Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes thereto and the other financial information included elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. 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 Annual Report on Form 10-K, particularly in the section titled "Risk Factors."

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 72.0% 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 the North America Region and internationally, with franchise, master franchise and international expansion agreements in 49 U.S. states, Puerto Rico, and 28 additional countries as of December 31, 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 December 31, 2025, 2,606 studios were open in the North America Region (consists of Canada, the United States and U.S. Territories) and franchisees were contractually committed to open 832 additional studios under existing franchise agreements. In addition, as of December 31, 2025, we had 491 studios open internationally and our master franchisees were contractually obligated to sell licenses to franchisees to open an additional 767 new studios, of which master franchisees have sold 192 licenses for studios not yet opened as of December 31, 2025.

During the years ended December 31, 2025, 2024 and 2023, we generated revenue outside the United States of $11.1 million, $14.0 million, and $13.4 million, respectively. As of December 31, 2025 and 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

Executive Team Transition

On August 7, 2025, we announced that our board of directors had unanimously appointed Mr. Michael Nuzzo as Chief Executive Officer effective August 7, 2025. Mr. Nuzzo also joined our board of directors. Mr. Nuzzo succeeded Mark King, who retired 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. In addition, on November 12, 2025, we announced the appointment of Gavin M. O'Connor as our Chief Legal Counsel and Administrative Officer.

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 litigation, pre-litigation, and disputes as of the closing of the divestiture. We expect to 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 certain known litigation, pre-litigation, and disputes as of the closing of the divestiture. We received total consideration of $6.7 million in cash and retained royalties of $0.4 million, which was credited to the buyer's promissory note of $5.0 million. 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") which became 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 purchased $4.5 million of our existing retail inventory on the Effective Date of the Agreement. This strategic initiative shifted 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 an aggregate amount of approximately $50.0 million over the five-year period subject to certain adjustments provided in the Agreement. On November 10, 2025, the Company entered into an amendment to the Agreement, pursuant to which certain non-material modifications were made to the provisions governing the purchase of the Company's existing retail inventory.

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.

Additionally, we previously received notice of investigation from the State of Washington's Department of Financial Institutions ("DFI"), the Virginia Division of Securities and Retail Franchising ("VDSRF"), and the Office of the Attorney General of the State of New York ("NYAG") related to our compliance with relevant state franchise laws. On August 12, 2025, without admission of wrongdoing, we entered into a consent order with DFI to resolve the matter. Similarly, on February 12, 2026, without admission of wrongdoing, the Company signed a settlement order with VDSRF to resolve the matter, which the VDSRF will be countersigning shortly. The NYAG matter is ongoing.

In March 2025, the 2025 Franchise Disclosure Documents ("FDDs") were issued for the BFT, Club Pilates, CycleBar, Pure Barre, Rumble, Stretch Lab, and Yoga Six franchise programs, and then amended in August 2025 and again on February 19, 2026 for the BFT, Club Pilates, Pure Barre, Stretch Lab, and Yoga Six franchise programs. As a result, offers and sales of franchises are temporarily paused in the following registration states-- California, Hawaii, Illinois, Minnesota, New York, North Dakota, Rhode Island, Virginia, and Washington -until each state completes its review and registration of the amended FDDs. Pure Barre, however, may continue selling in Illinois and New York because it qualifies for an exemption. Separately, offers in Maryland are paused due to an ongoing regulatory inquiry. In all listed states, sales may proceed where an applicableexemption permits sales to persons who meet specific criteria.

The FDDs will be updated and renewed for 2026. Upon the issuance of the 2026 FDDs, the franchisors will begin offering and selling franchises in states that do not require registration of the FDDs. In the remaining states that require registration of the FDDs, we will continue to pause all sales until registration is obtained from the relevant regulatory agencies, except in cases where an exemption permits sales to persons who meet specific criteria. Sales will resume promptly following such approvals, subject to any applicable waiting periods. Any inability to sell licenses for an extended period can result in 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 was expected to conclude in 2025; however, the ultimate timing of the completion of our restructuring plan will depend on lease termination negotiations, which is expected to continue throughout 2026. 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 years ended December 31, 2025 and 2024, we recognized total restructuring charges of $10.6 million, net of gains, and $29.6 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 2026 totaling between approximately $7.4 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 2026. As of December 31, 2025, there were nine leases held by us related to divested brands that account for $6.3 million of our total lease liabilities.

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 Consolidated Financial Statements for additional information.

Factors Affecting Our Results of Operations

In addition to the impact of the risks described above under "Risk Factors", 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 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 years ended December 31, 2025, 2024 and 2023:

The following tables present additional information related to our studio and license key performance indicators for the years ended December 31, 2025, 2024 and 2023:

System-Wide Sales

System-wide sales represent gross sales by all studios in the North America Region. 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 the North America Region 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 years ended December 31, 2025, 2024 and 2023, this represented 0.0%, 0.4%, and 0.4%, respectively, of our North America Region studio base. 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 Region operating studios for the years ended December 31, 2025, 2024 and 2023, respectively:

The following table sets forth the total number of operating studios internationally for the years ended December 31, 2025, 2024 and 2023:

The following table sets forth the total number of operating studios globally for the years ended December 31, 2025, 2024 and 2023:

Non-Traditional Studio Locations

Non-traditional studio locations refers to studios that are not operated as standalone studio locations. There are currently 3 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 the North America Region and globally reflect the cumulative number of licenses sold by us (or, outside of the North America Region, 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 December 31, 2025, we estimate approximately 30% 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 the North America Region reflect the number of development fee payments received by us and are 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 the North America Region 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 Region operating studios for the years ended December 31, 2025, 2024 and 2023, 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 the North America Region. 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 Region operating studios for the years ended December 31, 2025, 2024 and 2023, respectively, to the total studios contributing to same store sales:

Results of Operations

The following table presents our consolidated results of operations for the years ended December 31, 2025, 2024 and 2023:

The following table presents our consolidated results of operations for the years ended December 31, 2025, 2024 and 2023 as a percentage of revenue:

Comparison of the years ended December 31, 2025 and December 31, 2024

The following is a discussion of our consolidated results of operations for the year ended December 31, 2025 versus the year ended December 31, 2024.

Revenue

Total revenue.Total revenue was $314.9 million in the year ended December 31, 2025, compared to $320.3 million in the year ended December 31, 2024, a decrease of $5.5 million, or 2%. The decrease in total revenue was primarily due to lower equipment revenue due to a decrease in equipment installations and lower in merchandise revenue, partially offset by an increase in franchise revenue and franchise marketing fund revenue.

Franchise revenue.Franchise revenue was $192.6 million in the year ended December 31, 2025, compared to $174.5 million in the year ended December 31, 2024, an increase of $18.1 million, or 10%. Franchise revenue consisted of franchise royalty fees of $130.0 million, franchise territory fees of $34.9 million, technology fees of $15.7 million and training fees of $12.0 million in the year ended December 31, 2025, compared to franchise royalty fees of $118.3 million, franchise territory fees of $27.9 million, technology fees of $16.9 million and training fees of $11.4 million in the year ended December 31, 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 $7.6 million, or 62%, in revenue recognized as a result of franchise agreement terminations year-over-year to $19.9 million in the year ended December 31, 2025, compared to $12.3 million in the prior year period.

Equipment revenue.Equipment revenue was $35.0 million in the year ended December 31, 2025, compared to $54.2 million in the year ended December 31, 2024, a decrease of $19.2 million, or 35%. 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 year ended December 31, 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 $23.9 million in the year ended December 31, 2025, compared to $27.2 million in the year ended December 31, 2024, a decrease of $3.3 million, or 12%. The decrease in merchandise revenue was primarily due to the impact of divested brands and lower overall demand from studios coupled with change in strategy to outsource our retail merchandise inventory compared to the prior period.

Franchise marketing fund revenue.Franchise marketing fund revenue was $36.5 million in the year ended December 31, 2025, compared to $34.0 million in the year ended December 31, 2024, an increase of $2.5 million, or 7%. The increase was primarily due to an increase in number of operating studios in the North America Region since December 31, 2024.

Other service revenue.Other service revenue was $26.8 million in the year ended December 31, 2025, compared to $30.5 million in the year ended December 31, 2024, a decrease of $3.6 million, or 12%. The decrease was primarily due to a $1.2 million decrease in package and memberships revenue due to a lower average number of company-owned transition studios and a $1.9 million decrease in vendor commission and brand access fee revenues.

Operating Costs and Expenses

Costs of product revenue.Costs of product revenue was $42.4 million in the year ended December 31, 2025, compared to $59.5 million in the year ended December 31, 2024, a decrease of $17.1 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 year ended December 31, 2025, compared to the prior year period. Costs of product revenue as a percentage of related revenue decreased to 72% in the year ended December 31, 2025, from 73% in the comparable prior year period. The decrease was primarily due to an increase in write downs of slow-moving inventory in the current year period. Additionally, in the prior year period we had a higher percentage of sales relating to non-branded merchandise for which we earn a commission with no corresponding cost of revenue compared to the current year period.

Costs of franchise and service revenue.Costs of franchise and service revenue was $22.3 million in the year ended December 31, 2025, compared to $21.8 million in the year ended December 31, 2024, an increase of $0.5 million, or 2%. The increase was primarily due to a $1.3 million increase in franchise sales commissions, partially offset by a $0.5 million decrease in costs related to brand access fee revenue. This increase is consistent with the increase in related franchise territory revenue.

Selling, general and administrative expenses.Selling, general and administrative expenses were $152.0 million in the year ended December 31, 2025, compared to $176.9 million in the year ended December 31, 2024, a decrease of $24.9 million, or 14%. The decrease was primarily attributable to a decrease in legal expenses of $1.9 million (including nonrecurring insurance credits of $34.8 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 $22.2 million in the current year period; a decrease in marketing and advertising expenses of $2.1 million, an increase in gain on divestitures of brands of $3.7 million; and a $0.3 million decrease in bad debt expense, partially offset by an increase in salaries and wages of $2.3 million; a $4.1 million increase in loss on guaranty of franchisee third-party loans; and a net increase in other variable expenses of $1.5 million.

Impairment of goodwill and other assets. Impairment of goodwill and other assets was $32.7 million in the year ended December 31, 2025, compared to $62.6 million in the year ended December 31, 2024, a decrease of $29.8 million, or 48%. The decrease was primarily 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 trademark, impairment of trademark, franchise agreement and deferred video production cost intangible assets of $12.7 million related to BFT, and other noncurrent asset impairments of $9.2 million compared to write down of franchise agreements intangible asset and goodwill of $30.3 million related to BFT, a write down of goodwill of $10.3 million related to Rumble, a write down of franchise agreements intangible assets, trademark, and goodwill of $12.6 million related to CycleBar, a write down of right-of-use assets of $7.0 million, and other impairments of $2.4 million primarily related to our Xpass platform in the prior year period.

Depreciation and amortization.Depreciation and amortization expense was $12.0 million in the year ended December 31, 2025, compared to $17.7 million in the year ended December 31, 2024, a decrease of $5.7 million, or 32%. 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 $40.5 million in the year ended December 31, 2025, compared to $26.7 million in the year ended December 31, 2024, an increase of $13.8 million, or 52%. The increase in marketing fund expense was primarily attributable to higher marketing fund contribution expenses, which were increased to maintain marketing spend at a level consistent with revenue as well as the utilization of approximately $4.0 million of previously accumulated fund surplus. Marketing fund expenses are recorded as incurred, which may not occur in the same period as the recognition of franchise marketing fund revenue.

Acquisition and transaction expenses (income).Acquisition and transaction income was $6.9 million in the year ended December 31, 2025, compared to expense of $8.9 million in the year ended December 31, 2024, an increase to income of $15.8 million, or 178%. These charges primarily represent the non-cash change in contingent consideration related to 2021 and 2024 business acquisitions.

Other Expense (Income), net

Interest income. Interest income primarily consists of interest on notes receivable and interest income received from various interest-bearing bank accounts, which was $3.2 million in the year ended December 31, 2025, compared to $1.8 million in the year ended December 31, 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 year ended December 31, 2025, compared to no royalty payments in the year ended December 31, 2024. See Note 3 of Notes to Consolidated Financial Statements for additional information.

Interest expense. Interest expense was $49.2 million in the year ended December 31, 2025, compared to $46.3 million in the year ended December 31, 2024, an increase of $2.9 million, or 6%. 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 Tax Receivable Agreement ("TRA") expense (benefit), TRA benefit was less than $0.1 million in the year ended December 31, 2025, compared to $1.0 million of TRA expense in the year ended December 31, 2024.

Loss on debt extinguishment. Loss on debt extinguishment consists of $27.3 million for the year ended December 31, 2025 which was recorded as a result of debt refinancing. For the year ended December 31, 2024, there was no loss on debt extinguishment.

Income Taxes

Income taxes.Income taxes were (2.5%) of pre-tax book income (loss) in the year ended December 31, 2025, compared to 0.3% in the year ended December 31, 2024. The $1.7 million change primarily relates to the release of valuation allowance during the year ended December 31, 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 taken collectively, 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), executive transition costs (consisting of costs associated with the transition of our executive team, such as professional services, legal fees, executive recruiting costs and other related costs), one-time costs associated with rebranding one studio to the KINRGY brand, transformation initiative costs (primarily consisting of third-party professional consulting fees related to modifications of our business strategy and cost saving initiatives), contract settlement expenses (related to, among other things, the settlement of disputed costs and the elimination of the option for us to repurchase the master franchise rights from the BFT seller without requiring our payment of a repurchase cancellation fee), 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 year ended December 31, 2025, loss and expenses due to brand divestitures and wind down (excluding impairments) represents net gain on divestiture of $1.6 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 $1.2 million, sale and write-off of inventory of $3.9 million, loss on franchisee loan guarantees of $1.4 million, severance costs of $0.3 million, and certain other costs of $0.4 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 income (loss), the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for the years ended December 31, 2025, 2024 and 2023:

Liquidity and Capital Resources

As of December 31, 2025, we had $33.7 million of cash and cash equivalents, excluding $12.2 million of restricted cash consisting of marketing fund restricted cash of $11.4 million and a standby letter of credit guarantee.

We principally require cash to fund day-to-day operations, finance capital investments, service our outstanding debt and address our working capital needs. Additionally, we require cash to fund the investments in our data warehouse project and other investments to become a data driven company. Based on our current level of operations, we believe that our available cash balance and the cash generated from our operations will be adequate to meet our anticipated debt service requirements and obligations under our TRA, capital expenditures, payment of tax distributions and working capital needs for at least the next twelve months beginning March 3, 2026 and beyond such twelve month period based on our current business plans. Our ability to continue to fund these items and continue to reduce debt could be adversely affected by the occurrence of any of the events described under "Risk Factors." There can be no assurance, however, that our business will generate sufficient cash flows from operations or that future borrowings will be available under our credit facility or otherwise to enable us to service our indebtedness, including our credit facility, or to make anticipated capital expenditures. Our future operating performance and our ability to service, extend or refinance the credit facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond our control.

Credit Facility

On December 8, 2025 (the "Closing Date"), we entered into a Financing Agreement with HPS Investment Partners LLC, as administrative agent and collateral agent, and the lenders party thereto (the "Credit Agreement"), which consisted of a term loan facility in a principal amount of $525 million (the " Closing Date Term Loans") and a revolving credit facility in a principal amount of $25 million (the "Revolving Loans"). Our obligations under the Credit Agreement are jointly and severally guaranteed by XPO Holdings and certain subsidiaries of XPO Holdings (collectively, the "Guarantors", and together with the us, the "Loan Parties") and are secured by a first priority lien on substantially all of our assets, subject to customary exceptions. The net proceeds from the Credit Agreement was used (i) to repay all outstanding indebtedness under the prior credit agreement, (ii) to repurchase all outstanding shares of the redeemable convertible preferred stock and (iii) to pay the Transaction Expenses (as defined in the Credit Agreement). The proceeds of the Revolving Loans will be used by the Company for working capital and general corporate purposes.

The Credit Agreement contains various conditions to borrowing and certain customary affirmative and negative covenants, including, without limitation, covenants that restrict our ability to incur debt, grant liens, make investments, make restricted payments and dispose of assets. The Credit Agreement includes a financial covenant requiring us to maintain a Total Net Leverage Ratio (as discussed further in the Credit Agreement) not to exceed a certain threshold (pursuant to the table as set forth in Section 7.12 of the Credit Agreement) as of the last day of each Test Period (as defined in the Credit Agreement) commencing with March 31, 2026. The Credit Agreement also contains customary events of default. The Closing Date Term Loans and the Revolving Loans will both mature five years after the Closing Date. As of December 31, 2025 the Company was in compliance with these covenants.

Commencing with the fiscal quarter ending March 31, 2026, and subject to customary adjustments, we will be required to repay (a) on the last Business Day (as defined in the Credit Agreement) of each March, June, September and December (each a "Principal Payment Date"), an aggregate principal amount equal to (i) 0.25% of the aggregate principal amount of all Closing Date Term Loans outstanding on the Closing Date, in respect of the first four Principal Payment Dates (commencing March 31, 2026), (ii) 0.75% of the aggregate principal amount of all Closing Date Term Loans outstanding on the Closing Date, in respect of the next four Principal Payment Dates (i.e., commencing on March 31, 2027) and (iii) 1.25% of the aggregate principal amount of all Closing Date Term Loans outstanding on the Closing Date, in respect of each Principal Payment Date thereafter (i.e., commencing on March 31, 2028). The amount of the quarterly principal payments pursuant to the Credit Agreement commencing on March 31, 2026 will be $1.3 million.

The total principal amount outstanding on the Closing Date Term Loans was $525.0 million at December 31, 2025. See Note 7 of Notes to Consolidated Financial Statements for additional information about our debt.

Cash Flows

The following table presents summary cash flow information for the years ended December 31, 2025 and 2024. Analysis of our cash flows for the year ended December 31, 2022 is included in our Annual Report on Form 10-K for the year ended December 31, 2023.

Cash Flows from Operating Activities

In the year ended December 31, 2025, cash provided by operating activities was $28.3 million, compared to $11.7 million in the year ended December 31, 2024, a increase in cash provided of $16.6 million was due to higher net income after adjustments to reconcile net loss to net cash provided by operating activities and $36.5 million in unfavorable changes in working capital related to accounts payable, operating lease liabilities, prepaid expenses and other current assets, deferred revenue, and other current liabilities, partially offset by $34.8 million in favorable changes in working capital related to accounts receivable, inventories, deferred costs, accrued expenses, other assets and other liabilities in the year ended December 31, 2025, compared to the year ended December 31, 2024.

Cash Flows from Investing Activities

In the year ended December 31, 2025, cash provided by investing activities was $1.5 million compared to cash used of $14.1 million in the year ended December 31, 2024. The change year over year of $15.7 million was primarily attributable to cash used of $8.5 million for acquisition of Lindora in the prior year and the decrease in cash used to purchase property and equipment of $1.1 million in the current year and cash received of $6.7 million from the divestiture of CycleBar and Rumble brands in the current year.

Cash Flows from Financing Activities

In the year ended December 31, 2025 and 2024, cash used in financing activities was $16.7 million and $1.9 million, respectively. The change year over year of $14.8 million was primarily attributable to net borrowings on long-term debt of $122.5 million in the current year compared to $18.8 million in the prior period year, a decrease in cash used for payments of tax receivable agreement of $2.3 million, a decrease in payments for distributions to Pre-IPO Members of $8.4 million and increase in payments received from shareholders of $2.4 million, partially offset by increased payments of $2.9 million for taxes related to net share settlement of restricted share units in the current year and payment of $128.5 million related to repurchase of convertible preferred stock in the current year.

Material Cash Commitments

The table below represents our material cash commitments, including the scheduled maturities of our contractual obligations as of December 31, 2025. The table excludes certain potential cash requirements because they may involve future cash payments that are considered uncertain and cannot be estimated because they vary based upon future conditions; however, the exclusion of these obligations should not be construed as an implication that they are immaterial, as they could significantly affect our short- and long-term liquidity and capital resource needs depending on a variety of future events, facts and conditions.

Off-Balance Sheet Arrangements

As of December 31, 2025, our off-balance sheet arrangements consisted of guarantees of lease agreements for certain franchisees. Our potential obligation under these agreements is approximately $4.6 million and would only require payment upon default by the primary obligor. We determined the fair value of these guarantees at inception was not material, and as of December 31, 2025, no accrual has been recorded for our potential obligation under the guaranty arrangements. See Note 16 of Notes to Consolidated Financial Statements for more information regarding these operating leases and guarantees.

In July 2022, we entered into an agreement with a third-party financing company who provides loans to our qualified franchisees, pursuant to which we serve as guarantor for such loans. In addition, we issued a $750 standby letter of credit in connection therewith, which represents a portion of our potential aggregate liability under the guaranty. The standby letter of credit is contingent upon the failure of franchisees to perform according to the terms of underlying contracts with the third party. We deposited cash in a restricted account as collateral for the standby letter of credit. The estimated fair value of these guarantees at inception was not material, and as of December 31, 2025, a $1.3 million accrual has been recorded for our potential obligation under this guaranty arrangement. See Note 16 of Notes to Consolidated Financial Statements for more information.

Critical Accounting Estimates and Policies

We prepare our consolidated financial statements in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures of contingent assets and liabilities. We base our estimates on past experience and other assumptions that we believe are reasonable under the circumstances, and we evaluate these estimates on an ongoing basis. Actual results may differ from those estimates.

Our critical accounting policies are those that materially affect our consolidated financial statements, including those that involve difficult, subjective or complex judgments by management. A thorough understanding of these critical accounting policies is essential when reviewing our consolidated financial statements. We believe that the critical accounting policies listed below are those that are most important to our results of operations or involve the most difficult management decisions related to the use of significant estimates and assumptions as described above. For a more detailed summary of our significant accounting policies, see Note 2 of Notes to Consolidated Financial Statements.

Business Combinations

We account for business combinations using the acquisition method of accounting, which results in the assets acquired and liabilities assumed being recorded at fair value.

The valuation methodologies used are based upon the nature of the asset or liability. The significant assets measured at fair value include intangible assets. The fair value of trademarks is estimated by following the relief from royalty method. The fair value of franchise agreements is based upon following the excess earnings method. The fair value of internal use software is based upon following the cost method. Inputs used in the methodologies primarily included sales forecasts, projected future cash flows, royalty rate and discount rate commensurate with the risk involved.

Amortization of definite-lived trademarks, franchise agreements and internal use software is recorded over the estimated useful lives of the assets using the straight-line method, which we believe approximates the period during which we expect to receive the related benefits.

Acquisition-Related Contingent Consideration

As of the beginning of the period, we had outstanding contingent consideration obligations related to the BFT, Lindora and Rumble business combinations. As of December 31, 2025, the contingent consideration obligation related to the BFT acquisition was fully settled and contingent consideration obligations related to the Lindora and Rumble acquisitions remained open. Acquisition-related contingent consideration associated with business combinations are initially recognized at fair value and remeasured each reporting period, with changes in fair value recorded in the consolidated statement of operations.

The estimated fair value for the BFT and Lindora contingent considerations involves the use of acceptable valuation methods, such as probability-weighted discounted cash flow analysis, and contain uncertainties as it requires assumptions about the likelihood of achieving specified milestone criteria, projections of future financial performance and assumed discount rates. Changes in the fair value of BFT and Lindora contingent considerations result from several factors including changes in the timing and amount of revenue estimates, changes in probability assumptions with respect to the likelihood of achieving specified milestone criteria and changes in discount rates. The estimated fair value of the Rumble contingent consideration was determined using the Monte Carlo Simulation model. Changes in the fair value of the Rumble contingent consideration result from changes in volatility of our stock price, expected term, and risk-free interest rates. Given our extended operating history, we haveadequate historical data regarding the volatility of our own traded stock price. As such, we updated our volatilityassumption from prior periods to include the historical volatility of our common stock rather than the historical volatility of a publicly traded set of peer companies.

A change in any of these assumptions could produce a different fair value, which could have a material impact on our results of operations. Assuming there had been a 10% increase in the fair value, contingent consideration would have increased by $0.7 million for the year ended December 31, 2025.

Impairment of Long-Lived Assets, Including Goodwill and Intangible Assets

Goodwill has been assigned to our reporting units for purposes of impairment testing. Our reporting units are each of the brand names under which we sell franchises. We test for impairment of goodwill annually or sooner whenever events or circumstances indicate that goodwill might be impaired. The annual impairment test is performed as of the first day of our fourth quarter. When evaluating goodwill for impairment, we may decide to first perform a qualitative assessment, or "step zero" impairment test, to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we do not perform a qualitative assessment, or if we determine that it is not more likely than not that the fair value of a reporting unit exceeds its carrying amount, we perform a quantitative assessment and calculate the estimated fair value of the respective reporting unit. We generally determine the estimated fair value using a discounted cash flow approach, giving consideration to the market valuation approach. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss is recognized in the amount the carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We recorded cumulative goodwill impairment of $55.4 million. See Note 6 of Notes to Consolidated Financial Statements for additional information.

At December 31, 2025, the goodwill related to the Pure Barre reporting unit of $42.5 million is at a heightened risk of future impairment as the fair value of the Pure Barre reporting unit, and its associated assets, exceeded its carrying value by approximately 6%. This meaningful decline in the fair value cushion above the carrying value is driven by decreases to the amount and timing of expected future cash flows, an inability to execute management's business strategies or general market conditions, such as economic downturns, and changes in interest rates, including discount rates. Future cash flow estimates are, by their nature, subjective, and actual results may differ materially from the Company's estimates. If our ongoing cash flow projections are not met or if market factors utilized in the impairment test deteriorate, including an unfavorable change in the terminal growth rate or the weighted-average cost of capital, we may have to record impairment charges in future periods.

We test for impairment of indefinite-lived trademarks annually or sooner whenever events or circumstances indicate that trademarks might be impaired. We first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of the trademarks is less than the carrying amount. In the absence of sufficient qualitative factors, trademark impairment is determined utilizing a two-step analysis. The two-step analysis involves comparing the fair value to the carrying value of the trademarks. We determine the estimated fair value using a relief from royalty approach. If the carrying amount exceeds the fair value, we impair the trademarks to their fair value. We recognized cumulative impairment loss of indefinite-lived trademark of $3.4 million related to the CycleBar reporting unit. See Note 6 of Notes to Consolidated Financial Statements for further discussion of these impairments.

We assess potential impairments to our long-lived assets, which include property and equipment, operating lease ROU assets, and amortizable intangible assets, whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of an asset is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of the asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Our impairment tests and related fair value estimates are based on a number of factors, including assumptions and estimates for projected revenues, income, cash flows, discount rates, and other operating performance measures. Changes in estimates or the application of alternative assumptions could produce significantly different results. If our ongoing cash flow projections are not met or if market factors utilized in the impairment test deteriorate, including an unfavorable change in the terminal growth rate or the weighted-average cost of capital, we may have to record impairment charges in future periods. During the year ended December 31, 2025, we recognized an aggregate impairment loss of long-lived assets of $21.8 million. See Note 5, Note 6 and Note 8 of Notes to Consolidated Financial Statements for further discussion of these impairments.

Equity-Based Compensation

We have equity-based compensation plans under which we receive services from our employees and directors as consideration for equity instruments, including restricted stock units ("RSUs") and performance-based RSUs. The compensation expense is determined based on the fair value of the award as of the grant date. Compensation expense for time-based units is recognized over the vesting period, which is the period over which all of the specified vesting conditions are satisfied. Compensation expense for performance-based units is recorded over the requisite service period, and only if performance-based conditions are considered probable to be satisfied. If any performance goals are not met, no compensation expense is ultimately recognized and, to the extent previously recognized, compensation expense is reversed.

We use the Monte Carlo valuation model to determine the fair value of performance-based awards that vest based on a market condition. The use of the Monte Carlo valuation model requires us to make estimates and assumptions, such as expected volatility, expected term and risk-free interest rate. We utilize a dividend yield of zero as we do not currently declare or pay dividends on our Class A common stock, nor do we expect to do so in the foreseeable future. For awards that contain a market condition, expense is recognized over the defined or derived service period using a Monte Carlo valuation model.

Forfeitures are recognized as they occur. As the amount and timing of compensation expense to be recorded in future periods may be affected by the achievement of performance conditions and employee terminations, equity-based compensation may vary significantly period to period.

Recent Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 of Notes to Consolidated Financial Statements included in this Annual Report.