What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-08 compared with 2023-08-07 · 471 added, 347 removed, 1195 unchanged (41% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(amounts in thousands, except per share amounts)

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

September 30,

Current Assets:

26 unchanged sentences

Redeemable convertible preferred stock, $ 0.0001 par value, 400,000 shares authorized, 114,660 and

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

200,000 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Stockholders' equity (deficit):

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

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

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

Class A common stock, $ 0.0001 par value, 500,000,000 shares authorized, 31,477,165 and

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

27,571,312 shares issued and outstanding as of September 30, 2023 and December 31, 2022,

Class B common stock, $ 0.0001 par value, 500,000,000 shares authorized, 16,566,027 and

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

December 31, 2022, respectively

21,647,447 shares issued, and 16,491,502 and 21,572,922 shares outstanding as of September 30,

2023 and December 31, 2022, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

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

Treasury stock, at cost, 74,525 shares outstanding as of September 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Revenue, net:

11 unchanged sentences

Marketing fund expense

Acquisition and transaction income

Acquisition and transaction expenses (income)

Total operating costs and expenses

Operating income

Operating income (loss)

Other (income) expense:

3 unchanged sentences

Total other expense

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:

Income (loss) before income taxes

Income taxes (benefit)

Net income (loss)

net income (loss) attributable to noncontrolling interests

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

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

Weighted average shares of Class A common stock outstanding:

12 unchanged sentences

Equity-based compensation

Conversion of Class B shares to

Class A shares

Conversion of Class B shares to Class A shares

Payment of preferred stock dividend

Adjustment of preferred stock to

redemption value

Adjustment of preferred stock to redemption value

Vesting of Class B Shares

Vesting of restricted share units, net of shares

withheld for taxes

Deemed contribution from redemption of

preferred stock

Liability-classified restricted stock units

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

Deemed contribution from redemption of preferred stock

Liability-classified restricted stock units vested

Loan to shareholder and accumulated interest

1 unchanged sentence

Equity-based compensation

Conversion of Class B shares to

Class A shares

Conversion of Class B shares to Class A shares

Payment of preferred stock dividend

Adjustment of preferred stock to

redemption value

Adjustment of preferred stock to redemption value

Vesting of Class B Shares

Vesting of restricted share units, net of shares

withheld for taxes

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

Receivable from shareholder arising from the Rumble studios acquisition

Consideration related to the Rumble studios acquisition

Payment received from shareholder

1 unchanged sentence

Balance at June 30, 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

Repurchase and retirement of Class A common stock

Excise tax on share repurchases

Proceeds from disgorgement of stockholders short-swing profits (Note 10)

Payment received from shareholder

Distributions paid to Pre-IPO LLC Members

Balance at September 30, 2023

See accompanying notes to condensed consolidated financial statements.

22 unchanged sentences

Balance at June 30, 2022

Equity based compensation

Conversion of Class B shares to Class A shares

Vesting of Class B Shares

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

Loan to shareholder and accumulated interest

Payment of preferred stock dividend

Adjustment of preferred stock to redemption value

Balance at September 30, 2022

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(amounts in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities:

8 unchanged sentences

Non-cash interest

Write down of brand assets

Loss (gain) on disposal of assets

Write down of goodwill and brand assets

Gain on disposal of assets

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

28 unchanged sentences

Payments for distributions to Pre-IPO LLC Members

Repurchase of Class A common stock

Payment received from shareholder (Note 10)

Loan to shareholder (Note 10)

Proceeds from disgorgement of stockholders short-swing profits (Note 10)

Net cash used in financing activities

6 unchanged sentences

(amounts in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental cash flow information:

8 unchanged sentences

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 June 30, 2023 , the Company’s portfolio of ten brands consists of:

As of September 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 Comp any operated 84 an d 14 company-owned transition studios as of June 30, 2023 and 2022, respectively.

In addition to franchised studios, the Comp any operated 31 and 40 co mpany-owned transition studios as of September 30, 2023 and 2022, respectively.

In connection with the IPO, XPO Inc.

26 unchanged sentences

Summary of Significant Accounting Policies

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

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.

Segment and geographic information –

T he Company operates in one reportable and operating segment.

The Company genera ted $ 3,351 and $ 10,338 of revenue outside the United States during the three and nine months ended September 30, 2023 , respectively, and $ 3,104 and $ 9,060 during the three and nine months ended September 30, 2022, respectively.

As of September 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 $ 7,064 and $ 5,381 at June 30, 2023 and December 31, 2022 , respectively.

Restricted cash was $ 8,179 and $ 5,381 at September 30, 2023 and December 31, 2022 , respectively.

Accounts receivable and allowance for doubtful accounts –

22 unchanged sentences

Write-off of uncollectible amounts

Balance at June 30, 2023

Balance at September 30, 2023

Accrued expenses –

Accrued expenses consisted of the following:

September 30,

Accrued compensation

8 unchanged sentences

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures , applies to all financial assets and financial liabilities that are measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements.

ASC 820 establishes a valuation hierarchy for disclosures of the inputs to valuations used to measure fair value.

ASC Topic 820 establishes a valuation hierarchy for disclosures of the inputs to valuations used to measure fair value.

This hierarchy prioritizes the inputs into three broad levels as follows:

7 unchanged sentences

The Company’s financial instruments include cash, restricted cash, accounts receivable, notes receivable, accounts payable, accrued expenses and notes payable.

The carrying amounts of these financial instruments approximates fair value due to their short maturities, proximity of issuance to the balance sheet date or variable interest rate.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

The carrying amounts of these financial instruments approximate fair value due to their short maturities, proximity of issuance to the balance sheet date or variable interest rate.

Redeemable convertible preferred stock –

2 unchanged sentences

The Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Noncontrolling interests –

21 unchanged sentences

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

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

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

Recently adopted accounting pronouncements –

5 unchanged sentences

For additional information refer to section above titled “Credit Losses.”

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Reference Rate Reform –

2 unchanged sentences

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”

ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the expected transition away from reference rates that are expected to be discontinued, such as LIBOR.

("ASU 2020-04").

ASU 2020-04 was effective upon issuance.

2 unchanged sentences

Deferral of the Sunset Date of Topic 848”

ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

("ASU 2022-06").

ASU 2022-06 defers the sunset date of ASC Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in ASC Topic 848.

ASU 2022-06 was effective upon issuance.

The adoption of this accounting standard did not have a material impact on the Company's condensed consolidated financial statements.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Business Combinations –

2 unchanged sentences

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”

("ASU 2021-08").

ASU 2021-08 primarily addresses the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination.

14 unchanged sentences

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.

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

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.

4 unchanged sentences

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:

The following summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date based on the purchase price allocation:

Accounts receivable

4 unchanged sentences

Reduction to receivable from shareholder

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

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.

5 unchanged sentences

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.

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

During the nine months ended September 30, 2023, the Company entered into an agreement with a franchisee under which the Company repurchas ed one studio t o 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 .

3 unchanged sentences

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.

During the nine months ended September 30, 2023 and 2022, the Company refranchised operations at 78 and 16 company-owned transition studios, respectively, received proceeds of $ 60 and $ 0 , respectively, and recorded a net loss o f $ 594 and $ 0 on disposal of the studio assets, respectively .

During the nine months ended September 30, 2023 and 2022, the Company also ceased operations at 14 and 0 company-owned transition studios, respectively.

The Company is actively seeking to refranchise or close company-owned transition studios under its restructuring plan that started in the third quarter of 2023.

See Note 17 for further discussion of the Company's restructuring plan.

When the Company believes that a studio will be refranchised for a price less than its carrying value, but does not believe the studio has met the criteria to be classified as held for sale, the Company reviews the studio for impairment.

1 unchanged sentence

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

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

During the three and nine months ended September 30, 2023 and 2022 , the Company did no t record any impairment charges related to studio assets.

See Note 9 for discussion of impairment charges related to right-of-use assets during the quarter ended September 30, 2023.

BodyFit Trademark

3 unchanged sentences

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

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

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

The fair value of the contract liability was determined using the total fair value of the asset acquired reduced by the amount of cash consideration provided, which is a Level 3 measurement.

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 June 30, 2023 .

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Note 4 –

7 unchanged sentences

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

The following table reflects the change in franchise development and brand fee contract liabilities for the 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 .

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

Other deferred revenue amounts o f $ 23,918 ar e excluded from the table as the original expected duration of the contracts is one year or less .

Balance at December 31, 2022

5 unchanged sentences

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.

Balance at September 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 September 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:

September 30,

Franchise and area development fees

3 unchanged sentences

Current portion of deferred revenue

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Contract costs –

2 unchanged sentences

The commissions are evenly split among the number of studios purchased under the development agreement and begin to be amortized when a subsequent franchise agreement is executed.

The commissions are recognized on a straight-line basis over the initial ten-year franchise agreement term to align with the recognition of the franchise agreement or area development fees.

The commissions are recognized on a straight-line basis over the initial franchise agreement term to align with the recognition of the franchise agreement or area development fees.

The Company classifies these deferred contract costs as either current deferred costs or non-current deferred costs in the condensed consolidated balance sheets.

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

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.

At September 30, 2023 and December 31, 2022 , there were approximately $ 3,963 and $ 3,589 of current deferred costs and approximately $ 45,399 and $ 43,445 in non-current deferred costs, respectively.

The Company recognized franchise sales commission expense of approximatel y $ 1,419 and $ 5,200 for the three and nine months ended September 30, 2023 , respectively, and $ 2,968 and $ 8,318 for the three and nine months ended September 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.

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

At September 30, 2023 and December 31, 2022, the principal balance of the notes receivable was approximately $ 3,261 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 –

1 unchanged sentence

Property and equipment consisted of the following:

September 30,

Furniture and equipment

4 unchanged sentences

Total property and equipment

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

Depreciation expense for the three and nine months ended September 30, 2023, was $ 1,480 and $ 4,125 , respectively, and $ 1,054 and $ 2,720 for the three and nine months ended September 30, 2022 , respectively.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Note 7 –

2 unchanged sentences

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

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 .

During the nine months ended September 30, 2023, there was an increase of $ 4,133 in previously reported goodwill due to the acquisition of 14 Rumble studios as discussed in Note 3.

The carrying value of goodwill at September 30, 2023 and December 31, 2022, totaled $ 165,661 and $ 165,697 , respectively, net of cumulative impairment of $ 7,545 and $ 3,376 at September 30, 2023 and December 31, 2022, respectively.

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

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

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

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

During the quarter ended September 30, 2023, the Company determined it was necessary to re-evaluate goodwill of the Stride and Row House reporting units for impairment due to indicators of potential impairment resulting from a decline in forecasted and actual cash flows.

Therefore, the Company performed a quantitative assessment of the fair value of the reporting units using an income approach with assumptions that are considered Level 3 inputs and concluded that the carrying value of the Stride and Row House reporting units exceeded their fair value, resulting in a goodwill impairment of $ 3,469 and $ 700 , respectively, resulting in no goodwill remaining for the Stride and Row House reporting units .

The fair value of the reporting units was determined by discounting estimated future cash flows, which were calculated based on revenue and expense long-term growth assumptions ranging from 8.0 % to 43.0 %, at a weighted average cost of capital (discount rate) of 16.0 %.

Th e impairment charge is included within selling, general and administrative expenses in the Company's condensed consolidated statements of operations.

In addition, the Company determined that the franchise agreements intangible assets and trademarks related to Stride and Row House were also impaired and recognized an aggregate impairment loss of $ 230 for the franchise agreements and an aggregate impairment loss of $ 180 for the trademarks in the third quarter of 2023.

Intangible assets consisted of the following:

June 30, 2023

September 30, 2023

December 31, 2022

6 unchanged sentences

Total intangible assets

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.

Amortization expense w as $ 2,736 and $ 8,576 , for the three and nine months ended September 30, 2023 , respectively, and $ 3,100 and $ 8,505 for the three and nine months ended September 30, 2022, respectively.

During the nine months ended September 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 % ( 11.74 % at June 30, 2023).

Borrowings under the Term Loan Facility bear interest at a per annum rate of, at the Company’s option, either (a) the term secured overnight financing rate (“Term SOFR”) plus a Term SOFR Adjustment (as defined in the Credit Agreement per the fifth amendment discussed below), plus a margin of 6.50 % or (b) the Reference Rate (as defined in the Credit Agreement) plus a margin of 5.50 % ( 12.05 % at September 30, 2023).

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

7 unchanged sentences

Unless agreed in advance, a ll voluntary prepayments and certain mandatory prepayments of the Term Loan made (i) on or prior to the first anniversary of the closing date are subject to a 2.0 % premium on the principal amount of such prepayment and (ii) after the first anniversary of the closing date and on or prior to the second anniversary of the closing date are subject to a 0.50 % premium on the principal amount of such prepayment.

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

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

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

8 unchanged sentences

and (ix) restricting the issuance of equity.

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

As of September 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.

13 unchanged sentences

On January 9, 2023, the Company entered into a fourth amendment (the "Fourth Amendment") to the Credit Agreement.

The Fourth Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $ 130,000 (the "2023 Incremental Term Loan"), the proceeds of which were used to fund the Repurchase Transactions (see Note 11) and the payment of fees, costs and expenses related to the Amendment and the Repurchase Transactions.

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 six months ended June 30, 2023.

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:

The Fourth Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $ 130,000 (the "January 2023 Incremental Term Loan"), the proceeds of which were used to fund the Repurchase Transactions (see Note 11) and the payment of fees, costs and expenses related to the Amendment and the Repurchase Transactions.

The Fourth Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the January 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 January 2023 Incremental Term Loan is prepaid.

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 "August 2023 Incremental Term Loan"), the proceeds of which were used for funding the accelerated share repurchase program (see Note 12);

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

and general corporate purposes.

The Fifth Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the August 2023 Incremental Term Loan) to $ 1,190 commencing on September 30, 2023 and (ii) replaces the benchmark interest rate based on the LIBOR rate (and related LIBOR-based mechanics) applicable to the loans under the Credit Agreement with a benchmark interest rate based on the forward-looking Term SOFR (and related Term SOFR-based mechanics).

In connection with the Fifth Amendment, the Company wrote off a pro rata portion of debt issuance costs related to the Term Loans aggregating $ 84 , which was included in interest expense for the three and nine months ended September 30, 2023.

The Company incurred debt issuance costs of $ 411 and $ 49 for the nine months ended September 30, 2023 and 2022, respectively.

Debt issuance cost amortization and write off amounted to $ 119 and $ 416 f or the three and nine months ended September 30, 2023 , respectively, and $ 30 and $ 94 for the three and nine months ended September 30, 2022, respectively.

Unamortized debt issuance costs as of September 30, 2023 and December 31, 2022, were $ 265 and $ 270 , respectively, and are presented as a reduction to long-term debt in the condensed consolidated balance sheets.

Unamortized original issue discount as of September 30, 2023 and December 31, 2022, was $ 5,196 and $ 1,378 , r espectively, and is presented as a reduction to long-term debt in the condensed consolidated balance sheets.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Principal payments on outstanding balances of long-term debt as of September 30, 2023 were as follows:

Remainder of 2023

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.

The carrying value of the Company’s long-term debt approximated fair value as of September 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 –

5 unchanged sentences

The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.

8 unchanged sentences

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

ROU assets from operating leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment , and are reviewed for impairment when indicators of impairment are present.

ASC 360 requires three steps to identify, recognize and measure impairment.

If indicators of impairment are present (Step 1), the Company performs a recoverability test (Step 2) comparing the sum of the estimated undiscounted cash flows attributable to the ROU asset in question to the carrying amount.

If the undiscounted cash flows used in the recoverability test are less than the carrying amount, the Company estimates the fair value of the ROU asset and recognizes an impairment loss when the carrying amount exceeds the estimated fair value (Step 3).

When determining the fair value of the ROU asset, the Company estimated what market participants would pay to lease the assets assuming the highest and best use in the assets' current forms.

During the three and nine months ended September 30, 2023, the Company recognized ROU asset impairment charges of $ 92 , r elated to studio exits in conjunction with its restructuring plan (see Note 17).

The impairment charges were recorded as selling, general and administrative expenses in the condensed consolidated statements of operations.

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

1 unchanged sentence

Balance Sheet Location

September 30,

December 31, 2022

5 unchanged sentences

Lease liability

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

(1) Includes impact of write off of abandoned right-of-use assets of $ 5,122 and impairment charge of $ 92 related to the restructuring plan.

See Note 17 for additional information.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

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

Three Months Ended September 30,

Third-party leases

4 unchanged sentences

Short-term lease costs

Six Months Ended June 30

Related-party lease

Nine Months Ended September 30,

Third-party leases

4 unchanged sentences

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

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

Three Months Ended September 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

Nine Months Ended September 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:

June 30, 2023

Other information related to leases is summarized as follows:

September 30, 2023

December 31, 2022

1 unchanged sentence

Weighted average discount rate

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

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

Remainder of 2023

1 unchanged sentence

imputed interest

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Note 10 –

10 unchanged sentences

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.

During the three and nine months ended September 30, 2023, the Company record ed $ 0 and $ 871 of interest in kind, respectively, which was recorded as an increase to receivable from shareholder within equity.

During the nine months ended September 30, 2023 , the Company received $ 8,062 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 and $ 159 in the three and six months ended June 30, 2022.

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

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

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(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 the issuance of 105 RSUs, which vest in full on the fourth anniversary of the grant date.

2 unchanged sentences

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.

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

As of September 30, 2023 , the former owner of Row House borrowed $ 240 , which was recorded as a reduction to liability.

In March 2023, Spartan Fitness Holdings, LLC (“Spartan Fitness”), which currently owns and operates 69 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 80 Club Pilates licenses to open additional new units.

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 recorded franchise and marketing fund revenue aggregating $ 1,368 and $ 4,380 , during the three and nine months ended September 30, 2023, respectively, from studios owned by Spartan Fitness.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

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 $ 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.

Revenues from these affiliates, primarily related to franchise revenue, marketing fund revenue, package and memberships revenue and merchandise revenue, wer e $ 126 and $ 396 for the three and nine months ended September 30, 2023 , respectively, and $ 679 and $ 2,018 for the three and nine months ended September 30, 2022, respectively.

Included in accounts receivable as of September 30, 2023 and December 31, 2022, is $ 2 an d $ 4 , respectively, for such sales.

In August 2023, the Company received payments from an officer and a director of the Company totaling $ 516 related to disgorgement of short-swing profits under Section 16(b) of the Securities Exchange Act of 1934, as amended.

The Company recognized these proceeds as a capital contribution from stockholders and the amounts were recorded as increases to additional paid-in capital on the condensed consolidated balance sheets.

Note 11 –

8 unchanged sentences

Certain embedded features in the Convertible Preferred require bifurcation.

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

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

3 unchanged sentences

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.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

At any time after July 23, 2029, upon a sale of the Company, or at any time after the occurrence and continuance of an event of default, holders of the Convertible Preferred have the right to require the Company to redeem all, but not less than all, of the Preferred shares then outstanding at a redemption price in cash equal to the greater of (i) the fair market value per share of Preferred Stock (based on the average volume-weighted average price per share of Class A common stock for the 10 consecutive trading day period ending on, and including, the trading day immediately preceding the redemption notice), and (ii) the fixed liquidation preference, plus accrued and unpaid dividends.

2 unchanged sentences

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.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

At September 30, 2023 and December 31, 2022, the Company recognized the preferred maximum redemption value of $ 130,304 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 and 115 and 200 outstanding shares of Convertible Preferred at September 30, 2023 and December 31, 2022, respectively).

The recording of the preferred maximum redemption value was treated as deemed contribution, which was included in the calculation of earnings (loss) per share and resulted in a net increase of $ 34,326 and $ 19,794 to additional paid-in-capital for the nine months ended September 30, 2023 and 2022 , respectively.

Note 12 –

8 unchanged sentences

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 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.

Additionally, during the three and nine months ended September 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 27 and 1,620 sh ares of Class A common stock on a one-for-one basis, respectively.

Noncontrolling interests –

7 unchanged sentences

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

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

Ownership percentage

Noncontrolling interests

Xponential Fitness, Inc.

1 unchanged sentence

(amounts in thousands, except per share amounts)

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

Ownership percentage

Noncontrolling interests

Accelerated Share Repurchase program –

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

The Company accounted for the ASR Program as two separate transactions, a repurchase of the Company’s Class A common stock and an equity-linked contract indexed to the Company’s Class A common stock that met certain accounting criteria for classification in stockholders' equity.

Under the ASR Program, the Company paid a fixed amount of $ 50,000 on August 9, 2023, to a third-party financial institution and received an initial delivery of 2,010 shares of the Company’s Class A common stock, which were retired immediately.

The initial delivery of shares of the Company’s Class A common stock represented approximately 80 % of the fixed amount paid of $ 50,000 , which was based on the share price of the Company's Class A common stock on the date of ASR Program execution.

The payment of $ 50,000 was recorded as reductions to stockholders' equity, consisting of a $ 40,000 decrease in additional paid-in capital, which reflects the value of the initial shares received and immediately retired, and a $ 10,000 decrease in additional paid-in capital, which reflects the value of the Class A common stock that remains to be delivered by the financial institution pending final settlement.

Under the ASR Program, the Company also incurred $ 439 in associated costs, consisting primarily of legal fees and a 1 % excise tax, which were recorded as a decrease in additional paid-in capital on the Company’s condensed consolidated statements of stockholders’

The final number of shares to be received by the Company will be based on the daily volume-weighted average stock price of the Company’s Class A common stock during the duration of the ASR Program, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR Program agreement.

At settlement, under certain circumstances, the financial institution may be required to deliver additional shares of Class A common stock to the Company, or under certain circumstances, the Company may be required to deliver shares of Class A common stock or to make a cash payment, at its election, to the financial institution.

The final settlement under the ASR Program is scheduled to occur in the fourth quarter of 2023, as set forth in the ASR Program agreement (see Note 18).

Note 13 –

10 unchanged sentences

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 Company recognized $ 12,003 of expense during the nine months ended September 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 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 Company recognized expense of $ 1 and $ 18 during the three and nine months ended September 30, 2023 , respectively, and $ 24 and $ 171 during the three and nine months ended September 30, 2022, respectively, which was included within selling, general and administrative expenses.

At September 30, 2023, the Company had $ 4 of unrecognized compensation expense.

The unrecognized compensation expense is expected to be recognized over a weighted average period of approximately 0.86 years for the time-based grants.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Liability classified restricted stock units –

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

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.

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.

2 unchanged sentences

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.

As of September 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 recognized expense of $ 444 and $ 1,332 during the three and nine months ended September 30, 2023 , respectively, and $ 623 and $ 1,865 during the three and nine months ended September 30, 2022, respectively.

At September 30, 2023, the Company had $ 2,265 of unrecognized expense relating to these grants.

Equity classified restricted stock units –

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

The following table summarizes activity for RSUs for the nine months ended September 30, 2023:

Weighted Average

3 unchanged sentences

Forfeited, expired, or canceled

Outstanding at June 30, 2023

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Outstanding at September 30, 2023

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.

5 unchanged sentences

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.

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

Total compensation expense recognized for RSUs was $ 3,091 and $ 14,297 d uring the three and nine months ended September 30, 2023 , respectively, and $ 3,597 and $ 9,881 during the three and nine months ended September 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.

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.

The Company recognized an income tax benefit (expense) on vested RSUs of ($ 51 ) and $ 787 during the three and nine months ended September 30, 2023 , respectively, and $ 388 and $ 434 during the three and nine months ended September 30, 2022, respectively.

At September 30, 2023, the Company had $ 22,944 of total unamortized compensation expense related to non-vested RSUs.

That cost is expected to be recognized over a weighted-average period of 2.17 years.

8 unchanged sentences

The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from XPO Holdings, based on its 66 % economic interest in XPO Holdings.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

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

1 unchanged sentence

pass-through structure for U.S.

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

The effective tax rate for the three 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.

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

The effective tax rate for the three and nine months ended September 30, 2023 , is ( 4.0 %) and 2.8 %, respectively, and 2.3 % and ( 5.1 %) for the three and nine months ended September 30, 2022, respectively.

During the three and nine months ended September 30, 2023 the Company recognized income tax expense of $ 202 and $ 212 , respectively, on its share of pre-tax book income, exclusive of the noncontrolling interest of 34 %.

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

As of September 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 September 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.

3 unchanged sentences

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 Company's foreign subsidiaries are generally subject to examination for 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.

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Tax Receivable Agreement –

9 unchanged sentences

and not of XPO Holdings.

Payments are generally due under the TRA within a specified period of time following the filing of the Company’s tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of LIBOR plus 100 basis points from the due date (without extensions) of such tax return.

Payments are generally due under the TRA within a specified period of time following the filing of the Company’s tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of LIBOR (or a replacement rate) plus 100 basis points from the due date (without extensions) of such tax return.

The TRA provides that if (i) there is a material breach of any material obligations under the TRA;

1 unchanged sentence

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

As of June 30, 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.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

As of September 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 $ 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 .

Except for $ 2,755 and $ 1,144 of the current and non-current portions of the TRA, respectively, $ 76,691 of the TRA liability was not recorded as of September 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 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.

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.

Diluted earnings (loss) 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.

2 unchanged sentences

In order to maintain the one-to-one ratio, the preferred stock issued at the XPO Inc.

level also exist at the XPO Holdings level.

level also exists at the XPO Holdings level.

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

income or loss that is attributable to the Company and accordingly reflected in income or loss available to common stockholders in the Company’s calculation of basic earnings (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 per share at the subsidiary level, the amounts presented as net income attributable to noncontrolling interests and net income 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 (loss) per share at the subsidiary level, the amounts presented as net income (loss) attributable to noncontrolling interests and net income (loss) attributable to XPO Inc.

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

Diluted earnings (loss) per share attributable to common stockholders adjusts the basic earnings or losses per share attributable to common stockholders and the weighted average number of shares of 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.

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

Because the Company reported a net loss for the three months ended September 30, 2022, all potentially dilutive common stock equivalents are antidilutive and have been excluded from the calculation of diluted net loss per share.

Weighted average shares of Class B common stock were 16,503 and 17,206 for the three and nine months ended September 30, 2023 , respectively, and 21,685 and 22,313 for the three and nine months ended September 30, 2022, respectively.

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

Xponential Fitness, Inc.

1 unchanged sentence

(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.

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:

The following table presents the calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended

September 30,

Nine Months Ended

September 30,

Net income (loss)

net (income) loss attributable to noncontrolling interests

2 unchanged sentences

deemed contribution from redemption of convertible preferred stock

Net income attributable to XPO Inc.

Net income (loss) attributable to XPO Inc.

net income (loss) attributable to non-controlling interests

1 unchanged sentence

deemed (contribution) dividend

Net income attributable to XPO Inc.

Deemed contribution from redemption of convertible preferred stock

Net income (loss) attributable to XPO Inc.

Weighted average shares of Class A common stock outstanding - basic

5 unchanged sentences

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:

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

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

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

Rumble Class A common stock

Restricted stock units

Conversion of Class B common stock to Class A common stock

Convertible preferred stock

Accelerated Purchase Program - final settlement

Rumble contingent shares

18 unchanged sentences

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

The Company accrued for estimated legal liabilities and has entered into certain settlement agreements to resolve legal disputes and recorded $ 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.

The Company accrued for estimated legal liabilities and has entered into certain settlement agreements to resolve legal disputes and recorde d $ 417 a nd $ 464 , which is included in accrued expenses in the condensed consolidated balance sheets, as of September 30, 2023 and December 31, 2022, respectively.

Contingent consideration from acquisitions –

2 unchanged sentences

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

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

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

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

4 unchanged sentences

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

During the three and six months ended June 30, 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.

During the three and nine months ended September 30, 2023 , the Company recorded a decrease to contingent consideration of $ 3,356 and $ 18,533 , respectively, which was recorded as acquisition and transaction income.

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

At September 30, 2023 and December 31, 2022 , contingent consideration totals $ 9,157 and $ 27,690 , respectively, recorded as contingent consideration from acquisitions in the condensed consolidated balance sheets.

Xponential Fitness, Inc.

4 unchanged sentences

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.

The Company recorded additional contingent consideration o f $ 31 and $ 124 d uring the three and nine months ended September 30, 2023 , respectively, and $ 154 and $ 496 during the three and nine months ended September 30, 2022, respectively, which was recorded as interest expense.

The Company recorded additional contingent consideration of $ 1,338 a nd $ 1,005 du ring the three and nine months ended September 30, 2023 , respectively, and $ 0 and ($ 141 ) during the three and nine months ended September 30, 2022, respectively, which was recorded as acquisition and transaction expense (income).

In addition, the Company paid contingent consideration of $ 1,412 du ring the three and nine months ended September 30, 2023 and $ 0 and $ 1,336 during the three and nine months ended September 30, 2022, respectively.

At September 30, 2023 and December 31, 2022, contingent consideration w as $ 1,266 and $ 2,203 recorded as accrued expenses, respectively, a nd $ 1,146 a nd $ 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.

7 unchanged sentences

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 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.

The Company has determined the fair value of these guarantees at inception was not material, and as of September 30, 2023 and December 31, 2022, $ 150 an d $ 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.

The Company’s maximum obligation, as a result of its guarantees of leases, is approximately $ 3,102 as of September 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 September 30, 2023 and December 31, 2022 , no accrual has been recorded for the Company’s potential obligation under its guaranty arrangement.

Note 17 –

Restructuring

In the third quarter of 2023, the Company began a restructuring plan that involves exiting company-owned transition studios and other measures designed to reduce costs to achieve the Company’s long-term margin goals and focus on pure franchise operations.

The plan was approved and initiated in the third quarter of 2023 and is expected to continue throughout 2023 and 2024.

The Company expects to recognize additional restructuring charges throughout 2023 and 2024 totaling approximately $ 8,500 to $ 10,500 , for accelerated right-of-use asset amortization related to company-owned transition studios with a cease use date in the fourth quarter of 2023 and other restructuring charges.

During the three and nine months ended September 30, 2023 , the Company recognized restructuring charges of $ 6,325 , primarily for accelerated amortization of right-of-use assets, loss on sale or disposal of assets, and other restructuring charges.

All charges were recorded as selling, general and administrative expenses and costs of product revenue in the condensed consolidated statements of operations.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

The components of the restructuring charges are as follows:

Three and Nine

September 30,

Write off of abandoned right-of-use assets (1)

Loss on sale or disposal of assets (2)(3)

Other restructuring costs (1)

Total restructuring charges

(1) These charges are recorded in selling, general and administrative expenses on the Company’s condensed consolidated statements of operations.

(2) Charges of $ 248 recorded in cost of product revenues and charges of $ 385 recorded in selling, general and administrative expenses on the Company’s condensed consolidated statements of operations.

(3) Loss on sale or disposal of assets represents net losses on sales or disposal of studio assets primarily related to studio property and equipment.

The following table provides the components of and changes in the Company’s restructuring charges, included in accounts payable on the condensed consolidated balance sheets:

September 30, 2023

Balance at December 31, 2022

Charges incurred

Balance at September 30, 2023

Note 18 –

Subsequent Events

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.

On October 2, 2023, the final settlement of the Company's $ 50,000 ASR Program occurred, and the Company received an additional 589 shares of the Company's Class A common stock from the third-party financial institution.

In total under the ASR Program, the Company repurchased and immediately retired 2,599 shares of Class A common stock.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto and the other financial information included elsewhere in this Quarterly Report on Form 10-Q.

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

1 unchanged sentence

and “Risk Factors”

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

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

6 unchanged sentences

We operate a diversified platform of ten brands spanning across verticals including Pilates, indoor cycling, barre, stretching, rowing, dancing, boxing, running, functional training and yoga.

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 19 additional countries as of June 30, 2023.

In partnership with its franchisees and master franchisees, XPO LLC offers energetic, accessible, and personalized workout experiences led by highly qualified instructors in studio locations throughout the U.S.

and internationally, with franchise, master franchise and international expansion agreements in 49 U.S.

states and 22 additional countries as of September 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 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.

As of September 30, 2023, 2,596 studios were open in North America and franchisees were contractually committed to open 2,031 additional studios under existing franchise agreements.

In addition, as of September 30, 2023, we had 384 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,042 new studios, of which master franchisees have sold 261 licenses for studios not yet opened as of September 30, 2023.

During the nine months ended September 30, 2023 and 2022, we generated revenue outside the United States of $10.3 million and $9.1 million, respectively.

As of September 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.

We operate in one segment for financial reporting purposes.

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.

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 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

Restructuring Plan

In the third quarter of 2023, we began a restructuring plan that involves exiting company-owned transition studios and other measures designed to reduce costs to achieve our long-term margin goals and focus on pure franchise operations.

The plan was approved and initiated in the third quarter of 2023 and is expected to continue throughout 2023 and 2024.

During the three and nine months ended September 30, 2023, we recognized restructuring charges of $6.3 million, primarily for write off of abandoned right-of-use assets, loss on sale or disposal of assets, and other restructuring charges.

We expect to recognize additional restructuring charges throughout 2023 and 2024 totaling approximately $8.5 million to $10.5 million, for accelerated right-of-use asset amortization related to company-owned transition studios with a cease use date in the fourth quarter of 2023 and for other restructuring charges.

Additionally, we are negotiating lease terminations for operating leases for which we have lease liabilities recorded and for some of which we have accelerated right-of-use asset amortization through the cease use date.

Termination of these leases may result in net gains from lease liability decreases in excess of previously accelerated right-of-use assets.

Cash outflows related to these lease terminations are expected to be incurred through 2024.

Once completed we estimate annualized gross savings of approximately $9.0 million to $12.0 million under the restructuring plan.

Additionally, we may not be able to fully realize the cost savings and benefits initially anticipated from the restructuring plan, the expected charges may be greater than expected, and we may not be able to reach agreement with contractual counterparties, any of which could negatively impact our business.

Factors Affecting Our Results of Operations

35 unchanged sentences

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

Franchisee-owned studios:

28 unchanged sentences

(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,

(2) Includes previously franchisee-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 nine months ended September 30, 2023 and 2022:

Three Months Ended September 30,

Nine Months Ended September 30,

Total Studios

3 unchanged sentences

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

Total Studios

3 unchanged sentences

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

11 unchanged sentences

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

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

Three Months Ended June 30,

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

Three Months Ended September 30,

North America

15 unchanged sentences

Licenses sold by master franchisees, net (2)

Six Months Ended June 30,

Nine Months Ended September 30,

North America

64 unchanged sentences

Results of Operations

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,

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

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

12 unchanged sentences

Marketing fund expense

Acquisition and transaction income

Acquisition and transaction expenses (income)

Total operating costs and expenses

Operating income

Operating income (loss)

Other (income) expense:

3 unchanged sentences

Total other expense

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,

Income (loss) before income taxes

Income taxes (benefit)

Net income (loss)

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

Three Months Ended September 30,

Nine Months Ended September 30,

Revenue, net:

11 unchanged sentences

Marketing fund expense

Acquisition and transaction income

Acquisition and transaction expenses (income)

Total operating costs and expenses

Operating income

Operating income (loss)

Other (income) expense:

3 unchanged sentences

Total other expense

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,

Income (loss) before income taxes

Income taxes (benefit)

Net income (loss)

Three Months Ended September 30, 2023 and 2022

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

Three Months Ended September 30,

Change from Prior Year

7 unchanged sentences

Total revenue.

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%.

Total revenue was $80.4 million in the three months ended September 30, 2023, compared to $63.8 million in the three months ended September 30, 2022, an increase of $16.7 million, or 26%.

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 $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 revenue was $36.4 million in the three months ended September 30, 2023, compared to $30.0 million in the three months ended September 30, 2022, an increase of $6.4 million, or 21%.

Franchise revenue consisted of franchise royalty fees of $24.2 million, franchise territory fees of $5.3 million, technology fees of $4.0 million and training fees of $2.9 million in the three months ended September 30, 2023, compared to franchise royalty fees of $18.0 million, franchise territory fees of $7.0 million, technology fees of $2.9 million and training fees of $2.1 million in the three months ended September 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 499 net new studio openings globally since September 30, 2022.

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

Equipment revenue.

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%.

Equipment revenue was $12.6 million in the three months ended September 30, 2023, compared to $11.8 million in the three months ended September 30, 2022, an increase of $0.8 million, or 7%.

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

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.

Global equipment installations in the three months ended September 30, 2023, totaled 116 compared to 136 in the prior year period, primarily due to the timing of installations and a decrease in 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 $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.%.

Merchandise revenue was $8.5 million in the three months ended September 30, 2023, compared to $6.3 million in the three months ended September 30, 2022, an increase of $2.2 million, or 35%.

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 $6.6 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.

Franchise marketing fund revenue was $6.9 million in the three months ended September 30, 2023, compared to $5.2 million in the three months ended September 30, 2022, an increase of $1.8 million, or 34%.

The increase was primarily due to an increase in same store sales and 381 new studio openings in North America since September 30, 2022.

Other service 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.

Other service revenue was $16.0 million in the three months ended September 30, 2023, compared to $10.6 million in the three months ended September 30, 2022, an increase of $5.5 million, or 52%.

The increase was primarily due to a $6.1 million increase in package and memberships revenue due to a higher average number of company-owned transition studios, partially offset by a $0.3 million decrease in on-demand revenue and $0.3 million decrease in other preferred vendor commission revenue and brand fee revenue.

Operating Costs and Expenses

Three Months Ended June 30,

Three Months Ended September 30,

Change from Prior Year

5 unchanged sentences

Marketing fund expense

Acquisition and transaction income

Acquisition and transaction expenses (income)

Total operating costs and expenses

Costs of product revenue.

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 product revenue was $12.7 million in the three months ended September 30, 2023, compared to $11.8 million in the three months ended September 30, 2022, an increase of $0.9 million, or 7%, compared to an increase in related revenues of 17%.

Costs of product revenue as a percentage of related revenue decreased to 60% in the three months ended September 30, 2023, from 66% in the comparable prior year period.

The decrease was due to an increase in company-owned transition studio merchandise revenue, which generates higher gross margin.

Costs of franchise and service revenue.

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%.

Costs of franchise and service revenue was $3.6 million in the three months ended September 30, 2023, compared to $4.8 million in the three months ended September 30, 2022, a decrease of $1.3 million, or 26%.

The decrease was primarily due to a $1.5 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 $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;

Selling, general and administrative expenses were $48.6 million in the three months ended September 30, 2023, compared to $32.8 million in the three months ended September 30, 2022, an increase of $15.7 million, or 48%.

The increase was primarily attributable to restructuring charges of $6.1 million in the current year;

increase in salaries and wages of $4.3 million related to a higher average number of company-owned transition studios;

increase in occupancy expenses of $3.7 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.

an increase in intangible asset write down of $0.9 million;

and a net increase in other variable expenses in 2023 of $2.1 million, partially offset by a decrease in legal expenses of $1.4 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.

Depreciation and amortization expense was $4.2 million in each of the three-month periods ended September 30, 2023 and 2022.

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.

Marketing fund expense was $5.8 million in the three months ended September 30, 2023, compared to $4.3 million in the three months ended September 30, 2022, an increase of $1.6 million, or 37% and is consistent with the increase in franchise marketing fund revenue.

Acquisition and transaction expenses ( income).

Acquisition and transaction expenses (income) was ($1.9) million in the three months ended September 30, 2023, compared to $16.3 million in the three months ended September 30, 2022, a decrease of $18.2 million, or 112%.

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

Other (Income) Expense, net

Three Months Ended June 30,

Three Months Ended September 30,

Change from Prior Year

5 unchanged sentences

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 income primarily consists of interest on notes receivable and was insignificant in each of the three-month periods ended September 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 was $10.6 million in the three months ended September 30, 2023, compared to $3.3 million in the three months ended September 30, 2022, an increase of $7.3 million, or 219%.

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

1 unchanged sentence

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,

Other expense consists of Tax Receivable Agreement (“TRA”) expense, which was $1.8 million in the three months ended September 30, 2023.

Three Months Ended September 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,

Income taxes (benefit)

Income taxes (benefit) .

Income taxes (benefit) were $0.2 million in the three months ended September 30, 2023, compared to ($0.3) million in the three months ended September 30, 2022.

Nine Months Ended September 30, 2023 and 2022

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

Nine Months Ended September 30,

Change from Prior Year

7 unchanged sentences

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%.

Total revenue was $228.5 million in the nine months ended September 30, 2023, compared to $173.7 million in the nine months ended September 30, 2022, an increase of $54.8 million, or 32%.

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 revenue was $104.5 million in the nine months ended September 30, 2023, compared to $83.1 million in the nine months ended September 30, 2022, an increase of $21.4 million, or 26%.

Franchise revenue consisted of franchise royalty fees of $68.8 million, franchise territory fees of $15.9 million, technology fees of $11.4 million and training fees of $8.4 million in the nine months ended September 30, 2023, compared to franchise royalty fees of $49.9 million, franchise territory fees of $20.6 million, technology fees of $6.6 million and training fees of $6.0 million in the nine months ended September 30, 2022.

The increase in franchise royalty fees, technology fees and training fees was primarily due to a 17% increase in same store sales and 499 new studio openings globally since September 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%.

Equipment revenue was $40.1 million in the nine months ended September 30, 2023, compared to $31.9 million in the nine months ended September 30, 2022, an increase of $8.2 million, or 26%.

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.

Global equipment installations in the nine months ended September 30, 2023, totaled 395 compared to 376 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.%.

Merchandise revenue was $24.0 million in the nine months ended September 30, 2023, compared to $19.1 million in the nine months ended September 30, 2022, an increase of $4.9 million, or 26%.

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.

Franchise marketing fund revenue was $19.8 million in the nine months ended September 30, 2023, compared to $14.5 million in the nine months ended September 30, 2022, an increase of $5.2 million, or 36%.

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

Other service revenue was $40.1 million in the nine months ended September 30, 2023, compared to $25.0 million in the nine months ended September 30, 2022, an increase of $15.1 million, or 60%.

The increase was primarily due to a $13.6 million increase in package and memberships revenue due to a higher average number of company-owned transition studios and a $2.8 million increase in other preferred vendor commission revenue and brand fee revenue, partially offset by a $1.1 million decrease in on-demand revenue.

Operating Costs and Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

Change from Prior Year

5 unchanged sentences

Marketing fund expense

Acquisition and transaction income

Acquisition and transaction expenses (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 product revenue was $41.0 million in the nine months ended September 30, 2023, compared to $35.0 million in the nine months ended September 30, 2022, an increase of $6.0 million, or 17%, compared to an increase in related revenues of 26%.

Costs of product revenue as a percentage of related revenue decreased to 64% in the nine months ended September 30, 2023, from 68% in the comparable prior year period.

The decrease was due to an increase in company-owned transition studio merchandise revenue, which generates higher gross margin, and a higher percentage of non-branded merchandise revenue in 2023 for which we earn a commission with no corresponding cost of revenue.

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%.

Costs of franchise and service revenue was $11.3 million in the nine months ended September 30, 2023, compared to $13.6 million in the nine months ended September 30, 2022, a decrease of $2.3 million, or 17%.

The decrease was primarily due to a $3.1 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 $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;

Selling, general and administrative expenses were $127.9 million in the nine months ended September 30, 2023, compared to $96.1 million in the nine months ended September 30, 2022, an increase of $31.8 million, or 33%.

The increase was primarily attributable to restructuring charges of $6.1 million in the current year;

an increase in salaries and wages of $16.0 million related to a higher average number of company-owned transition studios and to a one-time $2.6 million employee retention payroll tax credit in the prior year period;

increase in occupancy expenses of $8.8 million primarily related to company-owned transition studios;

increase in marketing and promotion expense of $1.7 million;

increase in bad debt expense of $1.4 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.

increase of $4.7 million in intangible asset write down, net of mutual termination agreement income related to the acquisition of 14 Rumble studios;

increase in financial transaction fees and related expenses of $1.2 million and a net increase in other variable expenses in 2023 of $3.7 million, partially offset by a decrease in legal expenses of $3.5 million related to various legal matters and a decrease in equity-based compensation expense of $8.3 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 September 30, 2022.

Depreciation and amortization.

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%.

Depreciation and amortization expense was $12.7 million in the nine months ended September 30, 2023, compared to $11.2 million in the nine months ended September 30, 2022, an increase of $1.5 million, or 13%.

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

Marketing fund expense.

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.

Marketing fund expense was $16.3 million in the nine months ended September 30, 2023, compared to $12.7 million in the nine months ended September 30, 2022, an increase of $3.6 million, or 28% 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.

Acquisition and transaction income was $17.4 million in the nine months ended September 30, 2023, compared to $5.8 million in the nine months ended September 30, 2022, an increase of $11.6 million, or 201%.

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

Other (Income) Expense, net

Six Months Ended June 30,

Nine Months Ended September 30,

Change from Prior Year

5 unchanged sentences

Interest income.

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

Interest expense .

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 was $27.2 million in the nine months ended September 30, 2023 compared to $9.1 million in the nine months ended September 30, 2022, an increase of $18.2 million, or 201%.

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

1 unchanged sentence

Other expense.

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

Six Months Ended June 30,

Other expense consists of TRA expense, which was $3.1 million in the nine months ended September 30, 2023.

Nine Months Ended September 30,

Change from Prior Year

($ in thousands)

Income taxes .

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.

Income taxes (benefit)

Income taxes (benefit) .

Income taxes (benefit) were $0.2 million in the nine months ended September 30, 2023, compared to ($0.2) million in the nine months ended September 30, 2022.

Non-GAAP Financial Measures

10 unchanged sentences

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), 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.

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, expense related to loss on impairment or write down of our brand intangible assets, restructuring and related charges incurred in connection with our restructuring plan that we do not believe reflect our underlying business performance and affect comparability.

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

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 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,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Net income (loss)

Interest expense, net

2 unchanged sentences

Employer payroll taxes related to equity-based compensation

Acquisition and transaction income

Acquisition and transaction expenses (income)

Litigation expenses

2 unchanged sentences

TRA remeasurement

Write down of brand assets

Write down of goodwill and brand assets

Restructuring and related charges

Adjusted EBITDA

Liquidity and Capital Resources

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

As of September 30, 2023, we had $43.7 million of cash and cash equivalents, excluding $8.2 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.

4 unchanged sentences

Credit Facility

On April 19, 2021, we entered into a Financing Agreement with Wilmington Trust, National Association, as administrative agent and collateral agent, and MSD XPO Partners, LLC, MSD PCOF Partners XXXIX, LLC and DESALKIV Cayman C-2, Ltd.

(f/k/a DELALV Cayman C-2, Ltd.) as the lenders (the “Credit Agreement”), which consists of a $212 million senior secured term loan facility (the “Term Loan Facility”, and the loans thereunder, each a “Term Loan”

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

and together, the “Term Loans”).

Affiliates of MSD XPO Partners, LLC, MSD PCOF Partners XXXIX, LLC and DESALKIV Cayman C-2, Ltd.

(f/k/a DELALV Cayman C-2, Ltd.) (collectively, the “Preferred Investors”) also separately purchased 200,000 shares of our 6.50% Series A Convertible Preferred Stock (the “Series A Convertible preferred stock”) for $200 million.

Affiliates of the lenders also separately purchased 200,000 shares of our 6.50% Series A Convertible Preferred Stock (the “Series A Convertible preferred stock”) for $200 million.

Our obligations under the Credit Agreement are guaranteed by Xponential Intermediate Holdings, LLC and certain of our material subsidiaries, and are secured by substantially all of the assets of Xponential Intermediate Holdings, LLC and certain of our material subsidiaries.

1 unchanged sentence

(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% (11.74% at June 30, 2023).

Borrowings under the Term Loan Facility bear interest at a per annum rate of, at our option, either (a) the term secured overnight financing rate (“Term SOFR”) plus a Term SOFR Adjustment (as defined in the Credit Agreement per the fifth amendment discussed below), plus a margin of 6.50% or (b) the Reference Rate (as defined in the Credit Agreement) plus a margin of 5.50% (12.05% at September 30, 2023).

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

6 unchanged sentences

Unless agreed in advance, all voluntary prepayments and certain mandatory prepayments of the Term Loan made (i) on or prior to the first anniversary of the closing date are subject to a 2.0% premium on the principal amount of such prepayment and (ii) after the first anniversary of the closing date and on or prior to the second anniversary of the closing date are subject to a 0.50% premium on the principal amount of such prepayment.

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

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

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

8 unchanged sentences

and (ix) restricting the issuance of equity.

As of June 30, 2023, we were in compliance with these covenants.

As of September 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.

9 unchanged sentences

On January 9, 2023, we entered into a fourth amendment (the "Fourth Amendment") to the Credit Agreement.

The Fourth Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $130.0 million (the "2023 Incremental Term Loan"), the proceeds of which were used to fund the repurchase of a portion of our outstanding Convertible Preferred (the “Repurchase Transactions”) and the payment of fees, costs and expenses related to the Amendment and the Repurchase Transactions.

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 $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.

The Fourth Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $130.0 million (the "January 2023 Incremental Term Loan"), the proceeds of which were used to fund the repurchase of a portion of our outstanding Convertible Preferred (the “Repurchase Transactions”) and the payment of fees, costs and expenses related to the Amendment and the Repurchase Transactions.

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

On August 3, 2023, we 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 $65.0 million (the "August 2023 Incremental Term Loan"), the proceeds of which were used for funding the accelerated share repurchase program;

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

and general corporate purposes.

The Fifth Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the August 2023 Incremental Term Loan) commencing on September 30, 2023 and (ii) replaces the benchmark interest rate based on the LIBOR rate (and related LIBOR-based mechanics) applicable to the loans under the Credit Agreement with a benchmark interest rate based on the forward-looking Term SOFR (and related Term SOFR-based mechanics).

The total principal amount outstanding on the Term Loans was $329.7 million at September 30, 2023.

Quarterly principal payments of $1.2 million on the Term Loan as amended were due beginning September 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.

1 unchanged sentence

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 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,”

At September 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 six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

Accelerated Share Repurchase Program

On August 1, 2023, our board of directors approved a $50.0 million accelerated share repurchase program (the "ASR Program") to repurchase shares of our Class A common stock.

Under the ASR Program, we paid a fixed amount of $50.0 million on August 9, 2023, to a third-party financial institution and received an initial delivery of 2,010,050 shares of our Class A common stock, which were retired immediately.

On October 2, 2023, the final settlement of our ASR Program occurred, and we received an additional 588,827 shares of our Class A common stock from the third-party financial institution.

Under the ASR Program, we also incurred $0.4 million in associated expenses, consisting primarily of legal fees and a 1% excise tax liability in accordance with the Inflation Reduction Act of 2022.

In total under the ASR Program, we repurchased and immediately retired 2,598,877 shares of Class A common stock at an average price of $19.24 per share for $50.0 million, exclusive of legal fees and excise tax.

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

Nine Months Ended September 30,

(in thousands)

5 unchanged sentences

Cash Flows from Operating Activities

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.

In the nine months ended September 30, 2023, cash provided by operating activities was $38.2 million, compared to $37.5 million in the nine months ended September 30, 2022, an increase in cash provided of $0.7 million.

Of the increase, $4.4 million was due to higher net income after adjustments to reconcile net income to net cash provided by operating activities, partially offset by $3.7 million primarily due to unfavorable changes in working capital related to prepaid expenses, deferred costs, and deferred revenue, partially offset by favorable changes in working capital related to accounts receivable, other current liabilities, and accrued expenses in the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.

Cash Flows from Investing Activities

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.

In the nine months ended September 30, 2023 and 2022, cash used in investing activities was $8.6 million and $11.6 million, respectively.

The change year over year in cash used was primarily attributable to a decrease of cash used to purchase intangibles assets and a decrease 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.

Cash Flows from Financing Activities

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.

In the nine months ended September 30, 2023, cash used in financing activities was $15.1 million, compared to $16.3 million in the nine months ended September 30, 2022, a decrease in cash used of $1.2 million.

The decrease in cash used was primarily attributable to an increase in cash received from borrowings on long-term debt of $183.7 million, payment received from a shareholder of $8.1 million, and a decrease of $7.3 million in payments related to preferred stock dividend;

partially offset by cash used of $50.4 million related to the ASR Program, an increase in tax payments of $6.2 million related to vesting of restricted stock units, distributions to Pre-IPO LLC Members of $7.5 million, and payment of $130.8 million related to the repurchase of convertible preferred stock.

Off-Balance Sheet Arrangements

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

As of September 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 $3.1 million and would only require payment upon default by the primary obligor.

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.

The estimated fair value of these guarantees at September 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.

2 unchanged sentences

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 June 30, 2023 an accrual of $0.2 million has been recorded for our potential obligation under this guaranty arrangement.

The estimated fair value of these guarantees at inception was not material, and as of September 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.

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements