Greetings, welcome to Xponential Fitness Inc. Fourth Quarter and Fiscal Year 2022 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Kimberly Esterkin from Investor Relations. Thank you. You may begin.

Thank you, operator. Good afternoon, and thank you all for joining our conference call to discuss Xponential Fitness' fourth quarter and full year 2022 financial results. I am joined by Anthony Geisler, Chief Executive Officer; Sarah Luna, President; and John Meloun, Chief Financial Officer. A recording of this call will be posted on the Investors section of our website at investor.xponential.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 a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligation to update the information provided on today's call. In addition, we will be discussing certain non-GAAP financial measurements 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 Xponential Fitness.

Thanks Kimberly and good afternoon everyone. We appreciate you joining our fourth quarter earnings conference call. I’ll begin today’s discussion with an overview of our quarterly performance and operational highlights. Sarah will then speak further about our progress against our core growth strategies. John will conclude with a review of our fourth quarter financials and provide our 2023 outlook. As will be evident from the results we discussed today, 2022 was another successful year for Xponential. For the year we achieved double-digit growth across North America memberships, same-store sales, and AUVs, all of which are representative of the fact that boutique fitness is considered a must-have, not discretionary spend by studio members. The demand for our offerings is demonstrated by our North American studios generating over $1 billion in system-wide sales in 2022. We are especially encouraged by the fact that our mature studio cohorts still exhibit strong same-store sales growth and have a profile that’s similar to our younger studios. For the full year, North American studios over three years old comp at 25% same-store sales growth, and more recently in the fourth quarter of 2022 North American studios over three years old comp at 18% same-store sales growth. While we do expect this percentage to come down over time as growth profiles normalize, we are encouraged to see this level of performance. It is clear from these numbers that each year Xponential continues to raise the bar on its operational performance and deliver on its financial results, and 2022 was no exception. Together, we have built a resilient business. And I want to thank every one of our franchisees and employees. All your hard work has enabled Xponential to reach record annual results and to continue to deliver on its mission to make boutique fitness accessible to everyone. I had the opportunity to meet with a large number of our franchisees this past December at our annual franchise convention in Las Vegas. Over 2000 enthusiastic attendees gathered to share best practices and discuss innovative ways to promote the growth of our brands. We are seeing this excitement reinforced and the momentum we are already experiencing in early 2023. As the largest boutique fitness franchisor globally, with franchisees operating over 2,600 Studios, we have grown our studio footprint by 24% year-over-year. We now have a combination of franchise, master franchise, and international license agreements in place in 16 countries and will continue to grow our footprint globally. Turning to our membership performance; total members across North America increased by approximately 32% year-over-year in 2022 to a total of 590,000. This momentum and membership growth has carried into 2023 and in the month of January, we officially surpassed 600,000 North American members with nearly 90% of these customers on recurring membership packages. These figures are representative of the long-term growth of a passionate loyal customer base. As our membership base has grown, so too have visits to our studios. North American studio visits for the 12 months ending in December 2022 increased by 32% year-over-year, reaching a total of 39.2 million. Increased utilization in studios resulted in record North American system-wide sales. North American system-wide sales increased 46% in 2022 and surpassed $1 billion annual sales for the first time in Xponential’s history. We believe that our studios quarterly run rate average unit volumes or quarterly AUVs ultimately offer the most direct measure of the health of our franchise system. We ended 2022 with fourth quarter run rate North American AUVs of $522,000, up from $446,000 in Q4 of 2021. This represents the 10th straight quarter of AUV growth. While we don't know maximum AUV potential, we know that our studios have plenty of capacity to add more members and classes. The strong same-store sales exhibited by even our more mature cohorts that I discussed earlier make us confident in our studios growth prospects. Turning to revenue, for the year we posted net revenue of approximately $245 million, an increase of 58% year-over-year. Adjusted EBITDA for 2022 totaled $74.3 million or 30.3% of revenue, an increase of 172% from $27.3 million or 17.6% of revenue in the prior year period. Without that as background, let's turn to our strategic growth areas. I'll discuss the first three levers of our growth plan and then turn the call over to Sarah to discuss the fourth. Let's begin with increasing our franchise studio base. We ended Q4 with 2,641 global Open Studios, opening 156 net new studios in the fourth quarter alone. For the full year we opened 511 net new studios globally or a new studio opening approximately every 17 hours. We also experienced strong demand for our franchise licenses, selling 257 licenses globally in Q4, bringing total sold licenses to 5,450. In North America, we have almost 2000 licenses sold and contractually obligated to open offering us multiyear visibility into our growth. Keep in mind that over time, as we continue to sell through prime geographic territories and each of our existing brands, we would eventually need to acquire another brand to maintain this elevated run rate of license sales. Turning to our second growth driver expanding internationally. On the international front, we have over 1000 studios obligated to be opened, and we continue to gain traction. In November, we announced a Master Franchise Agreement in Portugal to license Club Pilates studios. Then in December, we announced a Master Franchise Agreement in Japan for our Rumble and AKT brands to open a minimum of 100 new studios across both brands. As a reminder, our MFAs are structured to provide Xponential with high margin flow-through given that we require minimal incremental SG&A to support MFA growth. Our third key growth driver is to expand margins and drive free cash flow conversion. As our business continues to grow, we are increasingly reaping the benefits of our asset light scalable operating model providing us with consistent and growing margin performance. We are especially pleased with where our adjusted EBITDA margins ended for the year. We continue to expect our adjusted EBITDA margins to expand into the 35% to 39% range in 2023, and we remain on track to achieve our adjusted EBITDA margin target of 40% in 2024. Our boutique in-studio offerings are exactly what consumers post-pandemic are gravitating toward. Consumers have shifted their interest towards smaller classes that offer community and entertainment in a safe, healthy environment. Our members come to our studios not only to work out but also to socialize with one another and studio staff. It’s this sense of community that makes our studio membership so sticky and why the thought of giving up one studio membership equates with also giving up a community and a lifestyle. People are just not willing to make that trade-off. Furthermore, as our brands and community continue to grow, we are increasingly capitalizing on opportunities to engage with consumers far beyond just the physical studio space. And Sarah will discuss shortly our B2B XPLUS and XPASS offerings are great examples of how we are increasingly engaging with our consumers in a more holistic omni-channel way. With that, I'll pass the call on to Sarah to discuss our fourth and final growth driver, increasing our same-store sales and AUVs.

Thank you Anthony. In the fourth quarter not only did we continue to drive strong in-studio performance, but as Anthony just mentioned, we also further established Xponential's omni-channel fitness offering. Throughout the year, we welcomed numerous B2B partners while also enhancing our XPLUS and XPASS offerings. The success of our omni-channel fitness experience, which is helping drive more customers into our studios, is apparent in our growing visits. For the full year, North America visitation rates grew 32% over 2021. This momentum, as Anthony noted, has continued into the New Year with our North American membership base now exceeding 600,000 in January. So let's discuss how we continue to connect with our members, increase retention and reduce churn, all of which are central to growing our same-store sales and AUVs. I'll begin with our XPASS offering, which provides our members frictionless access to all 10 of our brands on a single recurring monthly membership platform. XPASS serves as a lead generator for our franchisees to drive in studio memberships. In 2022, 17% of XPASS North American members had never interacted with Xponential brands prior to purchasing an XPASS membership. In addition, 64% of XPASS North American members were inactive before purchasing an XPASS membership. We are looking forward to driving continued growth in the XPASS membership in 2023. We are also connecting with our members virtually through XPLUS, our fitness on demand digital offering. 2022 marked the first full year of XPLUS, and at the end of the year, we had over 117,000 subscribers. Importantly, of these subscribers, many also hold in-studio memberships. XPLUS drives retention and engagement by providing subscribers the ability to work out anytime, anywhere. With 72% of fitness club owners, according to Club Intel, offering on-demand and live stream workouts, we understand the need to continue to invest in our XPLUS platform. We are constantly developing new content for the XPLUS platform and our offering on Lululemon Studio, and we're excited to see this digital channel translate into increased awareness for our brands and studio offerings. Speaking of partnerships, the third leg of our omni-channel offering is our B2B partnerships, which enable our brands to reach an even broader demographic. As I noted previously, we welcomed numerous B2B partners in 2022, ranging from Lululemon Studio and OptumHealth, a division of UnitedHealth, to Aktiv Solutions and Princess Cruises. The International Health, Racquet & Sportsclub Association or IHRSA reports that there are 15 million American adults who are currently inactive. So finding unique ways to connect our brands to these individuals remains one of our core areas of focus. Our growth in B2B partnerships has continued in 2023 with LG, Territory Foods, and One Brands now all on board. We are particularly excited about XPLUS’s new partnership with LG announced at the Consumer Electronics Show in Las Vegas this January. Under the partnership, LG televisions will feature an application providing access to our full XPLUS library, helping us reach millions of consumers globally. Xponential’s partnership with LG is another example of our holistic approach to fitness, engaging with our consumers and raising awareness for our brands far beyond the physical studio locations. Overall, each of our B2B partnerships aligns with our long-term strategic goal of joining forces with industry-leading companies that can expand the reach of our brands, drive customer leads to franchisees at no cost, and make our boutique fitness offering even more sticky. 2022 was an exciting year for Xponential’s omni-channel fitness offering and 2023 is proving to be just as energizing. Thank you again for your time. I'll now turn the call over to John to discuss our fourth quarter results and 2023 outlook.

Thanks, Sarah. It's great to speak with everyone to discuss Xponential’s fourth quarter 2022 results. Fourth quarter North America system-wide sales of $294.1 million were up 38% year-over-year. The growth in North American system-wide sales was largely driven by our existing base of open studios that continue to acquire new members, complemented by 375 net new North American studios that opened in 2022. On a consolidated basis, revenue for the fourth quarter was $71.3 million, up 44% year-over-year. All five of the components that make up revenue grew during the quarter. Franchise revenue was $32.2 million, up 40% year-over-year. This growth was primarily driven by an increase in royalty revenue as member visits and associated system-wide sales are at all-time highs, and amortized revenue from franchise license sales continue to increase as we open more studios domestically, and sell more franchise licenses internationally. Equipment revenue was $11.5 million, up 64% year-over-year. This increase in equipment revenue continues to be driven primarily by higher volumes of global equipment installs. Merchandise revenue was $8 million, up 22% year-over-year. The increase during the quarter was primarily driven by the higher number of studios operating and increased foot traffic when compared to the prior year. Franchise marketing fund revenue of $5.8 million was up 42% year-over-year, primarily due to strong system-wide sales and average unit volume growth. Lastly, the other service revenue was $13.8 million, up 57% from the prior year period, primarily due to rebates driven from processing of studio level system-wide sales, vendor sponsorships for our annual franchise conference, revenue from our B2B partnerships, and revenue generated by temporarily owned transition studios. Turning to our operating expenses; Cost of product revenue was $12.3 million, up 32% year-over-year. The increase was driven by higher equipment installations for new studio openings and merchandise revenues in the period. Cost of franchise and service revenue was $4.9 million, up 18% year-over-year. The increase continued to be driven by amortized commissions associated with franchise license sales on a higher base of open studios. Selling, general and administrative expenses of $34.7 million were up 6% year-over-year. As a percentage of revenue, SG&A expenses were 49% of revenue in the fourth quarter, down from 66% in the prior year period. As projected on our third quarter 2022, our annual franchise convention added approximately $4.5 million in sequential SG&A expenses, which were largely offset by sponsorship revenues from the event that brought the net expense down to $0.9 million for the fourth quarter. In addition, as I noted on prior calls, costs related to temporarily owned transition studios are included in our SG&A for the fourth quarter. We continue to optimize operating costs for these studios and define new owners for them as we've done in the past. Depreciation and amortization expense was $4.1 million, an increase of 23% from the prior year period. Marketing fund expenses were $4.6 million, up 23% year-over-year, driven by increased national marketing spend afforded by higher marketing fund revenues because of higher system-wide sales. Acquisition and transaction expenses were $8.2 million, primarily related to the non-cash contingent consideration as part of our acquisition of Rumble. As I noted on prior earnings calls, the Rumble contingent consideration is driven by our share price. We mark-to-market it each quarter and accrue for the earn-out. We recorded a net loss of $0.4 million in the fourth quarter, compared to a net loss of $29.8 million in the prior year period. The increase was a result of $14.9 million of higher overall profitability, a $14.2 million decrease in non-cash contingent consideration primarily related to the Rumble acquisition, and a $0.4 million decrease in non-cash equity-based compensation expense. We continue to believe that adjusted net income is a more useful way to measure the performance of our business. A reconciliation of net income to adjusted net income is provided in our earnings press release. Adjusted net income for the fourth quarter was $6.8 million, which excludes $8.2 million change in fair value of non-cash contingent consideration and a $1.1 million liability decrease related to the fourth quarter remeasurement of the company's tax receivable agreement liability. Adjusted EBITDA was $22.2 million in the fourth quarter compared to $8.6 million in the prior year period. Adjusted EBITDA margin grew to 31% in the fourth quarter compared to 17% in the prior year period. As a reminder, our 2023 outlook anticipates adjusted EBITDA margins reaching the 35% to 39% range, and we expect this number to grow to 40% in 2024. Turning to the balance sheet, as of December 31, 2022, cash, cash equivalents and restricted cash were $37.4 million, up from the $21.3 million as of December 31, 2021. Total long-term debt was $137.7 million as of December 31, 2022, compared to $133.2 million as of December 31, 2021. We continue to look for ways to simplify our capital structure and have made progress already in the first quarter. In January, we announced the repurchase of 85,340 shares of convertible preferred stock at a price of $22.07 per share, which prior to the repurchase would have been convertible into 5.9 million shares of Class A common stock. In addition, we recently completed a secondary offering of 5 million shares, which closed on February 10, 2023, followed by a green shoe execution for an additional 0.75 million shares. The selling shareholders included Snapdragon Capital Partners, which is controlled by Mark Grabowski, the Chairman of our board, and our CEO Anthony Geisler. Xponential fitness did not receive any proceeds from the sale, and our CEO remains Xponential’s largest individual shareholder. Let's now discuss our outlook for 2023. Based on current business conditions and our expectations as of the date of this call, we are initiating guidance for the current year as follows. We expect 2023 global net new studio openings to be in the range of 540 to 560. This range represents the highest number of studio openings in our company's history, and an 8% increase at the midpoint over 2022. We project North America system-wide sales to range from $1.34 billion to $1.35 billion, or a 30% increase at the midpoint from the prior year and the highest North America system-wide sales in our history. Total 2023 revenue is expected to be between $285 million to $295 million, an 18% year-over-year increase at the midpoint of our guided range. Adjusted EBITDA is expected to range from $101 million to $105 million, a 39% year-over-year increase at the midpoint of our guided range. This range translates into roughly a 35.5% adjusted EBITDA margin at the midpoint. In terms of capital expenditures, we anticipate approximately $10 million to $12 million for the year or 4% of revenue at the midpoint. Going forward, capital expenditures will be primarily focused on the BFT integration, XPASS and XPLUS new features and maintenance, and other technology investments to support our digital offerings. For the full year, our tax rate is expected to be mid to high single digits, share count for purposes of earnings per share calculation to be $32.3 million and $1.9 million in quarterly dividends to be paid related to our convertible preferred stock. A full explanation of our share count calculation and associated pro forma EPS and adjusted EPS calculations can be found in the table at the back of our earnings press release as well as our corporate structure and capitalization FAQ on our Investor Website. Thank you again for your time today and your support of Xponential. We look forward to speaking with you on our next earnings call. We will now open the call for questions.

Thank you. We will now be conducting a question-and-answer session. We'll take our first question from the line of Randy Konik with Jefferies. Please go ahead.

Yes, thanks a lot. And good afternoon, guys. How are you?

Good. Thank you.

I guess I have a number of questions. I just want to first attack your international prospects because you gave us some perspective. You talked about I think 1000 units on tap to open over time in the international market. Seems like franchisee demand is off the charts there. Maybe give us a reminder of education around where was international, let's say a couple of years ago, we've noticed in 16 countries today, you gave us great color on the master franchise agreement approach, and maybe get maybe frame out where we were a couple of years ago. And then where you think we might be with international, let's say about five years from now, in terms of potentially number of countries and kind of the TAM, you kind of see for that, for that the rest of world because it looks pretty powerful from here.

Thanks, Randy. Appreciate it. Yes, I mean, prior to call it pre-COVID for an easy timeframe, prior to the BFT acquisition, international was obviously not what it was for us today. Thus, a big portion of that BFT acquisition was to get a bigger international footprint that we could kind of spring from. And then also, of course, with the FC not having a lot of locations in the U.S., it gave us full opportunity to scale the domestic market, but also expand their national market. That's why that deal was a double great deal for what we were trying to do. And so from there, we've been springing forward. Also in, you know, in 2019, we had planted a lot of seeds in the ground internationally but didn't have a lot of openings. And of course, with COVID, we kind of took a couple of years off, as everybody was figuring everything out globally. So you're kind of seeing a couple of things happening. One; the acquisition of BFT and its expansion in primarily APAC, but also U.K. in other regions. And then you're seeing the seeds that we planted pre-COVID that should have come out in 2021, 2022 or even 2021, 2022 you're seeing those start to happen in 2022 and 2023. So our openings, in 2021 used to be 90% domestic, 10% international, they were 75% domestic, 25% international in 2022. We expect that to be pretty close to the same in 2023. And as we get into 2024, 2025, and later years, we think it'll probably grow to an overall kind of 70:30 split ultimately. And of course, as we reiterated before, discussed before, the international footprint for us, given that we get 30%, 40%, sometimes 50% of the revenues and none of the SG&A and the cash that comes over gets treated as cash without any amortization over time, like we would have in the U.S., it is truly incremental to EBITDA margin as well.

Very helpful. So if we have a global growth kind of story, I think one thing that we would get from investors, they're looking for stories with pricing power, in a world where pricing power seems to be eroding for many consumer discretionary business models. So can you give us some perspective around your thoughts on the different levers you have at your disposal from, let's say, class pricing, royalty rate fees, etcetera, maybe, maybe give some perspective there on the different levers you have at your disposal to kind of continue to kind of have that pricing power in your toolkit beyond just the nice member growth that you're seeing and traffic and utilization growth that you're seeing at the core?

Yes, Randy, I'll take that one. I mean, when you look at the top line, obviously, the scale of the business, when you look at some of the fees, like on royalty, we typically charge a 7% fee across our portfolio. Club Pilates today has been moved up to 8%. As brands get a larger scale, as AUVs continue to climb, it gives us the ability on future openings to consider maybe moving from a 7% to an 8% royalty, so we have a little bit of pricing power there. When you talk about other scale items, things like our tech fee, those become opportunistic in the sense that they become somewhat profit centers as we open more and more studios. So they'll drive higher margin pass-through to the business. On an OpEx standpoint, we've looked at a lot of opportunities already. And we continue to explore how do we drive more margin out of things like equipment and merchandise, giving pricing power, so being able to go back to vendors and ask for discounts based off of volume commitments, and we've done that with Club Pilates. We've done that with CycleBar. You know, StretchLab is another opportunity, as we continue to open up high volumes there, we could look at. What do you think about some of our other vendors too, given our scale? The B2B opportunity has been really great for us because we do have so many distribution points across the U.S. It's what do you layer on top of this massive network that we have on a domestic footprint, and eventually, we can consider that on the international in countries like Australia, where they have a considerable number of units. But we've done a good job so far of creating partnerships with the Lululemons of the world, the Seafloor beverage companies of the world, where we can now start putting them into our studios to drive higher margins. So we've looked at all areas of the supply chain. We continue to look at that. We announced a number of new partnerships related to like LG, on this call, where that's another opportunity for us to use our scale and our ability to drive volume to generate higher margins.

Very helpful. Thanks, guys.

Thank you. We take the next question from the line of Brian Harbour with Morgan Stanley. Please go ahead.

Yes, good afternoon. And thank you guys. John, you had said just on 2023 outlook, it's about a 35.5% EBITDA margin at the midpoint. But then I think there was also a comment, to get to 35% to 39% in 2023. I guess the question is just what could drive some upside to that? What would enable you to perhaps do better than that on EBITDA margins?

Yes, and the largest contribution to the margin expansion that we’ll realize is royalties, right. We had really strong AUV growth in 2022, the momentum so far in 2023 is very promising. So for us, the more studios we get open, the more our install base continues to exceed expectations. In 2022, we saw 25% same-store sales, high teens in Q4. So far in Q1, we're seeing that carry into the year. So we've taken kind of a conservative approach on same-store sales in our models given the macro and not having a crystal ball to see what it looks like in the second half of this year. But if studios continue to perform in a similar fashion as they did in 2022, that 100% royalty margin flows right to the bottom line. So again, taking a watch and see approach, providing the best outlook we have with the information we have right now for 2023. But top-line growth driven by royalties, some B2B opportunities could be helpful for us in 2023 as we start to assign more deals on that front, which carry typically very high margins, and international business continuing to grow ahead of expectations, as Anthony just talked about, those are all really strong high-margin pass-through, top line line items that can flow to the bottom line to push revenues into the high 30s and the same comments apply for 2024 is when you think about how do you get to a 40 plus margin. Again, it's just growing that install base, executing on these B2B opportunities and continuing to add more studios, both domestically and internationally.

Okay, great. Thank you. Sarah, anything more you could say about just the XPASS at this point? In terms of out of that member count, how many of those are XPASS members? How much do you think that's benefiting at this point on my revenue and EBITDA perspective?

Yes, what we're continuing to see on the XPASS is that it is driving great awareness across the broader ecosystem. CAC was down, we're driving incremental leads into the system, acquiring brand new customers into Xponential and all the brands that we haven't seen before. So it's continued to operate the way that we've anticipated that would. We will be developing a new app and gamification platform that will drive even greater awareness in 2023. But so far, we're not seeing that it's a huge revenue driver into the system.

Thank you. We’ll take the next question from the line of Alex Perry with Bank of America. Please go ahead.

Hi, thanks for taking my questions. And congrats on another strong quarter. I guess just first, so the system-wide sales guidance, a plus 30 total revenue guide at 18%. I guess that would sort of imply that maybe franchise revenue growth should be higher than equipment revenue as your sort of new studio opening cadence is 8%. I guess first, is that right? And should we assume sort of equipment revenue growth in line with your openings, or will be more significant if you're opening more equipment-intensive brands? And then just as a follow-up to the last question that was asked the high teens same-store sales growth, sort of quarter-to-date, what's been the key driver there? Is that mostly very strong January number growth versus last year? Thanks.

Yes, thanks, Alex, I'll take this one. When you look at 2022, equipment revenue was roughly about 18% of the total revenue. We derived, kind of moving into 2023, it will still be in a very high heavy growth phase. So you'll see a lot of equipment installed, which we recognize that revenue at the time we do the installation, which is only a couple of weeks before the studio opens. My expectation around 2023 is that it will roughly be around 20% of our total revenue for 2023. When you look at franchise revenue, the largest component of that, obviously, is royalties, which made up about 30% of the total franchise revenue line. It will be slightly higher in 2023, the royalties as a percentage of the total franchise revenue. So you'll continue to see equipment revenue be a large portion of the total revenue as a percentage for the coming years because we're in this high growth phase with a lot of new installations and new openings happening. And then in regards to your comments around same-store sales or system-wide sales, 95% of the growth in system-wide sales is coming from new members. You will remember when a member signs up at a studio, they in essence lock in their monthly rate. Unless they cancel and come back, most likely, because we're constantly taking price, as studios have more and more members and there's less and less capacity in the studio, we raise prices. So it's a supply and demand type pricing. So 95% of the growth in the last four quarters has been us signing up more members per studio and 5% is priced. So we have an opportunity to continue to take price as we raise it in the studios, what you do every day. But the majority of the growth is coming from the fact that we are acquiring more and more members in our studios.

That's incredibly helpful. And then I guess just my second question is, was there a SG&A run rate to be using? I think it was running a bit higher last year due to more corporate-run transition studios. Are we, are you going to sort of downsize that like it’s the right SG&A run rate to be using is like low 30 million or where should we be there? Thanks.

Yes, so in 2022, it ran roughly excluding stock-based compensation expense or equity-based compensation expense, and ran roughly about 41% of revenue. In 2023 the objective is to obviously get SG&A closer to being more efficient in line because we won't have as many costs related to some of the transfer studios. So I would assume around 35%, 36% is the optimal point for us, and 2023 that will drive down to. My expectation is Q1 and Q2 will slightly be above that 36%. And it'll drive into the lower 30s as we get into Q3 and Q4. So you'll see kind of a ramp down. The average year will be about 35% to 36% on average, excluding stock-based comp.

That's incredibly helpful. Best of luck going forward.

Thanks, Alex.

Thank you. We’ll take our next question from the line of John Heinbockel with Guggenheim Partners. Please go ahead.

Hey, can you guys talk to you I just remind us, right when you think about members per studio, particularly right, how they open up? What are the outliers, right, in terms of which brands will typically start with more members versus less? And then I think, if they look at your pipeline for 2023, I mean it's fairly broad base. But is there any big difference in terms of 2023 openings by brand versus 2022? We'll be seeing more stretch labs, which is a pretty big pipeline.

Yes, I think you'll see Stretch Lab, you'll see Club Pilates still, you'll see Rumble and BFT. Obviously, Rumble and BFT coming from the most recent sales of those brands because they're the newest brands, there's most white space. So we start to sell those. We start selling Rumble before BFT. So we'll start opening more Rumbles before we start opening more BFTs. You see quite a decent backlog at Stretch Lab about 500 units. So that's why there's a lot of those to open, and then with Club Pilates, really, because that brand is doing so well. There are still a few hundred of those to open.

Okay, maybe as a follow up to that, right, because you talked about capacity. So if you think about maybe you're looking at across brands, and I know they're different, right in terms of capacity, but when you look at the highest AUV studios, you think about where you can add capacity, right? Because in some cases, you can't add capacity to those classes. So you'd have to add additional classes adjacent to what you what your schedule looks like today. Is that fair?

Yes. John, did you get to hear the answer to the first question on the openings?

I understood part of it, but maybe not all.

Alright, so I think in a nutshell I was saying that in. In 2023, you will see Stretch Lab clubs Pilates, Rumble and BFT. And when you look at those brands across obviously Rumble will be a key opening because we sold Rumbles of BFTs previously, and then Stretch Lab we have about a 500 store backlog. CP, we've got a few hundred store backlog, and we're pushing on them, the CP brand to make sure that we handle the terminations quickly, so that we make sure we're staying on schedule with those. But then I think you had a follow-up question to that as well, as far as 2022. And what we saw did you get did you get the answer to that one?

Well, you talked about members, typically, the way we model the kind of the ads design curve is the expectation is that we have somewhere between like 275 to 300 members, the first year, and that grows to like 375 to 400 by year two. When you look at the system as a whole, given how young it is, and the number of studios we just opened. I think you're asking a question of like how will we continue to see growth there? What is the expectation? And there's still a fair amount of capacity less than the installed base for us to continue to add new members and grow AUVs we still have the opportunity to take price as we add new members as well. So there's plenty of opportunity for margin expansion, based off of us continuing to add more members per studio, which we continue to record every quarter.

Okay, thank you guys.

Thank you. We’ll take our next question from the line of Warren Cheng with Evercore ISI. Please go ahead.

Hey, guys, very impressive result here in a really tough environment. I had a question on the new store, new studio openings guidance. So obviously really strong momentum there based on your guidance. But I was curious, the extent to which macro headwinds like inflation or these longer construction timelines or higher interest rates are affecting your franchisees and their open plans here. And whether some of that's embedded in that 540 to 560 number, and what are the biggest factors that could cause you to swing across that low end to the high end of that range?

The only challenges we face are macroeconomic factors and construction-related issues. Despite these challenges, the company is increasing its guidance on openings on a year-over-year basis. Financing is not a concern for us, and our main focus is on identifying the best locations and negotiating favorable leases to ensure the long-term health and value of the business. While it’s possible to open more locations, we have to be cautious to avoid close proximities or signing suboptimal leases for franchisees. We aren’t experiencing some of the macro issues that others in the fitness industry face, such as the need for extensive air conditioning or large construction projects. Our new builds typically range from 1,500 to 2,000 square feet, and we utilize existing air conditioning systems from the previous businesses at those sites. Our construction needs are minimal, primarily involving modifications to fit our requirements. Brands like StretchLab or Club Pilates often require just a simple layout with few walls and one bathroom, leading to low-cost buildouts.

That's really useful color. And then my follow-up, I wanted to ask about the B2B partnerships. So you've done a pretty wide range here in the last year, and it seems like the pace of partnerships is picking up a little bit. Are there certain channels that are the most fruitful for customer acquisition? And also, has there been any thought about migrating some of these partnerships into some kind of subscription or fee or economic sharing maybe over time, maybe for some of your higher engagement channels?

Yes, so I mean, like, we talked about it, that this B2B partnership piece, or brand access, or corporate partnerships, or whatever, whatever the term is that people would like to use at the end of the day, we're teaming up and partnering with other great companies to really exploit the Xponential name, and its brands to deliver what I like to call negative CAC, which is where brands actually pay us to deliver customers into our studios. So you see that with Lululemon and Princess and LG and all the different deals that we're doing is really to start to make Xponential a lifestyle, health and wellness brand on its own, with the 10 brands underneath it, and also allow us to leverage the other assets. And I like to tell the team that, you know, what do we do for a living? What's our day job? Like we open gyms for a living, that's our day job. But then what do you do on evenings and weekends? Right? Like, what else can we do with the assets here? Well, we have something like XPLUS, it's great. And we can operate XPLUS and try and operate in the digital space like everybody else, and try and fight everybody for customers and drive CAC norm. Or we can go and do deals like we did with Lululemon, where we get paid from them, or do deals like we did with Princess where we get paid for them. And then our XPLUS ends up on the Mirror and then ends up playing on the Mirror inside new Lululemon stores, or Nordstrom stores or people's homes, and then they're in 23,000 state rooms, when they're on a Princess Cruise, they got to turn on their LG TV when they get home and it's there too. So the idea is to really meet the customer in multiple places, wherever we can. It would be our goal that by the time someone parks a Starbucks to get a coffee in the morning and they see a Pure Barre sign next door, if they're sick of seeing that brand everywhere, right, because they've seen it on a cruise, they've seen it on a Mirror, they've seen it in the Lululemon store, they've seen it from one of their insurance sending them advertisements or Territory Foods or whoever it might be. And so we want to make sure that we're getting a lot of those touch points out there to drive customer acquisition costs down and not just be smarter than everybody else, and not just sit out and compete and bang it out for the most expensive pay-per-click we can, but find other ways that we can actually get paid, and our franchisees can receive lead flow really free of cost.

Thanks, Anthony. Thanks, John. Great job. Good luck.

Thank you, ladies and gentlemen, we have reached the end of the question-and-answer session. And I'd like to turn the call back over to Anthony Geisler, CEO for closing remarks. Over to you, sir.

Thank you. And thank you again for joining today's earnings call and for your continued support. I'd also like to acknowledge our entire Xponential fitness team and franchisees with their strong operational execution in the fourth quarter. And we look forward to seeing many of you at the upcoming Raymond James ROTH BOA and City Conferences this month and we’ll speak to you again in May on our first-quarter call.

Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.