What changed in this filing

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Item 1. Financial Statements

2022-11-10 compared with 2022-08-12 · 401 added, 304 removed, 1271 unchanged (36% of the section changed)

3 unchanged sentences

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

September 30,

Current Assets:

27 unchanged sentences

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

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

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

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

Class A common stock, $ 0.0001 par value, 500,000,000 shares authorized, 27,560,549 and

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

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

Class B common stock, $ 0.0001 par value, 500,000,000 shares authorized, 21,650,669 and

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

22,968,674 shares issued and outstanding as of September 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Revenue, net:

20 unchanged sentences

Income (loss) before income taxes

Income taxes (benefit)

Net income (loss)

net income attributable to noncontrolling interests

net income (loss) attributable to noncontrolling interests

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

Net earnings per share of Class A common stock:

Net earnings (loss) per share of Class A common stock:

Weighted average shares of Class A common stock outstanding:

24 unchanged sentences

Balance at June 30, 2022

Equity based compensation

Conversion of Class B shares to Class A shares

Vesting of Class B Shares

Vesting of restricted share units, net of shares withheld for taxes

Loan to shareholder and accumulated interest

Payment of preferred stock dividend

Adjustment of preferred stock to redemption value

Balance at September 30, 2022

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Condensed Consolidated Statements of Changes to Stockholders'/Member’s Equity (Deficit)

(amounts in thousands, except share amounts)

Class A Common Stock

2 unchanged sentences

Member’s

Noncontrolling interests

from Member/ Shareholder

Equity (Deficit)

Redeemable noncontrolling interests

Balance at December 31, 2020

6 unchanged sentences

Balance at June 30, 2021

Equity-based compensation prior to

Reorganization Transactions

Payment received from Member, net

Net loss prior to Reorganization Transactions

Effect of Reorganization Transactions

Issuance of Class A common stock at the

IPO, net of underwriting and offering costs

Purchase of shares from LCAT shareholders

Issuance of Class A common stock for underwriters'

option to purchase additional shares

Redemption of Class B shares

Vesting of Class B shares

Adjustment of preferred stock to redemption value

Equity-based compensation after

Reorganization Transactions

Payment of preferred stock dividends

Adjustment for recognition of tax receivable

agreement and deferred tax liabilities

Net loss subsequent to Reorganization

Adjustment of redeemable noncontrolling interest

Balance at September 30, 2021

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(amounts in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

2 unchanged sentences

Depreciation and amortization

Amortization of debt issuance cost

Amortization of discount on long-term debt

Amortization and write off of debt issuance cost

Amortization and write off of discount on long-term debt

Change in contingent consideration from acquisitions

Bad debt expense (recovery)

Adjustment for recognition of TRA and deferred tax liability

Equity-based compensation

2 unchanged sentences

(Gain) loss on disposal of assets

Impairment of long-lived assets

Impairment of studio assets

Impairment of brand assets

Changes in assets and liabilities:

23 unchanged sentences

Debt issuance costs

Proceeds from the issuance of Class A common stock, net of underwriting costs

Payments of costs related to IPO

Payments to purchase 750,000 LLC units/Class B Shares

Proceeds from issuance of redeemable convertible preferred stock, net of offering costs

Payment to purchase all of the shares of LCAT from LCAT shareholders

Payment of H&W Cash Merger Consideration

Payments to acquire the Preferred Units and LLC Units

Exchange of LLC units for Class B shares

Payment of preferred stock dividend and deemed dividend

1 unchanged sentence

Payments on loans from related party (Note 10)

Member contributions

Payments for taxes related to net share settlement of restricted share units

Distributions to Member

Loan to shareholder

Receipts from Member, net (Note 10)

7 unchanged sentences

(amounts in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information:

5 unchanged sentences

Parent contribution of Rumble assets

Original contingent consideration related to Rumble

Rumble note receivable from shareholder

Adjustment of preferred stock to redemption value

Adjustment of redeemable noncontrolling interest

Deferred offering costs reclassified into equity

Accrued deemed dividend

Intangible asset acquired in exchange for deferred revenue

Acquisition of intangible assets accrued

ROU assets obtained in exchange for new operating lease liabilities

See accompanying notes to condensed consolidated financial statements.

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

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

“Club Pilates,”

19 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 14 and 52 company-owned transition studios as of June 30, 2022 and 2021, respectively.

In addition to franchised studios, the Company operated 40 and 43 company-owned transition studios as of September 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.

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.

The Company generated $ 3,104 and $ 9,060 of revenue outside the United States during the three and nine months ended September 30, 2022 , respectively, and $ 585 and $ 1,124 during the three and nine months ended September 30, 2021, respectively.

As of September 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 $ 2,221 and $ 1,427 at June 30, 2022 and December 31, 2021 , respectively.

In July 2022, the Company issued a $ 750 standby letter of credit to a third-party financing company, who provides loans to the Company's franchisees.

The standby letter of credit is contingent upon the failure of franchisees to perform according to the terms of underlying contracts with the third party.

The Company deposited cash in a restricted account as collateral for the standby letter of credit.

Restricted cash was $ 3,382 and $ 1,427 at September 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 June 30, 2022 and December 31, 2021 , the allowance for doubtful accounts was $ 2,327 and $ 2,193 , respectively.

At September 30, 2022 and December 31, 2021 , the allowance for doubtful accounts was $ 1,297 and $ 2,193 , respectively.

Accrued expenses –

Accrued expenses consisted of the following:

September 30,

Accrued compensation

5 unchanged sentences

Total accrued expenses

Comprehensive income –

The Company does not have any components of other comprehensive income recorded within the consolidated financial statements and therefore does not separately present a consolidated statement of comprehensive income in the condensed consolidated financial statements.

Deferred offering costs –

Deferred offering costs, primarily consisted of legal, accounting and other fees relating to the Company’s initial public offering.

Upon consummation of the IPO in July 2021, total deferred offering costs of $ 7,650 were reclassified as additional paid-in capital within stockholders' equity and recorded against the proceeds of the IPO.

Xponential Fitness, Inc.

1 unchanged sentence

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

Comprehensive income –

Fair value measurements –

19 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 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.

In December 2021, the Company and the Continuing Pre-IPO LLC Members amended the LLC agreement where the redemption option in cash was removed, except to the extent the cash proceeds to be used to make the redemption in cash are immediately available and were directly raised from a secondary offering of Company's equity securities.

The redeemable noncontrolling interest was adjusted to its fair value as of such date and recorded in equity as noncontrolling interest.

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 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.

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 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.

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

Earnings per share data is not provided in the condensed consolidated financial statements for periods prior to the IPO as XPO LLC was a single-member limited liability company with only one unit.

Xponential Fitness, Inc.

1 unchanged sentence

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

For the three and nine months ended September 30, 2021 , basic net loss per share has been calculated by dividing net loss attributable to Class A common stockholders for the period subsequent to the Reorganization Transactions, by the weighted average number of shares of Class A common stock outstanding for the same period.

Shares of Class A common stock are weighted for the portion of the period in which the shares were outstanding.

Income taxes –

9 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 and six months ended June 30, 2022 and 2021 .

The Company did no t incur any interest or penalties for the three and nine months ended September 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 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.

During the nine months ended September 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 .

6 unchanged sentences

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

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.

During the nine months ended September 30, 2021 , the Company refranchised 28 company-owned transition studios for aggregate proceeds of $ 318 and recorded a loss on disposal of the related studio assets of $ 362 .

During the nine months ended September 30, 2022 , the Company refranchised 16 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 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.

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

During the three and nine months ended September 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 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.

The excess of the purchase price over the estimated fair value of the net assets and liabilities was allocated to goodwill.

The Company determined the estimated fair values after review and consideration of relevant information as of the acquisition date, including discounted cash flows, quoted market prices and estimates made by management.

Xponential Fitness, Inc.

1 unchanged sentence

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

The excess of the purchase price over the estimated fair value of the net assets and liabilities was allocated to goodwill.

The allocation of the purchase price presented below was based on management's estimate of the fair values of the acquired assets and assumed liabilities using valuation techniques including income, cost and market approaches.

11 unchanged sentences

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.

In the quarter 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.

5 unchanged sentences

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.

The likelihood of exercise of the right of first refusal was considered remote as of September 30, 2022.

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

35 unchanged sentences

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

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.

During the three and nine months ended September 30, 2021 , the Company incurred $ 0 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.

10 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 six months ended June 30, 2022 .

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

Other deferred revenue amounts of $ 16,367 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 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.

Balance at September 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 September 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.

3 unchanged sentences

The following table reflects the components of deferred revenue:

September 30,

Franchise and area development fees

13 unchanged sentences

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

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.

At September 30, 2022 and December 31, 2021 , there were approximately $ 3,637 and $ 3,071 of current deferred costs and approximately $ 42,921 and $ 41,941 in non-current deferred costs, respectively.

The Company recognized franchise sales commission expense of approximately $ 2,968 and $ 8,318 for the three and nine months ended September 30, 2022 respectively, and $ 1,513 and $ 3,962 for the three and nine months ended September 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.

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

At September 30, 2022 and December 31, 2021 , the principal balance of the notes receivable was approximately $ 5,599 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 June 30, 2022 and December 31, 2021 , the Company has reserved approximately $ 2,327 and $ 2,139 as uncollectible notes receivable, respectively.

At September 30, 2022 and December 31, 2021 , the Company has reserved approximately $ 566 and $ 2,139 as uncollectible notes receivable, respectively.

Note 6 –

1 unchanged sentence

Property and equipment consisted of the following:

September 30,

Furniture and equipment

4 unchanged sentences

Total property and equipment

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.

Depreciation expense for the three and nine months ended September 30, 2022 was $ 1,054 and $ 2,720 , respectively, and $ 705 and $ 2,159 for the three and nine months ended September 30, 2021 , respectively.

Xponential Fitness, Inc.

5 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 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 .

Goodwill at September 30, 2022 decreased to $ 165,697 from $ 169,073 at December 31, 2021 .

The $ 3,376 decrease was due to an impairment charge of $ 3,376 recognized in the third quarter of 2022 included within selling, general and administrative expenses.

This amount represents the accumulated total of impairments recognized to date related to goodwill.

During the quarter ended September 30, 2022, the Company determined it was necessary to re-evaluate goodwill of the AKT reporting unit for impairment due to impacts arising from litigation resulting in decline in forecasted and actual cash flows.

Therefore, the Company performed a quantitative assessment of the fair value of the reporting unit using an income approach with assumptions that are considered Level 3 inputs and concluded that the carrying value of the AKT reporting unit exceeded its fair value, resulting in a goodwill impairment of $ 3,376 .

The fair value of the reporting unit was determined by discounting estimated future cash flows, which were calculated based on revenue and expense long-term growth assumptions ranging from 2.0 % to 5.0 %, at a weighted average cost of capital (discount rate) of 16.0 %.

In addition, the Company determined that the trademark and franchise agreements intangible assets related to the AKT reporting unit were also impaired and recognized an impairment loss of $ 280 in the third quarter of 2022.

Intangible assets consisted of the following:

June 30, 2022

September 30, 2022

December 31, 2021

6 unchanged sentences

Total intangible assets

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.

Amortization expense was $ 3,100 and $ 8,505 , for the three and nine months ended September 30, 2022 , respectively, and $ 1,671 and $ 4,679 for the three and nine months ended September 30, 2021, respectively.

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

Remainder of 2022

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

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

Note 8 –

6 unchanged sentences

On March 24, 2021, the 2020 Facility was amended to provide for additional term loans in an amount up to $ 10,600 , which amount was borrowed and the proceeds distributed to the Parent to fund a note payable under a $ 20,000 debt financing obligation in connection with the acquisition of Rumble (see Note 3 for additional information).

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)

Quarterly principal payments of $ 53 on the additional term loans began on June 30, 2021 .

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 % ( 7.51 % at June 30, 2022).

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

18 unchanged sentences

and (ix) restricting the issuance of equity.

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

As of September 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.

Such events of default include, subject to the grace periods specified therein, failure to pay principal or interest when due, failure to satisfy or comply with covenants, a change of control, the imposition of certain judgments and the invalidation of liens the Company has granted.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

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

The Company received net proceeds of $ 207,760 after deducting original issue discount equal to 2.0 % of the gross amount of the borrowings under the Credit Agreement.

The proceeds of the Term Loan were used to repay principal, interest and fees outstanding under the 2020 Facility aggregating $ 195,633 (including a prepayment penalty of approximately $ 1,929 , which is included in interest expense for the quarter ended June 30, 2021) and for working capital and other corporate purposes.

The proceeds of the Term Loan were used to repay principal, interest and fees outstanding under the 2020 Facility aggregating $ 195,633 (including a prepayment penalty of approximately $ 1,929 , which is included in interest expense for the nine months ended September 30, 2021 and for working capital and other corporate purposes.

Principal payments of the Term Loan of $ 530 are due quarterly.

1 unchanged sentence

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 “

3 unchanged sentences

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.

On September 30, 2022, the Company entered into a third amendment (the “Third Amendment ”

) to the Credit Agreement.

The Third Amendment provides for, among other things, additional term loans in an aggregate principal amount of $ 7,500 (the “2022 Incremental Term Loan”), the proceeds of which were used for the acquisition of BodyFit trademark and general corporate purposes, including funding working capital and the payment of fees, costs and expenses related to the Third Amendment.

The Company received $ 5,502 in September 2022 and the remaining $ 1,998 in principal amount was received in October 2022.

The Third Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2022 Incremental Term Loan) commencing on December 31, 2022 to $ 759 and (ii) amended the amount of the prepayment premium applicable in the event the 2022 Incremental Term Loan is prepaid within two years of the effective date of the Third Amendment.

In April 2020, the Company received a loan in the amount of $ 3,665 , pursuant to the Paycheck Protection Program (the “PPP”) administered by the U.S.

3 unchanged sentences

In June 2021, the Company was notified that the PPP loan was forgiven.

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 $ 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:

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 nine months ended September 30, 2021.

The Company incurred debt issuance costs of $ 49 and $ 904 in the nine months ended September 30, 2022 and 2021 , respectively.

Debt issuance cost amortization amounted to approximately $ 30 and $ 94 for the three and nine months ended September 30, 2022 , respectively, and $ 372 and $ 5,722 for the three and nine months ended September 30, 2021, respectively.

Unamortized debt issuance costs as of September 30, 2022 and December 31, 2021 were $ 296 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 September 30, 2022 were as follows:

Remainder of 2022

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.

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 September 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 –

14 unchanged sentences

Lease expense for lease payments is recognized on a straight-line basis over the lease term.

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

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

The Company applied the practical expedient as an accounting policy for classes of underlying assets that have fixed payments for non-lease components, to not separate non-lease components from lease components and instead to account for them together as a single lease component, which increases the amount of lease assets and corresponding liabilities.

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

1 unchanged sentence

Balance Sheet Location

June 30, 2022

September 30, 2022

ROU assets, net

4 unchanged sentences

Lease liability

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

Three Months Ended June 30

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

Three Months Ended September 30

Related-party lease

3 unchanged sentences

Short-term lease costs

Six Months Ended June 30

Nine Months Ended September 30

Related-party lease

3 unchanged sentences

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

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

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

Three Months Ended September 30

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

Six Months Ended June 30

Nine Months Ended September 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:

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

Weighted average remaining lease term (years)

Weighted average discount rate

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

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

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

Related-party lease

Third-party leases

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

Remainder of 2022

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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 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.

During the three and nine months ended September 30, 2021 , the Company recorded approximately $ 63 and $ 462 of management fees included within selling, general and administrative 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.

During 2020, the Company provided net funds to an affiliate of the Parent aggregating $ 1,456 , which was recorded as a reduction to member's equity.

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

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

During the nine months ended September 30, 2021, the Parent repaid the balance of the receivable.

The aggregate receivable from the Parent at September 30, 2021 was $ 0 .

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

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

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.

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recorded $ 10,600 receivable from shareholder, as the Rumble seller is a shareholder of XPO Inc., for the debt financing provided to the Rumble seller.

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 extend the maturity date of the debt financing.

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

At September 30, 2022 , the Company recorded $ 319 of interest in kind, which was recorded as an increase to receivable from shareholder within equity.

In addition, the Company agreed to fund additional loans to the Rumble sellers under the existing debt financing agreement in an aggregate amount of $ 7,650 at various dates through July 2023.

The Company’s Chief Executive Officer is the sole owner of ICI, which previously provided unsecured loans to the Company, which loaned the funds to franchisees to purchase a franchise territory or to setup a studio.

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

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

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

The notes payable were repaid in 2021.

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.

The Company recognized $ 3 and $ 8 of interest income in the three and nine months ended September 30, 2022 , respectively, and $ 3 and $ 9 in the three and nine months ended September 30, 2021 .

The Company did no t record any interest expense for the three and nine months ended September 30, 2022, respectively.

During the three and nine months ended September 30, 2021, the Company recorded $ 0 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.

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.

Notes to Condensed Consolidated Financial Statements

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

The Company recorded expense related to this lease of $ 80 and $ 239 in the three and nine months ended September 30, 2022 , respectively, and $ 78 and $ 233 in the three and nine months ended September 30, 2021, respectively.

In September 2022, the Company's Chief Executive Officer sold the building to an unaffiliated third party.

The Company entered into a building lease agreement with the new owner.

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, 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.

Revenues from these affiliates, primarily related to franchise revenue, marketing fund revenue, package and memberships revenue, and merchandise revenue, were $ 679 and $ 2,018 for the three and nine months ended September 30, 2022 , respectively, and $ 612 and $ 1,210 for the three and nine months ended September 30, 2021, respectively.

Included in accounts receivable as of September 30, 2022 and December 31, 2021, i s $ 6 a nd $ 320 , respectively, for such sales.

At September 30, 2022 and December 31, 2021, notes receivable from franchisees inclu des $ 0 a nd $ 294 and notes receivable from franchisees, net of current portion includes $ 1,921 a nd $ 1,744 , re spectively, related to financing provided to these affiliates.

Note 11 –

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Certain embedded features in the Convertible Preferred require bifurcation.

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

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

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

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.

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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 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).

At September 30, 2022 , the Company recognized the preferred maximum redemption value of $ 257,096 , which is the maximum redemption value on the earliest redemption date based on fair market value per share of Convertible Preferred (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 Convertible 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 $ 19,794 to additional paid-in-capital.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

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

Note 12 –

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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.

Additionally, during the three and nine months ended September 30, 2022 , pursuant to the Amended LLC agreement, certain Continuing Pre-IPO LLC Members exchanged their LLC units for 63,435 and 601,993 shares of Class A common stock on a one-for-one basis, respectively.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

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

Noncontrolling interests –

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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 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.

During 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.

Notes to Condensed Consolidated Financial Statements

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

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

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

Ownership percentage

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

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.

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

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

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.

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 Company recognized $ 24 and $ 171 of expense during the three and nine months ended September 30, 2022 , respectively, and $ 137 and $ 808 in the three and nine months ended September 30, 2021, respectively.

At September 30, 2022 , the Company had $ 40 of unrecognized compensation expense.

The unrecognized compensation expense is expected to be recognized over a weighted average period of approximately 0.84 years for the time-based grants.

Restricted stock units –

Liability Classified Restricted stock units –

In November 2021, the Company granted restricted stock unit (“RSU”) awards with performance conditions of meeting certain EBITDA targets through the year ending December 31, 2024.

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As such, these awards are classified as a liability.

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

As of September 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 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

During the three and nine months ended September 30, 2022, the Company recogniz ed $ 623 and $ 1,865 of expense, respectively.

At September 30, 2022 , the Company had $ 5,658 of unrecognized expense relating to these grants.

Equity Classified Restricted stock units –

The following table summarizes activity for RSUs for the three and nine months ended September 30, 2022:

Outstanding at December 31, 2021

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Outstanding at June 30, 2022

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 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.

Forfeited, expired, or canceled

Outstanding at September 30, 2022

During the three and nine months ended September 30, 2022, the Company granted 15,022 and 1,537,087 RSUs, respectively, at a weighted average grant-date fair value of $ 17.36 and $ 19.62 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.

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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.

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

Total compensation expense recognized for restricted stock units was $ 3,597 and $ 9,881 for the three and nine months ended September 30, 2022 , respectively, and $ 783 for the three and nine months ended September 30, 2021.

Due to the Company's full valuation allowance on its net deferred tax assets, there is no income tax benefit on the unvested RSUs.

During the three and nine months ended September 30, 2022 , the Company recognized an income tax benefit of $ 388 and $ 434 on vested RSUs, respectively.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

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

At September 30, 2022 , the Company had $ 32,400 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.

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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 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.

The effective tax rate for the three and nine months ended September 30, 2022 is 0.03 % and ( 0.02 %), respectively.

The effective tax rate for the three and nine months ended September 30, 2021 is ( 1.17 %) and ( 1.82 %), respectively.

During the three and nine months ended September 30, 2022, the Company recognized income tax benefit of $ 308 and $ 158 on its share of pre-tax book income (loss), exclusive of the noncontrolling interest of 44 %.

During the three and nine months ended September 30, 2021 , the Company recognized income tax expense of $ 103 and $ 387 on its share of pre-tax book income (loss), exclusive of the noncontrolling interest of 49 %.

As of September 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 September 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.

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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 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.

At September 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 September 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.

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

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

Xponential Fitness, Inc.

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(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.

Tax Receivable Agreement –

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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 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.

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

Except for $ 3,076 of the TRA, $ 56,294 of the TRA liability was not recorded as of September 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 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.

Earnings (Loss) Per Share

For the three and nine months ended September 30, 2022 and 2021, basic earnings (loss) per share has been calculated by dividing net income (loss) attributable to Class A common stockholders by the weighted average number of shares of Class A common stock outstanding for the period.

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

Xponential Fitness, Inc.

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(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.

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.

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.

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level also exist at the XPO Holdings level.

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.

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 (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 (loss) per share at the subsidiary level, the amounts presented as net income (loss) attributable to noncontrolling interests and net income (loss) attributable to XPO Inc.

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

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.

Diluted earnings (loss) per share attributable to common stockholders adjusts the basic earnings or losses 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

Because the Company reported net losses for the three months ended September 30, 2022 and the three and nine months ended September 30, 2021, 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 earnings per share for the three and nine months ended September 30, 2022:

September 30,

Net income (loss)

net income (loss) attributable to noncontrolling interests

dividends on preferred shares

deemed contribution

Net income attributable to XPO Inc.

net income attributable to non-controlling interests

deemed contribution (dividend)

Net income (loss) attributable to XPO Inc.

net income (loss) attributable to non-controlling interests

dividends on preferred shares

deemed contributions

Net income attributable to XPO Inc.

deemed contributions (dividend)

Net income (loss) attributable to XPO Inc.

Weighted average shares of Class A common stock outstanding - basic

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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:

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

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

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

Rumble Class A common stock

Restricted stock units

Convertible preferred stocks

Conversion of Class B common stock to Class A common stock

Profits interests, performance vesting

Rumble contingent shares

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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 $ 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.

The Company accrued for estimated legal liabilities and has entered into certain settlement agreements to resolve legal disputes and recorded $ 409 and $ 2,931 which is included in accrued expenses in the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

Contingent consideration from acquisitions –

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

The Company recorded approximately $ 242 and $ 744 of additional contingent consideration as interest expense for the three and nine months ended September 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 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.

During the three and nine months ended September 30, 2022 , the Company recorded an increase of $ 120 and $ 380 to contingent consideration, respectively, which was recorded as acquisition and transaction expenses.

During the three and nine months ended September 30, 2021 , the Company recorded an increase of $ 80 and $ 420 to contingent consideration, respectively, which was recorded as acquisition and transaction expenses.

As of September 30, 2022 and December 31, 2021 , contingent consideration totaled approximately $ 1,220 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.

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

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.

During the three and nine months ended September 30, 2022 , the Company recorded an increase of $ 16,170 and a decrease of $ 6,030 to contingent consideration, which was recorded as acquisition and transaction expense (income).

During the three and nine months ended September 30, 2021 , the Company recorded an increase of $ 2,800 to contingent consideration, which was recorded as acquisition and transaction expenses.

At September 30, 2022 and December 31, 2021 , contingent consideration totals $ 42,170 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.

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

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.

During the three and nine months ended September 30, 2022 , the Company recorded $ 154 and $ 496 of additional contingent consideration, which was recorded as interest expense, respectively.

During the three and nine months ended September 30, 2022 , the Company recorded $ 0 and ($ 141 ) of additional contingent consideration, which was recorded as acquisition and transaction expense (income), respectively.

In addition, during the three and nine months ended September 30, 2022 , the Company paid $ 0 and $ 1,336 of contingent consideration.

At September 30, 2022 and December 31, 2021 , contingent consideration was $ 5,272 and $ 3,678 recorded as accrued expenses, respectively, and $ 3,265 and $ 5,841 recorded as contingent consideration from acquisitions, respectively, 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)

Note 17 –

Subsequent Events

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

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.

In October 2022, the Rumble sellers borrowed an additional $ 1,750 under the debt financing agreement which was recorded as receivable from shareholder within equity (see Note 10).

In October 2022, the remaining $ 1,998 in principal amount was received under the Third Amendment to the Credit Agreement (see Note 8).

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

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XPO LLC franchisees offer energetic, accessible, and personalized workout experiences led by highly qualified instructors in studio locations across 48 U.S.

states, the District of Columbia and Canada and through master franchise agreements or international expansion in 12 additional countries.

states, the District of Columbia and Canada and through master franchise or international expansion agreements in 14 additional countries.

The Company's portfolio of brands includes Club Pilates, the largest Pilates brand in the United States;

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and BFT, a functional training and strength-based program.

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.

As of September 30, 2022, 2,219 studios were open in North America, and franchisees were contractually committed to open an additional 1,919 studios under existing franchise agreements.

In addition, as of September 30, 2022, we had 266 studios open internationally, and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 920 new studios.

During the nine months ended September 30, 2022 and 2021, we generated revenue outside the United States of $9,060 and $1,124, respectively.

As of September 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.

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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.

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

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 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.

Even though studios were temporarily closed, franchisees maintained strong member loyalty, with many members maintaining actively paying accounts or putting their memberships “on hold.”

Members who did not pay membership dues while “on hold”

kept their agreements and preserved the ability to reactivate when studios reopened, mitigating high member cancellation rates.

While studios were closed, we continued to generate revenue from franchise license and royalty payments as customers engaged with our digital platform services and purchased merchandise.

We took several actions to support franchisees’

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 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 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.

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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 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;

the spread of new variants of COVID-19;

the continued and renewed imposition of protective public safety measures by local, state, federal and international authorities;

the disruption to global supply chain;

rising inflation rates;

the impact of the pandemic on the fitness industry and responses from our franchisees to the pandemic.

Although we have implemented measures to mitigate the impact of the COVID-19 pandemic on our business, we expect the pandemic to continue to adversely affect franchisees, as well as our overall business, results of operations, cash flows and financial condition.

Rumble Acquisition

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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.

During the three and nine months ended September 30, 2022, the Company paid $0 and $1,336 of contingent consideration, respectively.

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.

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AUVs are dependent upon the performance of studios and may be impacted by reduced capacity as a result of various factors, including the COVID-19 pandemic and shifting consumer demand and behavior for fitness services.

Macroeconomic factors generally, and economic factors affecting a particular geographic territory, may also increase competition for discretionary income, impact the returns generated by franchisees and therefore impact our operating results.

Macroeconomic factors such as inflation and recession, and economic factors affecting a particular geographic territory, may also increase competition for discretionary income, impact the returns generated by franchisees and therefore impact our operating results.

Key Performance Indicators

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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 and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

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

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

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(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 and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

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

Three Months Ended September 30,

North America

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Licenses sold by master franchisees, net (2)

Six Months Ended June 30,

Nine Months Ended September 30,

North America

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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 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).

While nearly all our franchised studios are licensed to franchisees, from time to time we operate a limited number of company-owned transition studios (typically as we take possession of a studio following a franchisee ceasing to operate it and as we prepare it to be licensed to a new franchisee).

Management reviews the number of studios operating at a given point in time in order to help forecast system-wide sales, franchise revenue and other revenue streams.

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We define adjusted EBITDA as EBITDA (net income/loss before interest, taxes, depreciation and amortization), adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance.

These items include equity-based compensation, acquisition and transaction expenses (including change in contingent consideration), management fees and expenses (that were discontinued after July 2021), litigation expenses (consisting of legal and related fees for specific proceedings that arise outside of the ordinary course of our business), employee retention credit (a tax credit for retaining employees throughout the COVID-19 pandemic), secondary public offering expenses for which we do not receive proceeds and expense related to the remeasurement of our TRA obligation that we do not believe reflect our underlying business performance and affect comparability.

These items include equity-based compensation, acquisition and transaction expenses (including change in contingent consideration), management fees and expenses (that were discontinued after July 2021), litigation expenses (consisting of legal and related fees for specific proceedings that arise outside of the ordinary course of our business), employee retention credit (a tax credit for retaining employees throughout the COVID-19 pandemic), secondary public offering expenses for which we do not receive proceeds, expense related to the remeasurement of our TRA obligation and expense related to loss on impairment of our brand intangible assets and goodwill that we do not believe reflect our underlying business performance and affect comparability.

EBITDA and adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry.

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 and six months ended June 30, 2022 and 2021:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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TRA remeasurement

Impairment of brand assets

Adjusted EBITDA

Results of Operations

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

Revenue, net:

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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,

Three Months Ended September 30, 2022 versus 2021

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

Three Months Ended September 30,

Change from Prior Year

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Total revenue.

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.

Total revenue was $63.8 million in the three months ended September 30, 2022, compared to $40.9 million in the three months ended September 30, 2021, an increase of $22.9 million, or 56.0%.

The increase in total revenue was primarily due to increase in same store sales and increase in open studios.

Franchise revenue.

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.

Franchise revenue was $30.0 million in the three months ended September 30, 2022, compared to $20.0 million in the three months ended September 30, 2021, an increase of $10.0 million, or 50.1%.

Franchise revenue consisted of franchise royalty fees of $18.0 million, training fees of $2.1 million, franchise territory fees of $7.0 million and technology fees of $2.9 million in the three months ended September 30, 2022, compared to franchise royalty fees of $12.6 million, training fees of $2.0 million, franchise territory fees of $3.6 million and technology fees of $1.9 million in the three months ended September 30, 2021.

The increase in franchise royalty fees, technology fees and training fees was primarily due to a 17% increase in same store sales and to 453 new studio openings globally since September 30, 2021, which also contributed to the increase in franchise territory fees.

Equipment revenue.

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.

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.

Equipment revenue was $11.8 million in the three months ended September 30, 2022, compared to $6.8 million in the three months ended September 30, 2021, an increase of $5.0 million, or 74.4%.

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

Global equipment installations in the three months ended September 30, 2022, totaled 136 compared to 76 in the prior year period, with a larger percentage of higher dollar installations in 2021.

Merchandise revenue.

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.%.

Merchandise revenue was $6.3 million in the three months ended September 30, 2022, compared to $4.9 million in the three months ended September 30, 2021, an increase of $1.4 million, or 28.4.%.

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 $4.9 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.

Franchise marketing fund revenue was $5.2 million in the three months ended September 30, 2022, compared to $3.7 million in the three months ended September 30, 2021, an increase of $1.5 million, or 39.6%.

The increase was primarily due to an increase in same store sales, 328 new studio openings in North America since September 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 $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%.

Other service revenue was $10.6 million in the three months ended September 30, 2022, compared to $5.5 million in the three months ended September 30, 2021, an increase of $5.0 million, or 90.2%.

The increase was primarily due to a $5.1 million increase in other preferred vendor commission revenue and brand fee revenue;

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Operating Costs and Expenses

Three Months Ended June 30,

Three Months Ended September 30,

Change from Prior Year

8 unchanged sentences

Costs of product revenue.

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 product revenue was $11.8 million in the three months ended September 30, 2022, compared to $7.6 million in the three months ended September 30, 2021, an increase of $4.2 million, or 55.0%, compared to an increase in related revenues of 55.1%.

Costs of product revenue as a percentage of related revenue was 65.7% in the three months ended September 30, 2022 and 2021.

Costs of franchise and service revenue.

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.

Costs of franchise and service revenue was $4.8 million in the three months ended September 30, 2022, compared to $3.2 million in the three months ended September 30, 2021, an increase of $1.6 million, or 51.8%.

The increase was primarily due to a $1.5 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%.

Selling, general and administrative expenses were $32.8 million in the three months ended September 30, 2022, compared to $24.3 million in the three months ended September 30, 2021, an increase of $8.6 million, or 35.4%.

The increase was primarily attributable to an increase in equity-based compensation of $0.7 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.

increase in legal expenses of $2.3 million related to various legal matters;

increase in salaries and wages of $1.8 million related to payroll tax expense in connection with restricted stock units and the acquisition of BFT in October 2021;

increase in impairment charges of $3.7 million related to impairment of intangible assets and goodwill of the AKT reporting unit in September 2022;

and $0.1 million net increase 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.

Depreciation and amortization expense was $4.2 million in the three months ended September 30, 2022, compared to $2.4 million in the three months ended September 30, 2021, an increase of $1.8 million, or 74.8%.

The increase was due primarily to amortization of intangibles related to the BFT acquisition in October 2021 and the BodyFit trademark acquisition in the second quarter of 2022.

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.

Marketing fund expense was $4.3 million in the three months ended September 30, 2022, compared to $3.8 million in the three months ended September 30, 2021, an increase of $0.4 million, or 11.3% 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.

Acquisition and transaction expenses (income) were $16.3 million in the three months ended September 30, 2022, compared to $2.9 million in the three months ended September 30, 2021, a change of $13.4 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,

Three Months Ended September 30,

Change from Prior Year

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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 income primarily consists of interest on notes receivable and was insignificant in each of the three-month periods ended September 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 was $3.3 million in the three months ended September 30, 2022, compared to $5.9 million in the three months ended September 30, 2021, a decrease of $2.5 million, or 43.1%.

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,

The decrease was primarily due to lower average debt balance compared to the prior year and to write off of $2.5 million of deferred loan costs and debt discount and $0.4 million prepayment penalty incurred in the prior year period related to paydown of debt with IPO proceeds.

Three Months Ended September 30,

Change from Prior Year

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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.

Income taxes (benefit) were ($0.3) million in the three months ended September 30, 2022, compared to $0.1 million in the three months ended September 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,

Nine Months Ended September 30, 2022 and 2021

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

Nine Months Ended September 30,

Change from Prior Year

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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%.

Total revenue was $173.7 million in the nine months ended September 30, 2022, compared to $105.7 million in the nine months ended September 30, 2021, an increase of $68.0 million, or 64.3%.

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.

Franchise revenue was $83.1 million in the nine months ended September 30, 2022, compared to $51.5 million in the nine months ended September 30, 2021, an increase of $31.6 million, or 61.4%.

Franchise revenue consisted of franchise royalty fees of $49.9 million, training fees of $6.0 million, franchise territory fees of $20.6 million and technology fees of $6.6 million in the nine months ended September 30, 2022, compared to franchise royalty fees of $32.2 million, training fees of $5.1 million, franchise territory fees of $9.6 million and technology fees of $4.7 million in the nine months ended September 30, 2021.

The increase in franchise royalty fees, technology fees and training fees was primarily due to a 28% 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 453 new studio openings globally since September 30, 2021, which also contributed to the increase in franchise territory fees and technology 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%.

Equipment revenue was $31.9 million in the nine months ended September 30, 2022, compared to $15.6 million in the nine months ended September 30, 2021, an increase of $16.4 million, or 105.1%.

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.

Global equipment installations in the nine months ended September 30, 2022, totaled 376 compared to 216 in the prior year period, primarily due to the increase of studio openings compared to 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%.

Merchandise revenue was $19.1 million in the nine months ended September 30, 2022, compared to $13.6 million in the nine months ended September 30, 2021, an increase of $5.5 million, or 40.2%.

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%.

Franchise marketing fund revenue was $14.5 million in the nine months ended September 30, 2022, compared to $9.5 million in the nine months ended September 30, 2021, an increase of $5.0 million, or 53.0%.

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%.

Other service revenue was $25.0 million in the nine months ended September 30, 2022, compared to $15.5 million in the nine months ended September 30, 2021, an increase of $9.5 million, or 61.1%.

The increase was primarily due to a $9.7 million increase in other preferred vendor commission revenue and brand fee revenue;

1 unchanged sentence

Operating Costs and Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

Change from Prior Year

8 unchanged sentences

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.

Costs of product revenue was $35.0 million in the nine months ended September 30, 2022, compared to $19.3 million in the nine months ended September 30, 2021, an increase of $15.7 million, or 81.5%, compared to an increase in related revenues of 74.8%.

Costs of product revenue as a percentage of related revenue increased to 68.5% in the nine months ended September 30, 2022, from 66.0% in the nine months ended September 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%.

Costs of franchise and service revenue was $13.6 million in the nine months ended September 30, 2022, compared to $8.6 million in the nine months ended September 30, 2021, an increase of $5.0 million, or 57.7%.

The increase was primarily due to a $4.4 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 $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%.

Selling, general and administrative expenses were $96.1 million in the nine months ended September 30, 2022, compared to $62.1 million in the nine months ended September 30, 2021, an increase of $34.0 million, or 54.8%.

The increase was primarily attributable to an increase in equity-based compensation of $19.7 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 $6.8 million related to various legal matters;

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.

increase in insurance expense of $2.7 million;

increase in impairment charges of $2.9 million;

and $0.2 million net increase in other variable expenses in 2022;

partially offset by a net decrease in salaries and wages expense of $0.7 million primarily attributable to employee retention credit recorded in the nine months ended September 30, 2022.

Depreciation and amortization.

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.

Depreciation and amortization expense was $11.2 million in the nine months ended September 30, 2022, compared to $6.8 million in the nine months ended September 30, 2021, an increase of $4.4 million, or 64.2%.

The increase was due primarily to amortization of intangibles related to the BFT acquisition in October 2021 and the BodyFit trademark acquisition in the second quarter of 2022.

Marketing fund expense.

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.

Marketing fund expense was $12.7 million in the nine months ended September 30, 2022, compared to $9.3 million in the nine months ended September 30, 2021, an increase of $3.4 million, or 36.5% 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.

Acquisition and transaction expenses (income) were ($5.8) million in the nine months ended September 30, 2022, compared to $3.5 million in the nine months ended September 30, 2021, a decrease of $9.3 million.

These expenses represent the non-cash change in contingent consideration related to 2017 and 2021 business acquisitions and $0.3 million of expense in 2021 related to the Rumble acquisition.

Other (Income) Expense, net

Six Months Ended June 30,

Nine Months Ended September 30,

Change from Prior Year

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Interest income.

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

Interest expense .

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 was $9.1 million in the nine months ended September 30, 2022, compared to $21.9 million in the nine months ended September 30, 2021, a decrease of $12.8 million, or 58.6%.

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 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.

The decrease was due primarily to lower average debt balance compared to the prior year and to write off of $7.5 million of deferred loan costs and debt discount and $2.3 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, and $115 million paydown of debt with IPO proceeds.

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,

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

Nine Months Ended September 30,

Change from Prior Year

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Income taxes .

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.

Income taxes (benefit) were ($0.2) in the nine months ended September 30, 2022, compared to $0.4 million in the nine months ended September 30, 2021.

In 2022, the Company is taxed as a corporation.

1 unchanged sentence

Liquidity and Capital Resources

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.

As of September 30, 2022, we had $27.5 million of cash and cash equivalents, excluding $3.4 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.

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(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% (7.51% at June 30, 2022).

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

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and (ix) restricting the issuance of equity.

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

As of September 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.

1 unchanged sentence

The proceeds of the Term Loan were used to repay principal, interest and fees outstanding under our prior financing agreement (including a prepayment penalty of approximately $1.9 million) and for working capital and other corporate purposes.

Principal payments of the Term Loan of $0.53 million are due quarterly.

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.

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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,”

On September 30, 2022, we entered into a third amendment (the “Third Amendment ”

) to the Credit Agreement.

The Third Amendment provides for, among other things, additional term loans in an aggregate principal amount of $7.5 million (the “2022 Incremental Term Loan”), the proceeds of which were used for the acquisition of BodyFit trademark and general corporate purposes, including funding working capital and the payment of fees, costs and expenses related to the Third Amendment.

We received $5.5 million in September 2022 and the remaining $2.0 million of the principal amount was received in October 2022.

The Third Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2022 Incremental Term Loan) commencing on December 31, 2022 and (ii) amended the amount of the prepayment premium applicable in the event the 2022 Incremental Term Loan is prepaid within two years of the effective date of the Third Amendment.

The total principal amount outstanding on the Term Loan, the 2021 Incremental Term Loan, and the 2022 Incremental Term Loan was $136.5 million at September 30, 2022.Quarterly principal payments of $0.8 million on the Term Loan as amended are due beginning December 31, 2022.

At September 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 six months ended June 30, 2022 and 2021:

Six Months Ended June 30,

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

Nine Months Ended September 30,

(in thousands)

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Cash Flows from Operating Activities

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.

In the nine months ended September 30, 2022, cash provided by operating activities was $37.5 million, compared to cash provided of $3.9 million in the nine months ended September 30, 2021, an increase in cash provided of $33.5 million.

Of the change, $36.3 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 accounts payable, other current liabilities and other liabilities of $11.9 million due to timing of payments;

increase in prepaid expenses and other current assets of $3.9 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.

increase in deferred cost of $3.6 million due to an increase in sales of additional franchises;

increase in cash outflows relating to (1) decrease in deferred revenue of $8.4 million;

(2) decrease in accrued expenses of $1.0 million;

(3) decrease in accounts receivable of $4.7 million;

and (4) decrease in inventories of $7.9 million.

Cash Flows from Investing Activities

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.

In the nine months ended September 30, 2022, cash used in investing activities was $11.6 million, compared to $4.0 million in the nine months ended September 30, 2021, an increase in cash used of $7.6 million.

The increase was primarily attributable to an increase in cash used to purchase property and equipment and intangible assets and issue notes receivables;

decrease in cash proceeds from sales of assets;

partially offset by an increase in cash received from collection of notes receivable and decrease in cash used to purchase studios.

Cash Flows from Financing Activities

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.

In the nine months ended September 30, 2022, cash used in financing activities was $16.3 million, compared to cash provided by financing activities of $14.3 million in the nine months ended September 30, 2021, an increase in cash used of $30.6 million.

The increase in cash used was primarily attributable to the following changes:

increase in dividend payment of $8.9 million;

increase in tax payments of $1.9 million related to net share settlement of restricted share units;

decrease in borrowings on long-term debt of $212.9 million;

decrease in distribution to Member of $10.6 million;

increase in loan to shareholder of $3.3 million;

lower debt issuance costs of $0.9 million and lower payments on long-term debt and contingent consideration of $318.3 million;

decrease in cash received resulting from the IPO and preferred stock issuance, net of offering costs, of $317.2 million and decrease in receipts from Member of $1.5 million;

payments of $185.7 million in connection with reorganization transactions in 2021.

Off-Balance Sheet Arrangements

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”).

As of September 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

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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