Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements reflect, among other things, our current expectations and anticipated results of operations, all of which are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements, market trends, or industry results to differ materially from those expressed or implied by such forward-looking statements. Therefore, any statements contained herein that are not statements of historical fact may be forward-looking statements and should be evaluated as such. Without limiting the foregoing, the words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "should," "would," "could," "will," "likely" and the negative thereof and similar words and expressions are intended to identify forward-looking statements. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto and the other financial information included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2024. Our actual results and timing may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in the section titled "Factors Affecting Our Results of Operations" and "Risk Factors" and in our Annual Report on Form 10-K for the year ended December 31, 2024.

The following Management's Discussion and Analysis gives effect to the correction of the Company's condensed consolidated financial statements for the three and nine months ended September 30, 2024, as more fully described in Note 2 of Notes to Condensed Consolidated Financial Statements.

Overview

Xponential Fitness LLC ("XPO LLC"), the principal operating subsidiary of Xponential Fitness, Inc. ("XPO Inc."), and together with its subsidiaries, (the "Company" or "we," "us," and "our"), is one of the leading global franchisors of boutique health and wellness brands. Pursuant to a reorganization into a holding company structure, the Company is a holding company with its principal asset being a 71.9% ownership interest in XPO LLC through its ownership interest in Xponential Intermediate Holdings, LLC ("XPO Holdings").

We operate a diversified platform of five brands spanning across verticals including Pilates, barre, stretching, strength training and yoga. In partnership with its franchisees and master franchisees, XPO LLC offers energetic, accessible, and personalized workout experiences led by highly qualified instructors in studio locations throughout North America and internationally, with franchise, master franchise and international expansion agreements in 49 U.S. states, Puerto Rico and 30 additional countries as of September 30, 2025. The Company's portfolio of brands includes Club Pilates, the largest Pilates brand in the United States; StretchLab, a concept offering one-on-one and group stretching services; YogaSix, the largest franchised yoga brand in the United States; Pure Barre, a total body workout that uses the ballet barre to perform small isometric movements, and the largest barre brand in the United States; and BFT, a functional training and strength-based program.

As of September 30, 2025, 2,575 studios were open in North America (consists of Canada, the United States and U.S. Territories) and franchisees were contractually committed to open 1,042 additional studios under existing franchise agreements. In addition, as of September 30, 2025, we had 491 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 746 new studios, of which master franchisees have sold 204 licenses for studios not yet opened as of September 30, 2025.

During the nine months ended September 30, 2025 and 2024, we generated revenue outside the United States of $7.7 million and $10.9 million, respectively. As of September 30, 2025 and December 31, 2024, we did not have material assets located outside of the United States. No franchisee accounted for more than 5% of our revenue. We operate in one segment for financial reporting purposes.

Recent Developments

Appointment of new Chief Executive Officer and Director

On August 7, 2025, we announced that our board of directors had unanimously appointed Mr. Mike Nuzzo as Chief Executive Officer effective August 7, 2025. Mr. Nuzzo also joined our board of directors. Mr. Nuzzo succeeds Mark King, who chose to retire from his position as Chief Executive Officer and as a member of our board of directors, also effective August 7, 2025. On July 30, 2025, we entered into an employment agreement with Mr. Nuzzo in connection with his appointment as Chief Executive Officer, to be effective as of August 7, 2025. Mr. Nuzzo brings more than 25 years of executive leadership in the retail and consumer services sectors across strategic, operational, financial, and growth-focused disciplines.

Lindora divestiture

On September 19, 2025, we entered into an agreement with a buyer to divest the Lindora brand, including the intellectual property, franchise rights and franchise agreements for open studios, and retained certain liabilities, including liabilities related to known litigation, pre-litigation, and disputes as of the closing of the divestiture. We will receive total consideration of up to $6.0 million based on 7% of the monthly cash-basis gross revenue of the legacy studio locations, which was recorded at the estimated fair value of $3.8 million at the divestiture date. We believe the divestiture allows us to better focus and utilize our resources on our core brands and other opportunities which better align with our long-term strategies.

Rumble and CycleBar divestiture

On July 24, 2025, we entered into an agreement with a buyer to divest the CycleBar and Rumble brands, including the intellectual property, franchise rights and franchise agreements for open studios, and retained certain liabilities, including liabilities related to known litigation, pre-litigation, and disputes as of the closing of the divestiture. We will receive total consideration of $7.0 million, of which $2.0 million was received in the three months ended September 30, 2025. We believe the divestiture allows us to better focus and utilize our resources on our core brands and other opportunities which better align with our long-term strategies.

Retail supply agreement

On July 3, 2025, we and Fit Commerce, a California Corporation ("FC"), entered into a Retail Supply Agreement (the "Agreement") to be effective as of December 1, 2025 (the "Effective Date"). The Agreement relates to the outsourcing of our retail merchandising, including the manufacturing and distribution, of any retail item sold by a franchisee, subject to terms and conditions outlined in the Agreement. In addition, FC has agreed to purchase our existing retail inventory, subject to certain exceptions, no later than the Effective Date of the Agreement. This strategic initiative shifts management of the franchisee retail experience from our in-house teams to a dedicated e-commerce provider, allowing us to focus on core business priorities.

Pursuant to the Agreement, FC will pay us domestic and foreign commissions as well as direct-to-customer commissions (each, a "Commission" and collectively, "Commissions") in connection with the sale of products to us or our franchisees. The domestic Commissions will be paid by FC to us based on each contract year (prorated for any partial contract year) in a minimum aggregate amount of approximately $50 million over the five-year period subject to certain adjustments provided in the Agreement.

Additionally, pursuant to the Agreement, FC is required to satisfy certain financing conditions (the "Financing Conditions"). We are in the process of confirming whether all of such Financing Conditions have been met.

Paused offering or selling franchises

On April 26, 2024, we received a request for information from the Office of the Attorney General of the State of Maryland related to our compliance with Maryland's Franchise Registration and Disclosure Law. As a result of the inquiry, we have been unable to offer and sell franchises in Maryland, except in cases where an exemption permitted sales to persons who met specific criteria. The Maryland matter is ongoing. We are aware of an investigation being conducted by the Office of the Attorney General of the State of New York, and we are in discussions with the Virginia Division of Securities and Retail Franchising, each regarding the Company's compliance with applicable franchise laws. Additionally, we previously received notice of an investigation from the State of Washington's Department of Financial Institutions ("DFI") related to our compliance with Washington state franchise laws. On August 12, 2025, without admission of wrongdoing, we entered into a consent order with DFI to resolve the matter.

In March 2025, the 2025 Franchise Disclosure Documents ("FDDs") were issued, and then amended in August 2025, for the BFT, Club Pilates, CycleBar, Pure Barre, Rumble, Stretch Lab, and Yoga Six franchise programs. The franchisors can offer and sell franchises in all states other than Illinois (in the case of Club Pilates only) and Maryland using the 2025 FDDs (except for Rumble and CycleBar due to the divestiture discussed above). The inability to sell licenses for an extended period has slowed growth and could result in a reduction in anticipated royalty or franchise revenue, which in turn may materially and adversely affect our business, results of operations, cash flows and financial condition.

Restructuring Plan

In the third quarter of 2023, we began a restructuring plan that involves exiting company-owned transition studios and other measures designed to reduce costs to achieve our long-term margin goals and focus on pure franchise operations. The plan was approved and initiated in the third quarter of 2023 and is expected to continue throughout 2025; however, the ultimate timing of the completion of our restructuring plan will depend on lease termination negotiations. During the fourth quarter of 2023 our restructuring plan was expanded due to the addition of Rumble company-owned transition studios to the restructuring plan and a refranchising plan that was terminated by the Company due to the refranchisor's non-compliance with the franchise agreements and the subsequent closure of certain studios. This refranchise termination resulted in us incurring losses for contract termination expenses, other expenses associated with exiting the studios, and loss contingencies related to the refranchisor's unpaid payroll. During the three and nine months ended September 30, 2025, we recognized total restructuring charges of $6.3 million, net of gains, and $10.2 million, net of gains, respectively, primarily for contract termination and other associated costs, loss (gain) on lease terminations and sale or disposal of assets, impairment of right-of-use assets and other restructuring charges.

We expect to recognize additional restructuring charges throughout 2025 totaling between approximately $7.3 million to $11.0 million for rent expense, including amortization of the right-of-use assets and accretion of the operating lease liability, lease termination gains or losses, and other variable lease costs related to company-owned transition studios and other restructuring charges. We are considering subleases or negotiating lease terminations for operating leases for certain studios for which we have lease liabilities recorded and the expected cash payments and expenses to exit the lease may be greater than expected rent expense for that period, depending on the outcome of lease negotiations. Cash outflows related to these lease terminations are expected to be incurred throughout 2025.

Once completed, we estimate annualized savings of approximately $13.5 million to $15.5 million as a result of the restructuring plan. However, we may not be able to fully realize the cost savings and benefits initially anticipated from the restructuring plan, as we may not be able to reach agreement with contractual counterparties or the charges may be greater than expected. Any reduction in the amount of annualized savings we expect to achieve would negatively impact our business. See Note 17 of Notes to Condensed Consolidated Financial Statements for additional information.

Factors Affecting Our Results of Operations

In addition to the impact of the risks described under "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2024, we believe that the most significant factors affecting our results of operations include:

Key Performance Indicators

In addition to our financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), we regularly review the following key metrics to measure performance, identify trends, formulate financial projections, compensate our employees, and monitor our business. While we believe that these metrics are useful in evaluating our business, other companies may not use similar metrics or may not calculate similarly titled metrics in a consistent manner.

All metrics in this "Key Performance Indicators" section are presented on an adjusted basis to reflect historical information of Lindora prior to the acquisition by the Company in January 2024 and on an adjusted basis to remove historical information of Stride and Row House prior to their divestitures by the Company in February 2024 and May 2024, respectively, CycleBar and Rumble prior to their divestitures by the Company in July 2025, and Lindora prior to its divestiture in September 2025. Historical information has not been adjusted to reflect the wind down of AKT. All references to these metrics in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" use this same basis of reporting, unless noted otherwise.

The following table sets forth our key performance indicators for the three and nine months ended September 30, 2025 and 2024:

The following tables present additional information related to our studio and license key performance indicators for the three and nine months ended September 30, 2025 and 2024:

System-Wide Sales

System-wide sales represent gross sales by all studios in North America. System-wide sales includes sales by franchisees that are not revenue realized by us in accordance with GAAP. While we do not record sales by franchisees as revenue, and such sales are not included in our consolidated financial statements, this operating metric relates to our revenue because we receive approximately 7% and 2% of the sales by franchisees as royalty revenue and marketing fund revenue, respectively. We believe that this operating measure aids in understanding how we derive our royalty revenue and marketing fund revenue and is important in evaluating our performance. System-wide sales growth is driven by new studio openings and increases in same store sales. Management reviews system-wide sales weekly, which enables us to assess changes in our franchise revenue, overall studio performance, the health of our brands and the strength of our market position relative to competitors.

New Studio Openings

The number of new studio openings reflects the number of studios opened during a particular reporting period. We consider a new studio to be open once the studio begins offering classes. Opening new studios is an important part of our growth strategy. New studios may not generate material revenue in the early period following an opening and their revenue may not follow historical patterns. Management reviews the number of new studio openings in order to help forecast operating results and to monitor studio opening processes.

Studios No Longer Operating

A studio is considered no longer operating and excluded from the total number of studios operating if (a) the Company has reason to believe, after reasonable inquiry, that the studio is permanently closed, with no plans for re-opening or relocation, or (b) it has no sales for nine consecutive months or more, whichever comes first. If a studio deemed to be no longer operating subsequently generates sales at a future date, it re-enters the operating studio count (and the number of studios no longer operating is reduced). Studios classified as no longer operating are deemed permanently closed. Furthermore, studios no longer operating also includes de-branded studios (studios that exit our franchise system and continue to operate independently under non-Xponential branding).

Number of Studios Operating

In addition to the number of new studios opened and studios no longer operating during a period, we track the number of total studios operating at the end of a reporting period. This number represents studios that have already opened, are generating revenue, and are regularly holding classes, though this number could include some number of studios that have temporarily suspended operations, but that are not permanently closed and have not yet met the definition for a studio no longer operating. The number of studios that have temporarily suspended operations is an immaterial percentage of our total studio base. Please see the table in the "Same Store Sales" section, sub header "North America studios contributing to same store sales." The line "studios without 13 months of consecutive sales as of the last month that had positive sales within the period being measured" is an indicator for the number of North America traditional location studios that are older than 13 months, and that have had a recent or current disruption in sales, but that are still included in the number of studios operating count. For the three and nine months ended September 30, 2025, this represented 0.2% and 0.1% of our North America studio base, respectively, compared to 0.6% and 0.5% for the three and nine months ended September 30, 2024, respectively. While nearly all our franchised studios are licensed to franchisees, from time to time we operate a limited number of company-owned transition studios (typically as we take possession of a studio following a franchisee ceasing to operate it and as we prepare it to be licensed to a new franchisee). Management reviews the number of studios operating at a given point in time in order to help forecast system-wide sales, franchise revenue and other revenue streams.

The following tables contain information about changes in the number of our North America operating studios for the three and nine months ended September 30, 2025 and 2024, respectively:

The following table sets forth the total number of operating studios internationally for the three and nine months ended September 30, 2025 and 2024:

The following table sets forth the total number of operating studios globally for the three and nine months ended September 30, 2025 and 2024:

Non-Traditional Studio Locations

Non-traditional studio locations refers to studios that are not operated as standalone studio locations. There are currently 20 non-traditional studio locations globally, which are comprised of studios operated inside of other fitness facilities and on cruise ships.

Licenses Sold

The number of licenses sold in North America and globally reflect the cumulative number of licenses sold by us (or, outside of North America, by or to our master franchisees), since inception through the date indicated. The number of licenses sold is not reduced by terminations. The number of licenses sold does not generally include license renewals or licenses issued in connection with a change in ownership of operating studios. Licenses contractually obligated to open refer to licenses sold net of opened studios and terminations. Licenses contractually obligated to be sold internationally reflect the number of licenses that master franchisees are contractually obligated to sell to franchisees to open internationally that have not yet opened as of the date indicated. The number of licenses contractually obligated to open is a useful indicator of the number of studios that may open in the future, although it is not certain that these studios will open. Management reviews the number of licenses sold and the number of licenses contractually obligated to open to help monitor and forecast studio growth, system-wide sales and revenue streams.

As of September 30, 2025, we estimate approximately 40% of our global license obligations are over 12 months behind the applicable development schedule due to various circumstances and are currently inactive. This delay in development has resulted in delays in studio openings and may also lead to increased terminations, which could have a negative long-term impact on our business and operating results.

Development fee payments on future franchise licenses

As part of a multi-unit agreement, franchisees purchase an initial franchise license and make nonrefundable development fee payments to reserve the right to open additional studios. The number of development fee payments on future franchise licenses sold in North America reflect the number of development fee payments received by us and unused as of period end. The number of development fee payments on future franchise licenses is not included in the licenses sold count. The remaining balance of the franchise license fee for each additional studio is due upon site selection for the studio and signing of a franchise agreement by the franchisee. The number of development fee payments on future franchise licenses is a useful indicator of the number of additional licenses that may be sold in the future, although it is not certain that these development fee payments will result in a sold license. Management reviews the number of development fee payments on future franchise licenses to help monitor and forecast license sales and studio growth.

Average Unit Volume

AUV is calculated by dividing sales during the applicable period for all studios contributing to AUV by the number of studios contributing to AUV. All traditional studio locations in North America are included in the AUV calculation, as long as they meet certain time since opening and sales criteria (as defined immediately below). In particular, AUV (LTM as of period end) and Quarterly AUV (run rate) are calculated as follows:

We measure sales for AUV based solely upon monthly sales as derived through the designated point-of-sale system. AUV is impacted by changes in same store sales, studio openings and studio closures. Management reviews AUV to assess studio economics.

The following table reconciles our North America operating studios for the three and nine months ended September 30, 2025 and 2024, respectively, to the total studios contributing to both AUV (LTM as of period end) and Quarterly AUV (run rate):

Same Store Sales

Same store sales refer to period-over-period sales comparisons for the base of studios. We define the same store sales to include monthly sales for any traditional studio location in North America. If the studio has generated at least 13 months of consecutive positive sales and opened at least 13 calendar months ago as of any month within the measurement period, the respective comparable months will be included. We measure same store sales based solely upon monthly sales as derived through the designated point-of-sale system. This measure highlights the performance of existing studios, while excluding the impact of new studio openings. Management reviews same store sales to assess the health of the franchised studios.

The following table reconciles our North America operating studios for the three and nine months ended September 30, 2025 and 2024, respectively, to the total studios contributing to same store sales:

Results of Operations

The following table presents our condensed consolidated results of operations for the three and nine months ended September 30, 2025 and 2024:

The following table presents our condensed consolidated results of operations for the three and nine months ended September 30, 2025 and 2024 as a percentage of revenue:

Comparison of the three months ended September 30, 2025 and 2024

The following is a discussion of our consolidated results of operations for the three months ended September 30, 2025 versus the three months ended September 30, 2024.

Revenue

Total revenue, net.Total revenue was $78.8 million in the three months ended September 30, 2025, compared to $80.5 million in the three months ended September 30, 2024, a decrease of $1.7 million, or 2%. The decrease in total revenue was primarily due to a decrease in equipment revenue due to a decrease in equipment installations and a decrease in merchandise revenue, partially offset by an increase in franchise revenue and franchise marketing fund revenue.

Franchise revenue.Franchise revenue was $51.9 million in the three months ended September 30, 2025, compared to $44.5 million in the three months ended September 30, 2024, an increase of $7.4 million, or 17%. Franchise revenue consisted of franchise royalty fees of $31.5 million, franchise territory fees of $13.7 million, technology fees of $3.6 million and training fees of $3.1 million in the three months ended September 30, 2025, compared to franchise royalty fees of $29.7 million, franchise territory fees of $7.5 million, technology fees of $4.3 million and training fees of $3.0 million in the three months ended September 30, 2024. The increase in franchise royalty fees was primarily due to a higher royalty rate for certain new studios, partially offset by a decrease due to brand divestitures in the current year. The increase in franchise territory fees is primarily attributed to an increase of $6.6 million, or 182%, in revenue recognized as a result of franchise agreement terminations year-over-year to $9.3 million in the three months ended September 30, 2025, compared to $2.7 million in the prior year period.

Equipment revenue.Equipment revenue was $7.5 million in the three months ended September 30, 2025, compared to $14.7 million in the three months ended September 30, 2024, a decrease of $7.2 million, or 49%. Most equipment revenue is recognized in the period when the equipment is installed. The decrease in equipment revenue was primarily due to a decrease in global equipment installations in the three months ended September 30, 2025, compared to the prior year period, driven by a decrease in studio openings compared to the prior year period and consistent with the decrease in franchise license sales in recent periods.

Merchandise revenue.Merchandise revenue was $4.8 million in the three months ended September 30, 2025, compared to $6.6 million in the three months ended September 30, 2024, a decrease of $1.8 million, or 27%. The decrease was primarily due to lower demand from studios and a decrease in vendor rebates compared to the prior period.

Franchise marketing fund revenue.Franchise marketing fund revenue was $8.8 million in the three months ended September 30, 2025, compared to $8.6 million in the three months ended September 30, 2024, an increase of $0.3 million, or 3%. The increase was primarily due to an increase in number of operating studios in North America since September 30, 2024.

Other service revenue.Other service revenue was $5.9 million in the three months ended September 30, 2025, compared to $6.2 million in the three months ended September 30, 2024, a decrease of 6%. The decrease was primarily due to a $0.4 million decrease in other preferred vendor commission revenue and brand fee revenue.

Operating Costs and Expenses

Costs of product revenue.Costs of product revenue was $10.2 million in the three months ended September 30, 2025, compared to $17.3 million in the three months ended September 30, 2024, a decrease of $7.0 million, or 41%, compared to a decrease in related revenues of 42%. The decrease in cost of product revenue was partially attributable to a decrease in global equipment installations in the three months ended September 30, 2025, compared to the prior year period. Costs of product revenue as a percentage of related revenue increased to 84% in the three months ended September 30, 2025, from 81% in the comparable prior year period. The increase was primarily due to an increase in write downs of slow-moving inventory in the current year period.

Costs of franchise and service revenue.Costs of franchise and service revenue was $7.0 million in the three months ended September 30, 2025, compared to $4.9 million in the three months ended September 30, 2024, an increase of $2.2 million, or 45%. The increase was primarily due to a $2.0 million increase in franchise sales commissions, including a $2.2 million increase in costs recognized as a result of franchise agreement terminations year-over-year. This increase is consistent with the increase in related franchise territory revenue.

Selling, general and administrative expenses.Selling, general and administrative expenses were $24.7 million in the three months ended September 30, 2025, compared to $46.2 million in the three months ended September 30, 2024, a decrease of $21.5 million, or 47%. The decrease was primarily attributable to a decrease in legal expenses of $14.2 million (including nonrecurring insurance credits of $5.0 million in the current period) related to various legal matters including government investigations; a decrease of $2.6 million in equity-based compensation expense due to an increase in forfeitures over the prior year period; lower restructuring and related charges of $7.0 million in the current year period; and an increase in gain on divestitures of brands of $1.5 million; partially offset by an $0.8 million increase in bad debt expense; an increase in salaries and wages of $0.7 million; a $0.7 million increase in loss on guaranty of franchisee third-party loans; and a net increase in other variable expenses of $1.6 million.

Impairment of goodwill and other noncurrent assets. Impairment of goodwill and other noncurrent assets was $17.6 million in the three months ended September 30, 2025, compared to $4.5 million in the three months ended September 30, 2024, an increase of $13.1 million. The increase was due to $12.7 million impairment of trademark, franchise agreement and deferred video production intangible assets related to the BFT reporting unit and other noncurrent asset impairments of $4.9 million in the current year period, compared to write down of right-of-use assets and intangible assets of $4.5 million related to studio exits in conjunction with our restructuring plan and wind down of AKT franchise operations in the prior year period.

Depreciation and amortization.Depreciation and amortization expense was $3.7 million in the three months ended September 30, 2025, compared to $4.2 million in the three months ended September 30, 2024, a decrease of $0.5 million, or 13%. The decrease was primarily due to a decrease in fixed assets related to impairment of software assets and a decrease in intangible assets due to impairments during the year ended December 31, 2024.

Marketing fund expense.Marketing fund expense was $9.0 million in the three months ended September 30, 2025, compared to $6.4 million in the three months ended September 30, 2024, an increase of $2.6 million, or 40%. Marketing fund expenses are recorded as incurred, which may not occur in the same period as the recognition of franchise marketing fund revenue. For the three months ended September 30, 2025, marketing fund revenue was $0.2 million lower than marketing fund expense.

Acquisition and transaction expense.Acquisition and transaction expense was $3.1 million in the three months ended September 30, 2025, compared to $3.7 million in the three months ended September 30, 2024, a decrease of $0.6 million, or 16%. These charges primarily represent the non-cash change in contingent consideration related to 2021 and 2024 business acquisitions.

Other (Income) Expense, net

Interest income.Interest income primarily consists of interest on notes receivable and interest income received from various interest-bearing bank accounts, which was $1.1 million in the three months ended September 30, 2025, compared to $0.5 million in the three months ended September 30, 2024.

Other income.Other income consists of royalty payments from franchisees associated with the divested CycleBar and Rumble brands since the divestiture date, which was $1.1 million in the three months ended September 30, 2025, compared to $0 in the three months ended September 30, 2024. See Note 4 of Notes to Condensed Consolidated Financial Statements for additional information.

Interest expense. Interest expense was $12.9 million in the three months ended September 30, 2025, compared to $11.8 million in the three months ended September 30, 2024, an increase of $1.1 million, or 9%. Interest expense consists of interest on long-term debt, accretion of earn-out liabilities and amortization and write off of deferred loan costs and debt discount. The increase was primarily due to higher average debt balances in the current year period, partly offset by lower average interest rates on our credit agreement.

Other expense. Other expense consists of TRA expense, which was $0.6 million in the three months ended September 30, 2025, compared to $0.1 million in the three months ended September 30, 2024.

Income Taxes

Income taxes (benefit). Income taxes was (4.1%) of our share of pre-tax book income in the three months ended September 30, 2025, compared to (0.7%) of pre-tax book loss in the three months ended September 30, 2024.

Comparison of the nine months ended September 30, 2025 and 2024

The following is a discussion of our consolidated results of operations for the nine months ended September 30, 2025 versus the nine months ended September 30, 2024.

Total revenue.Total revenue was $231.9 million in the nine months ended September 30, 2025, compared to $237.1 million in the nine months ended September 30, 2024, a decrease of $5.2 million, or 2%. The decrease in total revenue was primarily due to a decrease in equipment revenue due to a decrease in equipment installations and a decrease in merchandise revenue, partially offset by an increase in franchise revenue and franchise marketing fund revenue.

Franchise revenue.Franchise revenue was $141.1 million in the nine months ended September 30, 2025, compared to $129.2 million in the nine months ended September 30, 2024 , an increase of $11.9 million, or 9%. Franchise revenue consisted of franchise royalty fees of $97.7 million, franchise territory fees of $21.8 million, technology fees of $12.5 million and training fees of $9.2 million in the nine months ended September 30, 2025, compared to franchise royalty fees of $85.6 million, franchise territory fees of $22.2 million, technology fees of $12.6 million and training fees of $8.8 million in the nine months ended September 30, 2024. The increase in franchise royalty fees was primarily due to an increase in the number of operating studios globally since September 30, 2024 (including studios related to the Lindora acquisition in the first quarter of 2024). The decrease in franchise territory fees is primarily attributed to divestiture of brands in 2024 and 2025, partially offset by an increase of $1.2 million, or 12%, in revenue recognized as a result of franchise agreement terminations year-over-year to $10.7 million in the nine months ended September 30, 2025, compared to $9.5 million in the prior year period.

Equipment revenue.Equipment revenue was $28.1 million in the nine months ended September 30, 2025, compared to $41.5 million in the nine months ended September 30, 2024, a decrease of $13.4 million, or 32%. Most equipment revenue is recognized in the period when the equipment is installed. The decrease in equipment revenue was primarily due to by a decrease in global equipment installations in the nine months ended September 30, 2025, compared to the prior year period, driven by a decrease in studio openings compared to the prior year period and consistent with the decrease in franchise license sales in recent periods.

Merchandise revenue.Merchandise revenue was $16.7 million in the nine months ended September 30, 2025 compared to $21.1 million in the nine months ended September 30, 2024, a decrease of $4.4 million, or 21%. The decrease was due primarily to a decrease in demand from studios and a decrease in vendor rebates compared to the prior period.

Franchise marketing fund revenue.Franchise marketing fund revenue was $27.6 million in the nine months ended September 30, 2025, compared to $24.8 million in the nine months ended September 30, 2024, an increase of $2.8 million, or 11%. The increase was primarily due to an increase in number of operating studios in North America since September 30, 2024.

Other service revenue.Other service revenue was $18.5 million in the nine months ended September 30, 2025, compared to $20.6 million in the nine months ended September 30, 2024, a decrease of $2.1 million, or 10%. The decrease was primarily due to a $1.6 million decrease in brand fee revenue and a $1.1 million decrease in package and memberships revenue due to a lower average number of company-owned transition studios, partially offset by a $1.1 million increase in other preferred vendor commission revenue.

Operating Costs and Expenses

Costs of product revenue.Costs of product revenue was $32.7 million in the nine months ended September 30, 2025, compared to $45.8 million in the nine months ended September 30, 2024, a decrease of $13.1 million, or 29%, compared to a decrease in related revenues of 28%. The decrease in cost of product revenue was partially attributable to a decrease in global equipment installations in the nine months ended September 30, 2025, compared to the prior year period. Costs of product revenue as a percentage of related revenue was 73% in both the nine months ended September 30, 2025, and 2024.

Costs of franchise and service revenue.Costs of franchise and service revenue was $15.1 million in the nine months ended September 30, 2025, compared to $15.7 million in the nine months ended September 30, 2024, a decrease of $0.6 million, or 4%. The decrease was primarily due to a $1.5 million decrease in franchise sales commissions, including a $0.5 million decrease in costs recognized as a result of franchise agreement terminations year-over-year. This decrease is consistent with the decrease in related franchise territory revenue.

Selling, general and administrative expenses.Selling, general and administrative expenses were $94.3 million in the nine months ended September 30, 2025, compared to $119.8 million in the nine months ended September 30, 2024, a decrease of $25.5 million, or 21%. The decrease was primarily attributable to a decrease in legal expense of $6.2 million (including nonrecurring insurance credits of $34.8 million in the current period) related to various legal matters; a decrease in equity-based compensation expense of $4.8 million primarily due to a decrease in the number of equity-classified restricted stock units ("RSUs") outstanding during the current year period and an increase in forfeitures over the prior year period; a decrease in marketing and advertising expenses of $2.2 million; a decrease in studio support expense of $1.1 million; a net increase in gain on divestiture of brands of $2.7 million; and lower restructuring and related charges of $15.3 million in the current year period; partially offset by an increase in consulting and accounting services of $1.3 million and $1.1 million, respectively; a $3.0 million increase in loss on guaranty of franchisee third-party loans; and a net increase in other variable expenses of $1.4 million.

Impairment of goodwill and other assets.Impairment of goodwill and other assets was $32.4 million in the nine months ended September 30, 2025, compared to $16.6 million in the nine months ended September 30, 2024, an increase of $15.8 million, or 95%. The increase was due to impairments of goodwill of $5.1 million and $2.3 million related to the BFT and Lindora reporting units, respectively, impairment of trademark of $3.4 million related to the CycleBar reporting unit, impairment of trademark, franchise agreement and deferred video production cost intangible assets of $12.7 million related to the BFT reporting unit, and other noncurrent asset impairments of $8.9 million compared to write down of franchise agreement intangible asset and goodwill of $12.1 million related to the CycleBar reporting unit and a write down of right-of-use and other assets of $4.5 million in the prior year period.

Depreciation and amortization.Depreciation and amortization expense was $9.6 million in the nine months ended September 30, 2025, compared to $13.2 million in the nine months ended September 30, 2024, a decrease of $3.6 million, or 27%. The decrease was primarily due to a decrease in fixed assets related to impairment of software assets and a decrease in intangible assets due to impairments during the year ended December 31, 2024.

Marketing fund expense.Marketing fund expense was $27.2 million in the nine months ended September 30, 2025, compared to $20.8 million in the nine months ended September 30, 2024, an increase of $6.4 million, or 31% and is consistent with the increase in franchise marketing fund revenue. Marketing fund expenses are recorded as incurred, which may not occur in the same period as the recognition of franchise marketing fund revenue. For the nine months ended September 30, 2025, marketing fund revenue was $0.4 million higher than marketing fund expense.

Acquisition and transaction expenses (income).Acquisition and transaction income was $7.5 million in the nine months ended September 30, 2025, compared to expense of $7.0 million in the nine months ended September 30, 2024, an increase in income of $14.4 million, or 207%. These amounts primarily represent the non-cash change in contingent consideration related to 2021 and 2024 business acquisitions.

Interest income.Interest income primarily consists of interest on notes receivable and interest income received from various
interest-bearing bank accounts, which was $2.4 million in the nine months ended September 30, 2025, compared to $1.2 million in the nine months ended September 30, 2024.

Other income.Other income consists of royalty payments from franchisees associated with the divested CycleBar and Rumble brands since the divestiture date, which was $1.1 million in the nine months ended September 30, 2025, compared to $0 in the nine months ended September 30, 2024.

Interest expense. Interest expense was $37.3 million in the nine months ended September 30, 2025, compared to $34.6 million in the nine months ended September 30, 2024, an increase of $2.6 million, or 8%. Interest expense consists of interest on long-term debt, accretion of earn-out liabilities and amortization of deferred loan costs and debt discount. The increase was primarily due to higher average debt balances in the current year period, partly offset by lower average interest rates on our credit agreement.

Other expense. Other expense consists of TRA expense, which was $1.3 million in the nine months ended September 30, 2025, compared to $0.9 million in the nine months ended September 30, 2024.

Income taxes. Income taxes were (15.2%) of pre-tax book income (loss) in the nine months ended September 30, 2025, compared to (0.6%) in the nine months ended September 30, 2024.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measures are useful in evaluating our operating performance. We use the following non-GAAP financial information to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that non-GAAP financial information, when collectively taken, is helpful to investors because it provides consistency and comparability with past financial performance. In addition, our management uses non-GAAP measures to compare our performance relative to forecasts and to benchmark our performance externally against competitors. However, non-GAAP financial information is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. In addition, other companies, including companies in our industry, may calculate and present similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measure as tools for comparison. A reconciliation is provided below for the non-GAAP financial measures to the most directly comparable financial measures stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of the non-GAAP financial measures to their most directly comparable GAAP financial measures and not rely on any single financial measure to evaluate our business.

We believe that the non-GAAP financial measures presented below, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations or outlook.

Adjusted EBITDA

We define adjusted EBITDA as EBITDA (net income/loss before interest, taxes, depreciation and amortization), adjusted for the impact of certain non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include equity-based compensation and related employer payroll taxes, acquisition and transaction expenses (income) (including change in contingent consideration and transaction bonuses), litigation expenses (consisting of legal and related fees for specific proceedings that arise outside of the ordinary course of our business net of insurance reimbursements), fees for financial transactions, such as secondary public offering expenses for which we do not receive proceeds (including bonuses paid to executives related to completion of such transactions) and other contemplated corporate transactions, expense related to the remeasurement of our TRA obligation, expense related to loss on impairment or write down of goodwill and other noncurrent assets, loss and expenses related to brand divestitures and wind down (including expenses directly related to the divested or wound down brands for arrangements that existed prior to divestiture or wind down), transformation initiative costs (primarily consisting of third-party professional consulting fees related to modifications of our business strategy and cost saving initiatives), other income (consisting of royalties received from divested brands), and restructuring and related charges incurred in connection with our restructuring plan that we do not believe reflect our underlying business performance and affect comparability. For the nine months ended September 30, 2025, loss and expenses due to brand divestitures and wind down (excluding impairments) represents net gain on divestiture of $1.2 million and certain other expenses recorded primarily in connection with brand divestitures and outsourcing of our retail merchandising, including write-off of accounts receivable determined no longer collectable of $1.3 million, write-off of inventory of $2.5 million, loss on franchisee loan guarantees of $0.8 million, severance costs of $0.3 million, and certain other costs of $0.3 million. EBITDA and adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry.

We believe that adjusted EBITDA, viewed in addition to, and not in lieu of, our reported GAAP results, provides useful information to investors regarding our performance and overall results of operations because it eliminates the impact of other items that we believe reduce the comparability of our underlying core business performance from period to period and is therefore useful to our investors in comparing the core performance of our business from period to period.

The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the three and nine months ended September 30, 2025 and 2024: