Xponential Fitness, Inc. (XPOF) Q4 2022 Earnings Report, Transcript and Summary

Greetings, welcome to Xponential Fitness Inc. Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce to your host Kimberly Esterkin from Investor Relations. Thank you. You may begin.

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

Thanks Kimberly and good afternoon everyone. We appreciate you joining our fourth quarter earnings conference call. I’ll begin today’s discussion with an overview of our quarterly performance and operational highlights. Sarah will then speak further about our progress against our core growth strategies. John will conclude with a review of our fourth quarter financials and provide our 2023 outlook. As will be evident from the results we discussed today, 2022 was another successful year for Xponential. For the year we achieved double-digit growth across North America memberships same-store sales and AUVs, all of which are representative of the fact that boutique fitness is considered a must have, not discretionary spend by studio members. The demand for our offerings is demonstrated by our North American studios generating over 1 billion in system wide sales in 2022. We are especially encouraged by the fact that our mature studio cohorts still exhibit strong same-store sales growth, and have a profile that's similar to our younger studios. For the full year, North American studios over three years old comp at 25% same-store sales growth, and more recently in the fourth quarter of 2022 North American studios over three years old, competent 18% same-store sales growth. While we do expect this percentage to come down over time, as growth profiles normalize, we are encouraged to see this level of performance. It is clear from these numbers that each year Xponential continues to raise the bar on its operational performance and deliver on its financial results, and 2022 was no exception. Together, we have built a resilient business. And I want to thank every one of our franchisees and employees. All your hard work has enabled Xponential to reach record annual results and to continue to deliver on his mission to make boutique fitness accessible to everyone. I had the opportunity to meet with a large number of our franchisees this past December at our annual franchise convention in Las Vegas. Over 2000 enthusiastic attendees gathered to share best practices and discuss innovative ways to promote the growth of our brands. We are seeing this excitement reinforced and the momentum we are already experiencing in early 2023. As the largest boutique fitness franchisor globally with franchisees operating over 2,600 Studios, we have grown our studio footprint by 24% year-over-year. We now have a combination of franchise, master franchise and international license agreements in place in 16 countries and will continue to grow our footprint globally. Turning to our membership performance; total members across North America increased by approximately 32% year-over-year in 2022 to a total of 590,000. This momentum and membership growth has carried into 2023 and in the month of January, we officially surpassed 600,000 North American members with nearly 90% of these customers on reoccurring membership packages. These figures are representative of the long-term growth of a passionate loyal customer base. As our membership base has grown, so too have visits to our studios. North American studio visits for the 12 months ending in December 2022 increased by 32% year-over-year, reaching a total of 39.2 million. Increased utilization and studios resulted in record North American system wide sales. North American system wide sales increased 46% in 2022 and surpassed 1 billion annual sales for the first time in Xponential’s history. We believe that our studios quarterly run rate average unit volumes or quarterly AUVs ultimately offer the most direct measure of the health of our franchise system. We ended 2022 with fourth quarter run rate North American AUVs of 522,000, up from 446,000 in Q4 of 2021. This represents the 10th straight quarter of AUV growth. While we don't know maximum AUV potential, we know that our studios have plenty of capacity to add more members and classes. The strong same-store sales exhibited by even our more mature cohorts that I discussed earlier make us confident in our studios growth prospects. Turning to revenue, for the year we posted net revenue of approximately $245 million, an increase of 58% year-over-year. Adjusted EBITDA for 2022 totaled $74.3 million or 30.3% of revenue, an increase of 172% from $27.3 million or 17.6% of revenue in the prior year period. Without that as a background, let's turn to our strategic growth areas. I'll discuss the first three levers of our growth plan and then turn the call over to Sarah to discuss the fourth. Let's begin with increasing our franchise studio base. We ended Q4 with 2,641 global Open Studios opening 156 net new studios in the fourth quarter alone. For the full year we opened 511 net new studios globally or a new studio opening approximately every 17 hours. We also experienced strong demand for our franchise licenses selling 257 licenses globally in Q4, bringing total sold licenses to 5450. In North America, we have almost 2000 licenses sold and contractually obligated to open offering us multiyear visibility into our growth. Keep in mind that over time, as we continue to sell through prime geographic territories and each of our existing brands, we would eventually need to acquire another brand to maintain this elevated run rate of license sales. Turning to our second growth driver expanding internationally. On the international front we have over 1000 studios obligated to be opened and we continue to gain traction. In November, we announced a Master Franchise Agreement in Portugal to license Club Pilates studios. Then in December, we announced a Master Franchise Agreement in Japan for our Rumble and AKT brands to open a minimum of 100 new studios across both brands. As a reminder, our MFAs are structured to provide Xponential with high margin flow through given that we require minimal incremental SG&A to support MFA growth. Our third key growth driver is to expand margins and drive free cash flow conversion. As our business continues to grow, we are increasingly reaping the benefits of our asset light scalable operating model providing us with consistent and growing margin performance. We are especially pleased with where our adjusted EBITDA margins ended for the year. We continue to expect our adjusted EBITDA margins to expand into the 35% to 39% range in 2023 and we remain on track to achieve our adjusted EBITDA margin target of 40% in 2024. Our boutique in studio offerings are exactly what consumers post pandemic are gravitating toward. Consumers have shifted their interest towards smaller classes that offer community and entertainment in a safe, healthy environment. Our members come to our studios not only to work out but also to socialize with one another and studio staff. It’s this sense of community that makes our studio membership so sticky, and why the thought of giving up one studio membership equates with also giving up a community and a lifestyle. People are just not willing to make that trade-off. Furthermore, as our brands and community continue to grow, we are increasingly capitalizing on opportunities to engage with consumers far beyond just the physical studio space. And Sarah will discuss shortly our B2B XPLUS and XPASS offerings are great examples of how we are increasingly engaging with our consumers in a more holistic omni channel way. With that, I'll pass the call on to Sarah to discuss our fourth and final growth driver, increasing our same-store sales and AUVs.

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

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

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

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

Good. Thank you.

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

Thanks, Randy. Appreciate it. Yes, I mean, prior to call it pre-COVID for an easy timeframe, prior to the BFT acquisition, International was obviously not what it was for us today. Thus, a big portion of that BFT acquisition was to get a bigger international footprint that we could kind of spring from. And then also, of course, with the FC not having a lot of locations in the U.S., it gave us full opportunity to scale the domestic market, but also expand their national market. That's why that deal was a double great deal for what we were trying to do. And so from there, we've been springing forward. Also in, you know, in 2019, we had planted a lot of seeds in the ground internationally, but didn't have a lot of openings. And of course, with COVID, we kind of took a couple years off, as everybody was figuring everything out globally. So you're kind of seeing a couple of things happening one; the acquisition of BFT, and its expansion in primarily APAC, but also U.K. in other regions. And then you're seeing the seeds that we planted pre-COVID that should have come out in 2021, 2022 or even 2021, 2022 you're seeing those start to happen and 2022 and 2023. So our openings, in 2021 used to be 90. 10 domestic, they were 75, 25 in 2022. We expect that to be pretty close to the same in 2023. And as we get into 24, 25 and later years, we think it'll probably grow to an overall kind of 70:30 split ultimately. So, and of course, as we reiterated before, discussed before the international footprint for us, given that we get 30, 40 sometimes 50% of the revenues and none of the SG&A and the cash that comes over gets treated as cash without any amortization over time, like we would have in the U.S. it is truly incremental to EBITDA margin as well.

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

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

Very helpful. Thanks, guys.

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

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

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

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

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

Thank you.

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

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

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

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

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

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

Thanks, Alex.

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

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

Yes, I think you'll, you'll see stretch lab, you'll see club Pilates still, you'll see Rumble and BFT. Obviously Rumble and BFT coming from the most recent sales of those brands, because they're the newest brands, there's most white space. So we start to sell those, we start selling Rumble before BFT. So we'll start opening more Rumbles before we start opening more BFTs you see quite a decent backlog at stretch lab about 500 units. So that's why there's, there's a lot of those to open, and then with club Pilates, really, because that brand is doing so well. There are still a few 100 of those to open.

Okay, maybe as a follow up to that, right, you because you talked about capacity. So if you think about maybe you're looking at across brands, and I know they're different, right in terms of capacity, but when you look at the highest AUV studios, you think about where you can add capacity, right? Because in some cases, you can't add capacity to those classes. So you'd have to add additional classes, but you don't want to add during the middle of the day right? So you know when you when you think about where you can pick up capacity, where would that be do you think?

I'm sorry, but this is the operator, we seem to have lost the line of the management. Kindly stay connected, ladies and gentlemen, we will reconnect management Thank you? Thank you for patiently holding ladies and gentlemen, we have the management line back in the conference. John you may please go and ask your question again. Thank you.

Yes, no, no, just it was a follow up to the prior one, which was when you think about adding capacity. When you look at your highest AUV Studios, where do you think the opportunity is to add capacity? Right, is it because I think it's difficult right to add capacity to individual classes. So you're thinking about adding additional classes adjacent to what you what your schedule looks like today. Is that fair?

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

I got part of it but -- maybe half of it.

Alright, so I think in a nutshell I was saying that in. In 2023 you will see StretchLab clubs Pilates, Rumble and BFT and when you look at those brands across obviously Rumble will be a key opening because we sold Rumbles of BFTs previously, and then StretchLab we have about a 500 store backlog CP, we've got a few 100 store backlog, and we're pushing on them, the CP brand to make sure that we handle the terminations quickly, so that we make sure we're staying on schedule with those. But then I think you had a follow up question to that as well, as far as 2022. And what we saw did you get did you get the answer to that one?

No, no.

Okay, so 2022 was as a year was our best cohort of opening up and still goes ramping, when you look at the ramp curves. And when the team came back and said, hey, 2022 is the best year ever was like that's really great. But let's look at it quarter-over-quarter. And so we did, and Q4 beat 3B, 2B 1. So now we're seeing 2022 is kind of the best year in company history, the best rams. We’re actually seeing quarter-over-quarter, it gets better and better and better all the way through this, this last Q?

Okay, thank you.

Alright, and then John, did you want to answer the follow up question that he had?

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

Okay, thank you guys.

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

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

Yes, so they the only headwind that we really have. I mean, obviously, there's macro headwinds, there's construction, there's all those kinds of things. And even faced with those headwinds. The company is raising guidance on its openings year-over-year into those headwinds. Financing is not an issue for us it hasn't, that hasn't been a headwind. But always for us, it's finding the best locations and then negotiating the best leases for franchisees long-term health and value of the business. So I had said previously, kind of publicly that yes, you could, you could open a lot more, but then you run into the risk of putting them in, close locations, or having franchisees put in -- way by signing worse leases. And so, we don't have the -- some of the macro headwinds like air conditioning units, or these massive build outs of 20, 30, 40,000 square feet. You got to remember we're building 1500 to 2000 square feet, we're using whatever air conditioning was already sitting on the roof when it was a sandwich shop, or a bike shop, or an ice cream store, or whatever it was before us. We make sure that has air conditioning, and we make sure the air conditioning works. But outside of that, we don't have a certain specific, air conditioning spec that we need. So we're not facing the headwinds as some others are, unfortunately, in the fitness industry, right, because it's, it's tough, it's something you don't control. But financing has been an issue, finding great locations obviously hasn't been an issue. But also as well, like there's, there's not a lot of retailers that I've heard of that are opening 500 plus locations. So they also are doing an amazing job last year at 511. And doing way better, then that we, even would have done this last year. And so, they're small box pieces there, are not massive build outs. There’s not major construction that we do, it's really kind of modifying the previous use that was there into our use. And in some brands like StretchLab or Club Pilates, it really is just a rectangular box with no walls and a single bathroom in the back. So it's not some major construction. So the the construction part is, is low cost.

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

Yes, so I mean, like, we talked about it, that this this B2B partnership piece, or brand access, or corporate partnerships, or whatever, whatever the term is, that people would like to use at the end of the day, we're teaming up and partnering with other great companies to really exploit the Xponential name, and its brands to deliver what I like to call negative CAC, which is where brands actually pay us to deliver customers into our studios. So you see that with Lululemon and Princess and LG and all the different deals that we're doing is really to start to make Xponential, a lifestyle, health and wellness brand on its own, with the 10 brands underneath it, and also allow us to leverage the other assets. And I like to tell the team that, you know, what do we do for a living? What's our day job? Like we open gyms for a living, that's our day job. But then what do you do on evenings and weekends? Right. Like, what else can we do with the assets here? Well, we have something like XPLUS, it's great. And we can operate XPLUS and try and operate in the digital space like everybody else, and try and fight everybody for customers and drive CAC norm. Or we can go and do deals like we did with rule 11, where we get paid from them, or do deals like we did with Princess where we get paid for them. And then our XPLUS ends up on the Mirror and then ends up playing on the Mirror inside new 11 stores, or Nordstrom stores or people's homes, and then they're in 23,000 state rooms, when they're on a Princess Cruise, they got to turn on their LG TV when they get home and it's there too. So the idea is to really meet the customer in multiple places, wherever we can. It would be our goal that by the time someone parks a Starbucks to get a coffee in the morning, and they see a Pure Barre sign next door, if they're sick of seeing that brand everywhere, right, because they've seen it on a cruise, they've seen it on a Mirror they've seen in the Lululemon store, they've seen it from one of their insurance sending them advertisements or territory foods or whoever it might be. And so we want to make sure that we're getting a lot of those touch points out there to drive customer acquisition costs down and not just be smarter than everybody else, and not just sit out and compete and bang it out for the most expensive pay per click, we can but find other ways that we can actually get paid. And our franchisees can receive lead flow really free of cost.

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

Thank you.

Thank you. We take the next question from the line of Jeff Van Sinderen with B. Riley. Please go ahead.

Hi everyone let me add my congratulations. For 2023 did you say what's baked in your guidance or what you are targeting for sales and new franchise licenses? And then I guess how is the evolving macro, macro-economic backdrop factored into that target?

Yes, in regard to the license sales, I mean, when you look at what we did in 2022 we did 1000 licenses about 250, on average, a quarter. As we look forward into 2024, we don't, or sorry, 2023, we don't guide on license sales, but we have kind of provided some forward looking view that we continue to sell through the available inventory that's out there, or white space, that's out there. So as we continue to do that. You’ll naturally see a decline in licensed sales. Brands like BFT and Rumble are still -- we're still following through those brands, given that they're relatively new, but the inventory is diminishing. So when you look at 2023, could you expect to see, somewhere between 6, 7, 8, 100 licensed sales. Yes, I think that's a realistic target for us to keep pushing forward. International is still a huge opportunity there. So a lot of white space international so as we continue to identify new MFAs and the MFEs that we have put in place for them to sell through their, their white space internationally. That will continue to help keep separate the high elevated levels of licensed sales. Does that answer your question?

Yes.

In consideration really to the macro to I should answer like, we haven't really seen a slowdown on macro, causing people not to want to buy licenses, that hasn't been one of the reasons we've seen. It's really more about matching a franchisee in a territory where it's available.

Okay, that's helpful. And then just sort of as a follow up to that, I think this dovetails a little bit on. Can you give us your latest thoughts on how you're approaching potential acquisitions for 2023? Maybe how you're evaluating know, what you're more willing to go up with? What you're seeing out there in general, is there any shift in multiples that sellers are willing to consider things of that nature?

Yes, I don't know that there's any massive shift in multiples that are out there. As far as acquisition goes and like John said, we've -- we have a decent still amount of inventory, selling 250 franchises a quarter. I don't know too many people that are out doing that. So even if we were selling 150 to 200, a quarter, that's still outstanding comp compared to what else is happening out there globally. So the only real reason for us to buy the elevens brand at this point is if we're, capturing a major deal, right, and getting some great deals, great opportunity in the market. Or if we want to pick up that franchise sales number back up to 1000, we could, we could do that with an 11th brand, not a problem. I'm always in talks with, four or five or six different potential targets. And so, when we're ready, we'll be able to do an acquisition, and then just kind of embed that into our, our current shared services model and begin to sell it. So...

Okay, great. Thanks for taking my questions and continued success.

Thank you.

Thank you. We’ll take our next question from the line of Jonathan Komp with Baird. Please go ahead.

Yes, hi good afternoon. John, I want to ask just a follow up on the adjusted EBITDA guidance. The highest I can get to is at 37% margin with the ranges you gave. So I'm just wondering, did you misspeak on the 39%? Or are you signaling there could be upside. And then when I look at the dollar growth for adjusted EBITDA compared to the dollar growth of revenue, it looks like an implied flow through rates for the year above 60%. I'm just wondering, is there anything unique this year? Is that sort of the flow through rate we should think about going forward?

Yes, I mean, the floater is coming from royalties. The fact that we opened 500 Studios last year, those are relatively lower AUVs, as they ramped to their first kind of 380ish, 300 or 400, that was just kind of range for that first year, as designed. So when those start really kind of generating higher levels of royalties, as they get more mature, that that margin is, it's 100% margin close right to the bottom line. So that's, that's the biggest area of growth, you'll see in our revenue line is on the royalty component, equipment revenues. Those carry closer to a 30% margin, those will be a little bit of a drag to the P&L as we continue to open more and more studios, that they don't, they don't generate north of 35% to 40% margins on equipment and merchandise. But royalties are the key driver there. So B2B as well. Your other service revenue line that's very high margin flow through so you typically see our other service revenue at 90% plus margin. So as we continue to do B2B deals, a system wide sales grow, we get rebates on processing our system wide sales. So that will be a key contributor to the business as well. When you talk about margin and the highest you think you can get to, again, we do take a conservative approach to our guidance, we want to make sure that we guide to a level that we know we can achieve. And as we continue to deliver upside, and we could let you guys know, how we adjust our guidance from there. But at this point, that's we're providing that outlook based off of today given uncertainty of any macro that hasn't hit us. But if there is a get moments that we don't over commit on margin level.

That's helpful. And then just one more on the on the same-store sales you're embedding for the year should we think, roughly close to your long-term guidance, or could you just give any more insight for the 30% increase in system, same system wide sales relative to kind of a low 20% increase in units what that -- what bridges the gap between those two?

Yes, so we did what 25% same-store sales in 2022. When you think about 2023, what is what is the right way to look at with regards to AUVs? Based on what we're seeing right now, it's interesting, because there's the pre-COVID, we averaged 8% per quarter, on average, for the two years prior to COVID. You look post COVID, it seems like studios are ramping at a very rapid pace, still, we did an analysis on studios that are 36 plus months in operation, and those comp at 25% last year. So when you look at it in Q4, those same 36 plus months and operations studios were I think, 17% to 18%. So very strong comp store even in the in the aged studios. I think a good kind of assumption as regards to how you should look at AUVs. And what the same store sales comp for next year, probably looking somewhere in the, in the maybe very low double digits, -- I think 12% 11% that kind of area seems to be aligned with what we're thinking. But if we continue to see strong performance, as we have, then, possibly a little bit higher than that. But right now, I think from an assumption, very low double digits is probably the way to think about it and like 10%, 11%, 12% range.

Okay, very helpful. Thank you.

Thank you. We’ll take our next question from the line of Joe Altobello with Raymond James. Please go ahead.

Thanks. Hey guys, good afternoon. I kind of want to talk about the studio growth. You mentioned the 540 to 560. You expect this year and it sounds like that number will have a five in front of it for the next probably three or four years. And I think you alluded to this earlier, but at what point do you guys think you need to add the additional brand to hit that 500 Studio target every year?

Yes I mean, we look at it today, let's just say for easy math, you were at 500 openings a year and we have about 2000. As we sit today, we have a 2000 sold, but not open in development domestically, and almost 1000 committed to internationally. So if we looked at it from a global perspective, you're talking about five to six years. If you looked at it domestically, on a 75, 25 split, talking about opening about 400 units domestically against 2000. So about four to five years here domestically. So that was our consideration as we look to an 11 grand. We already have many years of runway, given the macro we wanted to be conservative and not potentially take some operational risk some implementation infrastructure risk and/or potential leverage or cash off the balance sheet or whatever it might be to do the acquisitions. Our acquisitions are usually fairly relatively small from a dollars or cash perspective. But we thought hey, we're selling more franchises anyone we know. We're opening more stores and they want to know and we're executing very well. Let's just keep our head down and continue to do that into today's macro to make sure that we can deliver the guidance that we set out. And then if it's a quarter 2, 3, 4 whatever it might be, and we've all kind of seen the pivot point and this macro or we feel like it is it really going to get worse or whatever it might be as we get further into this we get more and more visibility and we want to go buy the 11th brand that's easy money for us, right. That's not a big deal. We can do acquisitions from Hello, what is your name to we own you in six weeks. So, given that we've got four or five or six current conversations going on that window could be even shorter. So for us it's just, when does opportunity strike and when do we feel we need to go forward. But even if you look at the unit number run rate we've been talking about on franchise sales we'll still open enough and still add 150 plus units to our backlog. Just this year alone without an 11 brands. So in summation, we're not in a hurry to buy 11 brand, we honestly need a Elevens brand for the next few years but we’ll most likely be opportunistic when need be.

Okay. Got it. And maybe on AUVs obviously, you continue to make a lot of progress there north of 500,000 here in the fourth quarter. Could you remind us what your highest AUV studios are doing today? And is there anything unusual about those studios? Or is it just a matter of time before they sort of get to those levels?

The AUVs vary across brands, but the, the ROIs and margins, kind of end up being the same depending on what brand you're in. So something like a StretchLab will have higher AUVs. But as higher labor costs, because it's one on one, something like a Pure Barre will have lower AUVs. But it's more of an owner operator model. So you've got a lot of the owners that are teaching class or working the front desk, and so labor's a lot less. And then you'll have something like a Club Pilates in the middle, which will have higher AUVs, but the majority of those franchisees are semi absentee owners. So they're hiring at the front desk, and in hiring for the classes as well. I mean, there's when you look at sort of high end capacity of certain things, I mean, there are there are Club Pilates that are doing $1.2 million, $1.3 million out of their boxes. And so there, there is the ability to do that. We've talked about Club Pilates, when we bought it was the AUVs were about 250,000. And they're kind of triple above that now. And so what we liked that we're seeing is the newer brands like Rumble and BFT events or YogaSix that are opening, they're kind of opening it twice where Club Pilates started, right. And so we would love to say that those are going to, those are going to triple like Club Pilates, as I don't know if that'll necessarily be the case. But what's nice is that we're at an all-time company, high AUV, and our new stores that are opening and those new brands are opening at that AUV and higher. Wall brands like Club Pilates or StretchLab, there individual AUVs continue to climb as well as we comp year-over-year at double digits.

Yes, that's what I was trying to get at is that you're not approaching a ceiling at all when it looks like AUVs here. So, okay….

We had nine quarters a quarter-over-quarter prior to COVID. We got back a year ago after seven quarters of climbing back out of COVID. And then since then we've continued to see a climb. So in a pre-COVID world, we never found the top end of AUV and in a post COVID world we're still not finding that that top end yet.

Perfect. Thanks, guys.

Thank you. We take the next question from the line of George Kelly with ROTH MKM Capital Partners. Please go ahead.

Hey, everybody thanks for taking my questions. First one on your royalty rates. Curious, I guess two part question. Were there any surprises after you took the rate higher with Club Pilates, anything kind of unexpected that you saw? And part two of the question is, do you have plans this year to raise royalty rates and additional brands?

So no, no change at a percent. And remember, when we do these royalty increases, it's on the openings going forward. And so it's not retroactive. And so the people that are already signed their franchise agreement at 7% are locked in at 7%. The franchise agreements to get signed and the area development agreements that are getting signed after that 8% really, it's mostly the stores that are opening after we increase it, those going at 8%. And as far as considerations on brands going from 7% to 8% we look at that much like we look at the consumer as supply and demand based. And so when you see brands that are selling a lot of that we've opened a lot of, we run out of territories, people still are demanding the products and products performing very well. It allows us to take price right through a royalty increase. But as discussed before, there are other ways to increase price to the franchisee other than increasing royalty rate, right? And so, if an AUV was 500, and you want a 1% increase, you could institute a taxi or something that would be $400 or $450 a month and you would virtually get that 1% increase across a system and something like that can be retroactive. But we always want to guard the health of our franchise units. And so we're very careful to make sure we're not instituting fees, whether it's royalty rate increases or any other fees or increasing in any pricing that is going to put a franchisee in harm's way because first and foremost we want to make sure that we have kind of healthy happy franchisees out there that are that are working for us.

Okay, that's helpful. And then second question from me, on your balance sheet. How comfortable like how much leverage are you comfortable with and there's been a fair amount of discussion about M&A. Just curious, you also have a bit of that convert preferred I mean more than a bit, there's still, a pretty big chunk out there. So just curious how you kind of balance those two uses of capital?

I mean, the business right now is highly cash flow positive. So we generate, we generated cash last year, the expectation for the foreseeable future is that the business will be generating a lot of liquidity, liquidity and stock up on the balance sheet. When you look at M&A opportunities, it really depends on the size, most of the acquisitions we've done historically are very low. They don't carry $20 million, $30 million, $50 million $100 million, they're a couple of million bucks, so we wouldn't be able to finance most of acquisitions off the balance sheet. In regards to leverage ratio, we did complete the RE acquisition of 40%, roughly 40% of the preferred convert in Q1 of 2023. Right now, we're carrying about 3.5 times leverage. We've always said to the street [Ph], three to four times leverage for us is, is not a problem at all, given the how much cash this business generates. So the answer to that question, could we easily carry, three and a half times, which we're at right now? Yes not it's not an issue at all to service any debt levels there. The in regards to the preferred, there's about $8 million, versus the 8 million equivalent Class A shares of preferred left. We’re -- we've, that is a better focus for me, as far as getting that cleaned up. We do not want to see those shares get converted in the future, because they're diluted to us. And obviously, a lot of us are shareholders internally within the company. So we don't want the dilution, nor do our shareholders want it. So we'll continue to look to leverage the cash that we have on the balance sheet and opportunities to really retire those shares over time. So it is a focus for us. We have talked about other instruments, like something like a securitization, which is familiar to plan it. And we like to model ourselves after them. So we could use that as an opportunity when a window presents itself as a way to retire the preferred. But at this point forward, comfortable with our debt levels, comfortable with the amount of cash that's being generated off the business. And we'll continue to look for ways to streamline our, our capital structure to make it as efficient as possible.

Okay, that's helpful. Thank you.

Thank you. We’ll take our next question from the line of Peter Keith with Piper Sandler. Please go ahead.

Hi, this is Matt Edgar on for Peter. Thanks for taking our questions, and congrats on the good quarter. First of all, for most question on advertising. We're curious, the best advertising mediums for your banners or maybe what mediums are being utilized the most and working the best.

We currently use multiple different marketing initiatives and ways that we bring in different leads. Digital marketing is always going to be very strong. But of course, the B2B as it's continuing to ramp is giving us access to additional leads within the studios as well. I mentioned expats earlier that that's really helping from the top of the funnel perspective and driving leads into the system. Lastly, we've done a good amount of work around SEO and making sure that we're there as customers are starting to look for fitness online and that we're the first to pop up and really meet the customer where they are in their fitness journey, both online and in brick and mortar.

Great. And then I guess on M&A. You mentioned curious if you're interested in only like boutique fitness brands? Or would you reach out to other different types of health and wellness concepts are curious on what you'll be looking at?

Yes, I mean if you look at the business today now we've done an amazing job with StretchLab, which is clearly not fitness and clearly a wellness product. And so, if you look at the name H&W [Ph] Invesco, that was the original name of the company that was not super clever on health and wellness investment companies. So from day one, we've kind of projected this company to be in the health and fitness space. There are still a handful of modalities in the fitness space in which we could acquire and even more so on the wellness side and I think we've proven that we can do an amazing job with something like a Club Pilates in the fitness space and amazing job with something like StretchLab in the wellness space. And so I don't think you'll find us at least not today doing anything in restaurants or services or something like that. But I think anything that's a 1500 to 2000 square foot franchise retail box in the health and wellness space is something that is right up our alley.

Right, thanks.

Thank you. We take the next question from the line of Max [Indiscernible] with TD Cohen. Please go ahead.

Hey, great, thanks a lot. First, can you speak to the competitive environment out there? Your AUV suggests that your franchisees are in healthy shape. But how do you think the independents are doing out there and of the sector is starting to get more promotional and competitive? And then how are you thinking about potentially playing the offense if the backdrop were to soften, later this year?

From a competitive environment we continue to take market share. I think when you look at the boutique space, and you look at our white space, we see ourselves being able to grow to about roughly 8000 studios in the U.S. alone. As we continue to distribute more and more of our brands into new markets, we're educating consumers on boutique fitness and expanding our total TAM and driving more member growth. So when it comes to the competitive landscape, boutique, fitness has primarily or historically been very fragmented. The fact that we're bringing national brands across things like StretchLab, which really didn't exist in a national scale. And then tying it all together with things like our XPASS, and introducing members and StretchLab or Club Pilates to these new concepts. I think we're growing the boutique fitness market. If we were a one concept type brand, it's very difficult. If a member joins and leaves, they're not typically going to end back up in the brand that they were already in. So we are actually capturing people who are being introduced by members and other concepts, and seeing us and moving over. So we've added more members per studio. And we have more members in per studio than we've ever had, historically. We've seen a significant growth post COVID. I think people are more aware of health and wellness and living a healthier lifestyle, given the pandemic and the learnings from that. So I think that answer the first part. I think you have a second part of your question, too. I might have missed, what was the second part?

Just how would you like to play offense? Leaning a little bit more or?

Yes, I think that that part goes back to what I was talking about before with negative CAC. We, we didn't want to, we started looking at this about a year and a half, two years ago, as customer acquisition costs were rising and boutique fitness and digital and everything kind of across the board. We started to figure out how can we be smart, right? How can we be scrappy, and do things that other people aren't doing? And this brand access originally was just providing cash to the business during COVID. And then in the post COVID world, we started looking at, how do we implement getting more eyeballs in front of our product, right, and delivering what I've always referred to as negative CAC into our franchise stores, right. And so that's what you'll continue to see from us continue to see promotional items that are happening. I just received pictures from Princess Cruises where they are debuting a new Porsche, out at the Porsche Club of America tomorrow. And it's got a huge X on the hood for Xponential and all the brands around it, XPASS and XPLUS and everything plastered all over this car that will be at the Porsche Club of America debut with Princess Cruises on it. So true partners like Princess when we do these things together, and I work with JP, the CEO there all the time. It's kind of like, yes we have an agreement, but we're partners. And so how do we do things back and forth to help each other. And so the idea is to continue to put Xponential and its brands in the forefront of people's minds. And not just have it be a brick and mortar location that is sitting next to a Starbucks in some grocery anchored center. And the only way they're going to know that that space is theirs to go inside, or to get a local digital ad, or to get a flyer on their doorstep or seeing a newspaper. And it's kind of I've been in this business for 20 years, and we used to put Wall Street Journal ads back in the day because people used to get their stock information from the Wall Street Journal, because that was how life went. Now they get it on their iPhone or other iWatch, every millisecond. So the world has changed, we change with it. And we think that this sort of negative CAC concept and this B2B partnership concept is kind of the new wave of customer acquisition.

Yes, no, that that makes sense. So then you touched on Princess, but can you speak to how that partnership is going and if we could see potentially an expansion into more ships over time.

Yes, I mean as far as Princess will obviously be expanding into all of Princesses ships as we bring them into port, when it's time appropriate to do so and add our brick and mortar kind of capabilities to the ship, our digital capabilities we're in the middle of training new instructors to put on board and all those kinds of things. So it will, it will continue to, to roll out. We're selling retail through the cruise ships. So both branded and co-branded retail is out and available. So people are able to get off the cruise ship and take an XPASS with them after using XPLUS, or using our brick and mortar and walk off with, with retail from us as well. So like I said, we're, we're trying to find ways and continue to execute on ways that, exponential becomes a lifestyle, health and wellness platform that we can use in kind of all parts of the people's lives.

Great. Thanks a lot, guys. Good luck.

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

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

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