Xponential Fitness, Inc.

Previous wording

Xponential Fitness LLC (“XPO LLC”), the principal operating subsidiary of Xponential Fitness, Inc. (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. 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.

Current wording

Xponential Fitness LLC (“XPO LLC”), the principal operating subsidiary of Xponential Fitness, Inc. (the “Company” or “XPO Inc.,” “we,” “us,” and “our”), is one of the leading global franchisors of boutique health and wellness brands. Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being a 69.5% ownership interest in XPO LLC through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”).

Previous wording

We operate a diversified platform of ten brands spanning across verticals including Pilates, indoor cycling, barre, stretching, rowing, dancing, boxing, running, functional training and yoga. 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. The Company's portfolio of brands includes Club Pilates, the largest Pilates brand in the United States; CycleBar, the largest indoor cycling brand in the United States; StretchLab, a concept offering one-on-one and group stretching services; Row House, the largest franchised indoor rowing brand in the United States; AKT, a dance-based cardio workout combining toning, interval and circuit training; YogaSix, the largest franchised yoga brand in the United States; Pure Barre, a total body workout that uses the ballet barre to perform small isometric movements, and the largest barre brand in the United States; Stride, a treadmill-based cardio and strength training concept; Rumble, a boxing-inspired full-body workout; and BFT, a functional training and strength-based program.

Current wording

We operate a diversified platform of eight brands spanning across verticals including Pilates, indoor cycling, barre, stretching, boxing, functional training, metabolic health and yoga. 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, Puerto Rico, and 30 additional countries as of December 31, 2024. The Company's portfolio of brands includes Club Pilates, the largest Pilates brand in the United States; CycleBar, the largest indoor cycling brand in the United States; StretchLab, a concept offering one-on-one and group stretching services; YogaSix, the largest franchised yoga brand in the United States; Pure Barre, a total body workout that uses the ballet barre to perform small isometric movements, and the largest barre brand in the United States; Rumble, a boxing-inspired full-body workout; BFT, a functional training and strength-based program; and Lindora, a provider of medically guided wellness and metabolic health solutions, which was acquired on January 2, 2024.

Previous wording

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. 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.

Current wording

As of December 31, 2024, 2,758 studios were open in North America (consists of Canada, the United States and U.S. territories) and franchisees were contractually committed to open 1,607 additional studios under existing franchise agreements. In addition, as of December 31, 2024, we had 475 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,043 new studios, of which master franchisees have sold 237 licenses for studios not yet opened as of December 31, 2024.

Previous wording

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 operate in one segment for financial reporting purposes.

Current wording

During the years ended December 31, 2024, 2023 and 2022, we generated revenue outside the United States of $14.0 million, $13.4 million, and $12.2 million, respectively. As of December 31, 2024 and 2023, we did not have material assets located outside of the United States. No franchisee accounted for more than 5% of our revenue. We operate in one segment for financial reporting purposes.

Previous wording

On December 1, 2023, we entered into an agreement to acquire Lindora Franchise, LLC, a Delaware limited liability company, the franchisor of the “Lindora” wellness brand (the “Lindora Franchisor”), for cash consideration of $8.5 million. The transaction also includes up to $1.0 million of contingent consideration which is subject to the achievement of certain milestones. The Lindora Franchisor was a subsidiary of Lindora Wellness, Inc. Lindora Wellness, Inc. has owned and operated each of the Lindora Clinics in California for at least 25 years and currently owns and operates 30 Lindora Clinics in California and a single Lindora Clinic in the state of Washington. Immediately prior to the execution of the purchase agreement on December 1, 2023, Lindora Wellness, Inc. signed 31 franchise agreements with the Lindora Franchisor pursuant to which Lindora Wellness, Inc. will continue to operate its Lindora Clinics as a franchisee of the Lindora Franchisor. The acquisition of the Lindora Franchisor was completed on January 2, 2024. Lindora complements our existing brands and will help us deliver on consumers’ increasing demand for a holistic approach to health. Given the strong cashflow of the existing Lindora locations, the acquisition is anticipated to be immediately accretive on both an Average Unit Volume (“AUV”) and an adjusted EBITDA basis.

Current wording

On December 1, 2023, we entered into an agreement to acquire Lindora Franchise, LLC, a Delaware limited liability company, the franchisor of the “Lindora” wellness brand (the “Lindora Franchisor”), for cash consideration of $8.5 million. The transaction also includes up to $1.0 million of contingent consideration which is subject to the achievement of certain milestones. The Lindora Franchisor was a subsidiary of Lindora Wellness, Inc. (“Lindora Wellness”). Lindora Wellness has owned and operated each of the Lindora clinics in California for at least 25 years and currently owns and operates 30 Lindora clinics in California and a single Lindora clinic in the state of Washington. Immediately prior to the execution of the purchase agreement on December 1, 2023, Lindora Wellness signed 31 franchise agreements with the Lindora Franchisor pursuant to which Lindora Wellness will continue to operate its Lindora clinics as a franchisee of the Lindora Franchisor. The acquisition of the Lindora Franchisor was completed on January 2, 2024. Lindora complements our existing brands and will help us deliver on consumers’ increasing demand for a holistic approach to health. See Note 4 of Notes to Consolidated Financial Statements for additional information.

Previous wording

On February 13, 2024, we entered into an asset purchase agreement with a buyer, pursuant to which we divested the Stride brand, including the intellectual property, franchise rights and franchise agreements for open studios. The buyer of the Stride brand is a member of management and one of our stockholders. We received no consideration from the divestiture of the Stride brand and will assist the buyer with transition support including cash payments of approximately $0.3 million payable over the next twelve months. The divestiture allows us to better focus and utilize our resources on our other brands.

Current wording

On February 13, 2024, we entered into an agreement with a buyer, pursuant to which we divested the Stride brand, including the intellectual property, franchise rights and franchise agreements for open studios. The buyer of the Stride brand is a former member of management and one of our shareholders. We received no consideration from the divestiture of the Stride brand and will assist the buyer with transition support including cash payments of approximately $0.3 million payable over the 12-month period following divestiture.

Previous wording

In the third quarter of 2023, we began a restructuring plan that involves exiting company-owned transition studios and other measures designed to reduce costs to achieve our long-term margin goals and focus on pure franchise operations. The plan was approved and initiated in the third quarter of 2023 and is expected to continue throughout 2024, however ultimate timing will depend on lease termination negotiations. During the fourth quarter of 2023 our restructuring plan was expanded due to the addition of Rumble company-owned transition studios to the restructuring plan and a refranchising plan that was terminated by the Company due to the refranchisor’s non-compliance with the franchise agreements, and the subsequent closure of certain studios. This refranchise termination resulted in us incurring losses for contract termination expenses, other expenses associated with exiting the studios, and loss contingencies related to the refranchisor’s unpaid payroll. During the year ended December 31, 2023, we recognized total restructuring charges of $13.8 million, net of gains, primarily for write off of abandoned right-of-use assets, contract termination and other associated costs, loss on lease terminations and sale or disposal of assets, and other restructuring charges.

Current wording

In the third quarter of 2023, we began a restructuring plan that involves exiting company-owned transition studios and other measures designed to reduce costs to achieve our long-term margin goals and focus on pure franchise operations. The plan was approved and initiated in the third quarter of 2023 and is expected to continue throughout 2025; however, ultimate timing will depend on lease termination negotiations. During the fourth quarter of 2023, our restructuring plan was expanded due to the addition of Rumble company-owned transition studios to the restructuring plan and a refranchising plan that was terminated by the Company due to the refranchisor’s non-compliance with the franchise agreements and the subsequent closure of certain studios. This refranchise termination resulted in us incurring losses for contract termination expenses, other expenses associated with exiting the studios, and loss contingencies related to the refranchisor’s unpaid payroll. During the years ended December 31, 2024 and 2023, we recognized total restructuring charges of $29.6 million, net of gains, and $14.0 million, net of gains, respectively, primarily for contract termination and other associated costs, loss on lease terminations and sale or disposal of assets, impairment of right-of-use assets, and other restructuring charges.

Previous wording

We expect to recognize additional restructuring charges throughout 2024 totaling approximately $23.0 million to $27.0 million, for rent expense, including amortization of the right-of-use asset and accretion of the operating lease liability, lease termination gains or losses, and other variable lease costs related to company-owned transition studios and other restructuring charges. We are negotiating lease terminations for operating leases for certain studios for which we have lease liabilities recorded and the expected cash payments and expenses to exit the lease may be greater than expected rent expense for that period, depending on the outcome of lease termination negotiations. Cash outflows related to these lease terminations are expected to be incurred throughout 2024.

Current wording

We expect to recognize additional restructuring charges throughout 2025 totaling approximately $7.1 million to $10.8 million for rent expense, including amortization of the right-of-use assets and accretion of the operating lease liability, lease termination gains or losses, and other variable lease costs related to company-owned transition studios and other restructuring charges. We are considering subleases or negotiating lease terminations for operating leases for certain studios for which we have lease liabilities recorded and the expected cash payments and expenses to exit the lease may be greater than expected rent expense for that period, depending on the outcome of lease negotiations. Cash outflows related to these lease terminations are expected to be incurred throughout 2025.

Previous wording

Once completed we estimate annualized gross savings of approximately $13.0 million to $15.0 million under the restructuring plan. Additionally, we may not be able to fully realize the cost savings and benefits initially anticipated from the restructuring plan, the expected charges may be greater than expected, and we may not be able to reach agreement with contractual counterparties, any of which could negatively impact our business. See Note 18 of Notes to Consolidated Financial Statements for additional information.

Current wording

Once completed we estimate annualized savings of approximately $13.5 million to $15.5 million under the restructuring plan. Additionally, we may not be able to fully realize the cost savings and benefits initially anticipated from the restructuring plan, the expected charges may be greater than expected, and we may not be able to reach agreement with contractual counterparties, any of which could negatively impact our business. See Note 19 of Notes to Consolidated Financial Statements for additional information.

Previous wording

Increasing same store sales. Our long-term revenue prospects are driven in part by franchisees’ ability to increase same store sales (discussed below). Several factors affect our same store sales in any given period, including the number of stores that have been in operation for a significant period of time, growth in total memberships and marketing and promotional efforts. We expect to continue to seek to grow same store sales and AUVs by helping franchisees acquire new members, increase studio utilization and drive increased spend from consumers. We also intend to expand ancillary revenue streams, such as our digital platform offerings and retail merchandise.

Current wording

Increasing same store sales. Our long-term revenue prospects are driven in part by franchisees’ ability to increase same store sales (discussed below). Several factors affect our same store sales in any given period, including the number of stores that have been in operation for a significant period of time, growth in total memberships and marketing and promotional efforts. We expect to continue to seek to grow same store sales and Average Unit Volumes (“AUVs”) by helping franchisees acquire new members, increase studio utilization and drive increased spend from consumers. We also intend to expand ancillary revenue streams, such as our digital platform offerings and retail merchandise.

Previous wording

All metrics above are presented on an adjusted basis to reflect historical information of Rumble and BFT prior to the acquisition by the Company in March and October 2021, respectively. All references to these metrics in this Form 10-K use this same basis of reporting.

Current wording

All metrics in this “Key Performance Indicators” section are presented on an adjusted basis to reflect historical information of Lindora prior to the acquisition by the Company in January 2024 and on an adjusted basis to remove historical information for both Stride and Row House prior to their divestitures by the Company in February 2024 and May 2024, respectively. Historical information has not been adjusted to reflect the wind down of AKT. All references to these metrics in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” use this same basis of reporting, unless noted otherwise.

Previous wording

A studio is considered no longer operating and excluded from the total number of studios operating if it has no sales for nine consecutive months or more. If a studio deemed to be no longer operating subsequently generates sales at a future date, it re-enters the operating studio count (and the number of studios no longer operating is reduced).

Current wording

A studio is considered no longer operating and excluded from the total number of studios operating if (a) the Company has reason to believe, after reasonable inquiry, that the studio is permanently closed, with no plans for re-opening or relocation, or (b) it has no sales for nine consecutive months or more, whichever comes first. If a studio deemed to be no longer operating subsequently generates sales at a future date, it re-enters the operating studio count (and the number of studios no longer operating is reduced). Studios classified as no longer operating are deemed permanently closed.

Previous wording

In addition to the number of new studios opened and studios no longer operating during a period, we track the number of total studios operating at the end of a reporting period. While nearly all our franchised studios are licensed to franchisees, from time to time we operate a limited number of company-owned transition studios (typically as we take possession of a studio following a franchisee ceasing to operate it and as we prepare it to be licensed to a new franchisee). Management reviews the number of studios operating at a given point in time in order to help forecast system-wide sales, franchise revenue and other revenue streams.

Current wording

Please see the table in the “Same Store Sales” section, subheader “North America studios contributing to same store sales.” The line “studios without 13 months of consecutive sales as of the last month that had positive sales within the period being measured” is an indicator for the number of North America traditional location studios that are older than 13 months, and that have had a recent or current disruption in sales, but that are still included in the Number of Studios Operating count. For the years ended December 31, 2024, 2023 and 2022, this represented 0.5%, 0.5%, and 0.6%, respectively, of our North America studio base. While nearly all our franchised studios are licensed to franchisees, from time to time we operate a limited number of company-owned transition studios (typically as we take possession of a studio following a franchisee ceasing to operate it and as we prepare it to be licensed to a new franchisee). Management reviews the number of studios operating at a given point in time in order to help forecast system-wide sales, franchise revenue, and other revenue streams.

Previous wording

Non-traditional studio locations refers to studios that are not operated as standalone studio locations. There are currently 33 non-traditional studio locations globally, which are comprised of studios operated inside of other fitness facilities and on cruise ships.

Current wording

Non-traditional studio locations refers to studios that are not operated as standalone studio locations. There are currently 20 non-traditional studio locations globally, which are comprised of studios operated inside of other fitness facilities and on cruise ships.

Previous wording

The number of licenses sold in North America and globally reflect the cumulative number of licenses sold by us (or, outside of North America, by our master franchisees), since inception through the date indicated. Licenses contractually obligated to open refer to licenses sold net of opened studios and terminations. Licenses contractually obligated to be sold internationally reflect the number of licenses that master franchisees are contractually obligated to sell to franchisees to open internationally that have not yet opened as of the date indicated. The number of licenses sold is a useful indicator of the number of studios that have opened and that are expected to open in the future, which management reviews in order to monitor and forecast our revenue streams. 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. 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. 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.

Current wording

The number of licenses sold in North America and globally reflect the cumulative number of licenses sold by us (or, outside of North America, by or to our master franchisees), since inception through the date indicated. The number of licenses sold is not reduced by terminations. The number of licenses sold does not generally include license renewals or licenses issued in connection with a change in ownership of operating studios. Licenses contractually obligated to open refer to licenses sold net of opened studios and terminations. Licenses contractually obligated to be sold internationally reflect the number of licenses that master franchisees are contractually obligated to sell to franchisees to open internationally that have not yet opened as of the date indicated. The number of licenses contractually obligated to open is a useful indicator of the number of studios that may open in the future, although it is not certain that these studios will open. Management reviews the number of licenses sold and the number of licenses contractually obligated to open to help monitor and forecast studio growth, system-wide sales and revenue streams.

Previous wording

AUV is calculated by dividing sales during the applicable period for all studios contributing to AUV by the number of studios contributing to AUV. 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. Quarterly run-rate AUV consists of average quarterly sales for all traditional studio locations in North America that are at least six months old at the beginning of the respective quarter, and that have sales in the period, multiplied by four. We measure sales for AUV based solely upon monthly sales as reported by franchisees. AUV growth is primarily driven by changes in same store sales and is also influenced by new studio openings. Management reviews AUV to assess studio economics.

Current wording

AUV (LTM as of period end) consists of the average sales for the trailing 12 calendar months for all traditional studio locations in North America that opened at least 13 calendar months ago as of the measurement date and that have generated positive sales for each of the last 13 calendar months as of the measurement date.

Previous wording

Same store sales refer to period-over-period sales comparisons for the base of studios. We define the same store sales base to include studios in North America that are in traditional studio locations and that have generated sales for the last 13 consecutive calendar months as of the measurement date. 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. Management reviews same store sales to assess the health of the franchised studios.

Current wording

Same store sales refer to period-over-period sales comparisons for the base of studios. We define the same store sales base to include monthly sales for any traditional studio location in North America. If the studio has generated at least 13 months of consecutive positive sales and opened at least 13 calendars months ago as of any month within the measurement period, the respective comparable months will be included. We measure same store sales based solely upon monthly sales as derived through the designated point-of-sale system. This measure highlights the performance of existing studios, while excluding the impact of new studio openings. Management reviews same store sales to assess the health of the franchised studios.

Previous wording

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. For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 6, 2023.

Current wording

The following is a discussion of our consolidated results of operations for the year ended December 31, 2024 versus the year ended December 31, 2023.

Previous wording

Costs of product revenue. 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%. Costs of product revenue as a percentage of related revenue decreased to 64% in the year ended December 31, 2023, from 67% in the year ended December 31, 2022. The decrease was due to an increase in company-owned transition studio merchandise revenue, which generates higher gross margin.

Current wording

Costs of product revenue. Costs of product revenue was $59.5 million in the year ended December 31, 2024, compared to $60.3 million in the year ended December 31, 2023, a decrease of $0.9 million, or 1%, compared to a decrease in related revenues of 9%. Costs of product revenue as a percentage of related revenue increased to 73% in the year ended December 31, 2024, from 67% in the year ended December 31, 2023. The increase was due to current year sales promotions, that decreased gross margin and an increase in write downs of slow-moving inventory.

Previous wording

Total 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.

Current wording

Total revenue. Total revenue was $317.9 million in the year ended December 31, 2023, compared to $243.2 million in the year ended December 31, 2022 an increase of $74.7 million, or 31%. The increase in total revenue was primarily due to an increase in the number of open studios.

Previous wording

Franchise revenue. 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%. 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. 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.

Current wording

Franchise revenue. Franchise revenue was $143.2 million in the year ended December 31, 2023 , compared to $115.0 million in the year ended December 31, 2022, an increase of $28.2 million, or 25%. Franchise revenue consisted of franchise royalty fees of $94.6 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 $69.8 million, franchise territory fees of $27.0 million, technology fees of $10.2 million and training fees of $8.0 million in the year ended December 31, 2022. The increase in franchise royalty fees, technology fees and training fees was primarily due to an increase in same store sales and an increase in number of operating studios globally since December 31, 2022. Franchise territory fees decreased due to a decrease in franchise agreement terminations in the year ended December 31, 2023 compared to the prior year period.

Previous wording

Equipment revenue. 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. 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 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.

Current wording

Equipment revenue. 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, a increase of $13.0 million, or 30%. Most equipment revenue is recognized in the period when the equipment is installed. Global equipment installations in the year ended December 31, 2023, increased due to the increase in studio openings compared to the prior year period. The average revenue per installation increased in the year ended December 31, 2023, when compared to the year ended December 31, 2022. The increase in average revenue is due to brand mix and international versus domestic mix.

Previous wording

Merchandise 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.

Current wording

Merchandise revenue. Merchandise revenue was $33.3 million in the year ended December 31, 2023, compared to $26.0 million in the year ended December 31, 2022, a increase of $7.3 million, or 28%. The increase was due primarily to a higher number of operating studios in the year ended December 31, 2023 compared to the prior year period.

Previous wording

Franchise marketing fund revenue. Franchise marketing fund revenue was $27.3 million in the year ended December 31, 2023, compared to $20.4 million in the year ended December 31, 2022, an increase of $6.9 million, or 34%. The increase was primarily due to an increase in same store sales and to 327 new studio openings in North America since December 31, 2022.

Current wording

Franchise marketing fund revenue. Franchise marketing fund revenue was $27.3, million in the year ended December 31, 2023, compared to $20.4 million in the year ended December 31, 2022, an increase of $6.9 million, or 34%. The increase was primarily due to an increase in same store sales and an increase in number of operating studios in North America in the year ended December 31, 2023 compared to the prior year period.

Previous wording

Other service revenue. 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 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. We have been actively seeking to refranchise or close company-owned transition studios under our restructuring plan that started in the third quarter of 2023.

Current wording

Other service revenue. Other service revenue was $57.7 million in the year ended December 31, 2023, compared to $38.4 million in the year ended December 31, 2022, a increase of $19.3 million, or 50%. The increase was primarily due to $15.5 million increase in package and memberships revenue due to a higher average number of company-owned transition studios and a $4.8 million increase in vendor commission and brand access fee revenues, offset by a $1.3 million decrease in on-demand revenue. We refranchised or closed company-owned transition studios under our restructuring plan that started in the year ended December 31, 2023.

Previous wording

Costs of franchise and service revenue. 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%. 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.

Current wording

Costs of franchise and service revenue. Costs of franchise and service revenue was $16.0 million in the year ended December 31, 2023, compared to $18.4 million in the December 31, 2022, a decrease of $2.5 million, or 13%. 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.

Previous wording

Selling, general and administrative expenses. 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 attributable to restructuring and related charges of $15.2 million in the current year; an increase in salaries and wages of $18.6 million related to a higher average number of company-owned transition studios and to a one-time $2.6 million employee retention payroll tax credit in the prior year period; increase in occupancy expenses of $9.6 million primarily related to company-owned transition studios; increase in financial transaction fees and related expenses of $8.2 million primarily related to expenses incurred in completed and terminated financing transactions; increase in bad debt expense of $2.9 million; increase in marketing and promotion expense of $2.1 million; increase in state and local taxes of $1.5 million and a net increase in other variable expenses in 2023 of $4.8 million, partially offset by a decrease in equity-based compensation expense of $11.0 million primarily due to vesting of performance-based awards in the prior year period offset by an increase in expense related to RSUs granted since December 31, 2022; a decrease in legal expenses of $3.7 million related to various legal matters; mutual termination agreement income of $3.5 million related to the acquisition of 14 Rumble studios; a decrease in information technology expenses of $3.3 million primarily related to a one-time credit from a vendor.

Current wording

Selling, general and administrative expenses. Selling, general and administrative expenses were $168.9 million in the year ended December 31, 2023, compared to $126.3 million in the year ended December 31, 2022, an increase of $42.6 million, or 34%. The increase was primarily attributable to restructuring and related charges of $15.3 million in the year ended December 31, 2023; an increase in salaries and wages of $19.0 million related to higher average number of company-owned transition studios; an increase in occupancy expenses of $9.5 million primarily related to company-owned transition studios; increase in financial transaction fees and related expenses of $8.2 million primarily related to expenses incurred in completed and terminated financing transactions; increase in bad debt expenses of $3.2 million; increase in marketing and promotion expense of $2.1 million; increase in state and local taxes of $1.5 million and a net increase in other variable expenses in 2023 of $5.0 million, partially offset by a decrease in equity-based compensation of $11.0 million primarily due to vesting of performance-based awards in the year ended December 31, 2022 offset by an increase in expense related to RSUs granted since December 31, 2022; a decrease in legal expenses of $3.6 million related to various legal matters; one-time mutual termination agreement income of $3.5 million related to the acquisition of 14 Rumble studios in 2023; a decrease in information technology expenses of $3.1 million primarily related to one-time credit from a vendor.

Previous wording

Impairment of goodwill and other assets. Impairment of goodwill and other assets was $16.7 million in the year ended December 31, 2023, compared to $3.7 million in the year ended December 31, 2022. an increase of $13.0 million, or 356%. The increase was primarily due to an increase in goodwill impairment of $3.4 million, impairment of franchise agreement intangible asset net of reacquired franchise rights of $7.2 million upon acquisition of 14 Rumble studios in the current year, and an aggregate $2.2 million impairment of reacquired franchise rights and property and equipment related to the Rumble held for sale studios in the current year.

Current wording

Impairment of goodwill and other assets. Impairment of goodwill and other assets was $16.8 million in the year ended December 31, 2023 compared to $3.7 million in the year ended December 31, 2022, an increase of $13.1 million, or 358%. The increase was primarily related to an increase in goodwill impairment of $3.4 million, impairment of franchise agreement intangible asset net of reacquired franchise right of $7.2 million upon acquisition of 14 Rumble studios in the year ended December 31, 2023, and an aggregate $2.2 million of impairment of reacquired franchise rights and property and equipment related to the Rumble held for sale studios in the year ended December 31, 2023.

Previous wording

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%. 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.

Current wording

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%. The increase was due primarily to amortization of intangibles related to BodyFit trademark acquired in the second quarter of 2022 and to an increase in fixed assets to support our online offerings.

Previous wording

Marketing fund expense. 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.

Current wording

Marketing fund expense. 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%. Marketing fund expenses are recorded as incurred, which may not occur in the same period as the recognition of franchise marketing fund revenue.

Previous wording

Acquisition and transaction expenses (income). 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.

Current wording

Acquisition and transaction expenses (income). Acquisition and transaction expense (income) was ($18.5) million in the year ended December 31, 2023, compared to $2.4 million in the year ended December 31, 2022, a change of $20.9 million, or 857%. These expenses (income) represent the non-cash change in contingent consideration related to 2017 and 2021 business acquisitions and $0.5 million of acquisition related expenses in the year ended December 31, 2023.

Previous wording

Interest expense. Interest expense was $38.7 million in the year ended December 31, 2023, compared to $13.0 million in the year ended December 31, 2022, an increase of $25.7 million, or 198%. Interest expense consists of interest on long-term debt, accretion of earn-out liabilities and amortization of deferred loan costs and debt discount. The increase in interest expense is due to higher average debt balances and higher interest rates in the current year.

Current wording

Interest expense. Interest expense was $38.7 million in the year ended December 31, 2023, compared to $13.0 million in the year ended December 31, 2022, an increase of 25.7 million, or 198%. Interest expense consists of interest on long-term debt, accretion of earn-out liabilities and amortization of deferred loan costs and debt discount. The increase in interest expense is due to higher average debt balances in the year ended December 31, 2023.

Previous wording

Other expense. Other expense consists of Tax Receivable Agreement (“TRA”) expense, which was $3.2 million in the year ended December 31, 2023, compared to $0.5 million in the year ended December 31, 2022, an increase of $2.7 million.

Current wording

Other expense. Other expense consists of Tax Receivable Agreement (“TRA”) expense, which was $3.2 million in the year ended December 31, 2023, compared to $0.5 million in the year ended December 31, 2022, and increase of $2.7 million.

Previous wording

Income taxes. Income taxes were $1.1 million in the year ended December 31, 2023, compared to $0.5 million in the year ended December 31, 2022.

Current wording

Income taxes. Income taxes were $1.0 million in the year ended December 31, 2023, compared to $0.5 in the year ended December 31, 2022.

Previous wording

We define adjusted EBITDA as EBITDA (net income/loss before interest, taxes, depreciation and amortization), adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance. 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. EBITDA and adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry.

Current wording

We define adjusted EBITDA as EBITDA (net income/loss before interest, taxes, depreciation and amortization), adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include equity-based compensation and related employer payroll taxes, acquisition and transaction expenses (income) (including change in contingent consideration and transaction bonuses), 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 offering 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, loss on brand divestitures and wind down, executive transition costs (consisting of costs associated with the transition of our former CEO, such as professional services, legal fees, executive recruiting costs and other related costs), one-time costs associated with rebranding one studio to the KINRGY brand, transformation initiative costs (primarily consisting of third-party professional consulting fees related to modifications of our business strategy and cost saving initiatives), contract settlement expenses (related to, among other things, the settlement of disputed costs and the elimination of the option for us to repurchase the master franchise rights from the BFT seller without requiring our payment of a repurchase cancellation fee), 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. EBITDA and adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry.

Previous wording

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.

Current wording

As of December 31, 2024, we had $16.6 million of cash and cash equivalents, excluding $16.1 million of restricted cash consisting of marketing fund restricted cash and a standby letter of credit guarantee.

Previous wording

We require cash principally to fund day-to-day operations, finance capital investments, service our outstanding debt and address our working capital needs. 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. Our ability to continue to fund these items and continue to reduce debt could be adversely affected by the occurrence of any of the events described under “Risk Factors.” There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our credit facility or otherwise to enable us to service our indebtedness, including our credit facility, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend or refinance the credit facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

Current wording

We principally require cash to fund day-to-day operations, finance capital investments, service our outstanding debt and address our working capital needs. Additionally, we require cash to fund the investments in our data warehouse project and other investments to become a data driven company. 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. Our ability to continue to fund these items and continue to reduce debt could be adversely affected by the occurrence of any of the events described under “Risk Factors.” There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our credit facility or otherwise to enable us to service our indebtedness, including our credit facility, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend or refinance the credit facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

Previous wording

On April 19, 2021, we entered into a Financing Agreement with Wilmington Trust, National Association, as administrative agent and collateral agent, and the lenders party thereto (the “Credit Agreement”), which consists of a $212 million senior secured term loan facility (the “Term Loan Facility”, and the loans thereunder, each a “Term Loan” and together, the “Term Loans”) maturing on February 28, 2025. 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. 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.

Current wording

On April 19, 2021, we entered into a Financing Agreement with Wilmington Trust, National Association, as administrative agent and collateral agent, and the lenders party thereto (the “Credit Agreement”), which consisted of a $212 million senior secured term loan facility (the “Term Loan Facility”, and the loans thereunder, each a “Term Loan” and together, the “Term Loans”). Affiliates of the lenders also separately purchased 200,000 shares of our 6.50% Series A Convertible Preferred Stock for $200 million. 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.

Previous wording

On February 13, 2024, we entered into a sixth amendment to the Credit Agreement which extended the maturity date of the Credit Agreement to March 15, 2026. 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. The Amendment also extends the maturity date for all outstanding term loans under the Credit Agreement to March 15, 2026.

Current wording

On February 13, 2024, we entered into a sixth amendment (the “Sixth Amendment”) to the Credit Agreement. The Sixth Amendment provides for, among other things, additional term loans in an aggregate principal amount of approximately $38.7 million, with an original issue discount of $4.1 million, (the “Sixth Amendment Incremental Term Loans”). The original issue discount was paid-in-kind by increasing the principal amount of the Credit Agreement. The proceeds of the Sixth Amendment were used to repay an aggregate of $38.7 million in existing term loans under the Credit Agreement and for the payment of fees, costs and expenses related to the making of the Sixth Amendment Incremental Term Loans. The Sixth Amendment, among other things, also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the Sixth Amendment Incremental Term Loans) commencing on June 30, 2024 to $1.3 million, (ii) included a prepayment premium on the Sixth Amendment Incremental Term Loans and (iii) extended the maturity date for all outstanding term loans under the Credit Agreement to March 15, 2026.

Previous wording

The total principal amount outstanding on the Term Loans was $328.5 million at December 31, 2023. Quarterly principal payments on the Term Loan are $1.2 million as of December 31, 2023. See Note 8 of Notes to Consolidated Financial Statements for additional information about our debt.

Current wording

The total principal amount outstanding on the Term Loans was $352.4 million at December 31, 2024. See Note 9 of Notes to Consolidated Financial Statements for additional information about our debt.