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

Thank you, operator. Good afternoon, and thank you all for joining our conference call to discuss Xponential Fitness' fourth quarter and full year 2025 financial results. I am joined by Mike Nuzzo, Chief Executive Officer; 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, 2025, to be 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 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 and in the investor presentation available on our website. 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 full KPI history presented, we only include brands that are under our ownership as of the current reporting period. For the period ended December 31, 2025, this includes BFT, Club Pilates, Pure Barre, StretchLab and YogaSix. I will now turn the call over to Mike Nuzzo, CEO of Xponential Fitness.

Thanks, Patricia, and good afternoon, everyone. The fourth quarter played an important role in my continued integration into the business, highlighted by our very productive and inspiring November franchise convention. The more time I spend with our teams, franchise partners and members, the more conviction I gain in both our strengths and opportunities to drive long-term consistent growth. In 2025, we made important progress on several fronts. 201 net new studios opened, including our 1,414th Club Pilates Studio. The power of this brand, the compelling 4-wall economics driven by an outstanding first year sales ramp and ongoing unit growth prospects, both domestically and internationally, continue to set the standard in the industry, achieved $1.75 billion in system-wide sales, driven by our growing franchise base and strong brands, graduated over 2,100 Pilates and over 3,000 barre instructors from our Xponential training programs, which represent a key asset for the business, completed the transition to an outsourced studio retail and merchandise partner, closed our debt refinancing, providing a solid financial framework going forward and accomplished key strategic brand divestitures and completed our important corporate reorganization. Despite this progress, we recognize there is meaningful work and opportunity ahead. These efforts, along with our strategic outlook and financial plan for 2026 and beyond, continue to be shaped by my commentary on 3 core themes: the strength of the Boutique Fitness segment, our global franchising platform of strong premium brands and the opportunity to chart a clear path towards sustained long-term growth. Roughly a decade ago, Xponential was founded with a mission to bring Boutique Fitness to consumers across the U.S. and the world. Since then, we've grown into the leading global franchisor of Boutique Fitness, rapidly expanding through new license sales, studio openings and brand acquisitions to achieve the dominant scale, reach and market…

Thank you, Mike, and good afternoon, everyone. I'll begin with an overview of our fourth quarter and full year performance and then discuss our outlook for 2026. We ended the quarter with 3,097 global open studios, opening 78 gross new studios during Q4 with 51 in North America and 27 internationally. For the full year, our gross new studio openings were 341 with 252 in North America and 89 internationally. There were 47 global studio closures in the fourth quarter and 140 during 2025, representing approximately 4.5% of our global open studios for the year. Closure activity in the quarter included decommissioning of 16 nontraditional studios that were operating on Princess cruise ships. The remaining 31 traditional studio closures were in line with historical quarters and concentrated primarily within StretchLab, BFT and YogaSix. Moving forward, we expect closure rates to decline and be in the low to mid-single digits. We sold 53 licenses globally during Q4 and 179 licenses in 2025. 112 of the 179 licenses sold in the year were international and 67 were for North America. The North America license sales were lower during portions of the year as we temporarily paused sales activity to complete a comprehensive review and update of each brand's franchise disclosure documents. We expect updated FTDs for the 2026 cycle to be filed in the coming weeks as part of our normal renewal process. As of December 31, 2025, we had more than 830 licenses contractually obligated to open in North America and more than 760 international master franchise obligations. Of these, approximately 30% are currently more than 12 months behind their contractual development schedules and are considered inactive. Fourth quarter North America system-wide sales of $447 million were up approximately 5% year-over-year and same-store sales were negative 4.3%. The increase in system-wide…

[Operator Instructions] And your first question comes from Joe Altobello with Raymond James.

I guess my first question is on the revenue and same-store sales in the quarter. I think, John, you mentioned lower average pricing as a part of that. Can you elaborate a little bit on that?

Yes. I mean as we've seen new studios come online and as far as the ramping is concerned, when you just simply do a calculation on the total system-wide sales divided by the number of members, you get a lower pricing. One thing to be kind of attentive to in the fourth quarter, we run a lot of promotions in regards to like Black Friday sales, and those are usually quite successful as they're meant to bring in new members or eventually convert to new members as we sell more package type offerings. So you typically get a little bit of dilution around pricing in the fourth quarter, but it normalizes after -- in Q1 and Q2 as those members burn off their packages and have the ability to convert into more traditional memberships versus package type offerings.

Are you seeing any shift between pricing tiers?

No. I mean we've typically seen a lot of stability in regards to the distribution of what members are buying. I mean in brands like Club Pilates, you typically see a lot of unlimited membership as those studios come online and people initially kind of join. So there hasn't been material shifts from historical trends.

Okay. And my last question on -- in terms of the EBITDA guidance for the year, how much of an improvement are you assuming from exiting or shifting to an outsourced retail model?

Yes. So quite a bit actually. And when you actually look at the gross profit improvement that you're seeing in the business, we typically have been in the low to mid-80% range, and now we're getting closer to a 90% gross profit. And that's really because of the fact that we're not running the retail sales into the business along with its -- the cost of goods sold. It's just going to be the rebate that we now get from the vendor. So what was traditionally, I would say, a retail business that operated breakeven or slightly at a loss is now going to be virtually 100% margin. So the improvement in EBITDA on the retail business is going to be a high single-digit, low double-digit EBITDA enhancement.

Yes. Joe, I would just add that I thought the team did a really good job getting the conversion done by the end of the year, minimizing any issues in the transition -- and yes, I would just add that we've outsourced -- it's a noncore function for us. So it will be a big help. And also, we're starting to partner closely with our outsourced partner around new product introductions. And so that whole process seems to be getting going in a really good way.

And Joe, for clarity, when I said high single digit, I mean millions of dollars, so it will be in that $9 million to $10 million EBITDA improvement in the year by moving to the retail.

Your next question comes from Randy Konik with Jefferies.

I guess some of the commentary you mentioned, I think, nearly 80% of the licenses during the year were Club Pilates. When you look at the numbers kind of put up at StretchLab and you made some portfolio changes already, what is your view on where the -- I guess for Mike, where the portfolio needs to go from here? Do we keep cutting things away? Do we just get to just Club Pilates? Like how should we be thinking about this over the next 12 to 18 months?

Randy, good question. I guess I would start by saying we've not been reluctant about parting ways with brands that we don't see having a good long-term growth match with us. And so -- so we've done that, and I give the team a ton of credit for making some key divestitures last year in particular. Having said that, we're focused on improvement across all the brands. And so you take a brand like StretchLab, we've got a very urgent improvement focus, and we're partnering very closely with our franchisee base there. They've been a great partner to us around this effort. I brought in a new leader who helped me to turn around the grooming business at Petco, and he's been diving in with the team, understanding the data and the trends, marketing strategy, brand positioning and other improvements that we're starting to get out into the market for StretchLab. And as you know, this is a brand where we're the leader in the space, one of the leaders in the space. We have great overall satisfaction scores. We've got some very productive studios. And then we've got some cohorts who have been impacted by, among other things, the Medicare Advantage changes that happened. So right now, the team is focused on all the right things, targeting performance marketing on what we consider our spot, so active older adults with spending power, building awareness, local activation and retargeting with these folks, using CRM and app to drive higher retention of members in the first 3 months, which we see as a key opportunity. As I referenced in the script, we're going to be launching a new website experience that will make it easier for folks to buy and schedule a stretch, trial the experience and then convert to membership. And then we're also coaching and working with our franchise partners on how we can shift hours of operation to more weekends and week nights. And that's been a major thing that's come about from our look into the data and our survey work. So we feel good about these being the things that will help us to drive momentum in a business like StretchLab. And regardless of what the long-term situation is, having that momentum is going to be really, really important.

Got it. And then on Club Pilates, I think we've kind of talked about this in the past. The productivity is very strong, 4-wall very, very strong as well. When you look at the comp number or the AUV, do you look at that and say, all right, we have to kind of get out more of these units as quickly as possible to further densify that brand, at least in the United States? If so, what is the plan there? And how quickly can you kind of get this done? And are you looking to kind of -- really kind of double down on license sales in that concept?

Yes. We gave you some initial unit growth numbers. And again, a large part of that is going to be Club Pilates focused. We feel really good about the opening process, the goals, the way the team is working, especially with our outsourced real estate partner and our licensed sales team. And so when it comes to the Club Pilates business, we feel like there's a lot of potential for upside. And I would also say that with the other brands, we are also focused on generating some unlocks when it comes to unit growth as well, Pure Barre, YogaSix, BFT, which we've worked on a new go-to-market approach there that we really like. The other piece of it is on the international front. We haven't talked a lot about international, and I certainly hope to talk more about it as we go because we feel like for Club Pilates, especially, there is a lot of opportunity. We are just getting started in a number of key international markets and feel like there's a lot of growth potential. We have a dedicated team. We are engaging with really good master franchise potentials and existing partners. And so I think that's a growth avenue as well. Within the domestic part of the business for Club Pilates, we believe working with both smaller and larger franchisees, there's still a lot of white space. There's also fill-in space where we have very productive studios and an opportunity to set up another studio within a short distance. And so that will have different impacts on the ramp and the sales, but everybody is very enthusiastic about the 4-wall economics, and we continue to see really, really good results there.

Your next question comes from Arpine Kocharyan with UBS.

It seems like my first question is on unit growth. It seems like you were looking at something like mid-single-digit attrition of units and then around 10% or so of gross additions for 2026 about a quarter ago. Could you maybe help me bridge that outlook with the 20% decline in net units today? I'm sure some of the divestitures shaved off some units, but what else moved that outlook versus a quarter ago?

Yes. Arpine, nice to talk to you. When you look at the gross openings for 2025, we opened over 340 -- I think it was 341 new studios in the year. So we did on a gross basis, open up about 10% more locations. The majority of the, as you called it, attrition or closures in 2025, they were concentrated in a few brands. So they were concentrated in Pure Barre, StretchLab and YogaSix. So that was about another 140 locations that went away. When looking at that kind of distribution, I think it's really important to understand that only 3.5% of -- or 92% of the closures happened domestically, which is a very low amount. The majority of the closures -- or 48 or a larger percentage, which is about 10% of the international locations closed. So when you think about guiding forward on a net basis, it's really hard to understand where the closures are going to come from because you don't usually typically know very much information outside of a couple of months of where some of the studios are struggling. So we believe that putting in front of 2026 guidance pretty similar to how we performed in 2025 right now is kind of the right conservative approach. We may be taking probably too aggressive of a closure number, meaning probably too high, but we want to err on the side of being conservative. So I think what you'll see from a performance standpoint is '26 will largely mimic or look a lot like '25. The distribution of closures will probably still be concentrated in those same 3 brands of StretchLab, Pure Barre and YogaSix. I think the distribution of closures between domestic and international will look very much the same, where I think you'll have a low single digit in the domestic and probably a little bit higher of a percent high single-digit percent internationally. But the growth algorithm remains the same. It should be about 10% new studio openings per year, offset by how many closures we have.

Got it. That's super helpful. And then just a quick follow-up on your same-store growth outlook. I was wondering if you could walk us through what same-store growth is embedded in your current guidance for this year. And I'm not sure if you mentioned this, I'm sorry if you didn't, I missed it. For Club Pilates, did you give out same-store growth for Q4 and where you expect that to end up for 2026?

Yes. Let me comment on that and then give some more context that I think might be helpful, at least from my perspective. So the guide reflects more of the way we ended 2025 in terms of organic growth. And I'd be the first one to say that I have very little patience for negative sales trends. And at least in Q4, we definitely should have performed better in this environment with the assets we have. But to me, that's all about competing in a healthy environment. Stepping back from it, I'd say that we've got the brands and we've got the modalities that are very strong. We still have meaningful first-mover advantage. Our retention remains strong. So after years of growth after growth, we have a top of funnel issue to fix. And so we had some marketing missteps that we talked about, but we're also nascent when it comes to our field support at this point. We've got some clunky apps and website to address. We're not getting the pricing upside that we think we have the potential to get, and we're still pushing for improved performance marketing. So the good news is all of these things are addressable. And this is what really lays the foundation for the plan for 2026. But again, to John's point about guidance, we wanted to really not overstep. And so if that's helpful perspective.

Yes. And to answer your question specifically on the performance, for the full year, Club Pilates had a positive 3% same-store sales. The fourth quarter was down 3%. But again, we're competing against our performance year-over-year when it comes to running these promotions. I think the one thing to kind of just kind of repoint out is when you look at Club Pilates and how fast these units ramp and get to full capacity, when you have an installed base that virtually has ramped to this roughly $1 million-ish AUV, it's much harder to always constantly be comping positive without always just taking price because there is only so many available reformers in the units and they're largely -- these classes are spoken for and taken up. So for us, we do believe Club Pilates, it's a volume game here where we want to consistently continue to open up more units and create more supply because we do see the ramp is very healthy. But it should not be expected that you're going to return back to the days where you're seeing 20% to 10% -- or 10% to 20% same-store sales like what happened when we came out of COVID because there's just not that much supply left without opening more units.

And your next question comes from Ryan Meyers with Lake Street Capital.

John, I just wanted to follow up kind of on the answer you gave to the last question and make sure I understand it correctly. So that 3% same-store sales decline in Club Pilates, you're just kind of attributing that to the tougher year-over-year comparisons. And there's nothing within that concept itself that you guys are seeing kind of demand soften at all. It's more so just that tougher year-over-year comp.

Yes. I think the way to think about it is like we keep pushing Club Pilates to like record levels as far as like AUV. And it's like can you constantly break world records every quarter, and it becomes harder and harder to repeat that. So I think you may come up a second or so short if you put it in Olympic terms in racing, like it's not easy to always repeat what you did last year. And we continue to add more units. And I think that's the important part of this equation here is the growth and profitability for the franchisor is about more units. And if we can consistently keep AUVs at these elevated levels, they'll generate really strong royalties. So when you see a negative 3% in Q4, that's not a terrible thing when you consider for the full year, it was a positive 3% comp. So the business is performing well. The franchisees are doing really well from the 4-wall, and the business is producing really strong royalties, which is showing up as strong margin flow-through in the business.

Yes. And I would also add to what John is saying and maybe emphasize what John is saying, too, and it gets to the point about future unit growth. If you just break it into you'll have unit growth that is more white space, then your expectation there could be for a higher first year AUV, but perhaps not as much growth in comp. There's also the scenario where we're adding into existing markets where there, you might have a slightly lower AUV, still far better than what you would have put into any model. And then you've got more opportunity for comp. And so I could see as we continue to go along the path of doubling the network, which we feel really good about and our franchisees feel really good about, I think we're going to have that dynamic as we go. And so that will impact overall comp. It's just a fact of life. And we're working hard to make sure that we do all the right things that organically grow the business. But we're not going to be terribly disappointed with the AUVs we're producing under either scenario.

Okay. Fair enough. That makes sense. And then a couple of times in the call, you guys mentioned the pricing survey that you put out there. I'm just kind of wondering if you can talk about what you guys learned from that and how you think you potentially can apply that.

Yes. First of all, I was really happy with the work that the team did. We used an outside consultant, as I think I mentioned before. They produced some real foundational work. They looked into our data in a way that we had not viewed it in the past. And so that was really good. And then we took that work and we pressure tested it directly with a group of key franchisees. And so it was a very collaborative effort. And the result of that are several initiatives that we will be testing starting around Q2. And as we see results from those tests, we'll look to expand it to the rest of the network. Some of the initiatives are, I would say, relatively straightforward, for instance, like pricing adjustments for inflation, enhanced trial offers, some updated cancellation fees, looking at where we're pricing regionally and helping to coach the franchisees on making that more consistent where applicable. And then some are a little more strategic, like potentially a new unlimited offering, which we're excited about. So I would say that this work is going to have a lot of applicability not just for Club Pilates, but across our other brands. And some of the brands like YogaSix have already started along the path of a similar approach on pricing. So it's been really good to see. We'll give you a sense of the impact probably over the next couple of calls. Sometimes it takes a while for pricing to really work its way through the membership base, but it's a really good start.

Your next question comes from Jeffrey Van Sinderen with B. Riley Securities.

Just to clarify, did you spend more on marketing in Q4?

Yes. There was about a $4 million investment that we made, and we talked about this to really look at a number of marketing strategies and see which ones were the most effective, so we could use that as we rolled into 2026. So there was about a $4 million higher marketing fund spend in Q4 than the income we received.

Okay. But if we sort of look at it organic -- is there a way to look at it organically and parse it out and say, okay, you didn't really spend -- you did this, what I would call maybe a special project with that $4 million, if you want to call it that? But the core marketing didn't go up, correct?

Well, all the marketing that we spend on a quarterly basis is related to marketing funds. So in the fourth quarter, we brought in about $8.9 million in marketing fund revenue, and we spent around $13.3 million. So the excess -- or I guess you can call roughly that $4 million excess, that was marketing fund surplus dollars that -- the majority of it came from Club Pilates when post-COVID, the business ramped faster than we could actually deploy the dollars. So there was a surplus balance in the marketing fund for Club Pilates that we now have the benefit of investing into the brand to start driving more leads. And we expect to do that again in the first half of 2026 as we burn off more of that surplus to really drive more brand awareness, but also more lead generation into that brand.

Okay. Good to hear. And then I know Club Pilates was down slightly on comp in Q4 and obviously, a tough comparison there. But how are you thinking about the Club Pilates comp progression as you think about this year? When do the comparisons get easier? When do you anticipate turning positive?

I won't give you specifics, and we don't forecast quarterly. I'll just give you a couple of data points. I think that last year, around the middle of the year is when we started to see more weakness around top of funnel. And then the other piece I would tell you is that, obviously, the things we've been talking about take a little time to start getting traction. So again, as we go through the year, I think you'll see more progress.

Your next question comes from Owen Rickert with Northland Capital Markets.

You did mention in the prepared remarks, I think you said you have 35 field team members now. That's kind of been an initiative we've been talking about the last couple of quarters. I guess, can you just dive a bit deeper into how that initiative is performing? And maybe what tactics have been working and where are some areas of improvement that these team members are assisting franchisees with?

Yes. Really good question. Yes, we have 35, and that feels like the right number at this point as we look at the network and what they will be responsible for helping with. They have really just been deployed and trained, and we're starting to have them engaging with franchisees on a regular basis. What we're directing them to do and help with is driving sales. So helping with our franchise partners around information around how to help drive sales, how to help drive conversion, how to help drive initial appointments, how to follow up on leads. When it comes to new studios, they will be involved in helping with the presale process, which is really, really important for getting our initial membership base established. And then they also have a designated group of target studios. And so these are studios that either the franchisee has reached out to us or we've seen in data where there's a potential for a studio to perform better. And they are making visits and doing a sort of a comprehensive assessment of how they can help coach the studio team, the studio manager to help drive better results. And so that's the focus. They've really just gotten started. But I'm excited. We've gotten some really good feedback from the franchisees about these visits and their engagement. And I think as we get through the year, the other advantage that they will give us is, as we have initiatives, like pricing, for example, they can help with ensuring that it's implemented really, really well.

And there are no further questions at this time. So I hand the floor back to Mike Nuzzo for closing remarks.

I'd like to thank you all for joining us today. And for a number of you, we look forward to seeing you at the Raymond James Conference. Thank you.

And with that, we conclude today's call. All parties may disconnect. Have a good day.