Chris O’Cull: Okay. Yes, I was thinking more of like the current trend. Is the current trend currently around the level you saw in the first quarter or are you expecting it to accelerate from this to get to that high single-digit level?
John Meloun: Possible. We’re looking at, obviously, the impacts of — we’ve got Lindora in the mix. STRIDE’s no longer in the mix. We’re opening a lot of StretchLabs and Club Pilates last year. So, they’re starting to enter the comp this year, as we go through the quarter. So, in order to make the model work, I understand what you’re asking, yes, you’d have to probably see a slight uptick in Q2 to get to that full year 9%. So, it’s probably a safe assumption. But for conservatism, I think, again, in my model, I’m looking at it Q1 to Q2, it’s probably going to be in the same range in Q2 as it was in Q1, plus or minus 1%, so, yeah.
Chris O’Cull: Okay. We noticed the run rate average unit volume essentially held flat on a sequential basis relative to the fourth quarter. Can you talk about what drove that dynamic?
John Meloun: Yeah. That was what Sarah was kind of mentioning is when you look at the Black Friday deals that were offered in Q4, Pure Barre and StretchLab had really strong AUVs in the fourth quarter, so, they were, in essence, pulling in a lot of sales into the fourth quarter that you normally would have expected to get in Q1. So, consumers attached to those promos. So, the sales for Q1 for Pure Barre and StretchLab being a larger brand weren’t there in Q1, because they were already there in Q4. So, we expect visitation was really high and that’s what kind of led us to believe that, when you look at these promotions, let’s just say they did too well, but that’s a good thing because you’ve brought in consumers sooner.
So, now it’s a function of, as these consumers visit the studios, trying to get them converted into a membership, so you get the reoccurring revenue from the Black Friday promotion. So, you’re seeing a little bit of a flatness in Q1 from Q4, but it’s based on the promotions of those brands. Club Pilates didn’t do a lot of promotions where they saw a spike. It was pretty normal run rate activity. But in those other brands, they had a little bit more promo, probably drove more package-type volume, which impacted Q1 because it pulled into Q4.
Chris O’Cull: Oaky. That’s helpful. And then I think you mentioned Buxton added 800 Club Pilates locations to the TAM. And I’m just curious what the main enablers of that expansion was in terms of either demographics or psychographics that you’re capturing now.
Anthony Geisler: Yeah. As I said earlier on the call for another question, when we look at original TAM, we keep cannibalization percentages from ourselves and other competitors very low. As you’ve seen with that brand, as we’ve expanded over the last nine years, the AUV has climbed from 250 to 1 million. So, that means ultimately, it was a little too conservative potentially to begin with, meaning we kept cannibalization very low and kept density of our core customer very high in that surrounding area. And so, what we’ll do is we’ll start to release that by a 1 point or 2, 1 percentage point or 2, and see what the TAM does, sell that additional TAM, let more stores open and make sure we’re kind of properly doing it.
One of the designators in there is designed for a certain AUV. That brand was originally designed at 605 of AUV and it’s obviously well above that at about $1 million. So, we can play with AUV, potential AUV of the store, cannibalization, and density, but we don’t want to do that early on, oversell an area and see AUVs either be flat or go backward, if that makes sense.
Chris O’Cull: That’s helpful. Thanks.
Operator: Thank you. Your next question comes from Alex Perry from Bank of America. Please go ahead.
Alex Perry: Hi, thanks for taking my questions here. I guess I wanted to follow up on the studio opening cadence for the year. Should we expect sort of the same percent of openings in each quarter versus last year? And then how many net studio openings this year? So, I think the gross number stayed the same. Has your expectation on net studio openings changed at all? Thank you.
John Meloun: Yeah, so, we guided 540 to 560 for the full year, which is, right in line with 2023 at the midpoint. The cadence is still at 45% in the first half, 55% in the second half from kind of a cadence perspective. So, you’ll see Q1 being the lowest quarter, which was similar to Q1 of 2023. It’ll build in Q2, slightly build in Q3, and then Q4, again, just like last year, we saw a large volume of openings, as people conceptually get open for the New Year from a New Year’s resolution standpoint. You typically see that in franchising. And we expect to have that same phenomenon in 2024. And from a net perspective, we don’t have a lot of historical trends on closures. When you look at the number of closures in Q1, it’s just over a 0.5%.
So, cumulatively, as you build through the year, when you look at franchising, we’re still kind of the mindset that the 3% to 5% on the high end is kind of a normal range. We’ve modeled 3% into the way we did our guidance, but 3% to 5% is how we’re thinking about it. Q1 on a pro rata basis is favorably ahead of schedule, meaning lower closures than that assumption. So, we’ll continue to, drive the business, support franchisees and, getting studios open, and helping studios that are struggling to improve AUVs so they don’t close. So, 550 is the midpoint, 45% first half, 55% second half, and think of closures at around 3% for the full year.
Anthony Geisler: And from a dollar’s perspective, obviously, the cohort of — the AUV of cohorts that are closing is totally different than the cohort of AUVs that are opening. So, you can’t really model them on a one-for-one KPI net unit basis in the model, or you’ll be off.
Alex Perry: That makes a lot of sense. And then, can you just remind us on sort of the financial implications of the wind-down of the transition studios? Like, what is the net savings expectation that you’re expecting for the year? And is that sort of coming in line with how you’re thinking about it three months ago? Thanks.
John Meloun: Yes. If you pro forma in 2023 and assume that there was no transition studios last year, your revenue would be about $25 million lighter. Your other service revenue line would be about $25 million lighter. Your SG&A on the normal four-wall operating expenses would be about $37 million lower. So, the net-net EBITDA impact last year was around $12 million. So, if you assume this year, you’re kind of starting at, $117 million as your starting point in adjusted EBITDA, and then building to the $136 million to $140 million range that we guided the Street to.
Alex Perry: That’s incredibly helpful. Best of luck going forward.
Operator: Thank you. Your next question comes from Jeff Van Sinderen from B. Riley Securities. Please go ahead.
Jeff Van Sinderen: Thanks. So, just to clarify on AUV, when you look at it comprehensively for the enterprise, does your guidance bake in an AUV increase in Q2 and the remainder of the year or, maybe, what should we expect for AUV progression for the remainder of the year?
John Meloun: Yeah. The model does assume that AUVs will continue to increase in 2024 on a quarterly basis. As we look at Q1 and how we finished, the quarter at the high 570s, I do believe that as you kind of move into the latter half of, 2024, you’ll start to see us push into the higher ranges from an AUV perspective, trying to cross over into the $600,000 and driving our way toward $700,000. I don’t believe you’ll get to — based on the assets, the brands we have today and the mix, I don’t think you’ll cross $700,000 at this point in 2024, but I do think you’ll start to threaten toward the high $600,000 as we progress through this year. A lot of the growth you got to remember is, Club Pilates has kind of been in that $900,000 to $1 million range.
Your StretchLab, we opened a lot of StretchLab last year. Those studios get to, a $600,000 AUV very quickly. As we open up more Rumbles, BFTs, and now we have Lindora’s that will start to show up in the later part of this Q4 kind of timeframe, albeit a very small sample set, but it is just studios entering at high AUVs those will continue to pull up the overall AUV. Brands like YogaSix have done very well over the last coming quarters. They’ve actually kind of accelerated a little bit from an openings perspective. The AUV continues to grow there. We got really great response to Pure Barre. So, those AUVs, so you’re getting a lot of support in all the brands that are at scale doing fairly well. So, AUVs right now as they sit today, they were relatively flat to Q4, but with the studios that’ll start entering the six months of age and they enter the calculation probably midway through the year, they’ll start pulling up the AUV because they’re performing very well right out of the gate.
Jeff Van Sinderen: Okay, that’s helpful. And then, of course, you sold 40 Lindora’s licenses, and I’m sure you’re selling more as we speak. Can you give us any more color around the sort of the trends in other brands in terms of the composition of new licenses sold in Q1?
John Meloun: Yeah, of the 173 licenses sold in Q1, about 55% of them were Club Pilates, so there was about 100 that we sold of Club Pilates. Again, over-indexed in Club Pilates, Lindora as you mentioned, and then BFT, there was about 20 BFTs that were sold in the first quarter. StretchLab had about 15. And Pure Barre, as we mentioned, the performance in Pure Barre has led to new license sales, so we saw 11 new license sales in Pure Barre. So, the balance was with the rest of the brands, but 173 licenses in Q1 with about 55% of them in Club Pilates. It’s not a surprise given where the license sales are coming from because they’re coming from brands that are performing very well with high EVs, so franchisees are very motivated to buy more licenses and whether you’re a new franchisee or an existing, trying to expand your existing portfolio.
Jeff Van Sinderen: Okay, great, great to hear. I’ll take the rest offline. Thank you.
Operator: Thank you. Your next question comes from Warren Cheng from Evercore ISI. Please go ahead. Pardon me, Warren, your line is now live. Please ask your question.
Warren Cheng: Hi, John. Hi, Anthony.
John Meloun: Hi, Warren.
Warren Cheng: I just wanted to follow up on your comment that you saw some pull forward of some of the Pure Barre and StretchLab packages in 4Q. So, it sounds like you’re talking about a mismatch between when those numbers bought their packages and when they used them. And they bought them earlier because the sales were so good. So, if we look instead at — oh, yes, so I just wanted to clarify, if we look instead at — instead of looking at revenues, if we just looked at visits for StretchLab and Pure Barre, was that in line with what you expected three months ago?
John Meloun: Yeah. Visits were up in the first quarter. And that was the one thing we were interested about because when we’ve heard on other earnings calls, people kept talking about weather. So, we knew it wasn’t weather because at the end of the day, visitation was really high, so people wouldn’t come to your studios if they couldn’t get to them. So, when we look across on a national scale, we didn’t see visits fall off, we actually saw class offerings high, we saw visitations high. When you look at Q1 of 2024 versus Q1 of 2023, visitation was up 6% on average per studio. So, you actually had more engagement from consumers in Q1. So, it really led you down the path. And when you look at the individual brands, just Pure Barre and StretchLab had this kind of effect where we did see the sales, in essence, get pulled into Q4 versus Q1.
So, it’s a good thing because you got the revenue faster and earlier. The consumers are now using whatever they purchase. And with the expectation now is the franchisees have the opportunity to convert them to members and get them more onto that reoccurring membership from a growth perspective.
