Xponential Fitness - Earnings Call - Q1 2025
May 8, 2025
Executive Summary
- Q1 2025 revenue modestly beat consensus but EPS/EBITDA missed on elevated legal accruals and accelerated marketing spend; revenue was $76.9M vs $75.4M S&P consensus (beat), while Primary/Adjusted EPS was $(0.20) vs +$0.15 (miss) and EBITDA trailed consensus (see Estimates Context). Values retrieved from S&P Global.*
- Operational KPIs remained solid: North America system-wide sales +18% YoY to $466.8M, quarterly AUV $659K (+8% YoY), members 865K (+12% YoY), and SSS +4%.
- FY25 guidance: lowered net new studio openings to 160–180 (from 200–220 prior), while reiterating system-wide sales ($1.935B–$1.955B), revenue ($315M–$325M), and Adjusted EBITDA ($120M–$125M); tax rate mid-high single digit, capex $10–$12M, SG&A $145–$155M.
- Management framed 2025 as a stabilization year while launching field operations (target ~40 by YE) and retooling franchise development and retail; post-quarter, CEO announced retirement due to health reasons; Investor Day set for May 29 at NYSE—both are potential stock catalysts.
What Went Well and What Went Wrong
What Went Well
- Strong KPIs despite muted P&L: System-wide sales +18% YoY to $466.8M; AUV $659K (+8% YoY); members 865K (+12% YoY); SSS +4%—supporting royalty/marketing revenue resilience.
- Franchise revenue grew 5% YoY to $43.9M; marketing fund revenue +18% YoY to $9.3M on studio and sales growth.
- Strategic pivot toward operations: launching field ops (12 near-term, target ~40 by YE) to coach/audit studios; management emphasized transformation “from a very aggressive sales-focused company to one that’s building a foundation of efficiency and effectiveness”.
What Went Wrong
- EPS/EBITDA miss drivers: $15M incremental legal accrual (total $25M potential settlement), plus accelerated ~$1M marketing fund spend pulled into Q1, reducing Adj. EBITDA; Adjusted EBITDA fell to $27.3M (−9% YoY).
- Revenue mix pressure: Equipment (−20% YoY to $11.1M), Merchandise (−25% YoY to $6.3M), and Other service (−19% YoY to $6.4M) declined, offsetting franchise revenue gains.
- Development pause: No North America license sales in Q1 while renewing FDDs; only 21 licenses sold (all international). Elevated closures (51 in Q1; annualized ~6%) concentrated in CycleBar and StretchLab; FY25 net opening outlook cut to 160–180.
Transcript
Operator (participant)
Good afternoon, ladies and gentlemen, and welcome to Xponential Fitness First Quarter 2025 earnings call. At this time, note that all lines are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session, and if at any time during this call you require immediate assistance, please press star zero for an operator. Also note that this call is being recorded on Thursday, May 8, 2025, and I would like to turn the conference over to Patricia Nir from Addo Investor Relations. Please go ahead.
Patricia Nir (Senior VP of Investor Relations)
Thank you, Operator. Good afternoon, and thank you all for joining our conference call to discuss Xponential Fitness's First Quarter 2025 financial results. I am joined by Mark King, Chief Executive Officer, and John Meloun, Chief Financial Officer. A recording of this call will be posted on the investor section of our website at investor.xponential.com. We remind you that during this conference call, we will make certain forward-looking statements, including discussions of our business outlook and financial projections. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause our actual results to differ materially from such expectations. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligations to update the information provided on today's call.
In addition, we will be discussing certain non-GAAP financial measures in this conference call. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with GAAP measures that we provide. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release that was issued earlier today prior to this call. Please also note that all numbers reported in today's prepared remarks refer to global figures unless otherwise noted. As a reminder, in order to ensure period-over-period comparability and consistent with our reporting method since IPO, we present all KPIs on a fully pro forma basis, meaning for full KPI history presented, we only include brands that are under our ownership as of the current reporting period.
For the period ended March 31, 2025, this includes BFT, Club Pilates, CycleBar, Lindora, Pure Bar, Rumble, StretchLab, and YogaSix. I will now turn the call over to Mark King, CEO of Xponential Fitness.
Mark King (CEO)
Thanks, Patricia, and good afternoon to everyone. The business performed as expected this quarter. We demonstrated solid KPIs, completed our updated financing agreement, and filed our franchise disclosure documents, all while continuing to focus on optimizing operations, franchisee health, and setting up the company for long-term success. In the first quarter, North America's system-wide sales of $467 million were up 18% year-over-year. North America quarterly run rate, average unit volumes of $659,000 were up 8% year-over-year. Total members stood at 865,000 at quarter end, up 12% year-over-year, and same-store sales were up 4%. Our core focus remains optimizing our operations. As part of this effort, last month, we welcomed our new Chief Marketing Officer, Luis Ocasion. Luis brings 25 years of experience in marketing and business operations, having previously served as President, North America, and Global CMO for Instant Brands, where she led and executed marketing commercialization strategies.
Prior to that, she held leadership roles in the toy and entertainment industries at companies such as Warner Brothers, Spin Master, and Mattel. At Xponential, Luis hit the ground running. One of the first areas she is focusing on is a review of media strategies to ensure marketing funds are managed efficiently. We have also brought on Fabian Lopez. Fabian has been supporting us as Interim Chief Human Resources Officer since earlier this year, and we are thrilled to welcome her into the role full-time. The CHRO function is at the heart of reorganizing the company. Fabian brings 25 years of leadership experience across multiple industries and organizations, from startups to Fortune 100 companies, with exposure to public company environments and franchising. She has a proven track record in organizational transformation, strategic human resources, talent strategy, and scaling HR infrastructure to support rapid growth.
In addition to these two senior management appointments, we have undertaken a comprehensive reorganization of our resources and remain highly focused on strengthening our operations so that we can more effectively serve our franchisees. Notably, we are launching a new field operations function with plans to have 12 field managers in place across North America by quarter end. This is the first for the company, marking a significant development in operational support. These individuals will work closely with our franchisees to drive best practices across studios and support new studios in launching successfully. These field roles are reallocated rather than new hires, meaning that for every employee in the field, we are eliminating a headcount at HQ. Turning to franchise sales and new studio openings, we are making good progress on the franchise disclosure documents, or FDDs.
We filed all FDDs except Lindora at the end of the first quarter, and we have had them available in all 36 states that do not require registration. We are also actively selling in the majority of the 14 registration states under FDD registration or exemption. On the international front, we are continuing to support our established and growing master franchisee base. We now have boots on the ground in London, with plans to have physical presence in Asia later this year. Some of the international markets where we are seeing particular success include Spain, Portugal, France, Japan, and Australia. Xponential is very focused on providing a high level of support to master franchisees and ensuring that we have the right relationships in place for long-term international success. In summary, we are making significant efforts to optimize operations, and we are executing with urgency to better support and serve franchisees.
While we acknowledge there's more work ahead, we're confident that we have the right strategy, team, and infrastructure in place to adequately support our franchisees and drive long-term sustainable growth. We look forward to sharing more about our key initiatives and operational enhancements at our upcoming Analyst and Investor Day on May 29. With that, I'll turn it over to John.
John Meloun (CFO)
Thanks, Mark, and thank you to everyone for joining the call. Let's now turn to an overview of our first quarter results. We ended the quarter with 3,298 global open studios, opening 116 gross new studios during Q1, with 93 in North America and 23 internationally. There were 51 global studio closures in the first quarter, or about 1.5%, representing an annualized closure rate of 6%. The elevated closures in the period were mostly in CycleBar and StretchLab. We sold 21 licenses during Q1, which were all international and largely concentrated in Club Pilates. During Q1, there were no North America license sales while we completed the 2025 annual renewal of our franchise disclosure documents. Our base of licenses sold and contractually obligated to open is over 1,500 studios in North America, and we also have over 1,000 international master franchise obligations.
These licenses will provide a foundation for future new studio openings. However, as noted last quarter, we anticipate that approximately one-third of our global licenses contractually obligated to open are lagging over 12 months behind the applicable development schedule. As a result, we have begun an active campaign to give these franchisees an opportunity to open the lagging studios, or alternatively, these licenses will be terminated. The termination of these licenses will result in a recognition of additional EBITDA as they occur, which is consistent with our historical practices. There is no cash flow associated with the termination of these licenses as we receive payment upfront at the time of sale. Under U.S. GAAP, we are simply required to accelerate the recognition of the license fee revenue and associated commissions that we would normally amortize over the term of the license, typically 10 years.
First quarter North America system-wide sales of $467 million were up 18% year-over-year, with growth driven primarily by the 4% same-store sales increase within our existing base of open studios, coupled with growth from our net new studio openings. North America run rate average unit volumes of $659,000 in the first quarter increased 8% from $609,000 in the prior year period. The increase in AUV was largely driven by a higher number of actively paying members, higher pricing for new members, and the continued favorable trend of proportionate studio openings coming from our scale brands, which make up 95% of the system-wide sales and 94% of our open studios in North America. On a consolidated basis, revenue for the quarter was $76.9 million, down 4% from $79.7 million in the prior year period, which included $1.4 million in revenue from company-owned studios.
80% of revenue for the quarter was recurring, which we define as including all revenue streams except for franchise territory revenues and equipment revenues, given these materially occur upfront before the studio opens. Turning to the components that make up revenue, franchise revenue for the quarter was $43.9 million, up 5% year-over-year. This growth was primarily driven by an increase in royalty revenue as system-wide sales were supported by year-over-year memberships and visits, increasing 12% and 14%, respectively. In the period, we had offsetting lower revenue recognized from franchise license sales as we temporarily paused our normal maintenance on terminating franchise licenses, which accelerates revenue recognition while we organized the activation campaign previously mentioned. Equipment revenue was $11.1 million, declining by 20% year-over-year. This decrease was primarily the result of a 22% year-over-year lower volume of North American installations in the period compared to the same period prior year.
Merchandise revenue of $6.3 million was down 25% year-over-year. The decrease year-over-year was due to lower sales volumes, vendor rebates, and price discounts as the company focused on reducing inventory levels. We continue to explore alternatives for our retail operations that will result in greater profitability for Xponential, improved service levels for our franchisees, higher frequency of inventory turns, and merchandise offerings that more closely align with our members' interests. Given the current discussions on tariff impacts, I wanted to point out that we typically apply a cost-plus markup in the purchasing, setting prices, and reselling of equipment and merchandise. Directionally, we do believe there will be some higher costs in the procurement process, but as designed in the way we set pricing, we believe we could largely mitigate the impact on margin percentages.
Franchise marketing fund revenue of $9.3 million was up 18% year-over-year, primarily due to continued growth in system-wide sales from a higher number of operating studios in North America. Lastly, other service revenue, which includes sales generated from rebates from processing studio system-wide sales, brand access partnerships, company-owned studios, XPass, and XPlus, among other items, was $6.4 million, down 19% from the prior year period. The decline in the period was primarily due to lower brand access fee revenues and from lower package and membership revenues due to the company shifting its strategy in 2023 to no longer operate company-owned studios. Turning to our operating expenses for the quarter, cost of product revenue was $12 million, down 18% year-over-year. The decrease was primarily driven by the lower volume of equipment installations and merchandise sales during the period.
Merchandise inventory levels at quarter end remain in line with the prior year end, which we believe is now a more manageable position to turn inventory over more frequently. Cost of franchise and service revenue were $4.1 million, down 19% year-over-year. The decrease in franchise sales commission was largely due to the temporary pause of franchise license terminations and associated commission expense acceleration while we organized the previously mentioned activation campaign. Selling, general, and administrative expenses of $45.5 million were 24% higher year-over-year. The increase in SG&A was primarily driven by an increase in legal judgment and settlements. In the period, we recorded an incremental accrual of $15 million, in addition to the $10 million previously accrued in Q4 of 2024, for a total of $25 million related to the potential settlement of a threatened franchise class action, subject to entry into a definitive settlement agreement.
Half of this amount will be paid upon court approval, and the remaining half will be paid out in even increments annually from 2026 through 2028. We currently expect at least $5 million of the settlement to be recovered from our professional insurance policies. At present, we have entered into lease settlement agreements of approximately $30.7 million and have paid approximately $30.5 million through the first quarter. As of March 31, 2025, we have approximately $14.5 million of lease liabilities yet to be settled. We expect most of the remaining liabilities will be settled during the remainder of 2025. Moving on to depreciation and amortization, expense was $3 million, down 33% compared to the prior year period. Marketing fund expenses were $9.4 million, up 44% year-over-year, driven by higher system-wide sales and the associated marketing fund revenue contributions.
In the period, we did accelerate approximately $1 million in marketing expenditure that was planned in future periods to drive increased leads and ensure that the year has gotten off to a good start. As the number of studios and system-wide sales grows, it is expected that our marketing fund spend will increase. Since we are obligated to spend marketing funds, an increase in marketing fund revenue will always translate into an increase in marketing fund expense over time. Acquisition and transaction credit was $8.6 million compared to an expense of $4.5 million in the prior year period. As I have noted on prior earnings calls, this includes the contingent consideration activity, which is related to the Rumble acquisition earn-out and is driven by the share price at quarter end. We mark to market the earn-out each quarter and adjust our accruals accordingly.
We recorded net loss of $2.7 million in the first quarter, or a loss of $0.10 per basic share, compared to a net loss of $3.8 million or a net loss of $0.29 per basic share in the prior year period. The change in net loss was the result of $1.2 million of lower profitability, a $15.5 million increase in litigation expenses, a $1.9 million increase in impairment of goodwill and other assets, a $0.9 million increase in transformation initiative costs, and a $0.7 million increase in other miscellaneous costs, offset by a $13.2 million decrease in acquisition and transaction expense, which includes non-cash contingent consideration primarily related to the Rumble acquisition, a $7.3 million decrease in restructuring and related charges, and a $0.9 million decrease in equity-based compensation and related taxes.
We continue to believe that adjusted net income is a more useful way to measure the performance of our business. A reconciliation of net income and loss to adjusted net income and loss is provided in our earnings press release. Adjusted net loss for the quarter was $7.7 million, which excludes $8.6 million in acquisition and transaction income, a $1.1 million expense related to the remeasurement of the company's tax receivable agreement, $1.9 million related to the impairment of goodwill and other non-current assets, $0.1 million loss on brand investors and wind-down, and $0.6 million of restructuring and related charges. This results in an adjusted net loss of $0.20 per basic share on a share count of 33.9 million shares of Class A common stock.
Adjusted EBITDA was $27.3 million in the first quarter, down 9% compared to $29.9 million in the prior year period due to the accelerated marketing fund spend that was pulled into the quarter. Adjusted EBITDA margin was 35.5% in the first quarter, down from 37.5% in the prior year period. Turning to the balance sheet, as of March 31, 2025, cash, cash equivalents, and restricted cash were $42.6 million, up from $27.2 million as of March 31, 2024. For the quarter, net cash provided by operating activities was $5.8 million, which includes $0.6 million in lease settlements. Net cash used in investing activities was $1 million, with $0.9 million for purchases of property and equipment and intangible assets and $0.1 million for issued notes receivable.
The cash generated from financing activities was $5 million, which included a $10 million borrowing on long-term debt, offset primarily by $1.5 million in a payment on long-term debt and debt issuance costs, $1.8 million payment on preferred stock dividends, $0.9 million related to the share settlement of restricted stock units, $0.5 million in payments of contingent consideration for the Lindora acquisition, and $0.3 million payment for distribution to PreIPO LLC members. Total long-term debt was $379.1 million as of March 31, 2025, compared to $331.4 million as of March 31, 2024. The increase in long-term debt is primarily due to the company drawing $10 million in additional debt in the first quarter of 2025 for general working capital purposes and $25 million in additional debt in the third quarter of 2024 to address the lease termination payments on previously owned studios and for general working capital purposes.
Let's now discuss our outlook for 2025. Based on current business conditions and our expectations as of the date of this call, we are lowering guidance on global net new studio openings and reiterating guidance for system-wide sales, total revenue, and adjusted EBITDA for the current year as follows. We project North America system-wide sales to range from $1.935 billion-$1.955 billion, representing a 13% increase at the midpoint from the prior year. We expect 2025 global net new studio openings, which is net of closures, to be in the range of 160-180, representing a 29% decrease at the midpoint from the prior year.
We now expect the number of closures to be 6%-8% of the global system this year as a percentage of the total open studios, with a longer focus to reduce global closures to the low to mid-single digits as a percentage of the total global system. Total 2025 revenue is expected to be between $315 million-$325 million, representing no change year-over-year at the midpoint of our guided range. Adjusted EBITDA is expected to range from $120 million-$125 million, representing a 5% year-over-year increase at the midpoint of our guided range. This range translates into roughly 38% adjusted EBITDA margin at the midpoint. We expect total SG&A to range from $145 million-$155 million.
When further excluding the one-time lease restructuring charges and regulatory and legal defense expenses, we are expecting SG&A of $115 million-$120 million and a range of $99 million-$104 million when further excluding stock-based costs. In terms of capital expenditures, we anticipate approximately $10 million-$12 million for the year, or approximately 3% of revenue at the midpoint. For the full year, our tax rate is expected to be mid to high single digits. Share count for purposes of earnings per share calculation to be 34.8 million and $1.9 million in quarterly cash dividends related to our convertible preferred stock. A full explanation of our share count calculation and associated pro forma EPS and adjusted EPS calculation can be found in the tables at the end of our earnings press release, as well as our corporate structure and capitalization FAQ on our investor website.
We anticipate our unlevered free cash flow conversion to be approximately 90% of adjusted EBITDA, as we require minimal capital expenditures to grow the business. We expect that our anticipated interest expense in 2025 will be approximately $49 million, tax expenses to be approximately $10 million, including the cash usage for tax receivable agreement and tax distributions for PreIPO LLC members, and approximately $8 million in cash dividends related to our convertible preferred stock, resulting in levered adjusted EBITDA cash flow conversion of 37%. This concludes today's prepared remarks. Thank you all for your time today. We will now open the call for questions. Operator?
Operator (participant)
Thank you, sir. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-tone phone. You will then hear a prompt that your hand has been raised.
Should you wish to decline from the polling process, please press star followed by two. If using a speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions. First question will be from Randy Connick at Jefferies. Please go ahead.
Randy Konik (Managing Director and Research Analyst)
Yeah, thanks for taking my questions. I guess, Mark, we heard a lot, and John, we've heard a lot during the call, a lot of numbers. Can we just kind of boil it all down to just broad strokes of what we're trying to get done here over the next few months before the, or I guess, before the analyst day coming up, actually? What do you want us to kind of take away from all these actions that are occurring?
Are we basically at a point where the closure rate is starting to subside? The openings are going to start to stabilize? You're talking about more efficiency in the headquarters. I just want to get a real kind of, if we had to kind of just boil this down without the numbers, just kind of the big overarching themes coming out of this quarter and into the next few quarters that you're going to be focused on, that would be super helpful. Thanks.
Mark King (CEO)
Hey, Randy, this is Mark. I'll take the first part of it. Maybe John can follow up.
I think what we're in the middle of, Randy, is really a transformation of our business from a very aggressive sales-focused company to one that's building a foundation of efficiency and effectiveness, starting from the way we sell licenses, the way we help the choosing of franchisees to the opening of studios, putting people out in the field, these ops people to help franchisees get open, get started, audit their operations as we go forward. I think it's building the foundation for long-term sustainable growth. I think that's what we're trying to get accomplished here. It's affecting everything that we do. We've taken more time on the FDD, so we were out of the market for quite a few months, which will affect license sales. It'll affect openings the back half of the year because we were out of circulation for four or five months in license sales.
I think all of these steps are necessary for us to prepare the company to be a very solid-growing company as we go forward.
John Meloun (CFO)
Yeah. Just to add to that, Randy, I think what you're seeing in 2025, is this going to be more of a stabilization of the business? When you look at the guide on revenue and EBITDA, it's relatively flat to 2024. The one thing that, as we go through this transformation, you're not seeing a degradation in the overall financial health of the business. It's just more of a stabilization. As some of these things Mark has spoke about, and as we start to improve the operation of the overall business, but also the health of the franchisee, that's when the company itself will return to growth.
2025 is more of a stabilization, and we'll elaborate some of the more detailed information around that at analyst day, which will eventually lead to how we look at 2026 and 2027 beyond where the company returns to growth. The key walkway for 2025 is the business is healthy. We are executing. We continue to open up studios, and the franchisee health should only get better with some of the things that we're trying to do here in 2025.
Randy Konik (Managing Director and Research Analyst)
Thanks. And then just on the revised openings for the year, how many of those are Club Pilates? Maybe, Mark, when you've kind of started to continue to get assessed different concepts in the portfolio, maybe kind of, is there a way to kind of get some color on where you have, obviously, beyond Club Pilates, where you have probably obviously the most conviction and confidence in?
Where's the other highest level of confidence and conviction thus far that you've kind of sorted through when you're looking at the different concepts? Thanks.
Mark King (CEO)
I'll take the second part of that question first, Randy. We're very bullish on YogaSix. We've had a really good quarter on YogaSix on same-store sales. We have more interest in openings. We feel really good about YogaSix. Pure Barre also has had really great tailwinds in Q1, same-store sales, memberships, visits, all the things that would indicate the health of those brands. StretchLab is struggling. That's not new. We've talked about that the last couple of quarters. We have all hands on deck with StretchLab. We believe very much in the concept. We're looking at everything from the size of the studio. We're working with franchisees hand in hand to look at the size of the studios.
How do we train flexologists more rapidly at lower costs? Looking at a pricing strategy, looking at the labor model. We really like StretchLab because the consumer feedback is so good, but we need to fix that model. Yeah.
John Meloun (CFO)
To follow up on the openings, Club Pilates will be over half of the openings this year. It will also reflect most of the license sales as well, over half the license sales. As we have talked about on previous calls, you will see good growth in StretchLab, Body Fit Training, and then YogaSix. Those are kind of the four core brands that are really contributing to the increased new studio, or gross new studio openings, and largely where you will see the license sales come from as well.
Randy Konik (Managing Director and Research Analyst)
Super helpful. Thanks, guys.
Operator (participant)
Thank you. Next question will be from Joe Altobello at Raymond James.
Joe Altobello (Managing Director and Senior Equity Research Analyst)
Please go ahead. Thanks. Hey, guys. Good afternoon. I guess first question on the closures. I think, John, you mentioned you're expecting 6%-8% closure rate this year. If I use the midpoint, I think that's around 225 closures versus 165, which I think was the midpoint of your prior guidance. So where's the additional closures coming from? Which brands are they coming from?
John Meloun (CFO)
Yeah. The closures that we saw in Q1 were largely in CycleBar and StretchLab. And then we look at kind of the portfolio. That's probably where you'll still see some of the concentration. I think BFT will probably be the third spot on the international front. The Q1 kind of distribution will largely look like the full year based off how we're seeing it today.
Joe Altobello (Managing Director and Senior Equity Research Analyst)
Okay.
Just to follow up on that, the license sales, you mentioned, I think it was 21 in the quarter. How do we model the ramp this year for that metric?
John Meloun (CFO)
I think you'll get to, or based off of, I mean, license sales are always based off of what you can sell, right? I think we'll target probably about 100 a quarter going forward. As we get into market and start being able to sell across all the states domestically, plus your international, you're probably looking at about 100 license sales a quarter.
Joe Altobello (Managing Director and Senior Equity Research Analyst)
Perfect. Thank you. Yeah.
John Meloun (CFO)
Joe just added that the distribution will obviously have a pretty high concentration in Club Pilates, both domestically and internationally.
Joe Altobello (Managing Director and Senior Equity Research Analyst)
Thanks.
Operator (participant)
Thank you. Next question will be from John Heinbockel at Guggenheim. Please go ahead.
John Heinbockel (Senior Managing Director and Senior Research Analyst)
Mark, I know the 12 field ops, right?
They're going to work, I think, across multiple brands. Obviously, I'm not sure they have to spend a lot of time on Pilates, but how do you envision them spending their time impacting the business? I guess, is there something to be said for skinnying down the portfolio further, right, so that they're not diluted or the reference are not diluted as much?
Mark King (CEO)
Yeah. Thanks for the question, John. I think they're going to have a huge impact. One, it was surprising that we didn't have field ops people. I understand that we had them in the past, but anyway, when I came, we didn't have any. I think there's multiple things they're going to help franchisees with.
Specifically, I think they will help new franchisees as they prepare to open their studios, the presale, training the staff, really helping these new franchisees understand what it takes to operate a successful studio. I think that's number one. Number two then is, as they go forward, those first six months to a year, what are really the watchouts? We're also going to have the field ops visit probably once a quarter. It will be a really active group. I think they're going to really help them get started on a positive note. Going forward, I think we really need to audit every one of our studios to make sure they're following the playbooks. If they're not, why aren't they? Can we help them?
It is not only training them, it is coaching them, and it is also auditing the studios so that we make sure that they are following the playbooks.
John Heinbockel (Senior Managing Director and Senior Research Analyst)
Okay. And then when you think about the 1,000 studios that are sort of in arrear, so to speak, right, that they are delayed, I mean, how do you assess how many of those are viable, right? I would assume very few of those are Club Pilates. What is the process, right, for getting in touch with franchisees, getting a resolution, terminating them, refranchising? Seems like that would be kind of a laborious process that might take a while. Yeah. I will take that one.
John Meloun (CFO)
We hired Tim, our new COO, and that is why we kind of took a pause on terminating licenses in the first quarter because he wanted to really evaluate and go through that laborist kind of process to understand what does that backlog look like. The first step is obviously going to be assessing who is behind and why. And then two, there is going to be an active campaign to start communicating with these franchisees and finding out what is the hurdle and the reason why they are not moving forward. I do believe that some of these will be activated. Some of these franchisees may simply just not be moving forward because in Club Pilates, these things require work. You just do not open them up and they run themselves.
If they bought three licenses and they got two and they're financially doing well and they're choosing not to open the third one because there's no real rush, they're making enough money, that's one end of the spectrum. Then there's the other end of the spectrum where they opened up one and they're not profitable, and hence they don't want to open up their second or third. There are varying reasons as to why these franchisees haven't moved forward. Tim will need to go through that portfolio of delinquent franchisee licenses and determine what we need to do.
The one thing that we need to do, all good franchise systems should do, is make sure that the snow is current, that we are actively maintaining it, because the last thing we want to do is tie up dirt that could be productive with a franchisee if indeed we can get one open if the existing franchisee who owns the space does not want to. It is going to take some time. It is a process that we are going through. I probably could elaborate more on that at the analyst day and kind of the progress that we are making. Right now, we are taking the time to make sure we do it strategically and think about it the right way and create a process that we can continually maintain our backlog every quarter.
Now, to that point, we have historically and routinely gone through and done terminations in our historical numbers as well as practices. We just chose to take a pause in Q1 while Tim kind of got his feet on the ground and stepped into his role.
John Heinbockel (Senior Managing Director and Senior Research Analyst)
Thank you.
Operator (participant)
Thank you. Next question will be from Christel Koll at Stifel. Please go ahead.
Christel Koll (Analyst)
Yeah. Thanks. Mark, I had a question on StretchLab, and I was just curious if you think they've been underinvesting in marketing to kind of generate leads and whether you think franchisees could afford to increase their marketing budget or if the company might need to support them.
Mark King (CEO)
Yeah. Thanks, Christel. And hello, Christel. How are you? It's a really good question. We have done several things in Q1 to help the franchisees.
We've actually doubled their local marketing spend in one of the months, I think it was March, to help drive leads. We are considering investing more money of our own as we go forward. We also have some reserve unspent marketing funds in StretchLab that we will deploy this year to help them. I also think that the addition of our new CMO, who's really looking at how we're spending money locally and the agencies that we're using to make sure that we're maximizing the amount of that local spend. All of that, Chris, is under review. I think we're finding some low-hanging fruit that I think will impact the business, but probably won't be till the second half of the year.
Christel Koll (Analyst)
I think there is some light at the end of the tunnel in terms of starting to get StretchLab going in the right direction. It was interesting you mentioned that you're considering a different pricing model for the brand.
I was just wondering if you're considering a monthly membership model where members maybe receive a discount per session. I'm kind of thinking like a Massage Envy type model. Is that something you might consider for the brand?
Mark King (CEO)
Chris, we're considering a lot of things. That is definitely one of them. We're also considering a membership fee where there's other activities inside that generate revenue through the membership, and they can stop in for a five-minute stretch, 10-minute stretch, some other things that we are looking at adding to the studio, but definitely looking at a monthly membership.
Christel Koll (Analyst)
Okay. That's great. Thanks, guys.
Mark King (CEO)
Thanks, Chris.
Operator (participant)
Next question will be from Jonathan Kopp at Baird. Please go ahead.
Jonathan Kopp (Senior Research Analyst)
Yeah. Hi. Good afternoon. Could I just follow up on the change in the unit outlook for the year? Can you maybe just highlight if there's some factors that are impacting the ability to forecast on a near-term basis? I'm just curious what's driving the change in outlook there.
John Meloun (CFO)
It's two factors. One, it's not having license sales in Q4 and Q1 has created a little bit of a bottleneck as you get towards the end of the year because there was some expectation to get more units open in the fourth quarter that you may have sold that license in Q4 of 2024 or in Q1 of 2025. Not having those license sales, that does impact the growth funnel in the short term.
As we've kind of gotten through Q1 and looked at who and the movement and who's active and not active, we wanted to make an adjustment for that. We did see slightly higher closures in the first quarter than we had anticipated. That being said, we made an adjustment for that. Over time, I think as some of the more unprofitable franchisees that exist in the portfolios, those kind of fall out, you should see a deceleration in closures. The guide change in this quarter was simply just said, "Listen, let's just be a little bit more conservative, take down the guide based off of these two factors," one being the higher closures in Q1 and then just the ability to get some of these franchisees open by the end of the year.
We just did not want to put pressure on the system and force studios to get open faster than they are ready to. When you think about the visibility today to the new outlook, the 160-180 on a net basis, any way to just quantify your confidence or your visibility to that level today? Pretty good. I think the confidence, I mean, you will see the way the cadence is going to be, it is going to be about 50/50. About 50% of the gross net openings will be in the first half and 50% in the second half.
We are looking at it on a brand-by-brand basis and on a studio-by-studio basis, assessing financial performance and health, and really trying to assess where we think we could help franchisees out and save them, I guess, is the right way to put it, and where are the ones where it's probably not likely that they'll be able to persist. Confidence, I would say, is pretty high. At the 160-180 guide, I think it's a pretty high level of confidence that that's where we'll come in for the year.
Jonathan Kopp (Senior Research Analyst)
Okay. And then just last one for me, John, on the follow-up on the when you terminate the licenses and recognize for the accounting purposes the revenue and profit from that, is that a material number on an annual basis?
Is that something you include in the guidance typically, or would that be sort of how to model upside? Thanks again.
John Meloun (CFO)
Yeah. I mean, when you look at our historical numbers, it's been in our historical numbers, it's probably a couple of million dollars of revenue a quarter, typically. You get a million and change or so of EBITDA. For every license, there is revenue and there is an offsetting commission. There is a net, let's call it roughly 50% margin that flows through. It has been in our historical numbers. I do not have a number for this year because we're actively going through the backlog. Typically, in our prior quarters, it's been about a couple of million each quarter of revenue and a million or so in EBITDA.
Jonathan Kopp (Senior Research Analyst)
Got it. Okay. Thanks again.
Operator (participant)
Thank you.
Next question will be from Korinne Wolfmeyer at Piper Sandler. Please go ahead.
Korinne Wolfmeyer (VP and Senior Equity Research Analyst)
Thanks. Good afternoon. Thanks for taking the question. First, I'd like to touch on just tariffs and what kind of exposure from equipment and pieces of the unit build could be exposed to tariffs and how impacted could the franchisees be with that. Thank you.
Mark King (CEO)
Thanks, Korinne. This is Mark. I'll take that one. There are really two impacts. We've been looking at tariffs, obviously, as every other company has for the past few weeks. There is a direct impact, and there is also an indirect impact. Let me take the direct first. First of all, 80% of our revenue is recurring. The only thing really affected in the direct is about 20% of our revenue, and that's on merch sales and the equipment sales to the franchisees.
Our supply chain team has been working diligently with all of our vendors to minimize the impact. We have a pretty good view of the impact. It's minimal at this point. It's very fluid. It's actually getting better week in and week out because we're finding vendors that want to work with us, and they absorb some, and we absorb some, and we'll pass some of that along, as John mentioned in his opening remarks on the cost plus. I think that'll be minimum impact. Like John said, half the studios that open are Club Pilates, and we're seeing almost no impact on those in terms of affecting those. We feel really good that we've got our arms around it. It'll have very limited impact both on franchisees and on us. In terms of the indirect, what's going to happen in the marketplace with consumers?
We've proven to be pretty resilient during COVID, inflation, and other macro-challenging times. At this point, we haven't seen any impact of tariffs on memberships or visits or anything. We're concerned about it enough to be looking at it every day. At this point, we feel pretty confident we have our arms around it.
Korinne Wolfmeyer (VP and Senior Equity Research Analyst)
Thank you. I guess kind of building off of that point, any quote you can give us on kind of what's baked in at the low end versus the high end of guidance regarding the consumer, and then any direction you can give us on how you're thinking about the same store sales cadence over the remainder of the year? Thanks.
John Meloun (CFO)
Yeah. I'll take that. I mean, as far as the guide, we haven't seen any shift in consumer behaviors.
I mean, when you look at Q1 and even as of through April, you've seen the visitation remain strong. The total numbers have continued to grow. There hasn't been a shift in consumer demand that we've seen. Typically, Q1 is one of your better quarters simply because there's a lot of New Year's resolution. You also benefit from the consumer kind of utilizing some of the promotions we do in the fourth quarter. I haven't seen a drop-off in consumer behavior. As we said previously, we still expect same-store sales to stay in that mid-single-digit kind of range, so in that 3%-6%, 3%-5% kind of range throughout the rest of this year. Not expecting any material shifts. You got to remember, the majority of the system-wide sales, over 95% of it, is coming from our scaled brands.
Club Pilates, StretchLab, YogaSix, Pure Barre. These are brands that have shown consistent same-store sales performance. We continue to open up more studios in those brands. There should not be—we are not expecting to see any shift with the consumer.
Korinne Wolfmeyer (VP and Senior Equity Research Analyst)
Thanks so much.
Operator (participant)
Thank you. Next question will be from Jeff Van Sinderen at—I'm sorry—B. Riley Securities.
Richard Magnuson (Research Analyst)
Hello. This is Richard Magnuson in for Jeff Van Sinderen. Thank you for taking our call. Regarding the Franchise Disclosure Documents, can you remind us what the most important changes are that will affect the franchisees and talk about any feedback response you got so far, and then also maybe a good estimate of the pent-up demand during that period?
Mark King (CEO)
Hi, Richard. This is Mark. Yeah. We did a really thorough job at looking at specifically the build-out cost. We worked with vendors.
We took our time to really do the right job to be as accurate as we can. There were some increases across all the brands in terms of build-out cost, but we feel we're much more realistic. At this point, we haven't really had any negative feedback or pushback from franchisees or people that are opening. We feel good about the work that we've done. Going forward, I think it'll be more accurate for franchisees.
Richard Magnuson (Research Analyst)
Okay. Aside from the time period that they had to wait for these documents, was there any estimate of a pent-up demand on the part of the franchisees?
John Meloun (CFO)
There was in Club Pilates. I mean, obviously, there's any opportunity to purchase one of the Club Pilates licenses. People will stick around for that.
A lot of the purchases also come from existing franchisees who own an existing studio in one of the brands. Yes, there was some pent-up demand. We have filed all the FDDs except for Lindora, which we are in the process of doing, that largely in 36 of the states. We are actively selling. I think we disclosed in the call on the slide the brands and the states that are still pending review, which ones those are. The good news is we are now actively selling again and returning to adding more licenses to the backlog. The hope now is that Q2 license sales will translate into new studio openings, probably more likely in the first quarter of 2026.
Richard Magnuson (Research Analyst)
All right. Thank you.
Operator (participant)
Thank you. Next question is from JP Willam at Ross Capital Markets. Please go ahead.
J. P. William (Company Representative)
Great. Hi, guys.
I appreciate you taking my questions. If we could maybe start with the field ops team, I think you said in there that the goal is to have them kind of rolled out by end of the month or end of the quarter. If you could just kind of help us understand, how soon can they really get in and be impactful? Is there sort of an immediate focus as they get out of the gate? Are they immediately going to kind of your lowest 10% performers, and you think that you could see upside by the end of the year? How are you thinking about how soon of an impact they can have?
Mark King (CEO)
Thanks for the question, JP. We will roll out 12 field ops people by the end of the quarter. We have another tranche of 12 towards the end of the third quarter.
The final group will be out by the end of the year or January. When we're fully built out, we'll have around 40 field ops people. I think the impact will be immediate. You're very perceptive. Yes, I think they will start with the franchisees that are struggling the most to go in and really identify why they're struggling, build a plan out with them to get the franchisee and their business headed in the right direction. I believe once all 40 are out working, it will have immediate impact on the system. It's going to take us about three quarters to get everyone out in the field. I think by the time we get through July and August, we're going to see an impact on the franchisees where these 12 initial field ops people will be deployed.
J. P. William (Company Representative)
Understood. Appreciate the color.
If I could kind of a bit of a follow-up to the conversation about license sales. If we step out and sort of take a high-level view, understanding that you guys kind of want to be a bit more selective and make sure you have the right franchisee partners. Can you just kind of talk about how inbound license leads are trending? Is there any changes that you're seeing out there with relationships to brokers or with how people view the relationship to Xponential as a whole? Any kind of high-level themes you're seeing there?
Mark King (CEO)
Sure. First of all, we're not working through the broker network anymore. We're building out our own team. We do our own marketing through different mediums to find people that are interested in being a franchisee. We work through a lot of the existing franchisees and their recommendations.
We have a very seasoned development person, Eric Simon, who's really brought a lot of expertise and experience to the process. Secondly, we're also looking at, with some of our scaled brands, on reaching out to private equity. There's quite a bit of interest from well-capitalized private equity that are looking at white space and how they would come in, which would really have access to capital, access to operating, and really commitment to building out. We're really looking at the entire process. Right now, we're just getting started, to be honest, and especially since the FDDs just are now out and we're able to sell. The initial response from the team is, I would say, positive.
J. P. William (Company Representative)
Great. Thanks for taking my questions and best of luck.
Mark King (CEO)
Thanks.
Operator (participant)
Next question will be from Owen Ricketts at Northland Capital Markets. Please go ahead.
Logan Hennen (Equity Research Associate)
Hey, this is Logan on for Owen. Thanks for taking our question. First, how should we think about new studio openings in 2025? What's that pace going forward, and when should we expect a pullback? Thanks.
John Meloun (CFO)
New studio openings, what you'll see, as I mentioned earlier, it'll be about 50% in the first half and 50% in the second half. It will be a pretty flat cadence quarter to quarter. In the first quarter of this year, we had about 116 openings. Remember, we didn't rush openings in the fourth quarter, even though we got the equipment installed. You did see a little bit higher kind of rollover from the prior year of openings. From this point forward, you should see in that 80-90 range each quarter as far as openings. It should be about 50/50, roughly.
Again, the concentration is definitely going to be in Club Pilates with over half the openings. You will see StretchLab, YogaSix, and BFT primarily in the international space is where they will come from.
Logan Hennen (Equity Research Associate)
Got it. That is helpful. Last one from us. Can you provide some color on your international expansion plans? Any updates there, changes in your methodology, or what markets are your top priorities? Thanks.
Mark King (CEO)
The methodology really is to find really qualified master franchisees. We require them to both own and operate some studios along with selling sub-franchise agreements. We are focused on countries that we believe have big upside and opportunity. Right now, we have done a really great deal down in Mexico. We look for that to start to build out this year. We are really seeing some really good momentum in Portugal, Spain, big interest in France and Germany.
We're very, very strong in Australia. We're really building the Club Pilates out in Japan. Those are the major markets right now.
Logan Hennen (Equity Research Associate)
Thank you, JP. Congrats on the quarter.
Mark King (CEO)
Thanks.
John Meloun (CFO)
Thank you.
Operator (participant)
At this time, Mr. King, we have no other questions registered. Please proceed, sir.
Mark King (CEO)
Thank you again, everyone, for joining today's call. We look forward to seeing many of you at some of the upcoming marketing events, including our Analyst Investor Day, which will be hosted at the New York Stock Exchange later this month.
Operator (participant)
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.