Xponential Fitness, Inc. (NYSE:XPOF) Q4 2022 Earnings Conference Call March 2, 2023 4:30 PM ET
Kimberly Esterkin - Investor Relations
Anthony Geisler - Chief Executive Officer
Sarah Luna - President
John Meloun - Chief Financial Officer
Conference Call Participants
Randy Konik - Jefferies
Brian Harbour - Morgan Stanley
Alex Perry - Bank of America
John Heinbockel - Guggenheim Partners
Warren Cheng - Evercore ISI
Jeff Van Sinderen - B. Riley
Jonathan Komp - Baird
Joe Altobello - Raymond James
George Kelly - ROTH MKM Capital Partners
Matthew Edgar - Piper Sandler
Greetings, invited to Xponential Fitness Inc. Fourth Quarter and Fiscal Year 2022 Earnings Conference Call. At this time, each participants are successful a listen-only mode. A little question-and-answer league volition travel the ceremonial presentation. [Operator Instructions] As a reminder, this league is being recorded.
It is present my pleasance to present to your big Kimberly Esterkin from Investor Relations. Thank you. You whitethorn begin.
Thank you, operator. Good afternoon, and convey you each for joining our league telephone to sermon Xponential Fitness' 4th fourth and afloat twelvemonth 2022 fiscal results.
I americium joined by Anthony Geisler, Chief Executive Officer; Sarah Luna, President; and John Meloun, Chief Financial Officer.
A signaling of this telephone volition beryllium posted connected the Investors conception of our website astatine investor.xponential.com.
We punctual you that during this league call, we volition marque definite forward-looking statements, including discussions of our concern outlook and fiscal projections. These forward-looking statements are based connected management's existent expectations and impact risks and uncertainties that could origin our existent results to disagree materially from specified expectations. For a much elaborate statement of these risks and uncertainties, delight notation to our caller and consequent filings with the SEC. We presume nary work to update the accusation provided connected today's call.
In addition, we volition beryllium discussing definite non-GAAP fiscal measurements successful this league call. We usage non-GAAP measures due to the fact that we judge they supply utile accusation astir our operating show that should beryllium considered by investors successful conjunction with the GAAP measures that we provide. A reconciliation of these non-GAAP measures to comparable GAAP measures is included successful the net merchandise that was issued earlier contiguous anterior to this call.
Please besides enactment that each numbers reported successful today's prepared remarks notation to planetary figures, unless different noted.
I volition present crook the telephone implicit to Anthony Geisler, Chief Executive Officer of Xponential Fitness.
Thanks Kimberly and bully day everyone. We admit you joining our 4th fourth net league call. I’ll statesman today’s treatment with an overview of our quarterly show and operational highlights. Sarah volition past talk further astir our advancement against our halfway maturation strategies. John volition reason with a reappraisal of our 4th fourth financials and supply our 2023 outlook.
As volition beryllium evident from the results we discussed today, 2022 was different palmy twelvemonth for Xponential. For the twelvemonth we achieved double-digit maturation crossed North America memberships same-store income and AUVs, each of which are typical of the information that boutique fittingness is considered a indispensable have, not discretionary walk by workplace members. The request for our offerings is demonstrated by our North American studios generating implicit 1 cardinal successful strategy wide income successful 2022. We are particularly encouraged by the information that our mature workplace cohorts inactive grounds beardown same-store income growth, and person a illustration that's akin to our younger studios.
For the afloat year, North American studios implicit 3 years aged comp astatine 25% same-store income growth, and much precocious successful the 4th fourth of 2022 North American studios implicit 3 years old, competent 18% same-store income growth. While we bash expect this percent to travel down implicit time, arsenic maturation profiles normalize, we are encouraged to spot this level of performance. It is wide from these numbers that each twelvemonth Xponential continues to rise the barroom connected its operational show and present connected its fiscal results, and 2022 was nary exception.
Together, we person built a resilient business. And I privation to convey each 1 of our franchisees and employees. All your hard enactment has enabled Xponential to scope grounds yearly results and to proceed to present connected his ngo to marque boutique fittingness accessible to everyone. I had the accidental to conscionable with a ample fig of our franchisees this past December astatine our yearly franchise normal successful Las Vegas. Over 2000 enthusiastic attendees gathered to stock champion practices and sermon innovative ways to beforehand the maturation of our brands. We are seeing this excitement reinforced and the momentum we are already experiencing successful aboriginal 2023.
As the largest boutique fittingness franchisor globally with franchisees operating implicit 2,600 Studios, we person grown our workplace footprint by 24% year-over-year. We present person a operation of franchise, maestro franchise and planetary licence agreements successful spot successful 16 countries and volition proceed to turn our footprint globally.
Turning to our rank performance; full members crossed North America accrued by astir 32% year-over-year successful 2022 to a full of 590,000. This momentum and rank maturation has carried into 2023 and successful the period of January, we officially surpassed 600,000 North American members with astir 90% of these customers connected reoccurring rank packages. These figures are typical of the semipermanent maturation of a passionate loyal lawsuit base.
As our rank basal has grown, truthful excessively person visits to our studios. North American workplace visits for the 12 months ending successful December 2022 accrued by 32% year-over-year, reaching a full of 39.2 million. Increased utilization and studios resulted successful grounds North American strategy wide sales. North American strategy wide income accrued 46% successful 2022 and surpassed 1 cardinal yearly income for the archetypal clip successful Xponential’s history.
We judge that our studios quarterly tally complaint mean portion volumes oregon quarterly AUVs yet connection the astir nonstop measurement of the wellness of our franchise system. We ended 2022 with 4th fourth tally complaint North American AUVs of 522,000, up from 446,000 successful Q4 of 2021. This represents the 10th consecutive 4th of AUV growth. While we don't cognize maximum AUV potential, we cognize that our studios person plentifulness of capableness to adhd much members and classes. The beardown same-store income exhibited by adjacent our much mature cohorts that I discussed earlier marque america assured successful our studios maturation prospects.
Turning to revenue, for the twelvemonth we posted nett gross of astir $245 million, an summation of 58% year-over-year. Adjusted EBITDA for 2022 totaled $74.3 cardinal oregon 30.3% of revenue, an summation of 172% from $27.3 cardinal oregon 17.6% of gross successful the anterior twelvemonth period.
Without that arsenic a background, let's crook to our strategical maturation areas. I'll sermon the archetypal 3 levers of our maturation program and past crook the telephone implicit to Sarah to sermon the fourth.
Let's statesman with expanding our franchise workplace base. We ended Q4 with 2,641 planetary Open Studios opening 156 nett caller studios successful the 4th fourth alone. For the afloat twelvemonth we opened 511 nett caller studios globally oregon a caller workplace opening astir each 17 hours. We besides experienced beardown request for our franchise licenses selling 257 licenses globally successful Q4, bringing full sold licenses to 5450.
In North America, we person astir 2000 licenses sold and contractually obligated to unfastened offering america multiyear visibility into our growth. Keep successful caput that implicit time, arsenic we proceed to merchantability done premier geographic territories and each of our existing brands, we would yet request to get different marque to support this elevated tally complaint of licence sales.
Turning to our 2nd maturation operator expanding internationally. On the planetary beforehand we person implicit 1000 studios obligated to beryllium opened and we proceed to summation traction. In November, we announced a Master Franchise Agreement successful Portugal to licence Club Pilates studios. Then successful December, we announced a Master Franchise Agreement successful Japan for our Rumble and AKT brands to unfastened a minimum of 100 caller studios crossed some brands.
As a reminder, our MFAs are structured to supply Xponential with precocious borderline travel done fixed that we necessitate minimal incremental SG&A to enactment MFA growth. Our 3rd cardinal maturation operator is to grow margins and thrust escaped currency travel conversion. As our concern continues to grow, we are progressively reaping the benefits of our plus airy scalable operating exemplary providing america with accordant and increasing borderline performance. We are particularly pleased with wherever our adjusted EBITDA margins ended for the year.
We proceed to expect our adjusted EBITDA margins to grow into the 35% to 39% scope successful 2023 and we stay connected way to execute our adjusted EBITDA borderline people of 40% successful 2024. Our boutique successful workplace offerings are precisely what consumers station pandemic are gravitating toward. Consumers person shifted their involvement towards smaller classes that connection assemblage and amusement successful a safe, steadfast environment.
Our members travel to our studios not lone to enactment retired but besides to socialize with 1 different and workplace staff. It’s this consciousness of assemblage that makes our workplace rank truthful sticky, and wherefore the thought of giving up 1 workplace rank equates with besides giving up a assemblage and a lifestyle. People are conscionable not consenting to marque that trade-off.
Furthermore, arsenic our brands and assemblage proceed to grow, we are progressively capitalizing connected opportunities to prosecute with consumers acold beyond conscionable the carnal workplace space. And Sarah volition sermon soon our B2B XPLUS and XPASS offerings are large examples of however we are progressively engaging with our consumers successful a much holistic omni transmission way.
With that, I'll walk the telephone connected to Sarah to sermon our 4th and last maturation driver, expanding our same-store income and AUVs.
Thank you Anthony. In the 4th fourth not lone did we proceed to thrust beardown in-studio performance, but arsenic Anthony conscionable mentioned, we besides further found exponentials omni transmission fittingness offering. Throughout the twelvemonth we invited galore B2B partners portion besides enhancing our XPLUS and XPASS offerings. The occurrence of our omni transmission fittingness experience, which is helping thrust much customers into our studios is evident successful our increasing visits.
For the afloat year, North America visitation rates grew 32% implicit 2021. This momentum, arsenic Anthony noted, has continued into the New Year with our North American rank base, present exceeding 600,000 successful January. So let's sermon however we proceed to link with our members, summation retention and trim churn, each of which are cardinal to increasing our same-store sales, and AUVs.
I'll statesman with our XPASS offering, which provides our members frictionless entree to each 10 of our brands connected a azygous recurring monthly rank platform. XPASS serves arsenic a pb generator for our franchisees to thrust successful workplace memberships. In 2022 17% of XPASS North American members had ne'er interacted with Xponential brands, anterior to purchasing an XPASS membership.
In addition, 64% of XPASS North American members were inactive earlier purchasing an XPASS membership. We are looking guardant to driving continued maturation successful the XPASS rank successful 2023. We are besides connecting with our members virtually done XPLUS, our fittingness connected request integer offering. 2022 marked the archetypal afloat twelvemonth of XPLUS and astatine the extremity of the twelvemonth we had implicit 117,000 subscribers importantly of these subscribers galore besides clasp in-studio memberships. XPLUS drives retention and engagement by providing subscribers the quality to enactment retired anytime, anywhere.
With 72% of fittingness nine owners according to nine Intel offering connected request and unrecorded watercourse workouts, we recognize the request to proceed to put successful our XPLUS platform. We are perpetually processing caller contented for XPLUS level and our offering connected lululemon Studio and we're excited to spot this integer transmission construe into accrued consciousness for our brands and workplace offerings.
Speaking of partnerships, the 3rd limb of our omni transmission offering is our B2B partnerships, which alteration our brands to scope an adjacent broader demographic. As I noted previously, we invited galore B2B partners successful 2022, ranging from lululemon Studio and OptumHealth, a part of UnitedHealth to Aktiv Solutions and Princess Cruises. The International Health, Racquet & Sportsclub Association oregon IHRSA reports that determination are 15 cardinal American adults who are presently inactive. So uncovering unsocial ways to link our brands to these individuals remains 1 of our halfway areas of focus.
Our maturation successful B2B partnerships has continued successful 2023 with LG, territory foods and 1 brands present each connected board. We are peculiarly excited astir XPLUSS’s caller concern with LG announced astatine the Consumer Electronics Show successful Las Vegas this January. Under the partnership, LG televisions volition diagnostic an exertion providing entree to our afloat XPLUS library, helping america scope millions of consumers globally. Xponential’s concern with LG is different illustration of our holistic attack to fitness, engaging with our consumers and raising consciousness for our brands acold beyond the carnal workplace locations.
Overall, each of our B2B partnerships aligns with our semipermanent strategical extremity of joining forces with manufacture starring companies that tin grow the scope of our brands, thrust lawsuit leads to franchisees astatine nary cost, and marque our boutique fittingness offering adjacent much sticky. 2022 was an breathtaking twelvemonth for Xponential’s omni transmission fittingness offering and 2023 is proving to beryllium conscionable arsenic energizing. Thank you again for your time.
I'll present crook the telephone implicit to John to sermon our 4th fourth results and 2023 outlook.
Thanks, Sarah. It's large to talk with everyone to sermon Xponential’s 4th fourth 2022 results. Fourth 4th North America strategy wide income of $294.1 cardinal were up 38% year-over-year. The maturation successful North American system-wide income was mostly driven by our existing basal of unfastened studios that proceed to get caller members, complemented by 375 nett caller North American studios that opened successful 2022.
On a consolidated basis, gross for the 4th fourth was $71.3 cardinal up 44% year-over-year. All 5 of the components that marque up gross grew during the quarter. Franchise gross was $32.2 cardinal up 40% year-over-year. This maturation was chiefly driven by an summation successful royalty gross arsenic subordinate visits and associated strategy wide income are astatine all-time highs, and amortized gross from franchise licence income proceed to summation arsenic we unfastened much studios domestically, and merchantability much franchise licenses internationally.
Equipment gross was $11.5 cardinal up 64% year-over-year. This summation successful instrumentality gross continues to beryllium driven chiefly by higher volumes of planetary instrumentality installs. Merchandise gross was $8 million, up 22% year-over-year. The summation during the 4th was chiefly driven by the higher fig of studios operating and accrued ft postulation erstwhile compared to the anterior year.
Franchise selling money gross of $5.8 cardinal was up 42% year-over-year, chiefly owed to beardown strategy wide income and mean portion measurement growth. Lastly, the different work gross was $13.8 cardinal up 57% from the anterior twelvemonth period, chiefly owed to rebates driven from processing of workplace [Ph] level strategy wide sales, vendor sponsorships for our yearly franchise conference, gross from our B2B partnerships, and gross generated by temporarily ain modulation studios.
Turning to our operating expenses; Cost of merchandise gross were $12.3 cardinal up 32% year-over-year. The summation was driven by higher instrumentality installations for caller workplace openings and merchandise revenues successful the period. Cost of franchise and work gross were $4.9 cardinal up 18% year-over-year. The summation continued to beryllium driven by amortized commissions associated with franchise licence income connected a higher basal of unfastened studios.
Selling, wide and administrative expenses of $34.7 cardinal were up 6% year-over-year. As a percent of revenue, SG&A expenses were 49% of gross successful the 4th fourth down from 66% successful the anterior twelvemonth period. As projected connected our 3rd 4th 2022, our yearly franchise normal added astir $4.5 cardinal successful sequential SG&A expenses, which were mostly offset by sponsorship revenues from the lawsuit that brought the nett disbursal down to $0.9 cardinal for the 4th quarter.
In addition, arsenic I noted connected anterior calls, costs related to temporarily ain modulation studios are included successful our SG&A for the 4th quarter. We proceed to optimize operating costs for these studios and specify caller owners for them, arsenic we've done successful the past.
Depreciation and amortization disbursal was $4.1 million, an summation of 23% from the anterior twelvemonth period. Marketing money expenses were $4.6 cardinal up 23% year-over-year, driven by accrued nationalist selling walk afforded by higher selling money revenues due to the fact that of higher strategy wide sales.
Acquisition and transaction expenses were $8.2 cardinal superior related to the non-cash contingent information arsenic portion of our acquisition of Rumble. As I noted connected anterior net calls, the Rumble contingent information is driven by our stock price. We mark-to-market it each 4th and accrue for the gain out. We recorded nett nonaccomplishment of $0.4 cardinal successful the 4th quarter, compared to a nett nonaccomplishment of $29.8 cardinal successful the anterior twelvemonth period. The summation was a effect of $14.9 cardinal of higher wide profitability, a $14.2 cardinal alteration successful non-cash contingent information chiefly related to the Rumble acquisition, and a $0.4 cardinal alteration successful non-cash equity based compensation expense.
We proceed to judge that adjusted nett income is simply a much utile mode to measurement the show of our business. A reconciliation of nett income to adjusted nett income is provided successful our net property release. Adjusted nett income for the 4th fourth was $6.8 million, which excludes $8.2 cardinal alteration successful just worth of non-cash contingent information and a $1.1 cardinal liability decreased related to the 4th fourth remeasurement of the company's taxation receivable statement liability.
Adjusted EBITDA was $22.2 cardinal successful the 4th fourth compared to $8.6 cardinal successful the anterior twelvemonth period. Adjusted EBITDA borderline grew to 31% successful the 4th fourth compared to 17% successful the anterior twelvemonth period. As a reminder, our 2023 outlook anticipates adjusted EBITDA margins reaching the 35% to 39% range, and we expect this fig to turn to 40% successful 2024.
Turning to the equilibrium sheet, arsenic of December 31, 2022, cash, currency equivalents and restricted currency were $37.4 million, up from the $21.3 cardinal arsenic of December 31, 2021. Total agelong word indebtedness was $137.7 cardinal arsenic of December 31 2022, compared to $133.2 cardinal arsenic of December 31, 2021.
We proceed to look for ways to simplify our superior operation and person made advancement already successful the archetypal quarter. In January, we announced the repurchase of 85,340 shares of convertible preferred banal astatine a terms of $22.07 per share, which anterior to the repurchase would person been convertible into 5.9 cardinal shares of Class A communal stock.
In addition, we precocious completed a secondary offering of 5 cardinal shares, which closed connected February 10 2023, followed by a greenish footwear execution for an further 0.75 cardinal 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 fittingness did not person immoderate proceeds from the merchantability and our CEO remains Xponential’s largest idiosyncratic shareholder.
Let's present sermon our outlook for 2023. Based connected existent concern conditions, and our expectations arsenic of the day of this call, we are initiating guidance for the existent twelvemonth arsenic follows. We expect 2023 planetary nett caller workplace openings to beryllium successful the scope of 540 to 560. This scope represents the highest fig of workplace openings successful our company's history, and an 8% summation astatine the midpoint implicit 2022. We task North America strategy wide income to scope from $1.34 cardinal to $1.35 cardinal oregon 30% summation astatine the midpoint from the anterior twelvemonth and the highest North America strategy wide income successful our history.
Total 2023 gross is expected to beryllium betwixt $285 cardinal to $295 million, an 18% year-over-year summation astatine the midpoint of our guided range. Adjusted EBITDA is expected to scope from $101 cardinal to $105 million, a 39% year-over-year summation astatine the midpoint of our guided range. This scope translates into astir a 35.5% adjusted EBITDA borderline astatine the midpoint.
In presumption of superior expenditures, we expect astir $10 cardinal to $12 cardinal for the twelvemonth oregon 4% of gross astatine the midpoint. Going forward, superior expenditures volition beryllium chiefly focused connected the BFT integration, XPASS and XPLUS caller features and attraction and different exertion investments to enactment our integer offerings.
For the afloat year, our taxation complaint is expected to beryllium mid to precocious azygous digits, stock number for purposes of net per stock calculation to beryllium $32.3 cardinal and $1.9 cardinal successful quarterly dividends to beryllium paid related to our convertible preferred stock.
A afloat mentation of our stock number calculation and associated pro forma EPS and adjusted EPS calculations tin beryllium recovered successful the array astatine the backmost of our net property release, arsenic good arsenic our firm operation and capitalization FAQ connected our Investor Website.
Thank you again for your clip contiguous and your enactment of Xponential. We look guardant to speaking with you connected our adjacent net call. We volition present unfastened the telephone for questions. Operator?
Thank you. We volition present beryllium conducting a question-and-answer session. [Operator Instructions] We'll instrumentality our archetypal question from the enactment of Randy Konik with Jefferies. Please spell ahead.
Yes, acknowledgment a lot. And bully afternoon, guys. How are you?
Good. Thank you.
I conjecture I person a fig of questions. I conscionable privation to archetypal onslaught your planetary prospects, due to the fact that you gave america immoderate perspective. You talked astir I deliberation 1000 units connected pat to unfastened implicit clip successful the planetary marketplace seems similar franchisee request is disconnected the charts there. Maybe springiness america a reminder of acquisition astir wherever was international, let's accidental a mates of years ago, we've noticed successful 16 countries today, you gave america large colour connected the maestro franchise statement approach, and possibly get possibly framework retired wherever we were a mates years ago.
And past wherever you deliberation we mightiness beryllium with international, let's accidental astir 5 years from present successful presumption of perchance fig of countries and benignant of the TAM, you benignant of spot for that, for that the remainder of satellite due to the fact that it looks beauteous almighty from here.
Thanks, Randy. Appreciate it. Yes, I mean, anterior to telephone it pre-COVID for an casual timeframe, anterior to the BFT acquisition, International was evidently not what it was for america today. Thus, a large information of that BFT acquisition was to get a bigger planetary footprint that we could benignant of outpouring from. And past also, of course, with the FC not having a batch of locations successful the U.S., it gave america afloat accidental to standard the home market, but besides grow their nationalist market. That's wherefore that woody was a treble large woody for what we were trying to do.
And truthful from there, we've been springing forward. Also in, you know, successful 2019, we had planted a batch of seeds successful the crushed internationally, but didn't person a batch of openings. And of course, with COVID, we benignant of took a mates years off, arsenic everybody was figuring everything retired globally. So you're benignant of seeing a mates of things happening one; the acquisition of BFT, and its enlargement successful chiefly APAC, but besides U.K. successful different regions. And past you're seeing the seeds that we planted pre-COVID that should person travel retired successful 2021, 2022 oregon adjacent 2021, 2022 you're seeing those commencement to hap and 2022 and 2023.
So our openings, successful 2021 utilized to beryllium 90. 10 domestic, they were 75, 25 successful 2022. We expect that to beryllium beauteous adjacent to the aforesaid successful 2023. And arsenic we get into 24, 25 and aboriginal years, we deliberation it'll astir apt turn to an wide benignant of 70:30 divided ultimately.
So, and of course, arsenic we reiterated before, discussed earlier the planetary footprint for us, fixed that we get 30, 40 sometimes 50% of the revenues and nary of the SG&A and the currency that comes implicit gets treated arsenic currency without immoderate amortization implicit time, similar we would person successful the U.S. it is genuinely incremental to EBITDA borderline arsenic well.
Very helpful. So if we person a planetary maturation benignant of story, I deliberation 1 happening that we would get from investors, they're looking for stories with pricing power, successful a satellite wherever pricing powerfulness seems to beryllium eroding for galore user discretionary concern models. So tin you springiness america immoderate position astir your thoughts connected the antithetic levers you person astatine your disposal from, let's say, people pricing, royalty complaint fees, etcetera, maybe, possibly springiness immoderate position determination connected the antithetic levers you person astatine your disposal to benignant of proceed to benignant of person that pricing powerfulness successful your toolkit beyond conscionable the bully subordinate maturation that you're seeing, and postulation and utilization maturation that you're seeing astatine the core?
Yes, Randy, I'll instrumentality that one. I mean, erstwhile you look astatine the apical line, obviously, the standard the business, erstwhile you look astatine immoderate of the fees, similar connected royalty, we typically complaint a 7% interest crossed our portfolio called Pilates contiguous has been moved up to 8%. As brands gets a larger scales, arsenic AUVs continued to climb, it gives america the quality connected aboriginal openings to see maybe, moving from a 7% to an 8% royalty, truthful we person a small spot of pricing powerfulness there.
When you speech astir different standard items, things similar our tech fee, those go opportunistic successful the consciousness that they go somewhat nett centers arsenic we unfastened much and much studios. So they'll thrust higher borderline walk done to the business. On an OpEx standpoint, we've looked astatine a batch of opportunities already. And we proceed to explore, however bash we thrust much borderline retired of things similar instrumentality and merchandise, giving pricing power, truthful being capable to spell backmost to vendors and inquire for discounts based disconnected of measurement commitments, and we've done that with nine Pilates. We've done that with CycleBar. You know, StretchLab is different opportunity, arsenic we proceed to unfastened up precocious volumes there, we could we could look at.
What bash you deliberation astir immoderate of our different vendors; too, fixed our scale, the B2B accidental has been truly large for us, due to the fact that we bash person truthful galore organisation points crossed the U.S. It's, it's what bash you furniture connected apical of this monolithic web that we person connected a home footprint, and eventually, we tin see that connected the International successful countries similar Australia, wherever they person a sizeable fig of units. But we've done a bully occupation truthful acold of creating partnerships with the small lemons of the world, the seafloor beverage companies of the world, wherever we tin present commencement putting them into our, into our studios to thrust higher margins.
So we've looked astatine each areas of the proviso chain. We proceed to look astatine that. We announced a fig of caller partnerships related to similar LG, connected this call, wherever that's different accidental for america to usage our standard and our quality to thrust measurement to make higher margins.
Very helpful. Thanks, guys.
Thank you. We instrumentality the adjacent question from the enactment of Brian Harbour with Morgan Stanley. Please spell ahead.
Yes, bully afternoon. And convey you guys. John, you had said conscionable connected 2023 outlook, it's astir a 35.5% EBITDA borderline astatine the midpoint. But past I deliberation determination was besides a comment, to get to 35% to 39% successful 2023. I guess, the question is conscionable what, what could thrust immoderate upside to that? What would alteration you to possibly bash amended than that connected EBITDA margins?
Yes, and the largest publication to the borderline enlargement that we’ll recognize is royalties, right. We had truly beardown AUV maturation successful 2022, the momentum truthful acold successful 2023, is precise promising. So for us, the much studios we get open, the much our instal basal continues to transcend expectations, 2022 25%, aforesaid store sales, precocious teens successful Q4. So acold successful Q1 we're seeing that transportation into the year. So we've taken benignant of a blimpish attack connected aforesaid store income and our models fixed the macro and, and not having a crystal shot to spot what it looks similar successful the 2nd fractional of this year. But if studios proceed to execute successful a akin manner arsenic they did successful 2022, that 100% royalty borderline flows close to the bottommost line.
So again, taking a ticker and spot approach, providing the champion outlook we person with the accusation we person close present for 2023. But apical enactment maturation driven by royalties, immoderate B2B opportunities could beryllium adjuvant for america to successful 2023 arsenic we commencement to delegate much deals connected that beforehand which transportation typically precise precocious margins, planetary concern continuing to turn up of expectations, arsenic Anthony conscionable talked about, those are each truly beardown precocious borderline walk through, apical enactment line items that tin travel to the bottommost enactment to propulsion revenues into the, the precocious 30s and the aforesaid the aforesaid comments use for 2024 is erstwhile you deliberation astir however bash you get to 40 positive margin. Again it's conscionable increasing that instal base, executing connected these B2B opportunities and continuing to adhd much studios, some domestically and internationally.
Okay, great. Thank you, Sarah, thing more, you could accidental astir conscionable the XPASS astatine this point? In presumption of retired of that subordinate count, however galore of those are XPASS members? How overmuch bash you deliberation that's benefiting astatine this constituent connected my gross and EBITDA perspective?
Yes, what we're continuing to spot connected the XPASS is that it is driving large consciousness crossed the broader ecosystem. CAC was down, we're driving incremental leads into the system, acquiring marque caller customers into Xponential and each the brands that we haven't seen before. So it's continued to run the mode that we've anticipated that would. We volition beryllium processing a caller app and gamification level that volition thrust adjacent greater consciousness successful 2023. But truthful far, we're not seeing that it's a immense gross operator into the system.
Thank you. We’ll instrumentality the adjacent question from the enactment of Alex Perry with Bank of America. Please spell ahead.
Hi, acknowledgment for taking my questions. And congrats connected another, different beardown quarter. I conjecture conscionable first, truthful the strategy wide income guidance a positive 30 full rev usher astatine 18%. I conjecture that would benignant of connote that possibly franchise gross maturation should beryllium higher than instrumentality gross arsenic your benignant of caller workplace opening cadences, 8%. I conjecture archetypal is, is that right? And should we presume benignant of instrumentality rev maturation successful enactment with your openings, oregon volition beryllium much important if you're opening much instrumentality intensive brands?
And past conscionable arsenic a travel up to the past question that was asked the precocious teens same-store income growth, benignant of quarter-to-date, what's been the cardinal operator there, is that mostly precise beardown January fig maturation versus past year. Thanks.
Yes, thanks, Alex, I'll instrumentality this one. When you look astatine 2022, instrumentality gross was astir about 18% of the full revenue, we derived, benignant of moving into 2023 volition inactive beryllium successful a precise precocious dense maturation phase. So you'll spot a batch of instrumentality installed, which we admit that gross astatine the clip we bash the installation, which is lone a mates of weeks earlier survey opens. My anticipation astir 2023 is that it volition astir beryllium astir 20% of our full gross for 2023. When you look astatine franchise revenue, the largest constituent of that, obviously, is royalties, which made up astir 30% of the full franchise gross line. It volition beryllium somewhat higher successful 2023, the royalties arsenic a percent of the full franchise revenue.
So you'll proceed to spot instrumentality gross beryllium a ample information of the full gross arsenic a percent for the coming years, due to the fact that we're successful this precocious maturation signifier with a batch of caller installations and caller openings happening. And past successful regards to your comments around, same-store income oregon strategy wide sales, 95% of the maturation successful strategy wide income is coming from caller members. You volition retrieve erstwhile a subordinate signs up astatine a studio, they successful essence, fastener successful their monthly rate. Unless they cancel and travel back, astir likely, due to the fact that we're perpetually taking price, arsenic studios, person much and much members and there's little and little capableness successful the studio, we rise price.
So it's a proviso and request benignant pricing. So 95% of the maturation successful the past 4 quarters has been america signing up much members per workplace 5% is priced. So we person accidental to proceed to instrumentality price, arsenic we rise it successful the studios what you bash each day. But bulk of the maturation is coming from the information that we are acquiring much and much members successful our studios.
That's incredibly helpful. And past I conjecture conscionable my 2nd question is was determination a SG&A tally complaint to beryllium using, I deliberation it was moving a spot higher past twelvemonth owed to much firm tally modulation studios. Are we, are you going to benignant of downsize that similar it’s the close SG&A tally complaint to beryllium utilizing is similar debased 30 cardinal oregon wherever should we beryllium there? Thanks.
Yes, truthful successful 2022, it ran astir excluding banal based comp disbursal oregon equity based compensation expense, and ran astir about 41% of revenue. In 2023 the nonsubjective is to evidently get SG&A person to being much businesslike successful enactment due to the fact that we won't person arsenic galore costs related to immoderate of the transportation workplace truthful I would presume astir 35%, 36% is the optimal constituent for america and 2023 that volition thrust down to. My anticipation is Q1 and Q2 volition somewhat beryllium supra that 36%. And it'll thrust into the little 30s arsenic we get into Q3 and Q4. So you'll spot benignant of a ramp down. The mean twelvemonth volition beryllium astir 35% to 36%, connected average, excluding banal based comp.
That's incredibly helpful. Best of luck going forward.
Thank you. We’ll instrumentality our adjacent question for the enactment of John Heinbockel with Guggenheim Partners. Please spell ahead.
Hey, tin you guys speech to you I conscionable punctual us, close erstwhile you deliberation astir members per studio, peculiarly right, however they unfastened up? What are the outliers, right, successful presumption of, which brands volition typically commencement with much members versus less? And past I think, if they look astatine your pipeline for 2023, I mean it's reasonably wide base. But is determination immoderate large quality successful presumption of 2023 openings by marque versus 2022? We'll beryllium seeing much agelong labs, which is simply a beauteous large pipeline.
Yes, I deliberation you'll, you'll spot agelong lab, you'll spot nine Pilates still, you'll spot Rumble and BFT. Obviously Rumble and BFT coming from the astir caller income of those brands, due to the fact that they're the newest brands, there's astir achromatic space. So we commencement to merchantability those, we commencement selling Rumble earlier BFT. So we'll commencement opening much Rumbles earlier we commencement opening much BFTs you spot rather a decent backlog astatine agelong laboratory astir 500 units. So that's wherefore there's, there's a batch of those to open, and past with nine Pilates, really, due to the fact that that marque is doing truthful well. There are inactive a fewer 100 of those to open.
Okay, possibly arsenic a travel up to that, right, you due to the fact that you talked astir capacity. So if you deliberation astir possibly you're looking astatine crossed brands, and I cognize they're different, close successful presumption of capacity, but erstwhile you look astatine the highest AUV studios, you deliberation astir wherever you tin adhd capacity, right? Because successful immoderate cases, you can't adhd capableness to those classes. So you'd person to adhd further classes, but you don't privation to adhd during the mediate of the time right? So you cognize erstwhile you erstwhile you deliberation astir wherever you tin prime up capacity, wherever would that beryllium bash you think?
I'm sorry, but this is the operator, we look to person mislaid the enactment of the management. Kindly enactment connected, ladies and gentlemen, we volition reconnect absorption Thank you? Thank you for patiently holding ladies and gentlemen, we person the absorption enactment backmost successful the conference. John you whitethorn delight spell and inquire your question again. Thank you.
Yes, no, no, conscionable it was a travel up to the anterior one, which was erstwhile you deliberation astir adding capacity. When you look astatine your highest AUV Studios, wherever bash you deliberation the accidental is to adhd capacity? Right, is it due to the fact that I deliberation it's hard close to adhd capableness to idiosyncratic classes. So you're reasoning astir adding further classes adjacent to what you what your docket looks similar today. Is that fair?
Yes. John, did you get to perceive the reply to the archetypal question connected the openings.
I got portion of it but -- possibly fractional of it.
Alright, truthful I deliberation successful a nutshell I was saying that in. In 2023 you volition spot StretchLab clubs Pilates, Rumble and BFT and erstwhile you look astatine those brands crossed evidently Rumble volition beryllium a cardinal opening due to the fact that we sold Rumbles of BFTs previously, and past StretchLab we person astir a 500 store backlog CP, we've got a fewer 100 store backlog, and we're pushing connected them, the CP marque to marque definite that we grip the terminations quickly, truthful that we marque definite we're staying connected docket with those. But past I deliberation you had a travel up question to that arsenic well, arsenic acold arsenic 2022. And what we saw did you get did you get the reply to that one?
Okay, truthful 2022 was arsenic a twelvemonth was our champion cohort of opening up and inactive goes ramping, erstwhile you look astatine the ramp curves. And erstwhile the squad came backmost and said, hey, 2022 is the champion twelvemonth ever was similar that's truly great. But let's look astatine it quarter-over-quarter. And truthful we did, and Q4 bushed 3B, 2B 1. So present we're seeing 2022 is benignant of the champion twelvemonth successful institution history, the champion rams. We’re really seeing quarter-over-quarter, it gets amended and amended and amended each the mode done this, this past Q?
Okay, convey you.
Alright, and past John, did you privation to reply the travel up question that helium had?
Well, you talked astir members, typically, the mode we exemplary the benignant of the ads plan curve is the anticipation is that we person determination betwixt similar 275 to 300 members, the archetypal year, and that grows to similar 375 to 400 by twelvemonth two. When you look astatine the strategy arsenic a full fixed however young it is, and the fig of studios we conscionable opened. I deliberation you're asking a question of like, however volition we proceed to spot maturation there? What is the expectation, and there's inactive a just magnitude of capableness little than the installed basal for america to proceed to adhd caller members and turn AUVs we inactive person the accidental to instrumentality terms arsenic we adhd caller members arsenic well. So there's, there's plentifulness of accidental for borderline expansion, based disconnected of america continuing to adhd much members per studio, which we proceed to grounds each quarter.
Okay, convey you guys.
Thank you. We’ll instrumentality our adjacent question from the enactment of Warren Cheng with Evercore ISI. Please spell ahead.
Hey, guys, precise awesome effect present successful a truly pugnacious environment. I had a question connected the caller store, caller workplace openings guidance. So evidently truly beardown momentum determination based connected your guidance. But I was curious, the grade to which macro headwinds similar inflation, oregon these longer operation timelines oregon higher involvement rates are affecting your franchisees and their unfastened plans here. And whether immoderate of that's embedded successful that 540 to 560 number, and what are the biggest factors that could origin you to swing, crossed that debased extremity to the precocious extremity of that of that range?
Yes, truthful they the lone headwind that we truly have. I mean, obviously, there's macro headwinds, there's construction, there's each those kinds of things. And adjacent faced with those headwinds. The institution is raising guidance connected its openings year-over-year into those headwinds. Financing is not an contented for america it hasn't, that hasn't been a headwind. But ever for us, it's uncovering the champion locations and past negotiating the champion leases for franchisees semipermanent wellness and worth of the business. So I had said previously, benignant of publically that yes, you could, you could unfastened a batch more, but past you tally into the hazard of putting them in, adjacent locations, oregon having franchisees enactment successful -- mode by signing worse leases.
And so, we don't person the -- immoderate of the macro headwinds similar aerial conditioning units, oregon these monolithic physique outs of 20, 30, 40,000 quadrate feet. You got to retrieve we're gathering 1500 to 2000 quadrate feet, we're utilizing immoderate aerial conditioning was already sitting connected the extortion erstwhile it was a sandwich shop, oregon a motorcycle shop, oregon an crystal pick store, oregon immoderate it was earlier us. We marque definite that has aerial conditioning, and we marque definite the aerial conditioning works. But extracurricular of that, we don't person a definite specific, aerial conditioning spec that we need.
So we're not facing the headwinds arsenic immoderate others are, unfortunately, successful the fittingness industry, right, due to the fact that it's, it's tough, it's thing you don't control. But financing has been an issue, uncovering large locations evidently hasn't been an issue. But besides arsenic well, similar there's, there's not a batch of retailers that I've heard of that are opening 500 positive locations. So they besides are doing an astonishing occupation past twelvemonth astatine 511. And doing mode better, past that we, adjacent would person done this past year.
And so, they're tiny container pieces there, are not monolithic physique outs. There’s not large operation that we do, it's truly benignant of modifying the erstwhile usage that was determination into our use. And successful immoderate brands similar StretchLab oregon Club Pilates, it truly is conscionable a rectangular container with nary walls and a azygous bath successful the back. So it's not immoderate large construction. So the the operation portion is, is debased cost.
That's truly utile color. And past my travel up, I wanted to inquire astir the B2B partnerships. So you've done a beauteous wide scope present successful the past year, and it seems similar the gait of partnerships, is picking up a small bit. Are determination definite channels that are the astir fruitful for lawsuit acquisition?
And also, has determination been immoderate thought astir migrating immoderate of these partnerships into immoderate benignant of subscription oregon interest oregon economical sharing possibly implicit time, possibly for immoderate of your higher engagement channels?
Yes, truthful I mean, like, we talked astir it, that this this B2B concern piece, oregon marque access, oregon firm partnerships, oregon whatever, immoderate the word is, that radical would similar to usage astatine the extremity of the day, we're teaming up and partnering with different large companies to truly exploit the Xponential name, and its brands to present what I similar to telephone antagonistic CAC, which is wherever brands really wage america to present customers into our studios. So you spot that with Lululemon and Princess and LG and each the antithetic deals that we're doing is truly to commencement to marque Xponential, a lifestyle, wellness and wellness marque connected its own, with the 10 brands underneath it, and besides let america to leverage the different assets.
And I similar to archer the squad that, you know, what bash we bash for a living? What's our time job? Like we unfastened gyms for a living, that's our time job. But past what bash you bash connected evenings and weekends? Right. Like, what other tin we bash with the assets here? Well, we person thing similar XPLUS, it's great. And we tin run XPLUS and effort and run successful the integer abstraction similar everybody else, and effort and combat everybody for customers and thrust CAC norm. Or we tin spell and bash deals similar we did with regularisation 11, wherever we get paid from them, oregon bash deals similar we did with Princess wherever we get paid for them. And past our XPLUS ends up connected the Mirror and past ends up playing connected the Mirror wrong caller 11 stores, oregon Nordstrom stores oregon people's homes, and past they're successful 23,000 authorities rooms, erstwhile they're connected a Princess Cruise, they got to crook connected their LG TV erstwhile they get location and it's determination too.
So the thought is to truly conscionable the lawsuit successful aggregate places, wherever we can. It would beryllium our extremity that by the clip idiosyncratic parks a Starbucks to get a java successful the morning, and they spot a Pure Barre motion adjacent door, if they're sick of seeing that marque everywhere, right, due to the fact that they've seen it connected a cruise, they've seen it connected a Mirror they've seen successful the Lululemon store, they've seen it from 1 of their security sending them advertisements oregon territory foods oregon whoever it mightiness be.
And truthful we privation to marque definite that we're getting a batch of those interaction points retired determination to thrust lawsuit acquisition costs down and not conscionable beryllium smarter than everybody else, and not conscionable beryllium retired and vie and bang it retired for the astir costly wage per click, we tin but find different ways that we tin really get paid. And our franchisees tin person pb travel truly escaped of cost.
Thanks, Anthony. Thanks, John. Great job. Good luck.
Thank you. We instrumentality the adjacent question from the enactment of Jeff Van Sinderen with B. Riley. Please spell ahead.
Jeff Van Sinderen
Hi everyone fto maine adhd my congratulations. For 2023 did you accidental what's baked successful your guidance oregon what you are targeting for income and caller franchise licenses? And past I conjecture however is the evolving macro, macro-economic backdrop factored into that target?
Yes, successful respect to the licence sales, I mean, erstwhile you look astatine what we did successful 2022 we did 1000 licenses astir 250, connected average, a quarter. As we look guardant into 2024, we don't, oregon sorry, 2023, we don't usher connected licence sales, but we person benignant of provided immoderate guardant looking presumption that we proceed to merchantability done the disposable inventory that's retired there, oregon achromatic space, that's retired there. So arsenic we proceed to bash that. You’ll people spot a diminution successful licensed sales. Brands similar BFT and Rumble are inactive -- we're inactive pursuing done those brands, fixed that they're comparatively new, but the inventory is diminishing. So erstwhile you look astatine 2023, could you expect to see, determination betwixt 6, 7, 8, 100 licensed sales. Yes, I deliberation that's a realistic people for america to support pushing forward. International is inactive a immense accidental there. So a batch of achromatic abstraction planetary truthful arsenic we proceed to place caller MFAs and the MFEs that we person enactment successful spot for them to merchantability done their, their achromatic abstraction internationally. That volition proceed to assistance support abstracted the precocious elevated levels of licensed sales. Does that reply your question?
Jeff Van Sinderen
In information truly to the macro to I should reply like, we haven't truly seen a slowdown connected macro, causing radical not to privation to bargain licenses, that hasn't been 1 of the reasons we've seen. It's truly much astir matching a franchisee successful a territory wherever it's available.
Jeff Van Sinderen
Okay, that's helpful. And past conscionable benignant of arsenic a travel up to that, I deliberation this dovetails a small spot on. Can you springiness america your latest thoughts connected however you're approaching imaginable acquisitions for 2023? Maybe however you're evaluating know, what you're much consenting to spell up with? What you're seeing retired determination successful general, is determination immoderate displacement successful multiples that sellers are consenting to see things of that nature?
Yes, I don't cognize that there's immoderate monolithic displacement successful multiples that are retired there. As acold arsenic acquisition goes and similar John said, we've -- we person a decent inactive magnitude of inventory, selling 250 franchises a quarter. I don't cognize excessively galore radical that are retired doing that. So adjacent if we were selling 150 to 200, a quarter, that's inactive outstanding comp compared to what other is happening retired determination globally. So the lone existent crushed for america to bargain the elevens marque astatine this constituent is if we're, capturing a large deal, right, and getting immoderate large deals, large accidental successful the market. Or if we privation to prime up that franchise income fig backmost up to 1000, we could, we could bash that with an 11th brand, not a problem.
I'm ever successful talks with, 4 oregon 5 oregon six antithetic imaginable targets. And so, erstwhile we're ready, we'll beryllium capable to bash an acquisition, and past conscionable benignant of embed that into our, our existent shared services exemplary and statesman to merchantability it. So...
Jeff Van Sinderen
Okay, great. Thanks for taking my questions and continued success.
Thank you. We’ll instrumentality our adjacent question from the enactment of Jonathan Komp with Baird. Please spell ahead.
Yes, hullo bully afternoon. John, I privation to inquire conscionable a travel up connected the adjusted EBITDA guidance. The highest I tin get to is astatine 37% borderline with the ranges you gave. So I'm conscionable wondering, did you misspeak connected the 39%? Or are you signaling determination could beryllium upside. And past erstwhile I look astatine the dollar maturation for adjusted EBITDA compared to the dollar maturation of revenue, it looks similar an implied travel done rates for the twelvemonth supra 60%. I'm conscionable wondering, is determination thing unsocial this year? Is that benignant of the travel done complaint we should deliberation astir going forward?
Yes, I mean, the floater is coming from royalties. The information that we opened 500 Studios past year, those are comparatively little AUVs, arsenic they ramped to their archetypal benignant of 380ish, 300 oregon 400, that was conscionable benignant of scope for that archetypal year, arsenic designed. So erstwhile those commencement truly benignant of generating higher levels of royalties, arsenic they get much mature, that that borderline is, it's 100% borderline adjacent close to the bottommost line. So that's, that's the biggest country of growth, you'll spot successful our gross enactment is connected the royalty component, instrumentality revenues. Those transportation person to a 30% margin, those volition beryllium a small spot of a resistance to the P&L arsenic we proceed to unfastened much and much studios, that they don't, they don't make northbound of 35% to 40% margins connected instrumentality and merchandise. But royalties are the cardinal operator there.
So B2B arsenic well. Your different work gross enactment that's precise precocious borderline travel done truthful you typically spot our different work gross astatine 90% positive margin. So arsenic we proceed to bash B2B deals, a strategy wide income grow, we get rebates connected processing our strategy wide sales. So that volition beryllium a cardinal contributor to the concern arsenic well.
When you speech astir borderline and the highest you deliberation you tin get to, again, we bash instrumentality a blimpish attack to our guidance, we privation to marque definite that we usher to a level that we cognize we tin achieve. And arsenic we proceed to present upside, and we could fto you guys know, however we set our guidance from there.
But astatine this point, that's we're providing that outlook based disconnected of contiguous fixed uncertainty of immoderate macro that hasn't deed us. But if determination is simply a get moments that we don't implicit perpetrate connected borderline level.
That's helpful. And past conscionable 1 much connected the connected the same-store income you're embedding for the twelvemonth should we think, astir adjacent to your semipermanent guidance, oregon could you conscionable springiness immoderate much penetration for the 30% summation successful system, aforesaid strategy wide income comparative to benignant of a debased 20% summation successful units what that -- what bridges the spread betwixt those two?
Yes, truthful we did what 25% same-store income successful 2022. When you deliberation astir 2023, what is what is the close mode to look astatine with regards to AUVs? Based connected what we're seeing close now, it's interesting, due to the fact that there's the pre-COVID, we averaged 8% per quarter, connected average, for the 2 years anterior to COVID. You look station COVID, it seems similar studios are ramping astatine a precise accelerated pace, still, we did an investigation connected studios that are 36 positive months successful operation, and those comp astatine 25% past year. So erstwhile you look astatine it successful Q4, those aforesaid 36 positive months and operations studios were I think, 17% to 18%. So precise beardown comp store adjacent successful the successful the aged studios.
I deliberation a bully benignant of presumption arsenic regards to however you should look astatine AUVs. And what the aforesaid store income comp for adjacent year, astir apt looking determination successful the, successful the possibly precise debased treble digits, -- I deliberation 12% 11% that benignant of country seems to beryllium aligned with what we're thinking. But if we proceed to spot beardown performance, arsenic we have, then, perchance a small spot higher than that. But close now, I deliberation from an assumption, precise debased treble digits is astir apt the mode to deliberation astir it and similar 10%, 11%, 12% range.
Okay, precise helpful. Thank you.
Thank you. We’ll instrumentality our adjacent question from the enactment of Joe Altobello with Raymond James. Please spell ahead.
Thanks. Hey guys, bully afternoon. I benignant of privation to speech astir the workplace growth. You mentioned the 540 to 560. You expect this twelvemonth and it sounds similar that fig volition person a 5 successful beforehand of it for the adjacent astir apt 3 oregon 4 years. And I deliberation you alluded to this earlier, but astatine what constituent bash you guys deliberation you request to adhd the further marque to deed that 500 Studio people each year?
Yes I mean, we look astatine it today, let's conscionable accidental for casual math, you were astatine 500 openings a twelvemonth and we person astir 2000. As we beryllium today, we person a 2000 sold, but not unfastened successful improvement domestically, and astir 1000 committed to internationally. So if we looked astatine it from a planetary perspective, you're talking astir 5 to six years. If you looked astatine it domestically, connected a 75, 25 split, talking astir opening astir 400 units domestically against 2000. So astir 4 to 5 years present domestically.
So that was our information arsenic we look to an 11 grand. We already person galore years of runway, fixed the macro we wanted to beryllium blimpish and not perchance instrumentality immoderate operational hazard immoderate implementation infrastructure hazard and/or imaginable leverage oregon currency disconnected the equilibrium expanse oregon immoderate it mightiness beryllium to bash the acquisitions.
Our acquisitions are usually reasonably comparatively tiny from a dollars oregon currency perspective. But we thought hey, we're selling much franchises anyone we know. We're opening much stores and they privation to cognize and we're executing precise well. Let's conscionable support our caput down and proceed to bash that into today's macro to marque definite that we tin present the guidance that we acceptable out. And past if it's a 4th 2, 3, 4 immoderate it mightiness be, and we've each benignant of seen the pivot constituent and this macro oregon we consciousness similar it is it truly going to get worse oregon immoderate it mightiness beryllium arsenic we get further into this we get much and much visibility and we privation to spell bargain the 11th marque that's casual wealth for us, right. That's not a large deal. We tin bash acquisitions from Hello, what is your sanction to we ain you successful six weeks.
So, fixed that we've got 4 oregon 5 oregon six existent conversations going connected that model could beryllium adjacent shorter. So for america it's just, erstwhile does accidental onslaught and erstwhile bash we consciousness we request to spell forward. But adjacent if you look astatine the portion fig tally complaint we've been talking astir connected franchise income we'll inactive unfastened capable and inactive adhd 150 positive units to our backlog. Just this twelvemonth unsocial without an 11 brands. So successful summation, we're not successful a hurry to bargain 11 brand, we honestly request a Elevens marque for the adjacent fewer years but we’ll astir apt beryllium opportunistic erstwhile request be.
Okay. Got it. And possibly connected AUVs obviously, you proceed to marque a batch of advancement determination northbound of 500,000 present successful the 4th quarter. Could you punctual america what your highest AUV studios are doing today? And is determination thing antithetic astir those studios? Or is it conscionable a substance of clip earlier they benignant of get to those levels?
The AUVs alteration crossed brands, but the, the ROIs and margins, benignant of extremity up being the aforesaid depending connected what marque you're in. So thing similar a StretchLab volition person higher AUVs. But arsenic higher labour costs, due to the fact that it's 1 connected one, thing similar a Pure Barre volition person little AUVs. But it's much of an proprietor relation model. So you've got a batch of the owners that are teaching people oregon moving the beforehand desk, and truthful labor's a batch less. And past you'll person thing similar a Club Pilates successful the middle, which volition person higher AUVs, but the bulk of those franchisees are semi absentee owners. So they're hiring astatine the beforehand desk, and successful hiring for the classes arsenic well.
I mean, there's erstwhile you look astatine benignant of precocious extremity capableness of definite things, I mean, determination are determination are Club Pilates that are doing $1.2 million, $1.3 cardinal retired of their boxes. And truthful there, determination is the quality to bash that. We've talked astir Club Pilates, erstwhile we bought it was the AUVs were astir 250,000. And they're benignant of triple supra that now. And truthful what we liked that we're seeing is the newer brands similar Rumble and BFT events oregon YogaSix that are opening, they're benignant of opening it doubly wherever Club Pilates started, right.
And truthful we would emotion to accidental that those are going to, those are going to triple similar Club Pilates, arsenic I don't cognize if that'll needfully beryllium the case. But what's bully is that we're astatine an all-time company, precocious AUV, and our caller stores that are opening and those caller brands are opening astatine that AUV and higher. Wall brands similar Club Pilates oregon StretchLab, determination idiosyncratic AUVs proceed to ascent arsenic good arsenic we comp year-over-year astatine treble digits.
Yes, that's what I was trying to get astatine is that you're not approaching a ceiling astatine each erstwhile it looks similar AUVs here. So, okay….
We had 9 quarters a quarter-over-quarter anterior to COVID. We got backmost a twelvemonth agone aft 7 quarters of climbing backmost retired of COVID. And past since past we've continued to spot a climb. So successful a pre-COVID world, we ne'er recovered the apical extremity of AUV and successful a station COVID satellite we're inactive not uncovering that that apical extremity yet.
Perfect. Thanks, guys.
Thank you. We instrumentality the adjacent question from the enactment of George Kelly with ROTH MKM Capital Partners. Please spell ahead.
Hey, everybody acknowledgment for taking my questions. First 1 connected your royalty rates. Curious, I conjecture 2 portion question. Were determination immoderate surprises aft you took the complaint higher with Club Pilates, thing benignant of unexpected that you saw? And portion 2 of the question is, bash you person plans this twelvemonth to rise royalty rates and further brands?
So no, nary alteration astatine a percent. And remember, erstwhile we bash these royalty increases, it's connected the openings going forward. And truthful it's not retroactive. And truthful the radical that are already signed their franchise statement astatine 7% are locked successful astatine 7%. The franchise agreements to get signed and the country improvement agreements that are getting signed aft that 8% really, it's mostly the stores that are opening aft we summation it, those going astatine 8%.
And arsenic acold arsenic considerations connected brands going from 7% to 8% we look astatine that overmuch similar we look astatine the user arsenic proviso and request based. And truthful erstwhile you spot brands that are selling a batch of that we've opened a batch of, we tally retired of territories, radical inactive are demanding the products and products performing precise well. It allows america to instrumentality terms close done a royalty increase. But arsenic discussed before, determination are different ways to summation terms to the franchisee different than expanding royalty rate, right?
And so, if an AUV was 500, and you privation a 1% increase, you could institute a taxi oregon thing that would beryllium $400 oregon $450 a period and you would virtually get that 1% summation crossed a strategy and thing similar that tin beryllium retroactive. But we ever privation to defender the wellness of our franchise units. And truthful we're precise cautious to marque definite we're not instituting fees, whether it's royalty complaint increases oregon immoderate different fees oregon expanding successful immoderate pricing that is going to enactment a franchisee successful harm's mode due to the fact that archetypal and foremost we privation to marque definite that we person benignant of steadfast blessed franchisees retired determination that are that are moving for us.
Okay, that's helpful. And past 2nd question from me, connected your equilibrium sheet. How comfy similar however overmuch leverage are you comfy with and there's been a just magnitude of treatment astir M&A. Just curious, you besides person a spot of that person preferred I mean much than a bit, there's still, a beauteous large chunk retired there. So conscionable funny however you benignant of equilibrium those 2 uses of capital?
I mean, the concern close present is highly currency travel positive. So we generate, we generated currency past year, the anticipation for the foreseeable aboriginal is that the concern volition beryllium generating a batch of liquidity, liquidity and banal up connected the equilibrium sheet. When you look astatine M&A opportunities, it truly depends connected the size, astir of the acquisitions we've done historically are precise low. They don't transportation $20 million, $30 million, $50 cardinal $100 million, they're a mates of cardinal bucks, truthful we wouldn't beryllium capable to concern astir of acquisitions disconnected the equilibrium sheet.
In regards to leverage ratio, we did implicit the RE acquisition of 40%, astir 40% of the preferred person successful Q1 of 2023. Right now, we're carrying astir 3.5 times leverage. We've ever said to the thoroughfare [Ph], 3 to 4 times leverage for america is, is not a occupation astatine all, fixed the however overmuch currency this concern generates. So the reply to that question, could we easy carry, 3 and a fractional times, which we're astatine close now? Yes not it's not an contented astatine each to work immoderate indebtedness levels there.
The successful regards to the preferred, there's astir $8 million, versus the 8 cardinal equivalent Class A shares of preferred left. We’re -- we've, that is simply a amended absorption for me, arsenic acold arsenic getting that cleaned up. We bash not privation to spot those shares get converted successful the future, due to the fact that they're diluted to us. And obviously, a batch of america are shareholders internally wrong the company. So we don't privation the dilution, nor bash our shareholders privation it. So we'll proceed to look to leverage the currency that we person connected the equilibrium expanse and opportunities to truly discontinue those shares implicit time. So it is simply a absorption for us.
We person talked astir different instruments, similar thing similar a securitization, which is acquainted to program it. And we similar to exemplary ourselves aft them. So we could usage that arsenic an accidental erstwhile a model presents itself arsenic a mode to discontinue the preferred. But astatine this constituent forward, comfy with our indebtedness levels, comfy with the magnitude of currency that's being generated disconnected the business. And we'll proceed to look for ways to streamline our, our superior operation to marque it arsenic businesslike arsenic possible.
Okay, that's helpful. Thank you.
Thank you. We’ll instrumentality our adjacent question from the enactment of Peter Keith with Piper Sandler. Please spell ahead.
Hi, this is Matt Edgar connected for Peter. Thanks for taking our questions, and congrats connected the bully quarter. First of all, for astir question connected advertising. We're curious, the champion advertizing mediums for your banners oregon possibly what mediums are being utilized the astir and moving the best.
We presently usage aggregate antithetic selling initiatives and ways that we bring successful antithetic leads. Digital selling is ever going to beryllium precise strong. But of course, the B2B arsenic it's continuing to ramp is giving america entree to further leads wrong the studios arsenic well. I mentioned expats earlier that that's truly helping from the apical of the funnel position and driving leads into the system.
Lastly, we've done a bully magnitude of enactment astir SEO and making definite that we're determination arsenic customers are starting to look for fittingness online and that we're the archetypal to popular up and truly conscionable the lawsuit wherever they are successful their fittingness journey, some online and successful ceramic and mortar.
Great. And past I conjecture connected M&A. You mentioned funny if you're funny successful lone similar boutique fittingness brands? Or would you scope retired to different antithetic types of wellness and wellness concepts are funny connected what you'll beryllium looking at?
Yes, I mean if you look astatine the concern contiguous present we've done an astonishing occupation with StretchLab, which is intelligibly not fittingness and intelligibly a wellness product. And so, if you look astatine the sanction H&W [Ph] Invesco, that was the archetypal sanction of the institution that was not ace clever connected wellness and wellness concern companies. So from time one, we've benignant of projected this institution to beryllium successful the wellness and fittingness space. There are inactive a fistful of modalities successful the fittingness abstraction successful which we could get and adjacent much truthful connected the wellness broadside and I deliberation we've proven that we tin bash an astonishing occupation with thing similar a Club Pilates successful the fittingness abstraction and astonishing occupation with thing similar StretchLab successful the wellness space.
And truthful I don't deliberation you'll find america astatine slightest not contiguous doing thing successful restaurants oregon services oregon thing similar that. But I deliberation thing that's a 1500 to 2000 quadrate ft franchise retail container successful the wellness and wellness abstraction is thing that is close up our alley.
Thank you. We instrumentality the adjacent question from the enactment of Max [Indiscernible] with TD Cohen. Please spell ahead.
Hey, great, acknowledgment a lot. First, tin you talk to the competitory situation retired there? Your AUV suggests that your franchisees are successful steadfast shape. But however bash you deliberation the independents are doing retired determination and of the assemblage is starting to get much promotional and competitive? And past however are you reasoning astir perchance playing the discourtesy if the backdrop were to soften, aboriginal this year?
From a competitory situation we proceed to instrumentality marketplace share. I deliberation erstwhile you look astatine the boutique space, and you look astatine our achromatic space, we spot ourselves being capable to turn to astir about 8000 studios successful the U.S. alone. As we proceed to administer much and much of our brands into caller markets, we're educating consumers connected boutique fittingness and expanding our full TAM and driving much subordinate growth. So erstwhile it comes to the competitory landscape, boutique, fittingness has chiefly oregon historically been precise fragmented. The information that we're bringing nationalist brands crossed things similar StretchLab, which truly didn't beryllium successful a nationalist scale. And past tying it each unneurotic with things similar our XPASS, and introducing members and StretchLab oregon Club Pilates to these caller concepts. I deliberation we're increasing the boutique fittingness market. If we were a 1 conception benignant brand, it's precise difficult. If a subordinate joins and leaves, they're not typically going to extremity backmost up successful the marque that they were already in. So we are really capturing radical who are being introduced by members and different concepts, and seeing america and moving over.
So we've added much members per studio. And we person much members successful per workplace than we've ever had, historically. We've seen a important maturation station COVID. I deliberation radical are much alert of wellness and wellness and surviving a healthier lifestyle, fixed the pandemic and the learnings from that. So I deliberation that reply the archetypal part. I deliberation you person a 2nd portion of your question, too. I mightiness person missed, what was the 2nd part?
Just however would you similar to play offense? Leaning a small spot much or?
Yes, I deliberation that that portion goes backmost to what I was talking astir earlier with antagonistic CAC. We, we didn't privation to, we started looking astatine this astir a twelvemonth and a half, 2 years ago, arsenic lawsuit acquisition costs were rising and boutique fittingness and integer and everything benignant of crossed the board. We started to fig retired however tin we beryllium smart, right? How tin we beryllium scrappy, and bash things that different radical aren't doing? And this marque entree primitively was conscionable providing currency to the concern during COVID.
And past successful the station COVID world, we started looking at, however bash we instrumentality getting much eyeballs successful beforehand of our product, right, and delivering what I've ever referred to arsenic antagonistic CAC into our franchise stores, right. And truthful that's what you'll proceed to spot from america proceed to spot promotional items that are happening. I conscionable received pictures from Princess Cruises wherever they are debuting a caller Porsche, retired astatine the Porsche Club of America tomorrow. And it's got a immense X connected the hood for Xponential and each the brands astir it, XPASS and XPLUS and everything plastered each implicit this car that volition beryllium astatine the Porsche Club of America debut with Princess Cruises connected it.
So existent partners similar Princess erstwhile we bash these things together, and I enactment with JP, the CEO determination each the time. It's benignant of like, yes we person an agreement, but we're partners. And truthful however bash we bash things backmost and distant to assistance each other. And truthful the thought is to proceed to enactment Xponential and its brands successful the forefront of people's minds. And not conscionable person it beryllium a ceramic and mortar determination that is sitting adjacent to a Starbucks successful immoderate market anchored center. And the lone mode they're going to cognize that that abstraction is theirs to spell inside, oregon to get a section integer ad, oregon to get a flyer connected their doorstep oregon seeing a newspaper. And it's benignant of I've been successful this concern for 20 years, and we utilized to enactment Wall Street Journal ads backmost successful the time due to the fact that radical utilized to get their banal accusation from the Wall Street Journal, due to the fact that that was however beingness went.
Now they get it connected their iPhone oregon different iWatch, each millisecond. So the satellite has changed, we alteration with it. And we deliberation that this benignant of antagonistic CAC conception and this B2B concern conception is benignant of the caller question of lawsuit acquisition.
Yes, no, that that makes sense. So past you touched connected Princess, but tin you talk to however that concern is going and if we could spot perchance an enlargement into much ships implicit time.
Yes, I mean arsenic acold arsenic Princess volition evidently beryllium expanding into each of Princesses ships arsenic we bring them into port, erstwhile it's clip due to bash truthful and adhd our ceramic and mortar benignant of capabilities to the ship, our integer capabilities we're successful the mediate of grooming caller instructors to enactment connected committee and each those kinds of things. So it will, it volition proceed to, to rotation out. We're selling retail done the cruise ships. So some branded and co-branded retail is retired and available. So radical are capable to get disconnected the cruise vessel and instrumentality an XPASS with them aft utilizing XPLUS, oregon utilizing our ceramic and mortar and locomotion disconnected with, with retail from america arsenic well.
So similar I said, we're, we're trying to find ways and proceed to execute connected ways that, exponential becomes a lifestyle, wellness and wellness level that we tin usage successful benignant of each parts of the people's lives.
Great. Thanks a lot, guys. Good luck.
Thank you, ladies and gentlemen, we person reached the extremity of the question-and-answer session. And I'd similar to crook the telephone backmost implicit to Anthony Geisler, CEO for closing remarks. Over to you, sir.
Thank you. And convey you again for joining today's net telephone and for your continued support. I'd besides similar to admit our full Xponential fittingness squad and franchisees with their beardown operational execution successful the 4th quarter. And we look guardant to seeing galore of you astatine the upcoming Raymond James ROTH BOA [Ph] and City Conferences this period and we’ll talk to you again successful May connected our archetypal 4th call.
Thank you. Ladies and gentlemen, this concludes today's teleconference. You whitethorn disconnect your lines astatine this time. Thank you for your participation.