What changed in this filing

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Item 1. Financial Statements

2023-08-07 compared with 2023-05-05 · 534 added, 268 removed, 1008 unchanged (44% of the section changed)

31 unchanged sentences

Redeemable convertible preferred stock, $ 0.0001 par value, 400 shares authorized, 115 and

200 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively

200 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively

Stockholders' equity (deficit):

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

and outstanding as of March 31, 2023 and December 31, 2022

and outstanding as of June 30, 2023 and December 31, 2022

Class A common stock, $ 0.0001 par value, 500,000 shares authorized, 33,220 and

27,571 shares issued and outstanding as of March 31, 2023 and December 31, 2022,

27,571 shares issued and outstanding as of June 30, 2023 and December 31, 2022,

Class B common stock, $ 0.0001 par value, 500,000 shares authorized, 16,592 and

21,647 shares issued, and 16,656 and 21,572 shares outstanding as of March 31, 2023 and

21,647 shares issued, and 16,517 and 21,572 shares outstanding as of June 30, 2023 and

December 31, 2022, respectively

2 unchanged sentences

Accumulated deficit

Treasury stock, at cost, 75 shares outstanding as of March 31, 2023 and December 31, 2022

Treasury stock, at cost, 75 shares outstanding as of June 30, 2023 and December 31, 2022

Total stockholders' deficit attributable to Xponential Fitness, Inc.

6 unchanged sentences

(amounts in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Revenue, net:

11 unchanged sentences

Marketing fund expense

Acquisition and transaction expenses

Acquisition and transaction income

Total operating costs and expenses

Operating loss

Operating income

Other (income) expense:

3 unchanged sentences

Total other expense

Loss before income taxes

Income tax benefit

net loss attributable to noncontrolling interests

Net loss attributable to Xponential Fitness, Inc.

Net loss per share of Class A common stock:

Income before income taxes

net income attributable to noncontrolling interests

Net income attributable to Xponential Fitness, Inc.

Net income per share of Class A common stock:

Weighted average shares of Class A common stock outstanding:

25 unchanged sentences

Balance at March 31, 2023

Equity-based compensation

Conversion of Class B shares to

Class A shares

Payment of preferred stock dividend

Adjustment of preferred stock to

redemption value

Vesting of Class B Shares

Vesting of restricted share units, net of shares

withheld for taxes

Loan to shareholder and accumulated interest

Receivable from shareholder arising from

the Rumble studios acquisition

Consideration related to

the Rumble studios acquisition

Payment received from shareholder

Distributions paid to Pre-IPO LLC Members

Balance at June 30, 2023

See accompanying notes to condensed consolidated financial statements.

15 unchanged sentences

Balance at March 31, 2022

Equity based compensation

Conversion of Class B shares to Class A shares

Payment of preferred stock dividend

Adjustment of preferred stock to redemption value

Vesting of Class B Shares

Vesting of restricted stock units

Balance at June 30, 2022

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(amounts in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

3 unchanged sentences

Amortization of right-of-use assets

Bad debt recovery

Bad debt expense (recovery)

Equity-based compensation

Non-cash interest

Gain on disposal of assets

Changes in assets and liabilities:

Write down of brand assets

Loss (gain) on disposal of assets

Changes in assets and liabilities, net of effect of acquisitions:

Accounts receivable

12 unchanged sentences

Proceeds from sale of assets

Purchase of studios

Purchase of intangible assets

6 unchanged sentences

Debt issuance costs

Payment of preferred stock dividend and deemed dividend

Payment of preferred stock dividend and deemed cash dividend

Payment of contingent consideration

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

Payment for tax receivable agreement

Payments for redemption of preferred stock

Payments for distributions to Pre-IPO LLC Members

Payment received from shareholder (Note 10)

Loan to shareholder (Note 10)

Net cash used in financing activities

Decrease in cash, cash equivalents and restricted cash

Increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

4 unchanged sentences

(amounts in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Supplemental cash flow information:

7 unchanged sentences

Accrued tax withholding related to convertible preferred stock dividend

Intangible asset acquired in exchange for deferred revenue

Acquisition of intangible assets accrued

See accompanying notes to condensed consolidated financial statements.

12 unchanged sentences

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

As of March 31, 2023 , the Company’s portfolio of ten brands consists of:

As of June 30, 2023 , 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 87 and 20 company-owned transition studios as of March 31, 2023 and 2022, respectively.

In addition to franchised studios, the Comp any operated 84 an d 14 company-owned transition studios as of June 30, 2023 and 2022, respectively.

In connection with the IPO, XPO Inc.

11 unchanged sentences

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

In the opinion of management, the Company has made all adjustments necessary to present fairly the condensed consolidated statements of operations, balance sheets, changes in stockholders'/member’s equity (deficit), and cash flows for the periods presented.

In the opinion of management, the Company has made all adjustments necessary to present fairly the condensed consolidated statements of operations, balance sheets, changes in stockholders' equity (deficit), and cash flows for the periods presented.

Such adjustments are of a normal, recurring nature.

13 unchanged sentences

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

The Company generated $ 2,980 and $ 3,380 of revenue outside the United States during the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023 and December 31, 2022 , the Company did not have material assets located outside of the United States.

The Company generated $ 4,007 and $ 6,987 of revenue outside the United States during the three and six months ended June 30, 2023 , respectively, and $ 2,576 and $ 5,956 during the three and six months ended June 30, 2022, respectively.

As of June 30, 2023 and December 31, 2022 , the Company did not have material assets located outside of the United States.

Cash, cash equivalents and restricted cash –

7 unchanged sentences

The Company's restricted cash consists of marketing fund restricted cash and guarantee of standby letter of credit.

Restricted cash was $ 5,917 and $ 5,381 at March 31, 2023 and December 31, 2022 , respectively.

Restricted cash was $ 7,064 and $ 5,381 at June 30, 2023 and December 31, 2022 , respectively.

Accounts receivable and allowance for doubtful accounts –

6 unchanged sentences

Credit Losses –

Effective January 1, 2023, the Company adopted ASU 2016-13, which required the recognition of expected credit losses for account and notes receivable.

Effective January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, which required the recognition of expected credit losses for accounts and notes receivable.

The adoption of the new standard did not have a material impact on the Company's condensed consolidated financial statements as the expected credit loss model was not significantly different from the Company's prior policy and methodology for determining the allowance for doubtful accounts.

11 unchanged sentences

Balance at January 1, 2023

Bad debt expense recognized during the year

Bad debt expense recognized during the period

Write-off of uncollectible amounts

Balance at March 31, 2023

Balance at June 30, 2023

Accrued expenses –

4 unchanged sentences

Legal accruals

Accrued tax withholding related to convertible preferred stock dividend

Other accruals

25 unchanged sentences

Income or loss is attributed to the noncontrolling interests based on the weighted average LLC interests outstanding during the period.

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.

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

Earnings (loss) per share –

3 unchanged sentences

Diluted earnings per share adjusts the basic e arnings 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.

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 potentially dilutive common shares would have an anti-dilutive effect.

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

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

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

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 months ended March 31, 2023 and 2022 .

Reclassifications

Certain amounts have been reclassified to conform to current year presentation.

The Company did no t incur any interest or penalties for the three and six months ended June 30, 2023 and 2022 .

Recently adopted accounting pronouncements –

38 unchanged sentences

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

During the three months ended March 31, 2023 and 2022 , the Company refranchised three and nine company-owned transition studios, respectively, and received no proceeds and recorded no gain or loss on disposal of the studio assets.

On June 5, 2023 , the Company entered into an Asset Purchase Agreement to purchase 14 studios to operate as company-owned transition studios from the original founder sellers of the Rumble brand, which was acquired by the Company in 2021 (the “

Rumble Sellers”) and were franchisees and shareholders of the Company.

This acquisition is expected to enhance the operational performance of the 14 Rumble studios as the Company prepares them to be licensed to a new franchisee.

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

The Company also entered into a mutual termination agreement with the Rumble Sellers to terminate their existing franchise agreements, resulting in cash received and a gain of $ 3,500 , which is included within selling, general and administrative expense.

Under the Asset Purchase Agreement, consideration for the acquisition included $ 1 , which was recorded as a reduction to receivable from shareholder.

The Company also agreed to assume liabilities aggregating $ 1,450 , which is expected to be reimbursed to the Company upon the sale of XPO Inc.

common stock owned by the Rumble Sellers .

In connection with the transaction, the Company wrote down intangible assets related to franchise agreements, net of reacquired franchise rights, in the amount of $ 7,238 (see Note 7) .

The Company determined the estimated fair values assigned to assets acquired and liabilities assumed after review and consideration of relevant information as of the acquisition date.

The fair values are based on management's estimates and assumptions, which include Level 3 unobservable inputs, and are determined using generally accepted valuation techniques.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

The following summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed:

Accounts receivable

Property and equipment

Right-of-use assets

Deferred revenue

Lease liabilities

Reduction to receivable from shareholder

The resulting goodwill is primarily attributable to synergies from the integration of studios, increased expansion for market opportunities and the expansion of studio membership and is expected to be tax deductible.

The fair value of the property and equipment was based on the replacement cost method.

The fair value of the right of use assets was determined using the income approach.

The deferred revenue represents prepaid classes and class packages.

The Company will recognize revenue over time as the members attend and utilize the classes.

The fair value of the reacquired franchise rights after termination of the existing franchise agreements was based on the excess earnings method and is considered to have an eight-year life.

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

During the six months ended June 30, 2023 , the Company did no t incur any transaction costs directly related to the acquisition of 14 Rumble studios.

During the six months ended June 30, 2023 , the Company entered into an agreement with a franchisee under which the Company repurchased one studio to operate as a company-owned transition studio.

The purchase price for the acquisition was $ 164 , less $ 8 of net deferred revenue and deferred costs resulting in total purchase consideration of $ 156 .

The following summarizes the aggregate fair values of the assets acquired and liabilities assumed:

Property and equipment

Reacquired franchise rights

Total purchase price

During the six months ended June 30, 2023 and 2022, the Company refranchised 34 and 15 company-owned transition studios, respectively, and received no proceeds and recorded a net loss of $ 148 and $ 0 on disposal of the studio assets, respectively .

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

2 unchanged sentences

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

During the three months ended March 31, 2023 and 2022 , the Company did no t record any impairment charges.

During the three and six months ended June 30, 2023 and 2022 , the Company did no t record any impairment charges.

Xponential Fitness, Inc.

10 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 was considered remote as of March 31, 2023.

The likelihood of exercise of the right of first refusal was considered remote as of June 30, 2023 .

Note 4 –

7 unchanged sentences

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

The following table reflects the change in franchise development and brand fee contract liabilities for the three months ended March 31, 2023 .

The following table reflects the change in franchise development and brand fee contract liabilities for the six months ended June 30, 2023 .

Other deferred revenue amounts of $ 20,772 are excluded from the table as the original expected duration of the contracts is one year or less .

5 unchanged sentences

Increase, excluding amounts recognized as revenue

during the year

Balance at March 31, 2023

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

The following table illustrates estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2023.

during the period

Balance at June 30, 2023

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, 2023.

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.

2 unchanged sentences

Remainder of 2023

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

The following table reflects the components of deferred revenue:

11 unchanged sentences

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

At March 31, 2023 and December 31, 2022 , there were approximately $ 3,688 and $ 3,589 of current deferred costs and approximately $ 43,386 and $ 43,445 in non-current deferred costs, respectively.

The Company recognized franchise sales commission expense of approximately $ 2,035 and $ 2,553 for the three months ended March 31, 2023 and 2022 , respectively.

At June 30, 2023 and December 31, 2022 , there were approximately $ 3,798 and $ 3,589 of current deferred costs and approximately $ 44,434 and $ 43,445 in non-current deferred costs, respectively.

The Company recognized franchise sales commission expense of approximately $ 1,746 and $ 3,781 for the three and six months ended June 30, 2023 , respectively, and $ 2,797 and $ 5,350 for the three and six months ended June 30, 2022 , respectively.

Note 5 –

10 unchanged sentences

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

At March 31, 2023 and December 31, 2022 , the principal balance of the notes receivable was approximately $ 3,132 and $ 3,306 , respectively.

At June 30, 2023 and December 31, 2022 , the principal balance of the notes receivable was approximately $ 3,040 and $ 3,306 , 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.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Note 6 –

7 unchanged sentences

Total property and equipment

Depreciation expense for the three months ended March 31, 2023 and 2022 was $ 1,242 and $ 845 , respectively.

Depreciation expense for the three and six months ended June 30, 2023 , was $ 1,403 and $ 2,645 , respectively, and $ 821 and $ 1,666 for the three and six months ended June 30, 2022 , respectively.

Note 7 –

2 unchanged sentences

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

The Company has not identified any events or circumstances at March 31, 2023 that would require an interim goodwill impairment test.

The carrying value of goodwill at March 31, 2023 and December 31, 2022 totaled $ 165,697 net of cumulative impairment of $ 3,376 .

During the six months ended June 30, 2023 , there was an increase of $ 4,866 in previously reported goodwill due to the acquisition of 14 Rumble studios as discussed in Note 3.

The carrying value of goodwill at June 30, 2023 and December 31, 2022 totaled $ 170,563 and $ 165,697 , respectively, net of cumulative impairment of $ 3,376 .

Intangible assets consisted of the following:

March 31, 2023

June 30, 2023

December 31, 2022

Franchise agreements

Reacquired franchise rights

Web design and domain

3 unchanged sentences

Total intangible assets

Amortization expense was $ 2,955 and $ 2,648 , for the three months ended March 31, 2023 and 2022, respectively.

Amortization expense was $ 2,885 and $ 5,840 , for the three and six months ended June 30, 2023 , respectively, and $ 2,757 and $ 5,405 for the three and six months ended June 30, 2022, respectively.

During the six months ended June 30, 2023, the Company recorded a write down of franchise agreements, net of reacquired franchise rights, in the amount of $ 7,238 in connection with the acquisition of 14 Rumble studios as discussed in Note 3, which is included within selling, general and administrative expenses.

Xponential Fitness, Inc.

9 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 % ( 11.30 % at March 31, 2023).

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

18 unchanged sentences

and (ix) restricting the issuance of equity.

As of March 31, 2023, the Company was in compliance with these covenants.

As of June 30, 2023, the Company was in compliance with these covenants.

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

15 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 2023 Incremental Term Loan) to $ 1,065 commencing on June 30, 2023 and (ii) amended the amount of the prepayment premium applicable in the event the 2023 Incremental Term Loan is prepaid.

In connection with the Fourth Amendment, the Company wrote off a pro rata portion of debt issuance costs related to the Term Loans aggregating $ 265 , which was included in interest expense for the three months ended March 31, 2023.

The Company incurred debt issuance costs of $ 115 and $ 46 in the three months ended March 31, 2023 and 2022 , respectively.

Debt issuance cost amortization amounted to approximately $ 283 and $ 33 for the three months ended March 31, 2023 and 2022, respectively.

Unamortized debt issuance costs as of March 31, 2023 and December 31, 2022 were $ 102 and $ 270 , respectively, and are presented as a reduction to long-term debt in the condensed consolidated balance sheets.

Principal payments on outstanding balances of long-term debt as of March 31, 2023 were as follows:

The Company incurred debt issuance costs of $ 115 and $ 46 in the six months ended June 30, 2023 and 2022 , respectively.

Debt issuance cost amortization amounted to approximately $ 14 and $ 297 for the three and six months ended June 30, 2023 , respectively, and $ 31 and $ 64 for the three and six months ended June 30, 2022, respectively.

Unamortized debt issuance costs as of June 30, 2023 and December 31, 2022 were $ 88 and $ 270 , 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, 2023 were as follows:

Remainder of 2023

The carrying value of the Company’s long-term debt approximated fair value as of March 31, 2023 and December 31, 2022 , due to the variable interest rate, which is a Level 2 input, or proximity of debt issuance date to the balance sheet date.

The carrying value of the Company’s long-term debt approximated fair value as of June 30, 2023 and December 31, 2022 , 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 –

28 unchanged sentences

Lease liability

Components of lease expense during the three months ended March 31, 2023 and 2022, are summarized as follows:

Three Months Ended March 31

Components of lease expense during the three and six months ended June 30, 2023 and 2022, are summarized as follows:

Three Months Ended June 30

Related-party lease

5 unchanged sentences

Short-term lease costs

Supplemental cash flow information related to operating leases during the three months ended March 31, 2023 and 2022, are summarized as follows:

Three Months Ended March 31

Six Months Ended June 30

Related-party lease

Third-party leases

Related-party lease

Third-party leases

Operating lease costs

Variable lease costs

Short-term lease costs

Supplemental cash flow information related to operating leases during the three and six months ended June 30, 2023 and 2022, are summarized as follows:

Three Months Ended June 30

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

Lease liabilities arising from new ROU assets

Six Months Ended June 30

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

Lease liabilities arising from new ROU assets

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Other information related to lease are summarized as follows:

March 31, 2023

June 30, 2023

December 31, 2022

1 unchanged sentence

Weighted average discount rate

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Maturities of lease liabilities as of March 31, 2023 are summarized as follows:

Maturities of lease liabilities as of June 30, 2023 are summarized as follows:

Remainder of 2023

12 unchanged sentences

In 2022, the Rumble Sellers borrowed an additional $ 5,050 under the debt financing agreement which was recorded as receivable from shareholder within equity.

In January 2023, the Rumble sellers borrowed an additional $ 3,100 under the debt financing agreement which was recorded as receivable from shareholder within equity.

During the three months ended March 31, 2023 , the Company recorded $ 487 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 $ 2,800 at various dates through July 2023.

In January and April 2023, the Rumble Sellers borrowed an additional $ 3,100 and $ 1,300 , respectively, under the debt financing agreement which were recorded as receivable from shareholder within equity.

During the three and six months ended June 30, 2023 , the Company recorded $ 384 and $ 871 of interest in kind, respectively, which was recorded as an increase to receivable from shareholder within equity.

During the six months ended June 30, 2023 , the Company received $ 1,289 cash as partial payment for the receivable from shareholder.

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 was 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 in the three months ended March 31, 2022.

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

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

3 unchanged sentences

(amounts in thousands, except per share amounts)

In December 2022, the Company entered into an agreement with the former owner of Row House, pursuant to which contingent consideration relating to the 2017 acquisition of Row House was settled in exchange for issuance of 105 Restricted Stock Units ("RSUs") which vest on the fourth anniversary of the grant date.

In December 2022, the Company entered into an agreement with the former owner of Row House, pursuant to which contingent consideration relating to the 2017 acquisition of Row House was settled in exchange for the issuance of 105 RSUs, which vest in full on the fourth anniversary of the grant date.

As a result of the agreement, the Company recorded a reduction to the contingent consideration liability of $ 1,220 with an offsetting increase in additional paid-in capital and reclassified the former owner's outstanding note receivable of $ 1,834 to additional paid-in capital.

1 unchanged sentence

The outstanding receivable from shareholder and the multi-tranche term loan are collateralized by 75 shares of Class B common stock held by the former owner, which were reclassified to treasury stock, and by the 105 RSUs.

During the three months ended March 31, 2023 , the former owner of Row House borrowed $ 180 , which was recorded as a reduction to liability.

As of June 30, 2023 , the former owner of Row House borrowed $ 180 , which was recorded as a reduction to liability.

In March 2023, Spartan Fitness Holdings, LLC (“Spartan Fitness”), which currently owns and operates 66 Club Pilates studios, entered into a unit purchase agreement with Snapdragon Spartan Investco LP (the “Spartan SPV”), a special purpose vehicle controlled and managed by a member of the Company’s board of directors, pursuant to which Spartan SPV agreed to invest in the equity of Spartan Fitness.

2 unchanged sentences

Spartan Fitness also owns the rights to 36 Club Pilates licenses to open additional new units.

During the three months ended March 31, 2023 , the Company recorded franchise and marketing fund revenue aggregating $ 1,232 from studios owned by Spartan Fitness.

During the three and six months ended June 30, 2023 , the Company recorded franchise and marketing fund revenue aggregating $ 1,780 and $ 3,012 , respectively, from studios owned by Spartan Fitness.

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

Revenues from these affiliates, primarily related to franchise revenue, marketing fund revenue, package and memberships revenue and merchandise revenue, were $ 136 and $ 263 for the three months ended March 31, 2023 and 2022, respectively.

Included in accounts receivable as of March 31, 2023 and December 31, 2022, i s $ 4 a nd $ 4 , respectively, for such sales.

Revenues from these affiliates, primarily related to franchise revenue, marketing fund revenue, package and memberships revenue and merchandise revenue, were $ 134 and $ 270 for the three and six months ended June 30, 2023 , respectively, and $ 686 and $ 1,339 for the three and six months ended June 30, 2022, respectively.

Included in accounts receivable as of June 30, 2023 and December 31, 2022, i s $ 3 a nd $ 4 , respectively, for such sales.

Note 11 –

1 unchanged sentence

On July 23, 2021, the Company issued and sold in a private placement 200 newly issued shares of Series A-1 Convertible Preferred Stock, par value $ 0.0001 per share (the “Convertible Preferred”), for aggregate cash proceeds of $ 200,000 , before deduction for offering costs.

Holders of Convertible Preferred shares are entitled to quarterly coupon payments at the rate of 6.50 % of the fixed liquidation preference per share, initially $ 1,000 per share.

In the event the quarterly preferential coupon is not paid in cash, the fixed liquidation preference automatically increases at the PIK rate of 7.50 %.

The Convertible Preferred has an initial conversion price equal to $ 14.40 per share and is mandatorily convertible under certain circumstances and redeemable at the option of the holder beginning on the date that is eight years from the IPO or upon change of control.

Holders of shares of Convertible Preferred are entitled to quarterly coupon payments at the rate of 6.50 % of the fixed liquidation preference per share, initially $ 1,000 per share.

In the event the quarterly preferential coupon is not paid in cash, the fixed liquidation preference automatically increases at the Paid-in-Kind rate of 7.50 %.

The Convertible Preferred has an initial conversion price equal to $ 14.40 per share, is mandatorily convertible in certain circumstances and is redeemable at the option of the holder beginning on the date that is eight years from the IPO or upon change of control.

At issuance, the Company assessed the Convertible Preferred for any embedded derivatives.

The Company determined that the Convertible Preferred represented an equity host under ASC Topic 815, Derivatives and Hedging .

The Company’s analysis was based on a consideration of all stated and implied substantive terms and features of the hybrid financial instrument and weighing those terms and features on the basis of the relevant facts and circumstances.

The Company’s analysis was based on consideration of all stated and implied substantive terms and features of the hybrid financial instrument and weighing those terms and features on the basis of the relevant facts and circumstances.

Certain embedded features in the Convertible Preferred require bifurcation.

However, the fair value of such embedded features were immaterial upon issuance and as of March 31, 2023.

However, the fair value of such embedded features was immaterial upon issuance and as of June 30, 2023.

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.

2 unchanged sentences

Shares of Series A-1 preferred stock are non-voting;

however, any shares of Series A-1 preferred stock issued to the Preferred Investors will convert on a one-to-one basis to shares of Series A preferred stock when permitted under relevant antitrust restrictions.

however, any shares of Series A-1 preferred stock issued to any of the lenders party to the Credit Agreement will convert on a one-to-one basis to shares of Series A preferred stock when permitted under relevant antitrust restrictions.

Xponential Fitness, Inc.

4 unchanged sentences

On January 9, 2023, pursuant to a preferred stock repurchase agreement (the “Repurchase Agreement”) between the Company and certain holders of the Convertible Preferred, the Company repurchased 85 shares of Convertible Preferred for an aggregate payment of $ 130,766 .

The excess of fair market value of $ 12,679 over the consideration transferred was treated as deemed contribution and resulted in an decrease to accumulated deficit and was included in the calculation of loss per share.

At March 31, 2023 and December 31, 2022 , the Company recognized the preferred maximum redemption value of $ 227,290 and $ 308,075 , respectively, 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 115 and 200 outstanding shares of Convertible Preferred at March 31, 2023 and December 31, 2022 , respectively).

The recording of the preferred maximum redemption value was treated as deemed dividend, which was included in the calculation of loss per share, and resulted in a net decrease of $ 62,660 and $ 50,931 to additional paid-in-capital as of March 31, 2023 and March 31, 2022 , respectively.

The excess of fair market value of $ 12,679 over the consideration transferred was treated as deemed contribution and resulted in a decrease to accumulated deficit and was included in the calculation of loss per share.

At June 30, 2023 and December 31, 2022 , the Company recognized the preferred maximum redemption value of $ 181,738 and $ 308,075 , respectively, 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 115 and 200 outstanding shares of Convertible Preferred at June 30, 2023 and December 31, 2022 , respectively).

The recording of the preferred maximum redemption value was treated as deemed (dividend)/contribution, which was included in the calculation of earnings (loss) per share and resulted in a net (decrease)/increase of ($ 17,109 ) and $ 76,890 to additional paid-in-capital for the six months ended June 30, 2023 and 2022 , respectively.

Note 12 –

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Common stock –

In February 2023, the Company entered into an underwriting agreement with certain existing stockholders, affiliates of H&W Investco and our Chief Executive Officer (collectively the "Selling Stockholders") and certain underwriters named therein, pursuant to which the Selling Stockholders sold an aggregate of 5,000 shares of Class A common stock in a secondary public offering at a public offering price of $ 24.50 per share.

) and certain underwriters named therein, pursuant to which the Selling Stockholders sold an aggregate of 5,000 shares of Class A common stock in a secondary public offering at a public offering price of $ 24.50 per share.

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

In addition, the Selling Stockholders granted the underwriters a 30-day option to purchase up to an additional 750 shares of the Company's Class A common stock, which was exercised on February 15, 2023.

In addition, the Selling Stockholders granted the underwriters a 30-day option to purchase up to an additional 750 shares of the Company's Class A common stock, which was fully exercised on February 15, 2023.

The shares sold in the offering consisted of (i) 2,276 existing shares of Class A common stock and (ii) 3,474 newly-issued shares of Class A common stock issued in connection with the exchange of LLC units held by the Selling Stockholders.

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

Additionally, during the three months ended March 31, 2023 and 2022 , pursuant to the Amended LLC agreement, certain Continuing Pre-IPO LLC Members exchanged their LLC units for 1,451 and 351 shares of Class A common stock on a one-for-one basis, respectively.

Additionally, during the three and six months ended June 30, 2023, pursuant to the Amended Limited Liability Company Agreement of XPO Holdings (“Amended LLC Agreement”

), certain Continuing Pre-IPO LLC Members exchanged their LLC units for 141 and 1,593 shares of Class A common stock on a one-for-one basis, respectively.

Noncontrolling interests –

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Under the Amended LLC agreement, the Continuing Pre-IPO LLC Members are able to exchange their LLC Units for shares of Class A common stock on a one-for-one basis (simultaneously cancelling an equal number of shares of Class B common stock of the exchanging member), or at the option of the Company for cash.

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 the Company's equity securities.

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

During 2023 and 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.

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(amounts in thousands, except per share amounts)

The following table summarizes the ownership of XPO LLC as of March 31, 2023:

The following table summarizes the ownership of XPO LLC as of June 30, 2023:

Ownership percentage

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The vesting condition, as amended, was based on the average trading price of XPO Inc.

common stock exceeding the IPO threshold price, as defined in the agreement.

common stock exceeding the IPO threshold price, as defined in the amendment.

The amendment of these units was treated as a modification with the compensation cost of the amended units of $ 18,127 recognized over the new estimated service period through November 2022.

In March 2022, the units vested when the average trading price condition was met and the Company recognized $ 12,126 of expense when these grants vested in March 2022.

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

The Company recognized $ 12,003 of expense during the six months ended June 30, 2022 .

The fair value of the time-based grants was recognized as compensation expense over the vesting period (generally four years ) and was calculated using a Black-Scholes option-pricing model.

The Company recognized $ 14 and $ 78 of expense during the three months ended March 31, 2023 and 2022, respectively, which was included within selling, general and administrative expenses.

At March 31, 2023 , the Company had $ 8 of unrecognized compensation expense.

The Company recognized expense of $ 3 and $ 17 during the three and six months ended June 30, 2023 , respectively, and $ 69 and $ 147 during the three and six months ended June 30, 2022, respectively, which was included within selling, general and administrative expenses.

At June 30, 2023 , the Company had $ 5 of unrecognized compensation expense.

The unrecognized compensation expense is expected to be recognized over a weighted average period of approximately 1.11 years for the time-based grants.

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.

In November 2021, the Company granted RSU awards with performance conditions of meeting certain EBITDA targets through the year ending December 31, 2024.

The awards were granted with fixed dollar valuation and the number of shares granted depends on the trading price at the closing date of the period in which the EBITDA target is met.

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

During the three months ended March 31, 2023 , the performance condition of an award with a total fixed dollar value of $ 2,250 was met and 101 units were earned and issued as shares.

As of March 31, 2023, management believes that the EBITDA targets for the remaining RSU awards will be achieved and is accordingly recognizing expense ratably over the vesting period.

During the three months ended March 31, 2023 and 2022, the Company recogniz ed $ 444 and $ 621 of expense, respectively.

At March 31, 2023 , the Company had $ 3,153 of unrecognized expense relating to these grants.

During the first quarter of 2023, the performance condition of an award with a total fixed dollar value of $ 2,250 was met and 101 unit s were earned and issued as shares.

As of June 30, 2023, management believes that the EBITDA targets for the remaining RSU awards will be achieved and is accordingly recognizing expense ratably over the vesting period.

The Company recogniz ed expense of $ 444 and $ 888 during the three and six months ended June 30, 2023 , respectively, and $ 621 and $ 1,242 during the three and six months ended June 30, 2022, respectively.

At June 30, 2023 , the Company had $ 2,709 of unrecognized expense relating to these grants.

Equity classified restricted stock units –

The following table summarizes activity for RSUs for the three months ended March 31, 2023:

The following table summarizes activity for RSUs for the six months ended June 30, 2023:

Weighted Average

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Forfeited, expired, or canceled

Outstanding at March 31, 2023

Outstanding at June 30, 2023

Xponential Fitness, Inc.

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(amounts in thousands, except per share amounts)

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

Compensation expense for restricted stock units is recognized on a straight-line basis.

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

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

During 2022, included in the RSUs described above, the Company granted 171 performance-based RSUs at a weighted average grant-date closing price of $ 18.25 per share.

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During 2022, the performance metrics related to 18 performance-based RSUs fell below the minimum threshold and as a result, the Company cancelled these previously granted performance-based RSUs.

During the three months ended March 31, 2023 , 36 units were earned and issued as shares.

As of March 31, 2023, the achievement of remaining performance metrics is considered probable.

Total compensation expense recognized for restricted stock units was $ 5,598 and $ 2,423 for the three months ended March 31, 2023 and 2022, respectively.

During the first quarter of 2023, 36 units were earned and issued as shares.

As of June 30, 2023, the achievement of remaining performance metrics is considered probable.

Total compensation expense recognized for RSUs was $ 5,608 and $ 11,206 during the three and six months ended June 30, 2023 , respectively, and $ 3,862 and $ 6,284 during the three and six months ended June 30, 2022 , respectively.

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 months ended March 31, 2023 and 2022 , the Company recognized an income tax benefit of $ 718 and $ 2,422 on vested RSUs, respectively.

At March 31, 2023 , the Company had $ 30,689 of total unamortized compensation expense related to non-vested restricted stock units.

The Company recognized an income tax benefit on vested RSUs of $ 120 and $ 838 during the three and six months ended June 30, 2023 , respectively, and $ 27 during the three and six months ended June 30, 2022.

At June 30, 2023 , the Company had $ 26,351 of total unamortized compensation expense related to non-vested RSUs.

That cost is expected to be recognized over a weighted-average period of 2.48 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 months ended March 31, 2023 and 2022 is 1 % and 12 %, respectively.

During the three months ended March 31, 2023 and 2022, the Company recognized income tax benefit of $ 123 and $ 2,067 on its share of pre-tax book income (loss), exclusive of the noncontrolling interest of 34 %.

As of March 31, 2023, management determined based on applicable accounting standards and the weight of all available evidence, it was not more likely than not (“MLTN”) that the Company will generate sufficient taxable income to realize its deferred tax assets including the difference in tax basis in excess of the financial reporting value for its investment in XPO Holdings.

Consequently, the Company has established a full valuation allowance against its deferred tax assets as of March 31, 2023.

The effective tax rate for the three and six months ended June 30, 2023, is 0.5 % and 0.1 %, respectively, and 6.6 % and 0.9 % for the three and six months ended June 30, 2022, respectively.

During the three and six months ended June 30, 2023 the Company recognized income tax expense of $ 133 and $ 10 , respectively, on its share of pre-tax book income, exclusive of the noncontrolling interest of 33 %.

During the three and six months ended June 30, 2022 , the Company recognized income tax expense of $ 2,217 and $ 150 on its share of pre-tax book income, exclusive of the noncontrolling interest of 44 %.

As of June 30, 2023, 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, 2023.

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 Company is not currently under examination by income tax authorities in federal, state or other jurisdictions.

The Company’s tax returns remain open for examination in the U.S for years 2019 through 2022.

The Company's foreign subsidiaries are generally subject to examination three years following the year in which the tax obligation originated.

The Company’s tax returns remain open for examination in the U.S.

for years 2018 through 2022.

The Company's foreign subsidiaries are generally subject to examination four years following the year in which the tax obligation originated.

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

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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 March 31, 2023, the Company has concluded, based on applicable accounting standards, that it was more likely than not that its deferred tax assets subject to the TRA would not be realized.

As of June 30, 2023, 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 $ 1,163 and $ 1,356 of the current and non-current portions of the TRA, respectively, $ 93,429 of the TRA liability was not recorded as of March 31, 2023 .

Except for $ 895 and $ 1,158 of the current and non-current portions of the TRA, respectively, $ 79,285 of the TRA liability was not recorded as of June 30, 2023 .

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

Note 15 –

Earnings (Loss) Per Share

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.

Earnings Per Share

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 of Class A common stock has been computed by dividing net income attributable to XPO Inc.

by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

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.

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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.

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

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

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 Class A common stock outstanding to give effect to potentially dilutive securities.

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

Weighted average shares of Class B common stock were 18,564 and 23,165 for the three months ended March 31, 2023 and 2022, respectively.

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

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

The following table presents the calculation of basic and diluted loss per share for the three months ended March 31, 2023 and 2022:

net loss attributable to noncontrolling interests

The potential dilutive effects of Class B common stock were determined to be anti-dilutive for the three months ended June 30, 2023 and were excluded from the computation of diluted earnings per share.

The potential dilutive effects of redeemable Convertible Preferred shares were determined to be anti-dilutive for the six months ended June 30, 2023 and were excluded from the computation of diluted earnings per share.

Weighted average shares of Class B common stock were 16,574 and 17,563 for the three and six months ended June 30, 2023 , respectively, and 22,106 and 22,633 for the three and six months ended June 30, 2022, respectively.

The potentially dilutive impact of RSUs is 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, 2023 and 2022:

net (income) loss attributable to noncontrolling interests

dividends on preferred shares

deemed dividend

deemed contribution (dividend)

deemed contribution from redemption of convertible preferred stock

Net loss attributable to XPO Inc.

- basic and diluted

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

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

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

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

Net income attributable to XPO Inc.

net income (loss) attributable to non-controlling interests

dividends on preferred shares

deemed (contribution) dividend

Net income attributable to XPO Inc.

Weighted average shares of Class A common stock outstanding - basic

Effect of dilutive securities:

Rumble Class A common stock

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Conversion of Class B common stock to Class A common stock

Treasury share options

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

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

Conversion of Class B common stock to Class A common stock

Convertible preferred stock

Rumble contingent shares

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The Court held a trial in December 2020, and on February 14, 2022, the Court issued a decision holding that the plaintiff’s claims of infringement were invalid and that even if they were valid, the seller did not infringe upon these patents and trademarks.

In addition, the plaintiff has brought related claims for patent infringement against the seller in the United States District Court for Delaware, and these actions are pending at March 31, 2023.

In April 2023, the plaintiff dismissed all claims against the seller in the United States.

In addition, plaintiff has brought related claims for patent infringement against the seller in the United States District Court for Delaware.

In November 2022, the Court ruled in favor of the seller on a motion for summary judgment.

In April 2023, plaintiff dismissed their appeal of that ruling, concluding the matter.

The Company is subject to normal and routine litigation brought by former or current employees, customers, franchisees, vendors, landlords or others.

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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 $ 638 and $ 464 which is included in accrued expenses in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

The Company accrued for estimated legal liabilities and has entered into certain settlement agreements to resolve legal disputes and recorded $ 396 and $ 464 which is included in accrued expenses in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022, respectively.

Contingent consideration from acquisitions –

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

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

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.

In December 2022, the Company entered into an agreement with the former owner of Row House (see Note 10), which settled the contingent consideration.

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In connection with the Reorganization Transactions, the Parent merged with and into the Member.

The Company recorded contingent consideration equal to the fair value of the shares issued in connection with the Rumble acquisition of $ 23,100 and $ 10,600 receivable from shareholder for debt financing provided to the Rumble seller.

The Company recorded contingent consideration equal to the fair value of the shares issu ed in connection with the Rumble acquisition of $ 23,100 and $ 10,600 receivable from shareholder for debt financing provided to the Rumble Seller.

The shares issued to the Rumble Seller are treated as a liability on the Company's balance sheet as they are subject to vesting conditions.

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

During the three months ended March 31, 2023 and 2022 , the Company recorded an increase of $ 15,975 and $ 9,500 to contingent consideration, which was recorded as acquisition and transaction expense.

During the three and six months ended June 30, 2023 , the Company recorded a decrease to contingent consideration of $ 31,152 and $ 15,177 , respectively, and $ 31,700 and $ 22,200 during the three and six months ended June 30, 2022 , respectively, which was recorded as acquisition and transaction income.

In November 2022, the contingency related to 1,300 shares of Class A common stock expired and the $ 27,850 contingent consideration related to those shares was reclassified to additional paid-in capital.

At March 31, 2023 and December 31, 2022 , contingent consideration totals $ 43,665 and $ 27,690 , 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.

and Canada, as well as a percentage of royalties collected by the Company, provided that aggregate minimum payments of $ 5,000 AUD (approximately $ 3,694 USD based on the currency exchange rate as of the purchase date) are required to be paid to the seller for the two-year period ending December 31, 2023 and the aggregate amount of such payments for the two-year period ending December 31, 2023 is subject to a maximum of $ 14,000 AUD (approximately $ 10,342 USD based on the currency exchange rate as of the purchase date).

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

During the three months ended March 31, 2023 and 2022 , the Company recorded $ 49 and $ 178 of additional contingent consideration, which was recorded as interest expense, respectively.

During the three months ended March 31, 2023 and 2022 , the Company recorded ($ 233 ) and ($ 154 ) of additional contingent consideration, which was recorded as acquisition and transaction income, respectively.

In addition, during the three months ended March 31, 2023 and 2022 , the Company paid $ 0 and $ 589 of contingent consideration.

At March 31, 2023 and December 31, 2022 , contingent consideration was $ 2,511 and $ 2,203 recorded as accrued expenses, respectively, and $ 0 and $ 492 recorded as contingent consideration from acquisitions, respectively, in the condensed consolidated balance sheets.

At June 30, 2023 and December 31, 2022 , contingent consideration totals $ 12,513 and $ 27,690 , respectively, recorded as contingent consideration from acquisitions in the condensed consolidated balance sheets.

Xponential Fitness, Inc.

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(amounts in thousands, except per share amounts)

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.

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

The Company recorded additional contingent consideration of $ 44 and $ 93 during the three and six months ended June 30, 2023 , respectively, and $ 164 and $ 342 during the three and six months ended June 30, 2022 , respectively, which was recorded as interest expense.

The Company recorded additional contingent consideration of ($ 100 ) and ($ 333 ) during the three and six months ended June 30, 2023 , respectively, and $ 13 and ($ 141 ) during the three and six months ended June 30, 2022 , respectively, which was recorded as acquisition and transaction expense (income).

In addition, the Company paid contingent consideration of $ 0 during the three and six months ended June 30, 2023 and $ 747 and $ 1,336 during the three and six months ended June 30, 2022, respectively.

At June 30, 2023 and December 31, 2022 , contingent consideration was $ 2,455 and $ 2,203 recorded as accrued expenses, respectively, and $ 0 and $ 492 recorded as contingent consideration from acquisitions, respectively, in the condensed consolidated balance sheets.

In addition, in connection with the October 2021 acquisition of BFT, 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 TM brands in Australia, New Zealand and Singapore.

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If the Master Franchisee rejects an offer to repurchase the franchise rights, then the cancellation fee is not required to be paid.

Letter of credi t –

Letter of credit –

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

1 unchanged sentence

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

The Company has determined the fair value of these guarantees at inception is not material, and as of March 31, 2023 and December 31, 2022, no accrual has been recorded for the Company’s potential obligation under its guaranty arrangement.

Lease guarantee s –The Company has guaranteed lease agreements for certain franchisees.

The Company’s maximum obligation, as a result of its guarantees of leases, is approximately $ 2,811 as of March 31, 2023 and would only require payment upon default by the primary obligor.

The Company has determined the fair value of these guarantees at inception is not material, and as of March 31, 2023 and December 31, 2022 , no accrual has been recorded for the Company’s potential obligation under its guaranty arrangement.

The Company has determined the fair value of these guarantees at inception was not material, and as of June 30, 2023 and December 31, 2022 , $ 150 and $ 0 accrual has been recorded for the Company’s potential obligation under its guaranty arrangement, respectively.

Lease guarantees –The Company has guaranteed lease agreements for certain franchisees.

The Company’s maximum obligation, as a result of its guarantees of leases, is approximately $ 3,345 as of June 30, 2023 and would only require payment upon default by the primary obligor.

The Company has determined the fair value of these guarantees at inception is not material, and as of June 30, 2023 and December 31, 2022 , no accrual has been recorded for the Company’s potential obligation under its guaranty arrangement.

Note 17 –

Subsequent Events

In April 2023, the Rumble sellers borrowed an additional $ 1,300 under the debt financing agreement which was recorded as receivable from shareholder within equity (see Note 10).

On August 1, 2023, the Company's board of directors approved a $ 50,000 accelerated share repurchase program (the "ASR") to repurchase shares of the Company's Class A common stock.

On August 3, 2023, the Company entered into a fifth amendment (the "Fifth Amendment") to the Credit Agreement.

The Fifth Amendment provides for, among other things, additional term loans in an aggregate principal amount of $ 65,000 (the "Fifth Amendment Incremental Term Loans"), the proceeds of which will be used to fund the ASR;

the payment of fees, costs and expenses related to the Fifth Amendment;

and general corporate purposes.

The Fifth Amendment also increases the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement to $ 1,190 commencing on September 30, 2023.

On August 3, 2023, the Company received net proceeds of $ 63,043 from borrowings under the Fifth Amendment.

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

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In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions.

Our actual results and timing may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the section titled “Risk Factors.”

and “Risk Factors.”

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

(the "Company" or “XPO Inc.”), is the largest global franchisor of boutique fitness brands.

(the “Company,”

“XPO Inc.,”

“we”, “us,”

and “our”), is the largest global franchisor of boutique fitness brands.

On July 23, 2021, the Company completed an initial public offering (“IPO”) of 10,000,000 shares of Class A common stock at an initial public offering price of $12.00 per share.

2 unchanged sentences

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

states, the District of Columbia and Canada and through master franchise or international expansion agreements in 14 additional countries as of March 31, 2023.

states, the District of Columbia and Canada and through master franchise or international expansion agreements in 19 additional countries as of June 30, 2023.

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

8 unchanged sentences

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

As of March 31, 2023, 2,411 studios were open in North America, and franchisees were contractually committed to open an additional 1,968 studios under existing franchise agreements.

In addition, as of March 31, 2023, we had 345 studios open internationally, and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,078 new studios, of which master franchisees have sold 235 licenses for studios not yet opened as of March 31, 2023.

During the three months ended March 31, 2023 and 2022, we generated revenue outside the United States of $2,980 and $3,380, respectively.

As of March 31, 2023 and December 31, 2022, we did not have material assets located outside of the United States.

As of June 30, 2023, 2,520 studios were open in North America and franchisees were contractually committed to open over 1,900 additional studios under existing franchise agreements.

In addition, as of June 30, 2023, we had 372 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,045 new studios, of which master franchisees have sold 250 licenses for studios not yet opened as of June 30, 2023.

During the six months ended June 30, 2023 and 2022, we generated revenue outside the United States of $7.0 million and $6.0 million, respectively.

As of June 30, 2023 and December 31, 2022, 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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Following the significant disruption to the global fitness industry caused by the COVID-19 pandemic in 2020 and through most of 2021, we took ownership of a greater number of studios than we would expect to hold in the normal course of our business.

We are in the process of reselling the licenses for these studios to new or existing franchisees ("company-owned transition studios") as operating studios is not a component of our business model.

We are in the process of reselling the licenses for these studios to new or existing franchisees (“company-owned transition studios”) as operating studios is not a component of our business model.

However, we may not be able to do so and we may choose to close some or all such studios to the extent they are not profitable for an extended period of time and could incur charges in connection therewith for lease termination, employee severance and related matters, which could adversely affect our business, results of operations, cash flows and financial condition.

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

See Note 3 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Factors Affecting Our Results of Operations

In addition to the impact of the risks described under “Risk Factors”

in the Annual Report, we believe that the most significant factors affecting our results of operations include:

in our Annual Report on Form 10-K for the year ended December 31, 2022, we believe that the most significant factors affecting our results of operations include:

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

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Several factors affect our same store sales in any given period, including the number of stores that have been in operation for a significant period of time, growth in total memberships and marketing and promotional efforts.

We expect to continue to seek to grow same store sales and AUVs by helping franchisees acquire new members, increase studio utilization and drive increased spend from consumers.

We expect to continue to seek to grow same store sales and Average Unit Volumes (“AUVs”) by helping franchisees acquire new members, increase studio utilization and drive increased spend from consumers.

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

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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 months ended March 31, 2023 and 2022:

Three Months Ended March 31,

Beginning in the quarter ended June 30, 2023, we introduced an additional definition for studios no longer operating to better capture the composition of our studios in operation.

A studio is considered no longer operating and excluded from the total number of studios in operation if it has no sales for nine consecutive months or more.

If a studio deemed to be no longer operating subsequently generates sales at a future date, it re-enters the operating studio count (and the number of studios no longer operating is reduced).

All prior periods presented have been updated to reflect this additional definition.

Under application of this additional definition, the number of operating studios remains materially the same as previously reported.

The following table sets forth the total number of operating studios in North America for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

Franchisee-owned studios:

Studios operated at beginning of period

New studio openings

Refranchised studios (1)

Defranchised studios (2)

Studios no longer operating

Studios operated at end of period

Company-owned transition studios:

Studios operated at beginning of period

New studio openings

Franchise acquisitions (2)

Refranchised studios (1)

Studios no longer operating

Studios operated at end of period

Total Studios:

Studios operated at beginning of period

New studio openings

Studios no longer operating

Studios operated at end of period

Studios contributing to AUV

Operating studios (end of period)

studios less than 6 months old

non-traditional studio locations

studios with no sales in the period

Studios contributing to same store sales

Operating studios (end of period)

studios less than 13 months old

non-traditional studio locations

studios without 13 months of consecutive sales

(1) Includes previously franchised Company-owned studios that were converted to franchisee-owned studios in the period.

(2) Includes previously franchised-owned studios that were converted to Company-owned studios in the period.

The following table sets forth the total number of operating studios internationally for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

Total Studios

Studios operated at beginning of period

New studio openings

Studios no longer operating

Studios operated at end of period

The following table sets forth the total number of operating studios globally for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

Total Studios

Studios operated at beginning of period

New studio openings

Studios no longer operating

Studios operated at end of period

The following table sets forth our key performance indicators for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

($ in thousands)

System-wide sales

Number of new studio openings globally, net

Number of new studio openings globally, gross

Number of studios operating globally (cumulative total as of period end)

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AUV (LTM as of period end)

AUV (run rate)

Quarterly AUV (run rate)

Same store sales

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

The following table presents additional information related to our studio and license key performance indicators for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table presents additional information related to our studio and license key performance indicators for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

North America

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International

Open Studios:

Open studios (beginning of period)

Total Operating Studios:

Studios operating at beginning of period

New studio openings, net

Open studios (end of period)

Studios operating at end of period

Franchise licenses sold:

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Licenses sold by master franchisees, net (2)

Six Months Ended June 30,

North America

International

North America

International

Total Operating Studios:

Studios operating at beginning of period

New studio openings, net

Studios operating at end of period

Franchise Licenses Sold:

Franchise licenses sold (total beginning of period)

New franchise license sales

Franchise licenses sold (total end of period)

Studios Obligated to Open Internationally under MFAs:

Gross studios obligated to open under MFAs

studios opened under MFAs

Remaining studios obligated to open under MFAs

Licenses sold by master franchisees, net (2)

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

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Management reviews system-wide sales weekly, which enables us to assess changes in our franchise revenue, overall studio performance, the health of our brands and the strength of our market position relative to competitors.

Number of New Studio Openings

The number of new studio openings reflects the number of studios opened during a particular reporting period, net of studios no longer operating in the system.

New Studio Openings

The number of new studio openings reflects the number of studios opened during a particular reporting period.

We consider a new studio to be open once the studio begins offering classes.

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Management reviews the number of new studio openings in order to help forecast operating results and to monitor studio opening processes.

Studios No Longer Operating

A studio is considered no longer operating and excluded from the total number of studios operating if it has no sales for nine consecutive months or more.

If a studio deemed to be no longer operating subsequently generates sales at a future date, it re-enters the operating studio count (and the number of studios no longer operating is reduced).

Number of Studios Operating

In addition to the number of new studios opened during a period, we track the number of total studios operating at the end of a reporting period.

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

In addition to the number of new studios opened and studios no longer operating during a period, we track the number of total studios operating at the end of a reporting period.

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

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

Non-Traditional Studio Locations

Non-traditional studio locations refers to studios that are not operated as standalone studio locations.

We currently operate 34 non-traditional studio locations globally, which are comprised of studios operated inside of other fitness facilities and on cruise ships.

Licenses Sold

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Average Unit Volume

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

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

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

AUV is calculated by dividing sales during the applicable period for all studios contributing to AUV by the number of studios contributing to AUV.

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

Quarterly run-rate AUV consists of average quarterly sales for all traditional studio locations in North America that are at least six months old at the beginning of the respective quarter, and that have sales in the period, multiplied by four.

We measure sales for AUV based solely upon monthly sales as reported by franchisees.

AUV growth is primarily driven by changes in same store sales and is also influenced by new studio openings.

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Same store sales refer to period-over-period sales comparisons for the base of studios.

We define the same store sales base to include studios in North America that have been open for at least 13 calendar months as of the measurement date.

We define the same store sales base to include studios in North America that are in traditional studio locations and that have generated sales for the last 13 consecutive calendar months as of the measurement date.

Any transfer of ownership of a studio does not affect this metric.

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Results of Operations

The following table presents our condensed consolidated results of operations for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table presents our condensed consolidated results of operations for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Marketing fund expense

Acquisition and transaction expenses

Acquisition and transaction income

Total operating costs and expenses

Operating loss

Operating income

Other (income) expense:

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Total other expense

Loss before income tax benefit

Income tax benefit

The following table presents our condensed consolidated results of operations for the three months ended March 31, 2023 and 2022 as a percentage of revenue:

Three Months Ended March 31,

Income before income taxes

The following table presents our condensed consolidated results of operations for the three and six months ended June 30, 2023 and 2022 as a percentage of revenue:

Three Months Ended June 30,

Six Months Ended June 30,

Revenue, net:

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Marketing fund expense

Acquisition and transaction expenses

Acquisition and transaction income

Total operating costs and expenses

Operating loss

Operating income

Other (income) expense:

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Total other expense

Loss before income tax benefit

Income tax benefit

Three Months Ended March 31, 2023 versus 2022

The following is a discussion of our consolidated results of operations for the three months ended March 31, 2023 versus the three months ended March 31, 2022.

Three Months Ended March 31,

Income before income taxes

Three Months Ended June 30, 2023 and 2022

The following is a discussion of our consolidated results of operations for the three months ended June 30, 2023 and the three months ended June 30, 2022.

Three Months Ended June 30,

Change from Prior Year

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Total revenue.

Total revenue was $70.7 million in the three months ended March 31, 2023, compared to $50.4 million in the three months ended March 31, 2022, an increase of $20.3 million, or 40.4%.

Total revenue was $77.3 million in the three months ended June 30, 2023, compared to $59.6 million in the three months ended June 30, 2022, an increase of $17.8 million, or 29.9%.

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

Franchise revenue.

Franchise revenue was $33.0 million in the three months ended March 31, 2023, compared to $25.5 million in the three months ended March 31, 2022, an increase of $7.5 million, or 29.3%.

Franchise revenue consisted of franchise royalty fees of $21.6 million, training fees of $2.6 million, franchise territory fees of $5.2 million and technology fees of $3.6 million in the three months ended March 31, 2023, compared to franchise royalty fees of $14.9 million, training fees of $1.8 million, franchise territory fees of $7.0 million and technology fees of $1.8 million in the three months ended March 31, 2022.

The increase in franchise royalty fees, technology fees and training fees was primarily due to a 20% increase in same store sales and to 527 new studio openings globally since March 31, 2022.

Franchise revenue was $35.1 million in the three months ended June 30, 2023, compared to $27.6 million in the three months ended June 30, 2022, an increase of $7.5 million, or 27.2%.

Franchise revenue consisted of franchise royalty fees of $23.0 million, training fees of $2.9 million, franchise territory fees of $5.4 million and technology fees of $3.8 million in the three months ended June 30, 2023, compared to 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.

The increase in franchise royalty fees, technology fees and training fees was primarily due to a 15% increase in same store sales and 538 net new studio openings globally since June 30, 2022.

Franchise territory fees decreased due to a decrease in franchise agreement terminations in the current year.

Equipment revenue.

Equipment revenue was $13.1 million in the three months ended March 31, 2023, compared to $7.8 million in the three months ended March 31, 2022, an increase of $5.3 million, or 68.3%.

Equipment revenue was $14.4 million in the three months ended June 30, 2023, compared to $12.4 million in the three months ended June 30, 2022, an increase of $2.0 million, or 16.5%.

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

Global equipment installations in the three months ended March 31, 2023, totaled 141 compared to 104 in the prior year period, primarily due to the increase of studio openings compared to the prior year period.

The increase in average revenue per install is due to a brand mix, international versus North America mix and a higher proportion of equipment installed with brands with higher equipment prices.

Global equipment installations in the three months ended June 30, 2023, totaled 138 compared to 136 in the prior year period, primarily due to the increase of studio openings compared to the prior year period.

The increase in average revenue per install is due to brand mix, international versus North America mix and a higher proportion of equipment installed with brands with higher equipment prices.

Merchandise revenue.

Merchandise revenue was $7.2 million in the three months ended March 31, 2023, compared to $6.1 million in the three months ended March 31, 2022, an increase of $1.1 million, or 17.8.%.

Merchandise revenue was $8.4 million in the three months ended June 30, 2023, compared to $6.8 million in the three months ended June 30, 2022, an increase of $1.6 million, or 24.4.%.

The increase was due primarily to a higher number of operating studios in the current year period.

Franchise marketing fund revenue.

Franchise marketing fund revenue was $6.2 million in the three months ended March 31, 2023, compared to $4.4 million in the three months ended March 31, 2022, an increase of $1.8 million, or 40.0%.

The increase was primarily due to an increase in same store sales and 381 new studio openings in North America since March 31, 2022.

Franchise marketing fund revenue was $6.6 million in the three months ended June 30, 2023, compared to $4.9 million in the three months ended June 30, 2022, an increase of $1.7 million, or 34.0%.

The increase was primarily due to an increase in same store sales and 400 new studio openings in North America since June 30, 2022.

Other service revenue.

Other service revenue was $11.3 million in the three months ended March 31, 2023, compared to $6.6 million in the three months ended March 31, 2022, an increase of $4.7 million, or 71.4%.

The increase was primarily due to a $2.1 million increase in other preferred vendor commission revenue and brand fee revenue and a $2.8 million increase in package and memberships revenue due to more company-owned transition studios, partially offset by a decrease in on-demand revenue.

Other service revenue was $12.8 million in the three months ended June 30, 2023, compared to $7.9 million in the three months ended June 30, 2022, an increase of $4.9 million, or 62.2%.

The increase was primarily due to a $0.8 million increase in other preferred vendor commission revenue and brand fee revenue and a $4.6 million increase in package and memberships revenue due to more company-owned transition studios.

Operating Costs and Expenses

Three Months Ended March 31,

Three Months Ended June 30,

Change from Prior Year

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Marketing fund expense

Acquisition and transaction expenses

Acquisition and transaction income

Total operating costs and expenses

Costs of product revenue.

Costs of product revenue was $14.0 million in the three months ended March 31, 2023, compared to $9.6 million in the three months ended March 31, 2022, an increase of $4.4 million, or 46.3%, consistent with the increase in related revenues of 46.1%.

Costs of product revenue was $14.2 million in the three months ended June 30, 2023, compared to $13.5 million in the three months ended June 30, 2022, an increase of $0.7 million, or 5.2%, consistent with the increase in related revenues.

Costs of franchise and service revenue.

Costs of franchise and service revenue was $4.0 million in the three months ended March 31, 2023, compared to $4.2 million in the three months ended March 31, 2022, a decrease of $0.2 million, or 4.8%.

Costs of franchise and service revenue was $3.7 million in the three months ended June 30, 2023, compared to $4.5 million in the three months ended June 30, 2022, a decrease of $0.8 million, or 18.3%.

The decrease was primarily due to a $1.1 million decrease in franchise sales commissions, consistent with the related franchise territory revenue decrease, partially offset by an increase in cost of technology fees.

Selling, general and administrative expenses.

Selling, general and administrative expenses were $34.9 million in the three months ended March 31, 2023, compared to $33.9 million in the three months ended March 31, 2022, an increase of $1.0 million, or 2.8%.

Selling, general and administrative expenses were $44.4 million in the three months ended June 30, 2023, compared to $29.3 million in the three months ended June 30, 2022, an increase of $15.1 million, or 51.6%.

The increase was primarily attributable to an increase in salaries and wages of $5.1 million related to a larger number of company-owned transition studios;

increase in occupancy expenses of $3.8 million primarily related to company-owned transition studios;

increase in bad debt expense of $1.1 million;

a $3.7 million intangible asset write down, net of mutual termination agreement income related to the acquisition of 14 Rumble studios;

increase in equity-based compensation expense of $1.6 million related to RSU grants made since June 30, 2022 and a net increase in other variable expenses in 2023 of $1.9 million, partially offset by a decrease in legal expenses of $2.1 million related to various legal matters.

Depreciation and amortization.

Depreciation and amortization expense was $4.3 million in the three months ended June 30, 2023, compared to $3.6 million in the three months ended June 30, 2022, an increase of $0.7 million, or 19.8%.

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

Marketing fund expense.

Marketing fund expense was $5.5 million in the three months ended June 30, 2023, compared to $4.1 million in the three months ended June 30, 2022, an increase of $1.4 million, or 33.9% and is consistent with the increase in franchise marketing fund revenue.

Acquisition and transaction income.

Acquisition and transaction income was $31.2 million in the three months ended June 30, 2023, compared to $31.6 million in the three months ended June 30, 2022, a decrease of $0.4 million.

This income represents the non-cash change in contingent consideration related to 2017 and 2021 business acquisitions.

Other (Income) Expense, net

Three Months Ended June 30,

Change from Prior Year

($ in thousands)

Interest income

Interest expense

Other expense

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, 2023 and 2022.

Interest expense .

Interest expense was $8.6 million in the three months ended June 30, 2023, compared to $2.9 million in the three months ended June 30, 2022, an increase of $5.8 million, or 201.0%.

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

The increase in interest expense is due to higher average debt balances and higher interest rates in the current year period.

Other expense.

Other expense consists of Tax Receivable Agreement (“TRA”) expense, which was $0.7 million in the three months ended June 30, 2023.

Three Months Ended June 30,

Change from Prior Year

($ in thousands)

Income taxes .

Income taxes were $0.1 million in the three months ended June 30, 2023, compared to $2.2 million in the three months ended June 30, 2022.

Six Months Ended June 30, 2023 and 2022

The following is a discussion of our consolidated results of operations for the six months ended June 30, 2023 versus the six months ended June 30, 2022.

Six Months Ended June 30,

Change from Prior Year

($ in thousands)

Franchise revenue

Equipment revenue

Merchandise revenue

Franchise marketing fund revenue

Other service revenue

Total revenue, net

Total revenue.

Total revenue was $148.0 million in the six months ended June 30, 2023, compared to $109.9 million in the six months ended June 30, 2022, an increase of $38.1 million, or 34.7%.

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

Franchise revenue.

Franchise revenue was $68.1 million in the six months ended June 30, 2023, compared to $53.1 million in the six months ended June 30, 2022, an increase of $15.0 million, or 28.2%.

Franchise revenue consisted of franchise royalty fees of $44.6 million, training fees of $5.5 million, franchise territory fees of $10.6 million and technology fees of $7.4 million in the six months ended June 30, 2023, compared to 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.

The increase in franchise royalty fees, technology fees and training fees was primarily due to an 18% increase in same store sales and 538 net new studio openings globally since June 30, 2022.

Franchise territory fees decreased due to a decrease in franchise agreement terminations in the current year.

Equipment revenue.

Equipment revenue was $27.5 million in the six months ended June 30, 2023, compared to $20.2 million in the six months ended June 30, 2022, an increase of $7.4 million, or 36.5%.

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

Global equipment installations in the six months ended June 30, 2023, totaled 279 compared to 240 in the prior year period, primarily due to the increase of studio openings compared to the prior year period.

The increase in average revenue per install is due to brand mix, international versus North America mix and a higher proportion of equipment installed with brands with higher equipment prices.

Merchandise revenue.

Merchandise revenue was $15.6 million in the six months ended June 30, 2023, compared to $12.8 million in the six months ended June 30, 2022, an increase of $2.7 million, or 21.3.%.

The increase was due primarily to a higher number of operating studios in the current year period.

Franchise marketing fund revenue.

Franchise marketing fund revenue was $12.8 million in the six months ended June 30, 2023, compared to $9.4 million in the six months ended June 30, 2022, an increase of $3.5 million, or 36.9%.

The increase was primarily due to an increase in same store sales and 400 new studio openings in North America since June 30, 2022.

Other service revenue.

Other service revenue was $24.0 million in the six months ended June 30, 2023, compared to $14.4 million in the six months ended June 30, 2022, an increase of $9.6 million, or 66.4%.

The increase was primarily due to a $2.9 million increase in other preferred vendor commission revenue and brand fee revenue and a $7.4 million increase in package and memberships revenue due to more company-owned transition studios.

Operating Costs and Expenses

Six Months Ended June 30,

Change from Prior Year

($ in thousands)

Costs of product revenue

Costs of franchise and service revenue

Selling, general and administrative expenses

Depreciation and amortization

Marketing fund expense

Acquisition and transaction income

Total operating costs and expenses

Costs of product revenue.

Costs of product revenue was $28.3 million in the six months ended June 30, 2023, compared to $23.1 million in the six months ended June 30, 2022, an increase of $5.1 million, or 22.3%, consistent with the increase in related revenues.

Costs of franchise and service revenue.

Costs of franchise and service revenue was $7.7 million in the six months ended June 30, 2023, compared to $8.8 million in the six months ended June 30, 2022, a decrease of $1.0 million, or 11.8%.

The decrease was primarily due to a $1.6 million decrease in franchise sales commissions, consistent with the related franchise territory revenue decrease, partially offset by an increase in cost of technology fees.

Selling, general and administrative expenses.

Selling, general and administrative expenses were $79.3 million in the six months ended June 30, 2023, compared to $63.2 million in the six months ended June 30, 2022, an increase of $16.1 million, or 25.4%.

The increase was primarily attributable to an increase in salaries and wages of $11.7 million related to a larger number of company-owned transition studios and to a one-time $2.6 million employee retention payroll tax credit in the prior year period;

increase in occupancy expenses of $1.4 million primarily related to company-owned transition studios and a net increase in other variable expenses in 2023 of $2.2 million, partially offset by a decrease in equity-based compensation expense of $9.2 million primarily due to vesting of performance-based awards in the prior year period.

increase in occupancy expenses of $5.1 million primarily related to company-owned transition studios;

increase in bad debt expense of $1.7 million;

a $3.7 million intangible asset write down, net of mutual termination agreement income related to the acquisition of 14 Rumble studios and a net increase in other variable expenses in 2023 of $3.7 million, partially offset by a decrease in legal expenses of $2.2 million related to various legal matters and a decrease in equity-based compensation expense of $7.6 million primarily due to vesting of performance-based awards in the prior year period offset by an increase in expense related to RSUs granted since June 30, 2022.

Depreciation and amortization.

Depreciation and amortization expense was $4.2 million in the three months ended March 31, 2023, compared to $3.5 million in the three months ended March 31, 2022, an increase of $0.7 million, or 20.2%.

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

Depreciation and amortization expense was $8.5 million in the six months ended June 30, 2023, compared to $7.1 million in the six months ended June 30, 2022, an increase of $1.4 million, or 20.0%.

Marketing fund expense.

Marketing fund expense was $5.0 million in the three months ended March 31, 2023, compared to $4.4 million in the three months ended March 31, 2022, an increase of $0.7 million, or 14.9% and is consistent with the increase in franchise marketing fund revenue.

Acquisition and transaction expenses.

Acquisition and transaction expenses were $15.7 million in the three months ended March 31, 2023, compared to $9.5 million in the three months ended March 31, 2022, an increase of $6.2 million.

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

Marketing fund expense was $10.5 million in the six months ended June 30, 2023, compared to $8.4 million in the six months ended June 30, 2022, an increase of $2.0 million, or 24.1% and is consistent with the increase in franchise marketing fund revenue.

Acquisition and transaction income.

Acquisition and transaction income was $15.5 million in the six months ended June 30, 2023, compared to $22.1 million in the six months ended June 30, 2022, a decrease of $6.6 million, or 29.8%.

This income represents the non-cash change in contingent consideration related to 2017 and 2021 business acquisitions.

Other (Income) Expense, net

Three Months Ended March 31,

Six Months Ended June 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 three-month periods ended March 31, 2023 and 2022.

Interest income primarily consists of interest on notes receivable and was insignificant in each of the six months ended June 30, 2023 and 2022.

Interest expense .

Interest expense was $8.0 million in the three months ended March 31, 2023, compared to $2.9 million in the three months ended March 31, 2022, an increase of $5.1 million, or 178.8%.

Interest expense was $16.6 million in the six months ended June 30, 2023 compared to $5.7 million in the six months ended June 30, 2022, an increase of $10.9 million, or 189.9%.

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

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Other expense.

Other expense consists of Tax Receivable Agreement (“TRA”) expense, which was $0.6 million in the three months ended March 31, 2023.

Three Months Ended March 31,

Other expense consists of TRA expense, which was $1.3 million in the six months ended June 30, 2023.

Six Months Ended June 30,

Change from Prior Year

($ in thousands)

Income tax benefit

Income taxes .

Income taxes (benefit) were ($0.1) million in the three months ended March 31, 2023, compared to ($2.1) million in the three months ended March 31, 2022.

Income taxes were $0.0 million in the six months ended June 30, 2023, compared to $0.2 million in the six months ended June 30, 2022.

Non-GAAP Financial Measures

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Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.

We believe that the non-GAAP financial measures presented below, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook.

We believe that the non-GAAP financial measures presented below, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook.

Adjusted EBITDA

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

These items include equity-based compensation and related employer payroll taxes, acquisition and transaction expenses (including change in contingent consideration), litigation expenses (consisting of legal and related fees for specific proceedings that arise outside of the ordinary course of our business), employee retention credit (a tax credit for retaining employees throughout the COVID-19 pandemic), fees for financial transactions, such as secondary public offerings expenses for which we do not receive proceeds (including bonuses paid to executives related to completion of such transactions) and 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 and related employer payroll taxes, acquisition and transaction expenses (including change in contingent consideration), litigation expenses (consisting of legal and related fees for specific proceedings that arise outside of the ordinary course of our business), employee retention credit (a tax credit for retaining employees throughout the COVID-19 pandemic), fees for financial transactions, such as secondary public offerings expenses for which we do not receive proceeds (including bonuses paid to executives related to completion of such transactions), expense related to the remeasurement of our TRA obligation and expense related to loss on impairment or write down of our brand intangible assets 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 months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table presents a reconciliation of net income, the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Interest expense, net

Income tax benefit

Depreciation and amortization

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Employer payroll taxes related to equity-based compensation

Acquisition and transaction expenses

Acquisition and transaction income

Litigation expenses

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TRA remeasurement

Write down of brand assets

Adjusted EBITDA

Liquidity and Capital Resources

As of March 31, 2023, we had $22.2 million of cash and cash equivalents, excluding $5.9 million of restricted cash.

As of June 30, 2023, we had $33.1 million of cash and cash equivalents, excluding $7.1 million of restricted cash.

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

Based on our current level of operations and anticipated growth, we believe that our available cash balance and the cash generated from our operations will be adequate to meet our anticipated debt service requirements and obligations under our tax receivable agreement, capital expenditures, payment of tax distributions and working capital needs for at least the next twelve months.

Our ability to continue to fund these items and continue to reduce debt could be adversely affected by the occurrence of any of the events described under “Risk Factors”, as disclosed in our Form 10-K for the year ended December 31, 2022.

Based on our current level of operations and anticipated growth, we believe that our available cash balance and the cash generated from our operations will be adequate to meet our anticipated debt service requirements and obligations under our TRA, capital expenditures, payment of tax distributions and working capital needs for at least the next twelve months.

There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our credit facility or otherwise to enable us to service our indebtedness, including our credit facility, or to make anticipated capital expenditures.

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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% (11.30% at March 31, 2023).

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 March 31, 2023, we were in compliance with these covenants.

As of June 30, 2023, 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.

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The Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2023 Incremental Term Loan) commencing on June 30, 2023 and (ii) amended the amount of the prepayment premium applicable in the event the 2023 Incremental Term Loan is prepaid.

The total principal amount outstanding on the Term Loans was $266.7 million at March 31, 2023.Quarterly principal payments of $1.1 million on the Term Loan as amended are due beginning June 30, 2023.

The total principal amount outstanding on the Term Loans was $265.9 million at June 30, 2023.

Quarterly principal payments of $1.1 million on the Term Loan as amended were due beginning June 30, 2023.

On January 9, 2023, we entered into a preferred stock repurchase agreement (the "Repurchase Agreement") with certain holders of the Convertible Preferred, pursuant to which we agreed to repurchase 85,340 shares of Convertible Preferred.

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The excess of fair market value of $12.7 million over the consideration transferred was treated as deemed contribution and resulted in an increase to our accumulated deficit.

At March 31, 2023, 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,”

At June 30, 2023, 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, 2022.

The following table presents summary cash flow information for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

The following table presents summary cash flow information for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

(in thousands)

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Net cash provided by (used in) financing activities

Net decrease in cash, cash equivalents and

Net increase in cash, cash equivalents and

restricted cash

Cash Flows from Operating Activities

In the three months ended March 31, 2023, cash provided by operating activities was $11.4 million, compared to cash provided of $2.9 million in the three months ended March 31, 2022, an increase in cash provided of $8.5 million.

Of the increase, $0.2 million was due to lower net loss after adjustments to reconcile net loss to net cash provided by operating activities and $8.3 million primarily due to favorable changes in working capital related to accounts receivable, accounts payable and accrued expense;

partially offset by unfavorable changes in working capital related to deferred revenue in the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

In the six months ended June 30, 2023, cash provided by operating activities was $30.6 million, compared to $26.2 million in the six months ended June 30, 2022, an increase in cash provided of $4.4 million.

Of the increase, $9.0 million was due to higher net income after adjustments to reconcile net income to net cash provided by operating activities, partially offset by $4.6 million primarily due to unfavorable changes in working capital related to prepaid expenses and deferred revenue, partially offset by favorable changes in working capital related to accounts receivable and inventories in the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Cash Flows from Investing Activities

In the three months ended March 31, 2023, cash used in investing activities was $2.4 million, compared to $2.2 million in the three months ended March 31, 2022, an increase in cash used of $0.2 million.

The increase was primarily attributable to a decrease of cash used in issuing notes receivables;

partially offset by a decrease in cash received from collection of notes receivable and an increase in cash used to purchase property and equipment and intangible assets.

In the six months ended June 30, 2023 and 2022, cash used in investing activities was $5.6 million.

The change year over year in cash used was primarily attributable to a decrease of cash used in issuing notes receivables;

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

Cash Flows from Financing Activities

In the three months ended March 31, 2023, cash used in financing activities was $18.2 million, compared to $6.3 million in the three months ended March 31, 2022, an increase in cash used of $11.9 million.

The increase in cash used was primarily attributable to tax payments of $7.9 million related to vesting of restricted share units and payment of $130.8 million related to repurchase of convertible preferred stock;

partially offset by increase in cash received relating to borrowing on long-term debt of $126.1 million.

In the six months ended June 30, 2023, cash used in financing activities was $22.1 million, compared to $12.6 million in the six months ended June 30, 2022, an increase in cash used of $9.5 million.

The increase in cash used was primarily attributable to tax payments of $8.1 million related to vesting of restricted stock units, payment of $7.1 million related to preferred stock dividend and payment of $130.8 million related to the repurchase of convertible preferred stock;

partially offset by an increase in cash received relating to borrowing on long-term debt of $126.1 million.

Off-Balance Sheet Arrangements

As of March 31, 2023, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees.

As of June 30, 2023, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees.

Our maximum total commitment under these agreements is approximately $3.3 million and would only require payment upon default by the primary obligor.

The estimated fair value of these guarantees at March 31, 2023 was not material, and no accrual has been recorded for our potential obligation under these arrangements.

See Note 16 of Notes to Condensed Consolidated Financial Statements for more information regarding these operating leases and guarantees.

The estimated fair value of these guarantees at June 30, 2023 was not material, and no accrual has been recorded for our potential obligation under these arrangements.

See Note 16 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information regarding these operating leases and guarantees.

In July 2022, we issued a standby letter of credit to a third-party financing company, who provides loans to our qualified franchisees.

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

The estimated fair value of these guarantees at inception was not material, and as of March 31, 2023 no accrual has been recorded for our potential obligation under this guaranty arrangement.

See Note 16 of Notes to Condensed Consolidated Financial Statements for more information.

The estimated fair value of these guarantees at inception was not material, and as of June 30, 2023 an accrual of $0.2 million has been recorded for our potential obligation under this guaranty arrangement.

See Note 16 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,”

included in our Form 10-K for the year ended December 31, 2022.

included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Quantitative and Qualitative Disclosures About Market Risk.

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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