What changed in this filing

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Item 1. Financial Statements

2024-05-06 compared with 2023-11-08 · 444 added, 1177 removed, 489 unchanged (77% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

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

September 30,

(amounts in thousands, except per share amounts)

Current Assets:

25 unchanged sentences

Commitments and contingencies (Note 16)

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

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

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

115 shares issued and outstanding as of March 31, 2024 and December 31, 2023

Stockholders' equity (deficit):

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

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

27,571,312 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

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

2023 and December 31, 2022, respectively

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

outstanding as of March 31, 2024 and December 31, 2023

Class A common stock, $ 0.0001 par value, 500,000 shares authorized, 31,582 and 30,897 shares

issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

Class B common stock, $ 0.0001 par value, 500,000 shares authorized, 16,488 and 16,566 shares issued,

and 16,413 and 16,491 shares outstanding as of March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital

1 unchanged sentence

Accumulated deficit

Treasury stock, at cost, 74,525 shares outstanding as of September 30, 2023 and December 31, 2022

Treasury stock, at cost, 75 shares outstanding as of March 31, 2024 and December 31, 2023

Total stockholders' deficit attributable to Xponential Fitness, Inc.

6 unchanged sentences

(amounts in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Revenue, net:

11 unchanged sentences

Marketing fund expense

Acquisition and transaction expenses (income)

Acquisition and transaction expenses

Total operating costs and expenses

5 unchanged sentences

Total other expense

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:

Loss before income taxes

Income tax benefit

net loss attributable to noncontrolling interests

Net loss attributable to Xponential Fitness, Inc.

Net loss per share of Class A common stock:

Weighted average shares of Class A common stock outstanding:

13 unchanged sentences

Conversion of Class B shares to Class A shares

Payment of preferred stock dividend

Adjustment of preferred stock to redemption value

Vesting of Class B Shares

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

Deemed contribution from redemption of preferred stock

Liability-classified restricted stock units vested

Loan to shareholder and accumulated interest

Balance at March 31, 2023

Equity-based compensation

Conversion of Class B shares to Class A shares

Payment of preferred stock dividend

Adjustment of preferred stock to redemption value

Vesting of Class B Shares

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

Vesting of restricted share units

Loan to shareholder and accumulated interest

Receivable from shareholder arising from the Rumble studios acquisition

Consideration related to the Rumble studios acquisition

Payment received from shareholder

Distributions paid to Pre-IPO LLC Members

Balance at June 30, 2023

Equity-based compensation

Conversion of Class B shares to Class A shares

Payment of preferred stock dividend

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

Balance at March 31, 2024

See accompanying notes to condensed consolidated financial statements.

4 unchanged sentences

Class B Common Stock

Treasury Stock

Additional Paid-In Capital

from Shareholder

Receivable from

Noncontrolling

3 unchanged sentences

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

Balance at March 31, 2022

Equity based compensation

Conversion of Class B shares to Class A shares

Payment of preferred stock dividend

Preferred stock dividend

Adjustment of preferred stock to redemption value

Vesting of Class B Shares

Vesting of restricted stock units

Balance at June 30, 2022

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

Deemed contribution from redemption of preferred stock

Liability-classified restricted stock units vested

Loan to shareholder and accumulated interest

Payment of preferred stock dividend

Adjustment of preferred stock to redemption value

Balance at September 30, 2022

Balance at March 31, 2023

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(amounts in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

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

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

Depreciation and amortization

Amortization and write off of debt issuance cost

Amortization of discount on long-term debt

Amortization and write off of debt issuance costs

Amortization and write off of discount on long-term debt

Change in contingent consideration from acquisitions

Amortization of right-of-use assets

Non-cash lease expense

Bad debt expense (recovery)

1 unchanged sentence

Non-cash interest

Write down of goodwill and brand assets

Gain on disposal of assets

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

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

Accounts receivable

12 unchanged sentences

Proceeds from sale of assets

Purchase of studios

Purchase of intangible assets

Notes receivable issued

Notes receivable payments received

Acquisition of business

Net cash used in investing activities

3 unchanged sentences

Debt issuance costs

Payment of preferred stock dividend and deemed cash dividend

Payment of contingent consideration

Payment of preferred stock dividend

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

Payment for tax receivable agreement

Payments for redemption of preferred stock

Payments for distributions to Pre-IPO LLC Members

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

Increase in cash, cash equivalents and restricted cash

Decrease in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

4 unchanged sentences

(amounts in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental cash flow information:

Interest paid

Income taxes paid

Income taxes paid, net

Noncash investing and financing activity:

4 unchanged sentences

Accrued tax withholding related to convertible preferred stock dividend

Intangible asset acquired in exchange for deferred revenue

Contingent consideration upon acquisition

Debt issuance costs paid-in-kind - long-term debt

See accompanying notes to condensed consolidated financial statements.

2 unchanged sentences

(amounts in thousands, except per share amounts)

Note 1 –

Nature of Business and Operations

Note 1 – Nature of Business and Operations

Xponential Fitness, Inc.

(the “Company”

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

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

Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being an ownership interest in Xponential Fitness LLC (“XPO LLC”) through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”).

(the “Company” or “XPO Inc.”), was formed as a Delaware corporation on January 14, 2020 for the purpose of facilitating an initial public offering (“IPO”) and entered into a series of transactions to implement an internal reorganization.

XPO LLC was formed on August 11, 2017 as a Delaware limited liability company for the sole purpose of franchising fitness brands in several verticals within the boutique fitness industry.

XPO LLC is a wholly owned subsidiary of XPO Holdings, which was formed on February 24, 2020, and prior to the IPO, ultimately, H&W Franchise Holdings, LLC (the “Parent”).

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

“Club Pilates,”

a Pilates facility franchisor;

“CycleBar,”

a premier indoor cycling franchise;

“StretchLab,”

a fitness concept offering one-on-one assisted stretching services;

“Row House,”

a rowing concept that provides an effective and efficient workout centered around the sport of rowing;

“YogaSix,”

a yoga concept that concentrates on connecting to one’s body in a way that is energizing;

“AKT,”

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

“Pure Barre,”

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

“Stride,”

a running concept that offers treadmill-based high-intensity interval training and strength-training;

“Rumble,”

a boxing concept that offers boxing-inspired group fitness classes;

and “BFT,”

a high-intensity interval training concept that combines functional, high-energy strength, cardio and conditioning-based classes, designed to achieve the unique health goals of its members.

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 31 and 40 co mpany-owned transition studios as of September 30, 2023 and 2022, respectively.

XPO LLC is a wholly owned subsidiary of XPO Holdings, which was formed on February 24, 2020, and prior to the IPO, ultimately, H&W Franchise Holdings, LLC (the “Parent”).

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

As of March 31, 2024 , the Company’s portfolio of ten brands consists of:

“Club Pilates,” a Pilates facility franchisor;

“CycleBar,” a premier indoor cycling franchise;

“StretchLab,” a fitness concept offering one-on-one assisted stretching services;

“Row House,” a rowing concept that provides an effective and efficient workout centered around the sport of rowing;

“YogaSix,” a yoga concept that concentrates on connecting to one’s body in a way that is energizing;

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

“Pure Barre,” a total body workout concept that uses the ballet barre to perform small isometric movements;

“Rumble,” a boxing concept that offers boxing-inspired group fitness classes;

“BFT,” a high-intensity interval training concept that combines functional, high-energy strength, cardio and conditioning-based classes, designed to achieve the unique health goals of its members;

and “Lindora,” a provider of medically guided wellness and metabolic health solutions, which was acquired on January 2, 2024.

The Company, through its boutique fitness 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.

Additionally, the Company, through its ownership of the Lindora brand, franchises clinics that provide medically guided wellness and metabolic health solutions to its members.

In addition to franchised studios, the Company operated one and 87 company-owned transition studios as of March 31, 2024 and 2023, respectively.

On February 13, 2024, the Company divested the Stride brand, including the intellectual property, franchise rights and franchise agreements for open studios.

See Note 3 for additional information.

In connection with the IPO, XPO Inc.

entered into a series of transactions to implement an internal reorganization, (the “Reorganization Transactions”).

The pre-IPO members of XPO Holdings (the “Pre-IPO LLC Members”) who retained their equity ownership in the form of limited liability company units (the “LLC Units”), immediately following the consummation of the Reorganization Transactions are referred to as “Continuing Pre-IPO LLC Members.”

entered into a series of transactions to implement an internal reorganization, (the “Reorganization Transactions”).

Because XPO Inc.

manages and operates the business and controls the strategic decisions and day-to-day operations of XPO LLC through its ownership of XPO Holdings and because it also has a substantial financial interest in XPO LLC through its ownership of XPO Holdings, it consolidates the financial results of XPO LLC and XPO Holdings, and a portion of its net income (loss) is allocated to the noncontrolling interest to reflect the entitlement of the Continuing Pre-IPO LLC Members to a portion of XPO Holdings’

net income or loss.

Immediately following the closing of the IPO, XPO LLC is the predecessor of the Company for financial reporting purposes.

As the sole managing member of XPO LLC, the Company operates and controls all of the business and affairs of XPO LLC.

The Reorganization Transactions are accounted for as a reorganization of entities under common control.

As a result, the condensed consolidated financial statements of the Company recognize the assets and liabilities received in the Reorganization Transactions at their historical carrying amounts, as reflected in the historical consolidated financial statements of XPO LLC.

The Company consolidates XPO LLC on its condensed consolidated financial statements and records a noncontrolling interest related to the Class B units held by the Class B stockholders on its condensed consolidated balance sheet and statement of operations.

Basis of presentation –

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

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

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

Such adjustments are of a normal, recurring nature.

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”).

These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”).

Interim results of operations are not necessarily indicative of results of operations to be expected for a full year.

Principles of consolidation –

The Company’s consolidated financial statements include the accounts of its wholly owned subsidiaries.

All intercompany transactions have been eliminated in consolidation.

Xponential Fitness, Inc.

1 unchanged sentence

(amounts in thousands, except per share amounts)

Use of estimates –

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements.

On January 2, 2024, the Company acquired Lindora Franchise, LLC, a Delaware limited liability company, the franchisor of the Lindora wellness brand (the “Lindora Franchisor” or “Lindora”), and has included the results of operations of Lindora in its condensed consolidated statements of operations from the acquisition date forward.

See Note 3 for additional information.

Principles of consolidation – The Company’s consolidated financial statements include the accounts of its wholly owned subsidiaries.

All intercompany transactions have been eliminated in consolidation.

Use of estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements.

Actual results could differ from these estimates under different assumptions or conditions.

Note 2 –

Summary of Significant Accounting Policies

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 –

The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

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

Note 2 – Summary of Significant Accounting Policies

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

The Company generated $ 3,051 and $ 2,980 of revenue outside of the United States during the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024 and December 31, 2023 , the Company did not have material assets located outside of the United States.

Cash, cash equivalents and restricted cash – The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

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

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

4 unchanged sentences

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

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

Accounts receivable and allowance for doubtful accounts –

Accounts receivable primarily consist of amounts due from franchisees and vendors.

Restricted cash was $ 10,511 and $ 9,333 at March 31, 2024 and December 31, 2023 , respectively.

Accounts receivable and allowance for expected credit losses – Accounts receivable primarily consist of amounts due from franchisees and vendors.

These receivables primarily relate to royalties, advertising contributions, equipment and product sales, training, vendor commissions and other miscellaneous charges.

Receivables are unsecured;

however, the franchise agreements provide the Company the right to withdraw funds from the franchisee’s bank account or to terminate the franchise for nonpayment.

On a periodic basis, the Company evaluates its accounts receivable balance and establishes an allowance for doubtful accounts based on a number of factors, including evidence of the franchisee’s ability to comply with credit terms, economic conditions and historical receivables.

however, the franchise agreements provide the Company the right to withdraw funds from the franchisee’s bank account or to terminate the franchise for nonpayment.

On a periodic basis, the Company evaluates its accounts receivable balance and establishes an allowance for expected credit losses based on a number of factors, including evidence of the franchisee’s ability to comply with credit terms, economic conditions and historical receivables.

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

Credit Losses –

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

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

For additional information refer to section below titled “Recently adopted accounting pronouncements.”

The Company’s accounts and notes receivable are recorded at net realizable value, which includes an appropriate allowance for estimated credit losses.

The estimate of credit losses is based upon historical bad debts, current receivable balances, age of receivable balances, the customer’s financial condition and current economic trends, all of which are subject to change.

Actual uncollected amounts have historically been consistent with the Company’s expectations.

The Company’s payment terms on its receivables from franchisees are generally 30 days .

The Company’s accounts and notes receivable are recorded at net realizable value, which includes an appropriate allowance for expected credit losses.

The estimate of expected credit losses is based upon historical bad debts, current receivable balances, age of receivable balances, the customer’s financial condition and current economic trends, all of which are subject to change.

Actual uncollected amounts have historically been consistent with the Company’s expectations.

The Company’s payment terms on its receivables from franchisees are generally 30 days .

Xponential Fitness, Inc.

1 unchanged sentence

(amounts in thousands, except per share amounts)

The following table provides a reconciliation of the activity related to the Company’s accounts receivable and notes receivable allowance for credit losses:

Accounts receivable

1 unchanged sentence

Balance at January 1, 2024

Bad debt expense recognized during the period

Bad debt expense (recovery) recognized during the period

Write-off of uncollectible amounts

Balance at September 30, 2023

Accrued expenses –

Accrued expenses consisted of the following:

September 30,

Balance at March 31, 2024

Accrued expenses – Accrued expenses consisted of the following:

Accrued compensation

4 unchanged sentences

Total accrued expenses

Comprehensive income –

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

Fair value measurements –

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.

Other current liabilities – Other current liabilities consisted of the following:

Lease liabilities, short-term

Promissory note, current portion

Tax receivable agreement liability, current portion

Other current liabilities

Total other current liabilities

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

Fair value measurements – 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 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:

Level 1 –

Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.

Level 2 –

Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates and yield curves), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 –

Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability.

These inputs would be based on the best information available, including the Company’s own data.

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 approximate fair value due to their short maturities, proximity of issuance to the balance sheet date or variable interest rate.

Redeemable convertible preferred stock –

T he redeemable convertible preferred stock (the “Convertible Preferred”) becomes redeemable at the option of the holder as of a specific date unless an event that is not probable of occurring happens before that date.

Therefore, the Company determined that it is probable that the Convertible Preferred will become redeemable based on the passage of time.

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.

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.

Level 2 – Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates and yield curves), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 – Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability.

These inputs would be based on the best information available, including the Company’s own data.

Xponential Fitness, Inc.

1 unchanged sentence

(amounts in thousands, except per share amounts)

Noncontrolling interests –

Noncontrolling interests represent the economic interests of XPO LLC held by Class B common stockholders.

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 approximate fair value due to their short maturities, proximity of issuance to the balance sheet date or variable interest rate.

Redeemable convertible preferred stock – T he redeemable convertible preferred stock (the “Convertible Preferred”) becomes redeemable at the option of the holder as of a specific date unless an event that is not probable of occurring happens before that date.

Therefore, the Company determined that it is probable that the Convertible Preferred will become redeemable based on the passage of time.

Noncontrolling interests – Noncontrolling interests represent the economic interests of XPO LLC held by Class B common stockholders.

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

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

Earnings (loss) per share –

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

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

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

4 unchanged sentences

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

Income taxes –

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities (“DTAs”

and “DTLs”) for the expected future tax consequences of events that have been included in the financial statements.

For further discussion, see Note 15.

Income taxes – The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities (“DTAs” and “DTLs”) for the expected future tax consequences of events that have been included in the financial statements.

Under this method, the Company determines DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse.

3 unchanged sentences

If the Company determines that it would be able to realize DTAs in the future in excess of the net recorded amount, an adjustment to the DTA valuation allowance would be made, which would reduce the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC Topic 740 on the basis of a two-step process in which the Company (1) determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company records uncertain tax positions in accordance with ASC Topic 740 on the basis of a two-step process in which the Company a) determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and b) for those tax positions that meet the more-likely-than-not recognition threshold, recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company does not have any uncertain tax positions.

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 nine months ended September 30, 2023 and 2022 .

Recently adopted accounting pronouncements –

Credit Losses –

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2016-13, “Financial Instruments—Credit Losses (Topic 326).”

This standard provides a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses and applies to trade and notes receivables.

The adoption of this accounting standard on January 1, 2023 did not have a material impact on the Company's condensed consolidated financial statements as the expected credit loss model was not significantly different from the prior policy and methodology for determining the allowance for doubtful accounts.

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

Reference Rate Reform –

In March 2020, the FASB issued ASU No.

2020-04, “Reference Rate Reform (Topic 848):

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

("ASU 2020-04").

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 London Interbank Offered Rate (“LIBOR”).

ASU 2020-04 was effective upon issuance.

In December 2022, the FASB issued ASU No.

2022-06, “Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of 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 –

In October 2021, the FASB issued ASU No.

2021-08, “Business Combinations (Topic 805):

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.

The amendment improves comparability by specifying for all acquired revenue contracts regardless of their timing of payment (1) the circumstances in which the acquirer should recognize contract assets and contract liabilities that are acquired in a business combination and (2) how to measure those contract assets and contract liabilities.

This results in better comparability for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination.

ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years with early adoption permitted.

The adoption of this accounting standard, effective January 1, 2023, did not have an impact on the Company's condensed consolidated financial statements.

Recently issued accounting pronouncements –

The Company qualifies as an “emerging growth company”

under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

Recently issued accounting pronouncements –

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”).

An emerging growth company may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies.

1 unchanged sentence

The Company has elected to use this extended transition period.

Note 3 –

Acquisitions and Dispositions

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Segment Reporting – In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” ASU 2023-07 improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements.

ASU 2023-07 is effective for public entities for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

Income Taxes Disclosures – In December 2023, the FASB issued ASU No.

2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” ASU 2023-09 requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid.

ASU 2023-09 is effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

Profit Interest Awards – In March 2024, the FASB issued ASU No.

2024-01, “Compensation - Stock Compensation (Topic 718):

Scope Application of Profits Interest and Similar Awards.” ASU 2024-01 clarifies how an entity determines whether a profits interest or similar award is within the scope of ASC 718 or not a share-based payment arrangement and therefore within the scope of other guidance.

ASU 2024-01 is effective for public entities for fiscal years beginning after December 15, 2024, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of this guidance on its condensed consolidated financial statements.

Note 3 – Acquisitions and Dispositions

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

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

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

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

This acquisition was 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.

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common stock owned by the Rumble Sellers .

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

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

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

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

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

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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.

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

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.

During the year ended December 31, 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 .

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Total purchase price

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.

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

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

During the three months ended March 31, 2024 and 2023, the Company refranchised operations at ten and three company-owned transition studios, respectively, received no proceeds in either period, and recorded a net loss of $ 122 and $ 0 on disposal of the studio assets, respectively.

During the three months ended March 31, 2024 and 2023, the Company also ceased operations at 11 and 0 company-owned transition studios, respectively.

The Company refranchised or closed 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.

On December 31, 2023, the Company entered into agreements to sell six Rumble company-owned transition studios (the “Rumble Held for Sale Studios”).

These agreements triggered the reclassification of Rumble Held for Sale Studios to assets held for sale.

Based on the expected net sales proceeds the Company determined the Rumble Held for Sale Studios to be fully impaired and recognized an impairment of $ 2,190 , within impairment of goodwill and other assets, for studio assets during the year ended December 31, 2023, consisting of property and equipment of $ 985 and reacquired franchise assets of $ 1,205 .

The sale was completed during the three months ended March 31, 2024.

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.

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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 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

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

The acquisition was recorded as an asset acquisition.

During the three months ended March 31, 2024 and 2023 , the Company did no t record any impairment charges related to studio assets.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Xponential Procurement Services Acquisition

On December 29, 2023 , the Company entered into a Membership Interest Purchase Agreement whereby the Company acquired 100 % of the membership rights in Xponential Procurement Services, LLC ( “XPS” ) from the XPS seller.

The aggregate purchase consideration for the acquisition was $ 9,930 .

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

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 September 30, 2023 .

The purchase price consisted of cash consideration of $ 3,467 and a promissory note with a fair value of $ 6,463 payable in two equal installments due on July 1, 2024 and July 1, 2025.

The current portion of the promissory note is included in other current liabilities and the non-current portion is included in other liabilities in the Company’s condensed consolidated balance sheets.

XPS specializes in the custom manufacturing of display cases, engraved wood signs, point of sale displays, custom acrylic panels, and other products.

The acquisition contributes to the Company’s vertical integration of its product offerings to its franchisees.

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

The fair values assigned to tangible and intangible assets acquired are based on management's estimates and assumptions.

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

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

Property and equipment

Intellectual property

Other intangible assets

Total assets acquired

Accounts payable and accrued expenses

Net assets acquired

The goodwill recognized in this acquisition was attributable to the synergies that the Company expects to achieve.

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

Lindora Acquisition

On December 1, 2023 , the Company entered into an agreement to acquire Lindora Franchise, LLC, a Delaware limited liability company, the franchisor of the “Lindora” wellness brand (the “Lindora Franchisor”), for cash consideration of $ 8,500 .

The transaction also includes up to $ 1,000 of contingent consideration which is subject to the achievement of certain milestones.

Payment of additional consideration is contingent on Lindora reaching two milestones based on a certain gross sales target and the number of operating clinics during the 15-month and 24-month period following the acquisition date, respectively.

At the acquisition date, the Company determined that the fair value of the estimated contingent consideration liability was $ 446 .

The Lindora Franchisor was a subsidiary of Lindora Wellness, Inc.

(“Lindora Wellness”).

Lindora Wellness has owned and operated each of the Lindora Clinics in California for at least 25 years and currently owns and operates 30 Lindora Clinics in California and a single Lindora Clinic in the state of Washington.

Immediately prior to the execution of the purchase agreement on December 1, 2023, Lindora Wellness signed 31 franchise agreements with the Lindora Franchisor pursuant to which Lindora Wellness will continue to operate its Lindora Clinics as a franchisee of the Lindora Franchisor.

The acquisition of the Lindora Franchisor was completed on January 2, 2024.

The acquisition of Lindora complements the Company's existing brands and will help the Company deliver on consumers’ increasing demand for a holistic approach to health.

Xponential Fitness, Inc.

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(amounts in thousands, except per share amounts)

Note 4 –

Contract Liabilities and Costs from Contracts with Customers

Contract liabilities –

Contract liabilities consist of deferred revenue resulting from franchise fees, development fees and master franchise fees paid by franchisees, which are recognized over time on a straight-line basis over the franchise agreement term.

The Company also receives upfront payments from vendors under agreements that give the vendors access to franchisees’

members to provide certain services to the members (“brand fees”).

The fair values assigned to intangible assets acquired are based on management's estimates and assumptions.

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

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

Franchise Agreements

Total assets acquired

The goodwill recognized in this acquisition was attributable to the synergies that the Company expects to achieve.

The fair values, which are Level 3 measurements, of the recognizable intangible assets are comprised of trademarks and franchise agreements.

The fair value of the trademarks was estimated by the relief from royalty method and are considered to have an eleven-year life.

The fair value of the franchise agreements was based on the excess earnings method and are considered to have a ten-year life.

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

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

During the three months ended March 31, 2024 and 2023 , the Company incurred $ 428 and $ 0 , respectively, of transaction costs related to acquisitions, which is included in acquisition and transaction expenses in the condensed consolidated statements of operations.

Pro forma financial information and revenue from the date of acquisition have not been provided for these acquisitions as they are not material either individually or in the aggregate.

Divestiture of Stride brand

On February 13, 2024, the Company entered into an asset purchase agreement with a buyer, pursuant to which the Company divested the Stride brand, including the intellectual property, franchise rights and franchise agreements for open studios.

The buyer of the Stride brand is a member of management and shareholder of the Company.

The Company received no consideration from the divestiture of the Stride brand and will assist the buyer with transition support including cash payments of approximately $ 265 payable over the 12-month period following divestiture.

The divestiture allows the Company to better focus and utilize its resources on its other brands.

The Company recognized a loss on divestiture of $ 279 , which was included within selling, general and administration expenses in the condensed consolidated statements of operations.

The divested brand did not represent a strategic shift that has a major effect on the Company's operations and financial results, and, as such, it was not presented as discontinued operations.

Note 4 – Contract Liabilities and Costs from Contracts with Customers

Contract liabilities – Contract liabilities consist of deferred revenue resulting from franchise fees, development fees and master franchise fees paid by franchisees, which are recognized over time on a straight-line basis over the franchise agreement term.

The Company also receives upfront payments from vendors under agreements that give the vendors access to franchisees’ members to provide certain services to the members (“brand fees”).

Revenue from the upfront payments is recognized on a straight-line basis over the agreement term and is reported in other service revenue.

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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 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 .

The following table reflects the change in franchise development and brand fee contract liabilities for the three months ended March 31, 2024 .

Other deferred revenue amounts of $ 18,472 are excluded from the table as the original expected duration of the contracts is one year or less.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Balance at December 31, 2023

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revenue at the beginning of the year

Deferred revenue recorded as settlement in

purchase accounting

Increase, excluding amounts recognized as revenue

during the period

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.

The Company elected to not disclose short term contracts, sales and usage-based royalties, marketing fees and any other variable consideration recognized on an “as invoiced”

Balance at March 31, 2024

The following table illustrates estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2024.

The Company elected to not disclose short term contracts, sales and usage-based royalties, marketing fees and any other variable consideration recognized on an “as invoiced” basis.

Contract liabilities to be recognized in revenue in

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The following table reflects the components of deferred revenue:

September 30,

Franchise and area development fees

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Current portion of deferred revenue

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Contract costs –

Contract costs consist of deferred commissions resulting from franchise and area development sales by third-party and affiliate brokers and sales personnel.

Contract costs – Contract costs consist of deferred commissions resulting from franchise and area development sales by third-party and affiliate brokers and sales personnel.

The total commission is deferred at the point of a franchise sale.

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 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 ten-year 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 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 –

Notes Receivable

The Company previously provided unsecured advances or extended financing related to the purchase of the Company’s equipment or franchise fees to various franchisees.

At March 31, 2024 and December 31, 2023 , there were approximately $ 4,127 and $ 4,126 of current deferred costs and approximately $ 45,243 and $ 46,221 in non-current deferred costs, respectively.

The Company recognized franchise sales commission expense of approximately $ 2,845 and $ 2,035 for the three months ended March 31, 2024 and 2023, respectively.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Note 5 – Notes Receivable

The Company previously provided unsecured advances or extended financing related to the purchase of the Company’s equipment or franchise fees to various franchisees.

These arrangements have terms of up to 18 months with interest typically based on LIBOR plus 700 basis points with an initial interest free period.

The Company also provided loans to various franchisees through its relationship with Intensive Capital Inc.

(“ICI”).

The Company accrues the interest as an addition to the principal balance as the interest is earned.

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

At September 30, 2023 and December 31, 2022, the principal balance of the notes receivable was approximately $ 3,261 and $ 3,306 , respectively.

At March 31, 2024 and December 31, 2023, the principal balance of the notes receivable was approximately $ 2,902 and $ 3,189 , respectively.

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

To the extent a loan becomes past due, the Company ceases the recording of interest in the period that a reserve on the loan is established.

On a periodic basis, the Company evaluates its notes receivable balance and establishes an allowance for doubtful accounts, based on a number of factors, including evidence of the franchisee’s ability to comply with the terms of the notes, economic conditions and historical collections.

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

Note 6 –

Property and Equipment

Note 6 – Property and Equipment

Property and equipment consisted of the following:

September 30,

Furniture and equipment

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Total property and equipment

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.

Depreciation expense for the three months ended March 31, 2024 and 2023, was $ 1,488 and $ 1,242 , respectively.

Note 7 – Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair value of identifiable net assets acquired related to the original purchase of the various franchise businesses and acquisition of company-owned transition studios.

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

During the three months ended March 31, 2024 , there was an increase of $ 2,346 in previously reported goodwill due to the acquisition of Lindora as discussed in Note 3.

The carrying value of goodwill at March 31, 2024 and December 31, 2023 , totaled $ 173,947 and $ 171,601 , respectively.

Cumulative goodwill impairment was $ 10,113 at March 31, 2024 and December 31, 2023.

Xponential Fitness, Inc.

1 unchanged sentence

(amounts in thousands, except per share amounts)

Note 7 –

Goodwill and Intangible Assets

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

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:

September 30, 2023

March 31, 2024

December 31, 2023

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Reacquired franchise rights

Intellectual property

Web design and domain

Deferred video production costs

Other intangible assets

Total definite-lived intangible assets

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Total intangible assets

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.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Amortization expense was $ 2,948 and $ 2,955 , for the three months ended March 31, 2024 and 2023, respectively.

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

Remainder of 2024

Note 8 –

On April 19, 2021, the Company entered into a Financing Agreement with Wilmington Trust, National Association, as administrative agent and collateral agent, and the lenders party thereto (the “Credit Agreement”), which consists of a $ 212,000 senior secured term loan facility (the “Term Loan Facility”, and the loans thereunder, each a “Term Loan”

and, together, the “Term Loans”).

The Company’s obligations under the Credit Agreement are guaranteed by XPO Holdings and certain of the Company’s material subsidiaries and are secured by substantially all of the assets of XPO Holdings and certain of the Company’s material subsidiaries.

Note 8 – Debt

Under the Credit Agreement, the Company is required to make:

(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 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).

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), plus a margin of 6.50 % or (b) the Reference Rate (as defined in the Credit Agreement) plus a margin of 5.50 % ( 12.09 % at March 31, 2024).

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

(i) 50 % of XPO Holdings’

and its subsidiaries’

Excess Cash Flow (as defined in the Credit Agreement), subject to certain exceptions;

(i) 50 % of XPO Holdings’ and its subsidiaries’ Excess Cash Flow (as defined in the Credit Agreement), subject to certain exceptions;

(ii) 100 % of the net proceeds of certain asset sales and insurance/condemnation events, subject to reinvestment rights and certain other exceptions;

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and (v) up to $ 60,000 of net proceeds in connection with an initial public offering of at least $ 200,000 , subject to certain exceptions.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

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.

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and (ix) restricting the issuance of equity.

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

As of March 31, 2024, the Company was in compliance with these covenants.

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

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

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

Amendment ”

) to the Credit Agreement.

The Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $ 38,000 (the “2021 Incremental Term Loan”), the proceeds of which were used to fund the BFT acquisition and the payment of fees, costs and expenses related to the Amendment.

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

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

) to the Credit Agreement.

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

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

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 "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.

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 nine months ended September 30, 2023.

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.

On February 13, 2024, the Company entered into a sixth amendment (the “Sixth Amendment”) to the Credit Agreement.

The Sixth Amendment provides for, among other things, additional term loans in an aggregate principal amount of approximately $ 38,701 , with an original issue discount of $ 4,059 , (the “Sixth Amendment Incremental Term Loans”), the original issue discount was paid-in-kind by increasing the principal amount of the Credit Agreement.

The proceeds of the Sixth Amendment were used to repay an aggregate of $ 38,701 in existing term loans under the Credit Agreement and for the payment of fees, costs and expenses related to the making of the Sixth Amendment Incremental Term Loans.

The Sixth Amendment, among other things, also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the Sixth Amendment Incremental Term Loans) commencing on June 30, 2024 to $ 1,287 and (ii) extended the maturity date for all outstanding term loans under the Credit Agreement to March 15, 2026.

In connection with the Sixth Amendment, the Company wrote off a pro rata portion of debt issuance costs related to the Term Loans of $ 23 and wrote off original issue discount of $ 452 related to the repayment of a portion of the Term Loans, which were included in interest expense for the three months ended March 31, 2024.

The Company incurred debt issuance costs of $ 269 and $ 115 for the three months ended March 31, 2024 and 2023, respectively.

Debt issuance cost amortization and write off amounted to $ 72 and $ 283 for the three months ended March 31, 2024 and 2023, respectively.

Unamortized debt issuance costs as of March 31, 2024 and December 31, 2023 , were $ 415 and $ 218 , respectively, and are presented as a reduction to long-term debt in the condensed consolidated balance sheets.

Unamortized original issue discount as of March 31, 2024 and December 31, 2023 , was $ 7,013 and $ 4,279 , respectively, and is presented as a reduction to long-term debt in the condensed consolidated balance sheets.

Principal payments on outstanding balances of long-term debt as of March 31, 2024 were as follows:

Remainder of 2024

Xponential Fitness, Inc.

1 unchanged sentence

(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 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 –

The carrying value of the Company’s long-term debt approximated fair value as of March 31, 2024 and December 31, 2023 , 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 – Leases

The Company leases office space, company-owned transition studios, warehouse, training centers and a video recording studio.

4 unchanged sentences

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

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.

Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term.

12 unchanged sentences

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.

There were no ROU asset impairment charges during the three months ended March 31, 2024 and 2023.

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

1 unchanged sentence

Balance Sheet Location

September 30,

March 31, 2024

December 31, 2023

5 unchanged sentences

Lease liability

(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.

Components of lease expense during the three months ended March 31, 2024 and 2023, are summarized as follows:

For the three months ended March 31,

Operating lease costs

Variable lease costs

Xponential Fitness, Inc.

1 unchanged sentence

(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

Related-party lease

Third-party leases

Operating lease costs

Variable lease costs

Short-term lease costs

Nine Months Ended September 30,

Third-party leases

Related-party lease

Third-party leases

Operating lease costs

Variable lease costs

Short-term lease costs

Supplemental cash flow information related to operating leases during the three and 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

Nine Months Ended September 30,

Supplemental cash flow information related to operating leases during the three months ended March 31, 2024 and 2023, are summarized as follows:

Three Months Ended March 31,

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

1 unchanged sentence

Other information related to leases is summarized as follows:

September 30, 2023

March 31, 2024

December 31, 2023

1 unchanged sentence

Weighted average discount rate

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

Maturities of lease liabilities as of March 31, 2024 are summarized as follows:

Remainder of 2024

1 unchanged sentence

imputed interest

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

Note 10 –

Related Party Transactions

The Company has numerous transactions with the pre-IPO Member and pre-IPO Parent and its affiliates.

The significant related party transactions consist of borrowings from and payments to the Member and other related parties under common control of the Parent.

Note 10 – Related Party Transactions

The Company had numerous transactions with the pre-IPO Member and pre-IPO Parent and its affiliates.

The significant related party transactions consisted of borrowings from and payments to the Member and other related parties that were under common control of the Parent.

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

3 unchanged sentences

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

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

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

In January 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 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 $ 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.

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.

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

In 2023 and 2022, the Rumble Sellers borrowed an additional $ 4,400 and $ 5,050 , respectively, under the debt financing agreement which was recorded as receivable from shareholder within equity.

During the three months ended March 31, 2024 and 2023, the Company recorded $ 349 and $ 487 of interest in kind, respectively, which was recorded as an increase to receivable from shareholder within equity.

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 restricted stock units (“RSUs”), which vest in full on the fourth anniversary of the grant date.

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

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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 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.

In addition, the same member of the Company’s board of directors also invested as a limited partner in the Spartan SPV.

As of March 31, 2024 , the former owner of Row House borrowed $ 360 , which was recorded as a reduction to liability.

In March 2023, Spartan Fitness Holdings, LLC (“Spartan Fitness”), which currently owns and operates 85 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.

In addition, the same member of the Company’s board of directors also invested as a limited partner in the Spartan SPV.

Spartan Fitness intends to use the investment from Spartan SPV to fund expansion of Club Pilates studios, among other concepts.

Spartan Fitness also owns the rights to 87 Club Pilates licenses to open additional new units.

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, 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.

The Company recorded franchise, equipment and marketing fund revenue aggregating $ 2,104 and $ 1,232 , during the three months ended March 31, 2024 and 2023, respectively, from studios owned by Spartan Fitness.

The Company earns revenues and has accounts receivable from a franchisee who is also a member of senior management of the Company.

Revenues from this affiliate, primarily related to franchise revenue, marketing fund revenue and merchandise revenue, were $ 68 and $ 136 for the three months ended March 31, 2024 and 2023, respectively.

Included in accounts receivable as of March 31, 2024 and December 31, 2023, is $ 3 and $ 2 , respectively, for such sales.

The Company provided $ 239 of studio support during the three months ended March 31, 2024 to this franchisee.

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 –

Redeemable Convertible Preferred Stock

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

Note 11 – Redeemable Convertible Preferred Stock

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

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

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

Certain embedded features in the Convertible Preferred require bifurcation.

However, the fair value of such embedded features 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.

However, the fair value of such embedded features was immaterial upon issuance and as of March 31, 2024.

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.

It is entitled to receive any dividends or distributions paid in respect of the common stock on an as-converted basis and has no stated maturity and will remain outstanding indefinitely unless converted into common stock or repurchased by the Company.

Series A preferred stock will vote on an as-converted basis with the Class A and Class B common stock and will have certain rights to appoint additional directors, including up to a majority of the Company’s board of directors, under certain limited circumstances relating to an event of default or the Company’s failure to repay amounts due to the Convertible Preferred holders upon a redemption.

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

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.

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.

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

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

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

Xponential Fitness, Inc.

1 unchanged sentence

(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 –

Stockholder's Equity (Deficit)

Common stock –

In February 2023, the Company entered into an underwriting agreement with certain existing stockholders, affiliates of H&W Investco and our Chief Executive Officer (collectively the “Selling Stockholders”

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

At March 31, 2024 and December 31, 2023, the Company recognized the preferred maximum redemption value of $ 122,766 and $ 114,660 , 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 outstanding shares of Convertible Preferred at March 31, 2024 and December 31, 2023).

The recording of the preferred maximum redemption value was treated as deemed contribution (dividend), which was included in the calculation of earnings (loss) per share and resulted in a net decrease of $ 8,106 and $ 62,660 to additional paid-in-capital for the three months ended March 31, 2024 and 2023 , respectively.

Note 12 – Stockholder's Equity (Deficit)

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

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

3 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 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 –

Following the IPO, XPO Inc.

Additionally, during the three months ended March 31, 2024 and 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 78 and 1,451 shares of Class A common stock on a one-for-one basis, respectively.

Noncontrolling interests – Following the IPO, XPO Inc.

is the sole managing member of XPO LLC and, as a result, consolidates the financial results of XPO LLC.

2 unchanged sentences

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

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

During 2024 and 2023, the Company experienced a change in noncontrolling interests ownership due to the conversion of Class B to Class A shares and as such, has rebalanced the related noncontrolling interests balance.

1 unchanged sentence

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)

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 –

Equity Compensation

Profit interest units –

Under the pre-IPO plan, the Parent granted time-based and performance-based profit interest units to certain key employees of the Company and its subsidiaries.

The following table summarizes the ownership of XPO LLC as of March 31, 2024:

Ownership percentage

Noncontrolling interests

Note 13 – Equity Compensation

Profit interest units –

Under the pre-IPO plan, the Parent granted profit interest units to certain key employees of the Company and its subsidiaries.

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

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

The performance-based grants were awarded with vesting conditions based on performance targets connected to the value received from change of control of the Parent and were subject to certain forfeiture provisions prior to vesting.

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

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

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

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

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

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 $ 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.

At March 31, 2024, the Company had $ 1 of unrecognized compensation expense.

The unrecognized compensation expense is expected to be recognized over a weighted average period of approximately 0.36 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 restricted stock unit ("RSU") awards with performance conditions of meeting certain EBITDA targets through the year ending December 31, 2024.

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.

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 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 nine months ended September 30, 2023:

During the fourth quarter of 2023, the Company determined that it is no longer probable that the EBITDA targets will be achieved for the remaining RSU awards granted in November 2021.

Accordingly, the Company reversed all previously recognized stock-based compensation expense related to these awards.

Equity classified restricted stock units –

The following table summarizes activity for RSUs for the three months ended March 31, 2024:

Weighted Average

3 unchanged sentences

Forfeited, expired, or canceled

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.

Outstanding at March 31, 2024

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

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

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

1 unchanged sentence

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

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

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

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 (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.

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

During 2023, 36 performance-based RSUs were earned and issued as shares and seven performance-based RSUs were cancelled or forfeited.

During the three months ended March 31, 2024, 34 performance-based RSUs were earned and issued as shares and 11 performance-based RSUs were forfeited.

During 2024, the Company granted 42 performance-based RSUs at a weighted average grant-date closing price of $ 16.54 per share.

As of March 31, 2024, the achievement of remaining performance metrics is considered probable.

Stock-Based Compensation Expense –

Stock-based compensation expense recognized in the condensed consolidated statements of operations was as follows:

For the three months ended March 31,

Selling, general and administrative

Total stock-based compensation expense, before tax

Income tax benefit

Total stock-based compensation expense, after tax

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

At March 31, 2024, the Company had $ 22,075 of total unamortized compensation expense related to non-vested RSUs.

That cost is expected to be recognized over a weighted-average period of 2.13 years.

Note 14 –

Income Taxes and Tax Receivable Agreement

Included in the total stock-based compensation expense above, the Company recorded $ 689 of stock-based compensation for the three months ended March 31, 2024, related to a stock-based incentive bonus plan that the Company plans to settle by issuing fully vested RSUs to employees.

The $ 689 , which is recorded as accrued expenses in the condensed consolidated balance sheets, is for the eligible employees included in the Company’s 2024 annual bonus plan and is expected to be settled during the first quarter of 2025 if certain performance metrics for the Company are met in 2024.

Note 14 – Income Taxes and Tax Receivable Agreement

The Company is the managing member of XPO Holdings and, as a result, consolidates the financial results of XPO Holdings in the condensed consolidated financial statements.

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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 65.7 % economic interest in XPO Holdings.

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

statutory federal income tax rate of 21 % to income (loss) before income taxes due to XPO Holdings’ pass-through structure for U.S.

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

The effective tax rate for the three months ended March 31, 2024 and 2023, is 1.1 % and 1.0 %, respectively.

During the three months ended March 31, 2024 and 2023 , the Company recognized income tax benefit of $ 47 and $ 123 , respectively, on its share of pre-tax book income (loss), exclusive of the noncontrolling interest of 34.3 % , and 33.7 %, respectively.

Xponential Fitness, Inc.

1 unchanged sentence

(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.

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

pass-through structure for U.S.

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

As of March 31, 2024, management determined based on applicable accounting standards and the weight of all available evidence, it was not more likely than not (“MLTN”) that the Company will generate sufficient taxable income to realize its deferred tax assets including the difference in tax basis in excess of the financial reporting value for its investment in XPO Holdings.

Consequently, the Company has established a full valuation allowance against its deferred tax assets as of March 31, 2024.

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.

1 unchanged sentence

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

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

for years 2019 through 2023.

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

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

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

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

Tax Receivable Agreement –

In connection with the IPO, the Company entered into a Tax Receivable Agreement (“TRA”) pursuant to which the Company is generally required to pay to the other parties thereto in the aggregate 85% of the amount of cash savings, if any, in U.S.

allocable share of existing tax basis), (ii) increases in the Company's allocable share of existing tax basis and tax basis adjustments that resulted or may result from (x) the IPO Contribution and the Class A-5 Unit Redemption, (y) future taxable redemptions and exchanges of LLC Units by Continuing Pre-IPO LLC Members and (z) certain payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the “TRA Payments”).

Tax Receivable Agreement – In connection with the IPO, the Company entered into a Tax Receivable Agreement (“TRA”) pursuant to which the Company is generally required to pay to the other parties thereto in the aggregate 85% of the amount of cash savings, if any, in U.S.

federal, state and local income tax or franchise tax that the Company actually realizes as a result of (i) certain favorable tax attributes acquired from the Blocker Companies in the Mergers (including net operating losses and the Blocker Companies’ allocable share of existing tax basis), (ii) increases in the Company's allocable share of existing tax basis and tax basis adjustments that resulted or may result from (x) the IPO Contribution and the Class A-5 Unit Redemption, (y) future taxable redemptions and exchanges of LLC Units by Continuing Pre-IPO LLC Members and (z) certain payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the “TRA Payments”).

The Company expects to benefit from the remaining 15 % of any tax benefits that it may actually realize.

5 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 (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;

or (ii) the Company elects an early termination of the TRA, then the TRA will terminate and the Company's obligations, or the Company's successor’s obligations, under the TRA will accelerate and become due and payable, based on certain assumptions, including an assumption that the Company would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA and that any LLC Units that have not been exchanged are deemed exchanged for the fair market value of the Company's Class A common stock at the time of termination.

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

As of March 31, 2024 , 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 $ 2,892 and $ 1,712 of the current and non-current portions of the TRA, respectively, $ 77,171 of the TRA liability was not recorded as of March 31, 2024 .

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.

Xponential Fitness, Inc.

1 unchanged sentence

(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 $ 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 .

Note 15 –

Earnings (Loss) Per Share

Note 15 – Earnings (Loss) Per Share

Basic earnings (loss) per share has been calculated by dividing net income (loss) attributable to Class A common stockholders by the weighted average number of shares of Class A common stock outstanding for the period.

Diluted earnings (loss) per share of Class A common stock has been computed by dividing net income attributable to XPO Inc.

Diluted earnings (loss) per share of Class A common stock has been computed by dividing net income (loss) 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.

3 unchanged sentences

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.

The Company applies the two-class method to allocate undistributed earnings or losses of XPO Holdings, and in doing so, determines the portion of XPO Holdings’ income or loss that is attributable to the Company and accordingly reflected in income or loss available to common stockholders in the Company’s calculation of basic earnings (loss) per share.

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

2 unchanged sentences

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.

Weighted average shares of Class B common stock were 16,468 shares and 18,564 shares for the three months ended March 31, 2024 and 2023, respectively.

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

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(amounts in thousands, except per share amounts)

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

dividends on preferred shares

deemed contribution (dividend)

deemed contribution from redemption of convertible preferred stock

Net income (loss) attributable to XPO Inc.

net income (loss) attributable to non-controlling interests

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

The following table presents the calculation of basic and diluted loss per share of Class A common stock:

Three Months Ended March 31,

net loss attributable to noncontrolling interests

dividends on preferred shares

deemed (contribution) dividend

deemed dividend

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

Effect of dilutive securities:

Rumble Class A common stock

Restricted stock units

Convertible preferred stock

Conversion of Class B common stock to Class A common stock

Weighted average shares of Class A common stock outstanding - diluted

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

Net loss attributable to XPO Inc.

- basic and diluted

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

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

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

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

Restricted stock units

1 unchanged sentence

Convertible preferred stock

Accelerated Purchase Program - final settlement

Treasury share options

Rumble contingent shares

3 unchanged sentences

(amounts in thousands, except per share amounts)

Note 16 –

Contingencies and Litigation

Litigation –

In connection with the October 2021 acquisition of BFT, the Company agreed to indemnify the seller for certain claims and lawsuits against the seller that existed at the acquisition date.

The claims and lawsuits relate to alleged patent and trademark infringements.

Plaintiff alleges that plaintiff has suffered, and is likely to continue to suffer, loss and damage due to breach of the patents by the seller and is seeking damages or in the alternative an account of profits.

The seller has filed a cross-claim alleging that the defendant’s two Australian patents are, and always have been, invalid and that they should be revoked.

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

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

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

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

Note 16 – Contingencies and Litigation

Litigation – On November 22, 2023, former employees of a former franchisee of the Company filed a putative class action complaint in the United States District Court for the Southern District of Ohio, captioned Shannon McGill et al.

Xponential Fitness LLC, et al., Case No.

2:23-cv-03909, against the Company, as well as against a former franchisee of the Company and the franchisee’s legal entity, MD Pro Fitness, LLC.

The complaint alleges violations of the Fair Labor Standards Act, as well as employment laws from different states in connection with the franchisee’s owner-operated studio locations.

The Company was served with the complaint on December 4, 2023.

The Company intends to defend itself in this litigation.

The Company recorded an accrual for estimated loss contingencies associated with this matter in an amount equal to $ 900 , which is included in accrued expenses in the condensed consolidated balance sheets as of March 31, 2024, based on currently available information.

The accrual does not reflect the Company’s views of the merits of claims in this action.

On February 9, 2024, a federal securities class action lawsuit was filed against the Company and certain of the Company’s officers in the United States District Court for the Central District of California.

The complaint alleges, among other things, violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder, alleging misstatements and/or omissions in certain of the Company’s financial statements, press releases, and SEC filings made during the putative class period of July 26, 2021 through December 7, 2023.

The Company intends to defend itself against this action.

At this stage, the Company is unable to provide an evaluation of the likelihood of an unfavorable outcome or an estimate of the amount or range of potential loss, if any.

On March 10, 2024, a shareholder derivative lawsuit was filed in the United States District Court for the Central District of California by Gideon Akande, allegedly on behalf of Xponential Fitness, Inc., against certain current officers and directors as defendants, and Xponential Fitness, Inc., as nominal defendant, for alleged wrongdoing committed by the individual defendants from July 26, 2021 to December 7, 2023.

Plaintiff alleges claims for breach of fiduciary duty, unjust enrichment, gross mismanagement, abuse of control, waste of corporate assets, violations of Section 14(a) of the Exchange Act, violations of Sections 20(a) and 10(b) and Rule 10b-5 of the Exchange Act, and against Messrs.

Geisler and Meloun for contribution or indemnification under Sections 10(b) and 21D of the Exchange Act.

Plaintiffs seek, inter alia, damages with pre- and post-judgment interest, and an order directing Xponential and the individual defendants to improve Xponential’s corporate governance, and restitution by the individual defendants.

On April 3, 2024, the court entered an Order granting the parties’ Joint Stipulation to Stay Proceedings, which stayed the proceeding pending final resolution of the securities class action.

SEC investigation – On December 5, 2023, the Company was contacted by the Securities and Exchange Commission (the “SEC”), requesting that the Company provide it with certain information and documents.

The Company intends to cooperate fully with the SEC in this matter.

The Company has incurred, and may continue to incur, significant expenses related to legal and other professional services in connection with matters relating to or arising from the SEC investigation.

At this stage, the Company is unable to assess whether any material loss or adverse effect is reasonably possible as a result of the SEC’s investigation or estimate the range of any potential loss.

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

1 unchanged sentence

The Company believes that the ultimate determination of liability in connection with legal claims pending against it, if any, will not have a material adverse effect on its business, annual results of operations, liquidity or financial position;

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 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 –

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

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

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

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.

As a result of the agreement, in December 2022, the Company recorded a reduction to the contingent consideration liability of $ 1,220 with an offsetting increase in additional paid-in capital.

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

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

The Company accrued for estimated legal liabilities and has entered into certain settlement agreements to resolve legal disputes and recorded $ 831 and $ 443 which is included in accrued expenses in the condensed consolidated balance sheets, as of March 31, 2024 and December 31, 2023, respectively.

Contingent consideration from acquisitions – In connection with the Reorganization Transactions, the Parent merged with and into the Member.

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

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

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

During the three 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 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.

During the three months ended March 31, 2024 and 2023, the Company recorded an increase of $ 4,450 and $ 15,975 to contingent consideration, respectively, which was recorded as acquisition and transaction expense (income).

At March 31, 2024 and December 31, 2023, contingent consideration totals $ 12,329 and $ 7,879 , respectively, recorded as contingent consideration from acquisitions in the condensed consolidated balance sheets.

Xponential Fitness, Inc.

2 unchanged sentences

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

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

The aggregate amount of such payments is subject to a maximum of $ 14,000 AUD (approximately $ 10,342 USD based on the currency exchange rate as of the purchase date).

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

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.

The Company recorded additional contingent consideration of $ 41 and $ 49 during the three months ended March 31, 2024 and 2023, respectively, which was recorded as interest expense.

The Company recorded additional contingent consideration of $ ( 363 ) and $ ( 233 ) during the three months ended March 31, 2024 and 2023, respectively, which was recorded as acquisition and transaction expense (income).

In addition, the Company paid contingent consideration of $ 0 during the three months ended March 31, 2024 and 2023.

At March 31, 2024 and December 31, 2023, contingent consideration was $ 1,746 and $ 1,564 recorded as accrued expenses, respectively, and $ 283 and $ 787 recorded as contingent consideration from acquisitions, respectively, in the condensed consolidated balance sheets.

In exchange, the Company will receive certain fees and royalties, including a percentage of the revenue generated by the Master Franchisee under the MFA.

The MFA contains an option for the Company to repurchase the master franchise rights granted under the MFA in either 2023 or 2024 at a purchase price based on the Master Franchisee’s EBITDA.

The MFA contains an option for the Company to repurchase the master franchise rights granted under the MFA in 2024 at a purchase price based on the Master Franchisee’s EBITDA.

If the Company (or a designee of the Company) does not exercise the option pursuant to the terms of the MFA, then the Company might be required to pay a cancellation fee to the Master Franchisee which might be material to the Company.

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

Letter of credit –

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

The Company believes the likelihood of a cancellation payment being required is remote as of March 31, 2024, and, therefore no accrual has been recorded.

In connection with the January 2024 acquisition of Lindora, the Company agreed to pay contingent consideration to the seller subject to the achievement of certain milestones.

At the acquisition date, the Company determined that the fair value of the estimated contingent consideration liability was $ 446 .

The Company recorded additional contingent consideration of $ 17 during the three months ended March 31, 2024, which was recorded as interest expense.

At March 31, 2024, contingent consideration was $ 104 and $ 359 recorded as accrued expenses and contingent consideration from acquisitions, respectively, in the condensed consolidated balance sheets.

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

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

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

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 $ 3,102 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.

The Company has determined the fair value of these guarantees at inception was not material, and as of March 31, 2024 and December 31, 2023, $ 237 and $ 536 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 $ 1,644 and $ 2,755 as of March 31, 2024 and December 31, 2023, respectively, and would only require payment upon default by the primary obligor.

The Company has determined the fair value of these guarantees at inception is not material, and as of March 31, 2024 and December 31, 2023 , no accrual has been recorded for the Company’s potential obligation under its guaranty arrangement.

Xponential Fitness, Inc.

1 unchanged sentence

(amounts in thousands, except per share amounts)

Note 17 – Restructuring

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

however ultimate timing will depend on lease termination negotiations.

During the fourth quarter of 2023 the Company's restructuring plan was expanded due to the addition of Rumble company-owned transition studios to the restructuring plan and a refranchising plan that was terminated by the Company due to the refranchisor’s non-compliance with the franchise agreements and the subsequent closure of certain studios.

This refranchise termination resulted in the Company incurring losses for contract termination expenses, other expenses associated with exiting the studios, and loss contingencies related to the refranchisor’s unpaid payroll.

The Company expects to recognize additional restructuring charges throughout 2024 totaling approximately $ 16,000 to $ 20,000 for rent expense, including amortization of the right-of-use asset and accretion of the operating lease liability, lease termination gains or losses, and other variable lease costs related to company-owned transition studios and other restructuring charges.

The Company is negotiating lease terminations for operating leases for certain studios for which the Company has lease liabilities recorded and the expected cash payments and expenses to exit the lease may be greater than expected rent expense for that period, depending on the outcome of lease termination negotiations.

During the three months ended March 31, 2024 , the Company recognized total restructuring charges of $ 6,934 , primarily for contract termination and other associated costs, loss on lease termination and sale or disposal of assets, and other restructuring charges.

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)

Three months ended March 31,

Contract termination and other associated costs (1)

Loss on lease termination and sale or disposal of assets, net (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

Total restructuring charges, net

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

(2) Charges of $ 96 are recorded in cost of product revenues and charges of $ 4,100 are recorded in selling, general and administrative expenses on the Company’s condensed consolidated statements of operations.

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

Amount is net of, among other things, a $ 3,636 gain on lease termination related to a lease for which the Company had recognized accelerated right-of-use asset amortization.

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

March 31, 2024

Balance at December 31, 2023

Charges incurred

Balance at September 30, 2023

Note 18 –

Subsequent Events

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

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

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

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.

(the “Company,”

“XPO Inc.,”

“we”, “us,”

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

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

Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being a 66% ownership interest in XPO LLC through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”).

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.

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;

CycleBar, the largest indoor cycling brand in the United States;

StretchLab, a concept offering one-on-one and group stretching services;

Row House, the largest franchised indoor rowing brand in the United States;

AKT, a dance-based cardio workout combining toning, interval and circuit training;

YogaSix, the largest franchised yoga brand in the United States;

Pure Barre, a total body workout that uses the ballet barre to perform small isometric movements, and the largest barre brand in the United States;

Stride, a treadmill-based cardio and strength training concept;

Rumble, a boxing-inspired full-body workout;

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

As of 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.

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

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

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

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

Our growth depends upon our success in licensing new studios to new and existing franchisees.

We believe our success in attracting new franchisees and attracting existing franchisees to invest in additional studios has resulted from our diverse offering of attractive brands, corporate level support, training provided to franchisees and the opportunity to realize attractive returns on their invested capital.

We believe our significant investments in centralized systems and infrastructure help support new and existing franchisees.

To continue to attract qualified new franchisees, sell additional studios to existing franchisees and assist franchisees in opening their studios, we plan to continue to invest in our brands to enable them to deliver positive consumer experiences and in our integrated services at the brand level to support franchisees.

Timing of studio openings.

Our revenue growth depends to a significant extent on the number of studios that are open and operating.

Many factors affect whether a new studio will be opened on time, if at all, including the availability and cost of financing, selection and availability of suitable studio locations, delays in hiring personnel as well as any delays in equipment delivery or installation.

To the extent franchisees are unable to open new studios on the timeline we anticipate, or at all, we will not realize the revenue growth that we expect.

We believe our investments in centralized systems and infrastructure, including real estate site selection, studio build-out and design assistance help enable franchisees to open studios in a timely manner, and we plan to continue to invest in our systems to continue to provide assistance during the opening process.

Increasing same store sales.

Our long-term revenue prospects are driven in part by franchisees’

ability to increase same store sales (discussed below).

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

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

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

International and domestic expansion.

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

We have developed strong relationships and executed committed development contracts with master franchisees to propel our international growth.

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

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

Demand and competition for consumer income .

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

Our franchisees’

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

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

Key Performance Indicators

In addition to our financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), we regularly review the following key metrics to measure performance, identify trends, formulate financial projections, compensate our employees, and monitor our business.

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

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

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

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

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

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

Franchisee-owned studios:

Studios operated at beginning of period

New studio openings

Refranchised studios (1)

Defranchised studios (2)

Studios no longer operating

Studios operated at end of period

Company-owned transition studios:

Studios operated at beginning of period

New studio openings

Franchise acquisitions (2)

Refranchised studios (1)

Studios no longer operating

Studios operated at end of period

Total Studios:

Studios operated at beginning of period

New studio openings

Studios no longer operating

Studios operated at end of period

Studios contributing to AUV

Operating studios (end of period)

studios less than 6 months old

non-traditional studio locations

studios with no sales in the period

Studios contributing to same store sales

Operating studios (end of period)

studios less than 13 months old

non-traditional studio locations

studios without 13 months of consecutive sales

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

(2) Includes previously 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

Studios operated at beginning of period

New studio openings

Studios no longer operating

Studios operated at end of period

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

Three Months Ended September 30,

Nine Months Ended September 30,

Total Studios

Studios operated at beginning of period

New studio openings

Studios no longer operating

Studios operated at end of period

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

Three Months Ended September 30,

Nine Months Ended September 30,

($ in thousands)

System-wide sales

Number of new studio openings globally, gross

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

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

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

AUV (LTM as of period end)

Quarterly AUV (run rate)

Same store sales

Adjusted EBITDA (2)

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

(2) The definition of “adjusted EBITDA”

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

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

Three Months Ended September 30,

North America

International

North America

International

Total Operating Studios:

Studios operating at beginning of period

New studio openings, net

Studios operating at end of period

Franchise licenses sold:

Franchise licenses sold (total beginning of period)

New franchise license sales

Franchise licenses sold (total end of period)

Studios Obligated to Open Internationally under MFAs:

Gross studios obligated to open under MFAs

studios opened under MFAs

Remaining studios obligated to open under MFAs

Licenses sold by master franchisees, net (2)

Nine Months Ended September 30,

North America

International

North America

International

Total Operating Studios:

Studios operating at beginning of period

New studio openings, net

Studios operating at end of period

Franchise Licenses Sold:

Franchise licenses sold (total beginning of period)

New franchise license sales

Franchise licenses sold (total end of period)

Studios Obligated to Open Internationally under MFAs:

Gross studios obligated to open under MFAs

studios opened under MFAs

Remaining studios obligated to open under MFAs

Licenses sold by master franchisees, net (2)

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

(2) Reflects the number of licenses for studios which have already been sold, but not yet opened, by master franchisees under master franchise agreements, net of terminations.

System-Wide Sales

System-wide sales represent gross sales by all studios in North America.

System-wide sales includes sales by franchisees that are not revenue realized by us in accordance with GAAP.

While we do not record sales by franchisees as revenue, and such sales are not included in our consolidated financial statements, this operating metric relates to our revenue because we receive approximately 7% and 2% of the sales by franchisees as royalty revenue and marketing fund revenue, respectively.

We believe that this operating measure aids in understanding how we derive our royalty revenue and marketing fund revenue and is important in evaluating our performance.

System-wide sales growth is driven by new studio openings and increases in same store sales.

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

New Studio Openings

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

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

Opening new studios is an important part of our growth strategy.

New studios may not generate material revenue in the early period following an opening and their revenue may not follow historical patterns.

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

Studios No Longer Operating

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

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

Number of Studios Operating

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

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

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

Non-Traditional Studio Locations

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

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

Licenses Sold

The number of licenses sold in North America and globally reflect the cumulative number of licenses sold by us (or, outside of North America, by our master franchisees), since inception through the date indicated.

Licenses contractually obligated to open refer to licenses sold net of opened studios and terminations.

Licenses contractually obligated to be sold internationally reflect the number of licenses that master franchisees are contractually obligated to sell to franchisees to open internationally that have not yet opened as of the date indicated.

The number of licenses sold is a useful indicator of the number of studios that have opened and that are expected to open in the future, which management reviews in order to monitor and forecast our revenue streams.

Of the franchisees that opened their first studio in 2019, on average it took approximately 12.2 months from signing the franchise agreement to open.

The length of time increased during 2020 and 2021 due to COVID-related opening restrictions.

Of the franchisees that entered into the system in 2021 or later and opened their first studio in 2022, on average it took approximately 10.5 months from signing the franchise agreement to open a studio.

Management also reviews the number of licenses sold globally and the number of licenses contractually obligated to open internationally in order to help forecast studio growth and system-wide sales.

Average Unit Volume

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

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

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

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

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

Management reviews AUV to assess studio economics.

Same Store Sales

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

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

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

We measure same store sales based solely upon monthly sales as reported by franchisees.

This measure highlights the performance of existing studios, while excluding the impact of new studio openings.

Management reviews same store sales to assess the health of the franchised studios.

Results of Operations

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)

Revenue, net:

Franchise revenue

Equipment revenue

Merchandise revenue

Franchise marketing fund revenue

Other service revenue

Total revenue, net

Operating costs and expenses:

Costs of product revenue

Costs of franchise and service revenue

Selling, general and administrative expenses

Depreciation and amortization

Marketing fund expense

Acquisition and transaction expenses (income)

Total operating costs and expenses

Operating income (loss)

Other (income) expense:

Interest income

Interest expense

Other expense

Total other expense

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:

Franchise revenue

Equipment revenue

Merchandise revenue

Franchise marketing fund revenue

Other service revenue

Total revenue, net

Operating costs and expenses:

Costs of product revenue

Costs of franchise and service revenue

Selling, general and administrative expenses

Depreciation and amortization

Marketing fund expense

Acquisition and transaction expenses (income)

Total operating costs and expenses

Operating income (loss)

Other (income) expense:

Interest income

Interest expense

Other expense

Total other expense

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

($ in thousands)

Franchise revenue

Equipment revenue

Merchandise revenue

Franchise marketing fund revenue

Other service revenue

Total revenue, net

Total revenue.

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 $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 $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 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 $8.5 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 $6.9 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 $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 September 30,

Change from Prior Year

($ in thousands)

Costs of product revenue

Costs of franchise and service revenue

Selling, general and administrative expenses

Depreciation and amortization

Marketing fund expense

Acquisition and transaction expenses (income)

Total operating costs and expenses

Costs of product revenue.

Costs of product revenue was $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 $3.6 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 $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;

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

Marketing fund expense.

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 September 30,

Change from Prior Year

($ in thousands)

Interest income

Interest expense

Other expense

Total other expense, net

Interest income.

Interest income primarily consists of interest on notes receivable and was insignificant in each of the three-month periods ended September 30, 2023 and 2022.

Interest expense .

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.

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

Other expense.

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

Three Months Ended September 30,

Change from Prior Year

($ in thousands)

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

($ in thousands)

Franchise revenue

Equipment revenue

Merchandise revenue

Franchise marketing fund revenue

Other service revenue

Total revenue, net

Total revenue.

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 $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 $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 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 $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 $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 $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

Nine Months Ended September 30,

Change from Prior Year

($ in thousands)

Costs of product revenue

Costs of franchise and service revenue

Selling, general and administrative expenses

Depreciation and amortization

Marketing fund expense

Acquisition and transaction expenses (income)

Total operating costs and expenses

Costs of product revenue.

Costs of product revenue was $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 $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 $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;

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 $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 $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 $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

Nine Months Ended September 30,

Change from Prior Year

($ in thousands)

Interest income

Interest expense

Other expense

Total other expense, net

Interest income.

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

Interest expense .

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.

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

Other expense.

Other expense consists of 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 (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

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance.

We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes.

We believe that non-GAAP financial information, when taken collectively, is helpful to investors because it provides consistency and comparability with past financial performance.

In addition, our management uses non-GAAP measures to compare our performance relative to forecasts and to benchmark our performance externally against competitors.

However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.

In addition, other companies, including companies in our industry, may calculate and present similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measure as tools for comparison.

A reconciliation is provided below for the non-GAAP financial measures to the most directly comparable financial measures stated in accordance with GAAP.

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

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

Adjusted EBITDA

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

These items include equity-based compensation and related employer payroll taxes, acquisition and transaction expenses (including change in contingent consideration), litigation expenses (consisting of legal and related fees for specific proceedings that arise outside of the ordinary course of our business), employee retention credit (a tax credit for retaining employees throughout the COVID-19 pandemic), fees for financial transactions, such as secondary public offerings expenses for which we do not receive proceeds (including bonuses paid to executives related to completion of such transactions), 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 nine months ended September 30, 2023 and 2022:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

Net income (loss)

Interest expense, net

Depreciation and amortization

Equity-based compensation

Employer payroll taxes related to equity-based compensation

Acquisition and transaction expenses (income)

Litigation expenses

Employee retention credit

Financial transaction fees and related expenses

TRA remeasurement

Write down of goodwill and brand assets

Restructuring and related charges

Adjusted EBITDA

Liquidity and Capital Resources

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.

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

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

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

Our future operating performance and our ability to service, extend or refinance the credit facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

Credit Facility

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 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.

Under the Credit Agreement, we are required to make:

(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 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:

(i) 50% of Xponential Intermediate Holdings, LLC and its subsidiaries’

Excess Cash Flow (as defined in the Credit Agreement), subject to certain exceptions;

(ii) 100% of the net proceeds of certain asset sales and insurance/condemnation events, subject to reinvestment rights and certain other exceptions;

(iii) 100% of the net proceeds of certain extraordinary receipts, subject to reinvestment rights and certain other exceptions;

(iv) 100% of the net proceeds of any incurrence of debt, excluding certain permitted debt issuances;

and (v) up to $60 million of net proceeds in connection with an initial public offering of at least $200 million, subject to certain exceptions.

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 SOFR Term Loans.

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

(i) to maintain certain total leverage ratios, liquidity levels and EBITDA levels (in each case, as discussed further in the Credit Agreement);

(ii) to use the proceeds of borrowings only for certain specified purposes;

(iii) to refrain from entering into certain agreements outside of the ordinary course of business, including with respect to consolidation or mergers;

(iv) restricting further indebtedness or liens;

(v) restricting certain transactions with our affiliates;

(vi) restricting investments;

(vii) restricting prepayments of subordinated indebtedness;

(viii) restricting certain payments, including certain payments to our affiliates or equity holders and distributions to equity holders;

and (ix) restricting the issuance of equity.

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.

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

Immediately following the IPO, on July 23, 2021 we executed a first amendment to the Credit Agreement, which amended the amount of the prepayment premium applicable to the prepayment of the Term Loan, and paid off $115.0 million of the principal balance of the Term Loan.

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

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

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

) to the Credit Agreement.

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

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

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 "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.

On January 13, 2023, the repurchase was completed for an aggregate payment of $130.8 million.

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 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.

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)

Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities

Net cash provided by (used in) financing activities

Net increase in cash, cash equivalents and

restricted cash

Cash Flows from Operating Activities

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 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 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 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 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.

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

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

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 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.

Critical Accounting Policies and Estimates

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

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

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Balance at March 31, 2024

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