Greetings, and welcome to the Xponential Fitness Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Patricia Nir, Investor Relations. Thank you, Patricia. You may begin.

Thank you, operator. Good afternoon, and thank you all for joining our conference call to discuss Xponential Fitness' second quarter 2025 financial results. I am joined by Mike Nuzzo, Chief Executive Officer; Mark King, former Chief Executive Officer; John Kawaja, President, North America; 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 annual report on Form 10-K for the year ended December 31, 2024, filed with the SEC and subsequent filings with the SEC. We assume no obligations to update the information provided on today's call. In addition, we will be discussing certain non-GAAP financial measures in this conference call. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with 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. As a reminder, in order to ensure period-over-period comparability and consistent with our reporting method since IPO, we present all KPIs on a pro forma basis, meaning for the full KPI history presented, we only include brands that are under our ownership as of the current reporting period. For the period ended June 30, 2025, this includes BFT, Club Pilates, CycleBar, Lindora, Pure Barrere, Rumble, StretchLab and YogaSix. I will now turn the call over to Mark King, former CEO of Xponential Fitness.

Thanks, Patricia, and good afternoon to everyone. Before we discuss the quarter, I want to take a moment to share my enthusiasm for today's announcement that our Board of Directors has unanimously appointed Mike Nuzzo as our Chief Executive Officer. I've had a chance to spend some time with Mike, and I couldn't be more confident in his ability to lead Xponential through its next chapter. Mike brings over 25 years' experience, leading consumer, retail and services businesses with a proven track record of driving scalable growth and expanding into both domestic and international markets. His disciplined, data-driven approach and deep commitment to franchisee success were also particularly compelling to the Board. Previous leadership roles at Eyemart Express, Petco and GNC clearly demonstrate his ability to build strong brands and execute at scale. Mike has joined the call today to share a few thoughts. Mike?

Thanks for the kind words, Mark, and congratulations on all your accomplishments at Xponential. I also very much appreciate your help and support in getting me launched today. I am thrilled to be here and honored to be leading this great company. Today is day 1, and I have a lot to learn. But as a 25-year consumer industry veteran, there is so much to love about Xponential. First, we are in a great space. Boutique fitness has substantial momentum and long-term growth potential as consumers continue to invest more in their health routines. Second, we have amazing studio brands, led by passionate and committed franchisees with so much upside potential. And third, Mark and team have made great progress in building a team, supporting foundation and company culture to drive strong growth and financial returns. You will hear more from me over the coming months, but I know Xponential can elevate and lead the fitness space around innovation, best-in-class franchisee support, and smart and healthy unit growth and expansion. Meaningful progress has been made, but I look forward to helping the team accelerate along the journey to providing the most impactful member experience and to becoming one of the most coveted franchisee partners in the industry. Thanks, and I look forward to spending time with all of you. Now, I will turn things back to Mark and team to discuss Q2 in more detail.

Thanks, Mike, and welcome to the team. With our leadership transition in place, let's now turn to the progress we've made across the business this quarter. We remain focused on execution and continue to make progress against our strategic priorities. We advanced several initiatives we outlined at our Investor and Analyst Day, both during and after the quarter, including further expansion of our field operations team, a new retail partnership agreement and the divestitures of CycleBar and Rumble. Together, these actions reflect the company's ongoing focus on strengthening the business and creating long-term value for our shareholders. Let's now turn to second quarter results. North American system-wide sales of $474 million were up 12% year-over-year. North American quarterly run rate average unit volumes of 659,000 were up 3% year-over-year. Total members stood at 863,000 at quarter- end, up 8% year-over-year. And same-store sales were up 1%. Although year-over-year growth moderated compared to first quarter, we believe the recent strategic actions will continue to improve performance in future periods. Alongside our new retail agreement, which John Kawaja will speak to in more detail shortly, the recent divestiture of CycleBar and Rumble brands represent another important step in sharpening our strategic focus. These actions enable us to focus our company resources on the brands that generate the highest ROI, including our core brands, Club Pilates, Pure Barre, YogaSix and StretchLab. With a leaner, more focused portfolio, we expect to see improvements in overall portfolio health, a reduction in closure rates and an increase in average unit volumes. While there will be a period of transition as we rightsize back-office operations, this evolution will ultimately position us to operate more efficiently and focus on our highest-return brands. Before turning it over to John Kawaja, I want to take a moment to express how proud I am of what we've accomplished at Xponential Fitness during my time here. I'm confident in both the company's long-term potential and Mike's capabilities to deliver on the operational optimization required for Xponential to become the franchisor of choice in health and wellness. Thank you for your time today. John?

Thanks. I want to take a moment to thank Mark. It's been an honor working alongside him. His leadership has set a strong foundation that we're excited to continue building on. And of course, a warm welcome to Mike. With that, I'll provide a brief update on our new retail agreement with Fit Commerce, which has been a key focus area of mine since joining Xponential, and was executed post quarter-end. As many of you know, our wholesale retail business, historically managed in-house, has posed challenges over recent quarters. While our retail operations have contributed to revenue in the past, it has always been a low-margin portion of our business that carries significantly more risk and required a significant amount of management's attention. As part of our new agreement, we will outsource this noncore underperforming segment to Fit Commerce, who will be able to deliver elevated design, development and merchandising, ultimately enhancing service to our business, our franchisees and our customers. This transition allows us to reallocate resources towards higher-margin scalable areas with long-term upside and that better align with our strategic priorities. As Mark alluded to, this will allow us to focus on building strong brands and experiences, while supporting studio-level franchisee operations. Importantly, this partnership will reduce our selling, general and administrative expenses, while introducing annual minimum guaranteed commissions that will scale over time, totaling over $50 million in the initial 5-year contract period, resulting in higher operating margins than our prior retail strategy. In addition, Fit Commerce will purchase the remaining inventory we have on hand, freeing up working capital. This is a win for our franchisees and certainly a win for Xponential, as we expect to see consistent growth in revenue and margin, while significantly lowering our retail business' sensitivity to market cycles. Fit Commerce is…

Thanks, John, and I'd like to also thank Mark for his leadership and partnership. It's been a pleasure working alongside him during this important chapter for the company. Mike, I'm thrilled to partner with you as we embark on the company's next chapter. We ended the quarter with 3,327 global open studios, with 86 gross new studio openings during Q2, with 66 in North America and 20 internationally. There were 57 global studio closures in the second quarter, or about 1.7%, representing an annualized closure rate of 6.9%. 27 or nearly half of the closures in the quarter were in CycleBar and Rumble brands. We sold 58 licenses during the second quarter, which were largely concentrated in Club Pilates, both in North America and internationally. The pace of license sales increased from last quarter, as we started selling licenses again in the United States after a temporary pause, during which time, the 2025 franchise disclosure documents, or FDDs, were issued. At present, we have paused franchise sales in the United States, except for sales by exemption, as we work to issue FDD amendments to address the hiring of our new CEO, among other updates. The FDD amendments will be ready for use immediately upon issuance in non-registration states, while the FDD registration process with the franchise registration states typically involves more time to process. Our base of licenses sold and contractually obligated to open is over 1,400 studios in North America, and we also have over 1,000 international master franchise obligations. As John mentioned, approximately 40% of our global licenses are over 12 months behind their applicable development schedule, and we have started to actively terminate certain number of these licenses. We believe the actions we are taking related to the management of our licenses will be elevated in the…

[Operator Instructions] Our first question comes from the line of Randy Konik with Jefferies.

Just a couple of quick things. On the same-store sales number in the quarter relative to prior quarter, just any kind of color you can provide on what drove the change in trend line there would be super helpful. And then, on the Club Pilates commentary, are you talking about looking to take prices up there that you're starting to reach some capacity so you have the ability to kind of drive up some more revenues per day or per unit there? Just curious on what you're trying to get at with -- as it pertains to Club Pilates. And I guess, just lastly, on the 40% of the backlog that's behind schedule, is there a specific banner in particular or a couple of banners that are kind of accounting for most of that of those units being behind schedule? Just a little color there would be super helpful.

Randy, it's John. Thanks for the question. So in relation to same-store sales, Q1 was at 4%, reporting Q2 at 1%. What was kind of the shift there? We did see, albeit Club Pilates is still in the mid-single digit and performing very well, it did have a decrease from the first quarter. So, that was one of the indications or reasons why same-store sales was down in Q2, and then, as well as StretchLab, we did see a little bit of a greater negative same-store sales comp in the second quarter. So those are kind of the 2, I would say, scale brands that had a material impact on the shift from Q1 to Q2. I'll answer your second -- or your third question first, and then, I'll hand it over to John to talk about pricing. The 40% backlog, it does include banners like Rumble and CycleBar. So when we report on this in Q3, we'll definitely be adjusting any licenses that would have transferred to the new owner. So that will be a significant reduction just based off of us transferring those brands over to the new owner. And then, from there, the remaining banners would include Club Pilates, StretchLab, and some amount of YogaSix is in there. So you have to remember, a lot of the delinquency around our backlog came originally from COVID, as that kind of shifted a lot of the original licenses that were sold prior to COVID out of 2 years. So it kind of naturally or organically forced the backlog into delinquency, and we've been focused on franchisees and kind of getting them mobilized this year. So -- but in short order, CycleBar and Rumble create a lot of the delinquent that will come out in Q2. And then, the balance is going to be in StretchLab, YogaSix and Club Pilates.

Randy, it's John. With respect to pricing at Club Pilates, yes, we're -- the studios get to a high level of productivity very quickly. And so, we're intending to lean into pricing and monetization strategies to move same-store sales, grow same-store sales. We're looking at membership pricing structures. We're looking at cancel and late fees and also looking at dynamic pricing.

Got it. And then, I guess lastly, John, if you think about the closure rate, I think you said 57 in the quarter. Half of those were CycleBar and Rumble. Any kind of feel for, just high level, when we should kind of see the closure rate kind of bottom out and we kind of move away from that? Is that like a mid-to-late 2026 item in your opinion, based on the numbers you're looking at?

Yes. I think in the second half of 2025 or this year, you're going to start to see the closure rate start to get into closer to that 5% range. The majority of the closures that we're seeing in the present time is -- now excluding the CycleBar and Rumble effects is probably going to be in your international, which BFT has a material presence there. So they have some amount of closures that they contribute. And then, domestically, StretchLab and YogaSix are the 2 brands that are kind of at scale, where we continue to see some amount of what we would call kind of the bottom 10% that are closing. But I think you'll see about a 5% closure rate for the year. It will start to trend down over the second half. And probably, to answer your question, 2026 is probably where you'll start to see us trend down into that mid-to-low single-digit, as the majority of the brands that are opening, particularly Club Pilates, both domestically and internationally, these are brands that have healthier AUVs. You're getting stronger performance across the portfolio, and hence, the closure rate will come down.

Our next question comes from the line of John Heinbockel with Guggenheim Partners.

John, can you walk through -- you listed 4 items that are impacting, I guess, by design here, profitability in '25. Can you provide a little more detail on those 4? And then, when you think about how many of those kind of have a wraparound into '26, maybe speak to that. I'm trying to think about what the EBITDA base for '25 really is heading into '26.

Yes. John, I think first and foremost, it was important for us when we divested Rumble and CycleBar to keep operations supporting those brands to ensure a smooth transition to the new owner. Now with that having happened, there's a rationalization of the corporate support functions and services that we provide that get allocated to the brands that now needs to get relooked at. So that, I think, will largely have that contained in 2025 as we ramp those down, so shouldn't have lasting effects in '26. System-wide sales, the adjustment to the guide around system-wide sales and the royalty impact, that's something we're seeing more in the present. We did talk about same-store sales in Q2, albeit really healthy for Club Pilates and -- but we're seeing a little bit of softness as we roll into the third quarter. The compounding effect of that obviously lasts unless there's some sort of shift or reaction that makes the trend head back to where we had forecasted. So we are seeing a compounding effect in the second half related to lower system-wide sales and obviously, the royalty impact that, that has. So the reaction to that is, we are spending about 25% more marketing dollars in the second half than the first half to try and mitigate those impacts, which -- there's nothing built into the guide related to some of the possible upsides related to that marketing investment. But again, to be conservative, we're guiding the Street down a little bit on the system-wide sales impact. The fourth piece around that is, really just with the incoming CEO, we've spent some time talking about the strategy. I think we're largely aligned there, but we do want to give Mike the opportunity to get his arms around the business. So we've taken a conservative approach around SG&A, particularly in regards to the cost and what we've built in for the full year. So those are kind of the 4 areas. As far as how much of that lasts into 2026, I think the only real item is really around system-wide sales and whether or not the marketing investments could create a different trend as we roll into 2026. But most of the Rumble and CycleBar divestitures, as well as the marketing spend and as well as the additional guidance for the CEO, those should be largely contained to this year.

And just as a follow-up to that, I mean, what -- the marketing spend is predominantly what in terms of -- I don't think it's not brand awareness, right? So is that local social promotions? How does that sort of break out?

Yes. This is John. It's traditionally performance marketing, generating leads and generating conversion of those leads. For our Club Pilates business, we're going to be launching a brand campaign at the beginning of October. As we mentioned on the call, it's the first time the company has made an investment of that nature. And that is for brand awareness. It's a competitive environment of Pilates, and we believe it's the right time to make that investment.

Our next question comes from the line of Joe Altobello with Raymond James.

I guess, first question, can you kind of walk us through where we are on the FDD renewal process? It seems like we start to make progress and then, unfortunately, that progress seems to stall. So kind of what's taking so long and what needs to happen in the back half?

Yes. Joe, I mean, with the changing of the CEO, it is required that you would have to amend your FDDs. So from that perspective, this is a process that we have to follow to be compliant with that. So there are registration states and nonregistration states. The nonregistration states should be what I believe a fairly quick filing and amendment that will get approved. The registration states have to go through their review, based off of the state's requirements. As far as license sales, we did have an impact in the first half as we got the 2025 ones sold. We got momentum into Q2. I do believe we'll be able to maintain that momentum in the second half that this amendment for the CEO should not have a material impact, and I don't think the FDDs will materially stay dark as we saw in the beginning of this year.

Okay. So it sounds like you expect to be able to sell licenses in all states pretty quickly?

We expect to be able to sell licenses in the second half and get back on trend fairly quickly, yes.

Okay. And maybe secondly, in terms of the portfolio, obviously, CycleBar and Rumble being divested, what's the outlook for some of your sort of noncore core, if you will, Lindora and BFT in particular?

BFT has been a great international brand. It has a good presence for us. It actually kind of helped us create more of an international structure. So we'll continue to full speed ahead with BFT on the international front. Club Pilates as well is getting a lot of traction there. Then secondarily, on Lindora, Lindora is a brand that we bought a couple of years ago. We've been evaluating that brand. Like all brands in our portfolio, we'll continually evaluate the performance and make sure that they have a contributing ROI. So at this point, we have the brands we have. We divested Rumble and CycleBar, and we're focused on growing the business. So there's -- at this point, you can consider those are the brands that we own in the portfolio and we'll continue to operate.

Our next question comes from the line of Jonathan Komp with Baird.

John, I just want to follow up. Could you maybe just update -- I think previously, on same-store sales, you were thinking in the mid- single-digit range. Just any update there in terms of what you're embedding in the guidance? And then, just the moderate slowdown you've seen, have you been able to diagnose or pull out any trend or anything worth mentioning on drivers of the trend that you see there?

Yes. So, on same-store sales, yes, I think historically, we've kind of wrapped our head around a mid-single digit. Given the lower same-store sales comp in Q2, the guide does account for a low-single digit as we roll into the second half. Again, with the additional marketing spend, we haven't really built any upside into the second half. We typically do see Q2 and Q3 being the slower quarters, given it's summer and a lot of people are on vacation. You typically see a lot of members either freeze their accounts or you see lower visitation. For us, we continue to see good system-wide sales growth. It's just the comp that is a little bit low. And again, it is -- we do have brands like Club Pilates and YogaSix and Pure Barre that are still comping at very healthy ranges, but with some of the other brands like StretchLab having a negative comp that's pulling it down. So at the end of the day, I think you should assume about a low- single-digit same-store sales comp for the second half. Did you have a follow-up question, Jon, [ following that ]?

Yes. If I could, just wanted to change subjects and ask about just the focus of the Investor Day building out better capabilities. Is that best-in-class franchisor? Just any feedback from the system and franchisees post some of those updates and the early rollout of some of the field initiatives? Just any feedback there? And then, Mark or Mike, if you're there, welcome. Just curious, as we think about transition here, sort of key steps and near-term road map there.

Sure. This is John. Yes, we've been rolling out our field operations team over the last 3 months. We've got the first wave hired and trained, and they are ready to hit the road next week. So we'll be deploying over a double-digit number of field operations people in the field. It's been really well received by the system. They're looking forward to the help. They're looking forward to having people in their studios, sharing best practices, and we're excited to get that launched.

Then, the question on the transition -- this is Mike, Jonathan. Yes, it's day 1, but I have been prepped extremely well. I'm excited to dig in, and I feel like I'm coming into the business at a really great time. The team has done some really smart things to position the company for health portfolio management, the new retail merchandise deal and putting more focus on operations, as we were just talking about, marketing, healthy franchise sales and unit growth. So obviously, there's still some things to fix and enhance. But overall, I think this is a great foundation for a strategy to build on, and it will allow me to get a really quick start.

Our next question comes from the line of Chris O'Cull with Stifel.

Welcome to the call, Mike. My first question is on Club Pilates. Given the high utilization rates and the class demand, why not be more aggressive in terms of infilling markets, which could arguably capture incremental demand while making it harder for competitors to enter the market, and especially given the returns on the Club Pilates studios are already extremely high? So I'm just curious, why not be more aggressive with unit openings?

Yes. Thanks. This is John. We plan to do just that. We think that there's a significant amount of white space remaining for Club Pilates. We're working with larger, more sophisticated franchisee investors. We've just recently sold a 60 pack of Club Pilates. And so, we do -- we agree. We think that there's a lot of opportunity there. And these studios -- each cohort consistently outperforms the previous years. And these studios get to a high level of productivity very, very quickly. And so, it's a very strong business, and we're bullish about the growth.

Okay. And then, you mentioned rolling out some marketing campaigns for Club Pilates for the first time ever. Can you just elaborate on the channels you plan to utilize, maybe what the level of initial spend could look like?

Sure. We're really looking at all different mediums. The spend is significant in the third and fourth quarter, over $20 million. And so, we think that it's the right time to introduce a brand campaign to strengthen brand awareness and to really position Club Pilates as the leader in the space that it is.

Okay. And then, John, maybe just help -- I mean, I apologize if I missed this earlier, but I was hoping you could just bridge the current system sales guidance to the prior guidance. And how much of that is due to the divestitures and how much is due to expectations for softer sales at the core brands?

Yes. I mean, $120 million of the drop in the guide is carving out CycleBar and Rumble. The balance is what you can consider the softness in how we see the back end of the year.

Okay. Great. Congrats, Mark, on the retirement. I hope you enjoy more time on the course.

Our next question comes from the line of Ryan Meyers with Lake Street Capital Markets.

First one for me, John, how should we be thinking about the Fit Commerce partnership? It sounded like that won't be making an impact until 2026, but just so we get a good understanding of kind of the cost savings that drives for you guys, I think that would be helpful.

Sure. This is John Kawaja. So the deal is -- we're really excited about the deal. It kicks off on December 1. So yes, most of the impact is going to be felt next year, although we will be selling essentially all of our retail inventory to Fit Commerce prior to the start of the deal. For modeling purposes, it's a $50 million minimum guaranteed royalty over 5 years. The first year is around $7, and it scales up from there. And the payments happen monthly. So it would be helpful to cash flow in 2026 and beyond.

Okay. Got it. And then, now that you guys were able to get the SEC investigation resolved, does that help speed up the debt refinance at all?

Yes. I mean, with the SEC behind us, our focus has gone -- or shifted over to starting the process of getting a refinancing done, so active in that space and looking to try and get something done as soon as we possibly can.

Our next question comes from the line of Richard Magnusen with B. Riley Securities.

I just have one question. In the past, you've tested different types of variations in studios such as smaller units. So I was wondering, are there any particular variations in these different studios or different brands, whether it's a smaller unit or specific arrangements or layouts within the studio that have been providing significantly greater efficiencies or other performance that you can talk about?

Yes, there's a couple of things that we're looking at. We've been -- we're ready to roll out what we call them, [ double vibes ], double Club Pilates essentially. Because of the really strong utilization in studio with that brand, we're really curious to see what that's going to drive. We've also begun the utilization of smaller footprint in StretchLab where we've gone to 8-bench studios as opposed to 10, which lowers construction costs. It lowers ongoing rent and makes it a better proposition for -- a better financial proposition for our franchisees with the smaller footprint.

Our next question comes from the line of JP Wollam with ROTH Capital Partners.

If we could just start maybe on the kind of pricing opportunity. I just wanted to understand how much -- when you think about the different levers there, price, cancellation fees, tiers, how much is that an opportunity just for Club Pilates versus some of the other brands? And maybe like just one of those levers is an opportunity for the other brands, like can you just kind of break that down?

Yes. We're focused on Club Pilates because of the high utilization in that brand. As we said, the studios get to a high level of productivity very quickly, which presents a challenge on same-store sales. The lever to push is pricing and monetization. And we're really curious about dynamic pricing. We think there's an opportunity to value the times of the day when -- where the classes are most popular to create a model that will increase revenues. As far as that thinking across other brands, of course, we look at pricing and we look at membership tiers across all of our brands. And we're always looking at those things. I think dynamic pricing is the area across really all of our business that has upside opportunity.

Great. And then, one more. Maybe for you, Mark. Maybe it's best for John with kind of the tenure. But as we just kind of think postmortem on some of the divestitures, like what really are some of the biggest takeaways? Is it just come down to incorrect modality? Is it bad franchise operators that are drawn to the concept? What can you kind of share about your thoughts post the fact?

I'll take a stab at that. I mean, my observation is, we typically buy these brands with small footprints. And I think when you think about growing and distributing the brands, at times, the brand awareness around the concept and what it is, it becomes a challenge. Body Fit Training is a perfect example, where you have a very successful brand that was international but very unknown in the U.S. We had a concept that we introduced in Santa Monica, BFT. And we -- rather than selling it out of like Southern California, creating a little bit of momentum and then expanding into other markets, we kind of just generally launched it across the U.S. So the awareness of consumers isn't there. And I think that these first generation of franchisees that got opened, they struggle and then you kind of -- it's hard to get someone to want to buy when there's not validation in that second generation of prospective franchisees coming in. So I think that was probably one of the bigger challenges on some of the smaller brands. Cycling as a modality, I think that one, that was a COVID-impacted modality. It was doing just as well as Club Pilates prior to COVID and just really didn't see the re-ramp. So I think there's both how you decide to grow some of these brands, and then shifts in trends, shifts in consumers that could impact them. But for me, that's how I kind of view on some of the smaller ones we acquired.

Our next question comes from the line of Owen Rickert with Northland Capital Markets.

This is Ben on for Owen. Are you seeing any change in churn or retention patterns post Q1 promotions, especially as those trial members transition into full memberships?

No. As far as like memberships and as far as like trends around cancellations or freezes, no real shift in trend that's out of cycle for seasonality. You do typically see Q2 and Q3 being slower just because of the summer months, as I mentioned, with a lot of people on vacation or holiday, and that typically picks up late Q3. And again, it's -- Q4 and Q1 are usually your busiest quarters. So no off-trend shifts in membership at this moment.

There are no further questions at this time. I'd like to pass the call back over to John for any closing remarks.

Great. Thank you. Thank you all for your time today. We look forward to meeting with many of you at the upcoming marketing events in September and again in November when we report our third quarter results.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.