. Attractive Franchisee Return Profile The Xponential Playbook is designed to help franchisees achieve compelling AUVs, strong operating margins and an attractive r eturn on their invested capital.
Our and franchisees’ development of properties depends to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations and requirements. We and franchisees are responsible at the studios we operate for compliance with state laws that regulate the relationship between health clubs and their members.
Our and franchisees’ development of properties depends to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations and requirements. 20 We and franchisees are responsible at the studios we operate for compliance with state laws that regulate the relationship between health clubs and their members.
We believe this is a powerful marketing tool as it allows us to increase brand awareness in new and existing markets. 17 Local marketing . Our franchise agreements require franchisees to spend at least $1,500 per mo nth on approved local marketing to support promotional sale periods throughout the year and continue to build the brand in local markets.
We believe this is a powerful marketing tool as it allows us to increase brand awareness in new and existing markets. Local marketing . Our franchise agreements require franchisees to spend at least $1,500 per mo nth on approved local marketing to support promotional sale periods throughout the year and continue to build the brand in local markets.
Each franchisee is responsible for selecting, acquiring and leasing a site, but they must obtain site approval from Xponential. Franchise Development Team We have a dedicated sales team to help promote and coordinate sales and resales of franchises at the corporate level. We have created a scalable and sustainable model through which we identify potential franchisees.
Each franchisee is responsible for selecting, acquiring and leasing a site, but they must obtain site approval from Xponential. 15 Franchise Development Team We have a dedicated sales team to help promote and coordinate sales and resales of franchises at the corporate level. We have created a scalable and sustainable model through which we identify potential franchisees.
By utilizing the Xponential Playbook, our model is generally designed to generate, a weighted average AUV of approximately $500,000 in year two of operations and studio-level operating margins ranging between 25% and 30%, resulting in an unlevered cash-on-cash return of approximately 40%.
By utilizing the Xponential Playbook, our model is generally designed to generate, a weighted average AUV of approximately $500,000 in year two of operations and studio-level operating margins ranging between 25% and 30%, resulting in an unlevered cash-on-cash return of approximately 35% to 40%.
By utilizing the Xponential Playbook, our model is generally designed to generate, a weighted average AUV of approximately $500,000 in year two of operations and studio-level operating margins ranging between 25% and 30%, resulting in an unlevered cash-on-cash return of approximately 40%.
By utilizing the Xponential Playbook, our model is generally designed to generate, a weighted average AUV of approximately $500,000 in year two of operations and studio-level operating margins ranging between 25% and 30%, resulting in an unlevered cash-on-cash return of approximately 35% to 40%.
Accordingly, we have the potential to substantially increase our studio base through our existing licenses sold, providing us with highly visible unit growth and further increasing our already significant scale within the boutique fitness industry. 7 Proven and experienced management team with an entrepreneurial culture.
Accordingly, we have the potential to substantially increase our studio base through our existing licenses sold, providing us with highly visible unit growth and further increasing our already significant scale within the boutique fitness industry. Proven and experienced management team with an entrepreneurial culture.
While operating studios is not a component of our business model, we currently hold a small number of strategic transition studios as, on occasion, we take ownership of such studios for a limited time while facilitating the transfer of these studios to new or existing franchisees ("company-owned transition studios").
While operating studios is not a component of our business model, we currently hold a small number of strategic transition studios as, on occasion, we take ownership of such studios for a limited time while facilitating the transfer of these studios to new or existing franchisees ( “ company-owned transition studios ” ).
We believe that our diversified brand offering expands our total addressable market and translates into increased use occasions for consumers, driving increased share of wallet and enhancing consumer lifetime value across our portfolio. 5 Market leading position with significant nationwide scale.
We believe that our diversified brand offering expands our total addressable market and translates into increased use occasions for consumers, driving increased share of wallet and enhancing consumer lifetime value across our portfolio. Market leading position with significant nationwide scale.
The typical studio is approximately 2,500 square feet and is designed to allow 36 people to work out together. Our Franchise Model Franchising Strategy We rely on our franchising strategy to grow our brands’ global footprint in a capital efficient manner.
The typical studio is approximately 2,500 square feet and is designed to allow 36 people to work out together. 13 Our Franchise Model Franchising Strategy We rely on our franchising strategy to grow our brands’ global footprint in a capital efficient manner.
Our geographic reach represents a material competitive advantage, as we have demonstrated success across various markets, and we are able to remain competitive nationally when extraordinary events heavily impact specific markets. Passionate, growing and loyal consumer base.
Our geographic reach represents a material competitive advantage, as we have demonstrated success across various markets, and we are able to remain competitive nationally when extraordinary events heavily impact specific markets. 6 Passionate, growing and loyal consumer base.
We believe that our partnership with Apple Watch, Princess Cruises, and lululemon Studio will further drive excitement and enthusiasm across the Xponential consumer base, while also helping to increase membership engagement and retention. Xponential Playbook supports system-wide operational excellence. We strategically partner with franchisees who have been vetted by a thorough selection process.
We believe that our partnership with Apple Watch and Princess Cruises will further drive excitement and enthusiasm across the Xponential consumer base, while also helping to increase membership engagement and retention. Xponential Playbook supports system-wide operational excellence. We strategically partner with franchisees who have been vetted by a thorough selection process.
These brands, Club Pilates, Pure Barre and CycleBar, were approximatel y eight, four and four times larger than their next largest competitors, respectively, as of December 31, 2022. As the leaders in these verticals, and as one of few players of scale, we believe that we occupy an advantageous position in an otherwise highly fragmented boutique fitness market.
These brands, Club Pilates, Pure Barre and CycleBar, were approximatel y eight, four and four times larger than their next largest competitors, respectively, as of December 31, 2023. As the leaders in these verticals, and as one of the few players of scale, we believe that we occupy an advantageous position in an otherwise highly fragmented boutique fitness market.
Merchandise is offered from popular athletic retailers, as well as fitness apparel and accessories featuring our brands’ logos and slogans. Club Pilates Club Pilates, founded in 2007, is the largest Pilates brand by number of studios and was approximatel y eight ti mes larger than its next largest competitor as of December 31, 2022.
Merchandise is offered from popular athletic retailers, as well as fitness apparel and accessories featuring our brands’ logos and slogans. Club Pilates Club Pilates, founded in 2007, is the largest Pilates brand by number of studios and was approximatel y eight ti mes larger than its next largest competitor as of December 31, 2023.
In addition, we are subject to state franchise sales laws in approximately 19 U.S. states that regulate the offer and sale of franchises by requiring us to make a business opportunity exemption or franchise filing or obtain franchise registration prior to making any offer or sale of a franchise in those states and to provide a FDD to prospective franchisees.
In addition, we are subject to state franchise sales laws in approximately 20 U.S. states that regulate the offer and sale of franchises by requiring us to make a business opportunity exemption or franchise filing or obtain franchise registration prior to making any offer or sale of a franchise in those states and to provide a FDD to prospective franchisees.
Collectively, our brands offer consumers specialized and personalized workout experiences that appeal to a broad range of ages, fitness levels and demographics. Under our suggested operating model, consumers may purchase recurring monthly memberships, single classes or private one-on-one training services for each brand.
Collectively, our pre-Lindora brands offer consumers specialized and personalized workout experiences that appeal to a broad range of ages, fitness levels and demographics. Under our suggested operating model, consumers may purchase recurring monthly memberships, single classes or private one-on-one training services for each brand.
Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being a 56% ownership interest in XPO LLC through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”). The Company’s Class A common stock trades on the New York Stock Exchange under the symbol “XPOF”.
Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being a 65% ownership interest in XPO LLC through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”). The Company’s Class A common stock trades on the New York Stock Exchange under the symbol “XPOF”.
The Xponential Playbook is designed to help franchisees achieve compelling AUVs, strong operating margins and an attractive return on their invested capital. Studios are generally designed to be between 1,500 and 2,500 square feet in size, depending on the brand, which contributed to a relatively low weighted average initial franchisee investment of approximately $350,000 in 2022 and 2021.
The Xponential Playbook is designed to help franchisees achieve compelling AUVs, strong operating margins and an attractive return on their invested capital. Studios are generally designed to be between 1,500 and 2,500 square feet in size, depending on the brand, which contributed to a relatively low weighted average initial franchisee investment of approximately $360,000 in 2023 and $350,000 in 2022.
Our Brand Presidents are key members of our leadership team and act as the driving force behind their respective brands. Collectively, our management team fosters an entrepreneurial culture and mentality that resonate with franchisees.
Our Brand Presidents are key members of our leadership team and act as the driving force behind their respective brands. Collectively, our management team fosters an entrepreneurial culture and mentality that resonates with franchisees.
Our studio is designed to be between 1,000 and 1,500 square feet and is equipped with approximately ten stretc h benches. Row House Row House, founded in 2014 and acquired in 2017, i s the largest franchised indoor rowing brand by nu mber of studios as of December 31, 2022.
Our studio is designed to be between 1,000 and 1,500 square feet and is equipped with approximately ten stretc h benches. 11 Row House Row House, founded in 2014 and acquired in 2017, i s the largest franchised indoor rowing brand by nu mber of studios as of December 31, 2023.
Studios are generally designed to be between 1,500 and 2,500 square feet in size, depending on the brand, which contributed to a relatively low weighted average initial franchisee investment of approximately $350,000 in 2022 and 2021, including all leasehold improvements and required studio furniture, fixtures and equipment.
Studios are generally designed to be between 1,500 and 2,500 square feet in size, depending on the brand, which contributed to a relatively low weighted average initial franchisee investment of approximately $360,000 in 2023 and $350,000 in 2022, including all leasehold improvements and required studio furniture, fixtures and equipment.
Pure Barre Pure Barre, founded in 2001 and acquired in 2018, is the largest barre brand by number of studios and was approximately four times larger than its next largest competitor as of December 31, 2022.
Pure Barre Pure Barre, founded in 2001 and acquired in 2018, is the largest barre brand by number of studios and was approximately four times larger than its next largest competitor as of December 31, 2023.
We are also subject to franchise relationship laws in at least 22 U.S. states that regulate many aspects of the franchise relationship, including renewals and terminations of franchise agreements, franchise transfers, the applicable law and venue in which franchise disputes must be resolved, discrimination and franchisees’ right to associate, among others.
We are also subject to franchise relationship laws in at least 21 U.S. states and territories that regulate many aspects of the franchise relationship, including renewals and terminations of franchise agreements, franchise transfers, the applicable law and venue in which franchise disputes must be resolved, discrimination and franchisees’ right to associate, among others.
The typical studio is approximately 2,000 square feet and designed to allow up to 25 people to work out together. 11 YogaSix YogaSix, founded in 2011 and acquired in 2018, i s the largest fran chised yoga brand by number of studios as of December 31, 2022.
The typical studio is approximately 2,000 square feet and designed to allow up to 25 people to work out together. YogaSix YogaSix, founded in 2011 and acquired in 2018, i s the largest fran chised yoga brand by number of studios as of December 31, 2023.
We currently have in place master franchise and international expansion agreements that grant master franchisees the right to sell licenses to potential franchisees in 14 countries that we have targeted for near-term expansion.
We currently have in place master franchise and international expansion agreements that grant master franchisees the right to sell licenses to potential franchisees in 22 countries that we have targeted for near-term expansion.
Studios are generally designed to be between 1,500 and 2,500 square feet in size, de pending on the brand. The smaller box format contributed to a relatively low weighted average initial franchisee investment of approximately $350,000 in 2022 and 2021.
Studios are generally designed to be between 1,500 and 2,500 square feet in size, de pending on the brand. The smaller box format contributed to a relatively low weighted average initial franchisee investment of approximately $360,000 in 2023 and $350,000 in 2022.
The SEC maintains an Internet site (http://www.sec.gov) containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 21
The SEC maintains an Internet site (http://www.sec.gov) containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. 22
We are the largest boutique fitness franchisor in the United States with over 2,301 studios operating across ten brands in the United States. Our Pilates, cycling and barre brands have leading market share positions within their respective verticals.
We are the largest boutique fitness franchisor in the United States with 2,611 studios operating across ten brands in the United States. Our Pilates, cycling and barre brands have leading market share positions within their respective verticals.
As of December 31, 2022, there were 638 operational studios and 760 licenses sold globally. There are four signature Pure Barre class formats: introductory, classic barre, interval training and resistance training. Pure Barre offers a specialized multi-tiered teacher training program, which includes both classroom and on-the-job training.
As of December 31, 2023, there were 638 operational studios and 780 licenses sold globally. There are four signature Pure Barre class formats: introductory, classic barre, interval training and resistance training. Pure Barre offers a specialized multi-tiered teacher training program, which includes both classroom and on-the-job training.
Our franchise agreements require franchisees to contribute 2% of their monthly gross sales to the marketing fund of their respective brand. Our marketing funds have enabled us to spend approximately $17.3 million, $13.0 million and $7.1 million in 2022, 2021 and 2020, respectively, to increase national awareness of our brands.
Our franchise agreements require franchisees to contribute 2% of their monthly gross sales to the marketing fund of their respective brand. Our marketing funds have enabled us to spend approximately $22.7 million, $17.3 million and $13.0 million in 2023, 2022 and 2021, respectively, to increase national awareness of our brands.
As of December 31, 2022, franchisees were contractually committed to open an additional 1,939 studios in North America under existing franchise agreements. 16 Fitness Equipment Our franchised studios contain state-of-the-art fitness equipment from an array of suppliers. We believe that the quality of the equipment enriches the customers’ in-studio experience and thereby enhances their brand loyalty.
As of December 31, 2023, franchisees were contractually committed to open an additional 1,963 studios in North America under existing franchise agreements. Fitness Equipment Our franchised studios contain state-of-the-art fitness equipment from an array of suppliers. We believe that the quality of the equipment enriches the customers’ in-studio experience and thereby enhances their brand loyalty.
As of December 31, 2022, there were 18 operational studios and 93 licenses sold globally. 12 The supportive and inclusive environment at Stride fosters a strong sense of community that continues outside of the studio. Stride customers participate in running groups alongside Stride instructors for organized road races and other athletic events.
As of December 31, 2023, there were 20 operational studios and 93 licenses sold globally. The supportive and inclusive environment at Stride fosters a strong sense of community that continues outside of the studio. Stride customers participate in running groups alongside Stride instructors for organized road races and other athletic events.
We divide the franchisee selection process into five distinct stages: • Inquiry stage: Potential new franchisees complete and submit a confidential questionnaire form to our franchise development team for consideration. • Preliminary screening stage: Our franchise development team conducts a call with potential franchisees to determine their level of financial, cultural and geographical fit. • Introduction stage: If preliminarily approved, potential franchisees schedule a call with our brand managers to discuss next steps and take part in a number of foundation calls to learn more about the brand. • Approval stage: Following validation calls and potential franchisees’ personal due diligence, potential franchisees are invited to a discovery day at our headquarters in Irvine, California to meet with the corporate team as a final step in the approval process. • Contract sold stage: Following the completion of the above steps and once internally approved, potential franchisees sign a franchise agreement.
We divide the franchisee selection process into five distinct stages: • Inquiry stage: Potential new franchisees complete and submit a confidential questionnaire form to our franchise development team for consideration. • Preliminary screening stage: Our franchise development team conducts a call with potential franchisees to determine their level of financial, cultural and geographical fit. • Introduction stage: If preliminarily approved, potential franchisees schedule a call with our brand managers to discuss next steps and take part in a number of foundation calls to learn more about the brand. • Approval stage: Following validation calls and potential franchisees’ personal due diligence, potential franchisees are invited to a discovery day at our headquarters in Irvine, California to meet with the corporate team as a final step in the approval process. • Contract sold stage: Following the completion of the above steps and once internally approved, potential franchisees sign a franchise agreement. 14 Franchise Agreements For each of our brands’ franchised studios, we enter into a franchise agreement covering standard terms and conditions.
We have created a robust digital platform containing over 4,500 recorded workouts that can be easily accessed at-home or on-the-go. All of our brands offer workouts that can be completed both indoors and outdoors.
We have created a robust digital platform containing over 5,700 recorded workouts that can be easily accessed at-home or on-the-go. All of our brands offer workouts that can be completed both indoors and outdoors.
As of December 31, 2022, studios had over 590,000 members, of which over 530,000 were actively paying members on recurring membership packages. We launched a partnership with Apple in March 2021 that features Apple Watch integration across all of our popular fitness and wellness verticals and is designed to increase consumer engagement and retention across our franchised studios.
As of December 31, 2023, studios had 717,000 members, of which over 649,000 were actively paying members on recurring membership packages. We launched a partnership with Apple in March 2021 that features Apple Watch integration across all of our popular fitness and wellness verticals and is designed to increase consumer engagement and retention across our franchised studios.
As of December 31, 2022, there were 96 operational studios and 331 licenses sold globally. There are six signature Row House class formats: introductory, interval-based, strength training, stretching and two endurance-based. Row House offers a specialized training program for Authorized Rowing Coaches, known as “RH University,” which includes both classroom and on-the-job training.
As of December 31, 2023, there were 78 operational studios and 327 licenses sold globally. There are six signature Row House class formats: introductory, interval-based, strength training, stretching and two endurance-based. Row House offers a specialized training program for authorized rowing coaches, known as “RH University,” which includes both classroom and on-the-job training.
As of December 31, 2022, there were 170 operational studios and 575 licenses sold globally. There are six signature YogaSix class formats: introductory, slow flow, stretching, hot yoga, cardio and strength training. YogaSix offers an extensive accredited teacher training program for Registered Yoga Trainers. The 200-hour program includes both classroom and on-the-job training.
As of December 31, 2023, there were 197 operational studios and 631 licenses sold globally. There are six signature YogaSix class formats: introductory, slow flow, stretching, hot yoga, cardio and strength training. YogaSix offers an extensive accredited teacher training program for Registered Yoga Trainers. The 200-hour program includes both classroom and on-the-job training.
Approximately 71% of our revenue in 2022 and 77% of our revenue in 2021 was considered recurring, and we believe this percentage will increase as franchise royalty fees are expected to account for a greater percentage of our revenue over time. Highly attractive and predictable studio-level economics.
Approximately 75% of our revenue in 2023 and 71% of our revenue in 2022 was considered recurring, and we believe this percentage will increase as franchise royalty fees are expected to account for a greater percentage of our revenue over time. 7 Highly attractive and predictable studio-level economics.
As of December 31, 2022, on a cumulative basis since inception, we had 5,450 franchise licenses sold globally, compared to 2,132 franchise licenses sold as of December 31, 2018 on an adjusted basis to reflect historical information of the brands we have acquired. Franchisees are contractually obligated to open studios in their territories after purchasing a franchise license.
As of December 31, 2023, on a cumulative basis since inception, we had 6,255 franchise licenses sold globally, compared to 5,450 franchise licenses sold as of December 31, 2022 on an adjusted basis to reflect historical information of the brands we have acquired. Franchisees are contractually obligated to open studios in their territories after purchasing a franchise license.
As of December 31, 2022, there were 826 operational studios and 1,280 licenses sold globally. There are nine signature Club Pilates class formats, including introductory, cardio, strength training, stretching and suspension options, among others. Club Pilates offers an extensive training certification. Its 500-hour teacher training program includes instruction on Pilates, barre, Triggerpoint and TRX Suspension Trainers.
As of December 31, 2023, there were 988 operational studios and 1,641 licenses sold globally. 10 There are nine signature Club Pilates class formats, including introductory, cardio, strength training, stretching and suspension options, among others. Club Pilates offers an extensive training certification. Its 500-hour teacher training program includes instruction on Pilates, barre, Triggerpoint and TRX Suspension Trainers.
In curating our portfolio, we identified brands with exceptional programming and a loyal consumer base which we believed would benefit from our operational expertise, franchising experience and scaled platform. With over 285 years of collective industry experience, our management team and brand presidents are the driving force behind our operational excellence.
In curating our portfolio, we identified brands with exceptional programming and a loyal consumer base which we believed would benefit from our operational expertise, franchising experience and scaled platform. With extensive industry experience, our management team and brand presidents are the driving force behind our operational excellence.
A boutique fitness workout typically offers more customized programming and a more intensive experience complemented by increased levels of personal attention and guidance relative to a traditional health and fitness club. As the largest franchisor in the boutique fitness industry, we saw continued strong growth during the COVID-19 pandemic.
A boutique fitness workout typically offers more customized programming and a more intensive experience complemented by increased levels of personal attention and guidance relative to a traditional health and fitness club. As the largest franchisor in the boutique fitness industry, we saw continued strong growth during the last two years.
From inception to December 31, 2022, of our licenses sold, 600 had been terminated in North America and 34 had been terminated internationally. We expect franchisees to meet and maintain minimum monthly gross revenue quotas by the first and second anniversary of their studio opening.
From inception to December 31, 2023, of our licenses sold, 797 had been terminated in North America and 104 had been terminated internationally. We expect franchisees to meet and maintain minimum monthly gross revenue quotas by the first and second anniversary of their studio opening.
Our franchise model leverages the local market expertise of highly motivated owners, our proven Xponential Playbook and our corporate platform. The model has enabled us to scale our system-wide studio footprint globally at a CAGR of 25% from 2018 to 2022.
Our franchise model leverages the local market expertise of highly motivated owners, our proven Xponential Playbook and our corporate platform. The model has enabled us to scale our system-wide studio footprint globally at a CAGR of 20% from 2021 to 2023.
StretchLab offers an extensive training program for “Flexologist” instructors. The teacher training program includes both classroom and on-the-job training. Our training provides opportunities for technical advancement and increased earnings potential for instructors, which we believe enables the brand to attract and retain high quality instructors.
Most of StretchLab’s customers purchase one-on-one sessions. StretchLab offers an extensive training program for “Flexologist” instructors. The teacher training program includes both classroom and on-the-job training. Our training provides opportunities for technical advancement and increased earnings potential for instructors, which we believe enables the brand to attract and retain high quality instructors.
We focus our marketing efforts on national advertising and media partnerships, developing and maintaining creative assets to support local sales throughout the year, and building and supporting the Xponential Fitness community via digital and social media for each of our brands.
We manage a marketing fund for franchisees, with the goal of building national awareness for our brands. We focus our marketing efforts on national advertising and media partnerships, developing and maintaining creative assets to support local sales throughout the year, and building and supporting the Xponential Fitness community via digital and social media for each of our brands.
As of December 31, 2022, there were 42 operational studios and 351 licenses sold globally. There are two studio formats, signature and boutique, which are balanced between the skills and drills of boxing and the transformative power of resistance training.
As of December 31, 2023, there were 87 operational studios and 387 licenses sold globally. There are two studio formats, signature and boutique, which are balanced between the skills and drills of boxing and the transformative power of resistance training.
As of December 31, 2022, 2021 and 2020 we had 55, 25 and 40 company-owned transition studios, representing 2.1%, 1.2% and 2.2% of the global studio base, respectively. 15 The map below shows open studios by U.S. state as of December 31, 2022: Note: The 55 company-owned transition studios are included in the count of total franchised studios.
As of December 31, 2023, 2022 and 2021 we had 22, 55, and 25 company-owned transition studios, representing 0.7%, 2.1% and 1.2% of the global studio base, respectively. The map below shows open studios by U.S. state as of December 31, 2023: 16 Note: The 22 company-owned transition studios are included in the count of total franchised studios.
There is also the option to purchase single walk-in classes.
There is also the option to purchase single classes.
Using the experience, knowledge and data we gathered in 2022 and 2021, we are planning to further enhance our production studio, increase production talent and upgrade our content to more closely resemble the in-studio experience at home, so members can experience our brands at any time. Our digital platform offering currently includes all brands.
Using the experience, knowledge and data we gathered in 2022 and 2021, we further enhanced our production studio, increased production talent and upgraded our content to more closely resemble the in-studio experience at home, so members can experience our brands at any time. Our digital platform offering currently includes all brands.
Franchisees compete with other health and fitness club industry participants, including: • other national and regional boutique fitness offerings, some of which are franchised and others of which are owned centrally at a corporate level; • other health and fitness centers, including gyms and other recreational facilities; • individually owned and operated boutique fitness studios; • personal trainers; • racquet, tennis and other athletic clubs; • at-home fitness offerings; • online fitness services and health and wellness apps; • participants in the home-use fitness equipment industry; and • businesses offering similar services.
Franchisees compete with other health and fitness club industry participants, including: • other national and regional boutique fitness offerings, some of which are franchised and others of which are owned centrally at a corporate level; • other health and fitness centers, including gyms and other recreational facilities; • individually owned and operated boutique fitness studios; • personal trainers; • racquet, tennis and other athletic clubs; • at-home fitness offerings; • online fitness services and health and wellness apps; • participants in the home-use fitness equipment industry; and • businesses offering similar services. 18 The health and fitness club industry is highly competitive and fragmented, and the number, size and strength of competitors vary by region.
Brand Club Pilates Pure Barre CycleBar Stretch Lab Row House YogaSix AKT Stride Rumble BFT Number of U.S. states 44 47 40 39 25 32 15 10 17 2 We continue to drive the international expansion of our studio base.
Brand Club Pilates Pure Barre CycleBar Stretch Lab Row House YogaSix AKT Stride Rumble BFT Number of U.S. states 47 47 41 44 22 32 8 10 24 15 We continue to drive the international expansion of our studio base.
As of December 31, 2022, we had 1,714 fra nchisees and licenses for 1,939 studios contractually obligated to be opened under existing franchise agreements in North America. We sold 806 licenses in 2022 compared to 787 licenses in 2021 and 265 licenses in 2020.
As of December 31, 2023, we had 1,774 fra nchisees and licenses for 1,963 studios contractually obligated to be opened under existing franchise agreements in North America. We sold 628 licenses in 2023 compared to 806 licenses in 2022 and 787 licenses in 2021.
The franchisee network in North America has grown rapidly from 985 franchisees as of December 31, 2018 to 1,714 franchisees as of December 31, 2022, representing a CAGR of 15%.
The franchisee network in North America has grown rapidly from 985 franchisees as of December 31, 2018 to 1,774 franchisees as of December 31, 2023, representing a CAGR of 12%.
In conjunction with our scale, we have been able to achieve broad geographic diversification across the United States with studios in 48 states and the District of Columbia as of December 31, 2022.
In conjunction with our scale, we have been able to achieve broad geographic diversification across the United States with franchise agreements in 49 states and the District of Columbia as of December 31, 2023.
As of December 31, 2022, there were 312 studios open internationally, and the master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,094 studios, of which master franchisees have sold 236 licenses for studios not yet open as of December 31, 2022.
As of December 31, 2023, there were 411 studios open internationally, and the master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,055 studios, of which master franchisees have sold 242 licenses for studios not yet open as of December 31, 2023.
This partnership allows millions of guests the opportunity to experience our brands, except for Rumble and BFT. In addition to the in-studio classes offered onboard, on-demand and live-streamed classes will be made available across Princess’ more than 23,000 staterooms on Princess’ proprietary digital content platform, OceanView.
This partnership allows Princess passengers the opportunity to experience our brands, except for Rumble and BFT. In addition to the in-studio classes offered onboard, on-demand classes are available across Princess’ more than 23,000 staterooms on Princess’ proprietary digital content platform, OceanView.
As of December 31, 2022, we had sold a total of 4,868 franchise licenses on a cumulative basis since inception in North America, with approximately 19% of licenses owned by single-unit franchisees and approximately 81% of licenses owned by multi-unit franchisees.
As of December 31, 2023, we had sold a total of 5,496 franchise licenses on a cumulative basis since inception in North America, with approximately 17% of licenses owned by single-unit franchisees and approximately 83% of licenses owned by multi-unit franchisees.
We believe the extensive level of support we provide to franchisees is a key driver of system-wide operational excellence. Asset-light franchise model and predictable revenue streams. We believe our asset-light franchise model drives faster system-wide unit growth, compared to a similarly capitalized corporate-owned model. As a franchisor, we have multiple highly predictable revenue streams and low ongoing capital requirements.
Asset-light franchise model and predictable revenue streams. We believe our asset-light franchise model drives faster system-wide unit growth, compared to a similarly capitalized corporate-owned model. As a franchisor, we have multiple highly predictable revenue streams and low ongoing capital requirements.
As of December 31, 2022, 54% of franchisees owned more than one license and about 95% of franchisees owned a single brand of licenses. The largest franchisee in North America owned 89 licenses, representing approximately 1.8% of our total fran chise licenses sold in North America as of December 31, 2022.
As of December 31, 2023, 55% of franchisees owned more than one license and about 94% of franchisees owned a single brand of licenses. The largest franchisee in North America owned 167 licenses, representing approximately 3% of our total fran chise licenses sold in North America as of December 31, 2023.
AKT offers a specialized training program for Authorized AKT Instructors, which includes both classroom and on-the-job training. Our training provides opportunities for technical advancement and increased earnings potential for instructors, which we believe enables the brand to attract and retain high quality instructors.
There are four signature AKT class formats: dance-based, cardio and strength circuits, strength training intervals and toning. AKT offers a specialized training program for Authorized AKT Instructors, which includes both classroom and on-the-job training. Our training provides opportunities for technical advancement and increased earnings potential for instructors, which we believe enables the brand to attract and retain high quality instructors.
The strength of our management team is illustrated by the growth of the business and the recent honors that we and our brands have received, with four brands (Club Pilates, Pure Barre, CycleBar and StretchLab) being listed among Entrepreneur’s 2022 Franchise 500 rankings, four of our brands (Club Pilates, Pure Barre, StretchLab and YogaSix) being listed among Entrepreneur's 2022 Fastest Growing Franchise rankings, and BFT being voted the 2021 APAC Fit Summit Franchise of the Year.
The strength of our management team is illustrated by the growth of the business and the recent honors that we and our brands have received, with six brands (Club Pilates, Pure Barre, CycleBar, StretchLab, Row House, and YogaSix) being listed among Entrepreneur’s 2023 Franchise 500 rankings and five brands (Club Pilates, Pure Barre, StretchLab, CycleBar, and YogaSix) being listed among Entrepreneur's 2023 Fastest Growing Franchise rankings.
For the quarter ended December 31, 2022, run-rate AUVs recovered to approximately 109% relative to the quarter ended December 31, 2019 (includes Rumble and BFT). We believe that we were able to deepen our consumer loyalty during the COVID-19 pandemic through our robust digital platform offering, as well as the personal efforts of exceptional franchisees to strengthen their studio communities.
For the quarter ended December 31, 2023, run-rate AUVs increased 13% compared to the quarter ended December 31, 2022. We were able to deepen our consumer loyalty during the COVID-19 pandemic and the past few years through our robust digital platform offering, as well as the personal efforts of exceptional franchisees to strengthen their studio communities.
Our digital platform had 117,800 subscribers and offered over 4,580 digital workouts in our library with multiple class formats within each brand as of December 31, 2022. Approximately 92% of class bookings were done through the Xponential brand app in the 90 days ending December 31, 2022.
Our digital platform offered over 5,700 digital workouts in our library with multiple class formats within each brand as of December 31, 2023. Over 90% of class bookings were done through the Xponential brand app in the 90 days ending December 31, 2023.
The strength of our brands is highlighted by the numerous accolades they have received, with four brands (Club Pilates, Pure Barre, CycleBar and StretchLab) being listed among Entrepreneur’s 2022 Franchise 500 rankings, four brands (Club Pilates, Pure Barre, StretchLab and YogaSix) being listed among Entrepreneur's 2022 Fastest Growing Franchise rankings, and BFT being voted the 2021 APAC Fit Summit Franchise of the Year.
The strength of our brands is highlighted by the numerous accolades they have received, with six brands (Club Pilates, Pure Barre, CycleBar, StretchLab, Row House, and YogaSix) being listed among Entrepreneur’s 2023 Franchise 500 rankings and five brands (Club Pilates, Pure Barre, StretchLab, CycleBar, and YogaSix) being listed among Entrepreneur's 2023 Fastest Growing Franchise rankings.
These risks are more significant internationally, where we have a limited number of studios and brand recognition. Please also see “Business-Our Competitive Strengths.” 18 We also compete to sell franchises to potential franchisees who may choose to purchase franchises from other boutique fitness operators, but who may also consider purchasing franchises in other industries such as restaurants and personal care.
Please also see “Business - Our Competitive Strengths.” We also compete to sell franchises to potential franchisees who may choose to purchase franchises from other boutique fitness operators, but who may also consider purchasing franchises in other industries such as restaurants and personal care.
Our training provides opportunities for technical advancement and increased earnings potential for instructors, which we believe enables the brand to attract and retain high quality instructors. Under our suggested operating model, customers may purchase monthly memberships for four, eight or unlimited monthly classes. There is also the option to purchase single walk-in classes.
CycleBar offers a specialized training program, which includes both classroom and on-the-job training. Our training provides opportunities for technical advancement and increased earnings potential for instructors, which we believe enables the brand to attract and retain high quality instructors. Under our suggested operating model, customers may purchase monthly memberships for four, eight or unlimited monthly classes.
Nearly all states have consumer protection regulations that limit the collection of monthly membership dues prior to a studio opening, require certain disclosure of pricing information, mandate the maximum length of contracts and “cooling off” periods for members (after the purchase of a membership), set escrow and bond requirements, govern member rights in the event of a member relocation or disability, provide specific member rights when a health club closes or relocates, or preclude automatic membership renewals. 20 We and franchisees primarily accept payments for our memberships through electronic fund transfers from members’ bank accounts and, therefore, are subject to both federal and state legislation and certification requirements, including the Electronic Funds Transfer Act.
Nearly all states have consumer protection regulations that limit the collection of monthly membership dues prior to a studio opening, require certain disclosure of pricing information, mandate the maximum length of contracts and “cooling off” periods for members (after the purchase of a membership), set escrow and bond requirements, govern member rights in the event of a member relocation or disability, provide specific member rights when a health club closes or relocates, or preclude automatic membership renewals.
Vendors arrange for delivery of products and services either directly to our warehouse or to franchisee studios. We continually re-evaluate our supplier relationships to ensure we and franchisees obtain competitive pricing and high-quality equipment, merchandise and other items. Employees As of December 31, 2022, we had approximately 400 employees at our corporate headquarters, of which approximately 140 were part-time employees.
Vendors arrange for delivery of products and services either directly to our warehouse or to franchisee studios. We continually re-evaluate our supplier relationships to ensure we and our franchisees obtain competitive pricing and high-quality equipment, merchandise and other items.
Training sessions are overseen by highly qualified coaches in a dynamic group environment. As of December 31, 2022, there were 230 operational studios and 571 licenses sold globally. There are thirteen signature BFT class formats, consisting of cardio, high intensity interval training and strength, that are programmed in specific layouts to progress members through a strength training program.
As of December 31, 2023, there were 293 operational studios and 720 licenses sold globally. There are thirteen signature BFT class formats, consisting of cardio, high intensity interval training and strength, which are programmed in specific layouts to progress members through a strength training program.
Franchise Agreements For each of our brands’ franchised studios, we enter into a franchise agreement covering standard terms and conditions. Under our franchise agreement, we grant franchisees the right to access our brands in an exclusive area or territory after taking into account population density and demographics based on our internal and third-party analyses.
Under our franchise agreement, we grant franchisees the right to access our brands in a designated protected area or territory after taking into account population density and demographics based on our internal and third-party analyses.
Our franchised studios provide differentiated and accessible boutique fitness experiences that are fun, energetic and deliver a strong sense of community, engendering loyalty and engagement with consumers. Across our system , we had over two million unique consumers and had nearly 40 million in-studio, live stream and virtual workouts completed in 2022.
Our franchised studios provide differentiated and accessible boutique fitness experiences that are fun, energetic and deliver a strong sense of community, engendering loyalty and engagement with consumers. Across our system , we had a total of 51.5 million in-studio and live stream visits in 2023, an increase of 31% over the prior year.
It appeals to customers across a broad range of ages and fitness levels and is highly complementary to our broader brand portfolio. As of December 31, 2022, there were 305 operational studios and 817 licenses sold globally. StretchLab offers one-on-one and group assisted stretching sessions. Most of StretchLab’s customers purchase one-on-one sessions.
StretchLab was created to help people improve their health and wellness through customized flexibility services. It appeals to customers across a broad range of ages and fitness levels and is highly complementary to our broader brand portfolio. As of December 31, 2023, there were 467 operational studios and 976 licenses sold globally. StretchLab offers one-on-one and group assisted stretching sessions.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe principal risk factors are: Risk Factor Summary • Our financial results are affected by financial results of master franchisees and franchisees. • We may not be able to successfully implement our growth strategy. • Disruptions in the availability of financing for current or prospective franchisees. • The number of new studios that actually open in the future may differ materially from the number of studio licenses sold to potential, existing and new franchisees. • Our success depends substantially on our ability to maintain the value and reputation of our brands. • Our expansion into new markets may present increased risks due to our unfamiliarity with those markets. • Our expansion into international markets exposes us to a number of risks. • We have incurred operating losses in the past and may not achieve or maintain profitability in the future. • Franchisees may incur rising costs related to the construction of new studios. • Franchisees may not be able to identify and secure suitable sites for new studios. • Opening new studios in close proximity to existing studios may negatively impact existing studios’ revenue and profitability. • New brands or services that we launch in the future may not be as successful as we anticipate. • Franchisees could take actions that harm our business. • Franchisees may not successfully execute our suggested best practices, which could harm our business. • Macroeconomic conditions or economic downturn could adversely affect demand for our services. • Our future success depends on key employees and our ability to attract and retain highly skilled personnel. • Our investments in underperforming studios may be unsuccessful. • We operate in a highly competitive market. • Franchisees may be unable to attract and retain customers. • We may not be able to anticipate and satisfy consumer preferences and shifting views of health and fitness. • Our planned growth could place strains on our management, employees, information systems and internal controls, which may adversely impact our business. • Our business is subject to various laws and regulations and changes in such laws and regulations. • We currently are, and may in the future be, subject to legal proceedings, regulatory disputes and governmental inquiries. • We, master franchisees and franchisees could be subject to claims related to health and safety risks to customers that arise while at our and franchisees’ studios. • We rely heavily on information systems provided by a single provider. • We, master franchisees, franchisees or ClubReady may fail to properly maintain the confidentiality and integrity of our customer personal data. • Failure by us, master franchisees, franchisees or third-party service providers to comply with existing or future data privacy laws and regulations could have a material adverse effect on our business. • Changes in legislation or requirements related to electronic funds transfer may adversely impact our business operations. 22 • We and franchisees are subject to risks related to Automated Clearing House (“ACH”), credit card, debit card and gift card payments we accept. • We depend on a limited number of suppliers for certain equipment, services and products. • Our intellectual property rights, including trademarks and trade names, may be infringed, misappropriated or challenged by others. • We may not be able to secure music licenses or to comply with the terms and conditions of such licenses, which may lead to third-party claims or lawsuits against us and/or franchisees. • Our quarterly results of operations and other operating metrics may fluctuate from quarter to quarter. • Use of social media may adversely impact our reputation or subject us to fines or other penalties. • We may require additional capital to support business growth and objectives. • We may engage in merger and acquisition activities, which could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our results of operations. • Our retail products may be unacceptable to us or franchisees’ customers. • If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected. • Goodwill and indefinite-lived intangible assets are a material component of our balance sheet and impairments of these assets could have a significant impact on our results. • Our substantial indebtedness could adversely affect our financial condition and limit our ability to pursue our growth strategy. • Our failure to satisfy the covenants in our credit agreement may result in events of default. • Restrictions imposed by our outstanding indebtedness and any future indebtedness may limit our ability to operate our business and to finance our future operations. • We may not be able to maintain required regulatory licenses and permits. • We have a limited operating history. • Shifts in consumer behavior may materially adversely impact our business. • The terms of our convertible preferred stock have provisions that could result in a change of control of our Board in the case of an event of default by us. • Our convertible preferred stock impacts our ability to pay dividends on our Class A common stock and imposes certain negative covenants on us. • Our convertible preferred stock ranks senior to our Class A common stock. • We are a holding company, and depend upon distributions from our subsidiary, XPO Holdings, to pay dividends, if any, and taxes, make payments under the TRA and pay other expenses. • In certain circumstances, XPO Holdings will be required to make substantial distributions to us and the other holders of limited liability company units (the “LLC Units”). • Continuing Pre-IPO LLC Members hold a significant voting power and their interests in our business may be different than yours. • We will be required to pay the TRA parties for certain tax benefits we may receive, and the amounts we may pay could be significant. • Delaware law and our certificate of incorporation and bylaws may deter third parties from acquiring us and diminish the value of our Class A common stock or limit our stockholders' ability to obtain a favorable judicial forum. • Our major stockholders may pursue corporate opportunities that could present conflicts with our and our minority stockholders’ interests. • We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors. • The requirements of being a public company may strain our resources and distract our management. • Failure to maintain effective internal control over financial reporting may have an adverse effect on our financial condition and stock price. 23 • Your percentage ownership in us may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote. • A sale of a significant portion of our total outstanding shares could cause the market price of our Class A common stock to drop significantly. • Failure to comply with anti-corruption and anti-money laundering laws or similar laws and regulations could subject us to penalties and other adverse consequences. • Unanticipated changes in effective tax rates or adverse outcomes resulting from examination of our income or other tax returns could adversely affect our results of operations and financial condition.
Biggest changeThe principal risk factors are: Risk Factor Summary • Our financial results are affected by the financial results of master franchisees and franchisees. • We may not be able to successfully implement our growth strategy. • Disruptions in the availability of financing for current or prospective franchisees. • The number of new studios that actually open in the future may differ materially from the number of studio licenses sold to potential, existing and new franchisees. • Our success depends substantially on our ability to maintain the value and reputation of our brands. • Our expansion into new markets may present increased risks due to our unfamiliarity with those markets. • Our expansion into international markets exposes us to a number of risks. • We have incurred operating losses in the past and may not achieve or maintain profitability in the future. • Franchisees may incur rising costs related to the construction of new studios. • Franchisees may not be able to identify and secure suitable sites for new studios. • New brands or services that we launch in the future may not be as successful as we anticipate. • Franchisees have and could in the future take actions that harm our business. • Franchisees may not successfully execute our suggested best practices, which could harm our business. • Macroeconomic conditions or economic downturn could adversely affect demand for our services. • Our future success depends on key employees and our ability to attract and retain highly skilled personnel. • We operate in a highly competitive market. • Franchisees may be unable to attract and retain customers. • We may not be able to anticipate and satisfy consumer preferences and shifting views of health and fitness. • Our planned growth could place strains on our management, employees, information systems and internal controls, which may adversely impact our business. • Our business is subject to various laws and regulations and changes in such laws and regulations. • We are subject to an SEC investigation which could have a material adverse impact on our business, financial condition, results of operation, cash flows and reputation. • We, master franchisees and franchisees could be subject to claims related to health and safety risks to customers that arise while at our and franchisees’ studios. • We rely heavily on information systems provided by a single provider. • We, master franchisees, franchisees or our third-party service providers may fail to properly maintain the confidentiality and integrity of our customer personal data. • Failure by us, master franchisees, franchisees or third-party service providers to comply with existing or future data privacy laws and regulations could have a material adverse effect on our business. • Changes in legislation or requirements related to electronic funds transfer may adversely impact our business operations. • We and franchisees are subject to risks related to Automated Clearing House (“ACH”), credit card, debit card and gift card payments we accept. • We depend on a limited number of suppliers for certain equipment, services and products. 23 • Our intellectual property rights, including trademarks and trade names, may be infringed, misappropriated or challenged by others. • Our quarterly results of operations and other operating metrics may fluctuate from quarter to quarter. • Use of social media may adversely impact our reputation or subject us to fines or other penalties. • We may require additional capital to support business growth and objectives. • We may engage in merger and acquisition activities, which could require significant management attention, disrupt our business, dilute stockholder value and adversely affect our results of operations. • Goodwill and indefinite-lived intangible assets are a material component of our balance sheet and impairments of these assets could have a significant impact on our results. • Our substantial indebtedness could adversely affect our financial condition and limit our ability to pursue our growth strategy. • Our failure to satisfy the covenants in our credit agreement may result in events of default. • Restrictions imposed by our outstanding indebtedness and any future indebtedness may limit our ability to operate our business and to finance our future operations. • We may not be able to maintain required regulatory licenses and permits. • Shifts in consumer behavior may materially adversely impact our business. • The terms of our convertible preferred stock have provisions that could result in a change of control of our Board in the case of an event of default by us. • Our convertible preferred stock impacts our ability to pay dividends on our Class A common stock and imposes certain negative covenants on us. • Our convertible preferred stock ranks senior to our Class A common stock. • We are a holding company, and depend upon distributions from our subsidiary, XPO Holdings, to pay dividends, if any, and taxes, make payments under the tax receivable agreement (the “TRA”) and pay other expenses. • In certain circumstances, XPO Holdings will be required to make substantial distributions to us and the other holders of limited liability company units (the “LLC Units”). • Continuing Pre-IPO LLC Members hold significant voting power and their interests in our business may be different than yours. • We will be required to pay the TRA parties for certain tax benefits we may receive, and the amounts we may pay could be significant. • Delaware law and our certificate of incorporation and bylaws may deter third parties from acquiring us and diminish the value of our Class A common stock or limit our stockholders' ability to obtain a favorable judicial forum. • Our major stockholders may pursue corporate opportunities that could present conflicts with our and our other stockholders’ interests. • We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our Class A common stock less attractive to investors. • The requirements of being a public company may strain our resources and distract our management. • Failure to maintain effective internal control over financial reporting may have an adverse effect on our financial condition and stock price. • The trading price of our Class A common stock has been and may continue to be volatile, and the value of your investment could decline. • We have in the past and may in the future be subject to short selling strategies. • Failure to comply with anti-corruption and anti-money laundering laws or similar laws and regulations could subject us to penalties and other adverse consequences. • We may not be able to fully realize the cost savings and benefits initially anticipated from the restructuring plan or the expected charges may be greater than expected, any of which could negatively impact our business. 24 Risks Related to Our Business and Industry Our financial results are affected by the operating and financial results of, and our relationships with, master franchisees and franchisees.
In addition, our and franchisees’ ability to successfully open and operate studios in new markets may be adversely affected by a lack of awareness or acceptance of our brands and a lack of existing marketing efforts and operational execution in these new markets.
In addition, our franchisees’ ability to successfully open and operate studios in new markets may be adversely affected by a lack of awareness or acceptance of our brands and a lack of existing marketing efforts and operational execution in these new markets.
For example, it could: • make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations under our outstanding credit facility, including restrictive covenants, could result in an event of default under such facility if such obligations are not waived or amended; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, selling and marketing efforts, research and development and other purposes; • increase our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to our competitors that have proportionately less indebtedness; • increase our cost of borrowing and cause us to incur substantial fees from time to time in connection with debt amendments or refinancings; • increase our exposure to rising interest rates because a portion of our borrowings is at variable interest rates; • limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; and • limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, selling and marketing efforts, research and development and other corporate purposes.
For example, it could: • make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations under our outstanding credit facility, including restrictive covenants, could result in an event of default under such facility if such obligations are not waived or amended; • require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, selling and marketing efforts, research and development and other purposes; • increase our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to our competitors that have proportionately less indebtedness; • increase our cost of borrowing and cause us to incur substantial fees from time to time in connection with debt amendments or refinancings; 46 • increase our exposure to rising interest rates because a portion of our borrowings is at variable interest rates; • limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; and • limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, selling and marketing efforts, research and development and other corporate purposes.
These factors, over which neither we nor franchisees have control, may include: • changes in inflation rates; • recessionary or expansive trends in international markets; • increases in the taxes we or franchisees pay and other changes in applicable tax laws; • legal and regulatory changes, and the burdens and costs of our and franchisees’ compliance with a variety of foreign laws; • changes in exchange rates and the imposition of restrictions on currency conversion or the transfer of funds; • difficulty in protecting our brands, reputation and intellectual property; • difficulty in collecting royalties; • difficulties and interruptions in communications and coordination with international franchisees; • global supply chain disruption and constraints; • political and economic instability; and • other external factors, including actual or perceived threats to public health.
These factors, over which neither we nor franchisees have control, may include: • changes in inflation rates; • recessionary or expansive trends in international markets; • increases in the taxes we or franchisees pay and other changes in applicable tax laws; • legal and regulatory changes, and the burdens and costs of our and franchisees’ compliance with a variety of foreign laws; • changes in exchange rates and the imposition of restrictions on currency conversion or the transfer of funds; • difficulty in protecting our brands, reputation and intellectual property; • difficulty in collecting royalties; 27 • difficulties and interruptions in communications and coordination with international franchisees; • global supply chain disruption and constraints; • political and economic instability; and • other external factors, including actual or perceived threats to public health.
Our amended and restated certificate of incorporation and our amended and restated bylaws provide for, among other things: • a classified board of directors with staggered three-year terms; • the ability of our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change in control; • advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at stockholder meetings; • certain limitations on convening special stockholder meetings; and • certain provisions of our amended and restated certificate of incorporation and our amended and restated bylaws that may be amended only by the affirmative vote of the holders of at least two-thirds in voting power of all outstanding shares of our stock entitled to vote thereon, voting together as a single class. 53 In addition, while we have opted out of Section 203 of the Delaware General Corporation Law (the “DGCL”), our amended and restated certificate of incorporation contains similar provisions providing that we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the stockholder became an interested stockholder, unless: • prior to such time, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; • upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the votes of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or • at or subsequent to that time, the business combination is approved by our board of directors and by the affirmative vote of holders of at least two-thirds of the votes of our outstanding voting stock that is not owned by the interested stockholder.
Our amended and restated certificate of incorporation and our amended and restated bylaws provide for, among other things: • a classified board of directors with staggered three-year terms; • the ability of our board of directors to issue one or more series of preferred stock with voting or other rights or preferences that could have the effect of impeding the success of an attempt to acquire us or otherwise effect a change in control; • advance notice for nominations of directors by stockholders and for stockholders to include matters to be considered at stockholder meetings; • certain limitations on convening special stockholder meetings; and • certain provisions of our amended and restated certificate of incorporation and our amended and restated bylaws that may be amended only by the affirmative vote of the holders of at least two-thirds in voting power of all outstanding shares of our stock entitled to vote thereon, voting together as a single class. 52 In addition, while we have opted out of Section 203 of the Delaware General Corporation Law (the “DGCL”), our amended and restated certificate of incorporation contains similar provisions providing that we may not engage in certain “business combinations” with any “interested stockholder” for a three-year period following the time that the stockholder became an interested stockholder, unless: • prior to such time, our board of directors approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; • upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the votes of our voting stock outstanding at the time the transaction commenced, excluding certain shares; or • at or subsequent to that time, the business combination is approved by our board of directors and by the affirmative vote of holders of at least two-thirds of the votes of our outstanding voting stock that is not owned by the interested stockholder.
Franchisees face many challenges in opening new studios, including: • availability and cost of financing; • selection and availability of suitable studio locations; • competition for studio sites; • negotiation of acceptable lease and financing terms; • impact of and responses to public health considerations; • construction and development cost management; • selection and availability of suitable general contractors; • punctual commencement and progress of construction and development; 24 • equipment delivery or installation delays; • health, fitness and wellness trends in new geographic regions and acceptance of our and franchisees’ services and products; • employment, training and retention of qualified personnel; and • competition for consumers and qualified instructors.
Franchisees face many challenges in opening new studios, including: • availability and cost of financing; • selection and availability of suitable studio locations; • competition for studio sites; • negotiation of acceptable lease and financing terms; • impact of and responses to public health considerations; • construction and development cost management; • selection and availability of suitable general contractors; • punctual commencement and progress of construction and development; • equipment delivery or installation delays; • health, fitness and wellness trends in new geographic regions and acceptance of our and franchisees’ services and products; • employment, training and retention of qualified personnel; and • competition for consumers and qualified instructors.
In addition, if we offer financing and franchisees are unable to repay the amounts borrowed, our business, results of operations, cash flows and financial condition could be adversely affected. 25 The number of new studios that actually open in the future may differ materially from the number of studio licenses sold to potential, existing and new franchisees.
In addition, if we offer financing and franchisees are unable to repay the amounts borrowed, our business, results of operations, cash flows and financial condition could be adversely affected. The number of new studios that actually open in the future may differ materially from the number of studio licenses sold to potential, existing and new franchisees.
These covenants restrict our ability, among other things, to: • create, incur or assume additional indebtedness; • encumber or permit additional liens on our assets; • change the nature of the business conducted by XPO Holdings and certain of its subsidiaries; 47 • make payments or distributions to our affiliates or equity holders; and • enter into certain transactions with our affiliates.
These covenants restrict our ability, among other things, to: • create, incur or assume additional indebtedness; • encumber or permit additional liens on our assets; • change the nature of the business conducted by XPO Holdings and certain of its subsidiaries; • make payments or distributions to our affiliates or equity holders; and • enter into certain transactions with our affiliates.
Such repayment would have a material adverse effect on our business, financial condition and results of operations. We will require a significant amount of cash to service our indebtedness. The ability to generate cash or refinance our indebtedness as it becomes due depends on many factors, some of which are beyond our control.
Such repayment would have a material adverse effect on our business, financial condition and results of operations. 47 We will require a significant amount of cash to service our indebtedness. The ability to generate cash or refinance our indebtedness as it becomes due depends on many factors, some of which are beyond our control.
In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees. Our and franchisees’ businesses are subject to the risk of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by manmade problems such as terrorism.
In addition, responding to any enforcement action may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees. 57 Our and franchisees’ businesses are subject to the risk of earthquakes, fire, power outages, floods and other catastrophic events, and to interruption by manmade problems such as terrorism.
We have from time to time experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. 32 Our investments in underperforming studios may be unsuccessful, which could adversely affect our business, results of operations, cash flows and financial condition.
We have from time to time experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. 32 Our investments in underperforming studios have been and may be unsuccessful, which could adversely affect our business, results of operations, cash flows and financial condition.
The actual tax basis adjustments that may result from future taxable redemptions or exchanges of LLC Units, as well as the amount and timing of the payments we are required to make under the TRA will depend on a number of factors, including the market value of our Class A common stock at the time of any such future redemptions or exchanges, the prevailing federal tax rates applicable to us over the life of the TRA (plus the assumed combined state and local tax rate) and the amount and timing of the taxable income that we generate in the future. 52 Payments under the TRA will be based on the tax reporting positions we determine, and the IRS or another tax authority may challenge all or a part of the existing tax basis, tax basis increases, NOLs or other tax attributes subject to the TRA, and a court could sustain such challenge.
The actual tax basis adjustments that may result from future taxable redemptions or exchanges of LLC Units, as well as the amount and timing of the payments we are required to make under the TRA will depend on a number of factors, including the market value of our Class A common stock at the time of any such future redemptions or exchanges, the prevailing federal tax rates applicable to us over the life of the TRA (plus the assumed combined state and local tax rate) and the amount and timing of the taxable income that we generate in the future. 51 Payments under the TRA will be based on the tax reporting positions we determine, and the IRS or another tax authority may challenge all or a part of the existing tax basis, tax basis increases, NOLs or other tax attributes subject to the TRA, and a court could sustain such challenge.
Bankruptcy Code, in which case there would be no further royalty payments or any other payments from such franchisee, and we may not ultimately recover those payments in a bankruptcy proceeding of such franchisee in connection with a damage claim resulting from such rejection. 29 Franchisee changes in control. Franchisees are independent business owners.
Bankruptcy Code, in which case there would be no further royalty payments or any other payments from such franchisee, and we may not ultimately recover those payments in a bankruptcy proceeding of such franchisee in connection with a damage claim resulting from such rejection. Franchisee changes in control. Franchisees are independent business owners.
While we continue to address the implications of the recent changes to European Union data privacy regulations, data privacy remains an evolving landscape at both the domestic and international level, with new regulations coming into effect and continued legal challenges, and our efforts to comply with the evolving data protection rules may be unsuccessful.
While we continue to address the implications of the recent changes to European data privacy regulations, data privacy remains an evolving landscape at both the domestic and international level, with new regulations coming into effect and continued legal challenges, and our efforts to comply with the evolving data protection rules may be unsuccessful.
In addition, the timing of new studio openings is sometimes delayed for a variety of reasons, and delayed openings would adversely affect our business, results of operations, cash flows and financial condition. Our success depends substantially on our ability to maintain the value and reputation of our brands.
In addition, the timing of new studio openings is sometimes delayed for a variety of reasons, and delayed openings would adversely affect our business, results of operations, cash flows and financial condition. 26 Our success depends substantially on our ability to maintain the value and reputation of our brands.
Decreased consumer demand due to a general shift in consumer behavior would have an adverse impact on our and franchisees’ business, financial condition and results of operations, and if future variants continue to emerge and governments continue to impose restrictions on economic activities, we may not be able to maintain our current active membership and demand levels. 49 Risks Related to our Convertible Preferred The terms of our convertible preferred stock have provisions that could result in a change of control of our Board in the case of an event of default by us, including our failure to pay amounts due upon redemption of the convertible preferred stock.
Decreased consumer demand due to a general shift in consumer behavior would have an adverse impact on our and franchisees’ business, financial condition and results of operations, and if future variants continue to emerge and governments impose restrictions on economic activities, we may not be able to maintain our current active membership and demand levels. 48 Risks Related to our Convertible Preferred The terms of our convertible preferred stock have provisions that could result in a change of control of our Board in the case of an event of default by us, including our failure to pay amounts due upon redemption of the convertible preferred stock.
The harm may be immediate without affording us an opportunity for redress or correction. We also use social media platforms as marketing tools. For example, we maintain Facebook and Twitter accounts for us and each of our brands.
The harm may be immediate without affording us an opportunity for redress or correction. We also use social media platforms as marketing tools. For example, we maintain Facebook, Instagram and Twitter accounts for us and each of our brands.
Upon the completion of the IPO, we entered into a tax receivable agreement (the “TRA”), pursuant to which we are generally required to pay to the Continuing Pre-IPO LLC Members, the owners of the Blocker Companies and any future party to the TRA (the “TRA parties”) in the aggregate 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of (i) certain favorable tax attributes we acquired from the Blocker Companies in the Mergers (including net operating losses and the Blocker Companies’ allocable share of existing tax basis), (ii) increases in our allocable share of existing tax basis and tax basis adjustments that resulted or may result from (x) the IPO Contribution, the Class A-5 Unit Redemption, and the purchase of LLC Units from Continuing Pre-IPO LLC Members in the IPO, (y) future taxable redemptions and exchanges of LLC Units by Continuing Pre-IPO LLC Members, and (z) certain payments made under the TRA, and (iii) deductions in respect of interest under the TRA.
Upon the completion of the IPO, we entered into a TRA, pursuant to which we are generally required to pay to the Continuing Pre-IPO LLC Members, the owners of the Blocker Companies and any future party to the TRA (the “TRA parties”) in the aggregate 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that we actually realize as a result of (i) certain favorable tax attributes we acquired from the Blocker Companies in the Mergers (including net operating losses and the Blocker Companies’ allocable share of existing tax basis), (ii) increases in our allocable share of existing tax basis and tax basis adjustments that resulted or may result from (x) the IPO Contribution, the Class A-5 Unit Redemption, and the purchase of LLC Units from Continuing Pre-IPO LLC Members in the IPO, (y) future taxable redemptions and exchanges of LLC Units by Continuing Pre-IPO LLC Members, and (z) certain payments made under the TRA, and (iii) deductions in respect of interest under the TRA.
Our and franchisees’ ability to efficiently and effectively manage studios depends significantly on the reliability and capacity of these systems, and any potential failure of ClubReady to provide quality uninterrupted service is beyond our and their control.
Our and franchisees’ ability to efficiently and effectively manage studios depends significantly on the reliability and capacity of these systems, and any potential failure of ClubReady to provide quality uninterrupted service is beyond our and franchisees' control.
Directors, officers, stockholders and affiliates of the Preferred Investors and Snapdragon Capital Partners may pursue corporate opportunities independent of us that could present conflicts with our and our stockholders’ interests. Directors, officers, stockholders and affiliates of the Preferred Investors and Snapdragon Capital Partners, an affiliate of Mr.
Directors, officers, stockholders and affiliates of the Preferred Investors and Snapdragon Capital Partners may pursue corporate opportunities independent of us that could present conflicts with our and our other stockholders’ interests. Directors, officers, stockholders and affiliates of the Preferred Investors and Snapdragon Capital Partners, an affiliate of Mr.
These provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent a transaction involving a change in control of our company that is in the best interest of our minority stockholders.
These provisions in our amended and restated certificate of incorporation and our amended and restated bylaws may discourage, delay or prevent a transaction involving a change in control of our company that is in the best interest of our stockholders.
We and franchisees in North America increasingly rely on information systems provided by ClubReady, LLC (“ClubReady”), including the point-of-sale processing systems in our franchised studios and other information systems managed by ClubReady, to interact with franchisees and customers and to collect and maintain customer information or other personally identifiable information, including for the operation of studios, collection of cash, management of our equipment supply chain, accounting, staffing, payment of obligations, ACH transactions, credit and debit card transactions and other processes and procedures.
We and franchisees in North America rely heavily on information systems provided by ClubReady, LLC (“ClubReady”), including the point-of-sale processing systems in our franchised studios and other information systems managed by ClubReady, to interact with franchisees and customers and to collect and maintain customer information or other personally identifiable information, including for the operation of studios, collection of cash, management of our equipment supply chain, accounting, staffing, payment of obligations, ACH transactions, credit and debit card transactions and other processes and procedures.
If our, master franchisees’, franchisees’ or service providers’ privacy or data security measures fail to comply with the GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to 20 million Euros or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, as well as compensation claims by affected individuals, negative publicity, reputational harm and a potential loss of business and goodwill.
If our, master franchisees’, franchisees’ or service providers’ privacy or data security measures fail to comply with the GDPR requirements, we may be subject to litigation, regulatory investigations, enforcement notices requiring us to change the way we use personal data and/or fines of up to 20 million Euros/17.5 million Pounds or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, as well as compensation claims by affected individuals, negative publicity, reputational harm and a potential loss of business and goodwill.
We are a holding company and our principal asset is our direct and indirect ownership of 56% of the outstanding LLC Units. We have no independent means of generating revenue. XPO Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to U.S. federal income tax.
We are a holding company and our principal asset is our direct and indirect ownership of 65% of the outstanding LLC Units. We have no independent means of generating revenue. XPO Holdings is treated as a partnership for U.S. federal income tax purposes and, as such, generally will not be subject to U.S. federal income tax.
In addition, we are subject to state franchise sales laws in approximately 19 U.S. states that regulate the offer and sale of franchises by requiring us to make a business opportunity exemption or franchise filing or obtain franchise registration prior to making any offer or sale of a franchise in those states and to provide a FDD to prospective franchisees.
In addition, we are subject to state franchise sales laws in approximately 20 U.S. states that regulate the offer and sale of franchises by requiring us to make a business opportunity exemption or franchise filing or obtain franchise registration prior to making any offer or sale of a franchise in those states and to provide a FDD to prospective franchisees.
For example, the California Consumer Privacy Act (the “CCPA”), which increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2020.
For example, the California Consumer Privacy Act (the “CCPA”), which increases privacy rights for California residents and imposes obligations on companies that process their personal information, went into effect on January 1, 2020.
We are also subject to franchise relationship laws in at least 22 U.S. states that regulate many aspects of the franchise relationship, including renewals and terminations of franchise agreements, franchise transfers, the applicable law and venue in which franchise disputes must be resolved, discrimination and franchisees’ right to associate, among others.
We are also subject to franchise relationship laws in at least 21 U.S. states and territories that regulate many aspects of the franchise relationship, including renewals and terminations of franchise agreements, franchise transfers, the applicable law and venue in which franchise disputes must be resolved, discrimination and franchisees’ right to associate, among others.
Any such violation could have an adverse effect on our reputation, business, results of operations and prospects. 58 Any violation of the FCPA, other applicable anti-corruption laws, or anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, any of which could have a materially adverse effect on our reputation, business, results of operations, cash flows and financial condition.
Any violation of the FCPA, other applicable anti-corruption laws, or anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, any of which could have a materially adverse effect on our reputation, business, results of operations, cash flows and financial condition.
As a result of the COVID-19 pandemic and change in inflation rates, consumers may be reluctant to participate in in-person fitness classes even after governmental orders and advisories are lifted and may be particularly reluctant to participate in our brands’ offerings given the small indoor spaces in which our studios operate.
As a result of pandemics such as COVID-19 and change in inflation rates, consumers may be reluctant to participate in in-person fitness classes even after governmental orders and advisories are lifted and may be particularly reluctant to participate in our brands’ offerings given the small indoor spaces in which our studios operate.
We acquired StretchLab in November 2017, Row House in December 2017, AKT in March 2018, YogaSix in July 2018, Stride in December 2018, Rumble in March 2021 and BFT in October 2021. We launched our digital platform offerings in 2019 and XPASS in 2021. We may launch additional brands, services or products in the future.
We acquired StretchLab in November 2017, Row House in December 2017, AKT in March 2018, YogaSix in July 2018, Stride in December 2018, Rumble in March 2021, BFT in October 2021, and Lindora in January 2024. We launched our digital platform offerings in 2019 and XPASS in 2021. We may launch additional brands, services or products in the future.
If new brands, services or products are not as successful as we anticipate, it could have a material adverse effect on our business, results of operations, cash flows and financial condition. Franchisees could take actions that harm our business.
If new brands, services or products are not as successful as we anticipate, it could have a material adverse effect on our business, results of operations, cash flows and financial condition. Franchisees have and could in the future take actions that harm our business.
Accordingly, in the event of our liquidation or dissolution in bankruptcy or otherwise, the holders of the Convertible Preferred would receive their liquidation preference (initially $200 million and increasing over time with respect to accrued and unpaid dividends, if any) prior to any distribution being available to holders of our Class A common stock. 50 Risks Related to Our Organizational Structure We are a holding company and our principal asset is our 56% ownership interest in XPO Holdings, and we are accordingly dependent upon distributions from XPO Holdings to pay dividends, if any, and taxes, make payments under the TRA and pay other expenses.
Accordingly, in the event of our liquidation or dissolution in bankruptcy or otherwise, the holders of the Convertible Preferred would receive their liquidation preference (initially $200 million and increasing over time with respect to accrued and unpaid dividends, if any, less repurchases) prior to any distribution being available to holders of our Class A common stock. 49 Risks Related to Our Organizational Structure We are a holding company and our principal asset is our 65% ownership interest in XPO Holdings, and we are accordingly dependent upon distributions from XPO Holdings to pay dividends, if any, and taxes, make payments under the TRA and pay other expenses.
If our revenue does not grow at a greater rate than our operating expenses, we will not be able to achieve profitability. 27 Franchisees may incur rising costs related to the construction of new studios and maintenance of existing studios, which could adversely affect the attractiveness of our franchise model.
If our revenue does not grow at a greater rate than our operating expenses, we may not be able to maintain profitability. Franchisees may incur rising costs related to the construction of new studios and maintenance of existing studios, which could adversely affect the attractiveness of our franchise model.
If franchisees do not operate their studios in a manner consistent with required standards and comply with local laws and regulations, franchise fees and royalties paid to us may be adversely affected and the image of our brands and our reputation could be harmed, which in turn could adversely affect our business, results of operations, cash flows and financial condition.
If franchisees do not operate their studios in a manner consistent with required standards and comply with local laws and regulations, franchise fees and royalties paid to us have and could be in the future adversely affected and the image of our brands and our reputation has been and could be in the future harmed, which in turn could adversely affect our business, results of operations, cash flows and financial condition.
We have incurred operating losses in the past, may incur operating losses in the future and may not achieve or maintain profitability in the future.
We have incurred operating losses in the past, may incur operating losses in the future and may not achieve or maintain profitability in the future. We have experienced operating losses in the past and may experience operating losses in the future.
If we, master franchisees, franchisees or ClubReady fail to properly maintain the confidentiality and integrity of our data, including customer credit, debit card and bank account information and other personally identifiable information, we could incur significant liability or become subject to costly litigation and our reputation and business could be materially and adversely affected.
If we, master franchisees, franchisees or our third-party service providers fail to properly maintain the confidentiality and integrity of our data, including customer credit, debit card and bank account information and other personally identifiable information, we could incur significant liability or become subject to costly litigation and our reputation and business could be materially and adversely affected.
We are subject to a variety of additional risks associated with franchisees. Our franchise model subjects us to a number of risks, any one of which may impact our royalty revenues collected from franchisees, harm the goodwill associated with our brands, and materially and adversely impact our business, results of operations, cash flows and financial condition. Franchisee bankruptcies.
Our franchise model subjects us to a number of risks, any one of which may impact our royalty revenues collected from franchisees, harm the goodwill associated with our brands, and materially and adversely impact our business, results of operations, cash flows and financial condition. Franchisee bankruptcies.
Pursuant to our amended and restated certificate of incorporation and amended and restated bylaws, our board of directors has the authority, without action or vote of our stockholders, to issue all or any part of our authorized but unissued shares of common stock, including shares issuable upon the exercise of options, or shares of our authorized but unissued preferred stock.
Pursuant to our amended and restated certificate of incorporation and amended and restated bylaws, our board of directors has the authority, without action or vote of our stockholders, to issue all or any part of our authorized but unissued shares of common stock, including shares issuable upon the vesting of restricted stock units, or shares of our authorized but unissued preferred stock.
As of December 31, 2022, we had 1,939 studios in North America contractually obligated to be opened under existing franchise agreements and 1,094 licenses to be sold internationally via master franchise agreements in respect of studios that had not yet opened, on an adjusted basis to reflect historical information of brands we have acquired.
As of December 31, 2023, we had 1,963 studios in North America contractually obligated to be opened under existing franchise agreements and 1,055 licenses to be sold internationally via master franchise agreements in respect of studios that had not yet opened, on an adjusted basis to reflect historical information of brands we have acquired.
Despite the security measures we have in place to comply with applicable laws and rules, our, master franchisees’, franchisees’ and our third-party service providers’ facilities and systems may be vulnerable to both external and internal threats, including security breaches, acts of cyber terrorism or sabotage, vandalism or theft, misuse, unauthorized access, computer viruses, ransomware, denial-of-service attacks, misplaced, corrupted or lost data, programming or human errors or other similar events.
The integrity and protection of that customer and employee data is critical to us. 38 Despite the security measures we have in place to comply with applicable laws and rules, our, master franchisees’, franchisees’ and our third-party service providers’ facilities and systems may be vulnerable to both external and internal threats, including security breaches, acts of cyber terrorism or sabotage, vandalism or theft, misuse, unauthorized access, computer viruses, ransomware, denial-of-service attacks, misplaced, corrupted or lost data, programming or human errors or other similar events.
Historically, a portion of our licenses sold have not ultimately resulted in new studios. From inception to December 31, 2022, 600 licenses had been terminated in North America and 34 had been terminated internationally. We expect that terminations may increase over time, however, timing and number of such terminations is unknown.
Historically, a portion of our licenses sold have not ultimately resulted in new studios. From inception to December 31, 2023, 797 licenses had been terminated in North America and 104 had been terminated internationally. We expect that terminations may increase over time, however, the timing and number of such terminations is unknown.
Further, we expect franchisees to follow our suggested best practices, and if a franchisee does not adopt the principles outlined by us, franchisees may not generate the revenue we expect and our forecasts and projections may be inaccurate, which in turn could adversely affect our business, results of operations, cash flows and financial condition.
Further, we expect franchisees to follow our suggested best practices, and if a franchisee does not adopt the principles outlined by us, franchisees may not generate the revenue we expect and our forecasts and projections may be inaccurate, which in turn could adversely affect our business, results of operations, cash flows and financial condition. 29 We are subject to a variety of additional risks associated with franchisees.
Of the franchisees that entered into the system in 2021 or later and opened their first studio in 2022, on average it took approximately 10.5 months from signing the franchise agreement to open a studio.
Of the franchisees that entered into the system in 2021 or later and opened their first studio in 2023 on average it took approximately 15.0 months from signing the franchise agreement to open a studio.
Some of this data is sensitive and could be an attractive target of criminal attack by malicious third parties with a wide range of motives and expertise, including organized criminal groups, hackers, “hactivists,” disgruntled current or former employees, and others. The integrity and protection of that customer and employee data is critical to us.
Some of this data is sensitive and could be an attractive target of criminal attack by malicious third parties with a wide range of motives and expertise, including organized criminal groups, hackers, “hactivists,” disgruntled current or former employees, and others.
These provisions could also make it more difficult for stockholders to nominate directors for election to our board of directors and take other corporate actions. 54 Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States as the sole and exclusive forums for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware and, to the extent enforceable, the federal district courts of the United States as the sole and exclusive forums for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.
With the recent acquisition of BFT, we have achieved a greater international presence, which may also increase our risks related to international operations. Our financial condition and results of operations may also be adversely affected if the global markets in which our franchised studios compete are affected by changes in political, economic or other factors.
Growing our international presence may also increase our risks related to international operations. Our financial condition and results of operations may also be adversely affected if the global markets in which our franchised studios compete are affected by changes in political, economic or other factors.
As of December 31, 2022, we had total indebtedness of $137.7 million. 46 Our substantial level of indebtedness could adversely affect our financial condition and increase the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness.
Our substantial level of indebtedness could adversely affect our financial condition and increase the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness.
In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal and state and foreign authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations. 59 It em 1B. Unresolved Staff Comments. Not applicable. It em 2. Properties.
In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S. federal and state and foreign authorities. Outcomes from these audits could have an adverse effect on our financial condition and results of operations.
Our Continuing Pre-IPO LLC Members control approximately 42% of the combined voting power of our Class A and Class B common stock as of February 24, 2023. 51 Because the Continuing Pre-IPO LLC Members hold a significant voting and economic interest in our business through XPO Holdings rather than through XPO Inc., they may have conflicting interests with holders of shares of our Class A common stock.
Because the Continuing Pre-IPO LLC Members hold a significant voting and economic interest in our business through XPO Holdings rather than through XPO Inc., they may have conflicting interests with holders of shares of our Class A common stock.
We currently have franchised studios in Canada, signed master franchise agreements governing the development of franchised studios in Australia, New Zealand, Singapore, Saudi Arabia, Kuwait, Japan, Spain, Portugal, South Korea, Mexico, and the United Kingdom and entered into international expansion agreements in Dominican Republic, Austria and Germany and plan to continue to grow internationally.
We currently have franchised studios in Canada, and under master franchise agreements in Australia, New Zealand, Japan, Singapore, South Korea, Spain, United Kingdom, Dominican Republic, Germany, Mexico, Portugal, Kuwait, and Hong Kong and have entered into international expansion agreements in Austria, Saudi Arabia, Switzerland, Ireland, France, Qatar, Malaysia and The Netherlands, and we plan to continue to grow internationally.
We currently have franchised studios in Canada, signed master franchise agreements governing the development of franchised studios in Australia, New Zealand, Singapore, Saudi Arabia, Kuwait, Japan, Spain, Portugal, South Korea, Mexico, and the United Kingdom entered into international expansion agreements in Dominican Republic, Austria and Germany and plan to continue to grow internationally.
We currently have franchised studios in Canada, and under master franchise agreements in Australia, New Zealand, Japan, Singapore, South Korea, Spain, United Kingdom, Dominican Republic, Germany, Mexico, Portugal, Kuwait, and Hong Kong and have entered into international expansion agreements in Austria, Saudi Arabia, Switzerland, Ireland, France, Qatar, Malaysia and The Netherlands, and we plan to continue to grow internationally.
We believe our suggested best practices provide key principles designed to help franchisees manage and operate a studio efficiently. If a franchisee is unable to manage or operate their studio efficiently, the performance and quality of service of the studio could be adversely affected, which could reduce customer engagement and negatively affect our royalty revenues and brand image.
If a franchisee is unable to manage or operate their studio efficiently, the performance and quality of service of the studio could be adversely affected, which could reduce customer engagement and negatively affect our royalty revenues and brand image.
To the extent that we do not distribute such excess cash as dividends on our Class A common stock and instead, for example, hold such cash balances or lend them to XPO Holdings, holders of LLC Units would benefit from any value attributable to such cash balances as a result of their ownership of Class A common stock following a redemption or exchange of their LLC Units.
To the extent that we do not distribute such excess cash as dividends on our Class A common stock and instead, for example, hold such cash balances or lend them to XPO Holdings, holders of LLC Units would benefit from any value attributable to such cash balances as a result of their ownership of Class A common stock following a redemption or exchange of their LLC Units. 50 Continuing Pre-IPO LLC Members hold a significant voting power and their interests in our business may be different than yours.
Furthermore, we may have disputes with franchisees that could damage the image of our brands, our reputation and our relationships with franchisees. Franchisees may not successfully execute our suggested best practices, which could harm our business. Franchisees may not successfully execute our suggested best practices, which include our recommended plan for operating and managing a studio.
Furthermore, we have and could in the future have disputes with franchisees that have and could in the future damage the image of our brands, our reputation and our relationships with franchisees. Franchisees may not successfully execute our suggested best practices, which could harm our business.
There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, results of operations, cash flows and financial condition. 36 We, master franchisees and franchisees could be subject to claims related to health and safety risks to customers that arise while at our and franchisees’ studios.
There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, results of operations, cash flows and financial condition.
Issuances of Class A common stock, Class B common stock or voting preferred stock would reduce your influence over matters on which our stockholders vote and, in the case of issuances of preferred stock, would likely result in your interest in us being subject to the prior rights of holders of that preferred stock.
Issuances of Class A common stock, Class B common stock or voting preferred stock would reduce your influence over matters on which our stockholders vote and, in the case of issuances of preferred stock, would likely result in your interest in us being subject to the prior rights of holders of that preferred stock. 55 We have in the past and may in the future be subject to short selling strategies that may drive down the market price of our Class A common stock.
Noncompliance with privacy laws, industry group requirements or a security breach involving the misappropriation, loss or other unauthorized disclosure of personal, sensitive or confidential information, whether by us, franchisees or our third-party service providers, could have material adverse effects on our and franchisees’ business, operations, brands, reputation and financial condition, including decreased revenue, material fines and penalties, litigation, increased financial processing fees, compensatory, statutory, punitive or other damages, adverse actions against our licenses to do business and injunctive relief by court or consent order. 40 Changes in legislation or requirements related to electronic funds transfer, or our or franchisees’ failure to comply with existing or future regulations, may adversely impact our business, results of operations, cash flows and financial condition.
Accordingly, we may be required to devote significant resources to understanding and complying with this changing landscape. 40 Noncompliance with privacy laws, industry group requirements or a security breach involving the misappropriation, loss or other unauthorized disclosure of personal, sensitive or confidential information, whether by us, franchisees or our third-party service providers, could have material adverse effects on our and franchisees’ business, operations, brands, reputation and financial condition, including decreased revenue, material fines and penalties, litigation, increased financial processing fees, compensatory, statutory, punitive or other damages, adverse actions against our licenses to do business and injunctive relief by court or consent order.
If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our Class A common stock price may be more volatile. 55 The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an “emerging growth company.” As a publicly-traded company, we are required to comply with various regulatory and reporting requirements, including those required by the SEC.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an “emerging growth company.” As a publicly-traded company, we are required to comply with various regulatory and reporting requirements, including those required by the SEC.
Moreover, states have been frequently amending existing laws, requiring attention to changing regulatory requirements. The forgoing could result in adverse publicity, loss of sales and revenue, or an increase in fees payable to third parties.
These laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. Moreover, states have been frequently amending existing laws, requiring attention to changing regulatory requirements. The forgoing could result in adverse publicity, loss of sales and revenue, or an increase in fees payable to third parties.
The CCPA was amended in September 2018 and November 2019, and it is possible that further amendments will be enacted, but even in its current format, it remains unclear how various provisions of the CCPA will be interpreted and enforced. Additionally, California voters approved a new privacy law, the California Privacy Rights Act (the “CPRA”), in the November 2020 election.
The CCPA was amended in September 2018, November 2019, and October 2023, and it is possible that further amendments will be enacted, but even in its current format, it remains unclear how various provisions of the CCPA will be interpreted and enforced.
As an “emerging growth company” as defined in the JOBS Act, we take advantage of certain temporary exemptions from various reporting requirements including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our results of operations, financial condition or business. 54 As an “emerging growth company” as defined in the JOBS Act, we take advantage of certain temporary exemptions from various reporting requirements including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.
The failure of franchisees to focus on the fundamentals of studio operations, such as quality, service and studio appearance, would adversely affect our business, results of operations, cash flows and financial condition.
Franchisees are an integral part of our business. We would be unable to successfully implement our growth strategy without the participation of franchisees. The failure of franchisees to focus on the fundamentals of studio operations, such as quality, service and studio appearance, would adversely affect our business, results of operations, cash flows and financial condition.
As of December 31, 2022, we had 1,714 franchisees operating 2,329 open studios in North America and 15 master franchisees with 312 studios operating internationally.
As of December 31, 2023, we had 2,651 open studios in North America and master franchisees with 411 studios operating internationally.
The higher level of invested capital at these studios may require higher operating margins and higher net income per studio to produce the level of return we, franchisees and our potential franchisees expect. Failure to provide this level of return could adversely affect our business, results of operations, cash flows and financial condition.
The higher level of invested capital at these studios may require higher operating margins and higher net income per studio to produce the level of return we, franchisees and our potential franchisees expect.
The use of our and franchisees’ studios poses some potential health and safety risks to customers through, among other things, physical exertion and the physical nature of the services offered.
We, master franchisees and franchisees could be subject to claims related to health and safety risks to customers that arise while at our and franchisees’ studios. The use of our and franchisees’ studios poses some potential health and safety risks to customers through, among other things, physical exertion and the physical nature of the services offered.
We, master franchisees and franchisees rely heavily on information systems provided by a single provider, and any material failure, interruption, weakness or termination with such supplier may prevent us from effectively operating our business and damage our reputation.
Depending upon the outcome, these matters may have a material adverse effect on our business, results of operations, cash flows and financial condition. 37 We, master franchisees and franchisees rely heavily on information systems provided by a single provider, and any material failure, interruption, weakness or termination with such supplier may prevent us from effectively operating our business and damage our reputation.
Sales at studios opened in new markets may take longer to ramp up and reach expected sales and profit levels, and may never do so, thereby adversely affecting our business, results of operations, cash flows and financial condition. 26 Our expansion into international markets exposes us to a number of risks that may differ in each country where we have licensed franchisees.
Sales at studios opened in new markets may take longer to ramp up and reach expected sales and profit levels, and may never do so, thereby adversely affecting our business, results of operations, cash flows and financial condition.
Franchisees outside of North America also rely on information systems, and any disruption in such information systems could negatively impact such franchisees’ operations, which could adversely affect our business, results of operations or financial condition. 37 Our and franchisees’ operations depend upon our and their ability, as well as the ability of third-party service providers such as ClubReady, to protect our and their computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses, denial-of-service attacks and other disruptive problems.
Our and franchisees’ operations depend upon our and their ability, as well as the ability of third-party service providers to protect our and their computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses, denial-of-service attacks and other disruptive problems.
There are many other state-based data privacy and security laws and regulations that may impact our business, including two laws that will become effective in 2023; the Colorado Privacy Act and the Virginia Consumer Data Protection Act.
The CPRA also created a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. There are many other state-based data privacy and security laws and regulations that may impact our business, including two laws that became effective in 2023; the Colorado Privacy Act and the Virginia Consumer Data Protection Act.
Because such attacks are increasing in sophistication and change frequently in nature, we, franchisees, master franchisees and our third-party service providers may be unable to anticipate these attacks or implement adequate preventative measures, and any compromise of our or their systems may not be discovered promptly. 38 Under certain laws, regulations and contractual obligations, a cybersecurity breach could also require us to notify customers, employees or other groups of the incident.
Because such attacks are increasing in sophistication and change frequently in nature, we, franchisees, master franchisees and our third-party service providers may be unable to anticipate these attacks or implement adequate preventative measures, and any compromise of our or their systems may not be discovered promptly.
As a public company, we are subject to the rules and regulations established from time to time by the SEC and the NYSE. These rules and regulations require, among other things, that we establish and periodically evaluate procedures with respect to our internal controls over financial reporting.
These rules and regulations require, among other things, that we establish and periodically evaluate procedures with respect to our internal controls over financial reporting.
Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our Class A common stock if they are viewed as discouraging future takeover attempts.
Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our Class A common stock if they are viewed as discouraging future takeover attempts. These provisions could also make it more difficult for stockholders to nominate directors for election to our board of directors and take other corporate actions.
In addition, adverse publicity resulting from such allegations may materially and adversely affect us, the image of our brands and our reputation, regardless of whether such allegations are valid or we are liable. Depending upon the outcome, these matters may have a material adverse effect on our business, results of operations, cash flows and financial condition.
In addition, adverse publicity resulting from such allegations may materially and adversely affect us, the image of our brands and our reputation, regardless of whether such allegations are valid or we are liable.
In addition, as a result of opening new studios in existing markets, and because older studios will represent an increasing proportion of our studio base over time, same store sales may be lower in future periods than they have been historically. 28 New brands or services that we launch in the future may not be as successful as we anticipate, which could have a material adverse effect on our business, results of operations, cash flows and financial condition.
In addition, as a result of opening new studios in existing markets, and because older studios will represent an increasing proportion of our studio base over time, same store sales may be lower in future periods than they have been historically.
If franchisees’ costs are greater than expected, franchisees may need to outperform their operational plans to achieve their targeted returns.
Franchisees’ studios require significant upfront and ongoing investment, including periodic remodeling and equipment replacement. If franchisees’ costs are greater than expected, franchisees may need to outperform their operational plans to achieve their targeted returns.
If we fail to maintain or renew our contractual relationships with these significant franchisees on acceptable terms, or if one or more of these significant franchisees were to become unable or otherwise unwilling to pay amounts due to us, our business, results of operations, cash flows and financial condition could be materially adversely affected.
If we fail to maintain or renew our contractual relationships with these significant franchisees on acceptable terms, or if one or more of these significant franchisees were to become unable or otherwise unwilling to pay amounts due to us, our business, results of operations, cash flows and financial condition could be materially adversely affected. 31 Macroeconomic conditions or an economic downturn or uncertainty in our key markets could adversely affect discretionary spending and reduce demand for our and franchisees’ services and products, which could adversely affect our and franchisees’ ability to increase sales at existing studios or to open new studios.
It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. Accordingly, we may be required to devote significant resources to understanding and complying with this changing landscape.
It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices.
Difficulties or failure to maintain or obtain the required licenses, permits and approvals could adversely affect existing franchisees and delay or cancel the opening of new studios, which would adversely affect our results of operations. We have a limited operating history and our past financial results may not be indicative of our future performance.
Difficulties or failure to maintain or obtain the required licenses, permits and approvals could adversely affect existing franchisees and delay or cancel the opening of new studios, which would adversely affect our results of operations. Shifts in consumer behavior may materially adversely impact our business.
These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons.
The foregoing provision will not apply to claims arising under the Securities Act of 1933, as amended, the Exchange Act or other federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction. 53 These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons.
We cannot predict whether our reliance on these exemptions will result in investors finding our Class A common stock less attractive.
We cannot predict whether our reliance on these exemptions will result in investors finding our Class A common stock less attractive. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our Class A common stock price may be more volatile.

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Biggest changeThe following table presents additional information related to our studio and license key performance indicators for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 North America International Global Open Studios: Open studios (beginning of period) 1,954 176 2,130 New studio openings, net 375 136 511 Open studios (end of period) 2,329 312 2,641 Franchise Licenses Sold: (1) Franchise licenses sold (total beginning of period) 4,062 362 4,424 New franchise license sales 806 220 1,026 Franchise licenses sold (total end of period) 4,868 582 5,450 Studios Obligated to Open Internationally under MFAs: Gross studios obligated to open under MFAs 1,406 Less: studios opened under MFAs 312 Remaining studios obligated to open under MFAs 1,094 Licenses sold by master franchisees, net (2) 236 Year Ended December 31, 2021 North America International Global Open Studios: Open studios (beginning of period) 1,714 82 1,796 New studio openings, net 240 94 334 Open studios (end of period) 1,954 176 2,130 Franchise Licenses Sold: (1) Franchise licenses sold (total beginning of period) 3,275 194 3,469 New franchise license sales 787 168 955 Franchise licenses sold (total end of period) 4,062 362 4,424 Studios Obligated to Open Internationally under MFAs: Gross studios obligated to open under MFAs 1,132 Less: studios opened under MFAs 176 Remaining studios obligated to open under MFAs 956 Licenses sold by master franchisees, net (2) 184 66 Year Ended December 31, 2020 North America International Global Open Studios: Open studios (beginning of period) 1,472 38 1,510 New studio openings, net 242 44 286 Open studios (end of period) 1,714 82 1,796 Franchise Licenses Sold: (1) Franchise licenses sold (total beginning of period) 3,010 109 3,119 New franchise license sales 265 85 350 Franchise licenses sold (total end of period) 3,275 194 3,469 Studios Obligated to Open Internationally under MFAs: Gross studios obligated to open under MFAs 768 Less: studios opened under MFAs 82 Remaining studios obligated to open under MFAs 686 Licenses sold by master franchisees, net (2) 110 (1) Global franchise licenses sold are presented gross of terminations.
Biggest change(2) Includes previously franchisee-owned studios that were converted to company-owned studios in the period. 65 The following table sets forth the total number of operating studios internationally for the years ended December 31, 2023, 2022 and 2021: Years Ended December 31, 2023 2022 2021 Total Studios Studios operated at beginning of period 312 176 82 New studio openings 119 137 94 Studios no longer operating (20 ) (1 ) — Studios operated at end of period 411 312 176 The following table sets forth the total number of operating studios globally for the years ended December 31, 2023, 2022 and 2021: Years Ended December 31, 2023 2022 2021 Total Studios Studios operated at beginning of period 2,636 2,126 1,790 New studio openings 557 513 335 Studios no longer operating (131 ) (3 ) 1 Studios operated at end of period 3,062 2,636 2,126 The following table sets forth our key performance indicators for the years ended December 31, 2023, 2022 and 2021: Years Ended December 31, 2023 2022 2021 ($ in thousands) System-wide sales $ 1,400,335 $ 1,033,240 $ 709,657 Number of new studio openings globally, gross 557 513 335 Number of studios operating globally (cumulative total as of period end) 3,062 2,636 2,126 Number of licenses sold globally (cumulative total as of period end) (1) 6,255 5,450 4,424 Number of licenses contractually obligated to open internationally (cumulative total as of period end) 1,055 1,094 956 AUV (LTM as of period end) $ 596 $ 494 $ 394 Quarterly AUV (run rate) $ 590 $ 522 $ 446 Same store sales 16 % 25 % 41 % (1) Global franchise licenses sold are presented gross of terminations. 66 The following tables present additional information related to our studio and license key performance indicators for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 North America International Global Total Operating Studios: Studios operating at beginning of period 2,324 312 2,636 New studio openings, net 327 99 426 Studios operating at end of period 2,651 411 3,062 Franchise Licenses Sold: (1) Franchise licenses sold (total beginning of period) 4,868 582 5,450 New franchise license sales 628 177 805 Franchise licenses sold (total end of period) 5,496 759 6,255 Studios Obligated to Open Internationally under MFAs: December 31, 2023 Gross studios obligated to open under MFAs 1,451 Less: studios opened under MFAs 396 Remaining studios obligated to open under MFAs 1,055 Licenses sold by master franchisees, net (2) 242 Year Ended December 31, 2022 North America International Global Total Operating Studios: Studios operating at beginning of period 1,950 176 2,126 New studio openings, net 374 136 510 Studios operating at end of period 2,324 312 2,636 Franchise Licenses Sold: (1) Franchise licenses sold (total beginning of period) 4,062 362 4,424 New franchise license sales 806 220 1,026 Franchise licenses sold (total end of period) 4,868 582 5,450 Studios Obligated to Open Internationally under MFAs: December 31, 2022 Gross studios obligated to open under MFAs 1,406 Less: studios opened under MFAs 312 Remaining studios obligated to open under MFAs 1,094 Licenses sold by master franchisees, net (2) 236 67 Year Ended December 31, 2021 North America International Global Total Operating Studios: Studios operating at beginning of period 1,708 82 1,790 New studio openings, net 242 94 336 Studios operating at end of period 1,950 176 2,126 Franchise Licenses Sold: (1) Franchise licenses sold (total beginning of period) 3,275 194 3,469 New franchise license sales 787 168 955 Franchise licenses sold (total end of period) 4,062 362 4,424 Studios Obligated to Open Internationally under MFAs: December 31, 2021 Gross studios obligated to open under MFAs 1,132 Less: studios opened under MFAs 176 Remaining studios obligated to open under MFAs 956 Licenses sold by master franchisees, net (2) 184 (1) Global franchise licenses sold are presented gross of terminations.
The court in Australia held a trial in December 2020, and on February 14, 2022, the court issued a decision holding that the Plaintiff’s claims of infringement were invalid and that even if they were valid, the Seller did not infringe upon these patents and trademarks.
The Court held a trial in December 2020, and on February 14, 2022, the Court issued a decision holding that the plaintiff’s claims of infringement were invalid and that even if they were valid, the seller did not infringe upon these patents and trademarks.
Revenues from the sale of class packages for an unlimited number of classes are recognized over time on a straight-line basis over the duration of the contract period. 83 Digital platform revenue : We grant subscribers access to an online platform, which contains a library of virtual classes that is continually updated, through monthly or annual subscription packages.
Revenues from the sale of class packages for an unlimited number of classes are recognized over time on a straight-line basis over the duration of the contract period. 80 Digital platform revenue : We grant subscribers access to an online platform, which contains a library of virtual classes that is continually updated, through monthly or annual subscription packages.
We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates. 81 Our critical accounting policies are those that materially affect our consolidated financial statements, including those that involve difficult, subjective or complex judgments by management.
We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates. 78 Our critical accounting policies are those that materially affect our consolidated financial statements, including those that involve difficult, subjective or complex judgments by management.
(2) Represents scheduled debt obligation payments on debt outstanding as of December 31, 2022. (3) Represents scheduled interest payments. (4) Includes current and noncurrent estimated contingent consideration liabilities at December 31, 2022, based on expected achievement dates for earn-out targets, which includes the contingent consideration relating to purchase of BFT.
(2) Represents scheduled debt obligation payments on debt outstanding as of December 31, 2023. (3) Represents scheduled interest payments on debt outstanding as of December 31, 2023. (4) Includes current and noncurrent estimated contingent consideration liabilities at December 31, 2023, based on expected achievement dates for earn-out targets, which includes the contingent consideration relating to purchase of BFT.
Unless agreed in advance, all voluntary prepayments and certain mandatory prepayments of the Term Loan made (i) on or prior to the first anniversary of the closing date are subject to a 2.0% premium on the principal amount of such prepayment and (ii) after the first anniversary of the closing date and on or prior to the second anniversary of the closing date are subject to a 0.50% premium on the principal amount of such prepayment.
Unless agreed in advance, a ll voluntary prepayments and certain mandatory prepayments of the Term Loan made (i) on or prior to the first anniversary of the closing date are subject to a 2.0 % premium on the principal amount of such prepayment and (ii) after the first anniversary of the closing date and on or prior to the second anniversary of the closing date are subject to a 0.50 % premium on the principal amount of such prepayment.
Royalties are billed on a monthly basis. The royalties are entirely related to our performance obligation under the franchise agreement and are billed and recognized as franchisee sales occur. 82 Technology fees : We may provide access to third-party or other proprietary technology solutions to the franchisee for a fee.
Royalties are billed on a monthly basis. The royalties are entirely related to our performance obligation under the franchise agreement and are billed and recognized as franchisee sales occur. 79 Technology fees : We may provide access to third-party or other proprietary technology solutions to the franchisee for a fee.
Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being a 56% ownership interest in XPO LLC through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”). Information for any period prior to July 23, 2021 relates to XPO LLC.
Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being a 65% ownership interest in XPO LLC through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”). Information for any period prior to July 23, 2021 relates to XPO LLC.
We believe that the non-GAAP financial measures presented below, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook.
We believe that the non-GAAP financial measures presented below, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook.
We record branded merchandise revenue and related costs upon shipment on a gross basis. Franchisees have the right to return and/or receive credit for defective merchandise. Returns and credit for defective merchandise were not significant for the years ended years ended December 31, 2022, 2021 and 2020.
We record branded merchandise revenue and related costs upon shipment on a gross basis. Franchisees have the right to return and/or receive credit for defective merchandise. Returns and credit for defective merchandise were not significant for the years ended years ended December 31, 2023, 2022 and 2021.
The Fourth Amendment provides for, among other things, additional term loans in an aggregate principal amount of $130.0 million (the "2023 Incremental Term Loan"), the proceeds of which were used to fund the repurchase of a portion of our outstanding Convertible Preferred (the “Repurchase Transactions”) and the payment of fees, costs and expenses related to the Amendment and the Repurchase Transactions.
The Fourth Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $130.0 million (the “January 2023 Incremental Term Loan”), the proceeds of which were used to fund the repurchase of a portion of our outstanding Convertible Preferred (the “Repurchase Transactions”) and the payment of fees, costs and expenses related to the Amendment and the Repurchase Transactions.
Based on our current level of operations and anticipated growth, we believe that our available cash balance and the cash generated from our operations will be adequate to meet our anticipated debt service requirements and obligations under our tax receivable agreement, capital expenditures, payment of tax distributions and working capital needs for at least the next twelve months.
Based on our current level of operations and anticipated growth, we believe that our available cash balance and the cash generated from our operations will be adequate to meet our anticipated debt service requirements and obligations under our TRA, capital expenditures, payment of tax distributions and working capital needs for at least the next twelve months.
In exchange, the Company will receive certain fees and royalties, including a percentage of the revenue generated by the Master Franchisee under the MFA. The MFA contains an option for the Company to repurchase the master franchise rights granted under the MFA in either 2023 or 2024 at a purchase price based on the Master Franchisee’s EBITDA.
In exchange, the Company will receive certain fees and royalties, including a percentage of the revenue generated by the Master Franchisee under the MFA. The MFA contains an option for the Company to repurchase the master franchise rights granted under the MFA in 2024 at a purchase price based on the Master Franchisee’s EBITDA.
The Credit Agreement contains customary affirmative and negative covenants, including, among other things: (i) to maintain certain total leverage ratios, liquidity levels and EBITDA levels (in each case, as discussed further in the Credit Agreement); (ii) to use the proceeds of borrowings only for certain specified purposes; (iii) to refrain from entering into certain agreements outside of the ordinary course of business, including with respect to consolidation or mergers; (iv) restricting further indebtedness or liens; (v) restricting certain transactions with our affiliates; (vi) restricting investments; (vii) restricting prepayments of subordinated indebtedness; (viii) restricting certain payments, including certain payments to our affiliates or equity holders and distributions to equity holders; and (ix) restricting the issuance of equity.
The Credit Agreement contains customary affirmative and negative covenants, including, among other things: (i) to maintain certain total leverage ratios, liquidity levels and EBITDA levels; (ii) to use the proceeds of borrowings only for certain specified purposes; (iii) to refrain from entering into certain agreements outside of the ordinary course of business, including with respect to consolidation or mergers; (iv) restricting further indebtedness or liens; (v) restricting certain transactions with affiliates; (vi) restricting investments; (vii) restricting prepayments of subordinated indebtedness; (viii) restricting certain payments, including certain payments to affiliates or equity holders and distributions to equity holders; and (ix) restricting the issuance of equity.
Our franchisees’ AUVs are dependent upon the performance of studios and may be impacted by reduced capacity as a result of various factors, including the COVID-19 pandemic and shifting consumer demand and behavior for fitness services.
Our franchisees’ AUVs are dependent upon the performance of studios and may be impacted by reduced capacity as a result of various factors, including shifting consumer demand and behavior for fitness services.
The standby letter of credit is contingent upon the failure of our franchisees to perform according to the terms of underlying contracts with the third party. We deposited cash in a restricted account as collateral for the standby letter of credit.
The standby letter of credit is contingent upon the failure of franchisees to perform according to the terms of underlying contracts with the third party. The Company deposited cash in a restricted account as collateral for the standby letter of credit.
The decrease in average price is due to a brand mix, international versus North America mix and a higher proportion of equipment installed with brands with lower equipment prices. Merchandise revenue.
The increase in average price is due to a brand mix, international versus North America mix and a higher proportion of equipment installed with brands with higher equipment prices. Merchandise revenue.
This acquisition is expected to enhance the Company’s franchise offerings and provide a platform for future growth, which the Company believes is complementary to its portfolio of franchises. Consideration for the transaction included cash of $60.0 million AUD ($44.3 million USD based on the currency exchange rate as of the purchase date).
This acquisition is expected to enhance the Company’s franchise offerings and provide a platform for future growth, which the Company believes is complementary to its portfolio of franchises. Consideration for the transaction included cash of $ 60,000 AUD ($ 44,322 USD based on the currency exchange rate as of the purchase date).
The Third Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2022 Incremental Term Loan) commencing on December 31, 2022 and (ii) amended the amount of the prepayment premium applicable in the event the 2022 Incremental Term Loan is prepaid within two years of the effective date of the Third Amendment.
The Third Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2022 Incremental Term Loan) commencing on December 31, 2022 to $ 759 and (ii) amended the amount of the prepayment premium applicable in the event the 2022 Incremental Term Loan is prepaid within two years of the effective date of the Third Amendment. 111 Xponential Fitness, Inc.
(the "Company" or “XPO Inc.”), is the largest global franchisor of boutique fitness brands. On July 23, 2021, the Company completed an initial public offering (“IPO”) of 10,000,000 shares of Class A common stock at an initial public offering price of $12.00 per share.
(the “Company” or “XPO Inc.” “we”, “us,” and “our”), is the largest global franchisor of boutique fitness brands. On July 23, 2021, the Company completed an initial public offering (“IPO”) of 10,000,000 shares of Class A common stock at an initial public offering price of $12.00 per share.
Management also reviews the number of licenses sold globally and the number of licenses contractually obligated to open internationally in order to help forecast studio growth and system-wide sales. Average Unit Volume Average Unit Volume (“AUV”) is calculated by dividing sales during the applicable period for all studios being measured by the number of studios being measured.
Management also reviews the number of licenses sold globally and the number of licenses contractually obligated to open internationally in order to help forecast studio growth and system-wide sales. Average Unit Volume AUV is calculated by dividing sales during the applicable period for all studios contributing to AUV by the number of studios contributing to AUV.
Such events of default include, subject to the grace periods specified therein, our failure to pay principal or interest when due, our failure to satisfy or comply with covenants, a change of control, the imposition of certain judgments and the invalidation of liens we have granted.
Such events of default include, subject to the grace periods specified therein, failure to pay principal or interest when due, failure to satisfy or comply with covenants, a change of control, the imposition of certain judgments and the invalidation of liens the Company has granted.
Otherwise, the Term Loans may be paid without premium or penalty, other than customary breakage costs with respect to LIBOR Rate Term Loans.
Otherwise, the Term Loans may be paid without premium or penalty, other than customary breakage costs with respect to SOFR Term Loans.
See Note 3 of Notes to Consolidated Financial Statements for additional information. 64 Factors Affecting Our Results of Operations In addition to the impact of the risks described above, we believe that the most significant factors affecting our results of operations include: • Licensing new qualified franchisees, selling additional licenses to existing franchisees and opening studios.
See Note 18 of Notes to Consolidated Financial Statements for additional information. 63 Factors Affecting Our Results of Operations In addition to the impact of the risks described above under “Risk Factors”, we believe that the most significant factors affecting our results of operations include: • Licensing new qualified franchisees, selling additional licenses to existing franchisees and opening studios.
The Amendment also (i) increases the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2023 Incremental Term Loan) to $1.1 million commencing on June 30, 2023 and (ii) amends the amount of the prepayment premium applicable in the event the 2023 Incremental Term Loan is prepaid.
The Fourth Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the January 2023 Incremental Term Loan) to $ 1,065 commencing on June 30, 2023 and (ii) amended the amount of the prepayment premium applicable in the event the January 2023 Incremental Term Loan is prepaid.
We record non-branded merchandise commissions revenue at the time of shipment. Other service revenue Service revenue : For company-owned transition studios, our distinct performance obligation is to provide fitness classes to the member.
We record non-branded merchandise commissions revenue at the time of shipment. Other service revenue Service revenue : For company-owned transition studios, our distinct performance obligation is to provide fitness classes to the member. The company-owned transition studios sell memberships by individual class and by class packages.
In addition, as of December 31, 2022, we had 312 studios open internationally, and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,094 new studios, of which master franchisees have sold 236 licenses for studios not yet opened as of December 31, 2022.
In addition, as of December 31, 2023, we had 411 studios open internationally, and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,055 new studios, of which master franchisees have sold 242 licenses for studios not yet opened as of December 31, 2023.
The Seller has filed a cross-claim alleging that the defendant’s two Australian patents are, and always have been, invalid and that they should be revoked.
The seller had filed a cross-claim alleging that the defendant’s two Australian patents were, and always had been, invalid and that they should be revoked.
As of December 31, 2022, we were in compliance with these covenants. The Credit Agreement also contains customary events of default, which could result in acceleration of amounts due under the Credit Agreement.
As of December 31, 2023, the Company was in compliance with these covenants. The Credit Agreement also contains customary events of default, which could result in acceleration of amounts due under the Credit Agreement.
As of December 31, 2022, 2,329 studios were open in North America, and franchisees were contractually committed to open an additional 1,939 studios under existing franchise agreements.
As of December 31, 2023, 2,651 studios were open in North America, and franchisees were contractually committed to open an additional 1,963 studios under existing franchise agreements.
Cash Flows from Investing Activities In the year ended December 31, 2022, cash used in investing activities was $14.6 million, compared to $50.6 million in the year ended December 31, 2021, a decrease of $36.0 million.
Cash Flows from Investing Activities In the year ended December 31, 2023, cash used in investing activities was $12.6 million, compared to $14.6 million in the year ended December 31, 2022, a decrease of $2.0 million.
In addition, the Company agreed to pay contingent consideration to the Seller consisting of quarterly cash payments based on the sales of the Franchise System and equipment packages in the United States and Canada, as well as a percentage of royalties collected by the Company, provided that aggregate minimum payments of $5.0 million AUD (approximately $3.7 million USD based on the currency exchange rate as of the purchase date) are required to be paid to the Seller for the two-year period ending December 31, 2023 and the aggregate amount of such payments for the two-year period ending December 31, 2023 is subject to a maximum of $14.0 million AUD (approximately $10.3 million USD based on the currency exchange rate as of the purchase date).
In addition, the Company agreed to pay contingent consideration to the Seller consisting of quarterly cash payments based on the sales of the Franchise System and equipment packages in the U.S. and Canada, as well as a percentage of royalties collected by the Company, provided that aggregate minimum payments of $ 5,000 AUD (approximately $ 3,694 USD based on the currency exchange rate as of the purchase date) are required to be paid to the Seller for the two-year period ending December 31, 2023.
Depreciation and amortization. Depreciation and amortization expense was $15.3 million in the year ended December 31, 2022, compared to $10.2 million in the year ended December 31, 2021, an increase of $5.1 million, or 50.6%.
Depreciation and amortization. Depreciation and amortization expense was $16.9 million in the year ended December 31, 2023, compared to $15.3 million in the year ended December 31, 2022, an increase of $1.6 million, or 10%.
Cash Flows from Financing Activities In the year ended December 31, 2022, cash used by financing activities was $21.0 million, compared to cash provided of $46.2 million in the year ended December 31, 2021, an increase in cash used of $67.2 million.
Cash Flows from Financing Activities In the year ended December 31, 2023, cash used by financing activities was $23.1 million, compared to $21.0 million in the year ended December 31, 2022, an increase in cash used of $2.1 million.
The estimated fair value of these guarantees at inception was not material, and as of December 31, 2022, no accrual has been recorded for our potential obligation under this guaranty arrangement. See Note 17 of Notes to Consolidated Financial Statements for more information.
We determined the fair value of these guarantees at inception was not material, and as of December 31, 2023 no accrual has been recorded for our potential obligation under the guaranty arrangements. See Note 17 of Notes to Consolidated Financial Statements for more information regarding these operating leases and guarantees.
Any transfer of ownership of a studio does not affect this metric. We measure same store sales based solely upon monthly sales as reported by franchisees. This measure highlights the performance of existing studios, while excluding the impact of new studio openings.
We measure same store sales based solely upon monthly sales as reported by franchisees. This measure highlights the performance of existing studios, while excluding the impact of new studio openings.
BFT Acquisition On October 13, 2021, the Company entered into an Asset Purchase Agreement (“APA”) with GRPX Live Pty Ltd., an Australian corporation, and its affiliates (the “Seller”) whereby the Company acquired certain assets relating to the concept and brand known as BFT™.
Notes to Consolidated Financial Statements (amounts in thousands, except per share amounts) BFT On October 13, 2021 , the Company entered into an Asset Purchase Agreement (“APA”) with GRPX Live Pty Ltd., an Australian corporation, and its affiliates (the “Seller”) whereby the Company acquired certain assets relating to the concept and brand known as BFT™.
Management reviews system-wide sales weekly, which enables us to assess changes in our franchise revenue, overall studio performance, the health of our brands and the strength of our market position relative to competitors.
Management reviews system-wide sales weekly, which enables us to assess changes in our franchise revenue, overall studio performance, the health of our brands and the strength of our market position relative to competitors. New Studio Openings The number of new studio openings reflects the number of studios opened during a particular reporting period.
Franchise revenue consisted of franchise royalty fees of $70.0 million, training fees of $8.0 million, franchise territory fees of $27.1 million and technology fees of $10.2 million in the year ended December 31, 2022, compared to franchise royalty fees of $46.3 million, training fees of $6.7 million, franchise territory fees of $14.9 million and technology fees of $6.5 million in the year ended December 31, 2021.
Franchise revenue consisted of franchise royalty fees of $95.0 million, franchise territory fees of $21.9 million, technology fees of $15.7 million and training fees of $11.0 million in the year ended December 31, 2023, compared to franchise royalty fees of $70.0 million, franchise territory fees of $27.1 million, technology fees of $10.2 million and training fees of $8.0 million in the year ended December 31, 2022.
Of the increase, $53.8 million was due to higher net income after adjustments to reconcile net income to net cash provided by operating activities, partially offset by $16.6 million primarily due to unfavorable changes in working capital related to deferred revenue, accrued expense and accounts receivable, partially offset by lower cash used for deferred costs and accounts payable in the year ended December 31, 2022, compared to the year ended December 31, 2021.
Of the decrease, $8.7 million was due to lower net income after adjustments to reconcile net income (loss) to net cash provided by operating activities, and $7.6 million due to unfavorable changes in working capital primarily related to lease liabilities, deferred costs, and deferred revenue, partially offset by favorable changes in working capital related to accounts receivable, accounts payable and accrued expenses in the year ended December 31, 2023, compared to the year ended December 31, 2022.
These items include equity-based compensation and employer payroll taxes related to equity-based compensation, acquisition and transaction expenses (income) (including change in contingent consideration), management fees and expenses (that were discontinued after July 2021), integration and related expenses, litigation expenses (consisting of legal and related fees for specific proceedings that arise outside of the ordinary course of our business), employee retention credit (a tax credit for retaining employees throughout the COVID-19 pandemic), secondary public offering expenses for which we did not receive proceeds, expense related to the remeasurement of our Tax Receivable Agreement (“TRA”) obligation, and expense related to loss on impairment of our brand intangible assets and goodwill that we do not believe reflect our underlying business performance and affect comparability.
These items include equity-based compensation and related employer payroll taxes, acquisition and transaction expenses (income) (including change in contingent consideration), management fees and expenses (that were discontinued after July 2021), litigation expenses (consisting of legal and related fees for specific proceedings that arise outside of the ordinary course of our business), employee retention credit (a tax credit for retaining employees throughout the COVID-19 pandemic), fees for financial transactions, such as secondary public offerings expenses for which we do not receive proceeds (including bonuses paid to executives related to completion of such transactions) and other contemplated corporate transactions, expense related to the remeasurement of our TRA obligation, expense related to loss on impairment or write down of goodwill and other assets, and restructuring and related charges incurred in connection with our restructuring plan that we do not believe reflect our underlying business performance and affect comparability.
Marketing fund expense was $17.3 million in the year ended December 31, 2022, compared to $13.0 million in the year ended December 31, 2021, and is consistent with the increase in franchise marketing fund revenue. Acquisition and transaction expenses (income).
Marketing fund expense was $22.7 million in the year ended December 31, 2023, compared to $17.3 million in the year ended December 31, 2022, an increase of $5.4 million, or 31% and is consistent with the increase in franchise marketing fund revenue. Acquisition and transaction expenses (income).
Management reviews same store sales to assess the health of the franchised studios. 68 Results of Operations The following table presents our consolidated results of operations for the years ended December 31, 2022, 2021 and 2020: Years Ended December 31, 2022 2021 2020 ($ in thousands) Revenue, net: Franchise revenue $ 115,286 $ 74,459 $ 48,056 Equipment revenue 43,461 22,583 20,642 Merchandise revenue 27,073 20,140 16,648 Franchise marketing fund revenue 20,384 13,623 7,448 Other service revenue 38,750 24,274 13,798 Total revenue, net 244,954 155,079 106,592 Operating costs and expenses: Costs of product revenue 47,220 28,550 25,727 Costs of franchise and service revenue 18,447 12,716 8,392 Selling, general and administrative expenses 129,108 94,798 60,917 Depreciation and amortization 15,315 10,172 7,651 Marketing fund expense 17,290 13,044 7,101 Acquisition and transaction expenses (income) 2,438 26,618 (10,990 ) Total operating costs and expenses 229,818 185,898 98,798 Operating income (loss) 15,136 (30,819 ) 7,794 Other (income) expense: Interest income (1,805 ) (1,164 ) (345 ) Interest expense 13,017 24,709 21,410 Other expense 523 — — Gain on debt extinguishment — (3,707 ) — Total other expense 11,735 19,838 21,065 Income (loss) before income taxes 3,401 (50,657 ) (13,271 ) Income taxes 526 783 369 Net income (loss) $ 2,875 $ (51,440 ) $ (13,640 ) 69 The following table presents our consolidated results of operations for the years ended December 31, 2022, 2021 and 2020 as a percentage of revenue: Years Ended December 31, 2022 2021 2020 Revenue, net: Franchise revenue 47.1 % 48.0 % 45.1 % Equipment revenue 17.7 % 14.6 % 19.4 % Merchandise revenue 11.1 % 13.0 % 15.6 % Franchise marketing fund revenue 8.3 % 8.8 % 7.0 % Other service revenue 15.8 % 15.6 % 12.9 % Total revenue, net 100.0 % 100.0 % 100.0 % Operating costs and expenses: Costs of product revenue 19.3 % 18.4 % 24.1 % Costs of franchise and service revenue 7.5 % 8.2 % 7.9 % Selling, general and administrative expenses 52.7 % 61.1 % 57.1 % Depreciation and amortization 6.2 % 6.6 % 7.2 % Marketing fund expense 7.1 % 8.4 % 6.7 % Acquisition and transaction expenses (income) 1.0 % 17.2 % (10.3 )% Total operating costs and expenses 93.8 % 119.9 % 92.7 % Operating income (loss) 6.2 % (19.9 )% 7.3 % Other (income) expense: Interest income (0.7 )% (0.8 )% (0.3 )% Interest expense 5.3 % 15.9 % 20.1 % Other expense 0.2 % — % — % Gain on debt extinguishment — % (2.4 )% — % Total other expense 4.8 % 12.7 % 19.8 % Income (loss) before income taxes 1.4 % (32.6 )% (12.5 )% Income taxes 0.2 % 0.5 % 0.3 % Net income (loss) 1.2 % (33.2 )% (12.8 )% Comparison of the years ended December 31, 2022 and December 31, 2021 The following is a discussion of our consolidated results of operations for the year ended December 31, 2022 versus the year ended December 31, 2021.
Management reviews same store sales to assess the health of the franchised studios. 69 Results of Operations The following table presents our consolidated results of operations for the years ended December 31, 2023, 2022 and 2021: Years Ended December 31, 2023 2022 2021 ($ in thousands) Revenue, net: Franchise revenue $ 143,615 $ 115,286 $ 74,459 Equipment revenue 56,454 43,461 22,583 Merchandise revenue 34,146 27,073 20,140 Franchise marketing fund revenue 27,292 20,384 13,623 Other service revenue 57,153 38,750 24,274 Total revenue, net 318,660 244,954 155,079 Operating costs and expenses: Costs of product revenue 57,979 47,220 28,550 Costs of franchise and service revenue 15,911 18,447 12,716 Selling, general and administrative expenses 166,828 125,452 94,017 Impairment of goodwill and other assets 16,667 3,656 781 Depreciation and amortization 16,883 15,315 10,172 Marketing fund expense 22,683 17,290 13,044 Acquisition and transaction expenses (income) (17,964 ) 2,438 26,618 Total operating costs and expenses 278,987 229,818 185,898 Operating income (loss) 39,673 15,136 (30,819 ) Other (income) expense: Interest income (1,611 ) (1,805 ) (1,164 ) Interest expense 38,733 13,017 24,709 Other expense 3,193 523 — Gain on debt extinguishment — — (3,707 ) Total other expense 40,315 11,735 19,838 Income (loss) before income taxes (642 ) 3,401 (50,657 ) Income taxes 1,071 526 783 Net income (loss) $ (1,713 ) $ 2,875 $ (51,440 ) 70 The following table presents our consolidated results of operations for the years ended December 31, 2023, 2022 and 2021 as a percentage of revenue: Years Ended December 31, 2023 2022 2021 Revenue, net: Franchise revenue 45.1 % 47.1 % 48.0 % Equipment revenue 17.7 % 17.7 % 14.6 % Merchandise revenue 10.7 % 11.1 % 13.0 % Franchise marketing fund revenue 8.6 % 8.3 % 8.8 % Other service revenue 17.9 % 15.8 % 15.6 % Total revenue, net 100.0 % 100.0 % 100.0 % Operating costs and expenses: Costs of product revenue 18.2 % 19.3 % 18.4 % Costs of franchise and service revenue 5.0 % 7.5 % 8.2 % Selling, general and administrative expenses 52.4 % 51.2 % 60.6 % Impairment of goodwill and other assets 5.2 % 1.5 % 0.5 % Depreciation and amortization 5.3 % 6.2 % 6.6 % Marketing fund expense 7.1 % 7.1 % 8.4 % Acquisition and transaction expenses (income) (5.6 )% 1.0 % 17.2 % Total operating costs and expenses 87.6 % 93.8 % 119.9 % Operating income (loss) 12.4 % 6.2 % (19.9 )% Other (income) expense: Interest income (0.5 )% (0.7 )% (0.8 )% Interest expense 12.2 % 5.3 % 15.9 % Other expense 1.0 % 0.2 % — % Gain on debt extinguishment — % — % (2.4 )% Total other expense 12.7 % 4.8 % 12.7 % Income (loss) before income taxes (0.3 )% 1.4 % (32.6 )% Income taxes 0.2 % 0.2 % 0.5 % Net income (loss) (0.5 )% 1.2 % (33.2 )% Comparison of the years ended December 31, 2023 and December 31, 2022 The following is a discussion of our consolidated results of operations for the year ended December 31, 2023 versus the year ended December 31, 2022.
Our obligations under the Credit Agreement are guaranteed by Xponential Intermediate Holdings, LLC and certain of our material subsidiaries, and are secured by substantially all of the assets of Xponential Intermediate Holdings, LLC and certain of our material subsidiaries.
The Company’s obligations under the Credit Agreement are guaranteed by XPO Holdings and certain of the Company’s material subsidiaries and are secured by substantially all of the assets of XPO Holdings and certain of the Company’s material subsidiaries. 110 Xponential Fitness, Inc.
The decrease was primarily attributable to a decrease of cash used in acquisition of businesses and purchase of studios; a decrease of cash used in issuing notes receivables and an increase in cash received from collection of notes receivable; partially offset by an increase in cash used to purchase property and equipment and intangible assets.
The change year over year in cash used was primarily attributable to a decrease of cash used to purchase property and equipment and intangibles assets and a decrease in issuing notes receivables; partially offset by a decrease in cash received from collection of notes receivable and cash used for our acquisition of XPS.
In addition, our management uses non-GAAP measures to compare our performance relative to forecasts and to benchmark our performance externally against competitors. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.
However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.
Plaintiff alleges that plaintiff has suffered, and is likely to continue to suffer, loss and damage due to breach of the patents by the Seller and is seeking damages or in the alternative an account of profits.
The claims and lawsuits related to alleged patent and trademark infringements. Plaintiff alleged that plaintiff had suffered, and was likely to continue to suffer, loss and damage due to breach of the patents by the seller and was seeking damages or in the alternative an account of profits.
Most equipment revenue is recognized in the period when the equipment is installed. Global equipment installations in the year ended December 31, 2022, totaled 525 compared to 316 in the year ended December 31, 2021, primarily due to the increase of studio openings compared to the prior year period.
Global equipment installations in the year ended December 31, 2023, totaled 539 compared to 525 in the year ended December 31, 2022, primarily due to the increase of gross studio openings compared to the prior year period. The average price of equipment installed increased in the year ended December 31, 2023, when compared to the year ended December 31, 2022.
The Third Amendment provides for, among other things, additional term loans in an aggregate principal amount of $7.5 million (the “2022 Incremental Term Loan”), the proceeds of which were used for the acquisition of BodyFit trademark and general corporate purposes, including funding working capital and the payment of fees, costs and expenses related to the Third Amendment.
The Fifth Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $65.0 million (the “August 2023 Incremental Term Loan”), the proceeds of which were used for funding the accelerated share repurchase program; the payment of fees, costs and expenses related to the Fifth Amendment; and general corporate purposes.
Costs of product revenue was $47.2 million in the year ended December 31, 2022, compared to $28.6 million in the year ended December 31, 2021, an increase of $18.7 million, or 65.4%, compared to an increase in related revenues of 65.1%.
Costs of product revenue was $58.0 million in the year ended December 31, 2023, compared to $47.2 million in the year ended December 31, 2022, an increase of $10.8 million, or 23%, compared to an increase in related revenues of 28%.
Revenue from company-owned transition studios has been very limited as we typically only own a limited number of studios and only for a short period of time pending the resale of the licenses to a franchisee. The company-owned transition studios sell memberships by individual class and by class packages.
Other revenue – Service revenue – Historically, the revenue from company-owned transition studios has been very limited as the Company typically only owns a small number of studios and only for a short period of time pending the resale of the license to a franchisee.
Franchise revenue was $115.3 million in the year ended December 31, 2022, compared to $74.4 million in the year ended December 31, 2021, an increase of $40.8 million, or 54.8%.
Franchise revenue was $143.6 million in the year ended December 31, 2023, compared to $115.3 million in the year ended December 31, 2022, an increase of $28.3 million, or 25%.
System-Wide Sales System-wide sales represent gross sales by all studios in North America. System-wide sales includes sales by franchisees that are not revenue realized by us in accordance with GAAP.
All references to these metrics in this Form 10-K use this same basis of reporting. System-Wide Sales System-wide sales represent gross sales by all studios in North America. System-wide sales includes sales by franchisees that are not revenue realized by us in accordance with GAAP.
AUV (LTM as of period end) consists of the average sales for the trailing 12 calendar months for all studios in North America that have been open for at least 13 calendar months as of the measurement date. AUV growth is primarily driven by changes in same store sales and is also influenced by new studio openings.
LTM AUV (last twelve months as of period end) consists of the average sales for the trailing 12 calendar months for all traditional studio locations in North America that have been open for at least 13 calendar months as of the measurement date and that have generated sales for the last 13 calendar months as of the measurement date.
Leases The below discussions of lease accounting policies are the policies that went into effect beginning on January 1, 2022 with the adoption of ASC 842. For periods prior to January 1, 2022 we applied the policies under ASC 840. See Note 2 in
Leases The below discussions of lease accounting policies are the policies that went into effect beginning on January 1, 2022 with the adoption of ASC 842. For periods prior to January 1, 2022 we applied the policies under ASC 840. We lease office space, company-owned transition studios, warehouse, training centers and a video recording studio.
Borrowings under the Term Loan Facility bear interest at a per annum rate of, at our option, either (a) the LIBOR Rate (as defined in the Credit Agreement) plus a margin of 6.50% or (b) the Reference Rate (as defined in the Credit Agreement) plus a margin of 5.50% (10.59% at December 31, 2022). 77 The Credit Agreement also contains mandatory prepayments of the Term Loan with: (i) 50% of Xponential Intermediate Holdings, LLC and its subsidiaries’ Excess Cash Flow (as defined in the Credit Agreement), subject to certain exceptions; (ii) 100% of the net proceeds of certain asset sales and insurance/condemnation events, subject to reinvestment rights and certain other exceptions; (iii) 100% of the net proceeds of certain extraordinary receipts, subject to reinvestment rights and certain other exceptions; (iv) 100% of the net proceeds of any incurrence of debt, excluding certain permitted debt issuances; and (v) up to $60 million of net proceeds in connection with an initial public offering of at least $200 million, subject to certain exceptions.
The Credit Agreement also contains mandatory prepayments of the Term Loans with: (i) 50 % of XPO Holdings’ and its subsidiaries’ Excess Cash Flow (as defined in the Credit Agreement), subject to certain exceptions; (ii) 100 % of the net proceeds of certain asset sales and insurance/condemnation events, subject to reinvestment rights and certain other exceptions; (iii) 100 % of the net proceeds of certain extraordinary receipts, subject to reinvestment rights and certain other exceptions; (iv) 100 % of the net proceeds of any incurrence of debt, excluding certain permitted debt issuances; and (v) up to $ 60,000 of net proceeds in connection with an initial public offering of at least $ 200,000 , subject to certain exceptions.
Under the Credit Agreement, we are required to make: (i) monthly payments of interest on the Term Loans and (ii) quarterly principal payments equal to 0.25% of the original principal amount of the Term Loan.
Notes to Consolidated Financial Statements (amounts in thousands, except per share amounts) Under the Credit Agreement, the Company is required to make: (i) monthly payments of interest on the Term Loans and (ii) quarterly principal payments equal to 0.25 % of the original principal amount of the Term Loans.
The increase was primarily due to a $5.0 million increase in franchise sales commissions, consistent with the related franchise territory revenue increase. 71 Selling, general and administrative expenses.
The decrease was primarily due to a $3.7 million decrease in franchise sales commissions, consistent with the related franchise territory revenue decrease, partially offset by a $1.1 million increase in cost of technology fees. Selling, general and administrative expenses.
Other service revenue. Other service revenue was $38.8 million in the year ended December 31, 2022, compared to $24.3 million in the year ended December 31, 2021, an increase of $14.5 million, or 59.6%.
Other service revenue was $57.2 million in the year ended December 31, 2023, compared to $38.8 million in the year ended December 31, 2022, an increase of $18.4 million, or 47%.
The Amendment provides for, among other things, additional term loans in an aggregate principal amount of $38 million (the “2021 Incremental Term Loan”), the proceeds of which were used to fund the BFT Acquisition and the payment of fees, costs and expenses related to the Amendment.
The amendment provides for, among other things, additional term loans in an aggregate principal amount of approximately $38.7 million (the “Sixth Amendment Incremental Term Loans”), the proceeds of which will be used to repay an aggregate of $38.7 million in existing term loans under Credit Agreement and for the payment of fees, costs and expenses related to the making of the Sixth Amendment Incremental Term Loans.
Costs of franchise and service revenue was $18.4 million in the year ended December 31, 2022, compared to $12.7 million in the year ended December 31, 2021, an increase of $5.7 million, or 45.1%.
Costs of franchise and service revenue was $15.9 million in the year ended December 31, 2023, compared to $18.4 million in the year ended December 31, 2022, a decrease of $2.5 million, or 14%.
Selling, general and administrative expenses were $94.8 million in the year ended December 31, 2021, compared to $60.9 million in the year ended December 31, 2020, an increase of $33.9 million, or 55.6%.
Selling, general and administrative expenses were $166.8 million in the year ended December 31, 2023, compared to $125.5 million in the year ended December 31, 2022, an increase of $41.4 million, or 33%.
The increase was primarily due to a $13.4 million increase in other preferred vendor commission revenue and brand fee revenue and a $0.9 increase in package and memberships revenue due to more company-owned transition studios.
The increase was primarily due to a $15.5 million increase in package and memberships revenue due to a higher average number of company-owned transition studios and a $3.9 million increase in other preferred vendor commission revenue and brand fee revenue, offset by a $1.3 million decrease in on-demand revenue.
The increase in franchise royalty fees, technology fees and training fees was primarily due to a 25% increase in same store sales and to 511 new studio openings globally since December 31, 2021, which also contributed to the increase in franchise territory fees.
The increase in franchise royalty fees, technology fees and training fees was primarily due to a 16% increase in same store sales and to 426 net new studio openings globally since December 31, 2022. Franchise territory fees decreased due to a decrease in franchise agreement terminations in the current year. Equipment revenue.
Equipment revenue. Equipment revenue was $22.6 million in the year ended December 31, 2021, compared to $20.6 million in the year ended December 31, 2020, an increase of $1.9 million, or 9.4%. Most equipment revenue is recognized in the period when the equipment is installed.
Equipment revenue was $56.5 million in the year ended December 31, 2023, compared to $43.5 million in the year ended December 31, 2022, an increase of $13.0 million, or 30%. Most equipment revenue is recognized in the period when the equipment is installed.
These expenses (income) represent the non-cash change in contingent consideration related to 2017 and 2021 business acquisitions and $1.0 million of transaction expenses related to the acquisitions of Rumble and BFT in 2021.
Acquisition and transaction expenses (income) were ($18.0) million in the year ended December 31, 2023, compared to $2.4 million in the year ended December 31, 2022, a change of ($20.4) million. These expenses (income) represent the non-cash change in contingent consideration related to 2017 and 2021 business acquisitions and $1.0 million of acquisition related expenses in the current year.
Cash Flows The following table presents summary cash flow information for the years ended December 31, 2022 and 2021: Years Ended December 31, 2022 2021 ($ in thousands) Net cash provided by (used in) operating activities $ 51,670 $ 14,451 Net cash provided by (used in) investing activities (14,613 ) (50,635 ) Net cash provided by (used in) financing activities (21,007 ) 46,205 Net increase in cash, cash equivalents and restricted cash $ 16,050 $ 10,021 Cash Flows from Operating Activities In the year ended December 31, 2022, cash provided by operating activities was $51.7 million, compared to $14.5 million in the year ended December 31, 2021, an increase in cash provided of $37.2 million.
Years Ended December 31, 2023 2022 ($ in thousands) Net cash provided by (used in) operating activities $ 35,422 $ 51,670 Net cash provided by (used in) investing activities (12,589 ) (14,613 ) Net cash provided by (used in) financing activities (23,109 ) (21,007 ) Net increase (decrease) in cash, cash equivalents and restricted cash $ (276 ) $ 16,050 Cash Flows from Operating Activities In the year ended December 31, 2023, cash provided by operating activities was $35.4 million, compared to $51.7 million in the year ended December 31, 2022, a decrease in cash provided of $16.2 million.
Total revenue was $245.0 million in the year ended December 31, 2022, compared to $155.1 million in the year ended December 31, 2021, an increase of $89.9 million, or 58.0%. The increase in total revenue was primarily due to an increase in same store sales and increase in open studios. 70 Franchise revenue.
Total revenue was $318.7 million in the year ended December 31, 2023, compared to $245.0 million in the year ended December 31, 2022, an increase of $73.7 million, or 30%. The increase in total revenue was primarily due to an increase in the number of open studios. 71 Franchise revenue.
In the years ended December 31, 2022 and 2021, we generated revenue outside the United States of $12,823 and $2,741, respectively. No franchisee accounted for more than 5% of our revenue. We operate in one segment for financial reporting purposes.
In the years ended December 31, 2023, 2022 and 2021, we generated revenue outside the United States of $13.4 million, $12.8 million, and $2.7 million, respectively. As of December 31, 2023 and 2022, we did not have material assets located outside of the United States. No franchisee accounted for more than 5% of our revenue.
We believe that adjusted EBITDA, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of operations because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period. 76 The following table presents a reconciliation of net income (loss), the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the years ended December 31, 2022, 2021 and 2020: Years Ended December 31, 2022 2021 2020 ($ in thousands) Net income (loss) $ 2,875 $ (51,440 ) $ (13,640 ) Interest expense, net 11,212 23,545 21,065 Income taxes 526 783 369 Depreciation and amortization 15,315 10,172 7,651 EBITDA 29,928 (16,940 ) 15,445 Equity-based compensation 29,044 9,699 1,751 Employer payroll taxes related to equity-based compensation 123 — — Acquisition and transaction expenses (income) 2,438 26,618 (10,990 ) Management fees and expenses — 462 795 Integration and related expenses — — 386 Litigation expenses 10,301 8,312 2,420 Employee retention credit (2,597 ) (2,269 ) — Secondary public offering expenses 836 — — TRA remeasurement 523 1,441 — Impairment of brand assets 3,656 — — Adjusted EBITDA $ 74,252 $ 27,323 $ 9,807 Liquidity and Capital Resources As of December 31, 2022, we had $32.0 million of cash and cash equivalents, excluding $5.4 million of restricted cash.
The following table presents a reconciliation of net income (loss), the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the years ended December 31, 2023, 2022 and 2021: Years Ended December 31, 2023 2022 2021 ($ in thousands) Net income (loss) $ (1,713 ) $ 2,875 $ (51,440 ) Interest expense, net 37,122 11,212 23,545 Income taxes 1,071 526 783 Depreciation and amortization 16,883 15,315 10,172 EBITDA 53,363 29,928 (16,940 ) Equity-based compensation 17,997 29,044 9,699 Employer payroll taxes related to equity-based compensation 672 123 — Acquisition and transaction expenses (income) (17,964 ) 2,438 26,618 Management fees and expenses — — 462 Litigation expenses 6,839 10,301 8,312 Employee retention credit — (2,597 ) (2,269 ) Financial transaction fees and related expenses 9,038 836 — TRA remeasurement 3,193 523 1,441 Impairment of goodwill and other assets 16,667 3,656 — Restructuring and related charges 15,520 — — Adjusted EBITDA $ 105,325 $ 74,252 $ 27,323 Liquidity and Capital Resources As of December 31, 2023, we had $27.8 million of cash and cash equivalents, excluding $9.3 million of restricted cash consisting of marketing fund restricted cash and a guarantee of standby letter of credit.
On January 9, 2023, the Company entered into a preferred stock repurchase agreement (the "Repurchase Agreement") with certain holders of the Convertible Preferred, pursuant to which the Company agreed to repurchase 85,340 shares of Convertible Preferred. On January 13, 2023, the repurchase was completed for an aggregate payment of $131.0 million.
On January 9, 2023, pursuant to a preferred stock repurchase agreement (the “Repurchase Agreement”) between the Company and certain holders of the Convertible Preferred, the Company repurchased 85 shares of Convertible Preferred for an aggregate payment of $ 130,766 .
Rumble Acquisition On March 24, 2021, H&W Franchise Holdings LLC (parent entity prior to the IPO) entered into a contribution agreement with Rumble Holdings LLC, Rumble Parent LLC and Rumble Fitness LLC to acquire certain rights and intellectual property of Rumble Fitness LLC (“Rumble”), to be used by H&W Franchise Holdings LLC in connection with the franchise business under the “Rumble” trade name.
Rumble On March 24, 2021, the Parent entered into a contribution agreement with Rumble Holdings LLC; Rumble Parent LLC and Rumble Fitness LLC (the “Selling Parties”) to acquire the franchise rights, brand, intellectual property and the rights to manage and license the “Rumble” franchise business.
The increase was primarily due to amortization of intangible assets related to the Rumble and BFT acquisitions in March and October 2021, respectively, and the BodyFit trademark acquisition in the second quarter of 2022. Marketing fund expense.
The increase was due primarily to amortization of intangibles related to the BodyFit trademark acquired in the second quarter of 2022 and to an increase in fixed assets to support our online offerings. Marketing fund expense.
XPO LLC franchisees offer energetic, accessible, and personalized workout experiences led by highly qualified instructors in studio locations across 48 U.S. states, the District of Columbia and Canada and through master franchise or international expansion agreements in 14 additional countries.
In partnership with its franchisees and master franchisees, XPO LLC offers energetic, accessible, and personalized workout experiences led by highly qualified instructors in studio locations throughout North America and internationally, with franchise, master franchise and international expansion agreements in 49 U.S. states and 22 additional countries as of December 31, 2023.
(f/k/a DELALV Cayman C-2, Ltd.) (collectively, the “Preferred Investors”) also separately purchased 200,000 shares of our 6.50% Series A Convertible Preferred Stock (the “Series A Convertible preferred stock”) for $200 million.
Affiliates of the lenders also separately purchased 200,000 shares of our 6.50% Series A Convertible Preferred Stock (the “Convertible Preferred”) for $200 million.
The proceeds of the Term Loan were used to repay principal, interest and fees outstanding under our prior financing agreement (including a prepayment penalty of approximately $1.9 million) and for working capital and other corporate purposes.
The proceeds of the Term Loan were used to repay principal, interest and fees outstanding under the Company's previous credit facility aggregating $ 195,633 (including a prepayment penalty of approximately $ 1,929 , which is included in interest expense for the year ended December 31, 2021) and for working capital and other corporate purposes.
On September 30, 2022, we entered into a third amendment (the “Third Amendment”) to the Credit Agreement.
On August 3, 2023, we entered into a fifth amendment (the “Fifth Amendment”) to the Credit Agreement.
The increase was due primarily to a higher number of operating studios in the year ended December 31, 2021 and temporary closures of studios in the year ended December 31, 2020. 73 Franchise marketing fund revenue.
Merchandise revenue was $34.1 million in the year ended December 31, 2023, compared to $27.1 million in the year ended December 31, 2022, an increase of $7.1 million, or 26%. The increase was due primarily to a higher number of operating studios in the current year period. Franchise marketing fund revenue.
Of the franchisees that opened their first studio in 2019, on average it took approximately 12.2 months from signing the franchise agreement to open. The length of time increased during 2020 and 2021 due to COVID-related opening restrictions.
Of the franchisees that entered into the system in 2021 or later and opened their first studio in 2023 on average it took approximately 15.0 months from signing the franchise agreement to open a studio.
See Note 17 of Notes to Consolidated Financial Statements for more information regarding these operating leases and guarantees. In July 2022, we issued a standby letter of credit to a third-party financing company, who provides loans to our qualified franchisees.
Notes to Consolidated Financial Statements (amounts in thousands, except per share amounts) Letter of credit – In July 2022, the Company issued a $ 750 standby letter of credit to a third-party financing company, who provides loans to the Company's qualified franchisees.

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