What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-12 · 156 added, 306 removed, 317 unchanged (59% of the section changed)

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

Such forward-looking statements reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements.

Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such.

Without limiting the foregoing, the words “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “should,” “would,” “could,” “will,” “likely” and the negative thereof and similar words and expressions are intended to identify forward-looking statements.

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, 2024.

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, 2024.

The following Management’s Discussion and Analysis gives effect to the correction of the Company’s condensed consolidated financial statements for the three months ended March 31, 2024, as more fully described in Note 2 of Notes to Condensed Consolidated Financial Statements.

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

(the “Company” or “XPO Inc.,” “we,” “us,” and “our”), is the largest global franchisor of boutique fitness brands.

(the “Company” or “XPO Inc.,” “we,” “us,” and “our”), is one of the leading global franchisors of boutique health and wellness brands.

Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being a 71.7% ownership interest in XPO LLC through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”).

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

We operate a diversified platform of eight brands spanning across verticals including Pilates, indoor cycling, barre, stretching, boxing, functional training, metabolic health 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 North America and internationally, with franchise, master franchise and international expansion agreements in 49 U.S.

states, Puerto Rico, and 27 additional countries as of September 30, 2024.

states, Puerto Rico and 30 additional countries as of March 31, 2025.

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

1 unchanged sentence

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

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

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

2 unchanged sentences

BFT, a functional training and strength-based program;

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

As of September 30, 2024, 2,722 studios were open in North America (consists of Canada, the United States and U.S.

and Lindora, a provider of medically guided wellness and metabolic health solutions.

As of March 31, 2025, 2,806 studios were open in North America (consists of Canada, the United States and U.S.

Territories) and franchisees were contractually committed to open 1,509 additional studios under existing franchise agreements.

In addition, as of September 30, 2024, we had 456 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,093 new studios, of which master franchisees have sold 245 licenses for studios not yet opened as of September 30, 2024.

During the nine months ended September 30, 2024 and 2023, we generated revenue outside the United States of $10.4 million and $10.3 million, respectively.

As of September 30, 2024 and December 31, 2023, we did not have material assets located outside of the United States.

In addition, as of March 31, 2025, we had 492 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,027 new studios, of which master franchisees have sold 229 licenses for studios not yet opened as of March 31, 2025.

During the three months ended March 31, 2025 and 2024, we generated revenue outside the United States of $2.6 million and $3.6 million, respectively.

As of March 31, 2025 and December 31, 2024, 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.

Appointment of New Chief Executive Officer and Director

On May 10, 2024, Mr.

Anthony Geisler, our former Chief Executive Officer and member of our board of directors, was removed by our board of directors from his duties and suspended indefinitely as Chief Executive Officer.

At that time, our board of directors appointed Ms.

Brenda Morris, a member of our board of directors since 2019, to serve as our interim Chief Executive Officer.

On May 13, 2024, Mr.

Geisler resigned as Chief Executive Officer, effective immediately.

On June 17, 2024, we announced that our board of directors had unanimously appointed Mr.

Mark King as Chief Executive Officer effective June 17, 2024.

King also joined our board of directors.

At that time, Ms.

Morris ceased serving as interim Chief Executive Officer but continues to serve as a member of our board of directors.

King is a highly innovative, growth-oriented leader with an established track record scaling iconic global consumer brands and franchisors.

Lindora Acquisition

On December 1, 2023, we 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 $8.5 million.

The transaction also includes up to $1.0 million of contingent consideration which is subject to the achievement of certain milestones.

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.

Lindora complements

our existing brands and will help us deliver on consumers’ increasing demand for a holistic approach to health.

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

Divestiture of Stride and Row House Brands

On February 13, 2024, we entered into an agreement with a buyer, pursuant to which we 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 one of our shareholders.

We received no consideration from the divestiture of the Stride brand and will assist the buyer with transition support including cash payments of approximately $0.3 million payable over the 12-month period following divestiture.

On May 20, 2024, we entered into an agreement with a buyer, pursuant to which we divested the Row House brand, including the intellectual property, franchise rights and franchise agreements for open studios, and retained certain liabilities, including liabilities related to known litigation, pre-litigation, and disputes as of the closing of the divestiture.

We received no consideration from the divestiture of the Row House brand.

These divestitures allow us to better focus and utilize our resources on our other brands.

Wind down of AKT brand franchise operations

During the three months ended September 30, 2024, we announced that we would wind down AKT franchise operations.

As part of the wind down, we began terminating franchise agreements with existing AKT studios and signed a licensing agreement with a former franchisee for no consideration received.

Recent Developments

Paused offering or selling franchises

On April 10, 2023, we received notice of an investigation from the Commissioner of California’s Department of Financial Protection and Innovation (“DFPI”) related to our compliance with California’s Franchise Investment Law.

In addition, on April 26, 2024, we received a request for information from the Office of the Attorney General of the State of Maryland related to our compliance with Maryland’s Franchise Registration and Disclosure Law.

As a result of both of those inquiries, the Company was unable to offer and sell franchises in California or Maryland, except in cases where an exemption permitted sales to persons who met specific criteria.

On November 4, 2024, without admission of wrongdoing, we entered into a Consent Order with the DFPI to resolve the matter.

The Company has also received inquiries from the Office of the Attorney General of the State of New York, the Washington Department of Financial Institutions, and the Minnesota Department of Commerce regarding the Company’s compliance with applicable franchise laws.

In March 2025, we issued 2025 Franchise Disclosure Documents (“FDDs”) for the BFT, Club Pilates, CycleBar, Pure Barre, Rumble, Stretch Lab, and Yoga Six franchise programs.

The franchisors can offer and sell franchises in most states using the 2025 FDDs and continue pursuit of registration of the FDDs from the few remaining states that still require registration.

Given the prior pause on franchise sales, while we completed the process of updating and renewing the FDDs, our inability to sell licenses for an extended period has slowed our growth and could result in a reduction in our anticipated royalty or franchise revenue, which in turn may materially and adversely affect our business, results of operations, cash flows and financial condition.

Restructuring Plan

1 unchanged sentence

The plan was approved and initiated in the third quarter of 2023 and is expected to continue throughout 2025;

however, ultimate timing will depend on lease termination negotiations.

however, the ultimate timing of the completion of our restructuring plan will depend on lease termination negotiations.

During the fourth quarter of 2023 our 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 us incurring losses for contract termination expenses, other expenses associated with exiting the studios, and loss contingencies related to the refranchisor’s unpaid payroll.

During the three and nine months ended September 30, 2024, we recognized total restructuring charges of $12.2 million, net of gains, and $21.4 million, net of gains, respectively, primarily for contract termination and other associated costs, loss on lease terminations and sale or disposal of assets, impairment of right-of-use assets, and other restructuring charges.

We expect to recognize additional restructuring charges throughout 2024 and 2025 totaling approximately $11.5 million to $15.5 million for rent expense, including amortization of the right-of-use assets 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.

During the three months ended March 31, 2025 and 2024, we recognized total restructuring charges of $2.4 million, net of gains, and $6.8 million, net of gains, respectively, primarily for contract termination and other associated costs, loss (gain) on lease terminations and sale or disposal of assets, impairment of right-of-use assets and other restructuring charges.

We expect to recognize additional restructuring charges throughout 2025 totaling between approximately $5.2 million to $9.0 million for rent expense, including amortization of the right-of-use assets 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.

We are considering subleases or negotiating lease terminations for operating leases for certain studios for which we have 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 negotiations.

Cash outflows related to these lease terminations are expected to be incurred throughout 2024 and 2025.

Once completed we estimate annualized savings of approximately $13.5 million to $15.5 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.

Cash outflows related to these lease terminations are expected to be incurred throughout 2025.

Once completed we estimate annualized savings of approximately $13.5 million to $15.5 million as a result of the restructuring plan.

However, we may not be able to fully realize the cost savings and benefits initially anticipated from the restructuring plan, as we may not be able to reach agreement with contractual counterparties or the charges may be greater than expected.

Any reduction in the amount of annualized savings we expect to achieve would negatively impact our business.

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

2 unchanged sentences

• 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.

Our growth depends upon our ability to successfully license new studios to new and existing franchisees.

We believe our success in attracting new franchisees and expanding our relationships with our existing franchisees 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 also 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.

21 unchanged sentences

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

All metrics in this “Key Performance Indicators” section are presented on an adjusted basis to reflect historical information of Lindora prior to the acquisition by the Company in January 2024 and on an adjusted basis to remove historical information for both Stride and Row House prior to their divestitures by the Company in February 2024 and May 2024, respectively.

All metrics in this “Key Performance Indicators” section are presented on an adjusted basis to reflect historical information of Lindora prior to the acquisition by the Company in January 2024 and on an adjusted basis to remove historical information or both Stride and Row House prior to their divestitures by the Company in February 2024 and May 2024, respectively.

Historical information has not been adjusted to reflect the wind down of AKT.

All references to these metrics in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” use this same basis of reporting, unless noted otherwise.

The following table sets forth our key performance indicators for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table sets forth our key performance indicators for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

($ in thousands)

7 unchanged sentences

Same store sales

The following table presents additional information related to our studio and license key performance indicators for the three and nine months ended September 30, 2024 and 2023:

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:

September 30, 2024

September 30, 2023

Gross studios obligated to open under MFAs

studios opened under MFAs

Remaining studios obligated to open under MFAs

Licenses sold by master franchisees, net (1)

Nine Months Ended September 30,

The following tables present additional information related to our studio and license key performance indicators for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

North America

11 unchanged sentences

Studios obligated to open internationally under MFAs:

September 30, 2024

September 30, 2023

March 31, 2025

March 31, 2024

Gross studios obligated to open under MFAs

20 unchanged sentences

Studios classified as no longer operating are deemed permanently closed.

Furthermore, studios no longer operating also includes de-branded studios (studios that exit our franchise system and continue to operate independently under non-Xponential branding).

Number of Studios Operating

2 unchanged sentences

The number of studios that have temporarily suspended operations is an immaterial percentage of our total studio base.

Please see the table in the “Same Store Sales” section, sub header “North America studios contributing to same store sales.” The line “studios without 13 months of consecutive sales as of the last month that had positive sales within the period being measured” is an indicator for the number of North America traditional location studios that are older than 13 months, and that have had a recent or current disruption in sales, but that are still included in the Number of Studios Operating count.

For the three and nine months ended September 30, 2024, this represented 0.7% and 0.6%, respectively, of our North America studio base.

Please see the table in the “Same Store Sales” section, subheader “North America studios contributing to same store sales.” The line “studios without 13 months of consecutive sales as of the last month that had positive sales within the period being measured” is an indicator for the number of North America traditional location studios that are older than 13 months, and that have had a recent or current disruption in sales, but that are still included in the Number of Studios Operating count.

For the three months ended March 31, 2025 and 2024, this represented 0.2% and 2.3%, respectively, of our North America studio base.

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.

The following tables contain information about changes in the number of our North America operating studios for the three and nine months ended September 30, 2024 and 2023, respectively:

Three Months Ended September 30,

Nine Months Ended September 30,

The following tables contain information about changes in the number of our North America operating studios for the three months ended March 31, 2025 and 2024, respectively:

Three Months Ended March 31,

North America franchisee-owned studios

2 unchanged sentences

Refranchised studios (1)

Defranchised studios (2)

Studios no longer operating

2 unchanged sentences

Studios operated at beginning of period

New studio openings

Franchise acquisitions (2)

Refranchised studios (1)

7 unchanged sentences

(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, 2024 and 2023:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table sets forth the total number of operating studios internationally for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

Total studios

3 unchanged sentences

Studios operated at end of period

The following table sets forth the total number of operating studios globally for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table sets forth the total number of operating studios globally for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

Total studios

7 unchanged sentences

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.

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 or to our master franchisees), since inception through the date indicated.

The number of licenses sold is not reduced by terminations.

The number of licenses sold does not generally include license renewals or licenses issued in connection with a change in

ownership of operating studios.

The number of licenses sold does not generally include license renewals or licenses issued in connection with a change in ownership of operating studios.

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

2 unchanged sentences

Management reviews the number of licenses sold and the number of licenses contractually obligated to open to help monitor and forecast studio growth, system-wide sales and revenue streams.

As of March 31, 2025, we estimate approximately one third of our global license obligations are over 12 months behind the applicable development schedule due to various circumstances and are currently inactive.

This delay in development has resulted in delays in studio openings and may also lead to increased terminations, which could have a negative long-term impact on our business and operating results.

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.

All traditional studio locations in North America are included in the AUV calculation, so long as they meet certain time since opening and sales criteria (as defined immediately below).

All traditional studio locations in North America are included in the AUV calculation, as long as they meet certain time since opening and sales criteria (as defined immediately below).

In particular, AUV (LTM as of period end) and Quarterly AUV (run rate) are calculated as follows:

5 unchanged sentences

Management reviews AUV to assess studio economics.

The following table reconciles our North America operating studios for the three and nine months ended September 30, 2024 and 2023, respectively, to the total studios contributing to both AUV (LTM as of period end) and Quarterly AUV (run rate):

Three Months Ended September 30,

Nine Months Ended September 30,

The following table reconciles our North America operating studios for the three months ended March 31, 2025 and 2024, respectively, to the total studios contributing to both AUV (LTM as of period end) and Quarterly AUV (run rate):

Three Months Ended March 31,

North America studios contributing to AUV (LTM as of period)

13 unchanged sentences

We define the same store sales base to include monthly sales for any traditional studio location in North America.

If the studio has generated at least 13 months of consecutive positive sales and opened at least 13 calendars months ago as of any month within the measurement period, the respective comparable months will be included.

If the studio has generated at least 13 months of consecutive positive sales and opened at least 13 calendar months ago as of any month within the measurement period, the respective comparable months will be included.

We measure same store sales based solely upon monthly sales as derived through the designated point-of-sale system.

1 unchanged sentence

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

Three Months Ended September 30,

Nine Months Ended September 30,

The following table reconciles our North America operating studios for the three months ended March 31, 2025 and 2024, respectively, to the total studios contributing to same store sales:

Three Months Ended March 31,

North America studios contributing to same store sales

5 unchanged sentences

Results of Operations

The following table presents our condensed consolidated results of operations for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents our condensed consolidated results of operations for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(in thousands)

10 unchanged sentences

Selling, general and administrative expenses

Impairment of goodwill and other assets

Impairment of goodwill and other noncurrent assets

Depreciation and amortization

2 unchanged sentences

Total operating costs and expenses

Operating income (loss)

Operating income

Other expense (income):

3 unchanged sentences

Total other expense

Income (loss) before income taxes

Net income (loss)

The following table presents our condensed consolidated results of operations for the three and nine months ended September 30, 2024 and 2023 as a percentage of revenue:

Three Months Ended September 30,

Nine Months Ended September 30,

Loss before income taxes

Income taxes (benefit)

The following table presents our condensed consolidated results of operations for the three months ended March 31, 2025 and 2024 as a percentage of revenue:

Three Months Ended March 31,

Revenue, net:

9 unchanged sentences

Selling, general and administrative expenses

Impairment of goodwill and other assets

Impairment of goodwill and other noncurrent assets

Depreciation and amortization

2 unchanged sentences

Total operating costs and expenses

Operating income (loss)

Operating income

Other expense (income):

3 unchanged sentences

Total other expense

Income (loss) before income taxes

Net income (loss)

Three Months Ended September 30, 2024 and 2023

The following is a discussion of our consolidated results of operations for the three months ended September 30, 2024 versus the three months ended September 30, 2023.

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 $80.5 million in the three months ended September 30, 2024, compared to $80.4 million in the three months ended September 30, 2023, an increase of $0.1 million, or 0%.

The increase in total revenue was primarily due to an increase in franchise revenue and equipment revenue, partially offset by a decrease in other service revenue.

Franchise revenue.

Franchise revenue was $44.5 million in the three months ended September 30, 2024, compared to $36.4 million in the three months ended September 30, 2023, an increase of $8.0 million, or 22%.

Franchise revenue consisted of franchise royalty fees of $29.7 million, franchise territory fees of $7.5 million, technology fees of $4.3 million and training fees of $3.0 million in the three months ended September 30, 2024, compared to 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.

in franchise royalty fees and technology fees was primarily due to an increase in same store sales and an increase in number of operating studios globally since September 30, 2023 (including studios related to the Lindora acquisition in the first quarter of 2024), which also contributed to the increase in franchise territory fees.

The increase in franchise territory fees is also attributed to an increase in franchise agreement terminations year-over-year.

Equipment revenue.

Equipment revenue was $14.7 million in the three months ended September 30, 2024, compared to $12.6 million in the three months ended September 30, 2023, an increase of $2.1 million, or 17%.

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

Global equipment installations in the three months ended September 30, 2024, increased compared to the prior year period.

The average revenue per installation increased in the three months ended September 30, 2024, when compared to the three months ended September 30, 2023.

The increase in average revenue was due to brand mix and a higher proportion of equipment installed with brands with higher equipment prices.

Merchandise revenue.

Merchandise revenue was $6.5 million in the three months ended September 30, 2024, compared to $8.5 million in the three months ended September 30, 2023, a decrease of $1.9 million, or 23%.

The decrease was due primarily to a decrease in demand from studios, current year sales promotions and a lower number of company-owned transition studios in the current year period.

Franchise marketing fund revenue.

Franchise marketing fund revenue was $8.6 million in the three months ended September 30, 2024, compared to $6.9 million in the three months ended September 30, 2023, an increase of $1.6 million, or 23%.

The increase was primarily due to an increase in same store sales and an increase in number of operating studios in North America since September 30, 2023 (including studios related to the Lindora acquisition in the first quarter of 2024).

Other service revenue.

Other service revenue was $6.2 million in the three months ended September 30, 2024, compared to $16.0 million in the three months ended September 30, 2023, a decrease of $9.8 million, or 61%.

The decrease was primarily due to a $8.2 million decrease in package and memberships revenue due to a lower average number of company-owned transition studios.

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

Impairment of goodwill and other assets

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 $17.1 million in the three months ended September 30, 2024, compared to $12.7 million in the three months ended September 30, 2023, an increase of $4.4 million, or 34%, compared to an increase in related revenues of 1%.

Costs of product revenue as a percentage of related revenue increased to 80% in the three months ended September 30, 2024, from 60% in the comparable prior year period.

The increase was due to current year sales promotions that decreased gross margin and to an increase in write downs of slow-moving inventory.

Costs of franchise and service revenue.

Costs of franchise and service revenue was $4.9 million in the three months ended September 30, 2024, compared to $3.6 million in the three months ended September 30, 2023, an increase of $1.3 million, or 37%.

The increase was primarily due to a $1.3 million increase in franchise sales commissions, consistent with the related franchise territory revenue increase.

Selling, general and administrative expenses.

Selling, general and administrative expenses were $46.2 million in the three months ended September 30, 2024, compared to $43.9 million in the three months ended September 30, 2023, an increase of $2.3 million, or 5%.

The increase was primarily attributable to an increase in legal expenses of $9.8 million related to various legal matters;

an increase in restructuring and related charges of $2.8 million in the current year period;

and an increase in equity-based compensation expense of $1.4 million primarily due to an increase in the number of equity-classified restricted stock units (“RSUs”) outstanding during the current year period, partially offset by a decrease in salaries and wages of $4.9 million related to a lower average number of company-owned transition studios;

a decrease in occupancy expenses of $4.9 million primarily related to a decrease in the number of company-owned

transition studios;

a decrease in marketing and advertising expenses of $1.4 million;

and a net decrease in other variable expenses of $0.5 million.

Impairment of goodwill and other assets.

Impairment of goodwill and other assets was $4.5 million in the three months ended September 30, 2024, compared to $4.7 million in the three months ended September 30, 2023, a decrease of $0.2 million, or 4%.

The decrease was primarily due to a write down of right-of-use assets and intangible assets of $4.5 million related to studio exits in conjunction with our restructuring plan and wind down of AKT franchise operations in the current year period compared to $4.7 million in the prior year primarily related to goodwill and intangible asset write downs related to Stride and Row House.

Depreciation and amortization.

Depreciation and amortization expense was $4.2 million in the three months ended September 30, 2024, compared to $4.2 million in the three months ended September 30, 2023.

Marketing fund expense.

Marketing fund expense was $6.4 million in the three months ended September 30, 2024, compared to $5.8 million in the three months ended September 30, 2023, an increase of $0.6 million, or 10% and is consistent with the increase in franchise marketing fund revenue.

Acquisition and transaction expenses (income).

Acquisition and transaction expense was $3.7 million in the three months ended September 30, 2024, compared to income of $1.9 million in the three months ended September 30, 2023, an increase to expense of $5.6 million, or 291%.

This expense primarily represented the non-cash change in contingent consideration related to 2021 business acquisitions and to the Lindora acquisition.

Other Expense (Income), 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, which was $0.5 million in the three months ended September 30, 2024, compared to $0.0 million in the three months ended September 30, 2023.

Interest expense .

Interest expense was $11.8 million in the three months ended September 30, 2024, compared to $10.6 million in the three months ended September 30, 2023, an increase of $1.2 million, or 11%.

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 in the current year period.

Other expense.

Other expense consists of TRA expense, which was $0.1 million in the three months ended September 30, 2024, compared to $1.8 million in the three months ended September 30, 2023.

Three Months Ended September 30,

Change from Prior Year

($ in thousands)

Income taxes .

Income taxes were (0.7)% of pre-tax book income (loss) in the three months ended September 30, 2024, compared to (4.0)% in the three months ended September 30, 2023.

Nine Months Ended September 30, 2024 and 2023

The following is a discussion of our consolidated results of operations for the nine months ended September 30, 2024 versus the nine months ended September 30, 2023.

Nine Months Ended September 30,

Loss before income taxes

Income taxes (benefit)

Comparison of the three months ended March 31, 2025 and 2024

The following is a discussion of our consolidated results of operations for the three months ended March 31, 2025 versus the three months ended March 31, 2024.

Three Months Ended March 31,

Change from Prior Year

7 unchanged sentences

Total revenue.

Total revenue was $236.5 million in the nine months ended September 30, 2024, compared to $228.5 million in the nine months ended September 30, 2023, an increase of $8.1 million, or 4%.

The increase in total revenue was primarily due to an increase in the number of open studios, partially offset by a decrease in other service revenue.

Total revenue was $76.9 million in the three months ended March 31, 2025, compared to $79.7 million in the three months ended March 31, 2024, a decrease of $2.8 million, or 4%.

The decrease in total revenue was primarily due to a decrease in equipment revenue due to a decrease in equipment installations and a decrease in merchandise revenue, partially offset by an increase in franchise revenue.

Franchise revenue.

Franchise revenue was $129.2 million in the nine months ended September 30, 2024, compared to $104.5 million in the nine months ended September 30, 2023, an increase of $24.7 million, or 24%.

Franchise revenue consisted of franchise royalty fees of $85.6 million, franchise territory fees of $22.2 million, technology fees of $12.6 million and training fees of $8.8 million in the nine months ended September 30, 2024, compared to 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.

The increase in franchise royalty fees, technology fees and training fees was primarily due to an increase in same store sales and an increase in number of operating studios globally since September 30, 2023 (including studios related to the Lindora acquisition in the first quarter of 2024), which also contributed to the increase in franchise territory fees.

The increase in franchise territory fees is also attributed to an increase in franchise agreement terminations year-over-year.

Franchise revenue was $43.9 million in the three months ended March 31, 2025, compared to $41.8 million in the three months ended March 31, 2024, an increase of $2.1 million, or 5%.

Franchise revenue consisted of franchise royalty fees of $32.5 million, franchise territory fees of $3.9 million, technology fees of $4.4 million and training fees of $3.1 million in the three months ended March 31, 2025, compared to franchise royalty fees of $27.5 million, franchise territory fees of $7.3 million, technology fees of $4.2 million and training fees of $2.8 million in the three months ended March 31, 2024.

The increase in franchise royalty fees, technology fees and training fees was primarily due to an increase in same store sales and increase in number of operating studios globally since March 31, 2024.

The decrease in franchise territory fees is primarily attributed to a decrease of $2.4 million, or 75%, in revenue recognized as a result of franchise agreement terminations year-over-year to $0.8 million in the three months ended March 31, 2025, compared to $3.2 million in the prior year period.

Equipment revenue.

Equipment revenue was $41.5 million in the nine months ended September 30, 2024, compared to $40.1 million in the nine months ended September 30, 2023, an increase of $1.4 million, or 4%.

Equipment revenue was $11.1 million in the three months ended March 31, 2025, compared to $13.9 million in the three months ended March 31, 2024, a decrease of $2.8 million, or 20%.

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

Global equipment installations in the nine months ended September 30, 2024, decreased compared to the prior year period, primarily due to the decrease in studio openings compared to the prior year period.

The average revenue per installation increased in the nine months ended September 30, 2024, when compared to the nine months ended September 30, 2023.

The increase in average revenue is due to brand mix and a higher proportion of equipment installed with brands with higher equipment prices.

The decrease in equipment revenue was primarily driven by a decrease in global equipment installations in the three months ended March 31, 2025, compared to the prior year period.

Merchandise revenue.

Merchandise revenue was $20.6 million in the nine months ended September 30, 2024, compared to $24.0 million in the nine months ended September 30, 2023, a decrease of $3.4 million, or 14%.

The decrease was due primarily to a decrease in demand from studios, current year sales promotions and a lower number of company-owned transition studios in the current year period.

Merchandise revenue was $6.3 million in the three months ended March 31, 2025, compared to $8.3 million in the three months ended March 31, 2024, a decrease of $2.1 million, or 25%.

The decrease was primarily due to lower demand from studios and a decrease in vendor rebates compared to the prior period.

Franchise marketing fund revenue.

Franchise marketing fund revenue was $24.8 million in the nine months ended September 30, 2024, compared to $19.8 million in the nine months ended September 30, 2023, an increase of $5.0 million, or 25%.

Franchise marketing fund revenue was $9.3 million in the three months ended March 31, 2025, compared to $7.8 million in the three months ended March 31, 2024, an increase of $1.4 million, or 18%.

The increase was primarily due to an increase in same store sales and an increase in number of operating studios in North America since March 31, 2024 .

Other service revenue.

Other service revenue was $20.4 million in the nine months ended September 30, 2024, compared to $40.1 million in the nine months ended September 30, 2023, a decrease of $19.6 million, or 49%.

Other service revenue was $6.4 million in the three months ended March 31, 2025, compared to $7.9 million in the three months ended March 31, 2024, a decrease of $1.5 million, or 19%.

The decrease was primarily due to a $1.3 million decrease in package and memberships revenue due to a lower average number of company-owned transition studios.

Operating Costs and Expenses

Nine Months Ended September 30,

Three Months Ended March 31,

Change from Prior Year

3 unchanged sentences

Selling, general and administrative expenses

Impairment of goodwill and other assets

Impairment of goodwill and other noncurrent assets

Depreciation and amortization

3 unchanged sentences

Costs of product revenue.

Costs of product revenue was $44.3 million in the nine months ended September 30, 2024, compared to $41.0 million in the nine months ended September 30, 2023, an increase of $3.4 million, or 8%, compared to a decrease in related revenues of 3%.

Costs of product revenue as a percentage of related revenue increased to 71% in the nine months ended September 30, 2024, from 64% in the comparable prior year period.

The increase was due to current year sales promotions, that decreased gross margin and an increase in write downs of slow-moving inventory.

Costs of product revenue was $12.0 million in the three months ended March 31, 2025, compared to $14.6 million in the three months ended March 31, 2024, a decrease of $2.6 million, or 18%, compared to a decrease in related revenues of 22%.

Costs of product revenue as a percentage of related revenue increased to 69% in the three months ended March 31, 2025, from 65% in the comparable prior year period.

The increase was partly due to an increase in write downs of slow-moving inventory in the current year period.

Additionally, in the prior year period we had a higher percentage of sales relating to non-branded merchandise for which we earn a commission with no corresponding cost of revenue compared to the current year period.

Costs of franchise and service revenue.

Costs of franchise and service revenue was $15.8 million in the nine months ended September 30, 2024, compared to $11.3 million in the nine months ended September 30, 2023, an increase of $4.5 million, or 40%.

The increase was primarily due to a $3.6 million increase in franchise sales commissions, consistent with the related franchise territory revenue increase.

Costs of franchise and service revenue was $4.1 million in the three months ended March 31, 2025, compared to $5.0 million in the three months ended March 31, 2024, a decrease of $1.0 million, or 19%.

The decrease was primarily due to a $1.5 million decrease in franchise sales commissions, consistent with the related franchise territory revenue decrease.

The decrease in cost of franchise and service revenue is also attributed to a decrease of $1.0 million, or 71%, in costs recognized as a result of franchise agreement terminations year-over-year to $0.4 million in the three months ended March 31, 2025, compared to $1.4 million in the prior year period.

Selling, general and administrative expenses.

Selling, general and administrative expenses were $120.3 million in the nine months ended September 30, 2024, compared to $116.0 million in the nine months ended September 30, 2023, an increase of $4.3 million, or 4%.

The increase was primarily attributable to an increase in restructuring and related charges of $13.1 million in the current year period;

an increase in legal expenses of $9.8 million related to various legal matters;

an increase in expense due to $3.5 million mutual termination agreement income related to the acquisition of 14 Rumble studios in the prior year period and a loss on brand divestitures and wind down of $1.8 million in the current year period;

and a net increase in other variable expenses of $0.6 million, partially offset by a decrease in salaries and wages of $8.9 million related to a lower average number of company-owned transition studios;

Selling, general and administrative expenses were $45.5 million in the three months ended March 31, 2025, compared to $36.6 million in the three months ended March 31, 2024, an increase of $8.9 million, or 24%.

The increase was primarily attributable to an increase in legal expenses of $15.6 million (net of insurance reimbursements) related to various legal matters including government investigations;

an increase in salaries and wages of $0.3 million;

and a net increase in other variable expenses of $2.3 million, partially offset by lower restructuring and related charges of $7.2 million in the current year period;

a decrease in occupancy expenses of $0.6 million primarily due to a decrease in the number of company-owned transition studios;

a decrease in equity-based compensation expense of $2.5 million primarily due to a decrease in the current year common stock price, resulting in lower expense to be recognized on current-year RSU grants;

and a decrease in marketing and advertising expenses of $2.5 million.

Impairment of goodwill and other assets.

Impairment of goodwill and other assets was $16.6 million in the nine months ended September 30, 2024, compared to $11.9 million in the nine months ended September 30, 2023, an increase of $4.7 million, or 39%.

The increase was primarily due to a write down of franchise agreements intangible asset and goodwill of $12.1 million related to the CycleBar reporting unit and a write down of right-of-use assets of $4.3 million in the current year compared to a $7.2 million intangible asset write down related to the acquisition of 14 Rumble studios and a $4.6 million write down of goodwill and intangible asset related to Stride and Row House in the prior year period.

a decrease of $0.7 million in equity-based compensation expense due to an increase in forfeitures over the prior year period, and a decrease in marketing and advertising expenses of $0.8 million.

Impairment of goodwill and other noncurrent assets.

Impairment of goodwill and other noncurrent assets was $1.9 million in the three months ended March 31, 2025, compared to $0.0 million in the three months ended March 31, 2024, an increase of $1.9 million.

The increase was due to impairment of right-of use assets.

Depreciation and amortization.

Depreciation and amortization expense was $13.2 million in the nine months ended September 30, 2024, compared to $12.7 million in the nine months ended September 30, 2023, an increase of $0.5 million, or 4%.

The increase was due primarily to an increase in fixed assets to support our online offerings.

Depreciation and amortization expense was $3.0 million in the three months ended March 31, 2025, compared to $4.4 million in the three months ended March 31, 2024, a decrease of $1.5 million, or 33%.

The decrease was primarily due to a decrease in fixed assets related to impairment of software assets and a decrease in intangible assets due to impairments during the year ended December 31, 2024.

Marketing fund expense.

Marketing fund expense was $20.8 million in the nine months ended September 30, 2024, compared to $16.3 million in the nine months ended September 30, 2023, an increase of $4.5 million, or 28% and is consistent with the increase in franchise marketing fund revenue.

Marketing fund expense was $9.4 million in the three months ended March 31, 2025, compared to $6.5 million in the three months ended March 31, 2024, an increase of $2.8 million, or 44%.

Marketing fund expenses are recorded as incurred, which may not occur in the same period as the recognition of franchise marketing fund revenue.

For the three months ended March 31, 2025, marketing fund expense was $0.1 million higher than marketing fund revenue as the Company’s spending increased after a slowdown in the second half of 2024.

Acquisition and transaction expense (income).

Acquisition and transaction expense was $7.0 million in the nine months ended September 30, 2024, compared to income of $17.4 million in the nine months ended September 30, 2023, an increase to expense of $24.4 million, or 140%.

This expense primarily represents the non-cash change in contingent consideration related to 2021 and 2024 business acquisitions and $0.5 million of acquisition related expenses in the current year period.

Other Expense (Income), net

Nine Months Ended September 30,

Acquisition and transaction income was $8.6 million in the three months ended March 31, 2025, compared to expense of $4.5 million in the three months ended March 31, 2024, a decrease to expense of $13.2 million, or 291%.

These charges primarily represent the non-cash change in contingent consideration related to 2021 and 2024 business acquisitions.

Other (Income) Expense, net

Three Months Ended March 31,

Change from Prior Year

5 unchanged sentences

Interest income.

Interest income primarily consists of interest on notes receivable, which was $1.2 million in the nine months ended September 30, 2024, compared to $1.2 million in the nine months ended September 30, 2023.

Interest income primarily consists of interest on notes receivable and interest income received from various interest-bearing bank accounts, which was $0.6 million in the three months ended March 31, 2025, compared to $0.4 million in the three months ended March 31, 2024.

Interest expense .

Interest expense was $34.6 million in the nine months ended September 30, 2024, compared to $27.2 million in the nine months ended September 30, 2023, an increase of $7.4 million, or 27%.

Interest expense was $11.4 million in the three months ended March 31, 2025 compared to $11.5 million in the three months ended March 31, 2024, a decrease of $0.2 million, or 1%.

Interest expense consists of interest on long-term debt, accretion of earn-out liabilities and amortization and write off 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.

The decrease was primarily due to a decrease in interest rates in the current year and a $0.2 million write off of debt issuance costs and debt discount related to credit agreement amendments in the comparable prior year period, partly offset by higher average debt balances in the current year period.

Other expense.

Other expense consists of TRA expense, which was $0.9 million in the nine months ended September 30, 2024, compared to $3.1 million in the nine months ended September 30, 2023.

Nine Months Ended September 30,

Other expense consists of TRA expense, which was $1.1 million in the three months ended March 31, 2025, compared to $0.6 million in the three months ended March 31, 2024.

Three Months Ended March 31,

Change from Prior Year

($ in thousands)

Income taxes .

Income taxes were (0.6)% of pre-tax book income (loss) in the nine months ended September 30, 2024, compared to 2.8% in the nine months ended September 30, 2023.

Income taxes (benefit)

Income taxes (benefit) .

Income taxes (benefit) was (22.3%) of our share of pre-tax book loss in the three months ended March 31, 2025, compared to 1.2% in the three months ended March 31, 2024.

Non-GAAP Financial Measures

10 unchanged sentences

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

that arise outside of the ordinary course of our business), fees for financial transactions, such as secondary public offering expenses for which we do not receive proceeds (including bonuses paid to executives related to completion of such transactions) and other contemplated corporate transactions, expense related to the remeasurement of our TRA obligation, expense related to loss on impairment or write down of goodwill and other assets, loss on brand divestitures and wind down, executive transition costs (consisting of costs associated with the transition of our former CEO, such as professional services, legal fees, executive recruiting costs and other related costs), one-time costs associated with rebranding one studio to the KINRGY brand, and restructuring and related charges incurred in connection with our restructuring plan that we do not believe reflect our underlying business performance and affect comparability.

These items include equity-based compensation and related employer payroll taxes, acquisition and transaction expenses (income) (including change in contingent consideration and transaction bonuses), litigation expenses (consisting of legal and related fees for specific proceedings that arise outside of the ordinary course of our business), fees for financial transactions, such as secondary public offering expenses for which we do not receive proceeds (including bonuses paid to executives related to completion of such transactions) and other contemplated corporate transactions, expense related to the remeasurement of our TRA obligation, expense related to loss on impairment or write down of goodwill and other assets, loss (gain) and ongoing expenses related to brand divestitures and wind down (including ongoing expenses directly related to the divested or wound down brands for arrangements that existed prior to divestiture or wind down), transformation initiative costs (primarily consisting of third-party professional consulting fees related to modifications of our business strategy and cost saving initiatives), and 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 (loss), the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(in thousands)

Net income (loss)

Interest expense, net

Income taxes (benefit)

Depreciation and amortization

5 unchanged sentences

TRA remeasurement

Impairment of goodwill and other assets

Loss on brand divestitures and wind down (excluding impairments)

Executive transition costs

Non-recurring rebranding expenses

Impairment of goodwill and other noncurrent assets

Loss (gain) and ongoing expenses due to brand divestitures and wind down (excluding impairments)

Transformation initiative costs

Restructuring and related charges (excluding impairments)

1 unchanged sentence

Liquidity and Capital Resources

As of September 30, 2024, we had $24.8 million of cash and cash equivalents, excluding $13.0 million of restricted cash consisting of marketing fund restricted cash and a guarantee of standby letter of credit.

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.

As of March 31, 2025, we had $26.6 million of cash and cash equivalents, excluding $16.0 million of restricted cash consisting of marketing fund restricted cash and a standby letter of credit guarantee.

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

Additionally, we require cash to fund the investments in our data warehouse project and other investments to become a data driven company.

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, 2024.

2 unchanged sentences

Credit Facility

facility (the “Term Loan Facility”, and the loans thereunder, each a “Term Loan” and together, the “Term Loans”).

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 consisted 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 for $200 million.

10 unchanged sentences

and (ix) restricting the issuance of equity.

As of September 30, 2024, we were in compliance with these covenants.

On February 13, 2024, we 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 $38.7 million, with an original issue discount of $4.1 million, (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 $38.7 million 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 $1.3 million, (ii) included a prepayment premium on the Sixth Amendment Incremental Term Loans and (iii) extended the maturity date for all outstanding term loans under the Credit Agreement to March 15, 2026.

On August 23, 2024, we entered into a seventh amendment (the “Seventh Amendment”) to the Credit Agreement.

The Seventh Amendment provides for, among other things, additional term loans in an aggregate principal amount of $25.0 million, with an original issue discount of $0.8 million, (the “Seventh Amendment Incremental Term Loans”).

The proceeds of which will be used for general corporate purposes, including working capital, lease liabilities, and legal expenses arising from previously disclosed regulatory matters.

The Seventh Amendment, among other things, also increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the Seventh Amendment Incremental Term Loans) commencing on September 30, 2024 to $1.3 million and included a prepayment premium on the Seventh Amendment Incremental Term Loans.

The total principal amount outstanding on the Term Loans was $353.8 million at September 30, 2024.

Additionally, on March 10, 2025 we obtained a waiver related to EBITDA levels as the Credit Agreement did not contain active exceptions for non-recurring legal expenses.

The waiver permits the exclusion of certain non-recurring legal expenses from the calculation of EBITDA through March 31, 2026.

As of March 31, 2025, we were in compliance with these covenants.

On March 14, 2025, we entered into an eighth amendment (the “Eighth Amendment”) to the Credit Agreement.

The Eighth Amendment extends the final maturity date under the Credit Agreement to August 1, 2027 (the “Final Maturity Date”) and provides for, among other things, additional term loans in an aggregate principal amount of $10.0 million (the “Eighth Amendment Incremental Term Loans”), an upfront fee equal to 3% of the (a) aggregate principal amount of term loans outstanding as of the amendment date and (b) the Eighth Amendment Incremental Term Loans funded on the funding date, which will be capitalized and added to the outstanding loan principal, and an exit fee of approximately $7.2 million payable upon the earlier of the Final Maturity Date or the date all loans under the Credit Agreement have been repaid or prepaid.

The proceeds of the Eighth Amendment will be used for general corporate purposes.

The Eighth Amendment also increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the Eighth Amendment Incremental Term Loans) commencing on March 31, 2025 to $1.4 million.

The total principal amount outstanding on the Term Loans, including exit fee, was $379.1 million at March 31, 2025.

See Note 7 of Notes to Condensed Consolidated Financial Statements for additional information about our debt.

Material Cash Requirements

At September 30, 2024, 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, 2023.

The following table presents summary cash flow information for the nine months ended September 30, 2024 and 2023:

Nine Months Ended September 30,

At March 31, 2025, 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, 2024.

The following table presents summary cash flow information for the three months ended March 31, 2025 and 2024:

Three Months Ended March 31,

(in thousands)

4 unchanged sentences

Cash Flows from Operating Activities

In the nine months ended September 30, 2024, cash provided by operating activities was $10.9 million, compared to $38.2 million in the nine months ended September 30, 2023, a decrease in cash provided of $27.3 million.

Of the decrease, $26.4 million was due to lower net income after adjustments to reconcile net income (loss) to net cash provided by operating activities and $0.9 million in unfavorable changes in working capital related to deferred revenue, accounts payable, and other liabilities, partially offset by favorable changes in working capital related to prepaid expenses and other current assets, deferred costs, inventories, accounts receivable, accrued

expenses, and operating lease liabilities in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

In the three months ended March 31, 2025, cash provided by operating activities was $5.8 million, compared to $2.7 million in the three months ended March 31, 2024, an increase in cash provided of $3.1 million.

Of the increase, $9.3 million was due to lower net income after adjustments to reconcile net loss to net cash provided by operating activities and $12.5 million in favorable changes in working capital related to accrued expenses, other current liabilities, deferred revenue and other assets, partially offset by unfavorable changes in working capital related to accounts receivable, prepaid expenses and other current assets and accounts payable in the three months ended March 31, 2025, compared to the three months ended March 31, 2024.

Cash Flows from Investing Activities

In the nine months ended September 30, 2024 and 2023, cash used in investing activities was $13.9 million and $8.6 million, respectively.

The change year over year in cash used of $5.3 million was primarily attributable to cash used of $8.5 million for our acquisition of Lindora;

partially offset by decreases in cash used to purchase property and equipment and intangible assets of $1.3 million and $1.0 million, respectively.

In the three months ended March 31, 2025 and 2024, cash used in investing activities was $1.0 million and $9.2 million, respectively.

The change year over year of $8.2 million was primarily attributable to cash used of $8.5 million for acquisition of Lindora in the prior year and the decrease in cash used to purchase property and equipment of $0.4 million in the current year.

Cash Flows from Financing Activities

In the nine months ended September 30, 2024, cash provided by financing activities was $3.7 million, compared to cash used in financing activities of $15.1 million in the nine months ended September 30, 2023, a decrease in cash used of $18.8 million.

The decrease in cash used was primarily attributable to prior year payments of $130.8 million related to repurchase of convertible preferred stock, $50.4 million for share repurchases, $8.1 million payment for taxes on net share settlements, and a $4.4 million loan to a shareholder compared to no similar payments in the current year.

The decrease in cash used was partially offset by net borrowings on long-term debt of $186.1 million and a payment received from a shareholder of $8.1 million in the prior year compared to net borrowings on long-term debt of $20.4 million in the current year.

In the three months ended March 31, 2025, cash provided by financing activities was $5.0 million, compared to cash used of $3.4 million in the three months ended March 31, 2024, the change year over year of $8.4 million.

The increase in cash provided was primarily attributable to net borrowings on long-term debt of $8.5 million in the current year.

Off-Balance Sheet Arrangements

As of September 30, 2024, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees.

As of March 31, 2025, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees.

Our maximum total commitment under these agreements is approximately $2.8 million and would only require payment upon default by the primary obligor.

We determined the fair value of these guarantees at inception was not material, and as of September 30, 2024 a $0.8 million accrual has been recorded for our potential obligation under the guaranty arrangements.

We determined the fair value of these guarantees at inception was not material, and as of March 31, 2025 a $1.1 million accrual has been recorded for our potential obligation under the guaranty arrangements.

See Note 15 of Notes to Condensed Consolidated Financial Statements 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.

In July 2022, we entered into an agreement with a third-party financing company, who provides loans to our qualified franchisees, pursuant to which we serve as guarantor for such loans.

In addition, we issued a $0.8 million standby letter of credit in connection therewith, which represents a portion of our potential aggregate liability under the guaranty.

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, 2024 a $0.3 million accrual has been recorded for our potential obligation under this guaranty arrangement.

The estimated fair value of these guarantees at inception was not material, and as of March 31, 2025 a $1.0 million accrual has been recorded for our potential obligation under this guaranty arrangement.

See Note 15 of Notes to Condensed Consolidated Financial Statements for more information.

2 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis