Xponential Fitness, Inc.

Previous wording

The following Management’s Discussion and Analysis gives effect to the correction of the Company’s condensed consolidated financial statements for the three and six months ended June 30, 2024, as more fully described in Note 2 of Notes to Condensed Consolidated Financial Statements.

Current wording

The following Management’s Discussion and Analysis gives effect to the correction of the Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2024, as more fully described in Note 2 of Notes to Condensed Consolidated Financial Statements.

Previous 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 June 30, 2025. 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.

Current wording

We operate a diversified platform of five brands spanning across verticals including Pilates, barre, stretching, strength 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, Puerto Rico and 30 additional countries as of September 30, 2025. The Company's portfolio of brands includes Club Pilates, the largest Pilates 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; and BFT, a functional training and strength-based program.

Previous wording

As of June 30, 2025, 2,823 studios were open in North America (consists of Canada, the United States and U.S. Territories) and franchisees were contractually committed to open 1,461 additional studios under existing franchise agreements. In addition, as of June 30, 2025, we had 504 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,013 new studios, of which master franchisees have sold 246 licenses for studios not yet opened as of June 30, 2025.

Current wording

As of September 30, 2025, 2,575 studios were open in North America (consists of Canada, the United States and U.S. Territories) and franchisees were contractually committed to open 1,042 additional studios under existing franchise agreements. In addition, as of September 30, 2025, we had 491 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 746 new studios, of which master franchisees have sold 204 licenses for studios not yet opened as of September 30, 2025.

Previous wording

During the six months ended June 30, 2025 and 2024, we generated revenue outside the United States of $5.3 million and $7.1 million, respectively. As of June 30, 2025 and December 31, 2024, 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 nine months ended September 30, 2025 and 2024, we generated revenue outside the United States of $7.7 million and $10.9 million, respectively. As of September 30, 2025 and December 31, 2024, 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 July 24, 2025, we entered into an agreement with a buyer to divest the CycleBar and Rumble brands, including the intellectual property, franchise rights and franchise agreements for open studios, and retained certain liabilities, including liabilities related to known litigation, pre-litigation, and disputes as of the closing of the divestiture. We will receive total consideration of $7.0 million, including an initial cash payment of $2.0 million and a final payment of $5.0 million due within 60 days from the divestiture of the CycleBar and Rumble brands. We believe the divestiture allows us to better focus and utilize our resources on our core brands and other opportunities which better align with our long-term strategies.

Current wording

On July 24, 2025, we entered into an agreement with a buyer to divest the CycleBar and Rumble brands, including the intellectual property, franchise rights and franchise agreements for open studios, and retained certain liabilities, including liabilities related to known litigation, pre-litigation, and disputes as of the closing of the divestiture. We will receive total consideration of $7.0 million, of which $2.0 million was received in the three months ended September 30, 2025. We believe the divestiture allows us to better focus and utilize our resources on our core brands and other opportunities which better align with our long-term strategies.

Previous wording

On July 3, 2025, we and Fit Commerce, a California Corporation (“FC”), entered into a Retail Supply Agreement (the “Agreement”) to be effective as of December 1, 2025 (the “Effective Date”). All capitalized terms in this “retail supply agreement” section not otherwise defined herein shall have the meanings ascribed to them in the Agreement. The Agreement relates to the outsourcing of our retail merchandising, including the manufacturing and distribution, of any retail item sold by a franchisee, subject to terms and conditions outlined in the Agreement. In addition, FC has agreed to purchase the Company’s existing retail inventory, subject to certain exceptions, no later than the Effective Date of the Agreement. This strategic initiative shifts management of the franchisee retail experience from our in-house teams to a dedicated e-commerce provider, allowing us to focus on core business priorities.

Current wording

On July 3, 2025, we and Fit Commerce, a California Corporation (“FC”), entered into a Retail Supply Agreement (the “Agreement”) to be effective as of December 1, 2025 (the “Effective Date”). The Agreement relates to the outsourcing of our retail merchandising, including the manufacturing and distribution, of any retail item sold by a franchisee, subject to terms and conditions outlined in the Agreement. In addition, FC has agreed to purchase our existing retail inventory, subject to certain exceptions, no later than the Effective Date of the Agreement. This strategic initiative shifts management of the franchisee retail experience from our in-house teams to a dedicated e-commerce provider, allowing us to focus on core business priorities.

Previous wording

Pursuant to the Agreement, FC will pay us domestic and foreign commissions as well as direct-to-customer commissions (each, a “Commission” and collectively, “Commissions”) in connection with the sale of Products to us or our franchisees. The domestic Commissions will be paid by FC to us based on each Contract Year (prorated for any partial Contract Year) in a minimum aggregate amount of $50 million over the five-year period subject to certain adjustments provided in the Agreement.

Current wording

Pursuant to the Agreement, FC will pay us domestic and foreign commissions as well as direct-to-customer commissions (each, a “Commission” and collectively, “Commissions”) in connection with the sale of products to us or our franchisees. The domestic Commissions will be paid by FC to us based on each contract year (prorated for any partial contract year) in a minimum aggregate amount of approximately $50 million over the five-year period subject to certain adjustments provided in the Agreement.

Previous wording

In addition, on April 26, 2024, we received a request for information from the Office of the Attorney General of the State of Maryland related to our compliance with Maryland’s Franchise Registration and Disclosure Law. As a result of the inquiry, the Company has been unable to offer and sell franchises in Maryland, except in cases where an exemption permitted sales to persons who met specific criteria. The Maryland matter is ongoing. The Company is aware of investigations being conducted by the Office of the Attorney General of the State of New York, the Washington Department of Financial Institutions, and the Virginia Division of Securities and Retail Franchising regarding the Company’s compliance with applicable franchise laws.

Current wording

On April 26, 2024, we received a request for information from the Office of the Attorney General of the State of Maryland related to our compliance with Maryland’s Franchise Registration and Disclosure Law. As a result of the inquiry, we have been unable to offer and sell franchises in Maryland, except in cases where an exemption permitted sales to persons who met specific criteria. The Maryland matter is ongoing. We are aware of an investigation being conducted by the Office of the Attorney General of the State of New York, and we are in discussions with the Virginia Division of Securities and Retail Franchising, each regarding the Company’s compliance with applicable franchise laws. Additionally, we previously received notice of an investigation from the State of Washington's Department of Financial Institutions (“DFI”) related to our compliance with Washington state franchise laws. On August 12, 2025, without admission of wrongdoing, we entered into a consent order with DFI to resolve the matter.

Previous wording

In March 2025, the 2025 Franchise Disclosure Documents (“FDDs”) were issued for the BFT, Club Pilates, CycleBar, Pure Barre, Rumble, Stretch Lab, and Yoga Six franchise programs. The franchisors can offer and sell franchises in most states using the 2025 FDDs (except for Rumble and CycleBar due to the divestiture discussed above). The franchisors continue pursuit of registration of the FDDs in the few remaining states that still require registration and the pause on offering or selling franchises is ongoing in these states. The inability to sell licenses for an extended period has slowed growth and could result in a reduction in anticipated royalty or franchise revenue, which in turn may materially and adversely affect our business, results of operations, cash flows and financial condition.

Current wording

In March 2025, the 2025 Franchise Disclosure Documents (“FDDs”) were issued, and then amended in August 2025, for the BFT, Club Pilates, CycleBar, Pure Barre, Rumble, Stretch Lab, and Yoga Six franchise programs. The franchisors can offer and sell franchises in all states other than Illinois (in the case of Club Pilates only) and Maryland using the 2025 FDDs (except for Rumble and CycleBar due to the divestiture discussed above). The inability to sell licenses for an extended period has slowed growth and could result in a reduction in anticipated royalty or franchise revenue, which in turn may materially and adversely affect our business, results of operations, cash flows and financial condition.

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 2025; however, the ultimate timing of the completion of our restructuring plan 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 three and six months ended June 30, 2025, we recognized total restructuring charges of $1.5 million, net of gains, and $3.9 million, net of gains, respectively, primarily for contract termination and other associated costs, loss (gain) on lease terminations and sale or disposal of assets, impairment of right-of-use 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, the ultimate timing of the completion of our restructuring plan 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 three and nine months ended September 30, 2025, we recognized total restructuring charges of $6.3 million, net of gains, and $10.2 million, net of gains, respectively, primarily for contract termination and other associated costs, loss (gain) 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 2025 totaling between approximately $13.1 million to $16.8 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.

Current wording

We expect to recognize additional restructuring charges throughout 2025 totaling between approximately $7.3 million to $11.0 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

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 or 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.

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 of Stride and Row House prior to their divestitures by the Company in February 2024 and May 2024, respectively, CycleBar and Rumble prior to their divestitures by the Company in July 2025, and Lindora prior to its divestiture in September 2025. 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

The following table sets forth our key performance indicators for the three and six months ended June 30, 2025 and 2024:

Current wording

The following table sets forth our key performance indicators for the three and nine months ended September 30, 2025 and 2024:

Previous wording

The following tables present additional information related to our studio and license key performance indicators for the three and six months ended June 30, 2025 and 2024 :

Current wording

The following tables present additional information related to our studio and license key performance indicators for the three and nine months ended September 30, 2025 and 2024:

Previous wording

Reflects the number of development fee payments on future franchise licenses received by us and unused as of period end. The number of development fee payments on future franchise licenses is not included in the franchise licenses sold count.

Current wording

Reflects the number of development fee payments on future franchise licenses received by us and unused under multi-unit agreements as of period end. The number of development fee payments on future franchise licenses is not included in the franchise licenses sold count.

Previous wording

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. While we do not record sales by franchisees as revenue, and such sales are not included in our consolidated financial statements, this operating metric relates to our revenue because we receive approximately 7% and 2% of the sales by franchisees as royalty revenue and marketing fund revenue, respectively. We believe that this operating measure aids in understanding how we derive our royalty revenue and marketing fund revenue and is important in evaluating our performance.

Current wording

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. While we do not record sales by franchisees as revenue, and such sales are not included in our consolidated financial statements, this operating metric relates to our revenue because we receive approximately 7% and 2% of the sales by franchisees as royalty revenue and marketing fund revenue, respectively. We believe that this operating measure aids in understanding how we derive our royalty revenue and marketing fund revenue and is important in evaluating our performance. System-wide sales growth is driven by new studio openings and increases in same store sales. 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.

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. This number represents studios that have already opened, are generating revenue, and are regularly holding classes, though this number could include some number of studios that have temporarily suspended operations, but that are not permanently closed and have not yet met the definition for a Studio No Longer Operating. The number of studios that have temporarily suspended operations is an immaterial percentage of our total studio base. Please see the table in the “Same Store Sales” section, sub header “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 three and six months ended June 30, 2025, this represented 0.2% of our North America studio base compared to 0.7% for the three and six months ended June 30, 2024. 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

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. This number represents studios that have already opened, are generating revenue, and are regularly holding classes, though this number could include some number of studios that have temporarily suspended operations, but that are not permanently closed and have not yet met the definition for a studio no longer operating. The number of studios that have temporarily suspended operations is an immaterial percentage of our total studio base. Please see the table in the “Same Store Sales” section, sub header “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 three and nine months ended September 30, 2025, this represented 0.2% and 0.1% of our North America studio base, respectively, compared to 0.6% and 0.5% for the three and nine months ended September 30, 2024, respectively. 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

The following tables contain information about changes in the number of our North America operating studios for the three and six months ended June 30, 2025 and 2024, respectively:

Current wording

The following tables contain information about changes in the number of our North America operating studios for the three and nine months ended September 30, 2025 and 2024, respectively:

Previous wording

Includes previously franchised company-owned studios that were converted to franchisee-owned studios in the period.

Current wording

Includes previously franchised company-owned transition studios that were converted to franchisee-owned studios in the period.

Previous wording

The following table sets forth the total number of operating studios internationally for the three and six months ended June 30, 2025 and 2024:

Current wording

The following table sets forth the total number of operating studios internationally for the three and nine months ended September 30, 2025 and 2024:

Previous wording

The following table sets forth the total number of operating studios globally for the three and six months ended June 30, 2025 and 2024:

Current wording

The following table sets forth the total number of operating studios globally for the three and nine months ended September 30, 2025 and 2024:

Previous wording

As of June 30, 2025, we estimate approximately forty percent of our global license obligations are over 12 months behind the applicable development schedule due to various circumstances and are currently inactive. This delay in development has resulted in delays in studio openings and may also lead to increased terminations, which could have a negative long-term impact on our business and operating results.

Current wording

As of September 30, 2025, we estimate approximately 40% of our global license obligations are over 12 months behind the applicable development schedule due to various circumstances and are currently inactive. This delay in development has resulted in delays in studio openings and may also lead to increased terminations, which could have a negative long-term impact on our business and operating results.

Previous wording

The following table reconciles our North America operating studios for the three and six months ended June 30, 2025 and 2024, respectively, to the total studios contributing to both AUV (LTM as of period end) and Quarterly AUV (run rate):

Current wording

The following table reconciles our North America operating studios for the three and nine months ended September 30, 2025 and 2024, respectively, to the total studios contributing to both AUV (LTM as of period end) and Quarterly AUV (run rate):

Previous wording

The following table reconciles our North America operating studios for the three and six months ended June 30, 2025 and 2024, respectively, to the total studios contributing to same store sales:

Current wording

The following table reconciles our North America operating studios for the three and nine months ended September 30, 2025 and 2024, respectively, to the total studios contributing to same store sales:

Previous wording

The following table presents our condensed consolidated results of operations for the three and six months ended June 30, 2025 and 2024:

Current wording

The following table presents our condensed consolidated results of operations for the three and nine months ended September 30, 2025 and 2024:

Previous wording

The following table presents our condensed consolidated results of operations for the three and six months ended June 30, 2025 and 2024 as a percentage of revenue:

Current wording

The following table presents our condensed consolidated results of operations for the three and nine months ended September 30, 2025 and 2024 as a percentage of revenue:

Previous wording

Total revenue, net. Total revenue was $76.2 million in the three months ended June 30, 2025, compared to $76.9 million in the three months ended June 30, 2024, a decrease of $0.7 million, or 1%. The decrease in total revenue was primarily due to a decrease in equipment revenue due to a decrease in equipment installations and a decrease in merchandise revenue, partially offset by an increase in franchise revenue and franchise marketing fund revenue.

Current wording

Total revenue, net. Total revenue was $78.8 million in the three months ended September 30, 2025, compared to $80.5 million in the three months ended September 30, 2024, a decrease of $1.7 million, or 2%. The decrease in total revenue was primarily due to a decrease in equipment revenue due to a decrease in equipment installations and a decrease in merchandise revenue, partially offset by an increase in franchise revenue and franchise marketing fund revenue.

Previous wording

Franchise revenue. Franchise revenue was $45.4 million in the three months ended June 30, 2025, compared to $43.0 million in the three months ended June 30, 2024, an increase of $2.3 million, or 5%. Franchise revenue consisted of franchise royalty fees of $33.7 million, franchise territory fees of $4.4 million, technology fees of $4.4 million and training fees of $2.9 million in the three months ended June 30, 2025, compared to franchise royalty fees of $28.5 million, franchise territory fees of $7.4 million, technology fees of $4.2 million and training fees of $2.9 million in the three months ended June 30, 2024. The increase in franchise royalty fees and technology fees was primarily due to an increase in number of operating studios globally since June 30, 2024. The decrease in franchise territory fees is primarily attributed to a decrease of $3.0 million, or 83%, in revenue recognized as a result of franchise agreement terminations year-over-year to $0.6 million in the three months ended June 30, 2025, compared to $3.6 million in the prior year period.

Current wording

Franchise revenue. Franchise revenue was $51.9 million in the three months ended September 30, 2025, compared to $44.5 million in the three months ended September 30, 2024, an increase of $7.4 million, or 17%. Franchise revenue consisted of franchise royalty fees of $31.5 million, franchise territory fees of $13.7 million, technology fees of $3.6 million and training fees of $3.1 million in the three months ended September 30, 2025, compared to franchise royalty fees of $29.7 million, franchise territory fees of $7.5 million, technology fees of $4.3 million and training fees of $3.0 million in the three months ended September 30, 2024. The increase in franchise royalty fees was primarily due to a higher royalty rate for certain new studios, partially offset by a decrease due to brand divestitures in the current year. The increase in franchise territory fees is primarily attributed to an increase of $6.6 million, or 182%, in revenue recognized as a result of franchise agreement terminations year-over-year to $9.3 million in the three months ended September 30, 2025, compared to $2.7 million in the prior year period.

Previous wording

Equipment revenue. Equipment revenue was $9.5 million in the three months ended June 30, 2025, compared to $12.9 million in the three months ended June 30, 2024, a decrease of $3.4 million, or 26%. Most equipment revenue is recognized in the period when the equipment is installed. The decrease in equipment revenue was primarily driven by a decrease in global equipment installations in the three months ended June 30, 2025, compared to the prior year period, driven by a decrease in studio openings compared to the prior year period and consistent with the decrease in franchise license sales in recent periods.

Current wording

Equipment revenue. Equipment revenue was $7.5 million in the three months ended September 30, 2025, compared to $14.7 million in the three months ended September 30, 2024, a decrease of $7.2 million, or 49%. Most equipment revenue is recognized in the period when the equipment is installed. The decrease in equipment revenue was primarily due to a decrease in global equipment installations in the three months ended September 30, 2025, compared to the prior year period, driven by a decrease in studio openings compared to the prior year period and consistent with the decrease in franchise license sales in recent periods.

Previous wording

Merchandise revenue. Merchandise revenue was $5.6 million in the three months ended June 30, 2025, compared to $6.1 million in the three months ended June 30, 2024, a decrease of $0.5 million, or 8%. The decrease was primarily due to lower demand from studios and a decrease in vendor rebates compared to the prior period.

Current wording

Merchandise revenue. Merchandise revenue was $4.8 million in the three months ended September 30, 2025, compared to $6.6 million in the three months ended September 30, 2024, a decrease of $1.8 million, or 27%. The decrease was primarily due to lower demand from studios and a decrease in vendor rebates compared to the prior period.

Previous wording

Franchise marketing fund revenue. Franchise marketing fund revenue was $9.5 million in the three months ended June 30, 2025, compared to $8.4 million in the three months ended June 30, 2024, an increase of $1.1 million, or 13%. The increase was primarily due to an increase in number of operating studios in North America since June 30, 2024.

Current wording

Franchise marketing fund revenue. Franchise marketing fund revenue was $8.8 million in the three months ended September 30, 2025, compared to $8.6 million in the three months ended September 30, 2024, an increase of $0.3 million, or 3%. The increase was primarily due to an increase in number of operating studios in North America since September 30, 2024.

Previous wording

Other service revenue. Other service revenue was $6.3 million in the three months ended June 30, 2025, compared to $6.4 million in the three months ended June 30, 2024, a decrease of 3%. The decrease was primarily due to a $0.2 million decrease in other preferred vendor commission revenue and brand fee revenue.

Current wording

Other service revenue. Other service revenue was $5.9 million in the three months ended September 30, 2025, compared to $6.2 million in the three months ended September 30, 2024, a decrease of 6%. The decrease was primarily due to a $0.4 million decrease in other preferred vendor commission revenue and brand fee revenue.

Previous wording

Costs of product revenue. Costs of product revenue was $10.5 million in the three months ended June 30, 2025, compared to $13.9 million in the three months ended June 30, 2024, a decrease of $3.4 million, or 25%, compared to a decrease in related revenues of 21%. The decrease in cost of product revenue was partially driven by a decrease in global equipment installations in the three months ended June 30, 2025, compared to the prior year period. Costs of product revenue as a percentage of related revenue decreased to 69% in the three months ended June 30, 2025, from 73% in the comparable prior year period. The decrease was partly due to a decrease in write downs of slow-moving inventory in the current year period.

Current wording

Costs of product revenue. Costs of product revenue was $10.2 million in the three months ended September 30, 2025, compared to $17.3 million in the three months ended September 30, 2024, a decrease of $7.0 million, or 41%, compared to a decrease in related revenues of 42%. The decrease in cost of product revenue was partially attributable to a decrease in global equipment installations in the three months ended September 30, 2025, compared to the prior year period. Costs of product revenue as a percentage of related revenue increased to 84% in the three months ended September 30, 2025, from 81% in the comparable prior year period. The increase was primarily due to an increase in write downs of slow-moving inventory in the current year period.

Previous wording

Costs of franchise and service revenue. Costs of franchise and service revenue was $8.1 million in the six months ended June 30, 2025, compared to $10.9 million in the six months ended June 30, 2024, a decrease of $2.8 million, or 26%. The decrease was primarily due to a $3.5 million decrease in franchise sales commissions, consistent with the related franchise territory revenue decrease.

Current wording

Costs of franchise and service revenue. Costs of franchise and service revenue was $7.0 million in the three months ended September 30, 2025, compared to $4.9 million in the three months ended September 30, 2024, an increase of $2.2 million, or 45%. The increase was primarily due to a $2.0 million increase in franchise sales commissions, including a $2.2 million increase in costs recognized as a result of franchise agreement terminations year-over-year. This increase is consistent with the increase in related franchise territory revenue.

Previous wording

Selling, general and administrative expenses. Selling, general and administrative expenses were $24.1 million in the three months ended June 30, 2025, compared to $37.0 million in the three months ended June 30, 2024, a decrease of $12.9 million, or 35%. The decrease was primarily attributable to a decrease in legal expenses of $7.6 million (driven by nonrecurring insurance credits of $15.0 million in the current period) related to various legal matters including government investigations; a decrease of $1.5 million in equity-based compensation expense due to an increase in forfeitures over the prior year period; a decrease in marketing and advertising expenses of $0.9 million; lower restructuring and related charges of $1.0 million in the current year period; a decrease in salaries and wages of $0.5 million; and a net decrease in other variable expenses of $1.4 million.

Current wording

Selling, general and administrative expenses. Selling, general and administrative expenses were $24.7 million in the three months ended September 30, 2025, compared to $46.2 million in the three months ended September 30, 2024, a decrease of $21.5 million, or 47%. The decrease was primarily attributable to a decrease in legal expenses of $14.2 million (including nonrecurring insurance credits of $5.0 million in the current period) related to various legal matters including government investigations; a decrease of $2.6 million in equity-based compensation expense due to an increase in forfeitures over the prior year period; lower restructuring and related charges of $7.0 million in the current year period; and an increase in gain on divestitures of brands of $1.5 million; partially offset by an $0.8 million increase in bad debt expense; an increase in salaries and wages of $0.7 million; a $0.7 million increase in loss on guaranty of franchisee third-party loans; and a net increase in other variable expenses of $1.6 million.

Previous wording

Impairment of goodwill and other noncurrent assets. Impairment of goodwill and other noncurrent assets was $12.9 million in the three months ended June 30, 2025, compared to $12.1 million in the three months ended June 30, 2024, an increase of $0.8 million. The increase was due to impairments of goodwill of $5.1 million and $2.3 million related to the BFT and Lindora reporting units, respectively, impairment of trademark of $3.4 million related to the CycleBar reporting unit, and other noncurrent asset impairments of $2.0 million compared to write down of franchise agreements and goodwill of $12.1 million related to the CycleBar reporting unit in the prior year period.

Current wording

Impairment of goodwill and other noncurrent assets. Impairment of goodwill and other noncurrent assets was $17.6 million in the three months ended September 30, 2025, compared to $4.5 million in the three months ended September 30, 2024, an increase of $13.1 million. The increase was due to $12.7 million impairment of trademark, franchise agreement and deferred video production intangible assets related to the BFT reporting unit and other noncurrent asset impairments of $4.9 million in the current year period, compared to write down of right-of-use assets and intangible assets of $4.5 million related to studio exits in conjunction with our restructuring plan and wind down of AKT franchise operations in the prior year period.

Previous wording

Depreciation and amortization. Depreciation and amortization expense was $3.0 million in the three months ended June 30, 2025, compared to $4.5 million in the three months ended June 30, 2024, a decrease of $1.5 million, or 34%. The decrease was primarily due to a decrease in fixed assets related to impairment of software assets and a decrease in intangible assets due to impairments during the year ended December 31, 2024.

Current wording

Depreciation and amortization. Depreciation and amortization expense was $3.7 million in the three months ended September 30, 2025, compared to $4.2 million in the three months ended September 30, 2024, a decrease of $0.5 million, or 13%. The decrease was primarily due to a decrease in fixed assets related to impairment of software assets and a decrease in intangible assets due to impairments during the year ended December 31, 2024.

Previous wording

Marketing fund expense. Marketing fund expense was $8.9 million in the three months ended June 30, 2025, compared to $7.8 million in the three months ended June 30, 2024, an increase of $1.0 million, or 13%. Marketing fund expenses are recorded as incurred, which may not occur in the same period as the recognition of franchise marketing fund revenue. For the three months ended June 30, 2025, marketing fund revenue was $0.6 million higher than marketing fund expense, however marketing fund expense is expected to increase in the second half of 2025.

Current wording

Marketing fund expense. Marketing fund expense was $9.0 million in the three months ended September 30, 2025, compared to $6.4 million in the three months ended September 30, 2024, an increase of $2.6 million, or 40%. Marketing fund expenses are recorded as incurred, which may not occur in the same period as the recognition of franchise marketing fund revenue. For the three months ended September 30, 2025, marketing fund revenue was $0.2 million lower than marketing fund expense.

Previous wording

Acquisition and transaction income. Acquisition and transaction income was $1.9 million in the three months ended June 30, 2025, compared to income of $1.2 million in the three months ended June 30, 2024, a decrease of $0.7 million, or 57%. These charges primarily represent the non-cash change in contingent consideration related to 2021 and 2024 business acquisitions.

Current wording

Acquisition and transaction expense. Acquisition and transaction expense was $3.1 million in the three months ended September 30, 2025, compared to $3.7 million in the three months ended September 30, 2024, a decrease of $0.6 million, or 16%. These charges primarily represent the non-cash change in contingent consideration related to 2021 and 2024 business acquisitions.

Previous wording

Interest income. Interest income primarily consists of interest on notes receivable and interest income received from various interest-bearing bank accounts, which was $0.7 million in the three months ended June 30, 2025, compared to $0.4 million in the three months ended June 30, 2024.

Current wording

Interest income. Interest income primarily consists of interest on notes receivable and interest income received from various interest-bearing bank accounts, which was $1.1 million in the three months ended September 30, 2025, compared to $0.5 million in the three months ended September 30, 2024.