What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-12 compared with 2022-05-13 · 452 added, 270 removed, 1123 unchanged (39% of the section changed)

32 unchanged sentences

Redeemable convertible preferred stock, $ 0.0001 par value, 400,000 shares authorized, 200,000

shares issued and outstanding as of March 31, 2022 and December 31, 2021

shares issued and outstanding as of June 30, 2022 and December 31, 2021

Stockholders' equity (deficit):

Undesignated preferred stock, $ 0.0001 par value, 4,600,000 shares authorized, none issued

and outstanding as of March 31, 2022 and December 31, 2021

and outstanding as of June 30, 2022 and December 31, 2021

Class A common stock, $ 0.0001 par value, 500,000,000 shares authorized, 27,185,829 and

23,898,042 shares issued and outstanding as of March 31, 2022 and December 31, 2021,

23,898,042 shares issued and outstanding as of June 30, 2022 and December 31, 2021,

Class B common stock, $ 0.0001 par value, 500,000,000 shares authorized, 21,686,633 and

22,968,674 shares issued and outstanding as of March 31, 2022 and December 31, 2021,

22,968,674 shares issued and outstanding as of June 30, 2022 and December 31, 2021,

Additional paid-in capital

9 unchanged sentences

(amounts in thousands, except share and per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Revenue, net:

11 unchanged sentences

Marketing fund expense

Acquisition and transaction expenses

Acquisition and transaction expenses (income)

Total operating costs and expenses

Operating loss

Operating income (loss)

Other (income) expense:

1 unchanged sentence

Interest expense (Note 10)

Gain on debt extinguishment

Total other expense

Loss before income taxes

Net loss attributable to noncontrolling interests

Net loss attributable to Xponential Fitness, Inc.

Net loss per share of Class A common stock:

Income (loss) before income taxes

Net income (loss)

net income attributable to noncontrolling interests

Net income (loss) attributable to Xponential Fitness, Inc.

Net earnings per share of Class A common stock:

Weighted average shares of Class A common stock outstanding:

17 unchanged sentences

Balance at March 31, 2022

Equity based compensation

Conversion of Class B shares to Class A shares

Payment of preferred stock dividend

Adjustment of preferred stock to redemption value

Vesting of Class B Shares

Vesting of restricted stock units

Balance at June 30, 2022

Class A Common Stock

9 unchanged sentences

Balance at March 31, 2021

Equity based compensation

Balance at June 30, 2021

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(amounts in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

5 unchanged sentences

Non-cash interest

Gain on disposal of assets

Gain on debt extinguishment

(Gain) loss on disposal of assets

Impairment of long-lived assets

Changes in assets and liabilities:

6 unchanged sentences

Accrued expenses

Notes payable

Related party payable

Other current liabilities

1 unchanged sentence

Other liabilities

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Cash flows from investing activities:

Purchases of property and equipment

Purchase of studios

Proceeds from sale of assets

Purchase of studios

Purchase of intangible assets

Notes receivable issued

Notes receivable payment received

Notes receivable payments received

Net cash used in investing activities

5 unchanged sentences

Payment of contingent consideration

Payments on loans from related party (Note 10)

Distributions to Member

Receipts from Member, net (Note 10)

Net cash used in financing activities

Decrease in cash, cash equivalents and restricted cash

Net cash provided by (used in) financing activities

Increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

4 unchanged sentences

(amounts in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental cash flow information:

6 unchanged sentences

Adjustment of preferred stock to redemption value

Intangible asset acquired in exchange for deferred revenue

Acquisition of intangible assets accrued

See accompanying notes to condensed consolidated financial statements.

5 unchanged sentences

Xponential Fitness, Inc.

(the "Company" or “XPO Inc.”), was formed as a Delaware corporation on January 14, 2020.

(the “Company”

or “XPO Inc.”), was formed as a Delaware corporation on January 14, 2020.

On July 23, 2021, the Company completed an initial public offering (“IPO”) of 10,000,000 shares of Class A common stock and entered into a series of transactions to implement an internal reorganization.

4 unchanged sentences

Prior to the formation of XPO Holdings, the Company was a wholly owned subsidiary of H&W Franchise Intermediate Holdings, LLC (the “Member”).

As of March 31, 2022 , the Company’s portfolio of ten brands consists of:

As of June 30, 2022 , the Company’s portfolio of ten brands consists of:

“Club Pilates,”

9 unchanged sentences

“AKT,”

and “Pure Barre,”

which are dance-based concepts that provide a combination of personal training and movement based techniques;

a dance-based cardio workout concept that combines toning, interval and circuit training;

“Pure Barre,”

a total body workout concept that uses the ballet barre to perform small isometric movements;

“Stride,”

5 unchanged sentences

The Company, through its brands, licenses its proprietary systems to franchisees who in turn operate studios to promote training and instruction programs to their club members within each vertical.

In addition to franchised studios, the Company operated 20 and 49 company-owned transition studios as of March 31, 2022 and 2021, respectively.

In addition to franchised studios, the Company operated 14 and 52 company-owned transition studios as of June 30, 2022 and 2021, respectively.

In connection with the IPO, XPO Inc.

29 unchanged sentences

Segment and geographic information –T he Company operates in one reportable and operating segment.

During the three months ended March 31, 2022 and 2021 , the Company generated revenue outside the United States of $ 3,380 and $ 315 , respectively.

As of March 31, 2022 and December 31, 2021 , the Company did not have material assets located outside of the United States.

The Company generated $ 2,576 and $ 5,956 of revenue outside the United States during the three and six months ended June 30, 2022 , respectively, and $ 223 and $ 539 during the three and six months ended June 30, 2021, respectively.

As of June 30, 2022 and December 31, 2021 , the Company did not have material assets located outside of the United States.

Cash, cash equivalents and restricted cash –

1 unchanged sentence

The Company has marketing fund restricted cash, which can only be used for activities that promote the Company’s brands.

Restricted cash was $ 1,596 and $ 1,427 at March 31, 2022 and December 31, 2021 , respectively.

Restricted cash was $ 2,221 and $ 1,427 at June 30, 2022 and December 31, 2021 , respectively.

Accounts receivable and allowance for doubtful accounts –

5 unchanged sentences

Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

At March 31, 2022 and December 31, 2021 , the allowance for doubtful accounts was $ 1,413 and $ 2,193 , respectively.

At June 30, 2022 and December 31, 2021 , the allowance for doubtful accounts was $ 2,327 and $ 2,193 , respectively.

Accrued expenses –

33 unchanged sentences

The noncontrolling interests' ownership percentage can fluctuate over time as the Class B common stockholders elect to exchange their shares of Class B common stock for Class A common stock.

Earnings (loss) per share –

Basic earnings (loss) per share is calculated by dividing the earnings (loss) attributable to Class A common stockholders by the number of weighted-average shares of Class A common stock outstanding.

Shares of Class B common stock do not share in the earnings or losses of the Company and are therefore not participating securities.

As such, separate presentation of basic and diluted earnings (loss) per share of Class B common stock under the two-class method has not been presented.

Diluted earnings (loss) per share adjusts the basic earnings (loss) per share calculation for the potential dilutive impact of common shares such as equity awards using the treasury-stock method.

Diluted earnings (loss) per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.

Earnings per share –

Basic earnings per share is calculated by dividing the earnings attributable to Class A common stockholders by the number of weighted-average shares of Class A common stock outstanding.

Shares of Class B common stock do not share in the earnings of the Company and are therefore not participating securities.

As such, separate presentation of basic and diluted earnings per share of Class B common stock under the two-class method has not been presented.

Diluted earnings per share adjusts the basic earnings per share calculation for the potential dilutive impact of common shares such as equity awards using the treasury-stock method.

Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect.

Shares of Class B common stock are considered potentially dilutive shares of Class A common stock.

however, related amounts have been excluded from the computation of diluted earnings (loss) per share of Class A common stock because the effect would have been anti-dilutive under the if-converted and two-class methods.

Prior to the IPO, XPO LLC had one class of membership interest which was held by the Member.

14 unchanged sentences

The Company recognizes potential interest and penalties, if any, related to income tax matters in income tax expense.

The Company did no t incur any interest or penalties for the three months ended March 31, 2022 and 2021 .

The Company did no t incur any interest or penalties for the three and six months ended June 30, 2022 and 2021 .

Recently adopted accounting pronouncements –

50 unchanged sentences

The Company completed the following acquisitions which contain Level 3 fair value measurements related to the recognition of goodwill and intangibles.

During the three months ended March 31, 2021 , the Company entered into an agreement with a franchisee under which the Company repurchased two studios to operate as company-owned transition studios.

During the six months ended June 30, 2021 , the Company entered into agreements with franchisees under which the Company repurchased five studios to operate as company-owned transition studios.

The aggregate purchase price for the acquisitions was $ 390 , less $ 60 of net deferred revenue and deferred costs resulting in total purchase consideration of $ 330 .

3 unchanged sentences

Total purchase price

The fair value of reacquired franchise rights was based on the excess earnings method and are considered to have an approximate eight-year life.

The fair value of reacquired franchise rights was based on the excess earnings method and are considered to have an approximate five to eight-year life.

Inputs used in the methodologies primarily included sales forecasts, projected future cash flows and discount rate commensurate with the risk involved.

The acquisition was not material to the results of operations of the Company.

During the three months ended March 31, 2022 and 2021 , the Company refranchised nine and four company-owned transition studios, respectively, and received no proceeds and recorded no gain or loss on disposal of the studio assets.

During the six months ended June 30, 2021 , the Company refranchised 19 company-owned transition studios for aggregate proceeds of $ 318 and recorded a loss on disposal of the related studio assets of $ 179 .

During the six months ended June 30, 2022 , the Company refranchised 15 company-owned transition studios and received no proceeds and recorded no gain or loss on disposal of the studio assets.

The Company is actively seeking to refranchise the remaining company-owned transition studios, although it expects to hold a small number of strategic transition studios for a limited time while facilitating the transfer of these studios to new or existing franchisees.

5 unchanged sentences

For studio assets that are not deemed to be recoverable, the Company recognizes impairment for any excess of carrying value over the fair value of the studios, which is based on the expected net sales proceeds.

During the three months ended March 31, 2022 and 2021 , the Company did no t record any impairment charge, which is a level 3 measurement.

During the three and six months ended June 30, 2022, the Company did not record any impairment charges.

During the three and six months ended June 30, 2021 , the Company recorded $ 0 and $ 781 of impairment charges, respectively, which is a level 3 measurement.

On October 13, 2021 , the Company entered into an Asset Purchase Agreement (“APA”) with GRPX Live Pty Ltd., an Australian corporation, and its affiliates (the “Seller”) whereby the Company acquired certain assets relating to the concept and brand known as BFT.

19 unchanged sentences

As a part of the purchase accounting, the Company has not recorded any liability for the potential cancelation fee (which was evaluated in accordance with ASC 805, Business Combinations ) and potential legal indemnification liability (which was evaluated in accordance with ASC 450, Contingencies ).

The Company continues to evaluate additional information in relation to these matters, including information that existed as of the acquisition date.

The transaction was accounted for as a business combination using the acquisition method of accounting, which requires the assets acquired and the liabilities assumed to be recorded at their respective fair value as of the date of the transaction.

16 unchanged sentences

Goodwill and intangible assets recognized from this acquisition are expected to be tax deductible.

BodyFit Trademark

During the three months ended June 30, 2022 , the Company entered into a Trademark Acquisition Agreement with Vitalize, LLC dba Bodybuilding.com (the "Seller") whereby the Company acquired all rights, titles, and interests in and to the BodyFit trademark in the United States.

The acquisition was recorded as an asset acquisition.

The aggregate purchase consideration for the acquisition was $ 10,300 .

The purchase price consisted of $ 5,500 of cash consideration, which was paid in July 2022, and $ 4,800 of noncash consideration, which was recorded as a contract liability.

The noncash consideration relates to signing of a brand fee agreement (as defined in Note 4) where the Seller has access to the Company's franchisees to sell its products to franchisees over the term of the agreement.

The fair value of the trademark was determined using the relief from royalty method, and is considered to have a 10-year life.

The fair value of the contract liability was determined using the total fair value of the asset acquired reduced by the amount of cash consideration provided.

The Trademark Acquisition Agreement is subject to termination due to a third-party right of first refusal.

The likelihood of exercise of the right of first refusal is considered remote as of June 30, 2022.

On March 24, 2021, the Parent entered into a contribution agreement with Rumble Holdings LLC;

8 unchanged sentences

The Company estimated the value of the Parent’s shares using Level 3 input factors including the fair value of the acquired entity, negotiated values with the sellers of the acquired entity, recent equity recapitalizations of the Parent, comparable industry transactions, adjusted EBITDA multiples ranging from 15 to 18 and the estimated fair value of the Company’s reporting units.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

The Selling Parties are engaged in the business of operating fitness studios under the “Rumble”

11 unchanged sentences

Total purchase price

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

The consideration resulted in goodwill of $ 8,183 , which consists largely of the synergies and economies of scale expected from combining the assets of Rumble with the Company’s franchise servicing operations.

9 unchanged sentences

Goodwill and intangible assets recognized from this acquisition are not expected to be tax deductible.

During the three months ended March 31, 2021 , the Company incurred $ 229 of transaction costs directly related to the Rumble acquisit ion, which is included in acquisition and transaction expenses in the condensed consolidated statements of operations.

During the three and six months ended June 30, 2021 , the Company incurred $ 77 and $ 307 , respectively, of transaction costs directly related to the Rumble acquisit ion, which is included in acquisition and transaction expenses in the condensed consolidated statements of operations.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

Note 4 –

7 unchanged sentences

The Company classifies these contract liabilities as either current deferred revenue or non-current deferred revenue in the condensed consolidated balance sheets based on the anticipated timing of delivery.

The following table reflects the change in franchise development and brand fee contract liabilities for the three months ended March 31, 2022 .

The following table reflects the change in franchise development and brand fee contract liabilities for the six months ended June 30, 2022 .

Other deferred revenue amounts of $ 15,896 are excluded from the table as the original expected duration of the contracts is one year or less .

6 unchanged sentences

during the year

Balance at March 31, 2022

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

The following table illustrates estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2022.

Balance at June 30, 2022

The following table illustrates estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of June 30, 2022.

The expected future recognition period for deferred franchise development fees related to unopened studios is based on management’s best estimate of the beginning of the franchise license term for those studios.

8 unchanged sentences

Current portion of deferred revenue

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

Contract costs –

5 unchanged sentences

The associated expense is classified within costs of franchise and service revenue in the condensed consolidated statements of operations.

At March 31, 2022 and December 31, 2021 , there were approximately $ 3,221 and $ 3,071 of current deferred costs and approximately $ 42,355 and $ 41,941 in non-current deferred costs, respectively.

The Company recognized approximately $ 2,553 and $ 1,009 in franchise sales commission expense for the three months ended March 31, 2022 and 2021 , respectively.

At June 30, 2022 and December 31, 2021 , there were approximately $ 3,320 and $ 3,071 of current deferred costs and approximately $ 42,917 and $ 41,941 in non-current deferred costs, respectively.

The Company recognized franchise sales commission expense of approximately $ 2,797 and $ 5,350 for the three and six months ended June 30, 2022 respectively, and $ 1,440 and $ 2,449 for the three and six months ended June 30, 2021 , respectively.

Note 5 –

10 unchanged sentences

Activity related to these loans is presented within investing activities in the condensed consolidated statements of cash flows.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

At March 31, 2022 and December 31, 2021 , the principal balance of the notes receivable was approximately $ 7,953 and $ 7,473 , respectively.

At June 30, 2022 and December 31, 2021 , the principal balance of the notes receivable was approximately $ 8,585 and $ 7,473 , respectively.

The Company evaluates loans for collectability upon issuance of the loan and records interest only if the loan is deemed collectable.

2 unchanged sentences

Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

At March 31, 2022 and December 31, 2021 , the Company has reserved approximately $ 2,327 and $ 2,139 as uncollectible notes receivable, respectively.

At June 30, 2022 and December 31, 2021 , the Company has reserved approximately $ 2,327 and $ 2,139 as uncollectible notes receivable, respectively.

Note 6 –

7 unchanged sentences

Total property and equipment

Depreciation expense for the three months ended March 31, 2022 and 2021 was $ 845 and $ 716 , respectively.

Depreciation expense for the three and six months ended June 30, 2022 was $ 821 and $ 1,666 , respectively, and $ 738 and $ 1,454 for the three and six months ended June 30, 2021 , respectively.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

Note 7 –

2 unchanged sentences

Goodwill is not amortized but is tested annually for impairment or more frequently if indicators of potential impairment exist.

The Company has not identified any events or circumstances at March 31, 2022 that would require an interim goodwill impairment test.

The carrying value of goodwill at March 31, 2022 and December 31, 2021 totaled $ 169,073 .

The Company has not identified any events or circumstances at June 30, 2022 that would require an interim goodwill impairment test.

The carrying value of goodwill at June 30, 2022 and December 31, 2021 totaled $ 169,073 .

Intangible assets consisted of the following:

March 31, 2022

June 30, 2022

December 31, 2021

6 unchanged sentences

Total intangible assets

Amortization expense was $ 2,648 and $ 1,339 , for the three months ended March 31, 2022 and 2021, respectively.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

Amortization expense was $ 2,757 and $ 5,405 , for the three and six months ended June 30, 2022 , respectively, and $ 1,669 and $ 3,008 for the three and six months ended June 30, 2021, respectively.

The anticipated future amortization expense of intangible assets is as follows:

9 unchanged sentences

Quarterly principal payments of $ 53 on the additional term loans were scheduled to begin June 30, 2021 .

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

On April 19, 2021, the Company 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 $ 212,000 senior secured term loan facility (the “Term Loan Facility”, and the loans thereunder, each a “Term Loan”

3 unchanged sentences

(i) monthly payments of interest on the Term Loans and (ii) quarterly principal payments equal to 0.25 % of the original principal amount of the Term Loans.

Borrowings under the Term Loan Facility bear interest at a per annum rate of, at the Company’s option, either (a) the specified LIBOR rate plus a margin of 6.50 % or (b) the Reference Rate (as defined in the Credit Agreement) plus a margin of 5.50 % ( 7.50 % at March 31, 2022).

The Credit Agreement also contains mandatory prepayments of the Term Loans with:

8 unchanged sentences

Otherwise, the Term Loans may be paid without premium or penalty, other than customary breakage costs with respect to LIBOR Rate Term Loans.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

The Credit Agreement contains customary affirmative and negative covenants, including, among other things:

8 unchanged sentences

and (ix) restricting the issuance of equity.

As of March 31, 2022, the Company was in compliance with these covenants.

As of June 30, 2022, the Company was in compliance with these covenants.

The Credit Agreement also contains customary events of default, which could result in acceleration of amounts due under the Credit Agreement.

5 unchanged sentences

In connection with the repayment, the Company incurred a prepayment penalty of $ 413 and wrote off a pro rata portion of debt issuance costs and debt discount aggregating $ 2,454 , which is included in interest expense for the quarter ended September 30, 2021.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

On October 8, 2021, the Company entered into an amendment (the “

9 unchanged sentences

The Company recorded the forgiveness, including accrued interest, as a gain on debt extinguishment in the condensed consolidated statement of operations for $ 3,707 for the quarter ended June 30, 2021.

The Company incurred debt issuance costs of $ 46 and $ 212 in the three months ended March 31, 2022 and 2021 , respectively.

Debt issuance cost amortization amounted to approximately $ 33 and $ 311 for the three months ended March 31, 2022 and 2021, respectively.

Unamortized debt issuance costs as of March 31, 2022 and December 31, 2021 were $ 354 and $ 341 , respectively, and are presented as a reduction to long-term debt in the condensed consolidated balance sheets.

Principal payments on outstanding balances of long-term debt as of March 31, 2022 were as follows:

The Company incurred debt issuance costs of $ 46 and $ 904 in the six months ended June 30, 2022 and 2021 , respectively.

Debt issuance cost amortization amounted to approximately $ 31 and $ 64 for the three and six months ended June 30, 2022 , respectively, and $ 5,039 and $ 5,350 for the three and six months ended June 30, 2021, respectively.

Unamortized debt issuance costs as of June 30, 2022 and December 31, 2021 were $ 324 and $ 341 , respectively, and are presented as a reduction to long-term debt in the condensed consolidated balance sheets.

Principal payments on outstanding balances of long-term debt as of June 30, 2022 were as follows:

Remainder of 2022

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

The carrying value of the Company’s long-term debt approximated fair value as of March 31, 2022 and December 31, 2021 , due to the variable interest rate, which is a Level 2 input, or proximity of debt issuance date to the balance sheet date.

The carrying value of the Company’s long-term debt approximated fair value as of June 30, 2022 and December 31, 2021 , due to the variable interest rate, which is a Level 2 input, or proximity of debt issuance date to the balance sheet date.

Note 9 –

15 unchanged sentences

The Company has lease agreements with lease and non-lease components, for which variable non-lease components are accounted for separately.

Supplemental balance sheet information related to leases is as follows:

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

Supplemental balance sheet information related to leases is summarized as follows:

Operating leases

Balance Sheet Location

June 30, 2022

ROU assets, net

4 unchanged sentences

Lease liability

The components of lease expense during the three months ended March 31, 2022, are as follows:

Components of lease expense during the three and six months ended June 30, 2022, are summarized as follows:

Three Months Ended June 30

Related-party lease

3 unchanged sentences

Short-term lease costs

Other information related to leases for the three months ended March 31, 2022, was as follows:

Cash paid for amounts included in the measurement

of operating lease liabilities:

Operating cash flows used in operating leases

Six Months Ended June 30

Related-party lease

Third-party leases

Operating lease costs

Variable lease costs

Short-term lease costs

Supplemental cash flow information related to operating leases during the three and six months ended June 30, 2022, is summarized as follows:

Three Months Ended June 30

Cash paid for amounts included in the measurement of operating lease liabilities

Six Months Ended June 30

Cash paid for amounts included in the measurement of operating lease liabilities

Other information related to leases as of June 30, 2022 is summarized as follows:

Weighted average remaining lease term (years)

3 unchanged sentences

(amounts in thousands, except share, per share and unit amounts)

Maturities of lease liabilitie s as of March 31, 2022, were as follows:

Maturities of lease liabilities as of June 30, 2022 are summarized as follows:

Related-party lease

9 unchanged sentences

In June 2018, TPG assigned the management services agreement to H&W Investco Management LLC (“H&W Investco”), which is beneficially owned by a member of the Company’s board of directors.

During the three months ended March 31, 2022 and 2021 , the Company recorded approximately $ 0 and $ 192 , respectively, of management fees included within SG&A expenses for services received from H&W Investco, including reimbursement for reasonable out-of-pocket expenses.

During the three and six months ended June 30, 2021 , the Company recorded approximately $ 207 and $ 399 of management fees included within SG&A expenses for services received from H&W Investco, including reimbursement for reasonable out-of-pocket expenses.

The management services agreement was terminated following the IPO in July 2021.

1 unchanged sentence

During the three months ended March 31, 2021, the Parent repaid $ 2 of the receivable.

The aggregate receivable from the Parent at March 31, 2021 was $ 1,454 .

The aggregate receivable from the Parent at June 30, 2021 was $ 1,454 .

In March 2021, the Company recorded a distribution to the Parent of $ 10,600 , which the Parent used to fund a note payable under a debt financing obligation in connection with the acquisition of Rumble.

6 unchanged sentences

The notes receivable begin to accrue interest 45 days after the issuance to the franchisee.

At March 31, 2022 and December 31, 2021, the Company had recorded $ 98 and $ 96 of not es receivable, respectively.

At June 30, 2022 and December 31, 2021, the Company had recorded $ 99 and $ 96 of not es receivable, respectively.

The notes payable were repaid in 2021.

The Company recognized $ 3 of interest income in the three months ended March 31, 2022 and 2021, and $ 0 and $ 3 of interest expense for the three months ended March 31, 2022 and 2021, respectively.

The Company recognized $ 3 and $ 6 of interest income in the three and six months ended June 30, 2022 , respectively, and $ 3 and $ 6 in the three and six months ended June 30, 2021.

The Company did not record any interest expense for the three and six months ended June 30, 2022, respectively.

During the three and six months ended June 30, 2021, the Company recorded $ 2 and $ 5 of interest expense, respectively.

In September 2019, the Company entered into a five-year building lease agreement, expiring August 31, 2024 , with Von Karman Production LLC, which is owned by the Company’s Chief Executive Officer.

Pursuant to the lease, the Company is obligated to pay monthly rent of $ 25 for the initial twelve months of the lease term with subsequent 3 % annual rent increa ses.

During the three months ended March 31, 2022 and 2021 , the Company recorded expense related to this lease of $ 80 .

The Company recorded expense related to this lease of $ 80 and $ 159 in the three and six months ended June 30, 2022 and 2021, respectively.

Xponential Fitness, Inc.

2 unchanged sentences

The Company earns revenues and has accounts receivable and notes receivables from franchisees who are also shareholders of or officers of the Company.

Revenues from these affiliates, primarily related to franchise revenue, marketing fund revenue and merchandise revenue, were $ 263 and $ 294 for the three months ended March 31, 2022 and 2021, respectively.

Included in accounts receivable as of March 31, 2022 and December 31, 2021, i s $ 316 a nd $ 320 , respectively, for such sales.

At March 31, 2022 and December 31, 2021, notes receivable from franchisees inclu des $ 601 a nd $ 294 and notes receivable from franchisees, net of current portion includes $ 1,744 a nd $ 1,744 , re spectively, related to financing provided to these affiliates.

Revenues from these affiliates, primarily related to franchise revenue, marketing fund revenue, package and memberships revenue, and merchandise revenue, were $ 686 and $ 1,339 for the three and six months ended June 30, 2022 , respectively, and $ 401 and $ 598 for the three and six months ended June 30, 2021, respectively.

Included in accounts receivable as of June 30, 2022 and December 31, 2021, i s $ 318 a nd $ 320 , respectively, for such sales.

At June 30, 2022 and December 31, 2021, notes receivable from franchisees inclu des $ 910 a nd $ 294 and notes receivable from franchisees, net of current portion includes $ 1,914 a nd $ 1,744 , re spectively, related to financing provided to these affiliates.

Note 11 –

8 unchanged sentences

Certain embedded features in the Convertible Preferred require bifurcation.

However, the fair value of such embedded features are immaterial upon issuance and as of March 31, 2022.

However, the fair value of such embedded features are immaterial upon issuance and as of June 30, 2022.

The Convertible Preferred ranks senior to the Company’s common stock with respect to the payment of dividends and distribution of assets upon liquidation, dissolution and winding up.

5 unchanged sentences

The Convertible Preferred is recorded as mezzanine equity (temporary equity) on the condensed consolidated balance sheets because it is not mandatorily redeemable but does contain a redemption feature at the option of the Preferred holders that is considered not solely within the Company’s control.

At March 31, 2022 , the Company recognized the Preferred maximum redemption value of $ 327,821 , which is the maximum redemption value on the earliest redemption date based on fair market value per share of Preferred Stock (based on the average volume-weighted average price per share of Class A common stock for the 10 consecutive trading day period ending on, and including, the trading day immediately preceding the redemption notice ) a nd 200,000 outstanding shares of Preferred.

The recording of the Preferred maximum redemption value was treated as a deemed dividend, which was not included in the calculation of loss per share, and resulted in a $ 50,931 charge to accumulated deficit.

At June 30, 2022 , the Company recognized the Preferred maximum redemption value of $ 200,000 , which is the maximum redemption value on the earliest redemption date based on fair market value per share of Preferred Stock (based on the average volume-weighted average price per share of Class A common stock for the 10 consecutive trading day period ending on, and including, the trading day immediately preceding the redemption notice a nd 200,000 outstanding shares of Preferred).

The recording of the Preferred maximum redemption value was treated as deemed contribution, which was not included in the calculation of earnings per share, and resulted in a net increase of $ 76,890 to additional paid-in-capital.

Xponential Fitness, Inc.

12 unchanged sentences

After underwriter discounts and commissions, the Company received net proceeds of approximately $ 10,116 on August 24, 2021, which were used (i) $ 9,000 to purchase 750,000 LLC Units from the Company’s Chief Executive Officer and (ii) $ 1,116 for working capital.

During the three months ended March 31, 2022 , pursuant to the Amended LLC agreement, certain Continuing Pre-IPO LLC Members exchanged their LLC units for 351,163 shares of Class A common stock on a one-for-one basis.

On April 6, 2022, the Company entered into an underwriting agreement with certain existing stockholders, affiliates of H&W Investco (the “Selling Stockholders”) and certain underwriters named therein, pursuant to which the Selling Stockholders sold 4,500,000 shares of Class A common stock at a price of $ 20.00 per share.

All of the shares sold in this offering were offered by the Selling Stockholders.

In addition, the Selling Stockholders granted the underwriters a 30-day option to purchase up to an additional 675,000 shares of the Company's Class A common stock, which was exercised on April 7, 2022.

The shares sold in the offering consisted of (i) 2,479,342 existing shares of Class A common stock and (ii) 2,695,658 newly-issued shares of Class A common stock issued in connection with the exchange of LLC units held by the Selling Stockholders.

The Company did not receive any proceeds from the sale of shares of Class A common stock offered by the Selling Stockholders.

Simultaneously, 2,695,658 Class B shares were surrendered by the Selling Stockholders and canceled.

Additionally, during the three and six months ended June 30, 2022 , pursuant to the Amended LLC agreement, certain Continuing Pre-IPO LLC Members exchanged their LLC units for 187,395 and 538,558 shares of Class A common stock on a one-for-one basis, respectively.

Noncontrolling interests –

8 unchanged sentences

Future redemptions or exchanges of LLC Units by the Continuing Pre-IPO LLC Members will result in a change in ownership and reduce the amount recorded as noncontrolling interest and increase additional paid-in capital.

During the three months ended March 31, 2022, the Company experienced a change in noncontrolling interests ownership due to the conversion of Class B to Class A shares and as such, has rebalanced the related noncontrolling interests balance.

The Company calculated the rebalancing based on the net assets of XPO LLC, after considering the preferred shareholders' claim on the net assets of XPO LLC as of March 31, 2022.

The Company used the liquidation value of the preferred shares as of March 31, 2022 for such rebalancing.

The following table summarizes the ownership of XPO LLC as of March 31, 2022:

Ownership percentage

Noncontrolling interests

During the first and second quarters of 2022, the Company experienced a change in noncontrolling interests ownership due to the conversion of Class B to Class A shares and as such, has rebalanced the related noncontrolling interests balance.

The Company calculated the rebalancing based on the net assets of XPO LLC, after considering the preferred shareholders' claim on the net assets of XPO LLC.

The Company used the liquidation value of the preferred shares for such rebalancing.

Xponential Fitness, Inc.

1 unchanged sentence

(amounts in thousands, except share, per share and unit amounts)

The following table summarizes the ownership of XPO LLC as of June 30, 2022:

Ownership percentage

Noncontrolling interests

Note 13 –

3 unchanged sentences

Subsequent to the IPO, the profit interest units converted to Class B shares.

Stock-based compensation related to profit interest units increases noncontrolling interests.

In June 2021, the Parent amended previously issued profit interest units with performance-based vesting conditions that were based on performance targets connected to the value received from change of control of the Parent.

3 unchanged sentences

In March 2022, the units vested when the average trading price condition was met.

During the three months ended March 31, 2022 , the Company recognized $ 12,126 of expense, including $ 8,467 of accelerated compensation expense when these grants vested in March 2022.

During the six months ended June 30, 2022 , the Company recognized $ 12,003 of expense, including $ 8,467 of accelerated compensation expense when these grants vested in March 2022.

The fair value of the time-based grants was recognized as compensation expense over the vesting period (generally four years), with an increase to Member’s contribution / Additional Paid-in Capital in Member’s / Stockholders' equity.

The fair value of the time-based grants was calculated using a Black-Scholes option-pricing model.

During the three months ended March 31, 2022 and 2021 , the Company recognized $ 78 and $ 222 of expense, respectively.

During the three months ended March 31, 2022 , the Company had $ 133 of unrecognized compensation expense.

The Company recognized $ 69 and $ 147 of expense during the three and six months ended June 30, 2022 , respectively, and $ 449 and $ 671 in the three and six months ended June 30, 2021, respectively.

At June 30, 2022 , the Company had $ 64 of unrecognized compensation expense.

The unrecognized compensation expense is expected to be recognized over a weighted average period of approximately 0.87 years for the time-based grants.

3 unchanged sentences

As such, these awards are classified as a liability.

As of March 31, 2022, management believes that the EBITDA targets will be achieved and is accordingly recognizing expense ratably over the vesting period.

As of June 30, 2022, management believes that the EBITDA targets will be achieved and is accordingly recognizing expense ratably over the vesting period.

Management performs a regular assessment to determine the likelihood of meeting the targets and adjusts the expense recognized if necessary.

During the three months ended March 31, 2022, the Company recogniz ed $ 621 of expense and had $ 6,901 of unrecognized expense relating to these grants.

The following table summarizes activity for RSUs for the three months ended March 31, 2022:

During the three and six months ended June 30, 2022, the Company recogniz ed $ 621 and $ 1,242 of expense, respectively.

At June 30, 2022 , the Company had $ 6,279 of unrecognized expense relating to these grants.

The following table summarizes activity for RSUs for the three and six months ended June 30, 2022

Outstanding at December 31, 2021

1 unchanged sentence

Outstanding at March 31, 2022

During the three months ended March 31, 2022 , the Company granted 1,274,422 shares underlying RSUs, at a weighted average grant-date fair value of $ 20.04 per share.

RSUs are valued at the Company’s closing stock price on the date of grant, and generally vest over a one - to four-year period.

Compensation expense for RSUs is recognized on a straight-line basis.

During the three months ended March 31, 2022 , the company recognized $ 2,423 of expense and had $ 35,792 of total unamortized compensation expense related to non-vested RSUs.

That cost is expected to be recognized over a weighted-average period of 3.07 years.

Forfeited, expired, or canceled

Outstanding at June 30, 2022

Xponential Fitness, Inc.

1 unchanged sentence

(amounts in thousands, except share, per share and unit amounts)

During the three and six months ended June 30, 2022, the Company granted 247,643 and 1,522,065 RSUs, respectively, at a weighted average grant-date fair value of $ 17.61 and $ 19.65 per share.

RSUs are valued at the Company’s closing stock price on the date of grant, and generally vest over a one - to four-year period.

Compensation expense for RSUs is recognized on a straight-line basis.

Included in the RSUs described above, the Company granted 170,767 performance-based RSUs at a weighted average grant-date closing price of $ 18.25 per share.

The performance-based RSUs are recognized as expense on a straight-line basis over the vesting period of three to four years.

Management performs a regular assessment to determine the likelihood of meeting the related metrics and adjusts the expense recognized if necessary.

As of June 30, 2022, the achievement of performance metrics is considered probable.

Total compensation expense recognized for restricted stock units was $ 3,862 and $ 6,284 for the three and six months ended June 30, 2022, respectively.

At June 30, 2022 , the Company had $ 36,084 of total unrecognized compensation expense related to non-vested RSUs.

That cost is expected to be recognized over a weighted-average period of 3.1 years.

Note 14 –

8 unchanged sentences

The provision for income taxes differs from the amount of income tax computed by applying the applicable U.S.

statutory federal income tax rate of 21 % to loss before income taxes due to XPO Holdings’

statutory federal income tax rate of 21 % to income (loss) before income taxes due to XPO Holdings’

pass-through structure for U.S.

income tax purposes, state taxes, preferred stock dividends, non-deductible expenses, change in fair value of contingent consideration and the valuation allowance against the deferred tax asset.

The effective tax rate for the three months ended March 31, 2022 is ( 12.0 % ).

The Company recognized an income tax benefit of $ 2,067 on its share of pre-tax book income (loss), exclusive of the noncontrolling interest of 50.3 %.

As of March 31, 2022, management determined based on applicable accounting standards and the weight of all available evidence, it was not more likely than not (“MLTN”) that the Company will generate sufficient taxable income to realize its deferred tax assets including the difference in tax basis in excess of the financial reporting value for its investment in XPO Holdings.

Consequently, the Company has established a full valuation allowance against its deferred tax assets as of March 31, 2022.

The effective tax rate for the three and six months ended June 30, 2022 is 6.6 % and 0.9 %, respectively.

The Company recognized income tax expense of $ 2,217 and $ 150 on its share of pre-tax book income (loss), exclusive of the noncontrolling interest of 44.4 %.

As of June 30, 2022, management determined based on applicable accounting standards and the weight of all available evidence, it was not more likely than not (“MLTN”) that the Company will generate sufficient taxable income to realize its deferred tax assets including the difference in tax basis in excess of the financial reporting value for its investment in XPO Holdings.

Consequently, the Company has established a full valuation allowance against its deferred tax assets as of June 30, 2022.

In the event that management subsequently determines that it is MLTN that the Company will realize its deferred tax assets in the future over the recorded amount, a decrease to the valuation allowance will be made, which will reduce the provision for income taxes.

2 unchanged sentences

The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions are amending certain provisions of the previously enacted Tax Cuts and Jobs Act related to depreciable property and net operating losses, deferral of payroll taxes, and the PPP.

At March 31, 2022 , the Company has not booked any income tax provision/(benefit) for the impact for the CARES Act due to the pass-through treatment of XPO Holdings.

The Company has deferred payroll taxes of approximately $ 325 as of March 31, 2022 and December 31, 2021, which will be due on or before December 31, 2022.

At June 30, 2022 , the Company has not booked any income tax provision/(benefit) for the impact for the CARES Act due to the pass-through treatment of XPO Holdings.

The Company has deferred payroll taxes of approximately $ 325 as of June 30, 2022 and December 31, 2021, which will be due on or before December 31, 2022.

The Company is subject to taxation and files income tax returns in the United States federal jurisdiction, many state and foreign jurisdictions.

3 unchanged sentences

The years subject to audit may be extended if the entity substantially understates corporate income tax.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

The Company does not expect a significant change in unrecognized tax benefits during the next 12 months.

6 unchanged sentences

To the extent that the Company is unable to timely make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates each year and the tax rate then applicable.

6 unchanged sentences

The TRA also provides that, upon certain mergers, asset sales or other forms of business combination, or certain other changes of control, the TRA will not terminate but the Company’s or the Company’s successor’s obligations with respect to tax benefits would be based on certain assumptions, including that the Company or the Company’s successor would have sufficient taxable income to fully utilize the increased tax deductions and tax basis and other benefits covered by the TRA.

As of March 31, 2022, the Company has concluded, based on applicable accounting standards, that it was more likely than not that its deferred tax assets subject to the TRA would not be realized;

As of June 30, 2022, the Company has concluded, based on applicable accounting standards, that it was more likely than not that its deferred tax assets subject to the TRA would not be realized.

Therefore, the Company has not recorded a liability related to the tax savings it may realize from utilization of such deferred tax assets.

Except for $ 1,753 of the TRA, $ 40,277 of the TRA liability was not recorded as of March 31, 2022 .

Except for $ 1,998 of the TRA, $ 56,688 of the TRA liability was not recorded as of June 30, 2022 .

If utilization of the deferred tax asset subject to the TRA becomes more likely than not in the future, the Company will record a liability related to the TRA which will be recognized as expense within its consolidated statements of operations.

Note 15 –

Earnings (Loss) Per Share

For the three months ended March 31, 2022, basic net loss per share has been calculated by dividing net loss attributable to Class A common stockholders by the weighted average number of shares of Class A common stock outstanding for the period.

Diluted net loss per share has been calculated in a manner consistent with that of basic net loss per share while considering all potentially dilutive shares of Class A common stock outstanding during the period.

Because a portion of XPO Holdings is owned by parties other than the Company, those parties participate in earnings and losses at the XPO Holdings level.

Earnings Per Share

For the three and six months ended June 30, 2022, basic earnings per share has been calculated by dividing net income attributable to Class A common stockholders by the weighted average number of shares of Class A common stock outstanding for the period.

Diluted earnings per share has been calculated in a manner consistent with that of basic earnings per share while considering all potentially dilutive shares of Class A common stock outstanding during the period.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

Because a portion of XPO Holdings is owned by parties other than the Company, those parties participate in earnings at the XPO Holdings level.

Additionally, given the organizational structure of XPO Inc, a parallel capital structure exists at XPO Holdings such that the shares of XPO Holdings are redeemable on a one-to-one basis with the XPO Inc.

1 unchanged sentence

level also exist at the XPO Holdings level.

The Company applies the two-class method to allocate undistributed earnings or losses of XPO Holdings, and in doing so, determines the portion of XPO Holdings’

income or loss that is attributable to the Company and accordingly reflected in income or loss available to common stockholders in the Company’s calculation of basic earnings or loss per share.

Due to the attribution of only a portion of the preferred stock dividends issued by XPO Holdings to the Company in first determining basic earnings or loss per share at the subsidiary level, the amounts presented as net loss attributable to noncontrolling interests and net loss attributable to XPO Inc.

The Company applies the two class method to allocate undistributed earnings of XPO Holdings, and in doing so, determines the portion of XPO Holdings’

income that is attributable to the Company and accordingly reflected in income available to common stockholders in the Company’s calculation of basic earnings per share.

Due to the attribution of only a portion of the preferred stock dividends issued by XPO Holdings to the Company in first determining basic earnings per share at the subsidiary level, the amounts presented as net income attributable to noncontrolling interests and net income attributable to XPO Inc.

presented below will not agree to the amounts presented on the condensed consolidated statement of operations.

Diluted loss per share attributable to common stockholders adjusts the basic loss per share attributable to common stockholders and the weighted average number of shares of common stock outstanding for the potential dilutive impact of potential common stock.

The potential dilutive impact of redeemable convertible preferred stock and Class B common stock is evaluated using the as-if-converted method.

Because the Company reported net losses for the period presented, all potentially dilutive common stock equivalents are antidilutive and have been excluded from the calculation of diluted net loss per share.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

The following table presents the calculation of basic and diluted loss per share for the three months ended March 31, 2022:

Three Months Ended March 31, 2022

net loss attributable to noncontrolling interests

Diluted earnings per share attributable to common stockholders adjusts the basic earnings per share attributable to common stockholders and the weighted average number of shares of common stock outstanding for the potential dilutive impact of potential common stock.

The potential dilutive impact of redeemable convertible preferred stock and Class B common stock was calculated using the as-if-converted method.

The potentially dilutive impact of restricted stock units was calculated using the treasury stock method.

The following table presents the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2022:

June 30, 2022

net income attributable to noncontrolling interests

dividends on preferred shares

deemed dividend

Net loss attributable to XPO Inc.

Weighted average shares of Class A common stock outstanding - basic and diluted

Loss per share of Class A common stock - basic and diluted

Anti-dilutive shares excluded from loss per share of Class A common stock:

deemed contribution

Net income attributable to XPO Inc.

net income attributable to non-controlling interests

dividends on preferred shares

deemed contributions

Net income attributable to XPO Inc.

Weighted average shares of Class A common stock outstanding - basic

Effect of dilutive securities:

Rumble Class A common stock

Contingent Rumble shares

Restricted stock units

Shares of Class B common stock

Convertible preferred stock

Profit interest units, time vesting

Total shares excluded from loss per share of Class A common stock - diluted

Convertible preferred stocks

Conversion of Class B common stock to Class A common stock

Weighted average shares of Class A common stock outstanding - diluted

Net earnings per share attributable to Class A common stock - basic

Net earnings per share attributable to Class A common stock - diluted

Shares excluded from diluted earnings per share of Class A common stock:

Rumble contingent shares

Profits interests, time vesting

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

Note 16 –

17 unchanged sentences

however, it is possible that the Company’s business, results of operations, liquidity or financial condition could be materially affected in a particular future reporting period by the unfavorable resolution of one or more matters or contingencies during such period.

The Company accrued for estimated legal liabilities and has entered into certain settlement agreements to resolve legal disputes and recorded $ 457 and $ 2,931 which is included in accrued expenses in the condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

The Company accrued for estimated legal liabilities and has entered into certain settlement agreements to resolve legal disputes and recorded $ 264 and $ 2,931 which is included in accrued expenses in the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, respectively.

Contingent consideration from acquisitions –

6 unchanged sentences

As a result, in March 2020, the Company recorded a reduction to the contingent consideration liability of $ 5,598 with an offsetting increase in Member’s equity.

The Company recorded approximately $ 0 and $ 237 of additional contingent consideration as interest expense for the three months ended March 31, 2022 and 2021, respectively.

The Company recorded approximately $ 264 and $ 502 of additional contingent consideration as interest expense for the three and six months ended June 30, 2021, respectively.

During the year ended December 31, 2021, the Company paid the contingent consideration in full.

In connection with the 2017 acquisition of Row House, the Company agreed to pay to the sellers 20 % of operational or change of control distributions, subject to distribution thresholds, until the date on which a change in control or liquidation of Row House occurs.

During the three months ended March 31, 2022 and 2021 , the Company recorded an increase of $ 200 and $ 120 to contingent consideration, respectively, which was recorded as acquisition and transaction expenses.

As of March 31, 2022 and December 31, 2021 , contingent consideration totaled approximately $ 1,040 and $ 720 , respectively.

During the three and six months ended June 30, 2022 , the Company recorded an increase of $ 60 and $ 260 to contingent consideration, respectively, which was recorded as acquisition and transaction expenses.

During the three and six months ended June 30, 2021 , the Company recorded an increase of $ 220 and $ 340 to contingent consideration, respectively, which was recorded as acquisition and transaction expenses.

As of June 30, 2022 and December 31, 2021 , contingent consideration totaled approximately $ 1,100 and $ 840 , respectively.

The Company determines the estimated fair value using a discounted cash flow approach, giving consideration to the market valuation approach, which is a Level 3 measurement.

Inputs used in the methodology primarily included sales forecasts, projected future cash flows and discount rate commensurate with the risk involved.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

In connection with the 2017 acquisition of StretchLab, the Company agreed to pay to the seller 20 % of operational or change of control distributions, until the date on which a change of control or a liquidation of StretchLab occurs.

16 unchanged sentences

The fair value of the contingent consideration is measured at estimated fair value using a Monte Carlo simulation analysis.

During the three months ended March 31, 2022 , the Company recorded an increase of $ 9,500 to contingent consideration, which was recorded as acquisition and transaction expenses.

At March 31, 2022 and December 31, 2021 , contingent consideration totals $ 57,700 and $ 48,200 , respectively, recorded as contingent consideration from acquisitions in the condensed consolidated balance sheets.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except share, per share and unit amounts)

During the three and six months ended June 30, 2022 , the Company recorded a decrease of $ 31,700 and $ 22,200 to contingent consideration, which was recorded as acquisition and transaction expenses.

At June 30, 2022 and December 31, 2021 , contingent consideration totals $ 26,000 and $ 48,200 , respectively, recorded as contingent consideration from acquisitions in the condensed consolidated balance sheets.

In connection with the October 2021 acquisition of BFT, the Company agreed to pay contingent consideration to the Seller consisting of quarterly cash payments based on the sales of the Franchise System and equipment packages in the U.S.

1 unchanged sentence

At the acquisition date, the Company determined that the fair value of the estimated contingent consideration liability was $ 9,388 .

During the three months ended March 31, 2022 , the Company recorded $ 178 and ($ 154 ) of additional contingent consideration, which was recorded as interest expense and acquisition and transaction expense, respectively.

At March 31, 2022 and December 31, 2021 , contingent consideration was $ 3,724 and $ 3,678 , respectively, recorded as accrued expenses and $ 5,228 and $ 5,841 , respectively, recorded as contingent consideration from acquisitions in the condensed consolidated balance sheets.

During the three and six months ended June 30, 2022 , the Company recorded $ 164 and $ 342 of additional contingent consideration, which was recorded as interest expense, respectively.

During the three and six months ended June 30, 2022 , the Company recorded $ 13 and ($ 141 ) of additional contingent consideration, which was recorded as acquisition and transaction expense (income), respectively.

In addition, during the three and six months ended June 30, 2022 , the Company paid $ 747 and $ 1,336 of contingent consideration.

At June 30, 2022 and December 31, 2021 , contingent consideration was $ 3,833 and $ 3,678 , respectively, recorded as accrued expenses and $ 4,550 and $ 5,841 , respectively, recorded as contingent consideration from acquisitions in the condensed consolidated balance sheets.

Note 17 –

Subsequent Events

All of the shares sold in this offering were offered by the Selling Stockholders.

The Company did not receive any proceeds from the sale of shares of Class A common stock offered by the Selling Stockholders.

Simultaneously, 2,695,658 Class B shares were surrendered by the Selling Stockholders and canceled.

In July 2022, the Company entered into a settlement agreement with the Rumble sellers to resolve disputes related to the acquisition and related agreements.

Under the terms of the settlement, the Company will prospectively reduce the interest rate on the debt financing provided to the Rumble sellers from 11 % per annum to 7.5 % per annum if payment is in cash or 10 % per annum if payment is in payment in kind and extended the maturity date of the debt financing.

In August 2022, the Rumble sellers borrowed an additional $ 3,300 under the debt financing agreement which will be recorded as receivable from shareholder within equity.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

17 unchanged sentences

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 an d strength training concept;

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.

As of March 31, 2022, 2,030 studios were open, and franchisees were contractually committed to open an additional 1,870 studios in North America under existing franchise agreements.

In addition, as of March 31, 2022, we had 199 studios open internationally, and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 950 new studios in 12 additional countries.

During the three months ended March 31, 2022 and 2021, we generated revenue outside the United States of $3,380 and $315, respectively.

As of March 31, 2022 and December 31, 2021, we did not have material assets located outside of the United States.

N o franchisee accounted for more than 5% of our revenue.

As of June 30, 2022, 2,123 studios were open in North America, and franchisees were contractually committed to open an additional 1,881 studios under existing franchise agreements.

In addition, as of June 30, 2022, we had 234 studios open internationally, and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 917 new studios in 12 additional countries.

During the six months ended June 30, 2022 and 2021, we generated revenue outside the United States of $5,956 and $539, respectively.

As of June 30, 2022 and December 31, 2021, 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.

The COVID-19 Pandemic

The COVID-19 pandemic continues to impact global economic activities and poses the risk that prevents or restricts us and our employees, franchisees, members and suppliers from conducting business activities, as federal, state, local and foreign governments mandated stay-at-home orders and closures of businesses, encouraged social distancing measures and implemented travel restrictions and prohibitions on non-essential activities and business.

In 2020 and through most of 2021, the COVID-19 pandemic adversely impacted our ability to generate revenue.

3 unchanged sentences

Additionally, we temporarily reduced our marketing fund fees from 2% to 1% of the sales of franchisees while studios were closed due to the COVID-19 pandemic and related government mandates and restrictions as part of our COVID-19 support response.

In response to the COVID-19 pandemic, franchisees temporarily closed almost all studios system-wide in mid-March 2020, although our franchised studios have resumed operations as of March 31, 2022.

In response to the COVID-19 pandemic, franchisees temporarily closed almost all studios system-wide in mid-March 2020.

Our franchised studios have resumed operations as of June 30, 2022.

As the COVID-19 pandemic continued to impact areas in which our studios operate, certain of our studios have had to re-close or significantly reduce capacity, and additional studios may have to re-close or further reduce capacity, pursuant to local guidelines.

We also experienced lower license sales and delays in new studios openings due to the COVID-19 pandemic.

However, we have continued opening studios throughout the COVID-19 pandemic and franchisees have opened 654 studios globally from April 2020 through March 31, 2022, including studios opened by Rumble and BFT, which were acquired by us in March 2021 and October 2021, respectively.

However, we have continued opening studios throughout the COVID-19 pandemic and franchisees have opened 782 studios globally from April 2020 through June 30, 2022, including studios opened by Rumble and BFT, which were acquired by us in March 2021 and October 2021, respectively.

Our proven operational model allowed us to provide robust support to franchisees during the COVID-19 pandemic and has led to no units permanently closed under our ownership.

5 unchanged sentences

efforts to ensure they had access to resources that guided them on generating revenues and reducing operating costs, including a temporary reduction in marketing fund percentage collected.

The adverse effects of the COVID-19 pandemic began to decline during 2021, and through the first quarter of 2022, although, infection rates continue to fluctuate in various regions and new strains and variants of the virus, including the delta and omicron variants, remain a risk.

During the second quarter of 2021 through the first quarter of 2022 in particular, as vaccination rates have increased substantially in the United States and restrictions on indoor fitness classes in most states have either been reduced or eliminated, franchisees’

The adverse effects of the COVID-19 pandemic began to decline during 2021, and through the first half of 2022, although, infection rates continue to fluctuate in various regions and new strains and variants of the virus, including the omicron variants, remain a risk.

During the second quarter of 2021 through the first half of 2022 in particular, as vaccination rates have increased substantially in the United States and restrictions on indoor fitness classes in most states have either been reduced or eliminated, franchisees’

membership visits have increased.

As of March 31, 2022, the membership levels and membership visits for the quarter ended March 31, 2022 were at 133% and 138%, respectively, relative to the quarter ended December 31, 2019 (excluding BFT) prior to the onset of the pandemic.

For the quarter ended March 31, 2022, run-rate Average Unit Volume ("AUVs") recovered to approximately 94% relative to the quarter ended December 31, 2019 (including Rumble and BFT).

As of June 30, 2022, the actively paying members and membership visits for the quarter ended June 30, 2022 were at 139% and 146%, respectively, relative to the quarter ended December 31, 2019 (excluding BFT) prior to the onset of the pandemic.

For the quarter ended June 30, 2022, run-rate Average Unit Volume ("AUVs") recovered to approximately 101% relative to the quarter ended December 31, 2019 (including Rumble and BFT).

Following the significant disruption to the global fitness industry caused by the COVID-19 pandemic, we took ownership of a greater number of studios than we would expect to hold in the normal course of our business.

2 unchanged sentences

See Note 3 of Notes to Condensed Consolidated Financial Statements for additional information.

The full extent of the future impact of the COVID-19 pandemic on our operational and financial performance is uncertain and will depend on many factors outside of our control, including, without limitation, the timing, extent, trajectory and duration of the pandemic;

The full extent of the future impact of the COVID-19 pandemic on our operational and financial performance continues to be uncertain and will depend on many factors outside of our control, including, without limitation, the timing, extent, trajectory and duration of the pandemic;

the availability, distribution and effectiveness of vaccines;

24 unchanged sentences

Based on the purchase price allocation, the Company has determined that the fair value of the estimated contingent consideration liability as of the acquisition date is $9.4 million and is recorded in accrued expenses and contingent consideration from acquisitions in the condensed consolidated balance sheets.

During the three and six months ended June 30, 2022, the Company paid $747 and $1,336 of contingent consideration.

In addition, the Company entered into a Master Franchise Agreement (“MFA”) with an affiliate of the Seller (the “Master Franchisee”), pursuant to which the Company granted the Master Franchisee the master franchise rights for the BFT brands in Australia, New Zealand and Singapore.

11 unchanged sentences

Factors Affecting Our Results of Operations

In addition to the impact of the COVID-19 pandemic as described above, we believe that the most significant factors affecting our results of operations include:

In addition to the impact of the risks described above, we believe that the most significant factors affecting our results of operations include:

Licensing new qualified franchisees, selling additional licenses to existing franchisees and opening studios.

14 unchanged sentences

We also intend to expand ancillary revenue streams, such as our digital platform offerings and retail merchandise.

International expansion.

International and domestic expansion.

We continue to invest in increasing the number of franchisees outside of North America.

1 unchanged sentence

We plan to continue to invest in these relationships and seek new relationships and opportunities, including through acquisitions and partnerships, in countries that we have targeted for expansion.

Consumer demand and competition for discretionary income .

In the U.S., we may from time to time consider acquisition of and partnership with certain complimentary assets or businesses that can enhance and expand our brands and operations.

Demand and competition for consumer income .

Our revenue and future success will depend in part on the attractiveness of our brands and the services provided by franchisees relative to other fitness and entertainment options available to consumers.

5 unchanged sentences

While we believe that these metrics are useful in evaluating our business, other companies may not use similar metrics or may not calculate similarly titled metrics in a consistent manner.

The following table sets forth our key performance indicators for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table sets forth our key performance indicators for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

($ in thousands)

3 unchanged sentences

Number of licenses sold globally (cumulative total as of period end) (1)

Number of licenses contractually obligated to open internationally (cumulative

total as of period end)

Number of licenses contractually obligated to open internationally (cumulative total as of period end)

AUV (LTM as of period end)

4 unchanged sentences

(2) The definition of adjusted EBITDA and a detailed reconciliation of adjusted EBITDA are set forth below under the section entitled “Non-GAAP Financial Measures”.

The following table presents additional information related to our studio and license key performance indicators for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table presents additional information related to our studio and license key performance indicators for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

North America

10 unchanged sentences

Franchise licenses sold (total end of period)

Studios Obligated to Open Internationally under

Studios Obligated to Open Internationally under MFAs:

Gross studios obligated to open under MFAs

2 unchanged sentences

Licenses sold by master franchisees, net (2)

Six Months Ended June 30,

North America

International

North America

International

Open Studios:

Open studios (beginning of period)

New studio openings, net

Open studios (end of period)

Franchise Licenses Sold:

Franchise licenses sold (total beginning of period)

New franchise license sales

Franchise licenses sold (total end of period)

Studios Obligated to Open Internationally under MFAs:

Gross studios obligated to open under MFAs

studios opened under MFAs

Remaining studios obligated to open under MFAs

Licenses sold by master franchisees, net (2)

(1) Global franchise licenses sold are presented gross of terminations.

3 unchanged sentences

System-Wide Sales

System-wide sales represent gross sales by all studios.

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.

12 unchanged sentences

We view this metric on a net basis to take account of any studios that may have closed during the reporting period.

While nearly all our franchised studios are licensed to franchisees, from time to time we own and operate a limited number of 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).

While nearly all our franchised studios are licensed to franchisees, from time to time we own and 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.

10 unchanged sentences

Average Unit Volume (“AUV”) is calculated by dividing sales during the applicable period for all studios being measured by the number of studios being measured.

LTM AUV consists of the average sales for the trailing 12 calendar months for all studios in North America that have been open for at least 13 calendar months as of the measurement date.

AUV (LTM as of period end) consists of the average sales for the trailing 12 calendar months for all studios in North America that have been open for at least 13 calendar months as of the measurement date.

Quarterly run-rate AUV consists of average quarterly sales for all studios that are at least six months old at the beginning of the respective quarter, multiplied by four.

23 unchanged sentences

We believe that adjusted EBITDA, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of operations because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period.

The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Net income (loss)

Interest expense, net

1 unchanged sentence

Equity-based compensation

Acquisition and transaction expenses

Acquisition and transaction expenses (income)

Management fees and expenses

5 unchanged sentences

Results of Operations

The following table presents our condensed consolidated results of operations for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table presents our condensed consolidated results of operations for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

12 unchanged sentences

Marketing fund expense

Acquisition and transaction expenses

Acquisition and transaction expenses (income)

Total operating costs and expenses

Operating loss

Operating income (loss)

Other (income) expense:

1 unchanged sentence

Interest expense

Gain on debt extinguishment

Total other expense

Loss before income taxes

The following table presents our condensed consolidated results of operations for the three months ended March 31, 2022 and 2021 as a percentage of revenue:

Three Months Ended March 31,

Income (loss) before income taxes

Net income (loss)

The following table presents our condensed consolidated results of operations for the three and six months ended June 30, 2022 and 2021 as a percentage of revenue:

Three Months Ended June 30,

Six Months Ended June 30,

Revenue, net:

11 unchanged sentences

Marketing fund expense

Acquisition and transaction expenses

Acquisition and transaction expenses (income)

Total operating costs and expenses

Operating loss

Operating income (loss)

Other (income) expense:

1 unchanged sentence

Interest expense

Gain on debt extinguishment

Total other expense

Loss before income taxes

Three Months Ended March 31, 2022 versus 2021

The following is a discussion of our consolidated results of operations for the three months ended March 31, 2022 versus the three months ended March 31, 2021.

Three Months Ended March 31,

Income (loss) before income taxes

Net income (loss)

Three Months Ended June 30, 2022 versus 2021

The following is a discussion of our consolidated results of operations for the three months ended June 30, 2022 versus the three months ended June 30, 2021.

Three Months Ended June 30,

Change from Prior Year

7 unchanged sentences

Total revenue.

Total revenue was $50.4 million in the three months ended March 31, 2022, compared to $29.1 million in the three months ended March 31, 2021, an increase of $21.3 million, or 73.3%.

Total revenue was $59.6 million in the three months ended June 30, 2022, compared to $35.8 million in the three months ended June 30, 2021, an increase of $23.8 million, or 66.5%.

The increase in total revenue was primarily due to reopening of studios that were temporarily closed or were operating under capacity restrictions in 2021 due to the COVID-19 pandemic and opening of new studios in 2022.

Franchise revenue.

Franchise revenue was $25.5 million in the three months ended March 31, 2022, compared to $13.8 million in the three months ended March 31, 2021, an increase of $11.7 million, or 85.4%.

Franchise revenue consisted of franchise royalty fees of $14.9 million, training fees of $1.8 million, franchise territory fees of $7.0 million and technology fees of $1.8 million in the three months ended March 31, 2022, compared to franchise royalty fees of $8.5 million, training fees of $1.4 million, franchise territory fees of $2.6 million and technology fees of $1.2 million in the three months ended March 31, 2021.

The increase in franchise royalty fees, technology fees and training fees was primarily due to a 47% increase in same store sales due in large part to temporary studio closures as a result of the COVID-19 pandemic in the prior year period, and to 263 new studio openings in North America since March 31, 2021, which also contributed to the increase in franchise territory fees.

Franchise revenue was $27.6 million in the three months ended June 30, 2022, compared to $17.8 million in the three months ended June 30, 2021, an increase of $9.9 million, or 55.5%.

Franchise revenue consisted of franchise royalty fees of $17.0 million, training fees of $2.1 million, franchise territory fees of $6.5 million and technology fees of $2.0 million in the three months ended June 30, 2022, compared to franchise royalty fees of $11.1 million, training fees of $1.7 million, franchise territory fees of $3.4 million and technology fees of $1.6 million in the three months ended June 30, 2021.

The increase in franchise royalty fees, technology fees and training fees was primarily due to a 25% increase in same store sales due in large part to temporary studio closures as a result of the COVID-19 pandemic in the prior year period, and to 405 new studio openings globally since June 30, 2021, which also contributed to the increase in franchise territory fees.

Equipment revenue.

Equipment revenue was $7.8 million in the three months ended March 31, 2022, compared to $4.1 million in the three months ended March 31, 2021, an increase of $3.7 million, or 91.3%.

Equipment revenue was $12.4 million in the three months ended June 30, 2022, compared to $4.8 million in the three months ended June 30, 2021, an increase of $7.6 million, or 160.4%.

Most equipment revenue is recognized in the period that the equipment is installed.

Equipment installations in the three months ended March 31, 2022, totaled 104 compared to 74 in the prior year period, with a larger percentage of higher dollar installations in 2022.

Global equipment installations in the three months ended June 30, 2022, totaled 136 compared to 66 in the prior year period, with a larger percentage of higher dollar installations in 2022.

Merchandise revenue.

Merchandise revenue was $6.1 million in the three months ended March 31, 2022, compared to $4.2 million in the three months ended March 31, 2021, an increase of $1.9 million, or 43.7%.

Merchandise revenue was $6.8 million in the three months ended June 30, 2022, compared to $4.5 million in the three months ended June 30, 2021, an increase of $2.2 million, or 49.8.%.

The increase was due primarily to a higher number of operating studios in the current year period and temporary closures of studios in the prior year period due to the COVID-19 pandemic.

Franchise marketing fund revenue.

Franchise marketing fund revenue was $4.4 million in the three months ended March 31, 2022, compared to $2.5 million in the three months ended March 31, 2021, an increase of $1.9 million, or 78.6%.

The increase was primarily due to an increase in same store sales, 263 new studio openings in North America since March 31, 2021 and a temporary reduction in the marketing fund percentage collected from 2% to 1% of the sales of franchisees whose studios were closed due to the COVID-19 pandemic in 2021.

Franchise marketing fund revenue was $4.9 million in the three months ended June 30, 2022, compared to $3.3 million in the three months ended June 30, 2021, an increase of $1.6 million, or 49.0%.

The increase was primarily due to an increase in same store sales, 297 new studio openings in North America since June 30, 2021 and a temporary reduction in the marketing fund percentage collected from 2% to 1% of the sales of franchisees while their studios were closed due to the COVID-19 pandemic in 2021.

Other service revenue.

Other service revenue was $6.6 million in the three months ended March 31, 2022, compared to $4.5 million in the three months ended March 31, 2021, an increase of $2.1 million, or 45.0%.

Other service revenue was $7.9 million in the three months ended June 30, 2022, compared to $5.4 million in the three months ended June 30, 2021, an increase of $2.4 million, or 44.8%.

The increase was primarily due to a $2.8 million increase in other preferred vendor commission revenue and brand fee revenue;

partially offset by a decrease in package and memberships revenue due to fewer company-owned transition studios.

Operating Costs and Expenses

Three Months Ended March 31,

Three Months Ended June 30,

Change from Prior Year

8 unchanged sentences

Costs of product revenue.

Costs of product revenue was $9.6 million in the three months ended March 31, 2022, compared to $5.3 million in the three months ended March 31, 2021, an increase of $4.3 million, or 79.5%, compared to an increase in related revenues of 67.1%.

Costs of product revenue as a percentage of related revenue increased to 69.2% in the three months ended March 31, 2022, from 64.4% in the three months ended March 31, 2021.

Costs of product revenue was $13.5 million in the three months ended June 30, 2022, compared to $6.3 million in the three months ended June 30, 2021, an increase of $7.2 million, or 115.5%, compared to an increase in related revenues of 106.5%.

Costs of product revenue as a percentage of related revenue increased to 70.7% in the three months ended June 30, 2022, from 67.7% in the three months ended June 30, 2021.

The increase was due to a shift in equipment revenue mix in 2022.

Costs of franchise and service revenue.

Costs of franchise and service revenue was $4.2 million in the three months ended March 31, 2022, compared to $2.3 million in the three months ended March 31, 2021, an increase of $1.9 million, or 82.6%.

Costs of franchise and service revenue was $4.5 million in the three months ended June 30, 2022, compared to $3.1 million in the three months ended June 30, 2021, an increase of $1.4 million, or 45.3%.

The increase was due to a $1.4 million increase in franchise sales commissions, consistent with the related franchise territory revenue increase.

Selling, general and administrative expenses.

Selling, general and administrative expenses were $29.3 million in the three months ended June 30, 2022, compared to $21.2 million in the three months ended June 30, 2021, an increase of $8.1 million, or 38.3%.

The increase was primarily attributable to an increase in equity-based compensation of $4.0 million, primarily related to new grants;

increase in legal expenses of $3.0 million related to various legal matters, increase in insurance expense of $1.3;

and $0.2 million net decrease in other variable expenses in 2022.

Depreciation and amortization.

Depreciation and amortization expense was $3.6 million in the three months ended June 30, 2022, compared to $2.4 million in the three months ended June 30, 2021, an increase of $1.2 million, or 48.7%.

The increase was due primarily to amortization of intangibles related to the BFT and Rumble acquisitions in October 2021 and March 2021, respectively.

Marketing fund expense.

Marketing fund expense was $4.1 million in the three months ended June 30, 2022, compared to $2.9 million in the three months ended June 30, 2021, an increase of $1.2 million, or 42.7% and is consistent with the increase in franchise marketing fund revenue.

Acquisition and transaction expenses (income).

Acquisition and transaction expenses (income) were $(31.6) million in the three months ended June 30, 2022, compared to $0.3 million in the three months ended June 30, 2021, a change of $(31.9) million.

These expenses represent the non-cash change in contingent consideration related to 2017 and 2021 business acquisitions.

Other (Income) Expense, net

Three Months Ended June 30,

Change from Prior Year

($ in thousands)

Interest income

Interest expense

Gain on debt extinguishment

Total other expense, net

Interest income.

Interest income primarily consists of interest on notes receivable and was insignificant in each of the three-month periods ended June 30, 2022 and 2021.

Interest expense .

Interest expense was $2.9 million in the three months ended June 30, 2022, compared to $11.6 million in the three months ended June 30, 2021, a decrease of $8.7 million, or 75.3%.

Interest expense consists of interest on notes payable and long-term debt, accretion of earn-out liabilities and amortization of deferred loan costs and debt discount.

The decrease was primarily due to lower average debt balance compared to the prior year and to write off of $5.0 million of deferred loan costs and $1.9 million prepayment penalty incurred in the prior year period related to our credit agreement with Cerberus Business Finance Agency, LLC, which was replaced with a new credit facility in April 2021.

Gain on debt extinguishment .

Gain on debt extinguishment of $3.7 million in the three months ended June 30, 2021 represents the forgiveness of principal and interest on our Paycheck Protection Program loan.

Three Months Ended June 30,

Change from Prior Year

($ in thousands)

Income taxes .

Income taxes were $2.2 million in the three months ended June 30, 2022, compared to $0.08 million in the three months ended June 30, 2021.

In 2022, the Company is taxed as a corporation.

Prior to the IPO in July 2021, the Company was a pass-through entity for income tax purposes.

Six Months Ended June 30, 2022 and 2021

The following is a discussion of our consolidated results of operations for the six months ended June 30, 2022 versus the six months ended June 30, 2021.

Six Months Ended June 30,

Change from Prior Year

($ in thousands)

Franchise revenue

Equipment revenue

Merchandise revenue

Franchise marketing fund revenue

Other service revenue

Total revenue, net

Total revenue.

Total revenue was $109.9 million in the six months ended June 30, 2022, compared to $64.8 million in the six months ended June 30, 2021, an increase of $45.1 million, or 69.5%.

Franchise revenue.

Franchise revenue was $53.1 million in the six months ended June 30, 2022, compared to $31.5 million in the six months ended June 30, 2021, an increase of $21.6 million, or 68.5%.

Franchise revenue consisted of franchise royalty fees of $31.9 million, training fees of $3.8 million, franchise territory fees of $13.6 million and technology fees of $3.8 million in the six months ended June 30, 2022, compared to franchise royalty fees of $19.6 million, training fees of $3.1 million, franchise territory fees of $6.0 million and technology fees of $2.8 million in the six months ended June 30, 2021.

The increase in franchise royalty fees, technology fees and training fees was primarily due to a 35% increase in same store sales due in large part to temporary studio closures as a result of the COVID-19 pandemic in the prior year period, and to 405 new studio openings globally since June 30, 2021, which also contributed to the increase in franchise territory fees.

Equipment revenue.

Equipment revenue was $20.2 million in the six months ended June 30, 2022, compared to $8.8 million in the six months ended June 30, 2021, an increase of $11.3 million, or 128.5%.

Most equipment revenue is recognized in the period that the equipment is installed.

Global equipment installations in the six months ended June 30, 2022, totaled 240 compared to 140 in the prior year period.

Merchandise revenue.

Merchandise revenue was $12.8 million in the six months ended June 30, 2022, compared to $8.7 million in the six months ended June 30, 2021, an increase of $4.1 million, or 46.8%.

The increase was due primarily to a higher number of operating studios in the current year period and temporary closures of studios in the prior year period due to the COVID-19 pandemic.

Franchise marketing fund revenue.

Franchise marketing fund revenue was $9.4 million in the six months ended June 30, 2022, compared to $5.8 million in the six months ended June 30, 2021, an increase of $3.6 million, or 61.7%.

Other service revenue.

Other service revenue was $14.4 million in the six months ended June 30, 2022, compared to $10.0 million in the six months ended June 30, 2021, an increase of $4.5 million, or 44.9%.

The increase was primarily due to a $4.6 million increase in other preferred vendor commission revenue and brand fee revenue;

partially offset by a decrease in package and memberships revenue due to fewer company-owned transition studios.

Operating Costs and Expenses

Six Months Ended June 30,

Change from Prior Year

($ in thousands)

Costs of product revenue

Costs of franchise and service revenue

Selling, general and administrative expenses

Depreciation and amortization

Marketing fund expense

Acquisition and transaction expenses (income)

Total operating costs and expenses

Costs of product revenue.

Costs of product revenue was $23.1 million in the six months ended June 30, 2022, compared to $11.6 million in the six months ended June 30, 2021, an increase of $11.5 million, or 98.9%, compared to an increase in related revenues of 87.9%.

Costs of product revenue as a percentage of related revenue increased to 70.0% in the six months ended June 30, 2022, from 66.2% in the six months ended June 30, 2021.

The increase was due to a shift in equipment revenue mix in 2022.

Costs of franchise and service revenue.

Costs of franchise and service revenue was $8.8 million in the six months ended June 30, 2022, compared to $5.4 million in the six months ended June 30, 2021, an increase of $3.3 million, or 61.2%.

The increase was primarily due to a $2.9 million increase in franchise sales commissions, consistent with the related franchise territory revenue increase.

Selling, general and administrative expenses.

Selling, general and administrative expenses were $33.9 million in the three months ended March 31, 2022, compared to $16.6 million in the three months ended March 31, 2021, an increase of $17.3 million, or 104.3%.

Selling, general and administrative expenses were $63.2 million in the six months ended June 30, 2022, compared to $37.8 million in the six months ended June 30, 2021, an increase of $25.4 million, or 67.3%.

The increase was primarily attributable to an increase in equity-based compensation of $19.0 million, primarily related to modification of performance-based awards in 2021 which vested in 2022 and new grants;

1 unchanged sentence

increase in legal expenses of $4.6 million related to various legal matters;

increase in insurance expense of $1.3 million;

and $0.3 million net increase in other variable expenses in 2022;

partially offset by a decrease in salaries and wages expense of $2.1 million attributable to employee retention credit recorded in the three months ended March 31, 2022.

and increase in insurance expense of $2.6 million;

partially offset by a decrease in salaries and wages expense of $2.5 million attributable to employee retention credit recorded in the six months ended June 30, 2022.

Depreciation and amortization.

Depreciation and amortization expense was $3.5 million in the three months ended March 31, 2022, compared to $2.1 million in the three months ended March 31, 2021, an increase of $1.4 million, or 69.9%.

Depreciation and amortization expense was $7.1 million in the six months ended June 30, 2022, compared to $4.5 million in the six months ended June 30, 2021, an increase of $2.6 million, or 58.5%.

The increase was due primarily to amortization of intangibles related to the BFT and Rumble acquisitions in October 2021 and March 2021, respectively.

Marketing fund expense.

Marketing fund expense was $4.4 million in the three months ended March 31, 2022, compared to $2.6 million in the three months ended March 31, 2021, an increase of $1.7 million, or 66.5% and is consistent with the increase in franchise marketing fund revenue.

Acquisition and transaction expenses.

Acquisition and transaction expenses were $9.5 million in the three months ended March 31, 2022, compared to $0.4 million in the three months ended March 31, 2021, a change of $9.2 million, or 2,626.9%.

Marketing fund expense was $8.4 million in the six months ended June 30, 2022, compared to $5.5 million in the six months ended June 30, 2021, an increase of $3.0 million, or 54.1% and is consistent with the increase in franchise marketing fund revenue.

Acquisition and transaction expenses (income).

Acquisition and transaction expenses (income) were $(22.1) million in the six months ended June 30, 2022, compared to $0.6 million in the six months ended June 30, 2021, a change of $(22.7) million.

These expenses represent the non-cash change in contingent consideration related to 2017 and 2021 business acquisitions and $0.2 million of expense in 2021 related to the Rumble acquisition.

Other (Income) Expense, net

Three Months Ended March 31,

Six Months Ended June 30,

Change from Prior Year

2 unchanged sentences

Interest expense

Gain on debt extinguishment

Total other expense, net

Interest income.

Interest income primarily consists of interest on notes receivable and was insignificant in each of the three-month periods ended March 31, 2022 and 2021.

Interest income primarily consists of interest on notes receivable and was insignificant in each of the six months ended June 30, 2022 and 2021.

Interest expense .

Interest expense was $2.9 million in the three months ended March 31, 2022, compared to $4.4 million in the three months ended March 31, 2021, a decrease of $1.6 million, or 35.3%.

Interest expense was $5.7 million in the six months ended June 30, 2022, compared to $16.0 million in the six months ended June 30, 2021, a decrease of $10.3 million, or 64.2%.

Interest expense consists of interest on notes payable and long-term debt, accretion of earn-out liabilities and amortization of deferred loan costs and debt discount.

The decrease was due primarily to lower average debt balance compared to the prior year.

Three Months Ended March 31,

The decrease was due primarily to lower average debt balance compared to the prior year and to write off of $5.0 million of deferred loan costs and $1.9 million prepayment penalty incurred in the prior year period related to our credit agreement with Cerberus Business Finance Agency, LLC, which was replaced with a new credit facility in April 2021.

Gain on debt extinguishment .

Gain on debt extinguishment of $3.7 million in the six months ended June 30, 2021 represents the forgiveness of principal and interest on our Paycheck Protection Program loan.

Six Months Ended June 30,

Change from Prior Year

1 unchanged sentence

Income taxes .

Income taxes were ($2.1) million in the three months ended March 31, 2022, compared to $0.2 million in the three months ended March 31, 2021.

Income taxes were $0.2 million in the six months ended June 30, 2022, compared to $0.3 million in the six months ended June 30, 2021.

In 2022, the Company is taxed as a corporation.

1 unchanged sentence

Liquidity and Capital Resources

As of March 31, 2022, we had $14.2 million of cash and cash equivalents, excluding $1.6 million of restricted cash for marketing fund purposes.

As of June 30, 2022, we had $27.1 million of cash and cash equivalents, excluding $2.2 million of restricted cash for marketing fund purposes.

We require cash principally to fund day-to-day operations, finance capital investments, service our outstanding debt and address our working capital needs.

12 unchanged sentences

(i) monthly payments of interest on the Term Loans and (ii) quarterly principal payments equal to 0.25% of the original principal amount of the Term Loan.

Borrowings under the Term Loan Facility bear interest at a per annum rate of, at our option, either (a) the LIBOR Rate (as defined in the Credit Agreement) plus a margin of 6.50% or (b) the Reference Rate (as defined in the Credit Agreement) plus a margin of 5.50% (7.50% at March 31, 2022).

The Credit Agreement also contains mandatory prepayments of the Term Loan with:

17 unchanged sentences

and (ix) restricting the issuance of equity.

As of March 31, 2022, we were in compliance with these covenants.

As of June 30, 2022, we were in compliance with these covenants.

The Credit Agreement also contains customary events of default, which could result in acceleration of amounts due under the Credit Agreement.

3 unchanged sentences

Immediately following the IPO, on July 27, 2021 we executed a first amendment to the Credit Agreement, which amended the amount of the prepayment premium applicable to the prepayment of the Term Loan, and paid off $115.0 million of the principal balance of the Term Loan.

On October 8, 2021, we entered into a second amendment (the “

Amendment ”

) to the Credit Agreement.

On October 8, 2021, we entered into a second amendment (the “Amendment”) to the Credit Agreement.

The Amendment provides for, among other things, additional term loans in an aggregate principal amount of $38 million (the “2021 Incremental Term Loan”), the proceeds of which were used to fund the BFT Acquisition and the payment of fees, costs and expenses related to the Amendment.

The Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2021 Incremental Term Loan) commencing on December 31, 2021 and (ii) amended the amount of the prepayment premium applicable in the event the 2021 Incremental Term Loan is prepaid within two years of the effective date of the Amendment.

Outstanding borrowings on the Term Loan and the 2021 Incremental Term Loan were $132.5 m illion at March 31, 2022.

At March 31, 2022, there had been no material changes in our cash requirements from known contractual and other obligations as disclosed in Part II, Item 7, “

Management's Discussion and Analysis of Financial Condition and Results of Operations, ”

Outstanding borrowings on the Term Loan and the 2021 Incremental Term Loan were $131.7 million at June 30, 2022.

At June 30, 2022, there had been no material changes in our cash requirements from known contractual and other obligations as disclosed in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,”

of our Annual Report on Form 10-K for the year ended December 31, 2021.

The following table presents summary cash flow information for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

The following table presents summary cash flow information for the six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

(in thousands)

2 unchanged sentences

Net cash provided by (used in) financing activities

Net decrease in cash, cash equivalents and

Net increase in cash, cash equivalents and

restricted cash

Cash Flows from Operating Activities

In the three months ended March 31, 2022, cash provided by operating activities was $2.9 million, compared to cash used of $0.2 million in the three months ended March 31, 2021, an increase in cash provided of $3.1 million.

Of the change, $14.3 million was due to a higher net loss offset by adjustments for non-cash items.

Additionally, the following changes in operating assets and liabilities contributed to the increased operating cash flows:

increase in cash inflows relating to deferred revenue of $0.9 million due to an increase in sales of additional franchises;

increase in cash outflows relating to (1) accounts payable and accrued expenses of $5.1 million due to timing of payments;

(2) increase in accounts receivable and prepaid expense of $3.3 million;

(3) increase in inventories of $2.7 million;

and (4) payment of notes payable of $1.0 million.

In the six months ended June 30, 2022, cash provided by operating activities was $26.2 million, compared to cash provided of $0.5 million in the six months ended June 30, 2021, an increase in cash provided of $25.7 million.

Of the change, $23.9 million was due to net income offset by adjustments for non-cash items.

Additionally, the following changes in operating assets and liabilities contributed to the net increase in operating cash flows:

increase in accounts payable and other liabilities of $15.0 million due to timing of payments;

increase in prepaid expenses and other current assets of $2.6 million;

increase in deferred revenue of $0.3 million and deferred cost of $0.7 million due to an increase in sales of additional franchises;

increase in cash outflows relating to (1) increase in accrued expenses of $4.3 million;

(2) increase in accounts receivable of $4.3 million;

and (3) increase in inventories of $8.2 million.

Cash Flows from Investing Activities

In the three months ended March 31, 2022, cash used in investing activities was $2.2 million, compared to $1.6 million in the three months ended March 31, 2021, an increase in cash used of $0.6 million.

In the six months ended June 30, 2022, cash used in investing activities was $5.6 million, compared to $2.1 million in the six months ended June 30, 2021, an increase in cash used of $3.5 million.

The increase was primarily attributable to an increase in cash used to purchase property and equipment and issue notes receivables, partially offset by an increase in cash received from collection of notes receivable, increase in cash proceeds from sales of assets and decrease in cash used to purchase studios.

Cash Flows from Financing Activities

In the three months ended March 31, 2022, cash used by financing activities was $6.3 million, compared to $2.1 million in the three months ended March 31, 2021, an increase in cash used of $4.2 million.

The increase in cash used was primarily attributable to dividend payment of $4.9 million, partially offset by a decrease in borrowings on long-term debt of $10.6 million, decrease in distribution to Member of $10.6 million, lower debt issuance costs of $0.2 million and lower payments on long-term debt and contingent consideration of $0.6 million.

In the six months ended June 30, 2022, cash used in financing activities was $12.6 million, compared to cash provided by financing activities of $10.5 million in the six months ended June 30, 2021, an increase in cash used of $23.1 million.

The increase in cash used was primarily attributable to dividend payment of $9.7 million, a decrease in borrowings on long-term debt of $218.4 million, decrease in distribution to Member of $10.6 million, lower debt issuance costs of $0.9 million and lower payments on long-term debt and contingent consideration of $193.4 million.

Off-Balance Sheet Arrangements

As of March 31, 2022, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the Securities and Exchange Commission (the “SEC”).

As of June 30, 2022, we did not have any off-balance sheet arrangements as defined in the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Critical Accounting Policies and Estimates

8 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements