Xponential Fitness Inc
NYSE:XPOF
Earnings Call Analysis
Q4-2023 Analysis
Xponential Fitness Inc
In 2023, international expansion served as a significant growth accelerator, with the company spreading its wings into 7 new countries, augmenting its global presence to 23 countries in total. An ambitious plan is set, with over 1,000 studios scheduled to open under master franchise agreements, a strong indication of the brand's global appeal and scalable business model. Japan, in particular, has emerged as a lucrative market, with the average Club Pilates studio there swiftly surpassing $500,000 in average unit volume (AUV), outdoing the domestic performance in just under a year. This international business benefits from nearly 100% margin flow-through, thanks to an asset-light model that sees master franchisees bear the full weight of SG&A and capital expenditure, ensuring a lean operational cost structure for Xponential.
The company heads into 2024 with optimism, grounded in a strategic refocus on core operating activities projected to enhance cash flows and significantly expand margins. This outlook aligns with the projections shared at the Analyst and Investor Day, painting a picture of a robust financial future and a testament to the efficacy of strategic realignments undertaken.
Xponential Fitness reported a strong fourth quarter in 2023, marked by a 27% rise in visitation rates and a 22% increase in actively paying memberships across North America. New class formats and synergistic partnerships aim to further engage existing members and attract new ones, evident from the 15% and 11% same-store sales growth for Pure Barre and CycleBar, respectively. The integration on Gympass' platform introduces Xponential's brands to a wider audience, and the recently acquired Lindora brand, specialized in metabolic health, shows potential for synergistic cross-selling opportunities, with a compelling unit level economics model and an untapped market across North America.
Xponential's financial strength was on display with a 31% increase in North America system-wide sales, reaching $384.6 million, propelled by a 14% same-store sales growth and complemented by 169 new studio openings. Revenue's dependency on the steady introduction of new members remained a constant, accounting for 94% of system-wide sales growth. The company's quarterly consolidated revenue climbed to $90.2 million, a 27% increase year-over-year, with a healthy 75% categorized as recurring. Revenue growth across various streams, including franchise, equipment, and merchandise, indicates a diversified and resilient revenue structure, ensuring sustained financial health.
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Greetings, and welcome to the Xponential Fitness Fourth Quarter 2023 Earnings Conference Call. At this time, [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Avery Wannemacher from Investor Relations. Thank you. You may begin.
Thank you, Operator. Good afternoon, and thank you all for joining our conference call to discuss Xponential Fitness Fourth Quarter and Full Year 2023 financial results. I am joined by Anthony Geisler, Chief Executive Officer; Sarah Luna, President; and John Meloun, Chief Financial Officer. A recording of this call will be posted on the Investors' 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 the 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. I will now turn the call over to Anthony Geisler, Chief Executive Officer of Xponential Fitness.
Thanks, Avery, and thank you all for joining us this afternoon. During 2023, we experienced substantial growth in revenue and adjusted EBITDA, while further streamlining our business and better positioning Xponential for an even stronger year in 2024. As the largest health and wellness franchisor, as of year-end, we have 3,062 studios operating globally with 6,255 licenses sold across our portfolio. In 2023, we opened an average of 1.5 new studios each day, and we have the pipeline to continue at that rate in 2024. North America run rate average unit volume, or AUVs continue to rise and Xponential members have time and time again demonstrated their consistent commitment to their health and wellness routines. During the year, total members across North America grew 21% year-over-year to $717,000, while our visitation rates increased 31% to a total of $51.5 million in studio visits for 2023. This drove North American system-wide sales to over $1.4 billion in 2023, an increase of 36% over 2022. North America run rate average unit volumes of $590,000 increased 13% from $522,000 in 2022, while same-store sales increased 16% for 2023. Same-store sales growth was strong across our studio vintages and not limited to just new studios. In fact, studios older than 3 years increased 17% in 2023, demonstrating the value of adhering to our operating model and the durability of our modalities. We are pleased to see this continued growth at the studio level. And while we do not yet know the maximum potential of our AUVs over 350 North American studios across our portfolio achieved $1 million or higher AUV in Q4 with another 160 exceeding $900,000. While these high AUVs are predominantly concentrating club plates, there are studios in stretch lab, Rumble, Pure Barre, YogaSix and CycleBar and, of course, Lindora, that have crossed the 1 million AUV threshold. We remain focused on driving AUVs higher as we execute on our in-studio growth strategies. Beginning with revenue. In 2023, net revenue totaled $318.7 million, an increase of 30% year-over-year. Adjusted EBITDA totaled $105.3 million or 33% of revenue, up 42% from $74.3 million or 30% of revenue in 2022. As we continue to open more studios, our model continues to scale, enabling us to leverage our centralized back office and improve margin. Though the 2023 margins were shy of the 35% we sought as we work through our restructuring efforts, we remain on track to reach our 40% target in 2024. Let's now turn to our first strategic growth driver, the increase of our franchise studio base. We ended 2023 with 3,062 global open studios opening 557 new studios during the year with 438 in North America and 119 international. We currently have over 400 leases and LOIs signed for studios not yet open. We sold 805 licenses globally in 2023 and our pipeline includes almost 2,000 licenses sold and contractually obligated to open in North America, plus an additional over 1,000 master franchise agreement obligations. We were particularly encouraged to see that almost half of our 2023 North American studio openings came from existing franchisees with existing open studios, highlighting our franchisees' continued reinvestment in and commitment to our brand portfolio. While this phenomenon was the most prevalent in Club Pilates, it was also true across all of our other scaled brands, including CycleBar, Pure Barre, YogaSix and StretchLab, as well as Rumble 2, despite the brand's relative young age, we already had existing franchisees open additional locations in 2023. We take pride in the support we provide to our franchise operators, and we kicked off this year by holding franchisee forums with franchisees selected representatives from each brand to discuss what they believe is and isn't working. The franchisee reps were selected by a popular vote by each brand's franchisees and have started spending time in person at our headquarters to formulate a targeted action strategy that we plan to execute on by the end of Q2. We are encouraged by the conversations and the opportunity to further streamline our support and offerings across the system, and we plan to continue holding regular strategy sessions with these franchisee representatives. We have already started franchising our recently acquired brand, Lindora, a leading metabolic health provider. The health and wellness market is large and growing and supported by strong secular trends. Lindora has ideally positioned us to continue tapping into the broader consumer demand for holistic and comprehensive approaches to health. We believe consumers increasingly understand the connection between regular fitness routines, metabolic health, nutrition and overall well-being and pursue lifestyles that align to those values. Through Lindora, we are able to offer consumers a more comprehensive wellness solution. We see the Lindora acquisition as the foundation for our long-term broader strategic expansion into health and wellness, and we're excited at the growth prospects in this market. There are 42.5 million addressable households for Lindora. Based on using existing Xponential trade areas nationwide, we are finding that 69% of the $42.5 million of Lindora's national core member households are captured by an existing Xponential Fitness Studios trade area. Lindora has a lot of runway where XPASS has already proven to be successful. We are actively working with Buxton, a data-driven real estate analysis company to identify the clinic potential across the U.S. Buxton from preliminary work sees the greatest similarities between Lindora member profile and our current Club Pilates and StretchLab member profiles. Buxton expects that the TAM for Lindora will be similar to the TAM of our other brands. As a company, we continuously evaluate our portfolio to ensure profitable growth, optimize global customer experiences and drive long-term value creation for our stakeholders. We think about successful portfolio construction, not just from the perspective of acquiring new brands and opening new studios, but also from the perspective of ensuring alignment with our 3-year financial growth targets. As part of our optimization efforts, we recently announced the divestiture of STRIDE Fitness to STRIDE Fitness Franchising, Inc., which is owned by Sean Grove, the current President of Rumble Boxing. STRIDE accounted for less than 1% of our studio base and system-wide sales in 2023. And after considering potential alternatives for STRIDE, we found this transaction was the best option for both Xponential and the STRIDE brand. We are particularly pleased to transition STRIDE to an experienced franchise owner and operator. Another optimization effort that will result in immediate margin expansion is the refranchising of company-owned transition studios and the elimination of related operating losses. We had previously committed to fully exiting our portfolio of company-owned transition studios. And as of today, we have only a small number of corporate studios remaining. It's also worth noting that as part of no longer operating studios and wanting to concentrate our resources around the growth of our traditional studios, we have exited our corporate-owned LA Fitness locations in the first quarter of 2024. Note that existing franchise LA Fitness locations will continue operating. Finally, I wanted to provide an update on our litigation with Club Pilate. Xponential has resolved this litigation at the end of 2023 and is in the process of launching an RFP to ensure that our studios have access to best-in-class point-of-sale technology. Let's now discuss our second growth driver, international expansion. During 2023, we expanded into 7 new countries, bringing our total country count to '23. At year-end, we have over 1,000 studios obligated to open under master franchise agreements, and we'll continue expanding our brands into new and existing countries under the leadership of our recently hired international President and team. Earlier this year, we announced that Pure Barre and YogaSix are entering the Japanese market through a master franchise agreement with Sun Park Co., who is the current master franchisee for StretchLab in Japan. This brings our brand count in the country to 7, the largest count of Xponential brands outside of North America. Japan has demonstrated strong demand for our concepts where Club Pilates alone has opened 45 locations with the potential of an additional more than 100 studios obligated to open for Club Pilates alone. We are encouraged to see that even though our average Club Pilates studios in Japan is less than a year old with most of them having opened in 2022 and 2023, run rate AUVs are already well exceeding $500,000. From a brand evolution perspective, these AUVs are already well exceeding the performance that we saw for Club Pilates domestically in year 3 of operations. As a reminder, our international business provides Xponential with nearly 100% margin flow-through. The model is asset light with Xponential receiving a revenue share from the master but carrying minimal corresponding SG&A, given that the studio SG&A and CapEx is fully funded by the master franchisee. In summary, we are proud of our 2023 performance and the strategic realignment we have achieved, and we are entering 2024 from a position of strength. We remain on track to achieve the projections laid out at our Analyst and Investor Day in September of last year, and we expect our refocus on core operating activities to result in strong cash flow and significant margin expansion in 2024 and beyond. Before turning the call over to Sarah, I'd like to take a moment to highlight our annual franchisee convention, which took place in Las Vegas in early December. During the event, over 2,000 attendees came together to celebrate achievements in 2023, share best practices and set the strategy for 2024. It is always great to experience the excitement of the event and speak with franchisees from all over the world. Thank you to our franchisees and employees for all your hard work and dedication, which have helped make Xponential Fitness what it is today. And with that, I'll pass the call on to Sarah.
Thank you, Anthony. Xponential continue to produce exceptional results within the fourth quarter of 2023 with visitation rates in North America growing 27% year-over-year and our North American actively paying membership base growing 22% year-over-year. Our studios are an essential part of our members' weekly routines. And as such, frozen memberships have remained consistently low. We've continued to see strong visitation trends so far in the first quarter of 2024. New member acquisition and retention is important for growing and sustaining AUVs. And we know that customer experience and satisfaction ultimately drive engagement. Over the last few months, we have focused our efforts on introducing new class formats at a few of our brands and repurposing existing equipment as a means of engaging and retaining members. The new and improved class formats create a better experience for our members, and we are excited to continue innovating within our studios so that we stay both relevant and cutting edge. In 2023, we introduced a new class format at Pure Barre that resulted in 15% North America same-store sales growth for the year. We are also testing the rebranding of AKTs into KINRGY Studios with a new dance class formats and studio branding launching in March in an effort to replicate the success we had at Pure Barre. Julian Ho, who is well known among dancing enthusiasts from Dancing with the Stars is behind the KINRGY concept, which we believe will help revitalize our dance modality. Julian has been instrumental in helping drive awareness for the rebrand, engaging and energizing her network both in person and online. Similarly, at CycleBar, we launched a new strength-focused class format this January. The strength class was the highest utilized class in January, which helped drive the 11% year-over-year increase in North America visits per studio and resulted in the highest number of visits per studio since COVID. In addition, except for Lindora, all Xponential Fitness brands are now available on Gympass. We are excited to have access to the Gympass membership network, which allows our studios to fill excess inventory and further expose Xponential's brands to an even greater audience. Now, turning to Lindora. For over 50 years, Lindora has helped tens of thousands of people with healthier lives through its suite of services that support metabolic health, including weight management programs that incorporate nutrition, lifestyle and the latest innovations in weight loss medications, IV hydration, hormone replacement therapy and other services. As a reminder, the Lindora transaction is immediately accretive to earnings and EBITDA, enhances Xponential's AUV and catalyzes future unit growth. At present, Lindora has 31 locations with run rate AUVs of roughly $900,000 as of Q4 and January showing particularly strong performance. 30 of the 31 locations are located in Southern California, which gives Xponential large amount of white space to sell new franchises as virtually all geographies in North America are untapped. Since acquisition, we have already built a pipeline of prospective franchisees who have expressed interest in acquiring the rights to develop Lindora franchisees. The unit level economics are compelling with the average cost to build Lindora being an approachable upfront investment and in line with our other concepts. A clinic is approximately the same size as our current average studio footprint of 1,500 to 2,000 square feet. As a result, clinics can be placed in the same retail locations as our other brands, such as large shopping centers and grocery-anchored real estate, which allows us to leverage our existing real estate and brokerage relationships. In fact, one of Lindora's locations already shares the shopping center with an existing Xponential studio. Lindora has a diverse revenue base that is comprised of subscription memberships, nutrition products, medications and other services, leaving us with several avenues to pursue additional AUV growth. Lindora can also serve as a distribution platform for any new health and wellness concepts that emerge and have been at the forefront of the latest metabolic health development since the 1970s. While investors have frequently asked us about Lindora's exposure to increased interest in weight loss medications, we think it is worth noting that the company operated successfully at $900,000 AUVs prior to the introduction of the most recent weight loss medications in March of 2023. We expect Lindora to offer a cross-selling opportunity with our existing studios. Working out is an essential part of any weight loss regimen, and we expect to fully capitalize on the opportunity to bring Lindora members into our boutique fitness studios. Conversely, many of our members are interested in nutritional offerings, and we are thrilled to now have a brand to refer them to. It really is a win-win. Thank you for your time today. I'll now turn the call over to John to discuss our fourth quarter results and 2024 outlook.
Thanks, Sarah, and thank you to everyone for joining the call. In the fourth quarter, North America system-wide sales of $384.6 million were up 31% year-over-year. The growth in North American system-wide sales was driven primarily by the 14% same-store sales within our existing base of open studios that continue to acquire new members, coupled with 169 gross new studio openings. Further, 94% of the system-wide sales growth came from volume or new members, which has remained consistent with historical performance and 6% coming from price. On a consolidated basis, revenue for the quarter was $90.2 million, up 27% year-over-year. 75% of the revenue for the quarter was recurring, which we have consistently defined to include all revenue streams, except for franchise license sales and equipment revenues, given these materially occur upfront before a studio opens. All 5 of the components that make up our revenue grew during the quarter. Franchise revenue was $39.1 million, up 22% year-over-year. This growth was primarily driven by an increase in royalty revenue as system-wide sales reached all-time highs. In addition, an increase in monthly tax fee revenue and instructor training revenue was due to more studios operating domestically. Accruement revenue was $16.4 million, up 42% year-over-year. This increase in equipment revenue is the result of a higher mix of equipment-intensive brands, which have a higher price point compared to the same period prior year. Merchandise revenue was $10.1 million, up 27% year-over-year. The increase during the quarter was primarily driven by a higher number of operating studios and inventory purchases by existing studios to address the demand for retail as consumer foot traffic has grown compared to the prior year. Franchise marketing fund revenue of $7.5 million was up 29% 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 company-owned transition studios, rebates from processing studio system-wide sales, B2B partnerships, XPASS and XPLUS, amongst other items, was $17.1 million, up 24% from the prior year period. The increase in the period was primarily due to higher revenues from our B2B partnerships. We significantly decreased the number of company-owned transition studios last year, resulting in the revenue generated from them ceasing along with the cost of operating the studios. This will ultimately result in improved margins for Xponential going forward. Turning to our operating expenses. Costs of product revenue were $17 million, up 39% year-over-year. The increase was primarily driven by a higher volume of equipment installations for new studio openings and a higher mix of equipment-intensive brands in the period. Costs of franchise and service revenue were $4.6 million, down 5% year-over-year. The decrease was driven by lower cost of amortized franchise license commissions in the period. Selling, general and administrative expenses of $50.8 million were up 47% year-over-year. The increase in SG&A was primarily the result of higher operating costs in the period associated with company-owned transition studios and restructuring costs for studios where we have ceased operations. As previously discussed, we have shifted our transition studio strategy, which will decrease SG&A expenses and improved EBITDA margins. Since we announced this shift at the end of the second quarter of 2023, the number of company-owned transition studios has declined from 84 to only 4 studios remaining as of the date of this call, with some of these studios being refranchised to new owners and some closing permanently. Within SG&A, the largest liability we continue to work through is our commercial leases. We expect this onetime restructuring will continue in 2024 and will be finalized once we have settled the remaining outstanding leases with landlords. The investments we are making to streamline operations back to a pure franchise model will optimize forward-looking SG&A expenses, resulting in increased margin levels. In 2023, net operating losses associated with transition studios were approximately $10 million, which will be materially gone in 2024. Additionally, as projected on our third quarter 2023 call, our annual franchise convention added approximately $5 million in sequential SG&A expenses, which were largely offset by sponsorship revenues from the event that brought the net expenses down to $1.5 million for the fourth quarter. Impairment of goodwill and other assets was $4.8 million and was primarily due to the company-owned Rumble Studios being reclassified as held for sale and the resulting write-down of leasehold improvements, reacquired franchise rights and goodwill. Depreciation and amortization expense was $4.2 million, an increase of 2% from the prior year period. Marketing fund expenses were $6.4 million, up 39% year-over-year, driven by increased spending because of higher franchise marketing fund revenue. As a reminder, each of our franchise locations contributes 2% of sales to our marketing fund. Therefore, as the number of studios and system-wide sales grow, our marketing fund increases. Since we are obligated to spend marketing funds and increase in marketing fund revenue will always translate into an increase in marketing fund expenses over time. Acquisition and transaction expenses were a credit of $0.5 million versus an expense of $8.2 million in the fourth quarter of 2022. As I have noted on prior earnings calls, this includes the contingent consideration activity, which is related to the Rumble acquisition earnout and is driven by the share price at quarter end. We mark-to-market the earnout each quarter and accrue for the earnout. We recorded a net loss of $9.1 million in the fourth quarter or earnings of $0.10 per basic share compared to a net loss of $0.4 million or a loss of $1.13 per basic share in the prior year period. The higher net loss was the result of an $8.8 million increase in restructuring costs from our company-owned transition studios, $6.6 billion of lower overall profitability and a $4.9 million increase in impairment of goodwill and other assets, offset by an $8.8 million decrease in noncash contingent consideration primarily related to the Rumble acquisition and a $2.8 million decrease in noncash equity-based compensation expense. The impairment of goodwill and other assets, as previously mentioned, was primarily due to the company-owned Rumble Studios being reclassified as held for sale. 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 to adjusted net income is provided in our earnings press release. Adjusted net income for the fourth quarter was $4.2 million, which excludes the $0.5 million gain in fair value of noncash contingent consideration, a $0.1 million liability increase related to the fourth quarter re-measurement of the company's tax receivable agreement, the $4.9 million impairment of goodwill and brand assets and the $8.8 million restructuring charge. This results in adjusted net earnings of $0.08 per diluted share on a share count of 55.4 million shares of Class A common stock after accounting for income attributable to noncontrolling interest and dividends on preferred shares. Adjusted EBITDA was $30.7 million in the fourth quarter, up 38% compared to $22.2 million in the prior year period. Adjusted EBITDA margins grew to 34% in the fourth quarter compared to 31% in the prior year period. As Anthony mentioned, we have positioned the company for higher margins by increasing the operating leverage going forward, and we continue to expect margins to reach 40% in 2024. Going forward, we'd like to provide a comprehensive summary of our annual results each year that will include more granular brand-level metrics and data. It is important to note that this additional data will only be provided during our Q4 call. At times, I will discuss our scaled brands in our portfolio or those brands with greater than 150 studios operating in North America, which currently include Club Pilates, CycleBar, Pure Barre, StretchLab and YogaSix. In 2023, the strongest license sales occurred in Club Pilates with 361, StretchLab with 159 and BFT with 149. These 3 brands represented 83% of the 805 licenses sold this year. Most license sales occurred in North America with 78% and the balance of 22% internationally. For openings, Club Pilates with 167 StretchLab with 163 and BFT with 71 represented 72% of the 557 new studio openings this year. Like license sales, new studio openings largely occurred in North America with 79% and the balance of 21% internationally. System-wide sales are driven directionally by the number of studios operating and the maturity of those studios. It is expected that the brands with a growing number of studios will continue to generate higher proportions of our system-wide sales as AUVs increase. Our scale brands represented 92% of North American studio operating at year-end and contributed 95% of the system-wide sales in 2023. Club Pilates with 905 studios operating at year-end contributed 52% of our total system-wide sales for the year with Pure Barre at 638 and StretchLab at 436 studios operating, making up approximately 30%. Run rate average unit volumes continue to be strong. Amongst the scale brands and overall, Pure Barre had the highest year-over-year increase and was up 24%, with Club Pilates and YogaSix up 15% and 13%, respectively. CycleBar AUV decreased 1% year-over-year, negatively impacted by studios that had low sales and subsequently closed in the fourth quarter of 2023. StretchLab AUVs decreased 4% year-over-year, primarily driven by a higher number of young ramping studios entering the AUV calculation given the high number of new openings in that brand. Same-store sales across all the scale brands were positive in every quarter throughout 2023, with Club Pilates, Pure Barre and Yoga 6, again, realizing the highest increases. Going forward, total same-store sales are expected to normalize from the 2023 mid-teens growth rates to the low double and high single-digit growth rates in 2024. Turning to the balance sheet. As of December 31, 2023, cash, cash equivalents and restricted cash were $37.1 million, down from $37.4 million as of December 31, 2022. Total long-term debt was $328.5 million as of December 31, 2023, compared to $137.7 million as of December 31, 2022. The increase in total long-term debt is primarily due to the repurchase of 85,340 shares of convertible preferred stock at a price of $22.07 per share announced in January of 2023. These shares prior to the repurchase would have been convertible into 5.9 million shares of Class A common stock. While we assessed a possible whole business securitization as an option to achieve a lower interest rate, given the current high rate environment and not wanting to enter into a fixed longer-term commitment, we recently completed a 2-year extension on our term loan with our current lender to preserve our optionality. The extension gives us the ability to float down with interest rates while in parallel preparing the company to opportunistically enter into a lower fixed cost arrangement later. Let's now discuss our outlook for 2024. Based on current business conditions and our expectations as of the date of this call, we are initiating guidance for the current year as follows. We expect 2024 global new studio openings to be in the range of 540 to 560. This range is in line with the prior year studio openings and relatively equal at the midpoint over 2023. We project North America system-wide sales to range from $1.705 billion to $1.715 billion or a 22% increase at the midpoint from the prior year and the highest North American system-wide sales in our history. Total 2024 revenue is expected to be between $340 million to $350 million, an 8% year-over-year increase at our midpoint of our guided range. Adjusted EBITDA is expected to range from $136 million to $140 million, a 31% year-over-year increase at the midpoint of our guided range. This range translates into a roughly 40% adjusted EBITDA margin at the midpoint. It is worth noting that we anticipate Q1 will be the lowest revenue adjusted EBITDA and have the fewest new studio openings quarter for 2024 and will gradually increase throughout the year similar to the ramp in 2023. And as I just mentioned, we anticipate same-store sales in Q1 will be in the low double digits and will normalize to the high single digits by the fourth quarter. We expect total SG&A to range from $135 million to $140 million range or $110 million to $115 million range when excluding the onetime lease restructuring charges and under $100 million when further excluding stock-based costs. In terms of capital expenditure, we anticipate approximately $9 million to $11 million for the year or approximately 3% of revenue at the midpoint. Going forward, capital expenditures will be primarily focused on the integration of Lindora and maintenance of other technology investments to support our digital offerings. 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 31.5 million and $1.9 million in quarterly dividends to be paid related to our convertible preferred stock. A full explanation of our share count calculation and associated pro forma EPS and adjusted EPS calculations can be found in the tables at the back of our earnings press release as well as our corporate structure and capitalization FAQ on our Investor website. Finally, before turning the call over for questions, I want to communicate that the company is in the process of putting in place a new 2-year and up to $100 million share repurchase program, given the high cash generation expected over the coming years, we want to be in a position to opportunistically use excess operating cash to buy back shares at low valuations. This share repurchase program will not impact the company's ability to execute on opportunistic M&A targets and will be 100% funded using excess operating cash and not through additional leverage. Thank you all for the time today. We will now open the call for any questions. Operator?
[Operator Instructions]. Our first question comes from Randal Konik with Jefferies.
I guess, Anthony, I want to ask you about portfolio construction. You announced the divestiture of STRIDE. You've got some learnings of the recent acquisition in the Delmas area with Lindora. So, just maybe kind of like give us your thoughts on how you're approaching your strategic direction going forward around potentially other areas of the portfolio potentially, I don't know, trimming or not trimming? And how you think about areas of focus for potential acquisitions going forward, whether it be fitness or wellness. Just give us some thoughts there would be super helpful.
Yes. Thanks, Randy. I think managing the portfolio will always continue to be opportunistic. And so, if we are able to repurpose labor or dollars or focus, whether that be into acquiring a new brand like Lindora and/or kind of reutilizing labor out of a brand like STRIDE into another brand, we'll continue to do that. And so, I think like any good portfolio, you would expect Xponential over the years to expand and contract from a brand perspective, but you'll find everything continuing to be, of course, in health and wellness. But as we continue to forge forward, we'll be focusing on what makes the most sense to focus on and modalities and verticals that make the most sense to focus on.
And just, I guess, lastly, John, maybe you can repeat the metrics you gave us around you talked about a certain percent or certain number of studios that had AUVs above $1 million, a certain number above $900,000. I just want to get those repeated, if you can. And then give us some perspective on if you think about the younger businesses, Lindora, Rumble, et cetera, it would just seem like just the mix, you should be able to get those total company AUVs to continue to rise along with some healthy productivity improvements in the existing core as it is. So, just want to get some thoughts there on a, just repeat the numbers that you gave earlier and b, just give us some perspective on AUV having opportunities to just rise at a master mix but also arise through additional productivity gains.
Yes. So, starting with the prior statistics, the AUVs are 350 that are over $1 million, and we have another 160 that are already over $900,000. So, you're roughly well over 500,000 or 500 that are over kind of a 900 plus. And then you look at the brands that those are in, these are the brands where you have strong AUVs and you have a lot of openings coming from as well. So, one thing also remember, it's not just in like the Club Pilates and the Rumbles and some of those StretchLab brands, you also have high AUV performance in Pure Barres and YogaSix's. And that's really encouraging because those brands typically have a higher age, but we're starting to see more openings in those brands as well. So, you're kind of seeing a little bit of a resurgence in growth there. When you think about AUVs in total, and the influence over time and the ability for AUVs to grow. Again, you got to refocus back on where in the brands are you seeing the most amount of growth on future. There was a slide up there kind of showing where we opened and sold licenses in 2023, and the concentration going forward is very similar. So, you will see Club Pilates continue to open up studios at a healthy pace, a very high AUV StretchLab, a lot of openings, a very high AUV, you're starting to see the rumbles and BFTs come into the mix, a very high AUV. So, you will see those brands really drive up with volume, the AUV. The thing that's also very comforting is when you look at it from a portfolio approach, you have brands like YogaSix which had really strong same-store sales. So, you expect to see as we open more of those, not only that the new studios are coping and growing at a very healthy pace from a cohort perspective. But you're also seeing the older studios continue to grow at a healthy percentage as well. So, Pure Barre. Same thing really strong 2023 growth, really strong same-store sales, a huge installed base of Open Studios. So, kind of going back to the question I asked Anthony about a portfolio approach, we're really focusing our resources and energies around these brands that are at scale that have a lot of license sales already sold and a lot of openings to come because that's where the AUVs are really going to be driven from the health of those brands. So, that's where we're going to focus our energy.
Our next question comes from John Heinbockel with Guggenheim Partners.
Anthony, let me start on Lindora, right? So, that would suggest maybe 1,000 unit potential to start with. That's fair. How do you think that kind of ramps in terms of openings in the maturation curve, right? When you think about year 1 of AUV through year 4 or 5, remind us how that looks versus the other brands.
Yes. I mean Club Pilates started, if I remember the exact number was like 938, I think the Buxton did like 6, 7 years ago. And obviously, we have 1,000 approximately open of that today, plus about another 500 sold. So, the TAM continues to expand over time as the modalities expand and the brand expands not at the cost of AUV because as you've seen Club Pilates from 2015 to 2024, a 9-year period while you watch TAM expand by 50%, 60% so far. You've also seen the AUV climb from what was originally about $250,000 to about $1 million. So, you can get additional 50%, 60% TAM while you're also seeing a 4x growth of AUV. When you speak about Lindora, yes, you can see over time that those will be most the same, much like StretchLab where it started in the 500 range, and now we have 800-plus sold, almost 500 open. So, you'll continue to see that TAM expansion. And so, that's kind of what I think you'll expect over time. Lindora, obviously, is starting with about a $900 million AUV is where Club Pilate started 250. So, the idea is to go into Lindora drive focus on sales and conversion, add things like apparel, which we believe will do very well in there that they don't have now as a part of the retail mix and continue to grow the AUV at that brand. So, the first 18 to 24 months are really franchise sales of a brand. And then you'll start to see openings for Lindora from a franchisee perspective. Obviously, the 31 will be existing this whole year. But by the end of the year, you'll start to see Q4 openings of Lindora in 2024, but you'll see the majority of openings in '25, '26, '27 as we kind of sell and then build out the model.
And then maybe the follow-up for maybe John, right? So, it looks like by my math, around $60 million of free cash flow in '24. Is that fair? And then how do you think about executing the buyback consistent versus ASR given where the shares sit today?
Yes. So, in regards to free cash flow, yes, I kind of estimated that free cash flow generation will be about 60% to 70% of the adjusted EBITDA number, probably closer to the 70% number is kind of where I'm estimating it. As far as the buyback, what we want to do is we want to put the company in a position where we have a very CapEx-light business. We will generate a significant amount of cash going forward. And I talked about that in the Investor Day back in September, what do we do with that capital? We prioritize the growth of this business and looking at M&A to kind of continue to grow top line and bottom line. But when we are in a position where there's nothing opportunistically, we're going to go ahead and be purchasing, what do you do with that capital, buying back shares at the current valuation are pretty attractive. So, the timing and cadence of that, you'll probably see more activity kind of ramp up throughout this year. And then probably in 2025, you'll be a healthy amount of buyback opportunity there. But we are conscious of our current debt and interest rates. But, as I mentioned, we got the extension done with MSD. And therefore, it's kind of a variable arrangement where it will float down over time. So, we are paying attention to that too versus paying down debt versus stock and that's why we're doing it in an opportunistic way where we have ability to control where we direct cash, that's in the best interest of the company. But we are in a good position that the business will be highly cash generative. So, it gives us the opportunity to do stock buybacks opportunistically.
Our next question comes from Jonathan Komp with Robert W. Baird.
John, I just wanted to follow up. Could you give a little more color as we think about the SG&A dollar run rate you spoke to and the decline in the underlying rate ex one-offs and stock compensation. Could you just give a little more color, the corporate studio impact and anything else that's going into the projection there?
Yes. I mean when you look back at 2023, one of the reasons why SG&A was higher was because of the transition studio. So, we spent a lot of resources and energy in the back half of 2023 focusing on getting studios refranchised where it made sense, where it didn't make sense, we closed down studios. I talked about the true run rate of our SG&A being in that $110 million to $115 million range. That's where it is when you exclude the kind of the P&L impact of kind of breaking these leases with landlords. So, those are onetime in nature. So, we will be in that kind of $110 million to $115 million range for SG&A when you take out stock-based comp, you're sub-100. Over time, I think SG&A as a percent of revenue in a, what I can say, a most efficient state or after you exclude stock-based comp will be in that kind of mid, high 20s percent of revenue range. So we look at the restructuring costs and the lease liability is one time. So, we're excluding it from the purposes of our normal run rate for SG&A, which should be in that $110 million to $115 million range with stock-based comp without stock-based comp under $100 million for the full year next year, or in 2024.
And then one follow-up, just wanted to ask about the Rumble brand. It looks like you sold fewer licenses than relative than the number that you had opened in 2023. So, I just wanted to ask sort of the health of that brand, what you see going forward for Rumble?
Yes. The brand is fine. I mean, there's 10 brands, 11 brands now minus stride again. So, there's 10 brands to choose from. So, it's not like we're driving one brand. And so, that's kind of where the brand is from a franchise sales perspective. You'll find that in franchise sales in general, you will sell a brand, we've been selling Rumble since I think we bought it in March prior to going public. So, after 2.5 to 3 years, that's what you'll kind of see as you start to tap out the TAM. I mean, we've been selling that business for almost only 3 years this March and then BFT after that, Lindora after that. So, you don't want to see us selling 5,000 Rumbles because that means that we'll be saturating the market, right? So, nothing really to read into their same-store sales up 11%. So, that brand is doing fine. We're working with franchisees to engineer cheaper openings, make the item 7 less expensive, so we can get some open as we've been going and operating more. Like in any brand, we know what it's like to own 100 of a lot of things, but we don't know what it's like to operate 100 rumbles. And so as you get from 0 to 100, there are learnings that go on, and you find ways to value engineer the opening. So, the openings are less expensive but still don't have an impact on AUV. So, you keep capacity the same but you start to find ways that you can get the stores open for less money and then continue to operate them. So, that's great.
And our next question comes from Megan Alexander with Morgan Stanley.
First question, I just was wondering if you could give some color on any quarter-to-date KPIs. January is typically positive from a seasonality perspective, but I think we're all well aware, weather has not been ideal. So, I was hoping you could just give us any more color on what you're seeing maybe as it relates to member adds, monthly visits, quarter-to-date and then how the comp is trending relative to the low double digit you talked about for the first quarter.
Yes. So, we've been watching this and evaluating the KPIs that drive kind of the Q1 activity. Overall, we've looked at system-wide sales performance in January and February same-store sales, active members, visits, total new members, cancellations. We haven't seen any real variability from prior year that stands out like there's something different with the consumer and the way they're acting. January and February was a little bit lighter than we were kind of expecting from our upside case. But overall, the business is strong. The AUVs are still delivering. There's nothing that says that there's something meaningfully off from a growth perspective on Q1. Same-store sales, I talked about that. Those will normalize over time as we expect. I still expect to see 2024 go from a low double digit to high single digit from Q1 to Q4. So, based off of that, you could expect to see, again, a low double digit in the first quarter. That's where our models are kind of wrapped around and the new members and the growth that we're seeing at the studio level support that. So, there's no like smoking gun like anything is wrong. And definitely, it's in line with our expectations and what we've kind of modeled out in relation to our guidance.
And then as a follow-up, I think if my math is correct, it looks like you may be close to 94-ish stores in the fourth quarter, the pretty big step up from the third quarter. I know there were some transition studios left, but it still implies a pretty sizable number beyond that. So, can you just help us understand what those closures were? And then how do we think about that run rate in '24? I guess maybe said differently, you're expecting gross open $5.40 to $5.60. What should that look like on a net basis?
Yes. When you look at the fourth quarter, it was 87 studios that were closed in the fourth quarter, a fair amount of those were related to the transition studios that we discussed as part of our strategy. So, you could probably look at that as more of like a backlog of studios that we had acquired. When you kind of take the 131 studios that have closed inception to date of this company and extrapolate that back, you're looking at really like a 3% closure rate per year. So, that kind of is our historical trend. So, when you think about 2024, that's how we're kind of thinking about it going forward. We'll get more information quarter-to-quarter as we continue to operate. But right now, the best kind of indicator of future is obviously the past. So, we're going to probably say it's probably in that low single-digit percentage of total studios.
And our next question comes from Joe Altobello with Raymond James.
I guess first question, I'm curious any takeaways that you may have had from the franchisee convention that you hosted in December, having conversations with your franchisees. Was there anything that was on top of their mind?
Yes. It's interesting, Joe, you bring that up. I'm always super invigorated at the convention time because I'm actually getting to be with franchisees and operators, and that's what I enjoy doing is operating. And so, from that as I kind of looked at that, I looked at the kind of micro convention we had in November with CycleBar owners in Texas when we launched our new training program there, just like we did in Pure Barre. You kind of see that excitement that's there at convention, excitement that's there when we all get together. And really just kind of honed in on what really happens there is communication and franchisees knowing what we're doing every day, us knowing what they're doing every day and really working together. And so, in January, I launched the franchise forums, where the franchisees actually self-nominated 5 representatives to come to the corporate office and sit and meet with me all day. We kind of transcribed notes from that created to do list from that. And then we're completing those to do list between now and the end of Q2. So, things that we can do in 6 minutes or 6 days or 6 weeks, we will do, things like technology development or things of that nature with third-party vendors that we may not control could take 6 months. But the idea around that is, I met with 50 franchisees, 50-plus franchisees for several hours in an aggregate, it was about 70, 80 hours of one-on-one with franchisees. And now we have the tend to-do list that we need, and that to-do list is sitting with the base, and we're constantly updating it on a daily basis. So, franchisees are getting to see the communication see exactly what we're working on daily to move the needle so that they know that they are heard and that we are working in their best interest. So, we've been doing that, and it's been going very well. So, we're very excited about that. And then the first week of July we'll be doing the same exact thing again and completing another 6-month list. So, by the time we get back to that convention that you were talking about, we've had 2 full set quarters, so a whole year of doing too big to do list at every brand. And so when you look at that expo-wide, I mean you're really talking about thousands of tasks over a 1-year period to help align between franchisor and franchisee on what's working, what's not working and simply do more of what's working and do less of what's not working and fix it.
And just a follow-up on that. In terms of the openings for this year. I think previously you had said that BFT and Rumble would represent about 1/4 of 2024 openings. Is that still the case? And are you expecting any Lindora open this year? Or is that more of a 25 event?
Yes. I mean we're in the process of opening or selling Lindora right now. So, the kind of the cadence when you buy a brand as you a lot of upfront selling. And then you see in that 6 to 9 months, by the time they find a location and do the build out, they get open, possibly to see a handful, maybe 2 handfuls of units in the fourth quarter of this year. When you look at the spread of where the openings are going to come from in 2024, we opened 30% in CP in 2023, you'll likely see a high volume similar to that. We had about 30% in StretchLab. You'll see a similar cadence of that. And then obviously, there'll be more BFTs and more rumbles probably in that 10% to 15% range as well and then the rest sprinkled across the rest of the brand. So, largely, the studio mix that you saw in '23, that should be the expectation for 2024 and then an additional handful of Lindora will come into the mix.
It's also good to note, Joe, that the rumbles we're already seeing existing franchisees opening additional rumbles this year. So, that brand will maybe have some additional upside as people kind of get in rolling out kind of all of those stores. So all the high AUV brands are starting to see those kind of re-openings even earlier on.
And our next question comes from Ryan Meyers with Lake Street Capital Markets.
First one for me. So, if we think about the 2024 guide, just wondering if you can talk about some areas where you think you potentially see some upside there come in at the high end of the range, if not better, if there's anything that you would expect to see come in throughout the year?
I mean when you look at the revenue, the things that will be fairly flat is equipment revenues, because we're really not just replacement revenue. We opened 557 units in 2023. We're guiding about the same amount at the midpoint for 2024. So, that line itself will be pretty just replacement revenue. The upside opportunities are obvious system-wide sales. We continue to look at ways, as Anthony mentioned, as you met with all the different brands are ways to improve performance at the brand level. Mix is always helpful too if we continue to get more Club Pilates open faster and get them up to scale faster up to kind of out of their base AUV that's encouraging. So, I told Anthony, this year is all about getting studios open, driving strong same-store sales, controlling SG&A and getting the margin expansion that we went through the restructuring last year to achieve. So, the opportunities aren't really same-store sales and openings. We have done a lot of work on equipment and retail to optimize that. So, we're investing resources into that part of the operation to see how we could further support franchisees and drive better retail for them to encourage more sales that in studio. So, that could be another opportunity, too, as we sell more retail through our warehouse and on our online malls for them. So, there are some opportunities. But same-store sales royalty generation, that's the ticket.
And then wondering if you can comment on if you've seen any changes in the willingness of new franchisees to open up more studios or purchase more licenses?
No. When you look at I mean, Q4 is probably your kind of your best indicator of 2023. In Q4, we opened 160 units approximately. In Q4 alone, and we opened 90 in December. So, if you look at the average of 2023, it was a store every other day, and you'll get the average of December. It was twice that 3 a day. So, obviously, if there was franchisees weren't wanting to open, then you wouldn't have seen the last month of the last reported quarter be the best the company has ever done and 2x the kind of system average. So, that's pretty good. Also half of those openings approximately for the year were done from existing franchisees. And when you look at the backlog of our sold already prepaid for not open licenses about 66% or roughly 2/3 of those are from existing franchisees.
Our next question comes from Korinne Wolfmeyer with Piper Sandler.
First one for me is, can you just expand a little bit more on your decision to divest STRIDE? What really was behind that? And I know it's a small part of the mix, but just curious your thoughts and the reason behind that. And then going forward, is there a risk that maybe additional brands you might have to divest that may be struggling a little bit weaker to allow you to lean into some of the larger brands?
Yes. Thank you. Yes, I mean there's no half to divesting, just like there's no half to buying. So, we don't have to do one or the other. We look at the portfolio and decide what is the best optimization of labor and resources. So, for instance, our President of STRIDE is going to be running a portion of Lindora. We've shifted some of the -- took 100% of the STRIDE labor and put that into different parts of Xponential and labor being like any business, getting great employees to do a great job is probably the #1 hurdle. And so, when you have employees, you can repurpose into different brands or different parts of Xponential and kind of focus on core business or other parts of the businesses, whether it be the most recent M&A, where we've kind of stacked the deck over there where we have our Pure Barre CMO that we've moved over and put a STRIDE CMO up in under Pure Barre. And we've taken the President of STRIDE and put them into Lindora into a second spot position. We've taken Lou, who was the originally founding member of StretchLab and then BFT now to run Lindora. We brought back Martin, who is the CMO StretchLab, put him into Lindora. So, we're able to repurpose labor is really the driver for us. It's not that it has some massive effect on EBITDA or the business. It's really us focusing on scale to drive more impact. And our high-value AUV brands or what will be our high-value AUV brands. So, it makes sense if you have something like Lindora where that AUV is 1 million, and you have 31 units. Do I want to purpose labor there? Do I want to purpose labor on another brand that may have 17 units today and an AUV that's 1/3 of that or whatever it might be, right? And so, that's where I want to swap out one brand for another. I'd rather have 31 clubs doing $1 million each that have 17 clubs doing 350 with the same labor. So, it's really about repurposing the labor. And so, yes, over time, if we think it's opportunistic for us to do something, we will. We had 3 people that were bidding on STRIDE and we assessed what made the most sense for the franchisees, for our partners on a go-forward basis. And so, with that, Sean Grove, who was President of Rumble, had already expressed an interest in retiring. He was a franchise lawyer by trade. He's been a franchise attorney, franchisee operator and boutique fitness for almost 20 years now. And he would like to retire and do something he enjoys doing, when he did Rumble Boxing, he loved the Rumble training product, which is a lot like STRIDE. And so, he's always had an interest in stride. He bought the #1 STRIDE franchise store in Pasadena, California, which does about $1 million a year. And so, he's the owner of that and wanted to run the franchiser or kind of in his sort of second lease on life and that made a lot of great sense for the franchisees and the STRIDE future. So, when I was doing those franchisee forums where we had the STRIDE representatives there, we also had Sean there. So, we've had a full integration with Sean and those franchisees to make sure that we send everything off in the right way and take care of the franchisees.
And then, John, maybe can you expand a little bit on the cadence of EBITDA margin over the course of the year? I think you said maybe from a dollar perspective, it's going to be a little bit lighter here in Q1. But can you talk about from a margin perspective, will that also be a ramp throughout the year? Should it be kind of like even keeled quarter-to-quarter?
Yes. Great question. I was hoping somebody was going to ask me that. When you look at Q1 or maybe first half, second half of 2024, the way you should think about studio openings revenue, EBITDA from a dollar perspective, it is going to be more like 45% in the first half, 55% in the second half. Studio openings and the revenue or Studio openings will be about 20% in the first quarter. So, if you take the 550, it's roughly about 115 openings in the first quarter. It's probably the right way to think. And then that will ramp up much like it did in with the most amount of openings in the fourth quarter. The benefit of EBITDA margins is almost instant from the perspective of -- we did the work we needed to do last year to get rid of the transition studios or close and refranchise them. So the SG&A cost has come down significantly. So, you will see probably Q1 will be the lowest EBITDA margin quarter, probably roughly in the mid high 30s. So, let's call it 37% to give you an estimate there. As you roll into Q2 and Q3, that's where the 40% plus will start to come into play. So, I do expect to see EBITDA margins Q2, 3 and 4 would be in that, we'll start with a 4 versus your actual dollar margins will ramp throughout the year. So, you can expect to see EBITDA in Q1, probably closer to what it was in Q4 of last year of 2023, and then that will ramp throughout the quarters by a couple of million each quarter. So, it will be a progressive from a studio openings from a revenue perspective to an EBITDA perspective and from a margin perspective.
And our next question comes from Alex Perry with Bank of America.
I guess just first, can you talk to us about your monthly churn rate? And if you have seen any changes in that recently?
Yes. When it comes to the churn, it's been very consistent. We do measure it after 12 months. So, we typically look at churn, and it's in the low single digits as a percent. So, there hasn't been any really change in any kind of consumer behavior. We did, again, as we've even looked into the first quarter of this year, very consistent from looking at it to Q1 of 2023. But it's been very consistent in that 1% to 3% range churn. Nothing of deviation from what we've seen historically.
And then just my last one. Can you just give us some more color on why opening sort of build throughout the year? Is this just sort of the normal seasonality of when franchisees generally open? And what sort of gives you confidence in the sort of gross opening number? Is that based on signed leases and LOIs? Just a little more color on the opening progression would be very helpful.
Yes, of course, Alex. As you see, and I said earlier on the call, there was actually 169 openings in Q4, which is a massive quarter and 90 openings in December. So, the run rate for the year is about a club every 15 hours, and the run rate for December was $3 a day. So, there's a big push always in Q4 in Fitness, as I'm sure you're aware, for people to want to be open in January. So, franchisees tend to work a lot harder to get deals done by year-end. Same with landlords. We deal with a lot of massive public real estate investment trust. And so, they want to get deals on their books by 12/31. So, landlords have a willingness to want to sign leases by 12/31 versus 1/1. And so, when you have a willingness of franchisees, the lessor and lessee coming together by the same date at 12/31, you'll see a lot more openings negotiations happening for the last half of the year than you see in the first half. And, yes, we have over 400 LOIs and leases currently signed that we have named addresses, phone numbers, dates of openings for by brand across the country, much like we gave you at the Investor Day in September, where we showed the list of ones that we have. We always have an ongoing visibility of about 400 to 450 domestic units and then about another 100 plus on the international side, and that's how we get to that kind of 500 to 600 or 557 that we did last year. If you kind of look at the ability of that, I believe, and John can correct me if I'm wrong, but I think we guided to 500, 600 at the beginning of the year, and we tightened that into 550 to 560 later in the year, and we landed at 557. We had 4 openings in the day after on January 1. So, we would hit 561 if we would add 4 people that would have had a class schedule. But given New Year's Day, some people tend to wait to the 2nd of January. So, you can see from what we've been guiding to historically what we've been hitting in the real world, we obviously have a very great visibility into what we're able to see in the future.
And our next question comes from Jeff Van Sinderen with B. Riley.
So, I wonder if you can speak a little bit more about the performance of the newly opened units over the last few months, what you're seeing there?
Yes. Great question. We've obviously monitored the cohorts by every quarter. And the one consistent data point is by month 3, when you look at the studios that have opened in Q1, Q2, Q3 and Q4 by month 3, most of these studios are doing 40,000 to 45,000 plus on average, which gives us really strong comfort that they're getting to that $500,000-ish range AUV almost immediately after doing the grand opening. So, that's been very consistent. I just looked at the data part of this call to make sure we have the most up-to-date information and all those cohorts from every quarter last year are doing strong. So, it does show you that when you look at how we're opening studios, we are doing a better job every quarter as we go by to getting studios up to ramp faster, which is important for franchisees because it gets them to breakeven faster and profitability faster. And that $500,000 AUV in the average design model, it gets them into the target market range that is needed for the franchisees to make that 25% to 30% margin. So, very healthy 2023 cohort doing better than the 2022 and '21. As we also talked about same-store sales and some of these 36-plus months studios mid-teens double digits. So, again, it's not even the young brands that are kind of starting strong. It's even the younger studios that are starting strong. It's the older ones as well that continue to comp at a healthy rate.
And then just circling back to Lindora for a minute. I know you mentioned the comparable unit size. And I'm wondering, would it makes sense to aim to co-locate real estate along with your existing fitness brands when you open the doors?
We've looked at that over the years and what you ultimately really end up saving is kind of a front desk space. If you co-locate, you still have and imagine if you co-located a brand that had 20 people in class and 30 people in class. You're still going to have 50 people coming in the door and out the door at 5:00 and 6:00, right? And so, you save some front desk, the cost of a front desk, but you still need to put double the staff or you won't be able to sell to 20 people coming out of a class. So, you don't really save on that. We don't have massive kind of locker room or shower facilities, and you wouldn't want to just have one men's and on women's bathroom or 2 unisex bathrooms for that much volume nor would the studio let you. So, you end up building 2 boxes that are exactly the same with no cost savings, the same labor with a wall in the middle and you take the wall down. So, it's not really helpful, right? You have the same equipment, you have all those things. And then with the franchisee in the future, wanted to sell off one brand and keep the other brand, they wouldn't be able to. They have to sell them both together. So, it's harder to do. And if all the brands were born at the same time, then franchisees could kind of pick and choose a buffet. But since we've had these brands over a 9-year period, today, you want to be able to just choose what you want to co-locate amongst brands because those brands have been sold to other people. So, you could incrementally add maybe a Lindora today or BFT a couple of years ago or rumble a few years ago, sometimes it's harder to do, especially in major DMAs.
Our next question comes from Warren Cheng with Evercore ISI.
I've got another one on Lindora and just the opportunity you see there. So, it's a little bit of a different modality than what we've done before. You talked in the prepared remarks about potentially a broader expansion into health and wellness. Obviously, there's an interesting GLP-1 angle there. Is there anything different about how you're going to deploy that particular asset and unlike the opportunity there?
Yes. I mean, obviously, it's very similar. The footprint is similar. So, Lindora is next to Xponential brands currently. So, start from day 1, the real estate is the same landlords, the same-size square foot box and build. As you move forward, at the end of the day, it's about generating a lead and closing that lead and making them a member and then putting them on a subscription base, which is what Lindora does, the GLP-1 part of the business, and we think that will continue to expand. However, for 50 years, Lindora has been achieving 800,000, $900,000 AUVs without GLP business. So, that will be a part of the business that will expand. HRT will most likely expand over time, as I indicated earlier, kind of apparel retail sales. We imagine will expand given that the average member at Lindora spends more than the average member in our fitness brands. So, there's kind of more wallet share there, if you will, than the fitness product because people that have shown up at Lindora have tried typically some version of weight loss, whether that be diet and exercise or both in the past. And so, when they come to Lindora, they're willing to spend whatever they need to spend to get the ultimate result, which is typically not the first place people go. So, that kind of gives you some color.
And then just one follow-up on a comment you had in your prepared remarks about half of North America openings coming from existing franchisees. Very roughly speaking, do you know what that was 3 to 5 years ago? Is that significantly different? And is there a noticeably better performance, AUV or profit on the second or third or fourth studios relative to kind of the cohort of first Studios?
Yes. I don't have that data. We could obviously pull it, but I don't have that prepared today, so, I don't want to steer you directionally one way or another. However, my feeling would say that it's probably been consistently the same kind of over time. But, yes, we don't have anything prepared for that today.
And in regards to the performance on the first versus second, you typically see performance better in the second and third units because there's the art of learning from mistakes, so you don't make the same mistakes when you launched for the second time as you made the first time as far as like how you market. And there's also opportunities to leverage operations and instructors as you open your second codeshare first. So you typically see performance improve after multiple units.
Our next question comes from George Kelly with ROTH MKM.
So, 2 quick modeling questions for you. The first, your target for SG&A, the $110 million to $115 million for this year. I'm curious, are you already there pretty much? Or is there going to be a material kind of step down in SG&A throughout the year? And then second question for you, in response to one of the earlier questions, John, I think you said you expect free cash flow to be approximately $60 million to $70 million, maybe closer to 70% of EBITDA. That's just a bit higher than I would have anticipated. So I'm curious if there's anything this year that's unusual that's benefiting that flow through to free cash flow.
Yes, let me answer the 2 questions for you. So, the SG&A will be slightly higher in Q1 simply because, as Anthony mentioned, there's a handful of transition studios that we're just working through. So, slightly higher SG&A in Q1, but virtually, we're there, getting back to that $110 million to $115 range by Q2, Q3 and Q4, that should be a pretty normal run rate. The only thing that you have in the fourth quarter, obviously, is the convention that we do every year for our franchisees. So, that does add some additional costs in the fourth quarter. But in essence, the work that we did at the end of last year is done and the benefit of the margin expansion will show up pretty quickly in Q1 and then get to, like I said, that 40% adjusted EBITDA margin range in Q2. Keep in mind that as we work through the leases with the landlords, that's all about time and settling with those. So, those were looking as a onetime restructuring charge. So, there'll be an SG&A, but we'll add it back for margin purposes like we did in 2023. The second question you had, what was that again, just remind me?
Your free cash flow, 60% to 70% EBITDA. And is there anything unusual, it's just a bit higher than I would have anticipated.
No. I mean, nothing unusual about that. When you think about where the margin is coming from, and this is again where I was really trying to stress this in the Investor Day is, over time, as we continue to open up more studios and drive revenue, the gross profit of this business gets better and better, and it's really on the back of royalties. So, the key for us is to, again, as I mentioned, in 2024, the goal is get studios open, support franchisees to drive AUVs and same-store sales because the incremental margin flow-through is incredible. And that goes right to the bottom line in cash. So, we're not in this for the onetime revenue of license sales. Obviously, there's equipment margins and all that. But at the end of the day, it's long-term reoccurring revenue that we're looking for. So, the cash flow generation of that 60% to 70% lean more towards the 70% is what should be expected. It's just, again, it's a juicier margin revenue mix that we're getting over time.
Thank you. There are no further questions at this time. I'll hand the floor back to management for closing remarks.
Thank you, everyone, for joining today's earnings call and for your support. We look forward to seeing many of you at the upcoming marketing events, and we'll speak to you again on our Q1 earnings call in May.
Thank you. This concludes today's conference. All parties may disconnect. Have a good day.