John Meloun: I mean, when you look at the revenue, the things that will be fairly flat is equipment revenues, right? Because really that’s just replacement revenue. We opened 557 units in 2023. We’re guiding about the same amount at the mid-point for 2024. So that that line itself will be pretty just replacement revenue. The upside opportunities are always system-wide sales. We continue to look at ways to, as Anthony mentioned as he met with all the different brands on ways to improve performance at the brand level. Mix is always helpful too, if we continue to get more Club Pilates open faster and get them up to scale faster or up to kind of their base. AUV, that’s encouraging. So I told Anthony this year is all about getting studios open, driving strong same-store sales, controlling SG&A, and getting the margin expansion that we went through the restructuring last year to achieve.
So the opportunities are really same-store sales and openings. We have done a lot of work on equipment and retail to optimize that. So we’re investing resources into that part of the operation to see how we could further support franchisees and drive better retail for them to encourage more sales at the in-studio. So that could be another opportunity too, as we sell more retail through our warehouse and on our online malls for them. So there are some opportunities, but same-store sales, the royalty generation, that’s the ticket.
Ryan Meyers: Got it. That’s helpful. And then wondering if you can comment on if you’ve seen any changes in the willingness of new franchisees to open up more studios or purchase more licenses.
Anthony Geisler: No. When you look at I mean Q4 is probably your — kind of your best indicator or 2023. In Q4, we opened 160 units approximately in Q4 alone, and we opened 90 in December. So if you look at the average of 2023, it was a store every other day, and you look at the average of December, it was twice that, three a day. So obviously, if there was franchisees weren’t wanting to open, then you wouldn’t have seen the last month of the last reported quarter be the best the company has ever done and 2x the kind of system average. So that’s pretty good. Also, half of those openings approximately for the year were done from existing franchisees. And when you look at the backlog of our sold already prepaid for not open licenses about 66%, or roughly two-thirds of those are from existing franchisees.
Operator: Our next question comes from Korinne Wolfmeyer with Piper Sandler. Please state your question.
Korinne Wolfmeyer: Hey, good afternoon. Thanks for taking the questions. First one for me is, can you just expand a little bit more on your decision to divest Stride? What really was behind that? And I know it’s a small part of the mix, but just curious your thoughts and the reason behind that. And then going forward, is there risk that maybe additional brands you might have to divest that may be struggling or a little bit weaker to allow you to lean into some of the larger brands? Thanks.
Anthony Geisler: Yes. Thank you. Yes. I mean, there’s no have to divesting, just like there’s no have to buying. So we don’t have to do one or the other. We look at the portfolio and decide what is the best optimization of labor and resources. So, for instance, our President of Stride is going to be running a portion of Lindora. We’ve shifted some of the — took 100% of the Stride labor and put that into different parts of Xponential and labor being that the like any business, getting great employees to do a great job is probably the number one hurdle. And so when you have employees, you can repurpose into different brands or different parts of Xponential and kind of focus on core business or other parts of the businesses, whether it be the most recent M&A where we’ve kind of stacked the deck over there where we have our Pure Barre CMO that we’ve moved over and put a Stride CMO up in under Pure Barre, and we’ve taken the President of Stride and put him into Lindora into a second spot position.
We’ve taken Lou, who was the originally founding member of StretchLab, and then BFT, now to run Lindora. We brought back Martin, who was the CMO of StretchLab put him into Lindora. So we’re able to repurpose labor is really the driver for us. It’s not that it has some massive effect on EBITDA or the business. It’s really us focusing on scale to drive more impact in our high value AUV brands or what will be our high value AUV brands. So it makes sense if you have something like Lindora, where the AUV is $1 million and you have 31 units. Do I want to purpose labor there? Do I want to purpose labor on another brand that may have 17 units today in an AUV, that’s a third of that, or whatever it might be, right? And so that’s where I want to swap out one brand for another.
I’d rather have 31 clubs doing a million dollars each than have 17 clubs doing 350 with the same labor. So it’s really about repurposing the labor. And so, yes, over time, if we think it’s opportunistic for us to do something, we will. We had three people that were bidding on Stride, and we assessed what made the most sense for the franchisees, for our partners on a go-forward basis. And so with that, Shaun Grove, who was President of Rumble had already expressed an interest in retiring. He was a franchise lawyer by trade. He’s been a franchise attorney, franchisee operator in boutique fitness for almost 20 years now. And he would like to retire and do something he enjoys doing. And he really loved when he did Rumble boxing. He loved the Rumble training product, which is a lot like Stride.
And so he’s always had an interest in Stride. He bought the number one Stride franchise store in Pasadena, California, which does about $1 million a year. And so he’s the owner of that and wanted to run the franchise, or kind of in his sort of second lease on life. And that made a lot of great sense for the franchisees and the Stride future. So when I was doing those franchisee forums where we had the Stride representatives there, we also had Shaun there. So we’ve had a full integration with Shaun and those franchisees to make sure that, we send everything off in the right way and take care of the franchisees.
Korinne Wolfmeyer: Got it. That’s super helpful. Thanks for all the detail. And then John, maybe could you expand a little bit on the cadence of EBITDA margin over the course of the year? I think you said maybe from a dollar perspective, it’s going to be a little bit lighter here in Q1, but can you talk about from a margin perspective, will that also be a ramp throughout the year. Should it be kind of like even peeled quarter-to-quarter? Thank you.
John Meloun: Yes, great question. I was hoping somebody was going to ask you that. When you look at Q1, maybe first half, second half of 2024, the way you should think about studio openings, revenue EBITDA from a dollar perspective, it is going to be more like 45% in the first half, 50% — 55% in the second half, city openings and the revenue, city openings will be about 20% in the first quarter. So if you take the 550, it’s roughly about 115 openings in the first quarter. It’s probably the right way to think and then that’ll ramp up much like it did in 2023 with the most amount of openings in the fourth quarter. The benefit of EBITDA margins is almost instant from the perspective of we did the work we needed to do last year to get rid of the transition studios or close them, refranchise them.
So the SG&A cost has come down significantly. So you will see probably Q1 will be the lowest EBITDA margin quarter, probably roughly in the mid high-30s. So let’s call it 37% to give you an estimate there. As you roll into Q2 and Q3, that’s where the 40% plus will start to come into play. So I do expect to see EBITDA margins Q2, Q3 and Q4 to be in that — start with a Q4 versus Q3. Your actual dollar margins will ramp throughout the year. So you could expect to see EBITDA in Q1 probably closer to what it was in Q4 of last year of 2023. And then that’ll ramp throughout the quarters by a couple of million each quarter. So it’ll be a progressive from a studio openings, from a revenue perspective, to an EBITDA perspective, and from a margin perspective.
Operator: Thank you. And our next question comes from Alex Perry with Bank of America. Please state your question.
Alex Perry: Hi, thanks for taking my questions. I guess just first, can you talk to us about your monthly churn rate and if you have seen any changes in that recently? Thank you.
John Meloun: Yes, when it comes to the churn, it’s been very consistent. We do measure it after 12 months. So we typically look at churn and it’s in the low-single-digits as a percent. So there hasn’t been any really change in any kind of consumer behavior. We did again as we even looked into the first quarter of this year, very consistent from looking at it to Q1 of 2023, but it’s been very consistent in that 1% to 3% range churn, nothing — nothing of deviation from what we’ve seen historically.
Alex Perry: Perfect. And then just my last one. Can you just give us some more color on why openings sort of build throughout the year? Is this just sort of the normal seasonality of when franchisees generally open? And what sort of gives you confidence in the sort of gross opening number? Is that based on signed leases and LOIs, just a little more color on the opening progression would be very helpful. Thank you.
Anthony Geisler: Yes, of course, Alex. Yes. As you see, and I said earlier on the call, there was actually 169 openings in Q4, which is a massive quarter, and 90 openings in December. So the run rate for the year is about a club every 15 hours, and the run rate for December was three a day. So there’s a big push always in Q4, in fitness, as I’m sure you’re aware, for people to want to be open in January. So franchisees tend to work a lot harder to get deals done by year-end. Same with landlords. We deal with a lot of massive public real estate investment trusts, and so they want to get deals on their books by 12/31. So landlords have a willingness to want to sign leases by 12/31 versus 1/1. And so when you have a willingness of franchisees, the lessor and lessee coming together by the same day at 12/31, you’ll see a lot more openings, negotiations happening for the last half of the year than you see in the first half.
And yes, we have over 400 LOIs and leases currently signed that we have names, addresses, phone numbers, dates of openings for by brand, across the country much like we gave you at the Investor Day in September, where we showed the list of ones that we have, we always have an ongoing visibility of about 400, 450 domestic units and then about another 100 plus on the international side. And that’s how we get to that kind of 500 to 600 or 557 that we did last year. If you kind of look at the ability of that, I believe, and John can correct me if I’m wrong, but I think we got it to 500, 600 the beginning of the year and we tightened that into 550 to 560 later in the year and we landed at 557. We had four openings the day after on January 1, so we would hit 561 if we would had four people that would have had a class schedule.
But given New Year’s Day, some people tend to wait to the January 2. So you can see from what we’ve been guiding to historically and what we’ve been hitting in the real world, we obviously have a very great visibility into what we’re able to see in the future.
Operator: Thank you. And our next question comes from Jeff Van Sinderen with B. Riley. Please state your question.
Jeff Van Sinderen: Hi everyone. So, wonder if you can speak a little bit more about the performance of the newly opened units over the last few months, what you’re seeing there.
John Meloun: Yes, great question. We obviously monitor the cohorts by every quarter, and the one consistent data point is by month three, when you look at the studios that have opened in Q1, Q2, Q3, and Q4 by month three, most of these studios are doing 40,000 to 45,000 plus on average, which gives us really strong comfort that they’re getting to that 500,000-ish range AUV almost immediately after doing the grand opening. So that’s been very consistent. I just looked at the data prior to this call to make sure we had the most up to date information. And all those cohorts from every quarter of last year are doing strong. So it does show you that when you look at how we’re opening studios, we are doing a better job every quarter as we go by to getting studios up to ramp faster, which is important for franchisees because it gets them to breakeven faster and profitability faster.
And at 500,000 AUV in the average design model, it gets them into the target market range that is needed to for the franchisees to make that 25% to 30% margin. So very healthy 2023 cohort doing better than the 2022 and 2021. As we also talked about same-store sales in some of these 36-plus month studios, mid-teens, double-digits. So again, it’s not even the young brands that are kind of starting strong. It’s even the younger studios that are starting strong. It’s the older ones as well that continue to comp at a healthy rate.
Jeff Van Sinderen: Okay. Great to hear. And then just circling back to Lindora for a minute. I’m wondering, I know you mentioned the comparable unit size, and I’m wondering, would it make sense to aim to colocate real estate along with your existing fitness brands when you open the doors?
Anthony Geisler: We’ve looked at that over the years, and what you ultimately really end up saving is kind of a front desk space. If you colocate, you still have and imagine if you colocated a brand that had 20 people in class and 30 people in class, you’re still going to have 50 people coming in the door and out the door at 5:00 and 6:00, right? And so you save some front desk, the cost of a front desk, but you still need to put double the staff or you won’t be able to sell to 20 people coming out of a class. So you don’t really save on that. We don’t have massive kind of locker room or shower facilities, and you wouldn’t want to just have one men’s and one women’s bathroom or two unisex bathrooms for that much volume, nor would the city let you.
So you end up building two boxes that are exactly the same with no cost savings, the same labor with a wall in the middle, and you take the wall down. So it’s not really helpful, right? You have the same equipment, you have all those things. And then if the franchisee in the future wanted to sell off one brand and keep the other brand, they wouldn’t be able to. They’d have to sell them both together. So it’s harder to do. And if all the brands were born at the same time, then franchisees could kind of pick and choose a buffet. But since we’ve had these brands over a nine-year period today, you want to be able to just choose what you want to colocate amongst brands because those brands have been sold to other people. So you could incrementally add maybe a Lindora today or a BFT a couple years ago or Rumble a few years ago, but sometimes it’s harder to do, especially in major DMAs.
Operator: Our next question comes from Warren Cheng with Evercore ISI. Please state your question.
Warren Cheng: Hey, good evening, guys. I’ve got another one on Lindora and just the opportunity you see there. So it’s a little bit of a different modality than we’ve done before. You talked in the prepared remarks about potentially a broader expansion into health and wellness. Obviously, there’s an interesting GLP-1 angle there. Is there anything different about how you’re going to deploy that particular asset and unlock the opportunity there?
Anthony Geisler: Yes. I mean, obviously it’s very similar. The footprint is similar. So Lindora is next to Xponential brands currently. So from — start from day one, the real estate is the same landlords, the same size square foot box and build, as you move forward, at the end of the day, it’s about generating a lead and closing that lead and making them a member and then putting them on a subscription base, which is what Lindora does. The GLP-1 part of the business, and we think that will continue to expand. However, for 50 years, Lindora has been achieving 800,000, 900,000 AUVs without GLP business. So that’ll be a part of the business that will expand. HRT will most likely expand over time, as I indicated earlier; kind of apparel, retail sales, we imagine will expand given that the average member at Lindora spends more than the average member at our fitness brands.
