Xponential Fitness, Inc. (NYSE:XPOF) Q3 2023 Earnings Call Transcript

Xponential Fitness, Inc. (NYSE:XPOF) Q3 2023 Earnings Call Transcript November 12, 2023

Operator: Good day, and welcome to the Xponential Fitness Inc. Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Avery Wannemacher, Senior Associate, Addo Investor Relations. Please go ahead.

Avery Wannemacher: Thank you, operator. Good afternoon, and thank you all for joining our conference call to discuss Xponential Fitness third quarter 2023 financial results. I am joined by Anthony Geisler, Chief Executive Officer; Sarah Luna, President; and John Meloun, Chief Financial Officer. A recording of this call will be posted on the Investors section of our website at investor.xponential.com. We remind you that during this conference call, we will make certain forward-looking statements, including discussions of our business outlook and financial projections. These forward-looking statements are based on management’s current expectations and involve risks and uncertainties that could cause our actual results to differ materially from such expectations.

For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligation to update the information provided on today’s call. In addition, we will be discussing certain non-GAAP financial measures in this conference call. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide. A reconciliation of these non-GAAP measures to — most of our GAAP measures is included in the earnings release that was issued earlier today prior to this call. Please note that all numbers reported in today’s prepared remarks refer to global figures, unless otherwise noted.

I will now turn the call over to Anthony Geisler, Chief Executive Officer of Xponential Fitness.

Anthony Geisler: Thank you, Avery, and thanks, everyone, for joining our third quarter earnings conference call. As the leading global boutique fitness franchisor, Xponential again produced strong results this quarter as we continue to operate our business efficiently while providing our end customers with the workouts they find vital to their routine. We are encouraged by the strength of our consumer and our KPIs are continuing to show consistent and healthy growth. At the end of the third quarter, Xponential franchisees operated nearly 3,000 studios globally with over 6,000 licenses sold across our 10 brands. Momentum has continued into the fourth quarter. Xponential has made international growth a priority, and our efforts have continued to bear fruit in the form of new master franchise agreements.

Our existing Kuwait master franchise partner has recently signed a new master franchise agreement to develop Club Pilates Rumble, StretchLab and AKT in Qatar. We now have franchise, master franchise and international expansion agreements in 23 countries around the globe. We will discuss our international strategy in more detail shortly. Our membership and visitation trends continue to demonstrate the strength and resiliency of our membership base. During the third quarter, total members across North America grew 26% year-over-year to a total of $726,000 with 92% of these customers continuing to be actively paying members. Consumers also continue to flock to the overall boutique fitness industry. According to IRSA’s 2023 report, boutique fitness now accounts for 42% of all gym memberships today with estimated growth of 17% by 2025.

As the largest player in the boutique fitness market, we are confident our brands are well positioned to capture a large share of this growth. Additionally, current adoption of weight loss drugs such as Ozempic, have shown early tailwinds for our business model with Morgan Stanley analysts recently signing a survey that showed people’s greater propensity to get active after beginning injections. Our visitation rates remain strong with North American studio visits for the third quarter, up 30% year-over-year to a total of $13.1 million. This drove North American system-wide sales to $357 million during the period, an increase of 35% over the third quarter of 2022. Q3 North American run rate average unit volumes of $564,000 increased 15% from $489,000 in Q3 of 2022.

While the third quarter typically sees a slight sequential slowing of growth impact due to seasonality related to summer vacations and travel, we still delivered our 13th great quarter of AUV growth. In addition, September and October, AUVs of 570,000 and 576,000, respectively, provided momentum heading into Q4, which tends to be our best performing quarter from an AUV perspective. We are seeing encouraging early trends thus far in the fourth quarter with same-store sales up again, 15% in October and visitation rates up 29% year-over-year and approximately 5% compared to September. Third quarter North American same-store sales growth of 15% were consistently strong with the previous quarter and remained well above our long-term targeted levels.

Studios over three years old also saw remarkable growth with same-store sales increasing by 15% during the quarter, further demonstrating the resilience of boutique fitness consumers and the healthy growth profile of our more mature studios. Turning to revenue. For the quarter, net revenue totaled $80.4 million, an increase of 26% year-over-year. As John will discuss in a moment, these better-than-expected results and our visibility in Q4 drove us to increase our revenue guidance for 2023. Adjusted EBITDA totaled $26.5 million in Q3 or 33% of revenue, up 33% from $20 million or 31% of revenue in the prior year period. I will now turn to our strategic growth drivers. I’ll discuss the first three and then turn the call over to Sarah to discuss the fourth.

Beginning with the increase of our franchise studio base, we ended Q3 with 2,980 global open studios, opening 127 new studios in the third quarter comprised of 100 in North America and 27 International. As presented in our Analyst and Investor Day in September, our pipeline of future openings is predictable based on visibility into lease signings. As of September, we have 442 leases and LOIs signed for studios not yet open. In Q3 alone, franchisees signed 123 leases in North America, which adds to our evergreen backlog of studio openings. As a reminder, in the fourth quarter, we consistently produced a high volume of new studio openings as franchisees want to take advantage of growing their membership bases as consumers set New Year’s health resolution, and this year will be no different.

We sold 216 licenses globally during the quarter. Our increasing pipeline includes over 2,000 licenses sold and contractually obligated to open on a global basis, plus an additional over 1,000 master franchise agreement obligations giving us clear visibility on openings over the next several years. Turning to our second growth driver, international expansion. Considering the continued importance of international as a key growth driver, we created a new position of President of International. We’re excited to announce the addition of Bob Kaufman, who will be our first President of International. Bob has over 25 years of experience leading global franchising for franchisors across 50 countries. He has held various roles, including Senior Vice President of Business Development and International Franchising at Tower Records, Vice President of Global Franchise Development and Operations for the Coffee Bean and Tea Leaf and most recently Senior Vice President of Franchise Operations at Mathnasium, a brick-and-mortar education franchise system with over 1,100 locations across 10 countries, which was acquired by Roark Capital Group in 2021.

Bob is a true industry veteran with a long-standing history of international franchising success, and we’re thrilled to have him lead our already impressive international team of individuals who have joined us from Orange Theory Anytime Fitness and the International Health Racket and Sports Club Association or IRSA, among other companies. As of quarter end, we have over 1,000 studios obligated to open under master franchise agreements, and we continue expanding into new markets. In addition to the new master franchise agreement recently signed in Qatar for our AKT Club Pilates, Rumble and StretchLab brands, we have also expanded further into Asia and Europe with new multiunit franchise agreements for BFT in Hong Kong, Malaysia, Scotland and Spain.

We look forward to signing more deals around the globe and expanding our presence. Growth in our international business comes with nearly 100% EBITDA margin as we deploy an asset-light model and receive a percentage of revenue share with minimal corresponding SG&A. Importantly, there remains ample white space to continue growing our presence around the globe. Our third key growth driver is to expand margins and drive free cash flow conversion. Adjusted EBITDA margins increased to 33% during the third quarter and will improve further as we continue to grow our higher-margin revenue stream and ultimately decrease our selling, general and administrative expenses. As discussed during our Analyst and Investor Day presentation, in the third quarter, the company has continued the process of refranchising our portfolio of company-owned transition studios with the goal of getting to zero studios operating in a net loss position by year-end.

We have made solid progress. And as of the end of the third quarter, we have reduced the number of company-owned transition studios to 22 additional studios as well as nine LA Fitness locations that we intend to operate as we prove out that business model. Executing this strategy of either refranchising or closing our existing company-owned transition studios and if not taking on any new company-owned transition studios will lead to higher operating leverage in EBITDA margin. During Q3, we’ve had 39 overall studio closures, including 24 units in North America, of which 11 were franchised and 15 units internationally. Taking this into account, the closure rate of the last 6 years to date would represent a nominal annual percentage per year. I’d now like to briefly provide an update around our M&A strategy.

As discussed at Analyst Day, we are continuously evaluating targets. We’ve been pleased with what we have been seeing. Any transactions we pursue would be funded from cash available on our balance sheet. We continue to be focused on smaller targets with significant growth potential in white space. In summary, we are pleased with another strong quarter and the continued momentum we are seeing in Q4. And with that, I’ll pass the call on to Sarah.

Sarah Luna: Thank you, Anthony. Despite an increase in interest rates, restart in studio loan repayments and various geopolitical events, visitation rates in the third quarter grew 30% year-over-year, and our North America actively paying membership base grew to over 667,000 members. Our studios continue to play an integral role in our members’ lifestyles, and we have not seen an increase in frozen memberships or monthly churn. The Xponential team generated strong in studio performance in the third quarter on the back of an expanded ecosystem of B2B partnerships as well as further refinements to our XPASS and XPLUS services. We continue to enhance our omnichannel fitness offerings to allow our members to access their classes and content in the format and location that works best for them.

Xponentials omnichannel boutique offerings help drive customer engagement and lead flow, which ultimately result in higher same-store sales, system-wide sales and AUVs. We are also increasingly focused on maximizing organic forms of customer acquisition and interactions that serve as a complement to our paid marketing strategy. Enhanced organic growth initiatives will drive greater brand awareness and lead generation. And by way of example, we have over 20 retail partners, including Lululemon, [Indiscernible] and Alo Yoga that serves our franchise studios by offering wholesale merchandise. Through these retail partnerships, we received some exclusive perks, build brand awareness, generate revenue and maximize the franchise Studio’s footprint by driving ancillary revenue.

This operation is a stable part of our business and allows our customers to engage with us in a different way than they do when attending class. With that, let’s now discuss a few of our most recent initiatives. Our newly announced loyalty program, Class Points, which is embedded in our mobile app will help to gamify our members’ experience and most importantly, drive wellness and retention. Members can earn points by attending classes and engaging in various positive behaviors in the studio. The points earned correlate to their loyalty status, giving the member various benefits across the Xponential ecosystem. We engaged IBM to help us design this loyalty program. And they’ve recently concluded Phase 1 of their analysis and recommendation.

To date, we are on track to deploy early next year. Xponential PLUS is an important part of our omnichannel strategy. Through XPLUS, members can access digital classes at all 10 of our brands from the comfort of their own home and as a supplement to in-person classes at our studios. After working closely with Meta for nearly a year to develop a leading-edge mixed reality fitness experience, Xponential PLUS launched on Meta Plus. Through augmented reality, users will be able to take digital versions of Xponential classes with a level of realism that was not previously possible, and this app will help to introduce new audiences to Xponential brands and drive new members for our studios. Initially, the Xponential PLUSA app will have virtual content from Club Pilates StretchLab and Pure Bar.

In the coming months, we will launch additional brands. Our recently announced in Gympass partnership is an exciting new relationship through which Gympass subscribers will have access to Xponential brands. Xponential will gain access to Gympass’s more than 2 million subscribers and over 15,000 corporate customers. Through this partnership, Gympass members will be able to book into classes with excess inventory. Xponential benefits by offering spots in pre-existing classes to a new base of potential members while driving incremental studio revenue and filling classes to maximize capacity. Our studios have been onboarded to the Gympass platform and the launch to consumers will take place in the fourth quarter. Our partnership with Princess Cruises also continues to progress.

With Pure Barre and YogaSix, StretchLab, Club Pilates and CycleBar now launched across the entire Princess fleet and the remaining brands planned to launch in 2024. We successfully concluded our first branded cruise in September, a seven-day Alaskan retreat featuring Club Pilates themed workout throughout the cruise as well as destination Pilates experiences. Our franchise partners enjoy high margins from B2B revenue sources. In the fourth quarter of 2023, we will further build out our network of B2B partnerships and enhance Xpass and XPLUS to drive organic growth via referrals and increase customer retention. As a portfolio of brands, we will continue to leverage our scale, omnichannel offerings and partnerships to drive new customer acquisition.

Xponential’s new relationship with VaynerMedia will also help to further accelerate our marketing efforts and better utilize our marketing spend. Our key performance indicators continue to validate that our approach to organic growth is working. Lastly, as we close out 2023, we are excited to host our franchisees and business partners at our Annual Expo Convention being held in early December in Las Vegas. Over 1,300 participants have already RSVPs. The convention is a great way for Xponential franchisees to get together, discuss our growth strategies, fair best practices and learn more about our brands. We look forward to seeing our franchisees and vendor partners there and are appreciative of those who sponsor the event. Thank you again for your time.

I’ll now turn the call over to John to discuss our third quarter results and 2023 outlook.

John Meloun: Thanks, Sarah, and thank you to everyone for joining the call. Beginning with our third quarter results, North America systemwide sales of $356.7 million were up 35% year over year, even considering headwinds related to our strategic decision to refranchise and/or close transition studios during the quarter. The growth in North American systemwide sales was driven primarily by the 15% same-store sales within our existing base of open studios that continue to acquire new members, coupled with 127 gross new studio openings. Further, 95% of the growth came from volume for new members, which has remained consistent with historical performance and 5% coming from price. On a consolidated basis, revenue for the quarter was $80.4 million, up 26% year-over-year.

78% of the revenue for the quarter was recurring, which we have consistently defined to include all revenue streams, except for franchise license sales and equipment revenues, even if these materially occur upfront before a studio opens. All five of the components that make up our revenue grew during the quarter. Franchise revenue was $36.4 million, up 21% year-over-year. This growth was primarily driven by an increase in royalty revenue as member visits and systemwide sales reached all-time highs. In addition, we saw higher monthly tech fees and increased constructor trading revenues that will continue to increase as we open more studios domestically. Equipment revenue was $12.6 million, up 7% year-over-year. This increase in equipment revenue is the result of higher volume of global installations in addition to a higher mix of equipment-intensive brands like BFT and Rumble.

Merchandise revenue was $8.5 million, up 35% year over year. The increase during the quarter was primarily driven by a higher number of operating studios and inventory purchases by existing studios to address the demand for retail as consumer foot traffic has grown compared to the prior year. Franchise marketing fund revenue of $6.9 million was up 34% year-over-year, primarily due to continued growth in systemwide sales from a higher number of open studios in North America. Lastly, other service revenue, which includes rebates from processing studio systemwide sales B2B partnerships, XPASS and XPLUS among other items, was $16 million, up 52% from the prior year period. The increase in the period was primarily due to increased revenues from sales generated in our company-owned transition studios, increased rebates from the processing of studio-level systemwide sales and higher revenues from our B2B partnerships.

As a reminder, Lastly, other service revenue, which includes rebates from processing studio systemwide sales B2B partnerships, XPASS and XPLUS among other items, was $16 million, up 52% from the prior year period. The increase in the period was primarily due to increased revenues from sales generated in our company-owned transition studios, increased rebates from the processing of studio-level systemwide sales and higher revenues from our B2B partnerships. As a reminder, as we decreased the number of company-owned transition studios, the revenue generated from them will decrease in this revenue line. Turning to our operating expenses. Cost of product revenue were $12.7 million, up 7% year over year. The increase was primarily driven by a higher volume of equipment installations for new studio openings and a higher mix of equipment-intensive brands in the period.

Cost of franchise and service revenue were $3.6 billion, down 26% year-over-year. The decrease was driven by lower cost by advertised franchise license commissions in the period. Selling, general and administrative expenses of $48.6 million were up 48% year over year. The increase in SG&A was primarily the result of higher operating costs in the period associated with company-owned transition studios and restructuring costs for Studios, where we have ceased operations. As previously discussed, we are shifting our transition video strategy, which we anticipate over time will decrease SG&A expenses and improve EBITDA margins. The largest liability we are working through is our commercial leases. We anticipate the restructuring will continue in the fourth quarter and in 2024 and will be finalized once we have settled any outstanding leases with landlords.

The investments we are making to streamline operations to a franchise-only model will optimize forward-looking SG&A expenses, resulting in increased margin levels. In 2023, net operating losses associated with transition studios were expected to be approximately $10 million, which we expect to go away in 2024. Depreciation and amortization expenses was $4.2 million, an increase of 1% from the prior year period. Marketing fund expenses were $5.8 million, up 37% year over year, driven by increased spend because of higher franchise marketing fund revenue. As a reminder, each of our franchise locations contribute 2% of sales through our marketing funds. Therefore, as the number of studios and systemwide sales grow, our marketing fund increases.

Since we are obligated to spend marketing funds and increase in marketing fund revenue will always translate into an increase in marketing fund expenses over time. Acquisition and transaction expenses were a credit of $1.9 million versus an expense of $16.3 million in the third quarter of 2022. As I have noted on prior earnings calls, the contingent consideration is related to the Rumble acquisition earn-out and is driven by the share price at quarter end. We mark-to-market the earnout each quarter and accrue for the earn-out. We recorded a net loss of $5.2 million in the third quarter compared to a net loss of $13.1 million in the prior year period. The lower net loss was the result of an $18.2 million decrease in noncash contingent consideration primarily related to the Rumble acquisition and $0.7 million decrease in non-cash equity-based compensation expense, offset by $3.4 million of lower overall profitability, a $6.7 million increase in restructuring costs from our company-owned transition studios and $0.9 million increase in write-down of brand assets.

We continue to believe that adjusted net income is a more useful way to measure the performance of our business. A reconciliation of net income to adjusted net income is provided in our earnings press release. Adjusted net income for the third quarter was $6 million, which excludes the $1.9 million gain in fair value of non-cash contingent consideration, a $1.8 million liability increase related to the third quarter remeasurement of the company’s tax receivable agreement, the $4.6 million write-down of goodwill and brand assets and the $6.7 million restructuring charge. This results in adjusted net earnings of $0.09 per basic share on a share count of 32.3 million shares of Class A common stock after accounting for income attributable to non-controlling interest and dividends on preferred shares.

Adjusted EBITDA was $26.5 million in the third quarter, up 33% compared to $20 million in the prior year period. Adjusted EBITDA margin grew to 33% in the third quarter compared to 31% in the prior year period. As a reminder, our 2023 outlook anticipates adjusted EBITDA margins reaching the 35% to 39% range by year-end, and we expect margins to grow to over 40% in 2024. Turning to the balance sheet. As of September 30, 2023, cash, cash equivalents and restricted cash were $51.9 million, up from $30.9 million as of September 30, 2022. Total long-term debt was $329.7 million as of September 30, 2023, compared to $136.5 million as of September 30, 2020. The increase in total long-term debt is primarily due to the repurchase of 85,340 shares of convertible preferred stock at a price of $22.07 per share announced in January.

These shares prior to the repurchase would have been convertible into 5.9 million shares of Class A common stock. Also, during the quarter, our board of directors approved a $50 million stock repurchase program to repurchase shares of the company’s Class A common stock. This was completed at an average price of $19.24 and 2.6 billion common shares were repurchased. As mentioned on previous earnings calls, the company remains focused on optimizing our capital structure by lowering our cost of borrowing. While we are continuing to work through a possible fixed rate whole business securitization, we are in parallel pursuing other financing alternatives given the current high rate environment. Now, turning to our outlook. Based on current business conditions, we are raising our full year 2023 guidance for revenue and tightening the top end ranges for new studio openings, systemwide sales and adjusted EBITDA as follows: We expect 2023 global new city openings in the range of 5.50 to 5.60, up from the previous 5.40 to 5.60 and representing a 9% increase at the midpoint over 2022.

We expect North America systemwide sales to range from $1.39 billion to $1.395 billion, up from the previous $1.385 to $1.395 and representing a 35% increase at the midpoint from the prior year. Total 2023 revenue is expected to be between $305 million to $310 million, up from the previous $295 million to $305 million and representing a 26% year-over-year increase at the midpoint from the prior year. Adjusted EBITDA is expected to range from $104.5 million to $106.5 million, up from the previous $102.5 million to $106.5 million and representing a 42% year-over-year increase at the midpoint from the prior year. This range translates into roughly 34.3% adjusted EBITDA margin at the midpoint. I would also like to call out consistent with prior year fourth quarters, we do anticipate elevated SG&A expenses in Q4 2023 because of our annual franchise convention.

Our annual franchise convention is anticipated to add roughly $5 million in SG&A expenses, noting that we do have approximately $3.5 million in sponsorship revenue expected in our other revenue line, which will partially offset this expense down to approximately $1.5 million. In terms of capital expenditures, we anticipate approximately $10 million to $12 million for the year or approximately 4% of revenue at the midpoint. Going forward, capital expenditures will be primarily focused on new digital platform features across our portfolio, XPASS and XPLUS new features and maintenance on other technology investments to support our digital offering. For the full year, our tax rate is expected to be mid to high-single digits. Share count for purposes of earnings per share calculation to be $31.7 million and $1.9 million in quarterly dividends to be paid related to our convertible preferred stock.

A full explanation of our share calculation and associated pro forma EPS and adjusted EPS calculations can be found in the table at the back of our earnings press release, as well as our corporate structure and capitalization FAQ on our investor website. Thank you for your time and for your support of Xponential. We will now open the call for any questions. Operator?

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Q&A Session

Operator: We will now begin the question-and-answer session. [Operator instructions]. The first question comes from Randy Konik with Jefferies. Please go ahead.

Randy Konik : Hey, guys. Good afternoon and thanks for taking my question. I guess my first one, I just want to get some perspective of how we should be thinking about opening mix by Banner and geography and go into the balance of the year and beyond. Just give us some perspective of how things will be changing from the mix perspective. Thanks.

Anthony Geisler : Thanks, Randy. I’ll take that one. So in the third quarter, we opened up 127 new studios. Kind of the breakdown of Banner in the quarter was 41 in Club Pilates 36. BFT had 17, Rumble was 11, YogaSix had 10 and all the other brands made up the balance of the 12. As you kind of look into Q4, into 2024, Q4 will look much like Q3 as far as the mix of studios. But as you get into 2024, as we guided the Street in our investor day presentation, we still are holding that 500 to 600 studios a year, probably 2024 will be mid-500s to high — to high closer to 600 with BFT and Rumble making up about 25% of those openings. Club Pilates will still be holding at about a third of the total openings next year. StretchLab 25% and then the balance of the brands will make up the other 17%. From a domestic and international perspective, you can probably assume the 80-20 rule will still apply with 80% on the domestic side, about 20% international.

Randy Konik: Got you. Super helpful. And then, I guess my last question would be, how are we thinking about just how the Q3 cohort kind of performed relative to how you’ve seen other cohorts perform in the past?

Anthony Geisler: Yeah. We’ve continued to monitor that. We’ve seen strength in the 2023 cohort. When you look at Q1, Q2, Q3 on a simple average of the brands are performing at about — actually over 550,000 AUV for their respective months. So the studios that opened up in the third quarter, they’re doing about 360,000 given that it’s only three months old. But then as you get to the studio that opened up in Q2 that have gotten to six months and the site that opened up in Q1 that are now at nine months, they’re at 500 or 500. So you’re seeing, on average, a simple average as they mature, they’re getting low into that 550, which is the designed AUV level. Pointing out Pure Barre as a brand that’s done exceptionally well. We’re seeing those brands.

Pure Barre doing really well as far as coming out of the gate where it’s opening up at $500,000 AUV on a simple average across the board. So Pure Barre doing really well. Obviously, Club Pilates has been really strong as we’ve entered 2023. Across the board, most of the studios that are opening, BFT, Rumble, you’re seeing that 500,000 rough kind of starting point as designed. So we expect as these studios continue to mature, that we’ll see AUVs continue to climb, especially in these younger growth brands and then obviously, in the scaled brands as we continue to open up more.

Randy Konik: Super helpful. Thanks guys.

Operator: The next question comes from John Heinbockel with Guggenheim. Please go ahead.

Julio Marquez : Hey, guys. This is Julio Marquez on for John Heinbockel. Yes, if you could give us some color on maybe trends in member frequency throughout the quarter on visitation and maybe potential pricing power by cohort, just based on the strong engagement that you guys are reporting here for some of the more recent openings. And then, I have a quick follow-up after that. Thank you.

Anthony Geisler: Yeah. I mean, when you look at the visitation in Q3, it’s the highest it’s been ever in the company’s history with over 13 million visits in the quarter. As far as pricing is concerned and by cohorts, you could see in the same-store sales, we did 15% for all studios over 13 months and then 15% for all studios over 36 months. It’s been very consistent with price being only about 5% of the growth in systemwide sales with 95% more on volume, so new members being added. You got to remember, as we sign up members, they establish their price — their membership price and it’s locked in. The only way it would go up is if they went ahead and canceled and rejoined because we are always taking price as utilization in the studio increases. So 5% was priced across all the cohorts is a simple way to look at it.

Julio Marquez: Awesome. Thank you. That’s very helpful. And just a little bit more — and I think you guys mentioned discussing a finance alters a whole business securitization. What’s that process looking like? And can you give us a ballpark on the kind of the rates that you’re seeing there? Thank you.

Anthony Geisler: Yeah. So we’ve been working with a bank on a whole business securitization. We’ve also been looking at alternatives. Right now, we’re seeing about mid- to high single-digit percentage rates on a whole business securitization. As far as the process, the goal is obviously to get that taken care of or refinanced — get our term loan refinance as soon as possible, given the rising interest rates on our term loan. Today, we’re sitting right around 12%. I think we’re in a good position to get something done by the end of the year.

Julio Marquez: Awesome. Thank you very much.

Operator: The next question comes from Ryan Meyers with Lake Street Capital Markets. Please go ahead.

Ryan Meyers : Hi, guys. Thanks for taking my questions. First one for me. If you think about that 40% adjusted EBITDA margin in 2024, how much of that is just gaining overall leverage versus how much of that coming from the rightsizing of the company-owned stores?

Anthony Geisler: Yeah. The key to kind of getting an instant bump in our leverage, our adjusted EBITDA margin is the transition studios, ramping those down to zero or ultimately none with any operating losses. So we will carry a handful of studios into 2024, particularly like the LAF studios. We do have a handful of Rumble signature studios that we’re operating that. We do eventually plan on selling those. So we do have a couple of interested buyers that we’re looking at. But the majority of the adjusted EBITDA pop that you’ll see in 2024 will instantly be kind of realized by getting those studios down to zero. From that perspective, when you look at SG&A, next year, we should be around 30% SG&A as a percent of revenue, excluding stock-based comp. So a considerable kind of decrease in SG&A spend in 2024.

Ryan Meyers : Okay. Got it. That’s helpful. And then, you guys called out membership churn basically being unchanged. Can you just remind us what that is? And then, if there’s any difference between the scale and growth brands as far as membership churn goes?