Q4 2020 Planet Fitness Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Planet Fitness fourth quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session and you ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
Requiring further assistance please press star zero.
And I cant conference over to your speaker today Brendon Frey from ICR. Thank you. Please go ahead.
Thank you for joining us today to discuss planet Fitness, Inc. Fourth quarter 2020 earnings results on today's call, Chris Rondeau, Chief Executive Officer, Gordon wildly President and Tom Fitzgerald, Chief Financial Officer.
Our interest in Tom's prepared remarks, we'll open the call up for questions.
I'd like to remind you that certain statements we will make in this presentation are forward looking statements.
Forward looking statements reflect planet fitness is judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting planet fitness business.
Accordingly, you should not place undue reliance on these forward looking statements.
For a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made in this conference call and webcast.
We refer you to the disclaimer regarding forward looking statements included in our fourth quarter 2020 earnings release, which was furnished to the SEC today on form 8-K, as well as our filings of the SEC referenced and that disclaimer.
We do not undertake any obligation to update or alter and forward looking statements, whether as a result of new information future events or otherwise.
In addition, the company may refer to certain adjusted non-GAAP metrics on this call.
Explanation of these metrics can be found and the earnings release filed earlier today.
With that I'll turn the corporate and Chris Rondeau, Chief Executive Officer of Planet fitness.
Thank you Brendan and thank you everyone for joining us today at the Planet. This is Q4 earnings call 2020 has certainly been an unprecedented year from the fitness industry and our business with our members' health safety and best interest at the forefront of our decisions combined with the strong foundation, we built with our franchisees over nearly two decades.
And that continues to face the ongoing challenges created by COVID-19, head on and I am extremely proud of how our franchisees headquarter staff and <unk> continue to be agile through the ever changing environment and rally together to provide a clean and safe fitness experience for our members and fitness is a key component of strong physical and mental health, which is more important now than ever before and the weight of of patent.
And then make that disproportionately impacts of those with health related risk factors.
While the operating environment remains fluid we are pleased that as of today, 90% of our stores are opened and the vast majority of our closed stores are in California, where state wide restrictions on reopening remain in place as well as parts of Canada and Panama.
And are hopeful at the entire system will be opened as soon as we believe that the robust safety protocols. We put in place allows that stores operating safely.
And include enhanced cleaning and standardization touchless check in COVID-19, one of the screening questions via the planet fitness mobile App.
Crowd meter and the.
Mandatory Max requirements and physical distancing measures remaining committed to keeping our members and staff safe and healthy and all of our stores.
Our ability to successfully operate our stores and service of our members realized largely on the financial health of our system.
Given the historical of strength of our business model and franchisees, we have had zero stores permanently closed due to COVID-19.
And zero franchisee bankruptcies.
While we have weathered the storm well relative to the overall Jim industry, we've provided of franchisees with relief and the form of a 12 month extension on all development requirements and an 18 month extension on the replacement of equipment commitments. We believe this will allow franchisees to rebuild their balance sheets, while continuing to invest and marketing to drive membership growth, which is our number one priority.
As we discussed on our Q3 call in November we redo of our National sales acquisition marketing efforts at September after pausing national promotions at mid March when our stores temporary closed.
Consumers respond at positive to our message reinforcing of that finished and essential.
Pandemic is negatively impacting people's physical and mental health and we of the rate environment in place to keep people motivated robust protocols in place to keep them safe.
This helped to slow the decline and total members we've experienced as a result of pent up cancellations at our stores reopened and resumed drilling looking back on the year. Our biggest challenge at 2020. It wasn't from increased cancellations due to COVID-19 of cancellations of our stores was flat to 2019 levels on a per store basis. Our challenge was lack of gross new joins as we pause our national sales at.
Acquisition marketing for the first time ever including very certain key sign up periods of last spring and early summer.
On the heels of of successful national sales of timber we conducted two more national sales in October and November and.
In addition to flash sales in December overall, we are pleased with the results, especially given the holiday seasonally slower time in terms of science from the industry.
We ended 2020 with approximately $13 5 million members compared with $14 4 million members at the end of 2019.
It doesn't have the momentum from our successful new year's Eve sponsorship, we kicked off 2021 with our usual as of January promotions and our target audience of casual first time gym goers continued to respond favorably to our messaging and value proposition. We were unsure of what to expect from this key industry sign up period under these circumstances and we were pleased with the results we ended.
January with $13 8 million members up from approximately $13 5 million members at the end of December representing our first month of overall net number growth since before the pandemic. The recent uptake of membership is very encouraging and reinforces our belief that people want to return to bricks and mortar fitness and factor day, 5% of our members who canceled during COVID-19.
And have already rejoined and 28% joins overall since COVID-19, where prior planet fitness members.
In addition to driving numbers back into our stores, we continue to salary of digital efforts to further engage with our members wherever they are and and hamster overall experience with our brand and fact planet fitness and mobile App is currently one of the top ranked free apps and the health and fitness category for both Apple and Android reinforcing that planet fitness remains a trusted source for health and wellness.
And currently 40% of our total member base has adopted the App and new joint App adoption rate continues to climb reaching 70% and in addition, we continue to add value to the App with new features like the crowd and unit, which enables members to check the capacity before coming to the gym.
Building upon our partnership with <unk> in April we continued to provide streaming and virtual fitness content and our mobile App. These workouts are some of the most popular workers' comp and per day. We also continue to test plus our $5 99 per month digital only subscription membership vs.
Mobile App and remain encouraged by the trends. We're seeing for example testing results. So far have shown that more than 20% of PS plus subscribers are non benefit and as members and moving 20% of them have since become bricks and mortar members. In addition to their <unk> plus subscription.
Additionally of our members who have subscribed at nearly 60% of them have visited their store to work out and subscribing to <unk> plus so the majority of subscribers are still engaging with our bricks and mortar offering and CPI plus as a complement to their membership these trends reinforce our view that extendable and digital membership can serve as a gateway to traditional bricks.
And mortar membership not a replacement for and provides us with an opportunity to further engage members and prospects wherever they are we will continue to assess content engagement and usability feedback to reform broader rollout plans down the road.
While consumers adoption of digital fitness has accelerated given the pandemic I truly believe that the future of fitness industry is about bricks with clicks the powerful combination of providing a high quality in person and fitness experience coupled with the complementary digital experience where consumers can experience the brand in the club and at home.
Given you everything we face in 2020, I am very pleased with how our system has weathered the storm, we opened 130, new stores and in line with most recent expectations while at the same time.
Fitness industry Trade Association as predicted at about 25% of U S Gyms and studios will permanently close as a result of the pandemic.
While we have strengthened our leadership position during the pandemic, we anticipate the near term operating environment to remain volatile and longer term. However, we are more optimistic about our prospects for growth and we were prior to COVID-19 for several reasons.
This includes capitalizing on the industry consolidation and favorable real estate conditions. We believe we'll emerge over the next several years to grow membership and expand our physical footprint.
And our technological capabilities to enhance our digital engagement and utilizing a powerful marketing machine to increase demand for our non deteriorating accessible fitness offerings.
And I'm confident that planet fitness is well positioned to resume the growth trajectory at the business was on at the start of 2020 prior to the outbreak once they've been delek is behind us and COVID-19 has widen the moat around our bricks and mortar business and accelerate our digital strategy positioning us well to serve the casual and first time gym goers whichever way.
And they want to engage with the brand.
Thank you and I'll turn the call over to Tom.
Thanks, Chris and good afternoon, everyone. We opened 41 stores during Q4, bringing our full year total to 130 <unk>.
This compares to 102 and Q4 last year, which resulted in 2019 and being a record year for us with 261, new stores opened.
Our primary focus over the last several quarters has been reopening stores restarting our national acquisition marketing efforts, which we did in September and as a reminder, as Chris said, we provided our franchisees a 12 month extension on all new store development requirements and an 18 month extension on their equipment.
<unk> commitments.
For the fourth quarter total revenue was $133 $8 million down $57 7 million or 31% compared to $191 $5 million and Q4 last year.
Of the $57 7 million declined 49.0 million or 85% was attributable to lower equipment revenue, which was the result of the development and replacement of equipment dynamics I just mentioned.
The remainder of the year over year change and total revenue was primarily due to the impact from temporary store closures due to COVID-19, and lower membership levels.
We ended December with approximately $13 5 million members down zero point $9 million from where we ended 2019.
This compares to the $15 5 million members at the end of Q1, $15 2 million at the end of Q2 and $14 1 million at the end of Q3.
The decline and memberships was primarily a function of lower growth new joins as we paused our national acquisition marketing efforts between March and September while the majority of stores were temporarily closed and <unk>.
The average number of Kansas per store and 2020 was consistent with 2019.
With the decline in net membership we experienced starting in March when the pandemic forced the temporary closure of all of our stores.
System wide same store sales turned negative and the third quarter and declined further in Q4.
And now for some context, we reported 53 consecutive quarters of positive system wide same store sales growth.
And before Covid hit in March and shut down all of our stores.
The simple average of our quarterly system wide same store sales growth over those 53 quarters was 12.0% followed by negative systemwide same store sales growth once we resumed.
Porting the metric in Q3, and Q4, primarily driven by the impacts of the pandemic.
And our model and historically strong same store sales results.
At depend on the ability to continually grow net membership levels across our store base month over month quarter over quarter and year over year. Additionally.
Additionally.
And our recurring revenue model, our same store sales performance at any point in time is a function of what happened to our membership levels.
For the trailing 12 months.
For the fourth quarter system wide same store sales were down 10, 6% with franchise down 10, 6% and corporate owned down 11, 7%.
The 10, 6% decline and system wide same store sales was largely due to a decline and membership levels slightly offset by an increase in average rate.
Black card penetration declined 40 basis points year over year to 65% with the decrease attributable to the cumulative effect of not having any black card national sales and 2020 versus the four we had in 2019.
Additionally, the impact of multiple national sales and Q4 of 2020 versus one and Q4 of 2019 increased the rate of $10 joins.
Black card penetration and Q4 of 2020 was down 20 basis points compared with the third quarter.
And we incorrectly disclosed back in November that Q3, Black card penetration was 62, 7%.
120 basis points versus Q3 of 2019.
The corrected.
Q3, Black card penetration is 67% down 50 basis points versus the prior year period.
The calculated metric, we have and our system for monthly ESP member Count was erroneous Lee factoring out frozen numbers, which never had a material impact in the past, but when we began to see a modest increase and frozen members and Q3, the field understated our ft member balance and up to skew.
The black card percentage.
To be clear it was a formula error that we did not detect.
And is not a fundamental shift and the perceived value of the black card.
Given the change and black card promotional cadence versus the prior year and the prolonged pandemic. We're pleased with the fact that the majority of our new members choose the black card option, even though it is more than twice the $10 membership fee, we predominantly advertising or marketing.
Looking ahead the way our recurring revenue model works, our same store sales growth will improve once the quarter to quarter growth and membership levels and our comp stores.
Exceeds the quarter to quarter member growth and the same prior year period.
Therefore, we expect same store sales declined.
<unk> declined further in Q1 compared with Q4.
We would expect to see improvement during Q3 of 2021, when we cycled of prior year's most significant membership declines.
Depending on Covid related developments.
Note that we will not report a same store sales metric for Q2 due to the majority of our store base being closed during the prior year period.
Moving on to a review of our segment revenue results franchise segment revenue was $66 9 million down $6 4 million or eight 8% compared to the $73 3 million and the prior year period now let me break down the components first royalty revenue, which consists of royalties on monthly membership dues.
And annual membership fees.
$43 8 million compared to $48 4 million and the same quarter of last year to $43 8 million of revenue includes $3 3 million attributable to catch up billing of annual membership fees that were not billed.
And on their normal schedule due to COVID-19 related store closures.
The average royalty rate for the fourth quarter.
For the stores that drafted was six 3% consistent with the same period last year.
Next our franchise and other fees were $3 4 million compared to $4 $5 million and the prior year period.
These are fees received from online new member sign ups. The recognition of fees paid to us for franchise agreements area development agreements and the transfer of existing stores.
Decrease was primarily driven by lower Ada and fees during the quarter.
Also within franchise segment revenue is our placement revenue, which was $2 6 million and in the fourth quarter compared to $5 6 million a year ago.
These are fees, we received for the assembly and placement of equipment sales to our franchisee owned stores within the U S and Canada. The decrease reflects fewer new store and re equip placements executed in the quarter compared with a year ago I will discuss the number of new equipment placements later, when I discuss equipment revenues.
And finally National advertising fund revenue was $16 8 million compared to $13 2 million last year the year over year increase was driven by a.
Higher net contribution rate of 325% that our franchisees approved.
As a temporary rate increase and was in effect from the start of September through the end of 2020.
Our corporate owned store segment revenue was $38 9 million compared with $41 2 million and the prior year period.
The $2 3 million dollar decrease was due to lower membership fees from temporary COVID-19 related store closures and lower membership levels of partially offset by revenue from nine new stores that opened since at the beginning of Q4 2019, and 12 stores that were acquired in December of 2019.
Turning to our equipment segment revenue decreased 49.0 million or 63, 7% to 28.0 million from 77.0 million.
The decrease was driven by both the reduced new store openings versus last year that I mentioned earlier in the call along with lower replacement equipment sales to existing franchisee owned stores.
Replacement equipment sales in Q4 were $8 4 million compared to $26 million and Q4 last year in the fourth quarter. We had 45, new store equipment placements, which was down 63 from the prior year period.
And additional driver of the decline was the 15% discount offer we launched beginning in Q2 on all equipment orders to support our new store development and replacement orders. This offer applied to all equipment purchased and placed by the end of 2020.
Our cost of revenue, which primarily relates to direct cost of equipment sales to new and existing franchisee owned stores amounted to $25 3 million compared to $59 4 million a year ago at.
A decrease of 57, 3% similar to the equipment segment revenue decrease I previously discussed.
Store operation expenses, which are associated with our corporate owned stores increased to $25 6 million compared to $22 7 million a year ago.
The increase was primarily driven by higher rent and occupancy expense associated with nine new stores opened since the beginning of Q4 2019.
And the 12 stores that were acquired in December of 2019.
SG&A for the quarter was $17 4 million compared to $20 9 million a year ago. The decrease was primarily driven by lower compensation and travel expenses, partially offset by higher marketing expense.
National advertising fund expense was 15.0 million compared to $13 1 million and the prior year period.
The higher expense reflects the portion of the $10 million incremental investment, we made and national advertising from October through December and that was recognized in the fourth quarter.
Adjusted EBITDA, which is defined as net income before interest taxes, depreciation and amortization adjusted for the impact of certain noncash and other items that are not considered in the evaluation of ongoing operating performance was $51 1 million <unk>.
Compared to $76 6 million and the prior year period, a reconciliation of adjusted EBITDA at a GAAP net income or loss can be found in the earnings release.
I'll now summarize Q4 adjusted EBITDA by segment.
Franchise, adjusted EBITDA was $43 6 million down $7 3 million or 14, 3% CT.
Corporate store adjusted EBITDA was $12 7 million down $5 1 million or 28, 9% and.
And equipment adjusted EBITDA was $3 1 million down $15 5 million or <unk> 83, 2%.
Adjusted net income was $15 1 million and adjusted net income per diluted share was <unk> 17.
Down from 44 per diluted share and the year ago period.
Now, let me turn to the balance sheet as of December 31, 2020, we had $515 8 million and total cash with cash and cash equivalents of $439 5 million compared to $419 7 million on September 32020.
In addition, we ended the quarter with $76 3 million of restricted cash compared to $81 9 million at the end of Q3.
We took some aggressive measures in 2020 to bolster our liquidity and are pleased with our cash position at the end of 2020, which should allow us to weather continued uncertainty related to COVID-19, but to also be able to invest and growth opportunities where appropriate.
Total long term debt, excluding deferred financing cost was $1 8 billion as of December 31, 2020, consisting of our three tranches of securitized debt and 75.0 million of variable funding notes.
Our securitized debt structure is covenant light, we have two maintenance covenants of debt service coverage ratio and a total system wide sales threshold.
Both of these are tested quarterly calculated on a trailing 12 month basis and reported on roughly a two month lag.
And our most recent debt covenant reporting period of December five 2020, we had a 32% and a 98% cushion to the first triggering event for our debt service coverage ratio and our system wide sales covenant respectively.
We believe we have sufficient headroom for our two maintenance covenants.
While we are refraining from providing guidance due to the uncertainty surrounding the evolving nature of the pandemic, we do want to share current thoughts on development for 2021.
As we announced last May we provided franchisees with a 12 month extension on all of their development of requirements.
With 130 stores opening in 2020, the vast majority of which signed leases prior to the outbreak of Covid.
There are very few stores required opened in 2021.
Until there is more certainty that there will not be further large scale COVID-19 related temporary gym closures franchisees are proceeding cautiously on development.
Once conditions normalize we expect franchisees to capitalize on the industry consolidation and more favorable real estate trends that are starting to emerge.
Based on 88 schedules and a number of leases currently signed combined with the fact that it takes between six to nine months to open a store once the leases signed our current view is that the new store openings will likely be and the range of 75 to 100 for 2021.
Near term development and still a very fluid situation due to the pandemic. So we will update this view of the year progresses.
While new development will be modest this year based on what we've heard regarding vaccines. We believe we will get back to 200, plus new store openings per year that we experienced for the last few years pre COVID-19.
We think it's just a question of when not at.
While the near term is difficult to predict we believe that we are well positioned financially and strategically compared to the rest of the industry to capitalize on the many value creating opportunities. We believe we will emerge over the mid to long term.
As the country comes out of the pandemic.
And as the country collectively navigates towards a new normal we believe that eventually the postpaid them at future will be similar and possibly better compared to the pre pandemic levels as it relates to the strong margins and the returns on investment are model produces I will now turn the call back to the operator for questions.
And as a reminder to ask a question and you want me to press Star one on your telephone to withdraw your question perhaps of the council of cash at.
Please standby.
And any roster.
Your first question comes from Oliver Chen from Cowen.
Alright. Thank you very much regarding the look forward for new member adds.
Membership compares are still fairly tough from Q1 Q2, and what are the dynamics you see happening with new member adds and how that may interplay with your decisions around our marketing investments I would also just love your take on the Black card view of hub and how we should think about year over year Black card change.
And as in terms of how that may impact of modeling as we go forward. Thank you.
So I think all of this is Chris.
Yeah.
See here and as I mentioned in January and as I talked about at all in Q3 call, we anticipated and a slowdown and the decrease and member base here in Q4, which we saw so we.
The $1 2 million negative and in Q3, and then of 600000 negative here in Q4 and as I, just mentioned malware, sorry, seeing first turnaround and get to the will of hidden at trough of cancels and it seemed like and we've added 300000 net members and January and continuing to see.
And from net growth here in February as well so some good news there.
And.
And actually as of January wasn't as strong as we normally would see in January but I think the fact that we're finally, turning the corners and is a good sign.
The Knapp and marketing budget for the local advertising from two of the plan is set for the year.
Pretty similar to what we normally see from sale of days for the rest of this year asset today. So.
But it does beg the question do we think we should add extra dollars two at like we did here in Q4 to help bolster the marketing average so no plans yet to do so.
But there is.
Depending what we see here and the big question of all of ours as the as the.
The vaccine is broadly distributed here for the casino called next few months do we begin to see more demand and the summer and fall and then we typically would see just because people are feeling less angst out there. So that would definitely probably make us feel more confident and maybe put an extra dollars to work we started to see that trend, but we are really just laser focused right now on.
<unk> member growth month to month.
Hopefully this at the beginning here and we're seeing of that turnaround.
As far as the black card percentage lashing.
And actually we had no black card sales.
And then fourth quarter, we used and we had of black card sale in December of <unk>.
2019, if you did not have so some of it is.
The decrease of the stall of the growth and the blackout and was just because of lack of black card.
Black card sales as well as an increase in regular at $10 a month sales because erika we advocate at $10 a month, we compressed the black card acquisition. Some during those periods. So we had more of <unk>.
<unk> flash like White card sales days in fourth quarter of typically add so that kind of it didn't help as well, but we're not seeing any increase and cancel rate of of black card of the rest assure so that's that's some good news.
Okay, and finally, Chris and usage just love your take kind of what you've been noticing with usage trends and if its relevant to know about how thats been trending by different vintages of the.
Of the German banks.
Any usage stops around different states, having different vaccination ramps at there.
Or any insights there. Thank you very much best regards.
Thanks, all of our yes. The usage we ended at December was about 75% of last year's workouts.
Which was up from about mid sixties here at the end of Q3. So it did continue to climb and Q4.
And the January usage of about 70% of last year's workouts, but that was mostly impacted by the decrease and new joins which typically use of club a lot more.
And when they first join up so we didn't really see at and that was the number of <unk> and impact of just what's going on and the world is more just the new joined volume was down so that you should came back from but.
And we did see and fourth quarter continued to go up as time goes we haven't seen anything that I can call out debt is.
And Thats, an Asian related at the usage of picking up at the vintage stores. Like this first may cohort that opened up which have been opened the longest which we've talked a lot about the last couple of quarters here.
And the more the long of the stores are opened the more normal they act and almost all aspects.
And those stores are accomplishing north of 80% of last year's workout. So.
They are opened to the more normal day at.
Thank you very much.
Thank you.
Your next question comes from Jonathan Komp from Baird.
Yes, hi, and thank you.
Maybe just one question going back when you look at the member trends.
And <unk> and in November and December I think you had previously said October was down like 100000 cell and <unk>.
Ive, a few more cancellations and low bunker.
December and just wanted to add.
And just about that if there was anything unique to that was months.
When you look forward and <unk>.
Curious of any operations from the demographics within the sign ups, but your clean net.
And any thoughts going forward on once the vaccine and rolls out.
Yeah on the 10th of right. Yeah October is about little over 100000, I think we saw we reported last time.
No Big Callouts, and what was and what was the big increase like it wasn't breakout from different states and like that but one thing that was attributed to the increase and cancels from like that Q1 report October report would have been.
The billing cancellations, meaning like involuntary cancels John where.
And if somebody's checking accounts doesn't go through for a number of months, we get at six months and then we've owned we involuntary just canceled a number because we're not going to keep trying to bank accounts. So because of the Mei summertime openings, we began to circle of that.
<unk>. So then the number of December we had to clean out of those loans. So that was really the only thing that caused that from there.
<unk>.
So at the vaccine I think hopefully and time will tell but.
Foreign exchange of the reason that as it becomes more broadly distributed and more people of all of all ages are getting at debt.
Like I said are and then.
And with all of our I think we could feel.
Of see better trends from of joining perspective and months.
Debt, we typically wouldn't come some of our fall because people and I will just getting on with normal life. So but time will tell of and I think that will also like I said earlier.
Probably be more of a determining fact that we put more marketing dollars to work to capitalize on that.
And also capitalize on more gym closures and the industry as reported of roughly about 17% of of the gyms of permanently closed already.
And as I mentioned in my opening remarks that the industry trade organization Fei and about 25%. They think of close at least is all said and done so.
And we're seeing right now about <unk>.
About four percentage.
We're starting to just barely.
And consolidation.
Okay, Great and then just one follow up on the units at all.
All of my comments.
Any any thoughts on how we should think about it yes.
And the return to net member growth here.
As of a royalty free pathways and the franchisee overall morale and debt.
Really mixed.
Thank you.
Think about that Reacceleration of forward looking on the development side.
General store of them.
One of the things I think we and we've talked about at this point is.
As we were going into it.
And then opened stores closed and while we still have a lot of scores and our pipeline and.
At various stages of construction and so.
We ended up opened at 130.
And 2020 towards low.
The summertime period.
Most of our stores were closed.
And putting a lot of new projects sort of.
And sites into the pipeline.
And of.
A lot of that filter gone out towards the end of the year. There is a handful of franchisees that are out there doing deals now and in markets where.
No.
Real estate were very attractive and.
And we're getting some good deals.
But by and large.
A lot of of franchisees have been kind of waiting to see.
With all of the concerns around potential re closure and that we had and kind of at the back half of <unk>.
And in 'twenty.
And the anticipation of the vaccine and when that might get to a point of where.
And more and more population or just kind of getting out of it and during normal things, including wanting to join a gym.
So that that.
Pipeline period of development.
From beginning to end the amount of six to nine month process by.
And by the time, you start looking for a real estate deal and negotiating permitting and.
Lot of those kinds of things.
And quite frankly, just taking longer now than they did pre pandemic all the way from.
Fewer people at the towns and municipalities for permitting to you name it tradesmen and skills et cetera.
So I think where we stand now and.
And the comments Tom made of.
Somewhere between say 75 of 100 stores.
'twenty one.
And just kind of how we see at at the moment, obviously there was a lot.
And Theres a lot of months to go.
Over the balance of year, and we will certainly provide updates.
As we do our quarterly calls.
I think maybe just tie and Walden and the Christmas comment, which I think was part of your question is that obviously is at.
Yes.
If we start to see more and more people joining the gyms and people applying more comfortable because of.
And of what's going on and their everyday lives.
And then to the extent, we also believe the competition is debt.
Most of your impact and we had.
Think that all of those are the kinds of things that will allow.
Franchisees to really start filling up the pipeline but.
And the deals that are being done now are certainly very attractive and there is quite a bit of it will stay out there. So it gives us a lot of confidence.
It's just a matter of when.
And it's not not yet.
Sure.
Yes.
Your next question comes from Sharon Zackfia from William Blair.
Hi, good afternoon and export.
And like to talk about cash and kind of.
Other non cash related.
And what the gating factors are and you look at that one and broader rollout and.
And then how would you anticipate.
Net revenue share of my answer really.
Breakout between yourselves and your franchisees.
Sure sure hydro and strength.
And get that question Darren at releasing any subscription numbers, just yet, but what we're seeing and some of trends there as I mentioned in my opening remarks and is seeing about the same trend. We saw from the feed of free content consumption is at the EPS plus.
<unk> at 599, but 20% of those are non planet fitness members and about 25% of those have gone onto joined bricks and mortar and keep their fee at plus even after that which is of great sign as we've talked about organic.
Gateway to gateway.
Gateway to bricks and mortar also were seeing about 75% of all of the subscriptions to date.
And we're actually current black card members and.
And many of them at the members for 234 years and actually opting to pay pay more for something else, which is of great sign I think for us.
And when we've talked about and the passes there.
Situation will be rapid and the pluses and a bundle of the black card and maybe.
Get a little bit more price of acquisition from the Black card. So just a lot of learnings around that piece of it as far as a broader and more marketing push around the Pf plus we've taken this time to really just figure out.
What content people are consuming the most of what traders and they like the most.
What's really driving the consumption and Hooper people really.
Taken two at so we know who to market to and what the market. So.
Real time learning going on with it but like the trends that we're seeing with it as of Q2.
Of all the content and released more stuff in the App real time.
I guess, one follow up question and I don't.
And recall you guys haven't given January number as before so I. Appreciate you doing so, but having said that I mean, what Christina of typical first quarter adds come and Jack Ryan.
And we usually do.
And actually January is a big part of it.
At 10% of the annual AD and I believer and the month of January.
And usually the following quarters of shooting the following quarters, usually at a single low single digits for ads. So January and the first quarter is big for us, but we do add generally throughout the year, but first quarter of the largest and real quick too and the revenue share from the App right now we haven't.
Nailed exactly down how we are going to revenue share with the franchisees and everything we've done and have done and the past, we always look to do it and the best interest of the franchisees and the win win for both of US because you want them to push the app as well. So we will definitely be of revenue share all of our portion of it for sure.
And then drag drive their ultimate profitability at the store level within all of these leads to the fact and the question. We get all of time is could you ever raise royalty again and the future and.
No plans now to do so but in the more profitable we can make the franchisees and the ability we have and future to do something like that.
Thank you so much.
Okay.
Your next question comes from Peter Keith from Piper Jaffray.
Hi, Thanks, Good afternoon, everyone wanted to just ask about <unk>.
Entering if that with extended metro six months recently and seem to remember.
Our recall previously I think at was at 12 months and then Furthermore.
It sounds like the 15% discount has expired and years, we've got into the new year. So is it possible at the equipment sales actually get a little bit worse on a year on year basis before they get better as potentially of some sales of pulled forward into Q4.
Yeah, Hey, Peter it's Tom I'll take that and Durbin may add to it.
Yes, so the 15% discount that we offered.
Aspired and at the end of the year as we talked about and I think it was at ICR that we disclosed that we had extended.
The initial 12 months.
The extension on the equipment re equips essentially to.
And to 18 months and again it was just more of a reflection of our discussions ongoing discussions with franchisees and.
And I'm pretty sure that's where we at this.
That was at ICR.
And I don't think that we typically have.
A couple of periods during the year were.
We do offer a slight discount on the equipment that's kind of.
Pre COVID-19 has been doing it for a long time that way and we'll continue to do that we sort of stopped to 15% at the end of the year and kind of more back on our normal cadence.
And we will talk more about where that where that equipment business goes on our first quarter call.
But.
Clearly there is still of franchisees, who are going to re equip their stores because they want to take care of their current member base and make sure, especially and stores that have a lot of members that the equipment gets pretty beat up over five six years that they give those members of great experience, so theyre going to protect their assets and make the investment where it makes sense.
Okay. That's helpful dominant.
Maybe at competitive question for Chris.
You've talked about 25 percentage of loans closing I think you said, 17%.
And can take of closed thus far.
And you have any.
Perspective on timing.
Sure.
At maybe a lot of closures as of late.
And Jim and get the normal January sign up.
So I guess broadly speaking, where you can be seen and acceleration of closures and 'twenty, one and you can see that continuing.
And the anecdotal I think what we're going to see us probably over the next 12 months I believe at the stores have reopened and probably waiting to see what happens with the summer Julien and winter joined period right.
Your point.
But I think also whats going to happen here is as stores reopen.
A lot of this deferred rent at the landlords where.
Accommodating to the closed period and now Youre opening up those loans.
Thus revenue and you're opening up of more expense right now your renters rent and rent plus plus 50% of something like that to make up for you of months of background.
And maybe also with your lender hiring into the summer months.
We see more closures coming I would imagine.
Time will tell and I think the other side of that too is.
And as I've mentioned, our usage now is at 70% of the month of January and we ended December at 75% of last year's workouts and most of this industry.
Survives part of the revenue of about 30% roughly as from ancillary services. So Inc.
Each member visits coming in and you're banking on People's buying personal training and buying of juice bar drink and buying day care hours and so on so not only of their membership down but none of that usage is down so they're not selling their ancillary promise and is either sell their revenue models and much much worse.
Okay. Thanks, so much and good luck guys.
Thanks, Peter Thank you Peter.
Your next question comes from Randy kind of from Jefferies.
Yeah. Thanks, a lot good evening everybody.
Chris I wanted to focus my questions around with.
And with clinics kind of commentary.
And whats.
How do you think about the ultimate long term vision on how that would look at.
<unk> got the stores.
<unk> cost and data.
And the free content.
And what's your vision.
How at all kind of comes together down the line what would you see.
Ultimate scenario of how this would kind of looking at <unk>.
And the strength.
Sure, Yes, I think and <unk>.
And then at Harvey to talk about how we right now of a top five and the iOS store as well as the Android as far as at fitness App. So when you think about with are now at 13, and 13 5 million members. We have about 41% of our total number of base has yesterday of new joins though were getting at.
And about a 70% half of adoption of new loans. So we're just driving people to the app.
Constantly because of the bricks and mortar part of our components of this so we're not trying to compete with necessarily other apps and the absence of actually driving use of it just is there as part of their membership and the longer term you think we of the platform now and we have out of content, which is exercised content and we of live classes as well and we continue to grow that library.
But the platform is built now that now you start going into offering things around yoga, and meditation and diet and nutrition and neutral and cooking and all kinds of other stuff that you cannot builds off of so that you know hopefully now we decided to not only service of members designs of the facility, but also at home and and also their full circle wellness journey right.
If you think about the gyms of bricks and mortar for example, I mean, all we really were was hopefully they won't come to the front door and so we can service them.
But thats the extent of it and then I'll walk and the facility. We can't service. The members and then if theyre looking for other components of their wellness journey that happened to go search for themselves and they have 40 different apps are or what have you closed.
Closed at circle and their wellness journey, whether it's meditation outdoor running with their bricks and mortar and diet and nutrition and I think we can close the circle and just be a one stop shop.
Coupled with the fact is most of the industry's most of you and the digital spacing and about the fit getting fitter, which is just like the bricks and mortar the gold's gym de la fitness and the cross currency Orange theory, and Theyre not catering to the 80% of the population that doesn't have a gym membership or <unk> of the 40% of of members that joined that next leg of Germany of life. So we're really getting people off the couch for the first time and of <unk>.
Content is geared towards them too. So I think we can really be not only the nutrition component of first timers people really kind of get healthy from first time, we can.
Close of cyclic team and make it easy for them, but they don't really nowhere to go but honestly so we want to.
And of ease the burden of craft beer on their own and do that.
And then and with the VA plus subscription we can leverage that piece.
It also we haven't gotten into merchandize and nutrition as far as the nutrition drinks or at home.
All of our bands and things at traders of using at home that we can sell of product through the App and then at just the boatload of things we can do within the.
Within the App itself and.
And acquisition is always a key component of the App and right now between the referrals and we're seeing a great and you kind of give.
Big slew of joined coming through the members of referring their friends to join with senior referral joined come through at a rate.
Inversion right, we'll see and black card upgrades come through the App.
Our guests and our logging their black our guests come to the ethylene can market to them. So a lot of low hanging fruit now that didn't really exist even a year ago that we are able to leverage and continue to grow for our members and from a competitive advantage do you think about back to talking about the competition with Peter and minute ago. I mean, they just trying to keep their lights on at this point and our digital acceleration of.
So much further ahead of what everybody else is doing and bricks and mortar debt with just again and build a stronger modems and they'll get wider moat from our competition. Once they finally are able to determine how to keep the lights on or net.
Great.
Cleared at the membership is obviously and collected and you're building this member base.
And the Opex go from there.
And over 40% and you'll have the app.
How do you think about basically the next leg of.
Because you have of digital capability.
And the changing the type of equipment of the two games that have.
The equipment, where it kind of track what I'm doing on the treadmill and and plug it into my my planet fitness App can you kind of elaborate on that and then.
I've only seen clear opportunity from you guys to attack and <unk>.
<unk> companies are employers directly from more of a day to be relationship and drive that.
Value at.
Of one one and get more well.
How do you guys think about attacking of different angles going forward. Thanks, guys.
And the visits and checking and the front desk.
And if it is also and the App, which you then can export and.
PDF to your insurance company for reimbursement and on top of that you may of military any of the QR codes.
From the equipment and the strength of equipment.
So now at a QR code reader thats in the App. So that members can learn how to use different at perhaps within the store. We're now able to track of what people are doing by age and gender what machines. There. They are scanning the most of our but also now begin to see what journey is different people are taking a different market segments and what's <unk>.
And the results and what's driving 10 year based on what they're doing so they're getting a better and better exercise of their money.
More and more front of the gym because of teaching and learning more things.
And so now the Knicks and somebody joins and we know exactly the journey that put them on and what to recommend and the at because now coast people. The right way on what people are doing at assuming members using the equipment and now.
Now.
And what we know and they like so we know how to get people and a journey because this industry.
So and somebody joins.
We don't know what makes people stay necessarily of megapixel.
Leave and we don't know what Theyre doing and the facility now we can see what theyre doing and the facility and see what's driving kind of your longer term. So that's one of the interesting thing that will happen over the future, but is there anything to see which in turn to your insurance question.
We reimburse for insurance just like most other clubs and the industry, but all we are able to tell of insurance companies and that somebody checked and we have no idea of along you are there. We don't know what could be your use we don't know and the calories burned and we don't know what your heart rate was and so on so cash and all of that data we might be the only low at this 0.1 of the only Jim company and the country of that can actually supply insurance.
<unk> with the data that really matters, right and not that they get checked in with all.
All of the other stats for you that it could get to the point, where reimbursement comes from insurance you have to go to planet because nobody else can really supply at the data that we really want.
And non has the money to put our resources and put together to develop at from the other gym company. So.
More to come on that but it could be and interesting that we're able to give insurance embodies true data that shows true results for their subscribers.
Okay.
Your next question comes from Simeon Siegel from BMO capital markets.
Thanks, Hey, guys hope, you're all doing well and how you're going to approach Black card sales and then.
And where the penetration should trend over the year and then Tom just to your point can you help us what percent of members of our on frozen memberships now.
All of our sins previously thanks.
Yes, I think and the DC percentage.
And we werent, pushing and blend black card sales volume because we wanted to try and drive more volume. So we would do and just $10 of sales through the second half of last year.
I'll begin probably to start testing from.
Black card sales flash and look we have from previous years here coming up so I don't think and I think it should I am not sure its going to search forward, but I think we should probably hold our own here for.
And for 'twenty and 2021.
Yes.
On the frozen side.
And I think we've talked about before but we typically would only allow people to freeze for medical reasons or if they were deployed and the military and with all of the pandemic.
And we're much more.
We're giving if you will.
And if people arent comfortable coming back to the agenda free membership once their store reopened.
And really it's still an insignificant component of of our membership base. It's just that the way the math works and that particular calculation at.
Moved enough to throw at us, but it's still and it certainly as the virus researched and thankfully all of the numbers are going in the right direction now, but back then they were going and the wrong direction.
Of our member base and.
We're at.
Encourage to see now in January.
The percent of frozen members.
The percent of membership.
Single digit at just.
Spiked up from what was what it had been historically.
Perfect. Thanks, and then.
I appreciate the unit color you might.
And just given a lot of the moving pieces and the cost around the gym is different than it was pre COVID-19 any help at all and how you are.
We're thinking about any of the different expense line items over the next over the next year anything we should keep in mind.
The franchise or you mean for the franchisees and their units.
Sugar way you want to.
And through as we think about the way four wall and as we run flow through of the business Hasnt any of the Covid, what sticks and what goes away at one of the extra savings where the extra cost just anything to keep in mind as we got your I guess, yeah. Thanks, Thanks for clarifying the incremental cost I think way back when when we.
First and this.
We talked about what the impact could be and at sort of a 100 bps and four wall profit.
I think we might've said of 100 350 bps.
And we were still at that point not really fully reopen.
Opened by any means or there was a small percentage of clubs stores that were reopened so we were kind of.
Estimating at the time now that we've got 90% of the system reopened for a while now and 80% to 90%, we've got a pretty de Minimis thankfully and <unk>.
Because.
The costs have come down for some of those things that we were buying early and and paying high prices. When everyone was trying to buy them and we're doing all that we could just make sure we could secure at so we could reopen the club and implement our playbook.
And that we establish so thankfully, it's pretty de Minimis.
Your next question comes from John and I haven't come from J P. Morgan.
Hi, Thanks, I wanted to talk about the <unk>.
75 to 100 stores that.
Our guidance to open this year at if you sort of add back.
At.
And our store growth of 'twenty, you have something actually pretty close to a normal planet fitness development year, just kind of adding 'twenty and 'twenty. One so at first I mean is at.
Is there a reason I shouldnt think about it like that and other words the units that were being opened in 'twenty. One of the units that were basically plan to.
Would be opened and 2020 and really the context of the question is at <unk>.
And meaningful pipeline beyond that 75 to 100 or after that.
Is it possible that that's where that relatively short term pause might calm weather from the franchisee intentions or perhaps even.
And the lenders that.
And the hub recently given from waivers.
Hello, John and I don't see a.
<unk>.
A correlation to let's say the corporate stores that.
And maybe where the bulk of borrower.
First of all put to be a little bit of that.
And it wouldn't be obviously spread out all throughout 2021. So maybe we had some stores opened in January that low.
Both from without Covid kind of opened on November December or something like that so that could be a handful of that but.
And if you go back because of comments, we've been making at least for the last two quarters.
And some of the prominence of made earlier.
What franchisees they just didn't go out and kept putting new sites into the pipeline and so what we saw in 2020 was a.
A slowdown and adding more sites and to.
Development pipeline and then ultimately obviously bought opening and.
And slowing down a little bit on some of the development. They weren't gonna opened stores in June or July of this fleet were closed.
Couldn't have any numbers come into of Jim. So naturally thing is just kind of pushed out and pushed out or deferred of ways, but.
But in general most all of the sites that were and development. Most of all of those sorts of got opened more and development or certainly on the drawing boards.
Pre COVID-19. So that's why I wouldn't correlate these together, but what I would say, though in terms of.
Obviously, the market low basw about quote screw up might be and normally you would of Bob is that it's just that.
And a handful of franchisees out there that are looking at sites some leases already signed so.
Commitments are being made it's not like every single.
Franchisee and every single market, where they could put a potential locations and what they've already identified as a potential planet side.
It's not like that they're working at a mall, but we're also looking at some of them and so we just see it as a yes.
Here, we are and with one month or month, and a half and for the year.
First of where we may have been one of the historical year. When there was a full pipeline of.
Of activity going on let's say right now that would be for September.
October and November kind of timeframe, we don't have the same.
Same level of insight and at the same level of activity going on of our franchisees now one thing I didn't say earlier, if we get into looked at so we get into the summer months and all of a sudden the majority of the people that are going to be.
Vaccinated.
Yeah.
The medications of Arthur and Lori, Illinois.
Franchisees and and.
And things are looking normal abnormal can be and everyday life.
If they really started working thats really hard.
Risk we have when we get past June July August is this going to be very difficult to get those opened by the end of December.
And so if the pipeline and really starts to fill up labor and the year.
Lot of those sites number will fall into 'twenty and 'twenty two.
I think hopefully I answered your question zone.
And you did thank you. Thank you Duane.
We previously talked about new unit volume.
That's not an easy calculation and anymore for obvious reasons like store closure and memberships being frozen.
The difficulty as you've said of.
Attracting new members, which something different than cancellations of our trend line. So can you comment either qualitatively or quantitatively and you're just kind of how the fiscal 'twenty development flat and then I mean I know.
Gyms are at 70% of previous years at system wide and 80% of 665% or 70, whatever you want to say, 80% of the markets that opened in may.
How are the new unit volumes net.
Trending and I guess into as the path to breakeven from a store and so and at the materially change based on where the knee volume might be.
Yes.
Yes, I'll take a stab at this first and then maybe Tom can add to it.
And can you go back and look at the sites and we opened and.
Majority of all of Q1 launch vehicles, Covid really didn't help and pull right around the middle of March or so.
So our stores we opened.
Late Q4 of of.
Of 19, and and the majority of Q1 of 'twenty. We're following very similar patterns to what it had been historically, so no change and the model.
And.
And then you know when we can.
Got it.
Shutdown and all of the clubs are closed.
And you very well know the rolling mill.
Opening and schedules debt, but we had throughout the year and still now with California is still closed.
The stores that we opened throughout the year.
But certainly opened up with fewer members than what they had historically because of lot of cases, we didn't even pre sales and.
And that's a key.
But the key marketing.
Tactics that we you have used from the past, where you would typically get into a virtual presell and.
Anywhere from 60 75 days pre opening.
And you'll continue that virtual print sale all the way to opening but you typically roll into a plausible pretty sell about 30 days to opening.
And we didn't do that and very many cases and all of last year.
Just because of Covid.
What was going on and the execution on our ability to be able to do that now.
And the conversations that we have with franchisees and the day.
We look at.
We still believe that there is a.
Significant returns of the investment.
But if you look at the commentary that we've been making some of the comments of Chris at Bay.
Earlier.
And his remarks, and some of the ones Palm Bay and overall.
Yes.
The amount of usage and the club and the amount of member growth of certainly books and it had been historically January is a great example, or even if you go back and look at the lifestyle.
Of 2020.
But from.
And from conversations and we have with franchisees of deploying capital.
This is not a situation of non opening stores.
And to get the return it's a matter of when they're at the right time, given we're still in the middle of Covid.
Your next question comes from Paul Golding from Macquarie Capital.
Thanks, so much for taking my question.
I guess the first one goes back to.
The cadence of any cancellations I know in the past you've talked about how there may be of pop from California, reopening and we're still.
And closures and California should we expect anything around that as far as just to continue to be vigilant for.
Pop and cancellations, when California, Reopens, and then I have a follow up along the same lines.
Yes based on all of these different opening cohort and you saw from 2020.
We would expect from California is finally allowed to open would probably see the same one of rebuilding resumes.
My question is if it's the middle of February and March for example, or April.
So is it still because of more of winter months and not before European clubs of the middle of July right. So maybe some seasonality could help them a little bit, but I would imagine once at building resumes we would see that spike there granted at the 150 or so stores, it's not the.
Okay.
We have seen more cancellations during the closure period and count.
The other states sure.
And their closure period, I think part of that is because unfortunately and our.
Scanning of the market most of our competitors not following.
We are and.
So we've seen.
We believe some of our cancellations are probably going to gyms.
Which is unfortunate.
The state can enforce the mandates they put out.
And interesting I appreciate that color and then at.
Around I guess and parts of expectations of.
And maybe 75 to 100 stores.
And also just of.
The financial impact of maybe a pause and you adds from the extreme weather. We've seen lately have you modeled that into some of these expectation of ours.
Sure.
And.
Excellent.
Sort of.
Difficulty.
And the period.
Yes, I don't see we havent seen them and the next day.
Those down there because of the weather less low power or at least frozen, but we haven't seen any big number of change.
And Paul if your question goes.
75 to 100, the answer would be net.
And Jeremy.
Last question comes from Joe <unk> from Raymond James.
Thanks, Hey, guys good afternoon.
Yeah.
First question I, just wanted to clarify something that I think you said earlier Chris.
10% of at.
Annual net adds are typically.
Occurring in January and Thats, a great number.
Okay.
There, it's about a third for the year and Q1 and the highest month of the of the quarter is January for sure.
Okay, and you guys have said.
And in the past at the hope was to get back of the year at 19 and level call at the $14 4 million sometime in early 'twenty, one and I'm curious if that's still the case.
The second bucket of 100, new stores this year and.
Packet at all kind of.
Of that.
I mean that would be that'd be the hope of I think it's probably still too early and the year to figure out where things at all and Pan out.
To definitely get there we are.
And finally, adding members per store as I mentioned, and finally going the right direction.
I think as long as we have sequential member growth, which is the ultimate goal.
We really like to get back there and see if we can I don't know if we would make at this year, but that's going to be VR goal, but I don't think of it depends and again it depends what happens when California opened and adds to it or if we get to be shut down, but I think being here just February is hard to really predict and just yet.
Great. Thank you.
Great Joe.
And I will now turn the call over to Chris Rondeau for closing comments.
Well, thank you everybody for dialing in today and <unk>.
2020 was definitely trying year for the industry for sure, but extremely happy with our franchisees and clubs of staff and our corporate staff for staying strong and getting us through it and.
Couldnt be happy with at the strength of this model has gotten us to share.
Through that year and into from Q1 here without any closures because of COVID-19, which because of <unk>.
Estimates of the strength of our franchisees and the business model at hand and amended.
Debt question is not a matter of it but when and in the industry here of of a lot of different players out there, we'll just give us more rent and one potential and.
And possibly more.
And John So may do.
And believe that Covid will definitely.
People will walk out of this was definitely a more appreciation for health and wellness and taking better care of themselves.
And in the future and the factor and 20% of the U S. Even has a gym membership and thats, the only moved 5% and 25 years.
I think it's a good chance this could all pan out and move this fiber.
Ladies and gentlemen.
Concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
Okay.
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