Xponential Fitness, Inc.

Greetings and welcome to Exponential Fitness, Inc. First Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kimberly Estrakhin from Investor Relations. Please go ahead, ma'am.

Thank you, Operator. Good afternoon, and thank you all for joining our conference call to discuss Exponential Fitness' first quarter 2022 financial results. I am joined by Anthony Geisler, Chief Executive Officer, Sarah Luna, President, and John Malone, Chief Financial Officer. A recording of this call will be posted on the Investor section of our website at investor.exponential.com. We remind you that during this conference call, we will make certain forward-looking statements. including discussions of our business outlook and financial projections. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause our actual results to differ materially from such expectations. For more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligations to update the information provided on today's call. In addition, we will be discussing certain non-GAAP financial measures in this conference call. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release That was issued earlier today prior to this call. Please also note that all numbers reported in today's prepared remarks refer to global figures unless otherwise noted. I will now turn the call over to Anthony Geisler, Chief Executive Officer of Exponential Fitness.

Thanks, Kimberly, and good afternoon, everyone. We appreciate you joining our first quarter earnings call. Exponential Fitness is the largest global franchisor of boutique fitness workout brands. As of the end of the first quarter, our franchisees and master franchise partners collectively operated over 2,220 studios in 14 countries around the world across 10 leading brands in major workout modalities. Our business model is straightforward. We license our boutique studio operations, share our business processes and branding with franchisees, and in exchange charge royalties and other fees for our services. As our AUVs grow, and as we increase the number of studios, we become more profitable, given that the royalties generated from system-wide sales are virtually 100% margin flow-through and given our SG&A platform scales. Let's take a moment to review our first quarter financial highlights before turning to discuss our progress against our core growth strategies. We are pleased with our financial and operation execution in the first quarter. On the heels of a very strong fourth quarter, Exponential Fitness entered 2022 with great momentum. First quarter actively paying members and visitation rates in North America increased by approximately 60% and 45%, respectively, year over year. Sequentially, these figures also showed solid growth and both improved 17% compared to the fourth quarter of 2021. Our Q1 North American system-wide sales grew for the seventh consecutive quarter, up 70% year over year. Importantly, performance during the first quarter continued to strengthen month over month. We reached a significant milestone in the month of March with monthly run rate North American AUV of 477,000, rebounding to the peak pre-COVID quarterly run rate AUV. We expect that AUVs will continue to increase with the ongoing execution of our growth strategies. Quarter to date, we continue to see positive momentum in our system. While we are in a period of unprecedented inflation and macroeconomic pressures, our member counts are increasing, both overall and at the individual studio level, as our customers continue to prioritize their health. Further, we believe our model is more insulated from macroeconomic pressures as our customers, who in general are on reoccurring membership packages, do not view fitness as discretionary spend and our membership fees tend to be a relatively small piece of their overall budgets. Based on this solid performance, we posted net revenue of $50.4 million, increasing 73% year-over-year, and adjusted EBITDA of $14.4 million, or 29% of revenue, compared to $3.6 million, or 12% of revenue, in the prior year period. Compared to the prior quarter, adjusted EBITDA improved by $5.9 million, an increase of 68%. This drove adjusted EBITDA margins to nearly double quarter over quarter. With that as a background on the quarter, let's move to our four key strategic areas of growth, beginning with our first two growth levers, increasing our franchise studio base across all of our brands in North America, and expanding our brands and studio base internationally. We ended the quarter with 2,229 global studios, the largest studio count in our company's history. Having opened 99 net new studios in the first quarter as expected, we remain on track to open over 500 new studios this year. We also experience strong demand for our franchise licenses, selling 260 licenses globally in Q1. In North America, we have over 1,800 licenses sold and contractually obligated to open and have a replenishing pipeline of organic new studio expansion, offering us four to five years of visibility into our long-term growth. Another driver of North American studio growth is our nationwide partnership with LA Fitness, giving us the exclusive right to open our exponential fitness brand studios within LA Fitness locations, with a minimum development commitment of 350 franchise locations over five years. While still early, we are seeing strong interest from franchisees. In terms of international growth, we now have almost 1,000 studios obligated to be open internationally, paving the way for further expansion. I'm happy to announce that during the first quarter, we added two additional countries to our international presence, Mexico and the UK. In Mexico, we signed a new Master Franchise Agreement, or MFA, for three of our brands, Stretch Lab, AKT, and Rumble. BFT has also sold its first license in the UK, marking our first entry point into the country. As a reminder, our MFAs are structured to provide exponential with virtually 100% margin flow-through. To support our international expansion, we are very pleased to announce that Dan Adelstein has recently joined Exponential Fitness as our Senior Vice President of International Development. His main focus will be supporting our real estate development and studio openings. Dan previously served as the Senior Vice President of International Development at Orange Theory Fitness. On the M&A front, the integration of BFT remains on track. As a reminder, BFT supports our global growth trajectory with over 170 franchise studios currently open and an additional 180 studios sold and contractually obligated to open globally. Lastly, in terms of future M&A, we will continue to opportunistically evaluate potential brands and new modalities, taking a disciplined approach to capital allocation. I'd like to now pass the call on to Sarah to discuss our third growth driver, increasing our same-store sales and AUVs.