10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40638

Xponential Fitness, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	84-4395129
(State or other jurisdiction of<br><br>incorporation or organization)	(I.R.S. Employer<br>Identification No.)
17877 Von Karman Ave., Suite 100<br><br>Irvine, CA	92614
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (949)

346-3000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading<br><br>Symbol(s)	Name of each exchange on which registered
Class A common stock, par value $0.0001 per share	XPOF	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 28, 2023, the registrant had 32,938,771 shares of Class A common stock outstanding and 16,618,110 shares of Class B common stock outstanding.

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Changes to Stockholder's Equity (Deficit)	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
PART II.	OTHER INFORMATION	40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42
Signatures		43

Item 1. Financial Statements.

Xponential Fitness, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(amounts in thousands, except per share amounts)

			December 31,
			2022
Assets
Current Assets:
Cash, cash equivalents and restricted cash	28,135		$	37,370
Accounts receivable, net (Note 10)	22,408			25,555
Inventories	12,962			10,864
Prepaid expenses and other current assets	9,918			6,294
Deferred costs, current portion	4,083			4,131
Notes receivable from franchisees, net	1,501			1,520
Total current assets	79,007			85,734
Property and equipment, net	19,171			18,524
Right-of-use assets	40,487			30,079
Goodwill	165,697			165,697
Intangible assets, net	134,691			137,175
Deferred costs, net of current portion	43,530			43,620
Notes receivable from franchisees, net of current portion	851			1,067
Other assets	862			795
Total assets	484,296		$	482,691
Liabilities, redeemable convertible preferred stock and equity (deficit)
Current Liabilities:
Accounts payable	18,741		$	16,185
Accrued expenses	14,328			12,295
Deferred revenue, current portion	31,276			31,996
Current portion of long-term debt	4,260			3,035
Other current liabilities	8,553			9,265
Total current liabilities	77,158			72,776
Deferred revenue, net of current portion	110,809			109,465
Contingent consideration from acquisitions (Note 16)	43,665			28,182
Long-term debt, net of current portion, discount and issuance costs	257,626			133,039
Lease liability	39,888			30,583
Other liabilities	6,611			8,633
Total liabilities	535,757			382,678
Commitments and contingencies (Note 16)
Redeemable convertible preferred stock, 0.0001 par value, 400 shares authorized, 115 and 200 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	227,290			308,075
Stockholders' equity (deficit):
Undesignated preferred stock, 0.0001 par value, 4,600 shares authorized, none issued and outstanding as of March 31, 2023 and December 31, 2022	—			—
Class A common stock, 0.0001 par value, 500,000 shares authorized, 32,899 and 27,571 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	3			3
Class B common stock, 0.0001 par value, 500,000 shares authorized, 16,731 and 21,647 shares issued, and 16,656 and 21,572 shares outstanding as of March 31, 2023 and December 31, 2022, respectively	2			2
Additional paid-in capital	438,038			505,186
Receivable from shareholder (Note 10)	(19,956	)		(16,369	)
Accumulated deficit	(639,207	)		(641,903	)
Treasury stock, at cost, 75 shares outstanding as of March 31, 2023 and December 31, 2022	(1,697	)		(1,697	)
Total stockholders' deficit attributable to Xponential Fitness, Inc.	(222,817	)		(154,778	)
Noncontrolling interests	(55,934	)		(53,284	)
Total stockholders' deficit	(278,751	)		(208,062	)
Total liabilities, redeemable convertible preferred stock and stockholders' deficit	484,296		$	482,691

All values are in US Dollars.

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(amounts in thousands, except per share amounts)

	Three Months Ended March 31,
	2023			2022
Revenue, net:
Franchise revenue	$	32,966		$	25,500
Equipment revenue		13,094			7,779
Merchandise revenue		7,164			6,083
Franchise marketing fund revenue		6,211			4,435
Other service revenue		11,255			6,565
Total revenue, net		70,690			50,362
Operating costs and expenses:
Costs of product revenue		14,035			9,592
Costs of franchise and service revenue		4,032			4,234
Selling, general and administrative expenses (Note 10)		34,885			33,919
Depreciation and amortization		4,197			3,492
Marketing fund expense		5,006			4,355
Acquisition and transaction expenses		15,742			9,544
Total operating costs and expenses		77,897			65,136
Operating loss		(7,207	)		(14,774	)
Other (income) expense:
Interest income		(636	)		(389	)
Interest expense		7,977			2,861
Other expense		554			—
Total other expense		7,895			2,472
Loss before income taxes		(15,102	)		(17,246	)
Income tax benefit		(123	)		(2,067	)
Net loss		(14,979	)		(15,179	)
Less: net loss attributable to noncontrolling interests		(4,996	)		(7,660	)
Net loss attributable to Xponential Fitness, Inc.	$	(9,983	)	$	(7,519	)
Net loss per share of Class A common stock:
Basic	$	(1.38	)	$	(1.51	)
Diluted	$	(1.38	)	$	(1.51	)
Weighted average shares of Class A common stock outstanding:
Basic		30,754			22,737
Diluted		30,754			22,737

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Condensed Consolidated Statements of Changes to Stockholders' Equity (Deficit)

(Unaudited)

(amounts in thousands)

	Class A Common Stock				Class B Common Stock					Treasury Stock
	Shares		Amount		Shares			Amount		Shares		Amount			Additional Paid-In Capital			Receivable from <br>Shareholder			Accumulated<br>Deficit			Noncontrolling<br>interests			Total<br>Equity (Deficit)
Balance at December 31, 2022		27,571	$	3		21,647		$	2		75	$	(1,697	)	$	505,186		$	(16,369	)	$	(641,903	)	$	(53,284	)	$	(208,062	)
Equity-based compensation		—		—		—			—		—		—			5,598			—			—			14			5,612
Net loss		—		—		—			—		—		—			—			—			(9,983	)		(4,996	)		(14,979	)
Conversion of Class B shares to<br> Class A shares		4,926		—		(4,926	)		—		—		—			(2,332	)		—			—			2,332			—
Payment of preferred stock dividend		—		—		—			—		—		—			(2,069	)		—			—			—			(2,069	)
Adjustment of preferred stock to<br> redemption value		—		—		—			—		—		—			(62,660	)		—			—			—			(62,660	)
Vesting of Class B Shares		—		—		10			—		—		—			—			—			—			—			—
Vesting of restricted share units, net of shares<br> withheld for taxes		402		—		—			—		—		—			(7,935	)		—			—			—			(7,935	)
Deemed contribution from redemption of<br> preferred stock		—		—		—			—		—		—			—			—			12,679			—			12,679
Liability-classified restricted stock units<br> vested		—		—		—			—		—		—			2,250			—			—			—			2,250
Loan to shareholder and accumulated interest		—		—		—			—		—		—			—			(3,587	)		—			—			(3,587	)
Balance at March 31, 2023		32,899	$	3		16,731		$	2		75	$	(1,697	)	$	438,038		$	(19,956	)	$	(639,207	)	$	(55,934	)	$	(278,751	)

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Condensed Consolidated Statements of Changes to Stockholders' Equity (Deficit)

(Unaudited)

(amounts in thousands)

	Class A Common Stock				Class B Common Stock
	Shares		Amount		Shares			Amount		Additional Paid-In Capital			Receivable<br>from Shareholder			Accumulated<br>Deficit			Noncontrolling<br>interests			Total<br>Equity (Deficit)
Balance at December 31, 2021		23,898	$	2		22,969		$	2	$	—		$	(10,600	)	$	(643,833	)	$	443,960		$	(210,469	)
Equity-based compensation		—		—		—			—		2,423			—			—			12,204			14,627
Net loss		—		—		—			—		—			—			(7,519	)		(7,660	)		(15,179	)
Conversion of Class B shares to Class A shares		351		—		(351	)		—		517,283			—			—			(517,283	)		—
Payment of preferred stock dividend		—		—		—			—		(3,250	)		—			—			—			(3,250	)
Adjustment of preferred stock to redemption value		—		—		—			—		(50,931	)		—			—			—			(50,931	)
Vesting of Class B Shares		—		—		1,947			—		—			—			—			—			—
Balance at March 31, 2022		24,249	$	2		24,565		$	2	$	465,525		$	(10,600	)	$	(651,352	)	$	(68,779	)	$	(265,202	)

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(amounts in thousands)

	Three Months Ended March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(14,979	)	$	(15,179	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		4,197			3,492
Amortization and write off of debt issuance cost		283			33
Amortization of discount on long-term debt		609			151
Change in contingent consideration from acquisitions		15,742			9,546
Amortization of right-of-use assets		1,212			469
Bad debt recovery		(21	)		(617	)
Equity-based compensation		6,056			15,248
Non-cash interest		(478	)		(208	)
Gain on disposal of assets		—			(43	)
Changes in assets and liabilities:
Accounts receivable		3,230			(3,300	)
Inventories		(2,098	)		(2,289	)
Prepaid expenses and other current assets		(3,083	)		(2,117	)
Operating lease liabilities		(1,228	)		(489	)
Deferred costs		138			(818	)
Notes receivable, net		2			5
Accounts payable		2,794			(2,758	)
Accrued expenses		433			(4,633	)
Other current liabilities		(1,800	)		20
Deferred revenue		624			5,924
Other assets		(68	)		(10	)
Other liabilities		(214	)		461
Net cash provided by operating activities		11,351			2,888
Cash flows from investing activities:
Purchases of property and equipment		(2,127	)		(1,798	)
Proceeds from sale of assets		—			65
Purchase of intangible assets		(470	)		(316	)
Notes receivable issued		—			(585	)
Notes receivable payments received		212			426
Net cash used in investing activities		(2,385	)		(2,208	)
Cash flows from financing activities:
Borrowings from long-term debt		126,100			—
Payments on long-term debt		(1,065	)		(740	)
Debt issuance costs		(115	)		(46	)
Payment of preferred stock dividend and deemed dividend		(1,320	)		(4,875	)
Payment of contingent consideration		—			(589	)
Payments for taxes related to net share settlement of restricted share units		(7,935	)		—
Payments for redemption of preferred stock		(130,766	)		—
Loan to shareholder (Note 10)		(3,100	)		—
Net cash used in financing activities		(18,201	)		(6,250	)
Decrease in cash, cash equivalents and restricted cash		(9,235	)		(5,570	)
Cash, cash equivalents and restricted cash, beginning of period		37,370			21,320
Cash, cash equivalents and restricted cash, end of period	$	28,135		$	15,750

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(amounts in thousands)

	Three Months Ended March 31,
	2023		2022
Supplemental cash flow information:
Interest paid	$	7,036	$	2,499
Income taxes paid		550		146
Noncash investing and financing activity:
Capital expenditures accrued	$	1,169	$	807
Adjustment of convertible preferred stock to redemption value		62,660		50,931
Liability-classified restricted stock units vested		2,250		—
Deemed contribution from redemption of convertible preferred stock		12,679		—
Accrued tax withholding related to convertible preferred stock dividend		749		—

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

Note 1 – Nature of Business and Operations

Xponential Fitness, Inc. (the “Company” or “XPO Inc.”), was formed as a Delaware corporation on January 14, 2020. On July 23, 2021, the Company completed an initial public offering (“IPO”) of 10,000 shares of Class A common stock and entered into a series of transactions to implement an internal reorganization. Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being an ownership interest in Xponential Fitness LLC (“XPO LLC”) through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”).

XPO LLC was formed on August 11, 2017 as a Delaware limited liability company for the sole purpose of franchising fitness brands in several verticals within the boutique fitness industry. XPO LLC is a wholly owned subsidiary of XPO Holdings, which was formed on February 24, 2020, and prior to the IPO, ultimately, H&W Franchise Holdings, LLC (the “Parent”). Prior to the formation of XPO Holdings, the Company was a wholly owned subsidiary of H&W Franchise Intermediate Holdings, LLC (the “Member”).

As of March 31, 2023, the Company’s portfolio of ten brands consists of: “Club Pilates,” a Pilates facility franchisor; “CycleBar,” a premier indoor cycling franchise; “StretchLab,” a fitness concept offering one-on-one assisted stretching services; “Row House,” a rowing concept that provides an effective and efficient workout centered around the sport of rowing; “YogaSix,” a yoga concept that concentrates on connecting to one’s body in a way that is energizing; “AKT,” a dance-based cardio workout concept that combines toning, interval and circuit training; “Pure Barre,” a total body workout concept that uses the ballet barre to perform small isometric movements; “Stride,” a running concept that offers treadmill-based high-intensity interval training and strength-training; “Rumble,” a boxing concept that offers boxing-inspired group fitness classes; and “BFT,” a high-intensity interval training concept that combines functional, high-energy strength, cardio and conditioning-based classes, designed to achieve the unique health goals of its members. The Company, through its brands, licenses its proprietary systems to franchisees who in turn operate studios to promote training and instruction programs to their club members within each vertical. In addition to franchised studios, the Company operated 87 and 20 company-owned transition studios as of March 31, 2023 and 2022, respectively.

In connection with the IPO, XPO Inc. entered into a series of transactions to implement an internal reorganization, (the “Reorganization Transactions”). The pre-IPO members of XPO Holdings (the “Pre-IPO LLC Members”) who retained their equity ownership in the form of limited liability company units (the “LLC Units”), immediately following the consummation of the Reorganization Transactions are referred to as “Continuing Pre-IPO LLC Members.” Because XPO Inc. manages and operates the business and controls the strategic decisions and day-to-day operations of XPO LLC through its ownership of XPO Holdings and because it also has a substantial financial interest in XPO LLC through its ownership of XPO Holdings, it consolidates the financial results of XPO LLC and XPO Holdings, and a portion of its net income (loss) is allocated to the noncontrolling interest to reflect the entitlement of the Continuing Pre-IPO LLC Members to a portion of XPO Holdings’ net income or loss.

Immediately following the closing of the IPO, XPO LLC is the predecessor of the Company for financial reporting purposes. As the sole managing member of XPO LLC, the Company operates and controls all of the business and affairs of XPO LLC. The Reorganization Transactions are accounted for as a reorganization of entities under common control. As a result, the condensed consolidated financial statements of the Company recognize the assets and liabilities received in the Reorganization Transactions at their historical carrying amounts, as reflected in the historical consolidated financial statements of XPO LLC. The Company consolidates XPO LLC on its condensed consolidated financial statements and records a noncontrolling interest related to the Class B units held by the Class B stockholders on its condensed consolidated balance sheet and statement of operations. Basis of presentation – The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). In the opinion of management, the Company has made all adjustments necessary to present fairly the condensed consolidated statements of operations, balance sheets, changes in stockholders'/member’s equity (deficit), and cash flows for the periods presented. Such adjustments are of a normal, recurring nature. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”). Interim results of operations are not necessarily indicative of results of operations to be expected for a full year. Principles of consolidation – The Company’s consolidated financial statements include the accounts of its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

Use of estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. Actual results could differ from these estimates under different assumptions or conditions.

Note 2 – Summary of Significant Accounting Policies

Segment and geographic information –The Company operates in one reportable and operating segment. The Company generated $2,980 and $3,380 of revenue outside the United States during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023 and December 31, 2022, the Company did not have material assets located outside of the United States. Cash, cash equivalents and restricted cash – The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

The Company has marketing fund restricted cash, which can only be used for activities that promote the Company’s brands. In July 2022, the Company issued a $750 standby letter of credit to a third-party financing company, who provides loans to the Company's qualified franchisees. The standby letter of credit is contingent upon the failure of franchisees to perform according to the terms of underlying contracts with the third party. The Company deposited cash in a restricted account as collateral for the standby letter of credit. In addition, the Company, as a guarantor, is required to recognize, at inception of the guaranty, a liability for the fair value of the obligation undertaken in issuing the guarantee. See Note 16 for further discussion of such obligations guaranteed.

The Company's restricted cash consists of marketing fund restricted cash and guarantee of standby letter of credit. Restricted cash was $5,917 and $5,381 at March 31, 2023 and December 31, 2022, respectively. Accounts receivable and allowance for doubtful accounts – Accounts receivable primarily consist of amounts due from franchisees and vendors. These receivables primarily relate to royalties, advertising contributions, equipment and product sales, training, vendor commissions and other miscellaneous charges. Receivables are unsecured; however, the franchise agreements provide the Company the right to withdraw funds from the franchisee’s bank account or to terminate the franchise for nonpayment. On a periodic basis, the Company evaluates its accounts receivable balance and establishes an allowance for doubtful accounts based on a number of factors, including evidence of the franchisee’s ability to comply with credit terms, economic conditions and historical receivables. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Credit Losses – Effective January 1, 2023, the Company adopted ASU 2016-13, which required the recognition of expected credit losses for account and notes receivable. The adoption of the new standard did not have a material impact on the Company's condensed consolidated financial statements as the expected credit loss model was not significantly different from the Company's prior policy and methodology for determining the allowance for doubtful accounts. For additional information refer to section below titled “Recently adopted accounting pronouncements.”

The Company’s accounts and notes receivable are recorded at net realizable value, which includes an appropriate allowance for estimated credit losses. The estimate of credit losses is based upon historical bad debts, current receivable balances, age of receivable balances, the customer’s financial condition and current economic trends, all of which are subject to change. Actual uncollected amounts have historically been consistent with the Company’s expectations. The Company’s payment terms on its receivables from franchisees are generally 30 days.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

The following table provides a reconciliation of the activity related to the Company’s accounts receivable and notes receivable allowance for credit losses:

	Accounts receivable			Notes receivable		Total
Balance at January 1, 2023	$	865		$	719	$	1,584
Bad debt expense recognized during the year		(83	)		62		(21	)
Write-off of uncollectible amounts		(2	)		—		(2	)
Balance at March 31, 2023	$	780		$	781	$	1,561

Accrued expenses – Accrued expenses consisted of the following:

	March 31,		December 31,
	2023		2022
Accrued compensation	$	4,071	$	4,611
Contingent consideration from acquisitions, current portion		2,511		2,203
Sales tax accruals		2,265		3,186
Legal accruals		638		464
Accrued tax withholding related to convertible preferred stock dividend		1,291		—
Other accruals		3,552		1,831
Total accrued expenses	$	14,328	$	12,295

Comprehensive income – The Company does not have any components of other comprehensive income recorded within the consolidated financial statements and therefore does not separately present a consolidated statement of comprehensive income in the condensed consolidated financial statements. Fair value measurements – Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, applies to all financial assets and financial liabilities that are measured and reported on a fair value basis and requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. ASC 820 establishes a valuation hierarchy for disclosures of the inputs to valuations used to measure fair value.

This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.

Level 2 – Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates and yield curves), and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).

Level 3 – Unobservable inputs that reflect assumptions about what market participants would use in pricing the asset or liability. These inputs would be based on the best information available, including the Company’s own data.

The Company’s financial instruments include cash, restricted cash, accounts receivable, notes receivable, accounts payable, accrued expenses and notes payable. The carrying amounts of these financial instruments approximates fair value due to their short maturities, proximity of issuance to the balance sheet date or variable interest rate.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

Redeemable convertible preferred stock – The redeemable convertible preferred stock (the “Convertible Preferred”) becomes redeemable at the option of the holder as of a specific date unless an event that is not probable of occurring happens before that date. Therefore, the Company determined that it is probable that the Convertible Preferred will become redeemable based on the passage of time. The Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. Noncontrolling interests – Noncontrolling interests represent the economic interests of XPO LLC held by Class B common stockholders. Income or loss is attributed to the noncontrolling interests based on the weighted average LLC interests outstanding during the period. The noncontrolling interests' ownership percentage can fluctuate over time as the Class B common stockholders elect to exchange their shares of Class B common stock for Class A common stock. Earnings (loss) per share – Basic earnings (loss) per share is calculated by dividing the earnings (loss) attributable to Class A common stockholders by the number of weighted-average shares of Class A common stock outstanding. Shares of Class B common stock do not share in the earnings of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings (loss) per share of Class B common stock under the two-class method has not been presented.

Diluted earnings per share adjusts the basic earnings per share calculation for the potential dilutive impact of common shares such as equity awards using the treasury-stock method. Diluted earnings per share considers the impact of potentially dilutive securities except in periods in which there is a loss because the inclusion of the potential common shares would have an anti-dilutive effect. Shares of Class B common stock are considered potentially dilutive shares of Class A common stock; however, related amounts have been excluded from the computation of diluted earnings per share of Class A common stock because the effect would have been anti-dilutive under the if-converted and two-class methods.

Income taxes – The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities (“DTAs” and “DTLs”) for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date. The Company recognizes DTAs to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If the Company determines that it would be able to realize DTAs in the future in excess of the net recorded amount, an adjustment to the DTA valuation allowance would be made, which would reduce the provision for income taxes.

The Company records uncertain tax positions in accordance with ASC Topic 740 on the basis of a two-step process in which the Company (1) determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company does not have any uncertain tax positions. The Company recognizes potential interest and penalties, if any, related to income tax matters in income tax expense. The Company did not incur any interest or penalties for the three months ended March 31, 2023 and 2022.

Reclassifications

Certain amounts have been reclassified to conform to current year presentation.

Recently adopted accounting pronouncements –

Credit Losses – In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326).” This standard provides a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses and applies to trade and notes receivables. The adoption of this accounting standard on January 1, 2023 did not have a material impact on the Company's condensed consolidated financial statements as the expected credit loss model was not significantly different from the prior policy and methodology for determining the allowance for doubtful accounts. For additional information refer to section above titled “Credit Losses.”

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

Reference Rate Reform – In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the expected transition away from reference rates that are expected to be discontinued, such as LIBOR. ASU 2020-04 was effective upon issuance. In December 2022, the FASB issued ASU No. 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. ASU 2022-06 was effective upon issuance. The adoption of this accounting standard did not have a material impact on the Company's condensed consolidated financial statements.

Business Combinations – In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” ASU 2021-08 primarily addresses the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The amendment improves comparability by specifying for all acquired revenue contracts regardless of their timing of payment (1) the circumstances in which the acquirer should recognize contract assets and contract liabilities that are acquired in a business combination and (2) how to measure those contract assets and contract liabilities. This results in better comparability for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years with early adoption permitted. The adoption of this accounting standard, effective January 1, 2023, did not have an impact on the Company's condensed consolidated financial statements.

Recently issued accounting pronouncements –

The Company qualifies as an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). An emerging growth company may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company, the JOBS Act permits the Company an extended transition period for complying with new or revised accounting standards affecting public companies. The Company has elected to use this extended transition period.

Note 3 – Acquisitions and Dispositions

The Company completed the following acquisitions and dispositions which contain Level 3 fair value measurements related to the recognition of goodwill and intangibles.

Studios

During the three months ended March 31, 2023 and 2022, the Company refranchised three and nine company-owned transition studios, respectively, and received no proceeds and recorded no gain or loss on disposal of the studio assets. The Company is actively seeking to refranchise the remaining company-owned transition studios, although it expects to hold a number of transition studios for a limited time while facilitating the transfer of these studios to new or existing franchisees.

When the Company believes that a studio will be refranchised for a price less than its carrying value, but does not believe the studio has met the criteria to be classified as held for sale, the Company reviews the studio for impairment. The Company evaluates the recoverability of the studio assets by comparing estimated sales proceeds plus holding period cash flows, if any, to the carrying value of the studio. For studio assets that are not deemed to be recoverable, the Company recognizes impairment for any excess of carrying value over the fair value of the studios, which is based on the expected net sales proceeds. During the three months ended March 31, 2023 and 2022, the Company did not record any impairment charges.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

BodyFit Trademark

In the quarter ended June 30, 2022, the Company entered into a Trademark Acquisition Agreement with Vitalize, LLC dba Bodybuilding.com (the "Seller") whereby the Company acquired all rights, titles, and interests in and to the BodyFit trademark in the United States. The acquisition was recorded as an asset acquisition. The aggregate purchase consideration for the acquisition was $10,300. The purchase price consisted of $5,500 of cash consideration and $4,800 of noncash consideration, which was recorded as a contract liability. The noncash consideration relates to signing of a brand fee agreement (as defined in Note 4) where the Seller has access to the Company's franchisees to sell its products to franchisees over the term of the agreement. The fair value of the trademark was determined using the relief from royalty method and is considered to have a 10-year life. The fair value of the contract liability was determined using the total fair value of the asset acquired reduced by the amount of cash consideration provided, which is a Level 3 measurement. The Trademark Acquisition Agreement is subject to termination due to a third-party right of first refusal. The likelihood of exercise of the right of first refusal was considered remote as of March 31, 2023.

Note 4 – Contract Liabilities and Costs from Contracts with Customers

Contract liabilities – Contract liabilities consist of deferred revenue resulting from franchise fees, development fees and master franchise fees paid by franchisees, which are recognized over time on a straight-line basis over the franchise agreement term. The Company also receives upfront payments from vendors under agreements that give the vendors access to franchisees’ members to provide certain services to the members (“brand fees”). Revenue from the upfront payments is recognized on a straight-line basis over the agreement term and is reported in other service revenue. Also included in the deferred revenue balance are non-refundable prepayments for merchandise and equipment, as well as revenues for training, service revenue and on-demand fees for which the associated products or services have not yet been provided to the customer. The Company classifies these contract liabilities as either current deferred revenue or non-current deferred revenue in the condensed consolidated balance sheets based on the anticipated timing of delivery. The following table reflects the change in franchise development and brand fee contract liabilities for the three months ended March 31, 2023. Other deferred revenue amounts of $17,284 are excluded from the table as the original expected duration of the contracts is one year or less.

	Franchise<br>development<br>fees			Brand fees			Total
Balance at December 31, 2022	$	116,244		$	6,641		$	122,885
Revenue recognized that was included in deferred<br> revenue at the beginning of the year		(4,163	)		(1,531	)		(5,694	)
Deferred revenue recorded as settlement in<br> purchase accounting		(718	)		—			(718	)
Increase, excluding amounts recognized as revenue<br> during the year		7,160			1,168			8,328
Balance at March 31, 2023	$	118,523		$	6,278		$	124,801

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

The following table illustrates estimated revenue expected to be recognized in the future related to performance obligations that were unsatisfied (or partially unsatisfied) as of March 31, 2023. The expected future recognition period for deferred franchise development fees related to unopened studios is based on management’s best estimate of the beginning of the franchise license term for those studios. The Company elected to not disclose short term contracts, sales and usage-based royalties, marketing fees and any other variable consideration recognized on an “as invoiced” basis.

Contract liabilities to be recognized in revenue in	Franchise<br>development<br>fees		Brand fees		Total
Remainder of 2023	$	7,064	$	3,887	$	10,951
2024		9,643		1,564		11,207
2025		10,464		414		10,878
2026		11,835		413		12,248
2027		12,080		—		12,080
Thereafter		67,437		—		67,437
	$	118,523	$	6,278	$	124,801

The following table reflects the components of deferred revenue:

	March 31,		December 31,
	2023		2022
Franchise and area development fees	$	118,523	$	116,244
Brand fees		6,278		6,641
Equipment and other		17,284		18,576
Total deferred revenue		142,085		141,461
Non-current portion of deferred revenue		110,809		109,465
Current portion of deferred revenue	$	31,276	$	31,996

Contract costs – Contract costs consist of deferred commissions resulting from franchise and area development sales by third-party and affiliate brokers and sales personnel. The total commission is deferred at the point of a franchise sale. The commissions are evenly split among the number of studios purchased under the development agreement and begin to be amortized when a subsequent franchise agreement is executed. The commissions are recognized on a straight-line basis over the initial ten-year franchise agreement term to align with the recognition of the franchise agreement or area development fees. The Company classifies these deferred contract costs as either current deferred costs or non-current deferred costs in the condensed consolidated balance sheets. The associated expense is classified within costs of franchise and service revenue in the condensed consolidated statements of operations. At March 31, 2023 and December 31, 2022, there were approximately $3,688 and $3,589 of current deferred costs and approximately $43,386 and $43,445 in non-current deferred costs, respectively. The Company recognized franchise sales commission expense of approximately $2,035 and $2,553 for the three months ended March 31, 2023 and 2022, respectively.

Note 5 – Notes Receivable

The Company previously provided unsecured advances or extended financing related to the purchase of the Company’s equipment or franchise fees to various franchisees. These arrangements have terms of up to 18 months with interest typically based on LIBOR plus 700 basis points with an initial interest free period. The Company also provided loans to various franchisees through its relationship with Intensive Capital Inc. (“ICI”). The Company accrues the interest as an addition to the principal balance as the interest is earned. Activity related to these arrangements is presented within operating activities in the condensed consolidated statements of cash flows.

The Company has also provided loans for the establishment of new or transferred franchise studios to various franchisees. These loans have terms of up to ten years and bear interest at a stated fixed rate ranging from 0% to 15%, or variable rates based on LIBOR plus a specified margin. The Company accrues interest as an addition to the principal balance as the interest is earned. Activity related to these loans is presented within investing activities in the condensed consolidated statements of cash flows.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

At March 31, 2023 and December 31, 2022, the principal balance of the notes receivable was approximately $3,132 and $3,306, respectively. The Company evaluates loans for collectability upon issuance of the loan and records interest only if the loan is deemed collectable. To the extent a loan becomes past due, the Company ceases the recording of interest in the period that a reserve on the loan is established. On a periodic basis, the Company evaluates its notes receivable balance and establishes an allowance for doubtful accounts, based on a number of factors, including evidence of the franchisee’s ability to comply with the terms of the notes, economic conditions and historical collections. Account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Note 6 – Property and Equipment

Property and equipment consisted of the following:

	March 31,			December 31,
	2023			2022
Furniture and equipment	$	4,327		$	4,182
Computers and software		15,211			14,075
Vehicles		590			171
Leasehold improvements		7,920			7,533
Construction in progress		2,634			3,115
Less: accumulated depreciation		(11,511	)		(10,552	)
Total property and equipment	$	19,171		$	18,524

Depreciation expense for the three months ended March 31, 2023 and 2022 was $1,242 and $845, respectively.

Note 7 – Goodwill and Intangible Assets

Goodwill represents the excess of cost over the fair value of identifiable net assets acquired related to the original purchase of the various franchise businesses and acquisition of company-owned transition studios. Goodwill is not amortized but is tested annually for impairment or more frequently if indicators of potential impairment exist. The Company has not identified any events or circumstances at March 31, 2023 that would require an interim goodwill impairment test. The carrying value of goodwill at March 31, 2023 and December 31, 2022 totaled $165,697 net of cumulative impairment of $3,376.

Intangible assets consisted of the following:

		March 31, 2023							December 31, 2022
	Amortization<br>period<br>(years)	Gross<br>amount		Accumulated<br>amortization			Net<br>amount		Gross<br>amount		Accumulated<br>amortization			Net<br>amount
Trademarks	10	$	21,110	$	(3,134	)	$	17,976	$	21,110	$	(2,606	)	$	18,504
Franchise agreements	7.5 – 10		69,100		(27,175	)		41,925		69,100		(25,143	)		43,957
Web design and domain	3 – 10		430		(225	)		205		430		(196	)		234
Deferred video production costs	3		4,518		(2,540	)		1,978		4,046		(2,173	)		1,873
Total definite-lived intangible assets			95,158		(33,074	)		62,084		94,686		(30,118	)		64,568
Indefinite-lived intangible assets:
Trademarks	N/A		72,607		—			72,607		72,607		—			72,607
Total intangible assets		$	167,765	$	(33,074	)	$	134,691	$	167,293	$	(30,118	)	$	137,175

Amortization expense was $2,955 and $2,648, for the three months ended March 31, 2023 and 2022, respectively.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

The anticipated future amortization expense of intangible assets is as follows:

Remainder of 2023	$	8,670
2024		11,038
2025		10,504
2026		7,499
2027		6,280
Thereafter		18,093
Total	$	62,084

Note 8 – Debt

On April 19, 2021, the Company entered into a Financing Agreement with Wilmington Trust, National Association, as administrative agent and collateral agent, and the lenders party thereto (the “Credit Agreement”), which consists of a $212,000 senior secured term loan facility (the “Term Loan Facility”, and the loans thereunder, each a “Term Loan” and, together, the “Term Loans”). The Company’s obligations under the Credit Agreement are guaranteed by XPO Holdings and certain of the Company’s material subsidiaries and are secured by substantially all of the assets of XPO Holdings and certain of the Company’s material subsidiaries.

Under the Credit Agreement, the Company is required to make: (i) monthly payments of interest on the Term Loans and (ii) quarterly principal payments equal to 0.25% of the original principal amount of the Term Loans. Borrowings under the Term Loan Facility bear interest at a per annum rate of, at the Company’s option, either (a) the specified LIBOR rate plus a margin of 6.50% or (b) the Reference Rate (as defined in the Credit Agreement) plus a margin of 5.50% (11.30% at March 31, 2023).

The Credit Agreement also contains mandatory prepayments of the Term Loans with: (i) 50% of XPO Holdings’ and its subsidiaries’ Excess Cash Flow (as defined in the Credit Agreement), subject to certain exceptions; (ii) 100% of the net proceeds of certain asset sales and insurance/condemnation events, subject to reinvestment rights and certain other exceptions; (iii) 100% of the net proceeds of certain extraordinary receipts, subject to reinvestment rights and certain other exceptions; (iv) 100% of the net proceeds of any incurrence of debt, excluding certain permitted debt issuances; and (v) up to $60,000 of net proceeds in connection with an initial public offering of at least $200,000, subject to certain exceptions.

Unless agreed in advance, all voluntary prepayments and certain mandatory prepayments of the Term Loan made (i) on or prior to the first anniversary of the closing date are subject to a 2.0% premium on the principal amount of such prepayment and (ii) after the first anniversary of the closing date and on or prior to the second anniversary of the closing date are subject to a 0.50% premium on the principal amount of such prepayment. Otherwise, the Term Loans may be paid without premium or penalty, other than customary breakage costs with respect to LIBOR Rate Term Loans.

The Credit Agreement contains customary affirmative and negative covenants, including, among other things: (i) to maintain certain total leverage ratios, liquidity levels and EBITDA levels; (ii) to use the proceeds of borrowings only for certain specified purposes; (iii) to refrain from entering into certain agreements outside of the ordinary course of business, including with respect to consolidation or mergers; (iv) restricting further indebtedness or liens; (v) restricting certain transactions with affiliates; (vi) restricting investments; (vii) restricting prepayments of subordinated indebtedness; (viii) restricting certain payments, including certain payments to affiliates or equity holders and distributions to equity holders; and (ix) restricting the issuance of equity. As of March 31, 2023, the Company was in compliance with these covenants.

The Credit Agreement also contains customary events of default, which could result in acceleration of amounts due under the Credit Agreement. Such events of default include, subject to the grace periods specified therein, failure to pay principal or interest when due, failure to satisfy or comply with covenants, a change of control, the imposition of certain judgments and the invalidation of liens the Company has granted.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

On October 8, 2021, the Company entered into an amendment (the “Amendment”) to the Credit Agreement. The Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $38,000 (the “2021 Incremental Term Loan”), the proceeds of which were used to fund the BFT acquisition and the payment of fees, costs and expenses related to the Amendment. The Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2021 Incremental Term Loan) commencing on December 31, 2021 and (ii) amended the amount of the prepayment premium applicable in the event the 2021 Incremental Term Loan is prepaid within two years of the effective date of the Amendment.

On September 30, 2022, the Company entered into a third amendment (the “Third Amendment”) to the Credit Agreement. The Third Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $7,500 (the “2022 Incremental Term Loan”), the proceeds of which were used for the acquisition of BodyFit trademark and general corporate purposes, including funding working capital and the payment of fees, costs and expenses related to the Third Amendment. The Third Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2022 Incremental Term Loan) commencing on December 31, 2022 to $759 and (ii) amended the amount of the prepayment premium applicable in the event the 2022 Incremental Term Loan is prepaid within two years of the effective date of the Third Amendment.

On January 9, 2023, the Company entered into a fourth amendment (the "Fourth Amendment") to the Credit Agreement. The Fourth Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $130,000 (the "2023 Incremental Term Loan"), the proceeds of which were used to fund the Repurchase Transactions (see Note 11) and the payment of fees, costs and expenses related to the Amendment and the Repurchase Transactions. The Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2023 Incremental Term Loan) to $1,065 commencing on June 30, 2023 and (ii) amended the amount of the prepayment premium applicable in the event the 2023 Incremental Term Loan is prepaid.

In connection with the Fourth Amendment, the Company wrote off a pro rata portion of debt issuance costs related to the Term Loans aggregating $265, which was included in interest expense for the three months ended March 31, 2023.

The Company incurred debt issuance costs of $115 and $46 in the three months ended March 31, 2023 and 2022, respectively. Debt issuance cost amortization amounted to approximately $283 and $33 for the three months ended March 31, 2023 and 2022, respectively. Unamortized debt issuance costs as of March 31, 2023 and December 31, 2022 were $102 and $270, respectively, and are presented as a reduction to long-term debt in the condensed consolidated balance sheets.

Principal payments on outstanding balances of long-term debt as of March 31, 2023 were as follows:

	Amount
Remainder of 2023	$	3,195
2024		4,260
2025		259,202
Total	$	266,657

The carrying value of the Company’s long-term debt approximated fair value as of March 31, 2023 and December 31, 2022, due to the variable interest rate, which is a Level 2 input, or proximity of debt issuance date to the balance sheet date.

Note 9 – Leases

The Company leases office space, company-owned transition studios, warehouse, training centers and a video recording studio. Certain real estate leases include one or more options to renew. The exercise of lease renewal options is at the Company's sole discretion. When deemed reasonably certain of exercise, the renewal options are included in the determination of the lease term and lease payment obligation, respectively. The depreciable life of assets and leasehold improvements are limited by the expected lease term. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

Right-of-use (“ROU”) assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. When readily determinable, the Company uses the rate implicit in the lease contract in determining the present value of lease payments. If the implicit rate is not provided, the Company uses its incremental borrowing rate based on information available at the lease commencement date, including the lease term. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company lease terms may include options to extend or terminate the lease. Currently, it is not reasonably certain that the Company will exercise those options and therefore, the Company utilized the initial, noncancelable, lease term to calculate the lease assets and corresponding liabilities for all leases. The Company has certain insignificant short-term leases with an initial term of twelve months or less that are not recorded in the condensed consolidated balance sheets. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company applied the practical expedient as an accounting policy for classes of underlying assets that have fixed payments for non-lease components, to not separate non-lease components from lease components and instead to account for them together as a single lease component, which increases the amount of lease assets and corresponding liabilities.

Supplemental balance sheet information related to leases are summarized as follows:

Operating leases	Balance Sheet Location	March 31,<br> 2023		December 31, 2022
ROU assets, net	Right-of-use assets	$	40,487	$	30,079
Lease liabilities, short-term	Other current liabilities	$	4,873	$	3,786
Lease liabilities, long-term	Lease liability	$	39,888	$	30,583

Components of lease expense during the three months ended March 31, 2023 and 2022, are summarized as follows:

	Three Months Ended March 31
	2023						2022
	Related-party lease		Third-party leases		Total		Related-party lease		Third-party leases		Total
Operating lease costs	$	—	$	2,150	$	2,150	$	80	$	813	$	893
Variable lease costs		—		347		347		—		191		191
Short-term lease costs		—		—		—		—		107		107
Total	$	—	$	2,497	$	2,497	$	80	$	1,111	$	1,191

Supplemental cash flow information related to operating leases during the three months ended March 31, 2023 and 2022, are summarized as follows:

	Three Months Ended March 31
	2023		2022
Cash paid for amounts included in the measurement of operating lease liabilities	$	1,963	$	908
Lease liabilities arising from new ROU assets	$	11,621	$	—

Other information related to lease are summarized as follows:

	March 31, 2023			December 31, 2022
Weighted average remaining lease term (years)		7.5			7.5
Weighted average discount rate		8.3	%		8.8	%

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

Maturities of lease liabilities as of March 31, 2023 are summarized as follows:

	Amount
Remainder of 2023	$	6,532
2024		8,619
2025		8,667
2026		8,525
2027		7,678
Thereafter		21,857
Total future lease payments		61,878
Less: imputed interest		17,117
Total	$	44,761

Note 10 – Related Party Transactions

The Company has numerous transactions with the pre-IPO Member and pre-IPO Parent and its affiliates. The significant related party transactions consist of borrowings from and payments to the Member and other related parties under common control of the Parent.

In March 2021, the Company recorded a distribution to the Parent of $10,600, which the Parent used to fund a note payable under a debt financing obligation in connection with the acquisition of Rumble. The Company earned interest at the rate of 11% per annum on the receivable from the Parent. In connection with the Reorganization Transactions, the Parent merged with and into the Member. XPO Inc. recorded $10,600 receivable from shareholder, as the Rumble seller is a shareholder of XPO Inc., for the debt financing provided to the Rumble seller. In July 2022, the Company entered into a settlement agreement with the Rumble sellers to resolve disputes related to the acquisition and related agreements. Under the terms of the settlement, the Company will prospectively reduce the interest rate on the debt financing provided to the Rumble sellers from 11% per annum to 7.5% per annum if payment is in cash or 10% per annum if payment is in payment in kind and extend the maturity date of the debt financing. In 2022, the Rumble sellers borrowed an additional $5,050 under the debt financing agreement which was recorded as receivable from shareholder within equity. In January 2023, the Rumble sellers borrowed an additional $3,100 under the debt financing agreement which was recorded as receivable from shareholder within equity. During the three months ended March 31, 2023, the Company recorded $487 of interest in kind, which was recorded as an increase to receivable from shareholder within equity. In addition, the Company agreed to fund additional loans to the Rumble sellers under the existing debt financing agreement in an aggregate amount of $2,800 at various dates through July 2023.

In September 2019, the Company entered into a five-year building lease agreement, expiring August 31, 2024, with Von Karman Production LLC, which is owned by the Company’s Chief Executive Officer. Pursuant to the lease, the Company was obligated to pay monthly rent of $25 for the initial twelve months of the lease term with subsequent 3% annual rent increases. The Company recorded expense related to this lease of $80 in the three months ended March 31, 2022. In September 2022, the Company's Chief Executive Officer sold the building to an unaffiliated third party. The Company entered into a building lease agreement with the new owner.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

In December 2022, the Company entered into an agreement with the former owner of Row House, pursuant to which contingent consideration relating to the 2017 acquisition of Row House was settled in exchange for issuance of 105 Restricted Stock Units ("RSUs") which vest on the fourth anniversary of the grant date. As a result of the agreement, the Company recorded a reduction to the contingent consideration liability of $1,220 with an offsetting increase in additional paid-in capital and reclassified the former owner's outstanding note receivable of $1,834 to additional paid-in capital. In addition, pursuant to the agreement, the Company issued a four-year multi-tranche term loan with an option to borrow up to $20 per month in the aggregate principal amount of $960 bearing interest of 8.5% per annum, which was recorded as a liability and offsetting reduction in additional paid-in capital. The outstanding receivable from shareholder and the multi-tranche term loan are collateralized by 75 shares of Class B common stock held by the former owner, which were reclassified to treasury stock, and by the 105 RSUs. During the three months ended March 31, 2023, the former owner of Row House borrowed $180, which was recorded as a reduction to liability.

In March 2023, Spartan Fitness Holdings, LLC (“Spartan Fitness”), which currently owns and operates 60 Club Pilates studios, entered into a unit purchase agreement with Snapdragon Spartan Investco LP (the “Spartan SPV”), a special purpose vehicle controlled and managed by a member of the Company’s board of directors, pursuant to which Spartan SPV agreed to invest in the equity of Spartan Fitness. In addition, the same member of the Company’s board of directors also invested as a limited partner in the Spartan SPV. Spartan Fitness intends to use the investment from Spartan SPV to fund expansion of Club Pilates studios, among other concepts. Spartan Fitness also owns the rights to 38 Club Pilates licenses to open additional new units. During the three months ended March 31, 2023, the Company recorded franchise and marketing fund revenue aggregating $1,232 from studios owned by Spartan Fitness.

The Company earns revenues and has accounts receivable from franchisees who are also officers of the Company. Revenues from these affiliates, primarily related to franchise revenue, marketing fund revenue, package and memberships revenue and merchandise revenue, were $136 and $263 for the three months ended March 31, 2023 and 2022, respectively. Included in accounts receivable as of March 31, 2023 and December 31, 2022, is $4 and $4, respectively, for such sales.

Note 11 – Redeemable Convertible Preferred Stock

On July 23, 2021, the Company issued and sold in a private placement 200 newly issued shares of Series A-1 Convertible Preferred Stock, par value $0.0001 per share (the “Convertible Preferred”), for aggregate cash proceeds of $200,000, before deduction for offering costs. Holders of Convertible Preferred shares are entitled to quarterly coupon payments at the rate of 6.50% of the fixed liquidation preference per share, initially $1,000 per share. In the event the quarterly preferential coupon is not paid in cash, the fixed liquidation preference automatically increases at the PIK rate of 7.50%. The Convertible Preferred has an initial conversion price equal to $14.40 per share and is mandatorily convertible under certain circumstances and redeemable at the option of the holder beginning on the date that is eight years from the IPO or upon change of control.

At issuance, the Company assessed the Convertible Preferred for any embedded derivatives. The Company determined that the Convertible Preferred represented an equity host under ASC Topic 815, Derivatives and Hedging. The Company’s analysis was based on a consideration of all stated and implied substantive terms and features of the hybrid financial instrument and weighing those terms and features on the basis of the relevant facts and circumstances. Certain embedded features in the Convertible Preferred require bifurcation. However, the fair value of such embedded features were immaterial upon issuance and as of March 31, 2023.

The Convertible Preferred ranks senior to the Company’s common stock with respect to the payment of dividends and distribution of assets upon liquidation, dissolution and winding up. It is entitled to receive any dividends or distributions paid in respect of the common stock on an as-converted basis and has no stated maturity and will remain outstanding indefinitely unless converted into common stock or repurchased by the Company. Series A preferred stock will vote on an as-converted basis with the Class A and Class B common stock and will have certain rights to appoint additional directors, including up to a majority of the Company’s board of directors, under certain limited circumstances relating to an event of default or the Company’s failure to repay amounts due to the Convertible Preferred holders upon a redemption. Shares of Series A-1 preferred stock are non-voting; however, any shares of Series A-1 preferred stock issued to the Preferred Investors will convert on a one-to-one basis to shares of Series A preferred stock when permitted under relevant antitrust restrictions.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

At any time after July 23, 2029, upon a sale of the Company, or at any time after the occurrence and continuance of an event of default, holders of the Convertible Preferred have the right to require the Company to redeem all, but not less than all, of the Preferred shares then outstanding at a redemption price in cash equal to the greater of (i) the fair market value per share of Preferred Stock (based on the average volume-weighted average price per share of Class A common stock for the 10 consecutive trading day period ending on, and including, the trading day immediately preceding the redemption notice, and (ii) the fixed liquidation preference, plus accrued and unpaid dividends.

The Convertible Preferred is recorded as mezzanine equity (temporary equity) on the condensed consolidated balance sheets because it is not mandatorily redeemable but does contain a redemption feature at the option of the Preferred holders that is considered not solely within the Company’s control.

On January 9, 2023, pursuant to a preferred stock repurchase agreement (the “Repurchase Agreement”) between the Company and certain holders of the Convertible Preferred, the Company repurchased 85 shares of Convertible Preferred for an aggregate payment of $130,766. The excess of fair market value of $12,679 over the consideration transferred was treated as deemed contribution and resulted in an decrease to accumulated deficit and was included in the calculation of loss per share.

At March 31, 2023 and December 31, 2022, the Company recognized the preferred maximum redemption value of $227,290 and $308,075, respectively, which is the maximum redemption value on the earliest redemption date based on fair market value per share of Convertible Preferred (based on the average volume-weighted average price per share of Class A common stock for the 10 consecutive trading day period ending on, and including, the trading day immediately preceding the redemption notice and 115 and 200 outstanding shares of Convertible Preferred at March 31, 2023 and December 31, 2022, respectively). The recording of the preferred maximum redemption value was treated as deemed dividend, which was included in the calculation of loss per share, and resulted in a net decrease of $62,660 and $50,931 to additional paid-in-capital as of March 31, 2023 and March 31, 2022, respectively.

Note 12 – Stockholder's Equity (Deficit)

Common stock – In February 2023, the Company entered into an underwriting agreement with certain existing stockholders, affiliates of H&W Investco and our Chief Executive Officer (collectively the "Selling Stockholders") and certain underwriters named therein, pursuant to which the Selling Stockholders sold an aggregate of 5,000 shares of Class A common stock in a secondary public offering at a public offering price of $24.50 per share. All of the shares sold in this offering were offered by the Selling Stockholders. In addition, the Selling Stockholders granted the underwriters a 30-day option to purchase up to an additional 750 shares of the Company's Class A common stock, which was exercised on February 15, 2023. The shares sold in the offering consisted of (i) 2,276 existing shares of Class A common stock and (ii) 3,474 newly-issued shares of Class A common stock issued in connection with the exchange of LLC units held by the Selling Stockholders. Simultaneously, 3,474 shares of Class B common stock were surrendered by the Selling Stockholders and canceled. The Company did not receive any proceeds from the sale of shares of Class A common stock offered by the Selling Stockholders. Additionally, during the three months ended March 31, 2023 and 2022, pursuant to the Amended LLC agreement, certain Continuing Pre-IPO LLC Members exchanged their LLC units for 1,451 and 351 shares of Class A common stock on a one-for-one basis, respectively.

Noncontrolling interests – Following the IPO, XPO Inc. is the sole managing member of XPO LLC and, as a result, consolidates the financial results of XPO LLC. The Company reported noncontrolling interests representing the economic interests in XPO LLC held by the Continuing Pre-IPO LLC Members. Under the Amended LLC agreement, the Continuing Pre-IPO LLC Members are able to exchange their LLC Units for shares of Class A common stock on a one-for-one basis (simultaneously cancelling an equal number of shares of Class B common stock of the exchanging member), or at the option of the Company for cash. In December 2021, the Company and the Continuing Pre-IPO LLC Members amended the LLC agreement where the redemption option in cash was removed, except to the extent the cash proceeds to be used to make the redemption in cash are immediately available and were directly raised from a secondary offering of the Company's equity securities.

During 2023 and 2022, the Company experienced a change in noncontrolling interests ownership due to the conversion of Class B to Class A shares and as such, has rebalanced the related noncontrolling interests balance. The Company calculated the rebalancing based on the net assets of XPO LLC, after considering the preferred shareholders' claim on the net assets of XPO LLC. The Company used the liquidation value of the preferred shares for such rebalancing.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

The following table summarizes the ownership of XPO LLC as of March 31, 2023:

Owner
XPO Inc.	32,899	66	%
Noncontrolling interests	16,731	34	%
Total	49,630	100	%

Note 13 – Equity Compensation

Profit interest units –

Under the Pre-IPO Plan, the Parent granted time-based and performance-based profit interest units to certain key employees of the Company and its subsidiaries. Subsequent to the IPO, the profit interest units converted to Class B shares. Stock-based compensation related to profit interest units increases noncontrolling interests.

The performance-based grants were awarded with vesting conditions based on performance targets connected to the value received from change of control of the Parent and were subject to certain forfeiture provisions prior to vesting. In June 2021, the Parent amended previously issued profit interest units with performance-based vesting conditions that were based on performance targets connected to the value received from change of control of the Parent. The vesting condition, as amended, was based on the average trading price of XPO Inc. common stock exceeding the IPO threshold price, as defined in the agreement. The amendment of these units was treated as a modification with the compensation cost of the amended units of $18,127 recognized over the new estimated service period through November 2022. In March 2022, the units vested when the average trading price condition was met and the Company recognized $12,126 of expense when these grants vested in March 2022.

The fair value of the time-based grants was recognized as compensation expense over the vesting period (generally four years) and was calculated using a Black-Scholes option-pricing model. The Company recognized $14 and $78 of expense during the three months ended March 31, 2023 and 2022, respectively, which was included within selling, general and administrative expenses. At March 31, 2023, the Company had $8 of unrecognized compensation expense. The unrecognized compensation expense is expected to be recognized over a weighted average period of approximately

1.05

years for the time-based grants.

Liability Classified Restricted stock units –

In November 2021, the Company granted restricted stock unit (“RSU”) awards with performance conditions of meeting certain EBITDA targets through the year ending December 31, 2024. The awards were granted with fixed dollar valuation and the number of shares granted depends on the trading price at the closing date of the period in which the EBITDA target is met. As such, these awards are classified as a liability. Management performs a regular assessment to determine the likelihood of meeting the targets and adjusts the expense recognized if necessary. During the three months ended March 31, 2023, the performance condition of an award with a total fixed dollar value of $2,250 was met and 101 units were earned and issued as shares. As of March 31, 2023, management believes that the EBITDA targets for the remaining RSU awards will be achieved and is accordingly recognizing expense ratably over the vesting period. During the three months ended March 31, 2023 and 2022, the Company recognized $444 and $621 of expense, respectively. At March 31, 2023, the Company had $3,153 of unrecognized expense relating to these grants.

Equity Classified Restricted stock units –

The following table summarizes activity for RSUs for the three months ended March 31, 2023:

			Weighted Average<br>Grant Date Fair<br>Value per Share
Outstanding at December 31, 2022	2,102		$	18.25
Issued	279			24.14
Vested	(581	)		27.79
Forfeited, expired, or canceled	(19	)		20.41
Outstanding at March 31, 2023	1,781		$	19.33

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

Restricted stock units are valued at the Company’s closing stock price on the date of grant, and generally vest over a one- to four-year period. Compensation expense for restricted stock units is recognized on a straight-line basis.

During 2022, included in the RSUs described above, the Company granted 171 performance-based RSUs at a weighted average grant-date closing price of $18.25 per share. The performance-based RSUs are recognized as expense on a straight-line basis over the vesting period of three to four years. Management performs a regular assessment to determine the likelihood of meeting the related metrics and adjusts the expense recognized if necessary. During 2022, the performance metrics related to 18 performance-based RSUs fell below the minimum threshold and as a result, the Company cancelled these previously granted performance-based RSUs. During the three months ended March 31, 2023, 36 units were earned and issued as shares. As of March 31, 2023, the achievement of remaining performance metrics is considered probable.

Total compensation expense recognized for restricted stock units was $5,598 and $2,423 for the three months ended March 31, 2023 and 2022, respectively. Due to the Company's full valuation allowance on its net deferred tax assets, there is no income tax benefit on the unvested RSUs. During the three months ended March 31, 2023 and 2022, the Company recognized an income tax benefit of $718 and $2,422 on vested RSUs, respectively.

At March 31, 2023, the Company had $30,689 of total unamortized compensation expense related to non-vested restricted stock units. That cost is expected to be recognized over a weighted-average period of

2.51

years.

Note 14 – Income Taxes and Tax Receivable Agreement

The Company is the managing member of XPO Holdings and, as a result, consolidates the financial results of XPO Holdings in the condensed consolidated financial statements. XPO Holdings is a pass-through entity for U.S. federal and most applicable state and local income tax purposes following a corporate reorganization effected in connection with the IPO. As an entity classified as a partnership for tax purposes, XPO Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by XPO Holdings is passed through to and included in the taxable income or loss of its members, including the Company. The Company is taxed as a corporation and pays corporate federal, state and local taxes with respect to income allocated from XPO Holdings, based on its 66% economic interest in XPO Holdings.

The provision for income taxes differs from the amount of income tax computed by applying the applicable U.S. statutory federal income tax rate of 21% to income (loss) before income taxes due to XPO Holdings’ pass-through structure for U.S. income tax purposes, state taxes, preferred stock dividends, non-deductible expenses, change in fair value of contingent consideration and the valuation allowance against the deferred tax asset. The effective tax rate for the three months ended March 31, 2023 and 2022 is 1% and 12%, respectively. During the three months ended March 31, 2023 and 2022, the Company recognized income tax benefit of $123 and $2,067 on its share of pre-tax book income (loss), exclusive of the noncontrolling interest of 34%.

As of March 31, 2023, management determined based on applicable accounting standards and the weight of all available evidence, it was not more likely than not (“MLTN”) that the Company will generate sufficient taxable income to realize its deferred tax assets including the difference in tax basis in excess of the financial reporting value for its investment in XPO Holdings. Consequently, the Company has established a full valuation allowance against its deferred tax assets as of March 31, 2023. In the event that management subsequently determines that it is MLTN that the Company will realize its deferred tax assets in the future over the recorded amount, a decrease to the valuation allowance will be made, which will reduce the provision for income taxes.

The Company is subject to taxation and files income tax returns in the United States federal jurisdiction, many state and foreign jurisdictions. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. The Company’s tax returns remain open for examination in the U.S for years 2019 through 2022. The Company's foreign subsidiaries are generally subject to examination three years following the year in which the tax obligation originated. The years subject to audit may be extended if the entity substantially understates corporate income tax.

The Company does not expect a significant change in unrecognized tax benefits during the next 12 months.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

Tax Receivable Agreement – In connection with the IPO, the Company entered into a Tax Receivable Agreement (“TRA”) pursuant to which the Company is generally required to pay to the other parties thereto in the aggregate 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the Company actually realizes as a result of (i) certain favorable tax attributes acquired from the Blocker Companies in the Mergers (including net operating losses and the Blocker Companies’ allocable share of existing tax basis), (ii) increases in the Company's allocable share of existing tax basis and tax basis adjustments that resulted or may result from (x) the IPO Contribution and the Class A-5 Unit Redemption, (y) future taxable redemptions and exchanges of LLC Units by Continuing Pre-IPO LLC Members and (z) certain payments made under the TRA, and (iii) deductions attributable to imputed interest pursuant to the TRA (the “TRA Payments”). The Company expects to benefit from the remaining 15% of any tax benefits that it may actually realize. The TRA Payments are not conditioned upon any continued ownership interest in XPO Holdings or the Company. To the extent that the Company is unable to timely make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid.

The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of the taxable income the Company generates each year and the tax rate then applicable. The Company calculates the liability under the TRA using a complex TRA model, which includes an assumption related to the fair market value of assets. The payment obligations under the TRA are obligations of XPO Inc. and not of XPO Holdings. Payments are generally due under the TRA within a specified period of time following the filing of the Company’s tax return for the taxable year with respect to which the payment obligation arises, although interest on such payments will begin to accrue at a rate of LIBOR plus 100 basis points from the due date (without extensions) of such tax return.

The TRA provides that if (i) there is a material breach of any material obligations under the TRA; or (ii) the Company elects an early termination of the TRA, then the TRA will terminate and the Company's obligations, or the Company's successor’s obligations, under the TRA will accelerate and become due and payable, based on certain assumptions, including an assumption that the Company would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA and that any LLC Units that have not been exchanged are deemed exchanged for the fair market value of the Company's Class A common stock at the time of termination. The TRA also provides that, upon certain mergers, asset sales or other forms of business combination, or certain other changes of control, the TRA will not terminate but the Company’s or the Company’s successor’s obligations with respect to tax benefits would be based on certain assumptions, including that the Company or the Company’s successor would have sufficient taxable income to fully utilize the increased tax deductions and tax basis and other benefits covered by the TRA.

As of March 31, 2023, the Company has concluded, based on applicable accounting standards, that it was more likely than not that its deferred tax assets subject to the TRA would not be realized. Therefore, the Company has not recorded a liability related to the tax savings it may realize from utilization of such deferred tax assets. Except for $1,163 and $1,356 of the current and non-current portions of the TRA, respectively, $93,429 of the TRA liability was not recorded as of March 31, 2023. If utilization of the deferred tax asset subject to the TRA becomes more likely than not in the future, the Company will record a liability related to the TRA which will be recognized as expense within its consolidated statements of operations.

Note 15 – Earnings (Loss) Per Share

Basic earnings (loss) per share has been calculated by dividing net income (loss) attributable to Class A common stockholders by the weighted average number of shares of Class A common stock outstanding for the period. Diluted earnings per share of Class A common stock has been computed by dividing net income attributable to XPO Inc. by the weighted average number of shares of Class A common stock outstanding adjusted to give effect to potentially dilutive securities.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

Because a portion of XPO Holdings is owned by parties other than the Company, those parties participate in earnings and losses at the XPO Holdings level. Additionally, given the organizational structure of XPO Inc, a parallel capital structure exists at XPO Holdings such that the shares of XPO Holdings are redeemable on a one-to-one basis with the XPO Inc. shares. In order to maintain the one-to-one ratio, the preferred stock issued at the XPO Inc. level also exist at the XPO Holdings level. The Company applies the two class method to allocate undistributed earnings or losses of XPO Holdings, and in doing so, determines the portion of XPO Holdings’ income or loss that is attributable to the Company and accordingly reflected in income or loss available to common stockholders in the Company’s calculation of basic earnings (loss) per share. Due to the attribution of only a portion of the preferred stock dividends issued by XPO Holdings to the Company in first determining basic earnings (loss) per share at the subsidiary level, the amounts presented as net income (loss) attributable to noncontrolling interests and net income (loss) attributable to XPO Inc. presented below will not agree to the amounts presented on the condensed consolidated statement of operations.

Diluted earnings per share attributable to common stockholders adjusts the basic earnings per share attributable to common stockholders and the weighted average number of shares of Class A common stock outstanding to give effect to potentially dilutive securities. The potential dilutive impact of redeemable Convertible Preferred shares and Class B common stock is evaluated using the as-if-converted method. Weighted average shares of Class B common stock were 18,564 and 23,165 for the three months ended March 31, 2023 and 2022, respectively. The potentially dilutive impact of restricted stock units is calculated using the treasury stock method. Because the Company reported net losses for the periods presented, all potentially dilutive common stock equivalents are antidilutive and have been excluded from the calculation of diluted net loss per share.

The following table presents the calculation of basic and diluted loss per share for the three months ended March 31, 2023 and 2022:

	Three Months <br>Ended <br>March 31,
	2023			2022
Numerator:
Net loss	$	(14,979	)	$	(15,179	)
Less: net loss attributable to noncontrolling interests		24,588			35,003
Less: dividends on preferred shares		(2,069	)		(3,250	)
Less: deemed dividend		(62,660	)		(50,931	)
Add: deemed contribution from redemption of convertible preferred stock		12,679			-
Net loss attributable to XPO Inc. - basic and diluted	$	(42,441	)	$	(34,357	)
Denominator:
Weighted average shares of Class A common stock outstanding - basic and diluted		30,754			22,737
Net loss per share attributable to Class A common stock - basic	$	(1.38	)	$	(1.51	)
Net loss per share attributable to Class A common stock - diluted	$	(1.38	)	$	(1.51	)
Anti-dilutive shares excluded from diluted loss per share of Class A common stock:
Rumble Class A common stock		-			1,300
Restricted stock units		1,781			2,360
Convertible preferred stock		7,963			13,889
Conversion of Class B common stock to Class A common stock		16,656			24,564
Treasury share options		75			-
Rumble contingent shares		2,024			2,024
Profits interests, time vesting		4			48

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

Note 16 – Contingencies and Litigation

Litigation – In connection with the October 2021 acquisition of BFT, the Company agreed to indemnify the seller for certain claims and lawsuits against the seller that existed at the acquisition date. The claims and lawsuits relate to alleged patent and trademark infringements. Plaintiff alleges that plaintiff has suffered, and is likely to continue to suffer, loss and damage due to breach of the patents by the seller and is seeking damages or in the alternative an account of profits. The seller has filed a cross-claim alleging that the defendant’s two Australian patents are, and always have been, invalid and that they should be revoked. The Court held a trial in December 2020, and on February 14, 2022, the Court issued a decision holding that the plaintiff’s claims of infringement were invalid and that even if they were valid, the seller did not infringe upon these patents and trademarks. In addition, the plaintiff has brought related claims for patent infringement against the seller in the United States District Court for Delaware, and these actions are pending at March 31, 2023. In April 2023, the plaintiff dismissed all claims against the seller in the United States.

The Company is subject to normal and routine litigation brought by former or current employees, customers, franchisees, vendors, landlords or others. The Company intends to defend itself in any such matters. The Company believes that the ultimate determination of liability in connection with legal claims pending against it, if any, will not have a material adverse effect on its business, annual results of operations, liquidity or financial position; however, it is possible that the Company’s business, results of operations, liquidity or financial condition could be materially affected in a particular future reporting period by the unfavorable resolution of one or more matters or contingencies during such period. The Company accrued for estimated legal liabilities and has entered into certain settlement agreements to resolve legal disputes and recorded $638 and $464 which is included in accrued expenses in the condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively.

Contingent consideration from acquisitions – In connection with the 2017 acquisition of Row House, the Company agreed to pay to the sellers 20% of operational or change of control distributions, subject to distribution thresholds, until the date on which a change in control or liquidation of Row House occurs. The Company determines the estimated fair value using a discounted cash flow approach, giving consideration to the market valuation approach, which is a Level 3 measurement. Inputs used in the methodology primarily included sales forecasts, projected future cash flows and discount rate commensurate with the risk involved. During the three months ended March 31, 2022, the Company recorded an increase of $200 to contingent consideration, which was recorded as acquisition and transaction expenses. In December 2022, the Company entered into an agreement with the former owner of Row House (see Note 10), which settled the contingent consideration. As a result of the agreement, in December 2022, the Company recorded a reduction to the contingent consideration liability of $1,220 with an offsetting increase in additional paid-in capital.

In connection with the Reorganization Transactions, the Parent merged with and into the Member. The Company recorded contingent consideration equal to the fair value of the shares issued in connection with the Rumble acquisition of $23,100 and $10,600 receivable from shareholder for debt financing provided to the Rumble seller. The shares issued to the Rumble seller are treated as a liability on the Company's balance sheet as they are subject to vesting conditions. The fair value of the contingent consideration is measured at estimated fair value using a Monte Carlo simulation analysis. During the three months ended March 31, 2023 and 2022, the Company recorded an increase of $15,975 and $9,500 to contingent consideration, which was recorded as acquisition and transaction expense. In November 2022, the contingency related to 1,300 shares of Class A common stock expired and the $27,850 contingent consideration related to those shares was reclassified to additional paid-in capital. At March 31, 2023 and December 31, 2022, contingent consideration totals $43,665 and $27,690, respectively, recorded as contingent consideration from acquisitions in the condensed consolidated balance sheets.

In connection with the October 2021 acquisition of BFT, the Company agreed to pay contingent consideration to the seller consisting of quarterly cash payments based on the sales of the Franchise System and equipment packages in the U.S. and Canada, as well as a percentage of royalties collected by the Company, provided that aggregate minimum payments of $5,000 AUD (approximately $3,694 USD based on the currency exchange rate as of the purchase date) are required to be paid to the seller for the two-year period ending December 31, 2023 and the aggregate amount of such payments for the two-year period ending December 31, 2023 is subject to a maximum of $14,000 AUD (approximately $10,342 USD based on the currency exchange rate as of the purchase date). At the acquisition date, the Company determined that the fair value of the estimated contingent consideration liability was $9,388. During the three months ended March 31, 2023 and 2022, the Company recorded $49 and $178 of additional contingent consideration, which was recorded as interest expense, respectively. During the three months ended March 31, 2023 and 2022, the Company recorded ($233) and ($154) of additional contingent consideration, which was recorded as acquisition and transaction income, respectively. In addition, during the three months ended March 31, 2023 and 2022, the Company paid $0 and $589 of contingent consideration. At March 31, 2023 and December 31, 2022, contingent consideration was $2,511 and $2,203 recorded as accrued expenses, respectively, and $0 and $492 recorded as contingent consideration from acquisitions, respectively, in the condensed consolidated balance sheets.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(amounts in thousands, except per share amounts)

In addition, in connection with the October 2021 acquisition of BFT, the Company entered into a Master Franchise Agreement (“MFA”) with an affiliate of the Seller (the “Master Franchisee”), pursuant to which the Company granted the Master Franchisee the master franchise rights for the BFTTM brands in Australia, New Zealand and Singapore. In exchange, the Company will receive certain fees and royalties, including a percentage of the revenue generated by the Master Franchisee under the MFA. The MFA contains an option for the Company to repurchase the master franchise rights granted under the MFA in either 2023 or 2024 at a purchase price based on the Master Franchisee’s EBITDA. If the Company (or a designee of the Company) does not exercise the option pursuant to the terms of the MFA, then the Company might be required to pay a cancellation fee to the Master Franchisee which might be material to the Company. If the Master Franchisee rejects an offer to repurchase the franchise rights, then the cancellation fee is not required to be paid.

Letter of credit – In July 2022, the Company issued a $750 standby letter of credit to a third-party financing company, who provides loans to the Company's qualified franchisees. The standby letter of credit is contingent upon the failure of franchisees to perform according to the terms of underlying contracts with the third party. The Company deposited cash in a restricted account as collateral for the standby letter of credit. The Company has determined the fair value of these guarantees at inception is not material, and as of March 31, 2023 and December 31, 2022, no accrual has been recorded for the Company’s potential obligation under its guaranty arrangement.

Lease guarantees –The Company has guaranteed lease agreements for certain franchisees. The Company’s maximum obligation, as a result of its guarantees of leases, is approximately $2,811 as of March 31, 2023 and would only require payment upon default by the primary obligor. The Company has determined the fair value of these guarantees at inception is not material, and as of March 31, 2023 and December 31, 2022, no accrual has been recorded for the Company’s potential obligation under its guaranty arrangement.

Note 17 – Subsequent Events

In April 2023, the Rumble sellers borrowed an additional $1,300 under the debt financing agreement which was recorded as receivable from shareholder within equity (see Note 10).

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto and the other financial information included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the section titled “Risk Factors.”

Xponential Fitness LLC (“XPO LLC”), the principal operating subsidiary of Xponential Fitness, Inc. (the "Company" or “XPO Inc.”), is the largest global franchisor of boutique fitness brands. On July 23, 2021, the Company completed an initial public offering (“IPO”) of 10,000,000 shares of Class A common stock at an initial public offering price of $12.00 per share. Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being a 66% ownership interest in XPO LLC through its ownership interest in Xponential Intermediate Holdings, LLC (“XPO Holdings”).

We operate a diversified platform of ten brands spanning across verticals including Pilates, indoor cycling, barre, stretching, rowing, dancing, boxing, running, functional training and yoga. XPO LLC franchisees offer energetic, accessible, and personalized workout experiences led by highly qualified instructors in studio locations across 49 U.S. states, the District of Columbia and Canada and through master franchise or international expansion agreements in 14 additional countries as of March 31, 2023. The Company's portfolio of brands includes Club Pilates, the largest Pilates brand in the United States; CycleBar, the largest indoor cycling brand in the United States; StretchLab, a concept offering one-on-one and group stretching services; Row House, the largest franchised indoor rowing brand in the United States; AKT, a dance-based cardio workout combining toning, interval and circuit training; YogaSix, the largest franchised yoga brand in the United States; Pure Barre, a total body workout that uses the ballet barre to perform small isometric movements, and the largest Barre brand in the United States; Stride, a treadmill-based cardio and strength training concept; Rumble, a boxing-inspired full-body workout; and BFT, a functional training and strength-based program.

As of March 31, 2023, 2,411 studios were open in North America, and franchisees were contractually committed to open an additional 1,968 studios under existing franchise agreements. In addition, as of March 31, 2023, we had 345 studios open internationally, and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 1,078 new studios, of which master franchisees have sold 235 licenses for studios not yet opened as of March 31, 2023.

During the three months ended March 31, 2023 and 2022, we generated revenue outside the United States of $2,980 and $3,380, respectively. As of March 31, 2023 and December 31, 2022, we did not have material assets located outside of the United States. No franchisee accounted for more than 5% of our revenue. We operate in one segment for financial reporting purposes.

Following the significant disruption to the global fitness industry caused by the COVID-19 pandemic in 2020 and through most of 2021, we took ownership of a greater number of studios than we would expect to hold in the normal course of our business. We are in the process of reselling the licenses for these studios to new or existing franchisees ("company-owned transition studios") as operating studios is not a component of our business model. However, we may not be able to do so and we may choose to close some or all such studios to the extent they are not profitable for an extended period of time and could incur charges in connection therewith for lease termination, employee severance and related matters, which could adversely affect our business, results of operations, cash flows and financial condition. See Note 3 of Notes to Condensed Consolidated Financial Statements for additional information.

Factors Affecting Our Results of Operations

In addition to the impact of the risks described under “Risk Factors” in the Annual Report, we believe that the most significant factors affecting our results of operations include:

• Licensing new qualified franchisees, selling additional licenses to existing franchisees and opening studios. Our growth depends upon our success in licensing new studios to new and existing franchisees. We believe our success in attracting new franchisees and attracting existing franchisees to invest in additional studios has resulted from our diverse offering of attractive brands, corporate level support, training provided to franchisees and the opportunity to realize attractive returns on their invested capital. We believe our significant investments in centralized systems and infrastructure help support new and existing franchisees. To continue to attract qualified new franchisees, sell additional studios to existing franchisees and assist franchisees in opening their studios, we plan to continue to invest in our brands to enable them to deliver positive consumer experiences and in our integrated services at the brand level to support franchisees.

• Timing of studio openings. Our revenue growth depends to a significant extent on the number of studios that are open and operating. Many factors affect whether a new studio will be opened on time, if at all, including the availability and cost of financing, selection and availability of suitable studio locations, delays in hiring personnel as well as any delays in equipment delivery or installation. To the extent franchisees are unable to open new studios on the timeline we anticipate, or at all, we will not realize the revenue growth that we expect. We believe our investments in centralized systems and infrastructure, including real estate site selection, studio build-out and design assistance help enable franchisees to open studios in a timely manner, and we plan to continue to invest in our systems to continue to provide assistance during the opening process.

• Increasing same store sales. Our long-term revenue prospects are driven in part by franchisees’ ability to increase same store sales (discussed below). Several factors affect our same store sales in any given period, including the number of stores that have been in operation for a significant period of time, growth in total memberships and marketing and promotional efforts. We expect to continue to seek to grow same store sales and AUVs by helping franchisees acquire new members, increase studio utilization and drive increased spend from consumers. We also intend to expand ancillary revenue streams, such as our digital platform offerings and retail merchandise.

• International and domestic expansion. We continue to invest in increasing the number of franchisees outside of North America. We have developed strong relationships and executed committed development contracts with master franchisees to propel our international growth. We plan to continue to invest in these relationships and seek new relationships and opportunities, including through acquisitions and partnerships, in countries that we have targeted for expansion. In the U.S., we may from time to time consider acquisition of and partnership with certain complimentary assets or businesses that can enhance and expand our brands and operations.

• Demand and competition for consumer income. Our revenue and future success will depend in part on the attractiveness of our brands and the services provided by franchisees relative to other fitness and entertainment options available to consumers. Our franchisees’ AUVs are dependent upon the performance of studios and may be impacted by reduced capacity as a result of various factors, including shifting consumer demand and behavior for fitness services. Macroeconomic factors such as inflation and recession, and economic factors affecting a particular geographic territory, may also increase competition for discretionary income, impact the returns generated by franchisees and therefore impact our operating results.

Key Performance Indicators

In addition to our financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), we regularly review the following key metrics to measure performance, identify trends, formulate financial projections, compensate our employees, and monitor our business. While we believe that these metrics are useful in evaluating our business, other companies may not use similar metrics or may not calculate similarly titled metrics in a consistent manner.

The following table sets forth our key performance indicators for the three months ended March 31, 2023 and 2022:

	Three Months Ended March 31,
	2023		2022
	( in thousands)
System-wide sales			$	224,545
Number of new studio openings globally, net				99
Number of studios operating globally (cumulative total as of period end)				2,229
Number of licenses sold globally (cumulative total as of period end)(1)				4,684
Number of licenses contractually obligated to open internationally (cumulative total as of period end)				950
AUV (LTM as of period end)			$	431
AUV (run rate)			$	450
Same store sales		%		47	%
Adjusted EBITDA(2)			$	14,453

All values are in US Dollars.

(1) Global franchise licenses sold are presented gross of terminations.

(2) The definition of “adjusted EBITDA” and a detailed reconciliation of adjusted EBITDA are set forth below under the section entitled “Non-GAAP Financial Measures”.

The following table presents additional information related to our studio and license key performance indicators for the three months ended March 31, 2023 and 2022:

	Three Months Ended March 31,
	2023						2022
	North America		International		Global		North America		International		Global
Open Studios:
Open studios (beginning of period)		2,329		312		2,641		1,954		176		2,130
New studio openings, net		82		33		115		76		23		99
Open studios (end of period)		2,411		345		2,756		2,030		199		2,229
Franchise licenses sold: (1)
Franchise licenses sold (total beginning of period)		4,868		582		5,450		4,062		362		4,424
New franchise license sales		147		41		188		211		49		260
Franchise licenses sold (total end of period)		5,015		623		5,638		4,273		411		4,684
Studios Obligated to Open Internationally under MFAs:
Gross studios obligated to open under MFAs						1,408						1,149
Less: studios opened under MFAs						330						199
Remaining studios obligated to open under MFAs						1,078						950
Licenses sold by master franchisees, net (2)						235						208

(1) Global franchise licenses sold are presented gross of terminations.

(2) Reflects the number of licenses for studios which have already been sold, but not yet opened, by master franchisees under master franchise agreements, net of terminations.

System-Wide Sales

System-wide sales represent gross sales by all studios in North America. System-wide sales includes sales by franchisees that are not revenue realized by us in accordance with GAAP. While we do not record sales by franchisees as revenue, and such sales are not included in our consolidated financial statements, this operating metric relates to our revenue because we receive approximately 7% and 2% of the sales by franchisees as royalty revenue and marketing fund revenue, respectively. We believe that this operating measure aids in understanding how we derive our royalty revenue and marketing fund revenue and is important in evaluating our performance. System-wide sales growth is driven by new studio openings and increases in same store sales. Management reviews system-wide sales weekly, which enables us to assess changes in our franchise revenue, overall studio performance, the health of our brands and the strength of our market position relative to competitors.

Number of New Studio Openings

The number of new studio openings reflects the number of studios opened during a particular reporting period, net of studios no longer operating in the system. We consider a new studio to be open once the studio begins offering classes. Opening new studios is an important part of our growth strategy. New studios may not generate material revenue in the early period following an opening and their revenue may not follow historical patterns. Management reviews the number of new studio openings in order to help forecast operating results and to monitor studio opening processes.

Number of Studios Operating

In addition to the number of new studios opened during a period, we track the number of total studios operating at the end of a reporting period. We view this metric on a net basis to take account of any studios that may have closed during the reporting period. While nearly all our franchised studios are licensed to franchisees, from time to time we operate a limited number of company-owned transition studios (typically as we take possession of a studio following a franchisee ceasing to operate it and as we prepare it to be licensed to a new franchisee). Management reviews the number of studios operating at a given point in time in order to help forecast system-wide sales, franchise revenue and other revenue streams.

Licenses Sold

The number of licenses sold in North America and globally reflect the cumulative number of licenses sold by us (or, outside of North America, by our master franchisees), since inception through the date indicated. Licenses contractually obligated to open refer to licenses sold net of opened studios and terminations. Licenses contractually obligated to be sold internationally reflect the number of licenses that master franchisees are contractually obligated to sell to franchisees to open internationally that have not yet opened as of the date indicated. The number of licenses sold is a useful indicator of the number of studios that have opened and that are expected to open in the future, which management reviews in order to monitor and forecast our revenue streams. Of the franchisees that opened their first studio in 2019, on average it took approximately 12.2 months from signing the franchise agreement to open. The length of time increased during 2020 and 2021 due to COVID-related opening restrictions. Of the franchisees that entered into the system in 2021 or later and opened their first studio in 2022, on average it took approximately 10.5 months from signing the franchise agreement to open a studio. Management also reviews the number of licenses sold globally and the number of licenses contractually obligated to open internationally in order to help forecast studio growth and system-wide sales.

Average Unit Volume

Average Unit Volume (“AUV”) is calculated by dividing sales during the applicable period for all studios being measured by the number of studios being measured. AUV (LTM as of period end) consists of the average sales for the trailing 12 calendar months for all studios in North America that have been open for at least 13 calendar months as of the measurement date. Quarterly run-rate AUV consists of average quarterly sales for all studios that are at least six months old at the beginning of the respective quarter, multiplied by four. AUV growth is primarily driven by changes in same store sales and is also influenced by new studio openings. Management reviews AUV to assess studio economics.

Same Store Sales

Same store sales refer to period-over-period sales comparisons for the base of studios. We define the same store sales base to include studios in North America that have been open for at least 13 calendar months as of the measurement date. Any transfer of ownership of a studio does not affect this metric. We measure same store sales based solely upon monthly sales as reported by franchisees. This measure highlights the performance of existing studios, while excluding the impact of new studio openings. Management reviews same store sales to assess the health of the franchised studios.

Results of Operations

The following table presents our condensed consolidated results of operations for the three months ended March 31, 2023 and 2022:

	Three Months Ended March 31,
	2023			2022
	(in thousands)
Revenue, net:
Franchise revenue	$	32,966		$	25,500
Equipment revenue		13,094			7,779
Merchandise revenue		7,164			6,083
Franchise marketing fund revenue		6,211			4,435
Other service revenue		11,255			6,565
Total revenue, net		70,690			50,362
Operating costs and expenses:
Costs of product revenue		14,035			9,592
Costs of franchise and service revenue		4,032			4,234
Selling, general and administrative expenses		34,885			33,919
Depreciation and amortization		4,197			3,492
Marketing fund expense		5,006			4,355
Acquisition and transaction expenses		15,742			9,544
Total operating costs and expenses		77,897			65,136
Operating loss		(7,207	)		(14,774	)
Other (income) expense:
Interest income		(636	)		(389	)
Interest expense		7,977			2,861
Other expense		554			—
Total other expense		7,895			2,472
Loss before income tax benefit		(15,102	)		(17,246	)
Income tax benefit		(123	)		(2,067	)
Net loss	$	(14,979	)	$	(15,179	)

The following table presents our condensed consolidated results of operations for the three months ended March 31, 2023 and 2022 as a percentage of revenue:

	Three Months Ended March 31,
	2023			2022
Revenue, net:
Franchise revenue		47	%		51	%
Equipment revenue		19	%		15	%
Merchandise revenue		10	%		12	%
Franchise marketing fund revenue		9	%		9	%
Other service revenue		15	%		13	%
Total revenue, net		100	%		100	%
Operating costs and expenses:
Costs of product revenue		20	%		19	%
Costs of franchise and service revenue		6	%		8	%
Selling, general and administrative expenses		49	%		67	%
Depreciation and amortization		6	%		7	%
Marketing fund expense		7	%		9	%
Acquisition and transaction expenses		22	%		19	%
Total operating costs and expenses		110	%		129	%
Operating loss		(10	)%		(29	)%
Other (income) expense:
Interest income		(1	)%		(1	)%
Interest expense		11	%		6	%
Other expense		1	%		—	%
Total other expense		11	%		5	%
Loss before income tax benefit		(21	)%		(34	)%
Income tax benefit		—	%		(4	)%
Net loss		(21	)%		(30	)%

Three Months Ended March 31, 2023 versus 2022

The following is a discussion of our consolidated results of operations for the three months ended March 31, 2023 versus the three months ended March 31, 2022.

Revenue

	Three Months Ended March 31,
	2023	2022		%
	( in thousands)
Franchise revenue		$	25,500		29.3	%
Equipment revenue			7,779		68.3	%
Merchandise revenue			6,083		17.8	%
Franchise marketing fund revenue			4,435		40.0	%
Other service revenue			6,565		71.4	%
Total revenue, net		$	50,362		40.4	%

All values are in US Dollars.

Total revenue. Total revenue was $70.7 million in the three months ended March 31, 2023, compared to $50.4 million in the three months ended March 31, 2022, an increase of $20.3 million, or 40.4%. The increase in total revenue was primarily due to an increase in same store sales and an increase in open studios.

Franchise revenue. Franchise revenue was $33.0 million in the three months ended March 31, 2023, compared to $25.5 million in the three months ended March 31, 2022, an increase of $7.5 million, or 29.3%. Franchise revenue consisted of franchise royalty fees of $21.6 million, training fees of $2.6 million, franchise territory fees of $5.2 million and technology fees of $3.6 million in the three months ended March 31, 2023, compared to franchise royalty fees of $14.9 million, training fees of $1.8 million, franchise territory fees of $7.0 million and technology fees of $1.8 million in the three months ended March 31, 2022. The increase in franchise royalty fees, technology fees and training fees was primarily due to a 20% increase in same store sales and to 527 new studio openings globally since March 31, 2022. Franchise territory fees decreased due to a decrease in franchise agreement terminations in the current year.

Equipment revenue. Equipment revenue was $13.1 million in the three months ended March 31, 2023, compared to $7.8 million in the three months ended March 31, 2022, an increase of $5.3 million, or 68.3%. Most equipment revenue is recognized in the period when the equipment is installed. Global equipment installations in the three months ended March 31, 2023, totaled 141 compared to 104 in the prior year period, primarily due to the increase of studio openings compared to the prior year period. The increase in average revenue per install is due to a brand mix, international versus North America mix and a higher proportion of equipment installed with brands with higher equipment prices.

Merchandise revenue. Merchandise revenue was $7.2 million in the three months ended March 31, 2023, compared to $6.1 million in the three months ended March 31, 2022, an increase of $1.1 million, or 17.8.%. The increase was due primarily to a higher number of operating studios in the current year period.

Franchise marketing fund revenue. Franchise marketing fund revenue was $6.2 million in the three months ended March 31, 2023, compared to $4.4 million in the three months ended March 31, 2022, an increase of $1.8 million, or 40.0%. The increase was primarily due to an increase in same store sales and 381 new studio openings in North America since March 31, 2022.

Other service revenue. Other service revenue was $11.3 million in the three months ended March 31, 2023, compared to $6.6 million in the three months ended March 31, 2022, an increase of $4.7 million, or 71.4%. The increase was primarily due to a $2.1 million increase in other preferred vendor commission revenue and brand fee revenue and a $2.8 million increase in package and memberships revenue due to more company-owned transition studios, partially offset by a decrease in on-demand revenue.

Operating Costs and Expenses

	Three Months Ended March 31,
	2023	2022			%
	( in thousands)
Costs of product revenue		$	9,592			46.3	%
Costs of franchise and service revenue			4,234	)		(4.8	)%
Selling, general and administrative expenses			33,919			2.8	%
Depreciation and amortization			3,492			20.2	%
Marketing fund expense			4,355			14.9	%
Acquisition and transaction expenses			9,544			64.9	%
Total operating costs and expenses		$	65,136			19.6	%

All values are in US Dollars.

Costs of product revenue. Costs of product revenue was $14.0 million in the three months ended March 31, 2023, compared to $9.6 million in the three months ended March 31, 2022, an increase of $4.4 million, or 46.3%, consistent with the increase in related revenues of 46.1%.

Costs of franchise and service revenue. Costs of franchise and service revenue was $4.0 million in the three months ended March 31, 2023, compared to $4.2 million in the three months ended March 31, 2022, a decrease of $0.2 million, or 4.8%. The decrease was primarily due to a $0.5 million decrease in franchise sales commissions, consistent with the related franchise territory revenue decrease, partially offset by an increase in cost of technology fees.

Selling, general and administrative expenses. Selling, general and administrative expenses were $34.9 million in the three months ended March 31, 2023, compared to $33.9 million in the three months ended March 31, 2022, an increase of $1.0 million, or 2.8%. The increase was primarily attributable to an increase in salaries and wages of $6.6 million related to a larger number of company-owned transition studios and to a one-time $2.6 million employee retention payroll tax credit in the prior year period; increase in occupancy expenses of $1.4 million primarily related to company-owned transition studios and a net increase in other variable expenses in 2023 of $2.2 million, partially offset by a decrease in equity-based compensation expense of $9.2 million primarily due to vesting of performance-based awards in the prior year period.

Depreciation and amortization. Depreciation and amortization expense was $4.2 million in the three months ended March 31, 2023, compared to $3.5 million in the three months ended March 31, 2022, an increase of $0.7 million, or 20.2%. The increase was due primarily to amortization of intangibles related to the BodyFit trademark acquired in the second quarter of 2022 and to an increase in fixed assets to support our on-demand offerings.

Marketing fund expense. Marketing fund expense was $5.0 million in the three months ended March 31, 2023, compared to $4.4 million in the three months ended March 31, 2022, an increase of $0.7 million, or 14.9% and is consistent with the increase in franchise marketing fund revenue.

Acquisition and transaction expenses. Acquisition and transaction expenses were $15.7 million in the three months ended March 31, 2023, compared to $9.5 million in the three months ended March 31, 2022, an increase of $6.2 million. These expenses represent the non-cash change in contingent consideration related to 2017 and 2021 business acquisitions.

Other (Income) Expense, net

	Three Months Ended March 31,
	2023		2022				%
	( in thousands)
Interest income		)	$	(389	)	)		63.5	%
Interest expense				2,861				178.8	%
Other expense				—			NA
Total other expense, net			$	2,472				219.4	%

All values are in US Dollars.

Interest income. Interest income primarily consists of interest on notes receivable and was insignificant in each of the three-month periods ended March 31, 2023 and 2022.

Interest expense. Interest expense was $8.0 million in the three months ended March 31, 2023, compared to $2.9 million in the three months ended March 31, 2022, an increase of $5.1 million, or 178.8%. Interest expense consists of interest on long-term debt, accretion of earn-out liabilities and amortization of deferred loan costs and debt discount. The increase in interest expense is due to higher average debt balances and higher interest rates in the current year period.

Other expense. Other expense consists of Tax Receivable Agreement (“TRA”) expense, which was $0.6 million in the three months ended March 31, 2023.

Income Taxes

	Three Months Ended March 31,
	2023		2022			%
	( in thousands)
Income tax benefit		)	$	(2,067	)		(94.0	)%

All values are in US Dollars.

Income taxes. Income taxes (benefit) were ($0.1) million in the three months ended March 31, 2023, compared to ($2.1) million in the three months ended March 31, 2022.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when taken collectively, is helpful to investors because it provides consistency and comparability with past financial performance. In addition, our management uses non-GAAP measures to compare our performance relative to forecasts and to benchmark our performance externally against competitors. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate and present similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measure as tools for comparison. A reconciliation is provided below for the non-GAAP financial measures to the most directly comparable financial measures stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.

We believe that the non-GAAP financial measures presented below, when taken together with the corresponding GAAP financial measures, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook.

Adjusted EBITDA

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 (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), employee retention credit (a tax credit for retaining employees throughout the COVID-19 pandemic), fees for financial transactions, such as secondary public offerings expenses for which we do not receive proceeds (including bonuses paid to executives related to completion of such transactions) and expense related to the remeasurement of our TRA obligation that we do not believe reflect our underlying business performance and affect comparability. EBITDA and adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry.

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

The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the three months ended March 31, 2023 and 2022:

	Three Months Ended March 31,
	2023			2022
	(in thousands)
Net loss	$	(14,979	)	$	(15,179	)
Interest expense, net		7,341			2,472
Income tax benefit		(123	)		(2,067	)
Depreciation and amortization		4,197			3,492
EBITDA		(3,564	)		(11,282	)
Equity-based compensation		6,056			15,248
Employer payroll taxes related to equity-based compensation		474			—
Acquisition and transaction expenses		15,742			9,544
Litigation expenses		2,045			2,740
Employee retention credit		—			(2,597	)
Financial transaction fees and related expenses		1,565			487
TRA remeasurement		554			313
Adjusted EBITDA	$	22,872		$	14,453

Liquidity and Capital Resources

As of March 31, 2023, we had $22.2 million of cash and cash equivalents, excluding $5.9 million of restricted cash.

We require cash principally to fund day-to-day operations, finance capital investments, service our outstanding debt and address our working capital needs. Based on our current level of operations and anticipated growth, we believe that our available cash balance and the cash generated from our operations will be adequate to meet our anticipated debt service requirements and obligations under our tax receivable agreement, capital expenditures, payment of tax distributions and working capital needs for at least the next twelve months. 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 Form 10-K for the year ended December 31, 2022. There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our credit facility or otherwise to enable us to service our indebtedness, including our credit facility, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend or refinance the credit facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

Credit Facility

On April 19, 2021, we entered into a Financing Agreement with Wilmington Trust, National Association, as administrative agent and collateral agent, and MSD XPO Partners, LLC, MSD PCOF Partners XXXIX, LLC and DESALKIV Cayman C-2, Ltd. (f/k/a DELALV Cayman C-2, Ltd.) as the lenders (the “Credit Agreement”), which consists of a $212 million senior secured term loan facility (the “Term Loan Facility”, and the loans thereunder, each a “Term Loan” and together, the “Term Loans”). Affiliates of MSD XPO Partners, LLC, MSD PCOF Partners XXXIX, LLC and DESALKIV Cayman C-2, Ltd. (f/k/a DELALV Cayman C-2, Ltd.) (collectively, the “Preferred Investors”) also separately purchased 200,000 shares of our 6.50% Series A Convertible Preferred Stock (the “Series A Convertible preferred stock”) for $200 million. Our obligations under the Credit Agreement are guaranteed by Xponential Intermediate Holdings, LLC and certain of our material subsidiaries, and are secured by substantially all of the assets of Xponential Intermediate Holdings, LLC and certain of our material subsidiaries.

Under the Credit Agreement, we are required to make: (i) monthly payments of interest on the Term Loans and (ii) quarterly principal payments equal to 0.25% of the original principal amount of the Term Loan. Borrowings under the Term Loan Facility bear interest at a per annum rate of, at our option, either (a) the LIBOR Rate (as defined in the Credit Agreement) plus a margin of 6.50% or (b) the Reference Rate (as defined in the Credit Agreement) plus a margin of 5.50% (11.30% at March 31, 2023).

The Credit Agreement also contains mandatory prepayments of the Term Loan with: (i) 50% of Xponential Intermediate Holdings, LLC and its subsidiaries’ Excess Cash Flow (as defined in the Credit Agreement), subject to certain exceptions; (ii) 100% of the net proceeds of certain asset sales and insurance/condemnation events, subject to reinvestment rights and certain other exceptions; (iii) 100% of the net proceeds of certain extraordinary receipts, subject to reinvestment rights and certain other exceptions; (iv) 100% of the net proceeds of any incurrence of debt, excluding certain permitted debt issuances; and (v) up to $60 million of net proceeds in connection with an initial public offering of at least $200 million, subject to certain exceptions.

The Credit Agreement contains customary affirmative and negative covenants, including, among other things: (i) to maintain certain total leverage ratios, liquidity levels and EBITDA levels (in each case, as discussed further in the Credit Agreement); (ii) to use the proceeds of borrowings only for certain specified purposes; (iii) to refrain from entering into certain agreements outside of the ordinary course of business, including with respect to consolidation or mergers; (iv) restricting further indebtedness or liens; (v) restricting certain transactions with our affiliates; (vi) restricting investments; (vii) restricting prepayments of subordinated indebtedness; (viii) restricting certain payments, including certain payments to our affiliates or equity holders and distributions to equity holders; and (ix) restricting the issuance of equity. As of March 31, 2023, we were in compliance with these covenants.

The Credit Agreement also contains customary events of default, which could result in acceleration of amounts due under the Credit Agreement. Such events of default include, subject to the grace periods specified therein, our failure to pay principal or interest when due, our failure to satisfy or comply with covenants, a change of control, the imposition of certain judgments and the invalidation of liens we have granted.

Immediately following the IPO, on July 23, 2021 we executed a first amendment to the Credit Agreement, which amended the amount of the prepayment premium applicable to the prepayment of the Term Loan, and paid off $115.0 million of the principal balance of the Term Loan.

On October 8, 2021, we entered into a second amendment (the “Amendment”) to the Credit Agreement. The Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $38 million (the “2021 Incremental Term Loan”), the proceeds of which were used to fund the BFT Acquisition and the payment of fees, costs and expenses related to the Amendment. The Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2021 Incremental Term Loan) commencing on December 31, 2021 and (ii) amended the amount of the prepayment premium applicable in the event the 2021 Incremental Term Loan is prepaid within two years of the effective date of the Amendment.

On September 30, 2022, we entered into a third amendment (the “Third Amendment”) to the Credit Agreement. The Third Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $7.5 million (the “2022 Incremental Term Loan”), the proceeds of which were used for the acquisition of BodyFit trademark and general corporate purposes, including funding working capital and the payment of fees, costs and expenses related to the Third Amendment. The Third Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2022 Incremental Term Loan) commencing on December 31, 2022 and (ii) amended the amount of the prepayment premium applicable in the event the 2022 Incremental Term Loan is prepaid within two years of the effective date of the Third Amendment.

On January 9, 2023, we entered into a fourth amendment (the "Fourth Amendment") to the Credit Agreement. The Fourth Amendment provides for, among other things, additional Term Loans in an aggregate principal amount of $130.0 million (the "2023 Incremental Term Loan"), the proceeds of which were used to fund the repurchase of a portion of our outstanding Convertible Preferred (the “Repurchase Transactions”) and the payment of fees, costs and expenses related to the Amendment and the Repurchase Transactions. The Amendment also (i) increased the amount of the quarterly principal payments of the loans provided pursuant to the Credit Agreement (including the 2023 Incremental Term Loan) commencing on June 30, 2023 and (ii) amended the amount of the prepayment premium applicable in the event the 2023 Incremental Term Loan is prepaid.

The total principal amount outstanding on the Term Loans was $266.7 million at March 31, 2023.Quarterly principal payments of $1.1 million on the Term Loan as amended are due beginning June 30, 2023.

On January 9, 2023, we entered into a preferred stock repurchase agreement (the "Repurchase Agreement") with certain holders of the Convertible Preferred, pursuant to which we agreed to repurchase 85,340 shares of Convertible Preferred. On January 13, 2023, the repurchase was completed for an aggregate payment of $130.8 million. The excess of fair market value of $12.7 million over the consideration transferred was treated as deemed contribution and resulted in an increase to our accumulated deficit.

At March 31, 2023, 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, 2022.

Cash Flows

The following table presents summary cash flow information for the three months ended March 31, 2023 and 2022:

	Three Months Ended March 31,
	2023			2022
	(in thousands)
Net cash provided by (used in) operating activities	$	11,351		$	2,888
Net cash provided by (used in) investing activities		(2,385	)		(2,208	)
Net cash provided by (used in) financing activities		(18,201	)		(6,250	)
Net decrease in cash, cash equivalents and<br> restricted cash	$	(9,235	)	$	(5,570	)

Cash Flows from Operating Activities

In the three months ended March 31, 2023, cash provided by operating activities was $11.4 million, compared to cash provided of $2.9 million in the three months ended March 31, 2022, an increase in cash provided of $8.5 million. Of the increase, $0.2 million was due to lower net loss after adjustments to reconcile net loss to net cash provided by operating activities and $8.3 million primarily due to favorable changes in working capital related to accounts receivable, accounts payable and accrued expense; partially offset by unfavorable changes in working capital related to deferred revenue in the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

Cash Flows from Investing Activities

In the three months ended March 31, 2023, cash used in investing activities was $2.4 million, compared to $2.2 million in the three months ended March 31, 2022, an increase in cash used of $0.2 million. The increase was primarily attributable to a decrease of cash used in issuing notes receivables; partially offset by a decrease in cash received from collection of notes receivable and an increase in cash used to purchase property and equipment and intangible assets.

Cash Flows from Financing Activities

In the three months ended March 31, 2023, cash used in financing activities was $18.2 million, compared to $6.3 million in the three months ended March 31, 2022, an increase in cash used of $11.9 million. The increase in cash used was primarily attributable to tax payments of $7.9 million related to vesting of restricted share units and payment of $130.8 million related to repurchase of convertible preferred stock; partially offset by increase in cash received relating to borrowing on long-term debt of $126.1 million.

Off-Balance Sheet Arrangements

As of March 31, 2023, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees. Our maximum total commitment under these agreements is approximately $2.8 million and would only require payment upon default by the primary obligor. The estimated fair value of these guarantees at March 31, 2023 was not material, and no accrual has been recorded for our potential obligation under these arrangements. See Note 16 of Notes to Condensed Consolidated Financial Statements for more information regarding these operating leases and guarantees.

In July 2022, we issued a standby letter of credit to a third-party financing company, who provides loans to our qualified franchisees. The standby letter of credit is contingent upon the failure of our franchisees to perform according to the terms of underlying contracts with the third party. We deposited cash in a restricted account as collateral for the standby letter of credit. The estimated fair value of these guarantees at inception was not material, and as of March 31, 2023 no accrual has been recorded for our potential obligation under this guaranty arrangement. See Note 16 of Notes to Condensed Consolidated Financial Statements for more information.

Critical Accounting Policies and Estimates

There have been no significant changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” included in our Form 10-K for the year ended December 31, 2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of March 31, 2023. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2023, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 1. Legal Proceedings.

The material set forth in Note 16 (pertaining to information regarding legal contingencies) of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q is incorporated herein by reference.

Item 1A. Risk Factors.

The Company has included in Part 1, Item 1A of Part 1 of its Annual Report on Form 10-K for the year ended December 31, 2022, a description of certain risks and uncertainties that could affect the Company's business, future performance or financial condition (the “Risk Factors”). There have been no material changes to the Risk Factors we previously disclosed in our filings with the SEC. Our operations could also be affected by additional factors that are not presently known to us or by factors that we currently consider immaterial to our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit<br><br>Number	Description
10.1*	Fourth Amendment, dated as of January 9, 2023, to the Credit Agreement, by and among the Company, Wilmington Trust, National Association, as administrative agent and collateral agent, and the lenders party thereto, including certain entities affiliated with MSD Partners.
10.2	Underwriting Agreement, dated as of February 7, 2023, by and among the Company, Xponential Intermediate Holdings, LLC, BofA Securities, Inc., Jefferies LLC, as representatives of the several underwriters named in Schedule A thereto and the selling stockholders named in Schedule B thereto. Incorporated by reference to Exhibit 1.1 to Form 8-K filed with the SEC on February 10, 2023.
31.1*	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
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* Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Xponential Fitness, Inc.<br><br>(Registrant)
Date: May 5, 2023	By:	/s/ John Meloun
		John Meloun
		Chief Financial Officer

EX-10

Exhibit 10.1

FOURTH AMENDMENT TO FINANCING AGREEMENT

FOURTH AMENDMENT TO FINANCING AGREEMENT, dated as of January 9, 2023 (this “Amendment”), to the Financing Agreement, dated as of April 19, 2021 (as amended by the First Amendment to Financing Agreement, dated as of July 27, 2021, as amended by the Second Amendment to Financing Agreement, dated as of October 8, 2021, as amended by the Third Amendment to Financing Agreement, dated as September 30, 2022, and as may be further as amended, restated, supplemented or otherwise modified, the “Financing Agreement”), by and among Xponential Intermediate Holdings, LLC, a Delaware limited liability company (the “Parent”), Xponential Fitness LLC, a Delaware limited liability company (“XF”), each Subsidiary (as defined therein) of Parent listed as a "Borrower" on the signature pages thereto (together with XF and each other Person that executes a joinder agreement and becomes a "Borrower" thereunder, each a “Borrower” and collectively, the “Borrowers”), each other Subsidiary of Parent listed as a "Guarantor" on the signature pages thereto (together with Parent and each other Person that executes a joinder agreement and becomes a “Guarantor” thereunder or otherwise guaranties all or any part of the Obligations (as defined therein), each a “Guarantor” and collectively, the "Guarantors"), the lenders from time to time party thereto (each a “Lender” and collectively, the "Lenders"), Wilmington Trust, National Association (“Wilmington Trust”), as collateral agent for the Lenders (in such capacity, together with its successors and assigns, the “Collateral Agent”) and Wilmington Trust, as administrative agent for the Lenders (in such capacity, together with its successors and assigns, the “Administrative Agent” and together with the Collateral Agent, each an “Agent” and collectively, the “Agents”). All terms used herein that are defined in the Financing Agreement and not otherwise defined herein shall have the meanings assigned to them in the Financing Agreement (as amended hereby).

WHEREAS, the Borrowers wish to amend the Financing Agreement to provide for additional term loans in an aggregate principal amount equal to $130,000,000 (the “2023 Incremental Term Loans”) to be made by the Lenders listed on Annex A hereto or any of their Affiliates or funds managed or advised by any of them or any of their respective Affiliates as may be set forth in an updated Annex A most recently delivered to the Administrative Agent (which updated Annex A, if any, shall in any event be delivered prior to both the Fourth Amendment Funding Date and the delivery of the Notice of Borrowing in respect of the 2023 Incremental Term Loans) by any such Lender then party hereto (accompanied by a signature page to this Amendment) (the Lenders listed on Annex A hereto, as may be updated in accordance herewith, “2023 Incremental Term Loan Lenders”) (or by Lenders’ counsel on their behalf) in accordance with their respective commitments set forth on such Annex A (the “2023 Incremental Term Loan Commitments”), the proceeds of which will be used to consummate the Fourth Amendment Transactions;

WHEREAS, the Loan Parties have requested that the Agents and the Lenders amend the Financing Agreement in certain respects in connection with, the 2023 Incremental Term Loans, and the Agents and the Lenders are agreeable to such request for amendment on and subject to the terms and conditions set forth herein; and

NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereto hereby agree as follows:

1. Amendments to Financing Agreement.

(a) The 2023 Incremental Term Loan Lenders hereby, severally but not jointly, agree to provide the full amount of the 2023 Incremental Term Loans in accordance with their respective 2023 Incremental Term Loan Commitments. The Borrowers hereby agree to borrow the full amount of the 2023 Incremental Term Loans. The 2023 Incremental Term Loan Commitments shall be subject to all of the terms and conditions set forth herein and in the Financing Agreement.

(b) The aggregate 2023 Incremental Term Loan Commitments as of the Fourth Amendment Effective Date (as hereinafter defined) are $130,000,000. The 2023 Incremental Term Loan Commitments will terminate in full upon the making of the related 2023 Incremental Term Loans.

(c) Subject to the satisfaction (or waiver by the Required Lenders) of the conditions set forth in Section 7 below, the funding of the 2023 Incremental Term Loans will occur in one drawing on the Fourth Amendment Funding Date and will be made by the 2023 Incremental Term Loan Lenders listed on the most recently delivered copy of Annex A hereto, ratably in accordance with their respective 2023 Incremental Term Loan Commitments pursuant to the Administrative Borrower’s request in the form of a Notice of Borrowing (which notice may be delivered upon a shorter time period than set forth in Section 2.02 of the Financing Agreement or not at all, to the extent agreed to by the Required Lenders and the Administrative Agent). In the event that the 2023 Incremental Term Loans are not borrowed on the Fourth Amendment Funding Date, either upon mutual agreement of the Borrowers and the Required Lenders (with concurrent written notice to the Administrative Agent) or due to a failure of the conditions set forth in Section 7 below to be satisfied (or waived by the Required Lenders), then automatically (unless the Required Lenders are ready, willing and able to close and the Borrowers are in breach of their obligation to close hereunder): (x) the amendments to the Financing Agreement pursuant to this Amendment shall no longer be of force and effect and shall be null and void and the Financing Agreement as in effect prior to this Amendment shall remain in effect and (y) the 2023 Incremental Term Loan Commitments shall terminate.

(d) The parties hereto acknowledge and agree that, in accordance with the recitals hereof (and, for the avoidance of doubt, without modifying the aggregate principal amount of 2023 Incremental Term Loan Commitments set forth on Annex A as of the Fourth Amendment Effective Date), Annex A to this Amendment may be updated from time to time prior to the Fourth Amendment Funding Date and delivery of the Notice of Borrowing in respect of the 2023 Incremental Term Loans by the 2023 Incremental Term Loan Lenders that are party hereto as of the Fourth Amendment Effective Date (or Lenders’ counsel on their behalf). Each of parties hereto hereby agree that (x) any updated copy of Annex A hereto delivered by or on behalf of the 2023 Incremental Term Lenders (or by Lenders’ counsel on their behalf) shall (i) automatically replace Annex A hereto upon delivery hereof and (ii) be accompanied by a counterpart to this Amendment from each 2023 Incremental Term Loan Lender listed on such updated copy of Annex A that is not otherwise party to this Amendment as of the Fourth Amendment Effective Date, which counterparts shall be automatically appended to this Amendment and become a part hereof upon delivery of such counterparts and (y) the Administrative Agent shall be entitled to rely conclusively upon such updated copy of Annex A hereto in performing its obligations hereunder and under the Financing Agreement as amended hereby.

(e) Section 1.01 of the Financing Agreement is hereby amended to add the following definitions:

“2023 Incremental Term Loans” has the meaning set forth in the Fourth Amendment.

“Fourth Amendment” means the Fourth Amendment to Financing Agreement, dated as of January 9, 2023, among the Loan Parties, the Lenders and the Agents.

“Fourth Amendment Effective Date” has the meaning specified therefor in Section 6 of the Fourth Amendment.

“Fourth Amendment Funding Date” means January 13, 2023, or such other date that is mutually agreed by the Required Lenders and the Borrowers, with concurrent written notice (which may be by email) to the Administrative Agent.

“Fourth Amendment Transactions” means (i) the distribution of the proceeds of the 2023 Incremental Term Loans and other available cash by XF to the Parent in the aggregate amount of the Repurchases (as defined below) (the “XPO Distribution”), (ii) the use of the proceeds of the XPO Distribution by the Parent to repurchase, immediately prior to the Repurchases, 85,334 Preferred Units (as defined in the Parent’s Second Amended and Restated Limited Liability Company Operating Agreement (the “LLCA”)) from XF for $130,766,360, together with accrued and unpaid dividends on such Preferred Units in accordance with the LLCA (the “Units Repurchase”), (iii) the use of proceeds from the Units Repurchase by XF to repurchase 85,334 shares of PubCo Convertible Preferred from one or more holders of such PubCo Convertible Preferred at an aggregate purchase price of $130,766,360, together with accrued and unpaid dividends on such shares of PubCo Convertible Preferred (the “Repurchases”) and (iv) the payment of fees and expenses in connection with the Fourth Amendment and the foregoing.

(f) Section 1.01 of the Financing Agreement is hereby amended to amend and restate the following definition in its entirety as follows:

“Applicable Prepayment Premium” means, (i) as of any date of determination, with respect to and in the event of any prepayment of the Term Loans (other than 2023 Incremental Term Loans), (a) during the period of time after the date that is the first anniversary of the Effective Date up to and including the date that is the first anniversary of the Second Amendment Effective Date, an amount equal to 0.98% times the principal amount of any such prepayment of the Term Loans on such date, (b) during the period of time after the date that is the first anniversary of the Second Amendment Effective Date up to and including the date that is the second anniversary of the Effective Date, an amount equal to 0.50% times the principal amount of any such prepayment of the Term Loans on such date, (c) during the period of time after the date that is the second anniversary of the Effective Date up to and including the date that is the second anniversary of the Second Amendment Effective Date, an amount equal to 0.16% times the principal amount of any such prepayment of the Term Loans on such date, and (d) from the second anniversary of the Second Amendment Effective Date and at all times thereafter, zero and (ii) as of any date of determination, with respect to and in the event of any prepayment of the 2023 Incremental Term Loans (a) during the period of time from and after the Fourth Amendment Effective Date up to and including the date that is the first anniversary of the Fourth Amendment Effective Date, an amount equal to 2.00% times the principal amount of any such prepayment of the 2023 Incremental Term Loans on such date, (b) during the period of time after the date that is the first anniversary of the Fourth Amendment Effective Date up to and including the date that is the second anniversary of the Fourth Amendment Effective Date, an amount equal to 0.50% times the principal amount of any such prepayment of the 2023 Incremental Term Loans on such date, and (c) from the second anniversary of the Fourth Amendment Effective Date and at all times thereafter, zero.

“Loan Document” means this Agreement, the Agent Fee Letter, any Guaranty, any Joinder Agreement, any Mortgage, any Security Agreement, the Flow of Funds Agreement, the Intercompany Subordination Agreement, any Perfection Certificate, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, any collateral access agreement, any landlord subordination or waiver agreement, any other agreement, instrument, certificate, report and other document executed and delivered pursuant hereto or thereto or otherwise evidencing or securing any Loan or any other Obligation.

(g) Section 2.03(b) of the Financing Agreement is hereby amended and restated in its entirety and replaced by the following: “The outstanding principal of the Initial Term Loan shall be repayable, ratably, in consecutive quarterly installments, each such installment to be due and payable on the last Business Day of each calendar quarter (i.e. March, June, September, and December) (each, a “Scheduled Term Loan Payment Date”), (i) commencing with June 30, 2021 and, for the Scheduled Term Loan Payment Dates occurring on June 30, 2021 and September 30, 2021, in an amount equal to 0.25% of the original principal amount of the Initial Term Loan made hereunder on the Effective Date, (ii) commencing with December 31, 2021 and, for the Scheduled Term Loan Payment Dates occurring on December 31, 2021, March 31, 2022, June 30, 2022 and September 30, 2022, in an amount equal to $739,922.87, (iii) commencing with December 31, 2022 and, for the Scheduled Term Loan Payment Dates occurring on December 31, 2022 and March 31, 2023, in an amount equal to $758,672.87; provided, that, notwithstanding anything to the contrary contained in this Agreement or otherwise, the payment to be made on the Scheduled Term Loan Payment Date occurring on March 31, 2023 shall be made only with respect to the outstanding principal of the Initial Term Loans other than the 2023 Incremental Term Loans (and ratably to such Loans) and none of the original principal amount of the 2023 Incremental Term Loans shall be repayable on such date, and (iv) commencing with June 30, 2023 and for each Scheduled Term Loan Payment Date thereafter, in an amount equal to $1,064,922.87; provided, however, that the last such installment shall be in the amount necessary to repay in full the unpaid principal amount of the Term Loans on the Final Maturity Date. The outstanding unpaid principal of the Term Loans and all accrued and unpaid interest thereon, shall be due and payable in full on the Final Maturity Date.”

(h) Section 7.02(h)(J) of the Financing Agreement is hereby amended and restated in its entirety and replaced by the following: “Subsidiaries of the Parent may make distributions to Parent, which Parent shall promptly distribute, or cause to be distributed, to Xponential Fitness, Inc. (“PubCo”), for the payment of, and in amounts not to exceed the amounts required to be paid in respect of the Series A Convertible Preferred Stock or Series A-1 Convertible Preferred Stock (the “PubCo Convertible Preferred”), including (1) Preferential Coupons (as defined in each Certificate of Designations governing the PubCo Convertible Preferred), including any paid in cash, (2) any amounts due upon redemptions of the PubCo Convertible Preferred in accordance with the terms of the Certificates of Designations governing such PubCo Convertible Preferred” and (3) any amounts needed to consummate the Fourth Amendment Transactions;

(i) Each 2023 Incremental Term Loan Lender shall be deemed to be a “Lender”, a “Term Loan Lender” and a “Secured Party” for all purposes under the Financing Agreement and each other Loan Document, and shall have all of the rights and obligations of a Lender, a Term Loan Lender and a Secured Party under the Financing Agreement and the other Loan Documents. The 2023 Incremental Term Loans shall be Term Loans and Initial Term Loans for all purposes under the Financing Agreement and each other Loan Document and, unless otherwise set forth in the Financing Agreement, shall have terms identical to the Initial Term Loans outstanding under the Financing Agreement immediately prior to the date hereof (including, but not limited to, with respect to “Applicable Margin”, “Maturity Date” and Section 2.04(b)); provided, that the type and, if applicable, initial Interest Period applicable to the 2023 Incremental Term Loans shall be as specified in the applicable Notice of Borrowing.

(j) Each 2023 Incremental Term Loan Lender, to the extent not a Lender under the Financing Agreement, (x) (a) confirms that it has received copies of the Financing Agreement and the other Loan Documents, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Amendment; (b) agrees that it will, independently and without reliance upon the Administrative Agent, the Collateral Agent, the Assignor, or any Lender, based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; and (c) appoints and authorizes each of the Administrative Agent and the Collateral Agent to take such action as the Administrative Agent or the Collateral Agent (as the case may be) on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent or the Collateral Agent (as the case may be) by the terms thereof, together with such powers as are reasonably incidental thereto; (y) acknowledges and agrees that the Administrative Agent and the Collateral Agent each are and shall be entitled to all of the indemnifications, exculpations and other rights and protections set forth in the Financing Agreement (including as amended hereby) and the other Loan Documents (including, without limitation, those set forth in Article X of the Financing Agreement (including as amended hereby) (and such 2023 Incremental Term Loan Lender shall be obligated as a Lender under such Article X)), and (z) agrees that it will perform in accordance with their terms all the obligations which by the terms of the Financing Agreement (as amended hereby) and the other Loan Documents as are required to be performed by it as a Lender.

(k) The proceeds of the 2023 Incremental Term Loans shall be used to consummate the Fourth Amendment Transactions.

(l) Schedule 1.01(A) of the Financing Agreement shall be amended and supplemented to include the 2023 Incremental Term Loan Commitments set forth on Annex A hereto.

2. [Reserved].

3. [Reserved].

4. [Reserved].

5. Representations and Warranties. Each Loan Party hereby jointly and severally represents and warrants to the Agents and the Lenders, as of the date hereof, as follows:

(a) Representations and Warranties; No Event of Default. The representations and warranties contained herein, in Article VI of the Financing Agreement and in each other Loan Document, certificate or other writing delivered by or on behalf of any Loan Party to any Secured Party pursuant thereto on or prior to the Fourth Amendment Effective Date are true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified as to "materiality" or "Material Adverse Effect" in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such date as though made on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date (in which case such representation or warranty shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to "materiality" or "Material Adverse Effect" in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such earlier date), and no Default or Event of Default has occurred and is continuing as of the Fourth Amendment Effective Date or would result from this Amendment becoming effective in accordance with its terms.

(b) Authorization; Enforceability. The execution and delivery of this Amendment by each Loan Party, and the performance of the Financing Agreement, as amended hereby, (i) have been duly authorized by all necessary action, (ii) do not and will not contravene (A) any of its Governing Documents, (B) any applicable Requirement of Law or (C) any Contractual Obligation binding on or otherwise affecting it or any of its properties, (iii) do not and will not result in or require the creation of any Lien (other than pursuant to any Loan Document) upon or with respect to any of its properties other than any such Lien that constitutes a Permitted Lien, and (iv) do not and will not result in any default, noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal of any permit, license, authorization or approval applicable to its operations or any of its properties except, in the case of clauses (ii)(B), (ii)(C) and (iv), as could not reasonably be expected to have a Material Adverse Effect. This Amendment constitutes the legal, valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity.

6. Conditions Precedent to Effectiveness. This Amendment shall become effective upon satisfaction in full, or waiver by the Required Lenders, of the following conditions precedent (the first date upon which all such conditions shall have been satisfied (or waived by the Required Lenders) being herein called the "Fourth Amendment Effective Date"):

(a) Delivery of Documents. The Agent and the Required Lenders shall have received, on or before the Fourth Amendment Effective Date, the following, each in form and substance reasonably satisfactory to the Required Lenders and, unless indicated otherwise, dated the Fourth Amendment Effective Date:

(i) this Amendment, duly executed by the Loan Parties, each Agent, the 2023 Incremental Term Loan Lenders and the Required Lenders (including all 2023 Incremental Term Loan Lenders);

(ii) a copy of the resolutions of each Loan Party, certified as of the Fourth Amendment Effective Date by an Authorized Officer thereof, authorizing (A) the borrowings hereunder and the transactions contemplated by this Amendment and (B) the execution, delivery and performance by such Loan Party of this Amendment and the execution and delivery of the other documents to be delivered by such Person in connection herewith;

(iii) a certificate of an Authorized Officer of each Loan Party, certifying the names and true signatures of the representatives of such Loan Party authorized to sign this Amendment and the other documents to be executed and delivered by such Loan Party in connection herewith, together with evidence of the incumbency of such authorized officers;

(iv) a certificate of the appropriate official(s) of the jurisdiction of organization of each Loan Party certifying as of a recent date not more than 30 days prior to the Fourth Amendment Effective Date as to the good standing of such Loan Party, in such jurisdiction, except, in each case, where the failure to be so qualified could not reasonably be expected to result in a Material Adverse Effect of the Loan Parties, taken as a whole;

(v) a true and complete copy of the charter, certificate of formation, certificate of limited partnership or other publicly filed organizational document of each Loan Party certified as of a recent date not more than 30 days prior to the Fourth Amendment Effective Date by an appropriate official of the jurisdiction of organization of such Loan Party which shall set forth the same complete name of such Loan Party as is set forth herein and the organizational number of such Loan Party, if an organizational number is issued in such jurisdiction (or a certification that there have been no changes to such organizational documents since the Second Amendment Effective Date);

(vi) a copy of the Governing Documents of each Loan Party, together with all amendments thereto, certified as of the Fourth Amendment Effective Date by an Authorized Officer of such Loan Party (or a certification that there have been no changes to such Governing Documents since the Second Amendment Effective Date);

(vii) an opinion of (a) Davis Polk & Wardwell LLP, special New York counsel to the Loan Parties, (b) Morris, Nichols, Arsht & Tunnell LLP, special Delaware counsel to the Loan Parties, and (c) Roetzel & Andress, special Ohio counsel to the Loan Parties, in each case, as to such customary matters as the Required Lenders may reasonably request;

(viii) a certificate of an Authorized Officer of each Loan Party, certifying as to the matters described in Section 5(a) of this Amendment;

(ix) A copy of that certain preferred stock repurchase agreement, dated as of January 9, 2023, by and between XF and the holders party thereto (the “Stock Repurchase Agreement”); and

(x) A copy of the that certain fourth amendment fee letter, dated as of January 9, 2023, by and between XF and the lenders party thereto (the “Fee Letter”).

7. Conditions Precedent to Funding. The obligation of the 2023 Incremental Term Loan Lenders to fund the 2023 Incremental Term Loans is subject to the satisfaction in full, or waiver by the Required Lenders, of the following conditions precedent:

(a) Effectiveness. The Fourth Amendment Effective Date has occurred.

(b) Payment of Fees, Etc. The Borrowers shall have paid (or caused to be paid), on or before the Fourth Amendment Effective Date, (i) all fees, costs and expenses then due and payable, if any, pursuant to Section 12.04 of the Financing Agreement and the Fee Letter and (ii) to the Agents, for their own account, an amendment fee in an amount agreed upon by the Borrower and the Agents.

(b) Delivery of Documents. The Agents and the Required Lenders shall have received, on or before the Fourth Amendment Funding Date, the following, each in form and substance reasonably satisfactory to the Required Lenders and, unless indicated otherwise, dated the Fourth Amendment Funding Date:

(i) a certificate of an Authorized Officer of each Loan Party, certifying as to the matters described in Section 5(a) of this Amendment (with references therein to the Fourth Amendment Effective Date being deemed to be references to the Fourth Amendment Funding Date solely for purposes of this Section 7(b)(i));

(ii) a certificate of the chief financial officer of the Administrative Borrower, certifying on behalf of the Loan Parties, as to the solvency of the Loan Parties (on a consolidated basis), which certificate shall be reasonably satisfactory in form and substance to the Required Lenders;

(iii) a Notice of Borrowing pursuant to Section 2.02 of the Financing Agreement; and

(iv) a counterpart to this Amendment from each 2023 Incremental Term Loan Lender not otherwise party to this Amendment as of the Fourth Amendment Effective Date.

(c) Fourth Amendment Transactions. The Fourth Amendment Transactions shall have been (or, substantially concurrently with the making of the 2023 Incremental Term Loans, shall be) consummated.

8. Continued Effectiveness of the Financing Agreement and Other Loan Documents. Each Loan Party hereby (i) acknowledges and consents to this Amendment, (ii) confirms and agrees that the Financing Agreement and each other Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that on and after the Fourth Amendment Effective Date all references in the Financing Agreement or any other Loan Document to "Financing Agreement", the "Agreement", "thereto", "thereof", "thereunder" or words of like import referring to the Financing Agreement shall mean the Financing Agreement as amended by this Amendment, and (iii) confirms and agrees that to the extent that the Financing Agreement or any such other Loan Document purports to assign or pledge to the Collateral Agent for the benefit of the Lenders, or to grant to the Collateral Agent for the benefit of the Lenders a security interest in or Lien on, any Collateral as security for the Obligations or Guaranteed Obligations, as the case may be, of any Loan Party from time to time existing in respect of the Financing Agreement (as amended hereby) and the other Loan Documents, such pledge, assignment and/or grant of the security interest or Lien is hereby ratified and confirmed in all respects as of the date hereof. This Amendment does not and shall not affect any of the obligations of any Loan Party, other than as expressly provided herein, including, without limitation, the Borrower's obligation to repay the Loans in accordance with the terms of Financing Agreement, or the obligations of any other Loan Party under any Loan Document to which it is a party, all of which obligations shall remain in full force and effect. Except as expressly provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Agents or any Lender under the Financing Agreement or any other Loan Document, nor constitute a waiver of any provision of the Financing Agreement or any other Loan Document.

9. Reaffirmation of Loan Parties. Each Loan Party hereby reaffirms its obligations under the Financing Agreement and each other Loan Document to which it is a party as of the date hereof. Each Loan Party hereby further ratifies and reaffirms as of the date hereof the validity and enforceability of all of the Liens and security interests heretofore granted by it, pursuant to and in connection with the Financing Agreement or any other Loan Document to the Agents, on behalf and for the benefit of the Agents and each Lender, as collateral security for the obligations under the Financing Agreement and the other Loan Documents in accordance with their respective terms, and acknowledges that all of such liens and security interests, and all collateral heretofore pledged by it as security for such obligations, continues to be and remain collateral for such obligations. Although each of the Guarantors have been informed of the matters set forth herein and have acknowledged and agreed to same, each of the Guarantors understands that the Agents and the Lenders shall have no obligation to inform the Guarantors of such matters in the future or to seek the Guarantors' acknowledgement or agreement to future amendments, waivers, or modifications, and nothing herein shall create such a duty.

10. Miscellaneous.

(a) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Amendment by electronic mail shall be equally as effective as delivery of an original executed counterpart of this Amendment. Any party may request in writing that parties delivering an executed counterpart of this Amendment by electronic mail also deliver an original executed counterpart of this Amendment but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment. The words “execution,” “signed,” “signature,” and words of like import in this Amendment shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act. Delivery of an executed counterpart of this Amendment following the Fourth Amendment Effective Date but on or prior to the Fourth Amendment Funding Date shall be equally as effective as delivery of an executed counterpart of this Amendment as of the Fourth Amendment Effective Date.

(b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

(c) THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK.

(d) This Amendment constitutes a "Loan Document" under the Financing Agreement.

(e) Any provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.

(f) The Borrower will pay (or cause to be paid) promptly upon receipt of a reasonably detailed invoice therefor, all reasonable and documented fees and out-of-pocket costs and expenses of the Agents and the Lenders in connection with the preparation, execution and delivery of this Amendment in accordance with and pursuant to Section 12.04 of the Financing Agreement, including, without limitation, reasonable and documented fees, costs and expenses of (x) King & Spalding LLP, counsel to the Lenders and (y) Arnold & Porter Kaye Scholer LLP, counsel to the Agents.

(g) By its execution hereof, each of the Lenders party hereto, constituting all Lenders party to the Financing Agreement, hereby (i) authorizes and directs each Agent to execute and deliver this Amendment and (ii) acknowledges and agrees that (x) the authorization and direction in this Section 10(g) constitutes an authorization and direction from the Lenders under the provisions of Article X of the Financing Agreement and (y) Article X (including, for the avoidance of doubt, Sections 10.03 and 10.05 thereof) of the Financing Agreement shall apply to any and all actions taken by either Agent in accordance with such direction.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.

BORROWER:

	XPONENTIAL FITNESS LLC
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer

GUARANTORS:

	XPONENTIAL INTERMEDIATE HOLDINGS, LLC
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	CLUB PILATES FRANCHISE, LLC
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	CYCLEBAR HOLDCO, LLC
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	CYCLEBAR FRANCHISING, LLC
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	CYCLEBAR WORLDWIDE INC.
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	STRETCH LAB FRANCHISE, LLC
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	ROW HOUSE FRANCHISE, LLC
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer

[Signature Page to Fourth Amendment]

	YOGA SIX FRANCHISE, LLC
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	AKT FRANCHISE, LLC
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	PB FRANCHISING, LLC
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	STRIDE FRANCHISE, LLC
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	XPONENTIAL FITNESS BRANDS INTERNATIONAL,<br><br>LLC
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	RUMBLE FRANCHISE, LLC
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer
	BFT FRANCHISE HOLDINGS, LLC
---	---
By:	/s/ John Meloun
	Name: John Meloun<br><br>Title: Chief Financial Officer

[Signature Page to Fourth Amendment]

ADMINISTRATIVE AGENT AND

COLLATERAL AGENT:

	WILMINGTON TRUST, NATIONAL ASSOCIATION, as Administrative Agent and Collateral Agent
By:	/s/ Teisha Wright
	Name: Teisha Wright<br><br>Title: Vice President

[Signature Page to Fourth Amendment]

LENDERS:

	MSD XPO PARTNERS, LLC, as Lender
By:	/s/ Kenneth Gerold
	Name: Kenneth Gerold<br><br>Title: Authorized Signatory
	MSD PCOF PARTNERS XXXIX, LLC, as Lender
---	---
By:	/s/ Kenneth Gerold
	Name: Kenneth Gerold<br><br>Title: Authorized Signatory
	MSD BDC SPV I, LLC, as a Lender
---	---
By:	/s/ Kenneth Gerold
	Name: Kenneth Gerold<br><br>Title: Authorized Signatory

[Signature Page to Fourth Amendment]

	REDWOOD MASTER FUND, LTD., as Lender<br><br>By: Redwood Capital Management, LLC, its Investment Manager
By:	/s/ Sean Sauler
	Name: Sean Sauler<br><br>Title: Deputy CEO
	REDWOOD OPPORTUNITY Master FUND, LTD., as Lender<br><br>By: Redwood Capital Management, LLC, its Investment Manager
---	---
By:	/s/ Sean Sauler
	Name: Sean Sauler<br><br>Title: Deputy CEO
	REDWOOD ENHANCED INCOME, CORP., as Lender
---	---
By:	/s/ Sean Sauler
	Name: Sean Sauler<br><br>Title: Co-President

[Signature Page to Fourth Amendment]

	DESALKIV Cayman C-2, Ltd, as Lender
By:	/s/ Seth Charnow
	Name: Seth Charnow<br><br>Title: Authorized Signatory

[Signature Page to Fourth Amendment]

Annex A

2023 Incremental Term Loan Lenders' Commitments

Lender Name	2023 Incremental Term Loan Commitments	2023 Incremental Term Loan Commitment Percentage
MSD PCOF PARTNERS XXXIX, LLC	$73,846,000.00	56.804615385%
MSD BDC SPV I, LLC	$46,154,000.00	35.503076923%
Redwood Enhanced Income Corp.	$10,000,000.00	7.692307692%
	$130,000,000.00	100.000000000%

EX-31

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Anthony Geisler, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Xponential Fitness, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) [Omitted];

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 5, 2023	By:	/s/ Anthony Geisler
		Anthony Geisler
		Chief Executive Officer
		(Principal Executive Officer)

EX-31

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Meloun, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Xponential Fitness, Inc.;

(b) [Omitted];

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 5, 2023	By:	/s/ John Meloun
		John Meloun
		Chief Financial Officer
		(Principal Financial Officer)

EX-32

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Xponential Fitness, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Anthony Geisler, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 5, 2023	By:	/s/ Anthony Geisler
		Anthony Geisler
		Chief Executive Officer
		(Principal Executive Officer)

EX-32

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Xponential Fitness, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John Meloun, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 5, 2023	By:	/s/ John Meloun
		John Meloun
		Chief Financial Officer
		(Principal Financial Officer)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

For the quarterly period ended March 31, 2023

For the transition period from to

Commission File Number: 001-40638

Xponential Fitness, Inc.

346-3000

Table of Contents

Item 1. Financial Statements.

Xponential Fitness, Inc.

Condensed Consolidated Balance Sheets

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Condensed Consolidated Statements of Operations

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Condensed Consolidated Statements of Changes to Stockholders' Equity (Deficit)

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Condensed Consolidated Statements of Changes to Stockholders' Equity (Deficit)

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Condensed Consolidated Statements of Cash Flows

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Condensed Consolidated Statements of Cash Flows

See accompanying notes to condensed consolidated financial statements.

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Note 1 – Nature of Business and Operations

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Note 2 – Summary of Significant Accounting Policies

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Reclassifications

Recently adopted accounting pronouncements –

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Recently issued accounting pronouncements –

Note 3 – Acquisitions and Dispositions

Studios

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

BodyFit Trademark

Note 4 – Contract Liabilities and Costs from Contracts with Customers

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Note 5 – Notes Receivable

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Note 6 – Property and Equipment

Note 7 – Goodwill and Intangible Assets

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Note 8 – Debt

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Note 9 – Leases

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Note 10 – Related Party Transactions

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Note 11 – Redeemable Convertible Preferred Stock

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Note 12 – Stockholder's Equity (Deficit)

Xponential Fitness, Inc.

Notes to Condensed Consolidated Financial Statements

Note 13 – Equity Compensation

Profit interest units –

1.05