So there’s kind of more wallet share there, if you will than the fitness product. Because people that have shown up at Lindora have tried typically some version of weight loss, whether that be diet and exercise or both in the past. And so when they come to Lindora, they’re kind of willing to spend whatever they need to spend to get the ultimate result because it’s typically not the first place people go. So that kind of gives you some color.
Warren Cheng: Thanks. And then just one follow-up on a comment you had in your prepared remarks about half of North America openings coming from existing franchisees, very roughly speaking, do you know what that was three years to five years ago? Is that significantly different and is there noticeably better performance AUV or profit on these second or third or fourth studios relative to kind of the cohort of first studios?
Anthony Geisler: Yes, we don’t — I don’t have that data. We could obviously pull it, but I don’t have that prepared today, so I don’t want to steer you directionally one way or another. However, my feeling would say that it’s probably been consistently the same kind of over time. But yes, we don’t have anything prepared for that today.
John Meloun: In regards to the performance on the first versus second, you typically see performance better in the second and third units because there’s the art of learning from mistakes. So you don’t make the same mistakes and when you launch the first time or the second time as you made the first time as far as like how you market. And there’s also opportunities to leverage operations and instructors as you open your second Club Pilates, which is your first, so you typically see performance improve after multiple units.
Operator: Our next question comes from George Kelly with Roth MKM. Please state your question.
George Kelly: Hi, guys, thanks for taking my questions. So two quick modeling questions for you. The first, your target for SG&A the $110 million to $115 million for this year. I’m curious, are you already there pretty much, or is there going to be a material kind of step down in SG&A throughout the year? And then second question for you. In response to one of the earlier questions, John, I think you said you expect free cash flow to be approximately 60% to 70%, maybe closer to 70% of EBITDA. That’s just a bit higher than I would have anticipated. So I’m curious if there’s anything this year that’s unusual that’s benefiting that flow through to free cash flow.
John Meloun: Yes. Let me answer the two questions for you. So the SG&A will be slightly higher in Q1 simply because where, as Anthony mentioned, there’s a handful of transition studios that we’re just working through. So slightly higher SG&A, in Q1, but virtually we’re there, getting back to that $110 million to $115 million range by Q2, Q3 and Q4 that should be pretty normal run rate. The only thing you have in the fourth quarter, obviously, is the convention that we do every year for our franchisees. So that does add some additional cost in the fourth quarter. But in essence, the work that we did at the end of last year is done. And the benefit of the margin expansion will show up pretty quickly in Q1 and then get to, like I said, that 40% adjusted EBITDA margin range in Q2.
Keep in mind that as we work through the leases with the landlords, that’s all about time and settling with those. So those we’re looking as a one-time restructuring charge. So they’ll be in SG&A, but we’ll add it back for margin purposes like we did in 2023. The second question you had, what was that again? Just remind me.
George Kelly: Yes, sure. Your free cash flow 60% to 70% EBITDA. And is there anything unusual, it’s just a bit higher than I would have anticipated.
John Meloun: No, I mean, nothing unusual about that. When you think about where the margin is coming from, and this is again where I was really trying to stress this in the Investor Day is over time, as we continue to open up more studios and drive revenue, the gross profit of this business gets better and better, and it’s really on the back of royalties. So the key for us is to, again, as I mentioned in 2024, the goal is get studios open, support franchisees to drive AUVs and same-store sales, because the incremental margin flow through is incredible. And that goes right to the bottom line in cash. So we’re not in this for the one-time revenue of licensed sales. We’re not in it, obviously, there’s equipment margins and all that, but at the end of the day, it’s long-term reoccurring revenue that we’re looking for.
So the cash flow generation of that 60% to 70% lean more towards the 70% is what should be expected. It’s just; again, it’s a juicier margin revenue mix that we’re getting over time.
Operator: Thank you. There are no further questions at this time. I’ll hand the floor back to management for closing remarks.
Anthony Geisler: Thank you, everyone for joining today’s earnings call and for your support. We look forward to seeing many of you at the upcoming marketing events. And we’ll speak to you again on our Q1 earnings call in May.
Operator: Thank you. This concludes today’s conference. All parties may disconnect. Have a good day.
