What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-07 compared with 2026-05-08 · 221 added, 117 removed, 388 unchanged (47% of the section changed)

12 unchanged sentences

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

states, Puerto Rico and 28 additional countries as of March 31, 2026.

states, Puerto Rico and 29 additional countries as of June 30, 2026.

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

3 unchanged sentences

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

As of March 31, 2026, 2,629 studios were open in the North America Region (consists of Canada, the United States and U.S.

As of June 30, 2026, 2,645 studios were open in the North America Region (consists of Canada, the United States and U.S.

Territories) and franchisees were contractually committed to open 694 additional studios under existing franchise agreements.

In addition, as of March 31, 2026, we had 508 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 750 new studios, of which master franchisees have sold 182 licenses for studios not yet opened as of March 31, 2026.

During the three months ended March 31, 2026 and 2025, we generated revenue outside the United States of $2.2 million and $2.6 million, respectively.

As of March 31, 2026 and December 31, 2025, we did not have material assets located outside of the United States.

In addition, as of June 30, 2026, we had 520 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 739 new studios, of which master franchisees have sold 198 licenses for studios not yet opened as of June 30, 2026.

During the six months ended June 30, 2026 and 2025, we generated revenue outside the United States of $4.9 million and $5.3 million, respectively.

As of June 30, 2026 and December 31, 2025, we did not have material assets located outside of the United States.

No franchisee accounted for more than 10% of our revenue.

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On September 19, 2025, we entered into an agreement with a buyer to divest the Lindora brand, including the intellectual property, franchise rights and franchise agreements for open studios, and retained certain liabilities, including liabilities related to litigation, pre-litigation, and disputes as of the closing of the divestiture.

We expect to receive total consideration of up to $6.0 million based on 7% of the monthly cash-basis gross revenue of the legacy studio locations, which was recorded at the estimated fair value of $3.8 million at the divestiture date.

Under the terms of the agreement, we are entitled to receive consideration of up to $6.0 million based on 7% of the monthly cash-basis gross revenue of the legacy studio locations.

Based on current information and operating results of the legacy studio locations, the Company currently expects to receive consideration lower than the contractual maximum amount.

We believe the divestiture allows us to better focus and utilize our resources on our core brands and other opportunities which better align with our long-term strategies.

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The domestic Commissions will be paid by FC to us based on each contract year (prorated for any partial contract year) in aggregate amount of approximately $50.0 million over the five-year period subject to certain adjustments provided in the Agreement, which includes an element of variability in the consideration to which we are entitled.

We recognizes revenue on the Commissions in the period in which the Commissions are earned, the consideration is deemed collectible, and the variability is resolved.

We recognize revenue on the Commissions in the period in which the Commissions are earned, the consideration is deemed collectible, which may include timing of the collections.

We record revenue related to the commissions within other service revenues on the condensed consolidated statements of operations.

On November 10, 2025, the Company entered into an amendment to the Agreement, pursuant to which certain non-material modifications were made to the provisions governing the purchase of the Company's existing retail inventory.

Paused offering or selling franchises

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 the inquiry, we have been unable to offer and sell franchises in Maryland, except in cases where an exemption permitted sales to persons who met specific criteria.

The Maryland matter is ongoing.

Additionally, we previously received notice of investigation from the State of Washington's Department of Financial Institutions (“DFI”), the Virginia Division of Securities and Retail Franchising (“VDSRF”), and the Office of the Attorney General of the State of New York (“NYAG”) related to our compliance with relevant state franchise laws.

On August 12, 2025, without admission of wrongdoing, we entered into a consent order with DFI to resolve the matter.

Similarly, on February 12, 2026, without admission of wrongdoing, the Company signed a settlement order with VDSRF to resolve the matter, which the VDSRF will be countersigning shortly.

The NYAG matter is ongoing.

In March 2025, the 2025 Franchise Disclosure Documents (“FDDs”) were issued for the BFT, Club Pilates, CycleBar, Pure Barre, Rumble, Stretch Lab, and Yoga Six franchise programs, and then amended in August 2025 and again on February 19, 2026 for the BFT, Club Pilates, Pure Barre, Stretch Lab, and Yoga Six franchise programs.

As a result, offers and sales of franchises are temporarily paused in the following registration states-- California, Hawaii, Illinois, Minnesota, New York, North Dakota, Rhode Island, Virginia, and Washington —until each state completes its review and registration of the amended FDDs.

Pure Barre, however, may continue selling in Illinois and New York because it qualifies for an exemption.

Separately, offers in Maryland are paused due to an ongoing regulatory inquiry.

In all listed states, sales may proceed where an applicable exemption permits sales to persons who meet specific criteria.

In April 2026, we issued 2026 FDDs for the BFT, Club Pilates, Pure Barre, Stretch Lab, and Yoga Six franchise programs.

Selling franchises

In April 2026, we issued 2026 FDDs for the BFT, Club Pilates, Pure Barre, Stretch Lab, and Yoga Six franchise programs and amended them in June 2026.

The franchisors can offer and sell franchises in most states using the 2026 FDDs and continue pursuit of registration of the FDDs from the few remaining states that still require registration.

In the remaining states that require registration of the FDDs, we will continue to pause all sales until registration is obtained from the relevant regulatory agencies, except in cases where an exemption permits sales to persons who meet specific criteria.

Sales will resume promptly following such approvals, subject to any applicable waiting periods.

Sales will resume promptly following such approvals registration, subject to any applicable waiting periods.

Registration may be further delayed by subsequent amendments to FDDs.

Any inability to sell licenses for an extended period can result in slowed growth and could result in a reduction in anticipated royalty or franchise revenue, which in turn may materially and adversely affect our business, results of operations, cash flows and financial condition.

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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 months ended March 31, 2026 and 2025, we recognized total restructuring charges of $1.1 million, net of gains, and $2.4 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.

During the three and six months ended June 30, 2026, we recognized total restructuring charges of $0.2 million, net of gains, and $1.3 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 2026 totaling between approximately $8.2 million to $11.7 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.

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Cash outflows related to these lease terminations are expected to be incurred throughout 2026.

As of March 31, 2026, there were seven leases held by us related to divested brands that account for $5.6 million of our total lease liabilities.

As of June 30, 2026, there were six leases held by us related to divested brands that account for $3.9 million of our total lease liabilities.

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

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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 months ended March 31, 2026 and 2025:

Three Months Ended March 31,

The following table sets forth our key performance indicators for the three and six months ended June 30, 2026 and 2025:

Three Months Ended June 30,

Six months ended June 30,

($ in thousands)

System-wide sales

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Same store sales growth

The following tables present additional information related to our studio and license key performance indicators for the three months ended March 31, 2026 and 2025:

Three Months Ended March 31,

The following tables present additional information related to our studio and license key performance indicators for the three and six months ended June 30, 2026 and 2025:

Three Months Ended June 30,

North America Region

International

North America

International

Total operating studios:

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Studios obligated to open internationally under Master Franchise Agreements ("MFAs"):

March 31, 2026

June 30, 2026

June 30, 2025

Gross studios obligated to open under MFAs

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Licenses sold by master franchisees, net (2)

Three Months Ended March 31,

Six Months Ended June 30,

North America Region

International

North America

International

Total operating studios:

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Franchise licenses sold (total end of period)

Development fee payments on future franchise licenses:

Development fee payments on future franchise licenses (total end of period) (1)

Studios obligated to open internationally under Master Franchise Agreements ("MFAs"):

March 31, 2025

June 30, 2026

June 30, 2025

Gross studios obligated to open under MFAs

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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 the North America Region 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, 2026, this represented 0.2% of our North America studio base, respectively, compared to 0.2% for the three months ended March 31, 2025, respectively.

For the three and six months ended June 30, 2026, this represented 0.1% and 0.1% of our North America studio base, respectively, compared to 0.3% and 0.2% for the three and six months ended June 30, 2025, respectively.

While all our franchised studios are licensed to franchisees, we operate a company-owned transition studio under the Rumble brand, which was divested in the third quarter of 2025 (the table below excludes this studio).

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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 months ended March 31, 2026 and 2025.

The following tables contain information about changes in the number of our North America operating studios for the three and six months ended June 30, 2026 and 2025.

respectively:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

North America Region franchisee-owned studios

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Studios operated at end of period

The following table sets forth the total number of operating studios internationally for the three months ended March 31, 2026 and 2025:

Three Months Ended March 31,

The following table sets forth the total number of operating studios internationally for the three and six months ended June 30, 2026 and 2025:

Three Months Ended June 30,

Six Months Ended June 30,

International 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 months ended March 31, 2026 and 2025:

Three Months Ended March 31,

The following table sets forth the total number of operating studios globally for the three and six months ended June 30, 2026 and 2025:

Three Months Ended June 30,

Six Months Ended June 30,

Total studios

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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, 2026, we estimate approximately 35% of our global license obligations are over 12 months behind the applicable development schedule due to various circumstances and are currently inactive.

As of June 30, 2026, we estimate approximately 35% 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.

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Management reviews AUV to assess studio economics.

The following table reconciles our North America Region operating studios for the three months ended March 31, 2026 and 2025, respectively, to the total studios contributing to both AUV (LTM as of period end) and Quarterly AUV (run rate):

Three Months Ended March 31,

The following table reconciles our North America Region operating studios for the three and six months ended June 30, 2026 and 2025, respectively, to the total studios contributing to both AUV (LTM as of period end) and Quarterly AUV (run rate):

Three Months Ended June 30,

Six Months Ended June 30,

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

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

The following table reconciles our North America Region operating studios for the three months ended March 31, 2026 and 2025, respectively, to the total studios contributing to same store sales:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

North America Region studios contributing to same store sales

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Results of Operations

The following table presents our condensed consolidated results of operations for the three months ended March 31, 2026 and 2025:

Three Months Ended March 31,

The following table presents our condensed consolidated results of operations for the three and six months ended June 30, 2026 and 2025:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

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Marketing fund expense

Acquisition and transaction income

Acquisition and transaction expense (income)

Total operating costs and expenses

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Total other expense

Loss before income taxes

The following table presents our condensed consolidated results of operations for the three months ended March 31, 2026 and 2025 as a percentage of revenue:

Three Months Ended March 31,

Income (loss) before income taxes

Net income (loss)

The following table presents our condensed consolidated results of operations for the three and six months ended June 30, 2026 and 2025 as a percentage of revenue:

Three Months Ended June 30,

Six Months Ended June 30,

Revenue, net:

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Marketing fund expense

Acquisition and transaction income

Acquisition and transaction expense (income)

Total operating costs and expenses

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Total other expense

Loss before income taxes

Comparison of the three months ended March 31, 2026 and 2025

The following is a discussion of our consolidated results of operations for the three months ended March 31, 2026 versus the three months ended March 31, 2025.

Three Months Ended March 31,

Income (loss) before income taxes

Net income (loss)

Comparison of the three months ended June 30, 2026 and 2025

The following is a discussion of our consolidated results of operations for the three months ended June 30, 2026 versus the three months ended June 30, 2025.

Three Months Ended June 30,

Change from Prior Year

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Total revenue, net.

Total revenue was $60.7 million in the three months ended March 31, 2026, compared to $76.9 million in the three months ended March 31, 2025, a decrease of $16.2 million, or 21%.

The decrease in total revenue was primarily due to lower equipment revenue due to a decrease in equipment installations and lower merchandise revenue.

Total revenue was $66.0 million in the three months ended June 30, 2026, compared to $76.2 million in the three months ended June 30, 2025, a decrease of $10.2 million, or 13%.

The decrease in total revenue was primarily due to lower merchandise revenue and lower equipment revenue related to a decrease in equipment installations.

Franchise revenue.

Franchise revenue was $41.2 million in the three months ended March 31, 2026, compared to $43.9 million in the three months ended March 31, 2025, an decrease of $2.7 million, or 6%.

Franchise revenue consisted of franchise royalty fees of $31.9 million, franchise territory fees of $3.3 million, technology fees of $3.3 million and training fees of $2.7 million in the three months ended March 31, 2026, compared to 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.

Franchise revenue was $44.0 million in the three months ended June 30, 2026, compared to $45.4 million in the three months ended June 30, 2025, a decrease of $1.4 million, or 3%.

Franchise revenue consisted of franchise royalty fees of $32.0 million, franchise territory fees of $6.2 million, technology fees of $3.3 million and training fees of $2.5 million in the three months ended June 30, 2026, compared to franchise royalty fees of $33.7 million, franchise territory fees of $4.4 million, technology fees of $4.4 million and training fees of $2.9 million in the three months ended June 30, 2025.

The decrease in franchise royalty fees was primarily due to a decrease in same store sales coupled with a decrease due to brand divestitures in 2025.

The decrease in franchise territory fees is primarily attributed to divestiture of brands in 2025, coupled with a decrease of $0.4 million, or 48%, in revenue recognized as a result of franchise agreement terminations year-over-year to $0.4 million in the three months ended March 31, 2026, compared to $0.8 million in the prior year period.

The increase in franchise territory fees is primarily attributed to an increase of $2.0 million in revenue recognized as a result of franchise agreement terminations year-over-year to $2.6 million in the three months ended June 30, 2026, compared to $0.6 million in the prior year period.

Equipment revenue.

Equipment revenue was $4.4 million in the three months ended March 31, 2026, compared to $11.1 million in the three months ended March 31, 2025, a decrease of $6.8 million, or 61%.

Equipment revenue was $7.1 million in the three months ended June 30, 2026, compared to $9.5 million in the three months ended June 30, 2025, a decrease of $2.5 million, or 26%.

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

The decrease in equipment revenue was primarily due to a decrease in global equipment installations in the three months ended March 31, 2026, compared to the prior year period, driven by a decrease in studio openings compared to the prior year period and consistent with the decrease in franchise license sales in recent periods.

The decrease in equipment revenue was primarily due to a decrease in global equipment installations in the three months ended June 30, 2026, compared to the prior year period, driven by a decrease in studio openings compared to the prior year period and consistent with the decrease in franchise license sales in recent periods.

Merchandise revenue.

Merchandise revenue was $0.7 million in the three months ended March 31, 2026, compared to $6.3 million in the three months ended March 31, 2025, a decrease of $5.6 million, or 90%.

Merchandise revenue was $0.5 million in the three months ended June 30, 2026, compared to $5.6 million in the three months ended June 30, 2025, a decrease of $5.1 million, or 90%.

The decrease in merchandise revenue was primarily due to the change in strategy to outsource our retail merchandise inventory and lower overall demand from studios compared to the prior period.

Franchise marketing fund revenue.

Franchise marketing fund revenue was $8.7 million in the three months ended March 31, 2026, compared to $9.3 million in the three months ended March 31, 2025, a decrease of $0.6 million, or 6%.

Franchise marketing fund revenue was $8.7 million in the three months ended June 30, 2026, compared to $9.5 million in the three months ended June 30, 2025, a decrease of $0.7 million, or 8%.

The decrease was primarily due to a decrease in same store sales and the impact of divested brands compared to the prior year period.

Other service revenue.

Other service revenue was $5.8 million in the three months ended March 31, 2026, compared to $6.4 million in the three months ended March 31, 2025, a decrease of $0.5 million, or 8%.

The decrease was primarily due to a $0.3 million decrease in vendor commission and brand access fee revenues and less than $0.1 million decrease in package and memberships revenue.

Other service revenue was $5.6 million in the three months ended June 30, 2026, compared to $6.3 million in the three months ended June 30, 2025, a decrease of $0.6 million, or 10%.

The decrease was primarily due to a $0.4 million decrease in vendor commission and brand access fee revenues and $0.1 million decrease in package and memberships revenue.

Operating Costs and Expenses

Three Months Ended March 31,

Three Months Ended June 30,

Change from Prior Year

6 unchanged sentences

Marketing fund expense

Acquisition and transaction income

Acquisition and transaction expense (income)

Total operating costs and expenses

Costs of product revenue.

Costs of product revenue was $3.6 million in the three months ended March 31, 2026, compared to $12.0 million in the three months ended March 31, 2025, a decrease of $8.3 million, or 70%, compared to a decrease in related revenues of 71%.

The decrease in cost of product revenue was primarily driven by a reduction in global equipment installations and strategic shift to outsource retail merchandise inventory during the three months ended March 31, 2026, compared to the prior year period.

Costs of product revenue as a percentage of related revenue increased to 73% in the three months ended March 31, 2026, from 69% in the comparable prior year period.

Costs of product revenue was $5.6 million in the three months ended June 30, 2026, compared to $10.5 million in the three months ended June 30, 2025, a decrease of $4.9 million, or 47%, compared to a decrease in related revenues of 50%.

The decrease in cost of product revenue was primarily driven by strategic shift to outsource retail merchandise inventory and a reduction in global equipment installations during the three months ended June 30, 2026, compared to the prior year period.

Costs of product revenue as a percentage of related revenue increased to 73% in the three months ended June 30, 2026, from 69% in the comparable prior year period.

Costs of franchise and service revenue.

Costs of franchise and service revenue was $3.3 million in the three months ended March 31, 2026, compared to $4.1 million in the three months ended March 31, 2025, a decrease of $0.8 million, or 20%.

The decrease was primarily due to a $0.3 million decrease in franchise sales commissions and a $0.3 million decrease in costs related to brand access fee revenue.

This decrease is consistent with the decrease in related franchise territory revenue.

Costs of franchise and service revenue were $4.2 million in the three months ended June 30, 2026, compared to $4.0 million in the three months ended June 30, 2025, an increase of $0.2 million, or 6%.

The increase was primarily due to a $0.8 million increase in franchise sales commissions partially offset by a $0.5 million decrease in costs related to technology fee revenue and other revenue, consistent with the related revenue decrease.

The overall increase is consistent with the increase in related franchise territory revenue.

Selling, general and administrative expenses.

Selling, general and administrative expenses were $30.0 million in the three months ended March 31, 2026, compared to $45.5 million in the three months ended March 31, 2025, a decrease of $15.5 million, or 34%.

The decrease was primarily attributable to a decrease in legal expenses of $12.3 million (including nonrecurring insurance credits of $2.2 million in the current period) related to various legal matters including government investigations;

a decrease in salaries and wages of $1.7 million;

Selling, general and administrative expenses were $32.0 million in the three months ended June 30, 2026, compared to $24.1 million in the three months ended June 30, 2025, an increase of $7.9 million, or 33%.

The increase was primarily attributable to an increase in legal expenses of $5.7 million related to various legal matters including government investigations;

an increase of $2.8 million in professional services and financial transaction fees, decrease in contingent consideration receivable of $3.7 million related to Lindora divestiture and an increase in marketing and advertising expenses of $1.1 million.

The overall increase in selling, general and administrative expenses was partially offset by a decrease in salaries and wages of $1.4 million due to a reduction in headcount;

a decrease of $1.0 million in equity-based compensation expense due to an increase in forfeitures over the prior year period;

$0.1 million decrease in bad debt expense and a net decrease in other variable expenses of $1.0 million;

partially offset by a $0.4 million increase in loss on guaranty of franchisee third-party loans and higher restructuring and related charges of $0.5 million in the current year period.

$0.9 million decrease in bad debt expense, lower restructuring and related charges of $1.1 million in the current year period, a decrease in other variable expenses of $0.5 million and a $0.5 million decrease in loss on guaranty of franchisee third-party loans.

Impairment of goodwill and other noncurrent assets.

Impairment of goodwill and other noncurrent assets was $0.0 million in the three months ended March 31, 2026, compared to $1.9 million in the three months ended March 31, 2025, a decrease of $1.9 million due to impairment of right-of use assets.

Impairment of goodwill and other noncurrent assets was $0.0 million in the three months ended June 30, 2026, compared to $12.9 million in the three months ended June 30, 2025, a decrease of $12.9 million due to impairments of goodwill of $5.1 million and $2.3 million related to the BFT and Lindora reporting units, respectively, impairment of trademark of $3.4 million related to the CycleBar reporting unit, and other noncurrent asset impairments of $2.0 million.

Depreciation and amortization.

Depreciation and amortization expense was $2.3 million in the three months ended March 31, 2026, compared to $3.0 million in the three months ended March 31, 2025, a decrease of $0.7 million, or 24%.

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, 2025.

Depreciation and amortization expense was $1.8 million in the three months ended June 30, 2026, compared to $3.0 million in the three months ended June 30, 2025, a decrease of $1.2 million, or 41%.

The decrease was primarily due to a decrease in intangible assets related to impairment during the three months ended June 30, 2025.

Marketing fund expense.

Marketing fund expense was $11.7 million in the three months ended March 31, 2026, compared to $9.4 million in the three months ended March 31, 2025, an increase of $2.3 million, or 25%.

The increase reflected the timing of incremental marketing spend, as the Company front-loaded more investment in the first quarter of 2026 compared with the first quarter of 2025.

Marketing fund expense was $11.4 million in the three months ended June 30, 2026, compared to $8.9 million in the three months ended June 30, 2025, an increase of $2.6 million, or 29%.

The increase reflected the timing of incremental marketing spend, as the Company front-loaded more investment in the second quarter of 2026 compared with the second quarter of 2025.

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, 2026, marketing fund revenue was $3.0 million lower than marketing fund expense.

For the three months ended June 30, 2026, marketing fund revenue was $2.7 million lower than marketing fund expense.

Acquisition and transaction expense (income).

Acquisition and transaction income was $3.2 million in the three months ended March 31, 2026, compared to $8.6 million in the three months ended March 31, 2025, a decrease of $5.5 million, or 63%.

Acquisition and transaction expense was $1.4 million in the three months ended June 30, 2026, compared to $1.9 million income in the three months ended June 30, 2025, a decrease of $3.4 million, or 175%.

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,

Three Months Ended June 30,

Change from Prior Year

5 unchanged sentences

Interest income.

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, 2026, compared to $0.6 million in the three months ended March 31, 2025.

Interest income primarily consists of interest on notes receivable and interest income received from various interest-bearing bank accounts, which was $0.7 million in the three months ended June 30, 2026, compared to $0.7 million in the three months ended June 30, 2025.

Interest expense .

Interest expense was $14.5 million in the three months ended March 31, 2026, compared to $11.4 million in the three months ended March 31, 2025, an increase of $3.1 million, or 27%.

Interest expense was $14.9 million in the three months ended June 30, 2026, compared to $13.0 million in the three months ended June 30, 2025, an increase of $2.0 million, or 15%.

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.

1 unchanged sentence

Other expense.

Other expense consists of TRA expense, which was $0.0 million in the three months ended March 31, 2026, compared to $1.1 million in the three months ended March 31, 2025.

Other expense consists of TRA expense, which was $0.0 million in the three months ended June 30, 2026, compared to $0.9 million in the three months ended June 30, 2025.

The decrease was due to the absence of TRA expense in the current period.

There is no TRA expense, as the Company recorded pretax book loss after discrete items for the three months ended March 31, 2026 , as compared to pretax book income for the three months ended March 31, 2025.

Three Months Ended March 31,

There is no TRA expense, as the Company recorded a pretax book loss after discrete items for the three months ended June 30, 2026 , as compared to pretax book income for the three months ended June 30, 2025.

Three Months Ended June 30,

Change from Prior Year

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Income taxes (benefit ) .

Income taxes was (0.7%) of our share of pre-tax book income in the three months ended March 31, 2026, compared to (22.3%) of pre-tax book loss in the three months ended March 31, 2025.

Income taxes was (1.4%) of our share of pre-tax book loss in the three months ended June 30, 2026, compared to 18.8% of pre-tax book loss in the three months ended June 30, 2025.

The decrease in income tax expense was primarily driven by pre-tax book loss after discrete items in the current period as compared to pre-tax book income after discrete items in the prior period.

Comparison of the six months ended June 30, 2026 and 2025

The following is a discussion of our consolidated results of operations for the six months ended June 30, 2026 versus the six months ended June 30, 2025.

Six Months Ended June 30,

Change from Prior Year

($ in thousands)

Franchise revenue

Equipment revenue

Merchandise revenue

Franchise marketing fund revenue

Other service revenue

Total revenue, net

Total revenue.

Total revenue was $126.7 million in the six months ended June 30, 2026, compared to $153.1 million in the six months ended June 30, 2025, a decrease of $26.4 million, or 17%.

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.

Franchise revenue.

Franchise revenue was $85.1 million in the six months ended June 30, 2026, compared to $89.2 million in the six months ended June 30, 2025, a decrease of $4.1 million, or 5%.

Franchise revenue consisted of franchise royalty fees of $63.9 million, franchise territory fees of $9.4 million, technology fees of $6.6 million and training fees of $5.2 million in the six months ended June 30, 2026, compared to franchise royalty fees of $66.2 million, franchise territory fees of $8.1 million, technology fees of $8.8 million and training fees of $6.1 million in the six months ended June 30, 2025.

The decrease in franchise royalty fees was primarily due to a decrease in same store sales coupled with a decrease due to brand divestitures in 2025.

The increase in franchise territory fees is primarily attributed to an increase of $1.6 million in revenue recognized as a result of franchise agreement terminations year-over-year to $3.0 million in the six months ended June 30, 2026, compared to $1.4 million in the prior year period.

Equipment revenue.

Equipment revenue was $11.4 million in the six months ended June 30, 2026, compared to $20.6 million in the six months ended June 30, 2025, a decrease of $9.2 million, or 45%.

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

The decrease in equipment revenue was primarily driven by a decrease in global equipment installations in the six months ended June 30, 2026, compared to the prior year period, driven by a decrease in studio openings compared to the prior year period and consistent with the decrease in franchise license sales in recent periods.

Merchandise revenue.

Merchandise revenue was $1.2 million in the six months ended June 30, 2026, compared to $11.9 million in the six months ended June 30, 2025, a decrease of $10.7 million, or 90%.

The decrease in merchandise revenue was primarily due to the change in strategy to outsource our retail merchandise inventory and lower overall demand from studios compared to the prior period.

Franchise marketing fund revenue.

Franchise marketing fund revenue was $17.4 million in the six months ended June 30, 2026, compared to $18.7 million in the six months ended June 30, 2025, a decrease of $1.3 million, or 7%.

The decrease was primarily due to a decrease in same store sales and the impact of divested brands compared to the prior year period.

Other service revenue.

Other service revenue was $11.5 million in the six months ended June 30, 2026, compared to $12.6 million in the six months ended June 30, 2025, a decrease of $1.1 million, or 9%.

The decrease was primarily due to a $1.0 million decrease in vendor commission and brand access fee revenues.

Six Months Ended June 30,

Change from Prior Year

($ in thousands)

Costs of product revenue

Costs of franchise and service revenue

Selling, general and administrative expenses

Impairment of goodwill and other assets

Depreciation and amortization

Marketing fund expense

Acquisition and transaction income

Total operating costs and expenses

Costs of product revenue.

Costs of product revenue was $9.2 million in the six months ended June 30, 2026, compared to $22.5 million in the six months ended June 30, 2025, a decrease of $13.3 million, or 59%, compared to a decrease in related revenues of 73%.

The decrease in cost of product revenue was primarily driven by a strategic shift to outsource retail merchandise inventory and a decrease in global equipment installations in the six months ended June 30, 2026, compared to the prior year period.

Costs of product revenue as a percentage of related revenue increased to 73% in the six months ended June 30, 2026 from 69% in the comparable prior year period.

Costs of franchise and service revenue.

Costs of franchise and service revenue were $7.5 million in the six months ended June 30, 2026, compared to $8.1 million in the six months ended June 30, 2025, a decrease of $0.6 million, or 7%.

The decrease was primarily due to a $0.5 million decrease in franchise sales commissions, consistent with the related franchise territory revenue decrease.

Selling, general and administrative expenses.

Selling, general and administrative expenses were $62.1 million in the six months ended June 30, 2026, compared to $69.6 million in the six months ended June 30, 2025, a decrease of $7.6 million, or 11%.

The decrease was primarily attributable to a decrease in salaries and wages of $3.0 million due to a reduction in headcount, a decrease in legal expenses of $6.6 million (including nonrecurring insurance credits of $2.2 million in the current period) related to various legal matters including government investigations;

a decrease of $2.3 million in equity-based compensation expense due to higher forfeitures in the prior year period;

$1.1 million decrease in bad debt expense, lower restructuring and related charges of $0.6 million in the current year period, a $0.6 million decrease in loss on guaranty of franchisee third-party loans and a decrease in other variable expenses of $0.8 million.

The decrease in selling, general and administrative expenses was partially offset by an increase of $2.5 million in professional services and financial transaction fees, decrease in contingent consideration receivable of $3.7 million related to Lindora divestiture and an increase in marketing and advertising expenses of $1.2 million.

Impairment of goodwill and other assets.

Impairment of goodwill and other assets was $0.0 million in the six months ended June 30, 2026, compared to $14.8 million in the six months ended June 30, 2025, a decrease of $14.8 million, or 100%.

The decrease was due to impairments of goodwill of $5.1 million and $2.3 million related to the BFT and Lindora reporting units, respectively, impairment of trademark of $3.4 million related to the CycleBar reporting unit, and other noncurrent asset impairments of $3.9 million in the prior year.

Depreciation and amortization.

Depreciation and amortization expense was $4.0 million in the six months ended June 30, 2026, compared to $5.9 million in the six months ended June 30, 2025, a decrease of $1.9 million, or 32%.

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, 2025.

Marketing fund expense.

Marketing fund expense was $23.1 million in the six months ended June 30, 2026, compared to $18.2 million in the six months ended June 30, 2025, an increase of $4.9 million, or 27%.

The increase reflected the timing of incremental marketing spend, as the Company front-loaded more investment in the six months ended June 30, 2026 compared with the prior year.

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 six months ended June 30, 2026, marketing fund revenue was $5.7 million lower than marketing fund expense.

Acquisition and transaction expenses (income).

Acquisition and transaction income was $1.7 million in the six months ended June 30, 2026, compared to income of $10.6 million in the six months ended June 30, 2025, a decrease in income of $8.8 million, or 83%.

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

Six Months Ended June 30,

Change from Prior Year

($ in thousands)

Interest income

Interest expense

Tax receivable agreement expense

Total other expense, net

Interest income.

Interest income primarily consists of interest on notes receivable and interest income received from various interest-bearing bank accounts, which was $1.3 million in the six months ended June 30, 2026, compared to $1.3 million in the six months ended June 30, 2025.

Interest expense .

Interest expense was $29.4 million in the six months ended June 30, 2026, compared to $24.4 million in the six months ended June 30, 2025, an increase of $5.1 million, or 21%.

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 was primarily due to higher average debt balances in the current year period, partly offset by lower average interest rates on our credit agreement.

Other expense.

Other expense consists of TRA expense, which was $0.0 million in the six months ended June 30, 2026, compared to $2.0 million in the six months ended June 30, 2025.

Six Months Ended June 30,

Change from Prior Year

($ in thousands)

Income taxes .

Income taxes were -1.3% of pre-tax book loss in the six months ended June 30, 2026, compared to -154.5% in the six months ended June 30, 2025.

The decrease in income tax expense was primarily driven by pre-tax book loss after discrete items in the current period as compared to pre-tax book income after discrete items in the prior period.

Non-GAAP Financial Measures

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

These items include equity-based compensation 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 net of insurance reimbursements), 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 noncurrent assets, loss and expenses related to brand divestitures and wind down (including 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.

For the three months ended March 31, 2026, loss and expenses due to brand divestitures and wind down (excluding impairments) primarily represents net expenses of $0.2 million in connection with brand divestitures and outsourcing of our retail merchandising and loss on franchisee loan guarantees of $0.8 million related to divested brands.

These items include equity-based compensation and related employer payroll taxes, acquisition and transaction expenses (income) (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 net of insurance reimbursements), fees for financial transactions (including costs related to strategic alternatives and other contemplated corporate transactions), expense related to the remeasurement of our TRA obligation, expense related to loss on impairment of goodwill and other noncurrent assets, loss and expenses related to brand divestitures (including expenses directly related to the divested brands for arrangements that existed prior to divestiture), executive transition costs (consisting of executive recruiting costs and other related costs), 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.

For the six months ended June 30, 2026, loss and expenses due to brand divestitures (excluding impairments) primarily represents net expenses of $0.5 million in connection with brand divestitures and outsourcing of our retail merchandising, loss on franchisee loan guarantees of $0.8 million related to divested brands and decrease in contingent consideration receivable related to Lindora of $3.7 million.

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

We believe that adjusted EBITDA, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of operations because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period.

The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the three months ended March 31, 2026 and 2025:

Three Months Ended March 31,

The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the three and six months ended June 30, 2026 and 2025:

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Net income (loss)

Interest expense, net

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Employer payroll taxes related to equity-based compensation

Acquisition and transaction income

Litigation expenses

Acquisition and transaction expense (income)

Litigation expenses (benefit)

Financial transaction fees and related expenses

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Impairment of goodwill and other noncurrent assets

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

Loss and expenses due to brand divestitures (excluding impairments)

Executive transition costs

Transformation initiative costs

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Liquidity and Capital Resources

As of March 31, 2026, we had $12.2 million of cash and cash equivalents, excluding $9.3 million of restricted cash consisting of marketing fund restricted cash of $8.5 million and a standby letter of credit guarantee.

As of June 30, 2026, we had $18.2 million of cash and cash equivalents, excluding $6.8 million of restricted cash consisting of marketing fund restricted cash of $6.0 million 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.

Based on our current level of operations, 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 beginning May 8, 2026 and beyond such twelve month period based on our current business plans.

Based on our current level of operations, 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 beginning August 7, 2026 and beyond such twelve month period based on our current business plans.

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, 2025.

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The Closing Date Term Loans and the Revolving Loans will both mature five years after the Closing Date.

As of March 31, 2026 the Company was in compliance with these covenants.

As of June 30, 2026 the Company was in compliance with these covenants.

Commencing with the fiscal quarter ending March 31, 2026, and subject to customary adjustments, we will be required to repay (a) on the last Business Day (as defined in the Credit Agreement) of each March, June, September and December (each a “Principal Payment Date”), an aggregate principal amount equal to (i) 0.25% of the aggregate principal amount of all Closing Date Term Loans outstanding on the Closing Date, in respect of the first four Principal Payment Dates (commencing March 31, 2026), (ii) 0.75% of the aggregate principal amount of all Closing Date Term Loans outstanding on the Closing Date, in respect of the next four Principal Payment Dates (i.e., commencing on March 31, 2027) and (iii) 1.25% of the aggregate principal amount of all Closing Date Term Loans outstanding on the Closing Date, in respect of each Principal Payment Date thereafter (i.e., commencing on March 31, 2028).

The amount of the quarterly principal payments pursuant to the Credit Agreement was $1.3 million during the three months ended March 31, 2026.

The total principal amount outstanding on the Closing Date Term Loans was $523.7 million at March 31, 2026.

The amount of the quarterly principal payments pursuant to the Credit Agreement was $2.6 million during the six months ended June 30, 2026.

The total principal amount outstanding on the Closing Date Term Loans was $522.4 million at June 30, 2026.

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

Material Cash Requirements

At March 31, 2026, 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, 2025.

The following table presents summary cash flow information for the three months ended March 31, 2026 and 2025:

Three Months Ended March 31,

At June 30, 2026, 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, 2025.

The following table presents summary cash flow information for the six months ended June 30, 2026 and 2025:

Six Months Ended June 30,

(in thousands)

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Cash Flows from Operating Activities

In the three months ended March 31, 2026, cash used in operating activities was $21.7 million, compared to cash provided by operating activities of $5.8 million in the three months ended March 31, 2025, a decrease in cash provided of $27.5 million.

Of the change, $1.1 million was due to higher net income after adjustments to reconcile net loss to net cash provided by (used in) operating activities and $7.6 million in favorable changes in working capital related to accounts receivable, prepaid expenses and other current assets, deferred costs and deferred revenue, offset by $36.2 million in unfavorable changes in working capital related to inventories, accounts payable, accrued expenses, other current liabilities and other assets in the three months ended March 31, 2026, compared to the three months ended March 31, 2025.

In the six months ended June 30, 2026, cash used in operating activities was $25.7 million, compared to cash provided by operating activities of $8.3 million in the six months ended June 30, 2025, a decrease in cash provided of $34.1 million.

Of the change, $16.3 million was due to decrease in earnings after adjustments to reconcile net loss to net cash provided by (used in) operating activities and $43.7 million in unfavorable changes in working capital related to inventories, operating lease liabilities, accounts payable, other assets and accrued expenses, offset by $26.0 million in favorable changes in working capital related to accounts receivable, prepaid expenses and other current assets, deferred costs, other current liabilities, deferred revenue and other liabilities in the six months ended June 30, 2026, compared to the six months ended June 30, 2025.

Cash Flows from Investing Activities

In the three months ended March 31, 2026 and 2025, cash used in investing activities was $0.6 million and $1.0 million, respectively.

The change year over year of $0.4 million was primarily attributable to the decrease in cash used to issue notes receivable of $0.2 million in the current year and increase in cash received of $0.2 million from notes receivable collections in the current year.

In the six months ended June 30, 2026 and 2025, cash used in investing activities was $1.2 million and $2.9 million, respectively.

The change year over year of $1.7 million was primarily attributable to decrease in cash used to purchase property and equipment of $1.3 million in the current year.

Cash Flows from Financing Activities

In the three months ended March 31, 2026, cash used in financing activities was $2.1 million, compared to cash provided of $5.0 million in the three months ended March 31, 2025, representing a year over year deterioration of $7.1 million.

The decrease in cash provided was primarily attributable to net borrowings on long-term debt of $8.5 million and cash used for payments of preferred stock dividend of $1.8 million in the prior year.

In addition, in the current period compared to the prior period, cash used decreased due to lower payments for distributions to Pre-IPO Members of $0.2 million and lower payments for taxes related to net share settlement of restricted share units of $0.3 million.

In the six months ended June 30, 2026, cash provided by financing activities was $6.1 million, compared to cash provided of $0.5 million in the six months ended June 30, 2025, representing a year over year change of $5.6 million.

The increase in cash provided was primarily attributable to cash used for payments of preferred stock dividend of $3.8 million in the prior year.

In addition, in the current period compared to the prior period, cash provided increased due to lower payments for distributions to Pre-IPO Members of $0.3 million and lower payments for taxes related to net share settlement of restricted share units of $0.9 million.

Off-Balance Sheet Arrangements

As of March 31, 2026, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees.

As of June 30, 2026, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees.

Our potential obligation under these agreements is approximately $4.6 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 March 31, 2026 no 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 June 30, 2026 no accrual has been recorded for our potential obligation under the guaranty arrangements.

See Note 14 of Notes to Condensed Consolidated Financial Statements for more information regarding these operating leases and guarantees.

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

The estimated fair value of these guarantees at inception was not material, and as of March 31, 2026, a $1.8 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 June 30, 2026, a $2.0 million accrual has been recorded for our potential obligation under this guaranty arrangement.

See Note 14 of Notes to Condensed Consolidated Financial Statements for more information.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis