All right. Good afternoon, everybody. Thank you for joining us. I'm Joseph Altobello, leisure analyst here at Raymond James, and I'm very pleased to have with me this morning, this afternoon, actually, senior management from Xponential Fitness, including CEO Mike Nuzzo and CFO John Meloun. Welcome, gentlemen. Xponential is a leading franchisor in the healthy and demographically attractive boutique fitness space with brands that include Club Pilates, Pure Barre, YogaSix, StretchLab, and BFT. It's been quite an interesting couple of years for the company, to say the least. You've had to contend with some distractions, which we'll discuss later, that have taken away some of the focus from the business, at least in our view. Before we jump into a fireside chat, I believe Mike and John have a few slides they'd like to go over.
With that, let me hand things over to Mike.
Thanks, Joe. It's great to be here. Thank you for joining us today. I have been with the business for all of 6 months. I come from a 25-year career in retail, multi-site services, products, et cetera, and I'm really excited to be here. The way I would characterize Xponential, Joe said it right, and you'll probably ask questions about it. We've had a lot of, I guess, distractions over the past couple years, and the team's done a really great job of addressing them and dealing with them. I come into the business today with the most scaled boutique fitness concept in the country, and I would say that we are just getting started.
We have positioned the business to focus on the operations, and operations is a sweet spot and a comfort place for me. I'm excited to get out of bed and come to work every day and continue to evolve the business. As you can see, our mission is to be the best franchisor of boutique fitness. I would say that from a scale standpoint, as you can see on this slide, we are well-positioned to do that. We have over 3,000 global studios, $1.7 billion in revenue, 770,000 total members, and we run a very profitable business. $315 million of top-line revenue and $112 million in adjusted EBITDA.
A typical asset-light franchisee model with a very, very strong franchise base, and I'll talk about that in a second. We have five brands and we did have more, and we've divested a few that were not in line with our growth and long-term health. I would highlight our flagship brand, Club Pilates. Club Pilates, you can see 1,400 locations, roughly 1,200 in the U.S. This is our crown jewel. It is a brand that fits with a real central modality in boutique fitness, Pilates. Pilates seems to be very hot these days. You probably all either do Pilates or know somebody who does Pilates. We run what I would call a very up-the-fairway Pilates concept.
We have a very broad base of members, and we tend to skew middle-age and sometimes a little older. We have a membership base that is incredibly loyal and contributes to one of the best retentions that I've seen in this space. We also, in Club Pilates, have the best economics that I have seen for a multi-site concept. Most of our concepts or most of our studios, when we first got started in this brand, we had an expectation for them to do between $500 and $6,600,000 top line. Today, Club Pilates on average, depending on the studio, will do anywhere between $950 and $1 million a studio. That means a couple things. One, it means that we have a lot of happy franchisees.
These franchisees can into a studio with an investment of $300,000-$400,000. They ramp incredibly quickly. Typically, they would start off with a couple hundred members, but within the first year, they are getting to a membership base that is the equivalent of full maturity for most boutique concepts, an absolute dream when it comes to a franchise model. They are producing four-wall EBITDA anywhere between $350,000 and $400,000. These are cash machines. As a result, we have been able to scale this business. We have a very healthy franchise base that is very excited about adding new units. We also, and I wanna highly emphasize this, we have, we've evolved the business.
The business has grown, and we've seen different levels of studios get to maturity and start out new and with new opportunities around white space and fill-in units. We are focused on driving a healthy AUR in this business. Relative to, from where we started, our an incredible AUR. I would not focus as much on where the sales, same-store sales might be in any given quarter, any given time.
This is a business that is very healthy, will continue to grow both organically and in units, and continue to be a massive economic benefit to both our franchisees and our business. We also have upside in the other brands. What we are focused on is a lot around how we drive innovation in our brands, how we drive better member engagement, and how we drive a continued cycle of marketing and operations support so that our franchisees can continue to grow their businesses at a local studio level. This covers some of the opportunities that we see in the business. Obviously, growth and unit economics is paramount for us. You can see that we opened over 300 studios gross this year. We have, we've continued to grow the business domestically.
We also see a good opportunity around the international space, where again, we are just getting started. BFT is a brand that started internationally and has the largest footprint internationally, but Club Pilates is quickly gaining ground. We have countries that are very well built out, and we have a model that we can now take to other countries across the world to grow that business. Platform strength. One of the things that we don't talk a lot about that I emphasize, I think for the first time on our call, was this idea that we are growing our own instructor base. We have a training program in both Club Pilates and Pure Barre that every year produces instructors that can come to work for our concepts.
That is a very, very powerful asset to have because time and time again, we hear from franchisees, really across the spectrum, that one of the biggest pain points is finding instructors. So we're solving that problem through our own approach around teacher training. Then, I mentioned this at the beginning, and it's really, really important. We have taken some decisions that equip us for focused, healthy growth. We've outsourced our studio retail. It was not a core business for us, but we've brought on a partner that can help us with product innovation and obviously takes care of all the logistics.
We refinanced the debt, so we've put ourselves on a very stable footing when it comes to our financial structure, and we completed some key divestitures and a reorganization of the business to amplify the impact of our centers of excellence in operations and marketing and real estate. I'll turn the call over, or turn the presentation, I'm so used to a call over to John, and we'll take it from there. John, advance it for you there.
Thank you guys for coming. Not a lot has changed when it comes to just kind of the revenue profile of the company, at least for 2025. As we continue to grow as a business, this will evolve, given some of the unique changes that we've made strategically in 2025, we'll progress in a second. There's really five major revenue streams. Our franchise revenue, with the largest portion of that being our license terminations and our royalties that we generate. The royalty that we generate is the one component of our revenue stream that is continuing to expand. It's virtually a 100% margin.
We have a very fixed SG&A base. It provides a lot of leverage as we continue to open studios, and as studios realize higher AUVs, and the royalty pass-through that we take there. Equipment revenue. Equipment revenue has been pretty stable. It is gonna be down in 2026 over 25 just simply by the sheer number of studios we're opening. One of the reasons for the shift in equipment revenue is we've divested a lot of brands, so obviously there's less studios that we're opening in the brands that we don't own anymore. The biggest piece of the revenue we are generating in equipment is from Club Pilates, which is where the majority of our openings are coming from and will continue to come from, both domestically and internationally.
Merchandise revenue, we had a pretty big strategic shift in merchandise revenue in 2025. As Mike mentioned, it was an area that grew as the business grew, but really a lot of the support and scale infrastructure needed to kind of run it efficiently, was starting to kind of come a little bit undone. What we said is, "Listen, this is not our core competency. We found a partner that does this." What we did is we put in place a fixed contract that allows us to generate $50 million of rebate back from the vendor for being our sole provider. In essence, the revenue around merchandise revenue is 100% guaranteed to us over the contract over the 5 years.
This year, the absolute amount we'll receive is a high single digits, close to $7 million, that we'll get in rebates. It has no COGS associated with it, so it has really good margin flow through. The following 4 years, that'll escalate to get to a total of $50 over the 5 years. In essence, we have guaranteed revenue on our merchandise revenue, which is different than what it looked like in the past. Marketing fund revenue, we collect 2% of system-wide sales from our franchisees, put it into a marketing fund, and that goes back out the same year. In 2025, we over-invested, meaning we spent an incremental $4 million in the fourth quarter to drive certain marketing initiatives.
We're gonna do that again in 2026 in the first half to do things to start driving more leads and top-of-funnel stuff, which I'm sure we'll talk about in a little bit. Lastly, our other service revenue. The biggest piece of other service revenue in 2025 is really the credit card rebate that we get from processing monthly memberships. As we continue to grow our system-wide sales, about 1% of that comes back to the company, and then we use that to drive our other service revenue. Again, going back to most of the revenue we generate is recurring.
When you look at the pie there, you could see royalty is over 40% now of total system-wide sales or of total revenue, and then based off of the growth in system-wide sales in 2026, it'll become a larger portion for us in the, in the coming years. Just kind of giving you a kind of quick follow-up of just where the business is, has been and where it's heading. You know, the business and the open studios is pro forma, so this we've removed the divested brands. You could see the company has continued since 2022, and actually even pre, since pre-COVID, to expand its footprint. The majority of the growth is coming from Club Pilates, and why is that important?
When you just simply look at the four-wall economics of Club Pilates and net of closures, we're closing studios and brands that have lower quality of four-wall economics and royalty production and opening them on a net basis in brands that have better. The overall system is getting healthier as we open more units. The system-wide sales has continued to grow. I think it's important. One of the, I think, key things that I don't think came across in the last earnings call last week is, you know, when we guided on system-wide sales, we took a very conservative approach on what we expect the growth to be there.
We mentioned we kinda took our Q4 same-store sales and we kinda ran that across 2026 and said, "Listen, if we could just hold at the Q4 performance, this is kind of the system-wide sales performance we should expect." Two things to keep in mind. One is we will continue to open more units in 2026. As we mentioned, there'll be a net approximately 160 that we expect to get open. That does include closures. If closure rates continue to decline, then we should expect to see better royalty production by not having fewer studios. Two, with a, you know, roughly -4% same-store sales comp in Q4 and using that as the assumption in the guide, if we perform better than that with some of the initiatives we'll talk on the next slide, there's upside there.
The same or the system-wide sales assumption at the low end is how you get to the midpoint of the revenue guide for us. I wanna make sure people understand that I took a very conservative approach on system-wide sales and how it's baked into the guide. Revenue is down in 2026, but a couple things. Divested brands, retail being outsourced. There is certain revenue that is left from us doing these strategic shifts, but you could see that the EBITDA performance or the EBITDA margin has gotten better. Again, really focusing on what changes do we need to make to the business to drive more efficient EBITDA margin over the coming years.
Although 2026 is still from a guide perspective, looks similar to 2025, there's a lot of inherent things that we've done in the business and will continue to do in the business to outperform kind of expectations as you look beyond 2026. Some of the key priorities and the things that we're focusing on, Mike kind of touched on these. We spent a lot of time in 2024 and 2025 dealing with distractions. There was a short attack on the company which led to regulatory inquiries. A lot of criticism around the brands that weren't performing. Obviously, we closed a lot of studios in the last couple years. What we've been really focusing on in 2024 and 2025 is kind of cleaning all that up. The business has done that.
Right now when you look at it, I think the business is probably healthier than it's been. I've been with the company almost eight years. We've now been able to kind of put all that stuff behind us and really start focusing on these things, which is driving top of funnel, which is same-store sales, system-wide sales, and obviously the royalty take we get on the business. Focusing on royalty take and increasing that, getting more studios open and operating, especially in brands like Club Pilates, which have really high AUVs, really good royalty take. Again, leveraging that falls to the bottom line. Improving studio economics. Not all brands are like Club Pilates, so you have brands like Pure Barre and StretchLab and YogaSix and BodyFit Training. You know, we design these things to do a $500,000 AUV.
You know, some of the brands were there and other brands were a little bit below that. It's like, how can we improve our marketing effectiveness to drive better four-wall economics? That we're looking at. Marketing and digital optimization, that kind of leads into the organic member. There's a number of initiatives that we could talk about that we're doing to try and drive more leads, more members into studios. Brand innovation and engagement. I think this is one area where we had a, you know, a meeting earlier today, you just talk about some of the performance in brands like YogaSix and why is it not performing better. I think there's a lot of opportunity we could do around making people more aware of YogaSix.
It is a, one of the bigger yoga, franchise yoga brands out there, but not everybody knows about it. Innovation, I think that's another piece of this pie too, is we have not historically done a lot of innovation. If you work out, you don't wanna do the same workout every day. We need to start introducing more class types. You know, there's the opportunity, I think, to bring like Club Pilates exercises. Why can't you do mat Pilates in YogaSix or in Pure Barre as an additional class add-on to kind of bring a little bit more mix into the studio? These are things that we've been trying to do and are going to do more of in the coming in the coming quarters to drive member engagement. With that, I'll pause, and I'll let you guys ask some questions.
I've got a few of my own, and then we can open it up for Q&A. Appreciate that, John Meloun. Appreciate that, Mike Nuzzo. I guess first question I have is on net openings, right? You, you guided this year to 150-170. That's down from 201 last year, down from the year before, and down from the year before. It's been, it's been declining, and I know that's a combination of two factors. One is gross openings and one is closure. Maybe kind of talk about how you see each of those trending over the next maybe two or three years.
You, we've seen a mix change as well, not only between where they're coming from, but also in which geographies. First and foremost, the shift for new studio openings has really fell on Club Pilates. When you look at the other four brands that we have, there was pretty much a net wash. We opened, you know, X amount of studios, and we closed about the same amount. That's really kind of coming from the fact that we have shifted away from a strategy where we don't do studio support. We don't take back studios that are not performing well. We allow them to close.
I do think 2025 still included a tale of kind of that shift in strategy and really cleaning out the poor performing franchisees and really focusing on launching franchisees successfully and people that should be in the system. The other piece to that is, you know, we've seen we started to see now more of a shift internationally. What traditionally was kind of 90% of our openings being domestic and 10% international, we've been selling closer to 75% domestic, 25% on new licenses. The openings in 2025 and 2026 look very similar to that too. You're starting to see a shift more towards international making up a bigger piece of our growth, which is good for us because it's SG&A light. We put in place a master.
You know, we take roughly about a third of the royalty take that we get out of the domestic. The SG&A is very favorable to us. The margin is very favorable to us because we don't have the SG&A.
I guess I would also say that, you know, I actually really like a scenario where we have built-in reliable growth in Club Pilates, our flagship brand. I mean, if you think about it, we're gonna be adding the number of units that most of our competitors haven't even gotten to yet, right? When you talk about the scaled player in the space, that's the advantage that we have. You know, you can talk about it relatively speaking, but going forward to know that you've got such upside growth potential in such an amazing concept as Club Pilates is a powerful base to start from. As John was alluding to, the team that I think really good team, good leadership, they are pushing for what I would call unlock opportunities with the other brands.
With both YogaSix and Pure Barre, we over the years haven't focused as much on bringing some new franchisees in, getting growth plans established. We're back to doing that. International, same way. There's upside potential in the growth of international units. There's a brand like BFT, which is really at a startup phase. We have 50 locations across the country. We have tweaked and refined that model, have a new go-to-market strategy. We'll see how much concentration and awareness we can build with a new approach to build out there. Now, will these things all hit in 2026? Probably not. Will they position us for 2027, 2028 upside in addition to Club Pilates? For sure. I really like that scenario.
Mm-hmm.
If I think about one part of that equation, the closure rate, I think it was 5%, last year. I'm sorry, two years ago. It ticked down to 4.5% last year. I think the guide for this year is 3%-5%, the longer-term goal is low single digits, right?
Mm-hmm.
Is this essentially just cleaning out a lot of locations that never should have been opened in the first place?
Yeah. I think what's important, and I keep restating this, is we took a very conservative approach to how we looked at the business this year, and kept a flat closure rate. When you actually look at the closures, the United or the North America closure rate is 3.5%. The closure rate internationally is 10%. In that 10% included 16 of the Princess cruise ships that were more of a marketing attraction to kind of display our brands on cruise ships. When you really look at the sheer number of closures we could expect in 2026, we just said, "Listen, we've been seeing around 30 or so, a year or a quarter.
We're just gonna keep that same run rate into 26." If we actually perform better, and you have to assume that over time the closure rates come down because we're opening Club Pilates. We're not opening some of these other brands that are more distressed. You're not seeing a volume of openings there. We've kind of cleaned out a lot of this stuff. Again, another upside in the guide is if closures are less than we had forecasted, then we'll continue to collect more in system-wide sales royalties. You know, it should be more profitable. We just said, "Listen, we've seen about 30, 35 a month or a quarter in 2025. Keep that same run rate through 26," but we do expect it to come down.
Okay. When do you think you might get to that low single-digit number? Will it take 2 or 3 years or...?
I think by the second half of this year, we should expect to start seeing that % of totals start to come down. When you really look and see, you know, when people ask, like, "What is the closure rate on Club Pilates?" It's 0. Like, it was like 3 international units on 1,400. We're just not seeing closures there. The closures need to be coming from the other brands where they've seen some challenges. We've cleared a lot of those out in 2024. We've continued to clear those out in 2025. I think we're starting to run out of that bottom 10% that is not profitable.
Mm-hmm.
I think it's a second-half trend that we should start to see it come down.
Okay. I wanna go back to something that you said earlier, John, about top-of-funnel challenges, right? Some people in our audience may not understand exactly what that means. If you can kind of explain what those challenges are and, more importantly, what you're doing to fix those.
Yeah. I'll make a couple points. One. This business is not that complicated. It is driving new leads, so that's folks who are interested in joining, come to our website, fill out a form, and then that form gets directed to the studios for follow-up. Have somebody come in, take a class, become a member. Related to it is that process of getting them signed up as a new member. When we talk about top of funnel, that is the essence of top of funnel. I would say that it's a combination of some things that we made changes to earlier in the year around privacy laws that inhibited us a little bit more than they should have, and so we've made some changes to that.
I think the most important thing to think about is, we in this process of reorganizing the business, we have migrated from the brands having to do all the heavy lifting in terms of customer acquisition to having a centralized centers of excellence around marketing. We've put together a team, we've got leaders, we've got experts who are starting to come in and drive us in a more sophisticated way. We've changed agencies. We're making the foundational changes that I think over time will really start to contribute to a very healthy top of funnel business. I feel really good about that.
The other side of that, of course, is the investment that we've made in the field teams, because the field teams are coaching the studios on how to maximize the conversion of a lead to a member. All of that stuff is put in place, but we are at the early innings of really seeing it start to work and contribute a well-oiled machine. That when I say that I get excited about that piece of it and the operational improvement opportunity, that's exactly what I'm talking about. The one thing I really wanna, like, make sure I emphasize here is when we talk about the business and we especially focus on Club Pilates, I think we have said that at the end of the day, it is about royalty production for us.
That is the lifeblood of healthy growth for our business. We have an amazing concept. We have unit growth potential. I would say if you just zoom out and you think about Club Pilates only, if we had 2,500 Club Pilates domestically, which would be a little more than doubling where we are today, which all of our planning, all of our commitments, all of our science says is very, very much within our reach. If those units individually are doing an average unit volume of, let's say, $1.2 million, we are over the moon thrilled. If those units are doing $900 in AUV, we are still over the moon thrilled, and I would challenge anybody to point to a better model within boutique fitness.
Mm-hmm.
That is our focus. How do we drive more units at healthy AUVs, but keeping in mind that our definition of a healthy AUV today is so much higher than what our original expectation was.
Got it. We've got about a minute and a half left. I did wanna touch on the legal and regulatory, I guess successes that you've had recently. You've got a, you settled the FTC, you settled the franchisee lawsuit. Given that, what's left in terms of a, an overhang at this point?
Yeah, I mean, really the only. There's two kind of legal work streams that are still out there. One is the New York Attorney General. It's very similar to California, which we ended up settling that a couple years ago. New York has really focused a lot on the same thing. Feel like we're getting in baseball terms, we're probably in the seventh, eighth inning there is getting that resolved, probably a first half, maybe early, second half. There's a securities class action which stemmed from the short attack on the company for which the SEC did do a full investigation and took no action against the company. We're hoping that has a likely outcome of just going away, who knows? We'll see.
We expect that to be a little bit longer from a timeline perspective outside of 2026. It's really in the short term, it's just the New York Attorney General that we are cooperating and actively working with them to get that as resolved as soon as possible, and hopefully, we do.
Great. Well, I guess we're just about out of time. Mike, John, thank you, and thank you, everybody, and I hope everybody enjoys the rest of the conference.