Xponential Fitness, Inc.

Greetings and welcome to the Exponential Fitness first quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Avery Wanamaker from Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon, and thank you all for joining our conference call to discuss Exponential Fitness first quarter 2024 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 are forward-looking statements based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from such expectations. For a 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, Avery, and thank you all for joining us this afternoon. After closing 2023 with solid momentum, we've had a strong start to 2024 with adjusted EBITDA margins expanding to 38% of revenue, fueled by continued growth in our studio footprint and leaner operating expenses. As of the end of Q1, we had 3,156 studios operating globally, with 6,365 licenses sold across our portfolio. In the first quarter, we have completed the acquisition of Lindora and are on plan with the integration activities. As Sarah will speak to shortly, we are very encouraged with the initial demand for Lindora franchises. We have already sold almost 40 licenses since we started selling Lindora in March, and we are particularly encouraged to see the strong demand coming from both existing and new franchisee groups. During the quarter, total members in North America grew 17% year-over-year to 783,000, while our total visits increased 18% to a total of 14.9 million in-studio visits for Q1. This drove North American systemwide sales to over 400 million in the quarter, an increase of 25% over the first quarter of 2023. North American run rate average unit volumes of 596,000 in the first quarter increased 9% from 547,000 in the prior year period, while same-store sales increased 9% for Q1. Same-store sales for studios older than 36 months came in at 10%, primarily due to continued growth in our scaled brands. During the first quarter, net revenues totaled $79.5 million, an increase of 12% year over year. Adjusted EBITDA totaled $29.8 million, or 38% of revenue, up 30% from $22.9 million, or 32% of revenue in the first quarter of 2023. As we discussed previously, optimizing growth in existing studios drives profitability in our asset-light, highly-leverageable franchising model. In addition, along with our transition studio strategy shift complete, we remain firmly on track to reach our targeted 40% adjusted EBITDA margins this year and growing to 45% by 2026. Let's now discuss another key growth driver, the increase of our franchise studio base. We ended the quarter with 3,156 global open studios, opening 111 gross new studios during Q1, with 85 in North America and 26 in international markets. As mentioned on our last call and in line with typical seasonality cadence, we expect openings to be more back-end weighted with a gradual increase in each quarter of 2024. We currently have over 400 North American leases and LOIs signed for studios not yet open, which will result in new studios in the coming quarters. We sold 173 licenses globally in the first quarter and our pipeline remains robust with almost 2,000 licenses sold and contractually obligated to open in North America, plus an additional over 1,000 master franchise agreement obligations. We also continue to expand our overall TAM. Along with a growing addressable market for our brands, the acquisition of Lindora has increased our access to the broader health and wellness market. Buxton's latest analysis illustrates our current TAM in the United States alone is at approximately 8,400 studios. Buxton estimates room for an additional over 800 Club Pilates locations in the United States, and Lindora is now included at over 1,000 potential locations. As Exponential continues to grow, we continue to focus on optimization of our portfolio of brands and remain open to opportunities to both acquire and divest brands that align with the desired long-term growth trajectories of our business. At this time, we are not including any further locations for AKT or Row House in the 8,400 location TAM estimate, and Stride has been removed from TAM also following its divestiture in the first quarter. Turning to our international expansion efforts, At the end of the first quarter, we have over 1,000 studios obligated to open under master franchise agreements. In April, we opened our 400th international studio. We are starting to build a significant presence in select international markets, which will help drive consumer awareness in economies of scale. For example, we have over 220 studios in Australia. In Japan, we now have 50 Club Pilates studios open. The same master franchisee who has overseen development of those 50 locations has an additional 115 Club Pilates locations to be developed in Japan, 130 locations to be developed across our Cycle Bar, Rumble, and AKT brands in Japan, as well as development rights in Singapore. Our recently hired international president and team have been focused on supporting our existing master franchise relationships while continuing to seek out new markets for our brand's expansion. In the first quarter alone, our master franchisees sold 53 new sub franchise licenses. Our international business made up 31% of license sales and 23% of new openings in the first quarter. I'd also like to mention how pleased we are to have recently completed our first board meeting with our newest director, Jeffrey Lawrence. Jeff brings decades of leadership experience at some of the most well-known consumer brands. In addition to his deep financial acumen and track record of value creation, He brings expertise in executing franchise expansions on a global scale. Jeff previously served as Executive Vice President and Chief Financial Officer at Domino's Pizza, where he supported the brand through its technological transformation and global expansion, and he currently serves on the board of Shake Shack. We expect he will be a great asset to Exponential as we continue expanding globally, and I look forward to working with him on our strategic initiatives moving forward. In summary, Exponential had another strong quarter as we execute against our four key growth drivers, selling franchises, opening studios, increasing AUVs, and optimizing SG&A. And with that, I'll pass the call on to Sarah.