Q1 2021 Planet Fitness Inc Earnings Call
Each of new use of this press release.
Good day and thank you for standing by welcome to the Planet Fitness, Inc. First quarter 2021 earnings conference call.
At this time all participants lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.
One on your telephone please be advised that today's conference is being recorded I would now like to hand, the conference over to your host Stacey Caravella, Vice President of Investor Relations. Thank you. Please go ahead.
Thank you operator, and good afternoon, everyone speaking on today's call will be planet fitness, Chief Executive Officer, Chris Rondeau, and Chief Financial Officer, Tom Fitzgerald.
We also have doormen lively president of planet fitness on the line, who will be available for questions. During the Q&A session. Following the prepared remarks.
Today's call is being webcast live and recorded for replay.
Before I turn the call over to Chris I'd like to remind everyone that the language on forward looking statements included in our earnings release also applies to our comments made during the call.
Or at least can be found on our website investor day at planet fitness Dot com along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures.
Now I'll turn the call over to Chris.
Stacey and thank you everyone for joining us today for planet Fitness is Q1 earnings call. Let me start by welcoming Stacey caravella as our new VP of Investor Relations. We're very excited of average on our team.
We are very encouraged by the steady improvement in overall sentiment we witnessed in the U S. During the first quarter and the corresponding impact it had on our business America's appeared cautiously optimistic early in the new year as COVID-19 vaccines began to slowly rollout to health care professionals frontline workers can nailed.
As of quarter progressed national active keeps kind of starting to trending downward streets.
States begin to ease restrictions in the vaccine availability increased at the same time the momentum we experienced in January of accelerated as Americans begin to feel more comfortable returning to a regular activities. They enjoy pre pandemic, including going back to our stores even at early stages of emerging from COVID-19, it's clear that health and wellness per essentially.
We are pleased to announce that we experienced sequential net member growth in each month of the quarter ending March with $14 1 million members up from $13 5 million members at the end of 2020.
Positive headline news of COVID-19 vaccine availability seems to have driven a seasonality shift in our membership trends as March membership growth in mature stores exceeded March 2019.
Reinforcing our belief that people are eager to get back to Jim's, particularly with our continued emphasis on our cleaning and sanitation standards. In fact in March 30 per cent of overall joins where prior plant at its members versus 21% in March 2019.
While our Kansas remained at similar levels of 2019 of on a monthly basis, we're seeing the percent of Kansas related to COVID-19 concerns declined significantly.
In an effort to capitalize on the shift of seasonality. We added a flash sale in April and are currently running a may sale with an unprecedented offer of first month free and then just $10 per month with no commitment to inspire and encourage people to get off the couch at start their fitness journey with $14 3 million members at the end of April our target at.
Of casual first time gym goers continues to respond favorably to our messaging and value proposition to <unk>.
Put it in perspective year to date, we have regained nearly 100% of our full year 2020 member loss and 40% from our highest membership levels in Q1 2020.
Research continues to show the importance of fitness results from a recently published study by Kaiser Health care from at just 22 minutes of activity per day to reduce the risk of severe COVID-19 outcomes end up. Additionally, a recent poll by the American Psychological Association show that more than 60% of adult experienced weak changes due to the pandemic with the app.
American reported that they gain of approximately 30 pounds at nearly 50% of parents, saying that their stress levels have increased during the same time period Americans are waking up to the fact that they are overwhelmed this needs to be a top priority and we offer them the judgment free fitness option at an incredible value and I'm proud of how our franchisees.
Headquarter staff in clubs that have rallied together to provide of clean safe fitness experience for our existing and new members seeking a non intimidating environment today, we have nearly all of our stores open with approximately 30 club store closing Kim.
Regionally, the Midwest and south of our leader, leading the way in terms of performance metrics haven't been reopened since may and June of last year usage of the stores in those regions did at nearly 90% of 2019 levels, while nationally usage of training up during the quarter ending March at more than 80% of March 2019 levels used.
For all age groups is trending upward with Gen Z, leading the way.
We believe that as more and more of Americans received of COVID-19 vaccine used in the clubs will continue to climb.
Now to our digital strategy at.
<unk> adoption continues to accelerate with nearly 50% of our total membership base, having the plant that is at up from 40% last quarter I'll wrap as another channel to engage with provide service too and motivate our members inside or outside of our genes. For example at provides the ability to upgrade to the black card see crowd needed to help plan your visit and content videos.
How do you use of the machines on the gym floor into virtual workouts.
We also continue to test Pf plus our digital only subscription from 599 per month more than 30% of P of plus members joining planet fitness locations. After subscribe at is demonstrating our digital as a gateway to bricks and mortar strategy.
This is up from 20% in Q4. Additionally, 65% of our members who have described have visited our core bricks and mortar offering since subscribing beyond just being of gateway more than 80 per cent of the total Pf plus subscriber base of our members and indication that members see the value and are willing to pay more to get more.
This is where we believe we can offer real value to our members. So the consumers can download a wide variety of individual apps at all different prices for workouts wellness nutrition and mental health.
Our goal is to provide a holistic offering at an incredible value.
With a differentiated content geared towards breaking down the barriers for casual and first time gym goers all in one out of.
Along with the ability to visit our Jones. This end, we plan to pilot Pf plus in a limited number of stores to test price elasticity with bundled offerings for both our classic Black card memberships, we expect to run these tests for the balance of 2021 and look forward to sharing more on parcel of offerings in early 2022.
To underscore our commitment to our digital strategy today, we announced that we have deepened our current partnership with ice at health and fitness by taking on minority stake in the business. This enables us to sell our current digital content offerings to our members, while also exploring complementary mind and body wellness categories.
I believe that the future of the fitness industry is truly about bricks with clicks the powerful combination of providing people with a high quality in person fitness experience coupled with the ability to engage the services of them outside of our four wall with differentiated premium content wherever they are and at <unk>.
Think about the future of planet I'd come back to the fact that we of purpose led brand with helped at the heart of who we are we are on emissions change People's lives for the better we are in the fitness business, but we are also about providing ease at port of community to our members and this is what people are seeking right now connections with others.
The membership and usage trends that we are experiencing makes me optimistic for the long term growth and I truly believe we are on the verge of of fitness boom. According to the industry trade groups versa.
Approximately 17% of the U S. James of closed due to the financial impact from COVID-19 in the projects that it could eventually be upwards of 25%. We believe that our value proposition, we can take more than our fair share of the people look at for a new gym.
The role of fitness has never been clearer with nearly 80% of people hospitalized for COVID-19 being overweight or obese. According to the CDC and 90% of the deaths from COVID-19. We're in countries with the highest of obesity rates. According to the World Health organization.
People realize the value of fitness more than ever as we look to the future. We believe our purpose of enhancing people's lives and creating a healthy of world sets us in our franchisees up of long term success and now I'll turn the call over to Tom.
Thanks, Chris and good afternoon, everyone I'm going to cover three topics before I get into our first quarter financials. At the first is the state of the franchisees' balance sheets and their desire to reinvest into their planet fitness store portfolios of the second is a recurring revenue model and how it ties to our net membership growth and third our outlook.
For 2021 on beyond on.
On the first topic, we just completed business reviews with nearly all of our top 30 largest franchise.
On the majority of our stores.
Overall sentiment from the reviews was at our franchisees are very encouraged by the trends, they're seeing across their stores and are eager to get back to our historical store growth levels.
Almost all of the top 30 have debt the majority of which strip their debt covenants due to the temporary store closures last year.
Of those franchisees are all at different stages of paying deferred rent and building back their stores profitability to the point, where lenders make their development lines of credit available again in some cases, that's already happened in other cases, it will take more time because of their stores were closed for a longer period of time. However, some of those franchisees are able to fund.
Capex with cash from their balance sheet.
The good news is franchisees and lenders are collectively becoming more bullish on expansion the longer the gyms of reopened in membership trends continue to move on the right direction.
We expect franchisees to capitalize on the industry consolidation and more favorable real estate opportunities that are starting to emerge.
What's the pace of vaccine Rollouts, we believe that the chances of of temporary shutdown on a national scale or less than when we reported our fourth quarter earnings in February adds.
Adding to our confidence in our projection of 75 to 100 openings in 2021.
In Q1 this year 22, new stores were opened compared to <unk> 39 in Q1 last year.
On to the second topic, our recurring revenue model.
Beginning with our September sale last year, we have been focused on getting our marketing flywheel going again.
As a reminder, our model and same store sales results depend on the ability to continually grow net membership levels across our store base month over month quarter over quarter end year over year.
On a recurring revenue model, our same store sales performance at any point as a function of what happened to our membership levels over the trailing 12 months in our comparable stores.
We capitalized on the tailwind that Chris talked about earlier and ramped up our membership acquisition driven marketing throughout the first quarter of 2021.
We ended March with approximately $14 1 million members up 600000 from where we ended 2020.
And as Chris noted it was our third consecutive month of sequential net net membership growth.
Wallen encouraging trends, it's hard to predict what the balance of the year will look like from membership growth as.
As this is the first time that we've experienced this type of seasonality shifts with the economy growing and more and more states and municipalities lifting restrictions. We believe that there is positive momentum behind people wanting to become more active.
As I mentioned our system wide same store sales growth is a function of membership levels over the trailing 12 months.
So while we are seeing signs in the near term of months over months net membership growth our membership levels on our comparable stores are still below where they were in Q1 of last year. When we hit an all time volume.
As a result same store sales in the first quarter were down 14, 9% with franchise down 14, 7% and corporate owned down 18, 2%.
The decline was largely driven by the $1 $4 million decline in membership levels year over year.
Slightly offset by an increase in average rate, which was driven by higher black card penetration.
Black card penetration increased to 61, 2% at the end of Q1.
As a reminder, we will not be reporting same store sales growth figure in Q2 due to the majority of our store base being closed during Q2 last year.
Lastly, I'd like to update our thoughts on guidance on our Q4 call. We conveyed that we were not providing the typical metrics. We guide on due to the continued uncertainty caused by the pandemic and feel that is still appropriate today.
We did provide our new store development projections of between 75 and 100 new stores for the year end as we announced last May we provided franchisees with a 12 month extension on all of their development requirements and equipment placement obligations.
In December we extended the re equip commitments by an additional six months to a total of 18 months from the original do day.
We want to give more insight into how we see those areas as a percentage of our total equipment revenue this year.
Using the range of 75 to 100, new store openings. This year, we expect that equipment replacement will be approximately 50%.
Of our total equipment revenue this year.
This is not a metric we will provide in the future, but we felt it was important during this period to try to provide additional insight into our equipment revenues and indirectly into our franchisees' ability to fund their capex commitments.
Which is strong.
Additionally, during this time, we continue to provide membership update for the month following our most recent quarter.
As the year progresses, and the effects of the pandemic start to wane, we will likely discontinue this practice and revert to providing the prior quarter's results only.
Now onto our financial results for the first quarter total revenue was $111 9 million compared to $127 2 million in the prior year period.
The $54 million decline was primarily driven by the lower equipment revenue.
Which was the result of the extensions that we provided to our franchisees. Additionally, we deferred $24 6 million of revenue out of Q1's results last year due to the temporary closure of all of our stores as of mid March.
Moving onto a review of our segment revenue results franchise segment revenue was $64 1 million compared to $58 5 million in the prior year period, an increase of nine 5%.
We break down the four components first royalty revenue, which consists of royalties on monthly membership dues and annual membership fees was $46 6 million compared to $40 6 million in the same quarter of last year.
The average royalty rate for the first quarter for stores. The drafted was six 3% consistent with the same period last year.
Note that the prior year periods royalty revenue was negatively impacted by a $14 1 million revenue deferral related to monthly membership dues collected in March shortly before stores closed.
Next our franchise and other fees were $4 8 million compared to $6 2 million in 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.
And fees received from processing dues. The decrease was primarily driven by lower total online joining fees in the quarter.
Also within the franchise segment revenue is our placement revenue, which was zero point $8 million in the first quarter compared to 2.0 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. The decrease reflects the lower net store end.
Placements, we executed in the quarter compared with a year ago.
Will further discuss the number of new equipment placements later, when I discuss equipment revenues and finally national advertising fund revenue was $11 6 million compared to $9 2 million last year.
Similar to royalty revenue of the prior year periods net revenue was negatively impacted by $4 6 million deferral related to monthly membership dues collected in March shortly before stores closed.
Our corporate owned store segment revenue was $37 9 million compared with $45 million in the prior year period.
The $2 $6 million decrease was due to lower membership fees driven by lower membership levels and closure of some of our corporate stores for a portion of the period, partially offset by a $5 9 million of deferred revenue that was collected but not recognized in the three months ended March 30.
First 2020, as a result of COVID-19 store closures at.
And the opening of five new corporate owned stores since January one 2020.
Turning to our equipment segment revenue decreased $18 2 million or 64, 7% to $9 9 million.
$28 2 million.
The decrease was driven by both lower new store equipment, along with lower replacement equipment sales to existing franchisee owned stores.
Placement equipment sales in Q1 were $1 1 million compared to $10 6 million in Q1 last year in the first quarter. We had 18, new store equipment placements, which was down 12 from the prior year period.
Our cost of revenue, which primarily relates to direct cost of equipment sales to new and existing franchise owned stores amounted to 8.0 million compared to $21 8 million a year ago, a decrease of 63, 4% in line with the equipment revenue decrease previously previously discussed.
Store operation expenses, which are associated with our corporate owned stores decreased to 25 new.
$9 million compared to $26 2 million a year ago.
Slight decrease was primarily driven by lower payroll and operating expenses, partially offset by higher rent and occupancy costs associated with the higher store count and marketing expense.
SG&A for the quarter was $22 5 million compared to 17.0 million a year ago. The increase was primarily driven by higher incentive.
And stock based compensation compared with the prior year period local marketing support in California to accelerate the reopening of gyms and expenses to promote our mobile app.
The California and mobile App expense.
Our investments that we believe set us up for continued growth in both on important market as well as in our bricks with clicks digital strategy.
National advertising fund expense was $12 8 million compared to $15 2 million in the prior year period.
Adjusted EBITDA was $43 7 million compared to $46 5 million in the prior year period of.
A reconciliation of adjusted EBITDA non-GAAP net income or loss can be found on the earnings release.
By segment franchise, adjusted EBITDA was $41 3 million corporate store adjusted EBITDA was $11 2 million in equipment adjusted EBITDA was $1 8 million.
Adjusted net income was $9 1 million and adjusted net income per diluted share was <unk> 10.
Or a decrease of <unk> <unk> per diluted share.
Now turning to the balance sheet.
As of March 31, 2021, we had total cash and cash equivalents of $503 9 million compared to $515 8 million.
On December 31 2020.
This was comprised of cash and cash equivalents of $445 6 million compared to $439 5 million with $58 3 million end $76 3 million of restricted cash respectively in each period.
Total long term debt, excluding deferred financing costs was $1 79 billion as of March 31, 2021, consisting of our three tranches of securitized debt and $75 million of variable funding notes.
Our securitized debt structure is covenant light, we have two maintenance covenants a debt service coverage ratio at a total system wide sales threshold.
Both are tested quarterly calculated on a trailing 12 month basis and reported roughly on a two month lag at.
On our most recent debt covenant reporting period of March 5th 2021, we had a 17% at a 93% cushion to the first triggering event for our debt service coverage ratio and systemwide sales covenant respectively.
We believe we have sufficient headroom for our two maintenance covenants, especially now with the majority of our stores open.
The unprecedented pandemic situation in 2020 proves the durability of our business model. Our stores were closed between two of nine months last year, and we did not have a single permanent closure due to COVID-19.
Additionally, during our franchise business reviews franchisees have reported that while their store EBITDA levels has decreased many of them still have EBITDA percent margins in the thirties for their mature stores.
I believe that as we emerge from the pandemic our investment thesis has only been strengthened with the critical importance of health and wellness on the rise.
We are a differentiated and disruptive fitness concept that appeals to a broad demographic with a national scale advantage built on strong store level unit economics.
And we believe our competitive moat will continue to widen as we begin to come out of and get to the other side of this awful pinta.
I'll now turn the call back to the operator to open it up for Q&A.
As a reminder to ask a question you will need the crisis.
On your telephone to withdraw.
I had a question press the pound or at high school.
On the Q&A roster.
Your first question is from the line of Randy <unk> from Jefferies. Your line is open.
Oh, great I wanted to ask a couple of questions from my first question Chris for you.
Kim can you give us some perspective on.
The impact of on on highly churn impact on weighing down the new.
Number net member growth you saw on the quarter.
That would have held back the number is a little bit.
Right.
Net inflected in the quarter on then the other thing can you give us maybe from the perspective, why you said I think all workouts, we're up by all age cohorts.
Is there something where millennials, we're leading the way in terms of new joins but we could have had.
I'm still hasnt postponed from the older age.
Cohorts that we're still waiting for vaccines or what have you that could be.
On the area of new member join opportunity going forward I, just want to get your perspective on that Cali impact on how you think about foods cohorts going forward. Thanks.
Yeah, Thanks trading items, Chris Yes, the Kelly of impact would be would be some but pretty minimal there is only 150 or so stores in that market compared to the entire base. So it would have some impact but not not that substantial and at this point in the game here with all U S stores open now and in the only stores really closed an hour of Canada.
About half of those roughly.
The day, the pent up cancels that we saw all of last year that we talked about a pretty much weighted through now so our cancellations on our normalized.
And then we saw on January was from the joined volume is was not quite quite to quite to snowflake. We normally seen January although positive, whereas at my opening remarks, what we saw in March of this year.
On mature stores March over index 2019 at March and April was basically on part of April 2019, as well. So and then in April of 2019, we actually at a 10 day National sale, which we did not have this year, which is a three day flash sales. So you can see now that all of January was lower than we normally see as we've talked about what we.
End of assumed would happen as the vaccines got rolled out is where we have an unseasonable change in volume.
To your question on the cohorts Z is even even during COVID-19, we're over indexing all along they were coming in faster.
<unk> faster than we had ever seen in the past on millennials, we're on par or slightly less of an genex and boomers, where we're certainly down, especially boomers as you'd expect on what we're seeing now is they're all starting to go the right direction on the <unk> is still over index on what we've seen in the past, but at the boomers now which is.
Good point to point out is now going the right direction, although not to last year's or 2019 levels Theyre now going the right direction I think of the vaccines on out there and they're feeling comfortable.
Understood and then with.
With the investments announced this afternoon.
It's clear that you are kind of moving on to the company in an omni way, maybe just give us some perspective on what your is your longer term vision for the business and how you think about addressing on the both on your in People's pockets on their phone with you at but in the gym as well and just.
Give us some perspective of what Youre thinking of the future for this company on from an omni perspective.
Yes, that's a great question. So when you look at this industry and up until the world of technology not with the apps.
We had no way to service our members outside of our four walls. So they passed month at a month out of whether they walk through the front door or not we have no way to service them unless they walked through so to think about that now for a minute how do we provide service outside of our four walls, whether it's the workouts that we're currently providing in continuing to increase that library.
Do we get into meditation on diet nutrition for example.
So how do we do to offer service, whether or not used in the four walls, which which at the end of <unk>.
At the end of day can only drive retention I wouldn't I would assume right I mean, if youre, giving something to of members, whether they use of store or not and they're able to stay serviced hopefully of drives retention longer term and for our members as you know Randy of these or casual first timers and 40% of our members number luxury German their entire life and that still holds true today. So they are still choosing bricks and mortar same day.
They ever have even post COVID-19.
These people don't even know where to start right. So.
They're having to go find their workout at refine their nutrition app of find another app and nowhere to go of whats the right source or what's the right.
We didn't want to fill a seat with a a free of free member as opposed to of paying member of they couldn't get in.
At this point Luckily we of about 50% of our stores of zero occupancy levels. So they're wide open which is great. So but still at 3% of that do so we wanted to postpone net of next year on the sale cadence.
So as I just mentioned the the margin of the April of numbers.
For the mature stores were of head in March of 2019, and also on part of April of 2019. So.
So what we did do so far the rest of the year is right now pretty normal, but what we did due to your point is the normal April National Seal was just a free day flash sale and we push that big natural sale into may which of right in the middle of right now.
Because we felt we do field is that the longer this year goes in and the more vaccines of at rolled out that the unseasonable volume that I think that will see is there. So we're going to hopefully tests and see that through this may national sales, which was normally in April.
Okay.
Secondly, right back to the.
What's your drink with ice at.
So when you think about bundle pricing.
Right on.
Actually I don't think you on attack 599 on two of Blackheart. So is the idea of really apply that too it's a black card benefit.
Perfect the pricing goes up.
Buck or two or three or something like that.
Because I know you've also noodle with the idea of it.
I assume it will not apply to the wildcard at.
Do you really want to I guess, when you think about getting.
People there solely at 590 day there'll be some of those but I think you really want to convert them at a black card numbers correct.
Yeah, absolutely and you're right. So now that we've had the the pilot with the plus 5 million on digital subscription and we're talking about this for a couple of years now that my envision was to have a bundle digital offering with a black car to hopefully drive some price of acquisition. So.
Now with the 599 price out there for just digital only at since that perceived value. So so you are exactly right now with the Blackheart, we had a couple of bucks to at the member of things they get in the blackout of of 24, 99% of getting really quite a quite a good deal because of 599 would be by itself. So now of a black or prices on the 19th again so.
So that's exactly the idea on with the wildcard as of always talking about at $10 price point is is sacred at our advertising go to price gets you to come in and get some of the couch and it was still getting at upwards of 60 per cent acquisition on Black Hearts of that's really where we're trying to get you when you come in and see all of the perks you get with of Blackheart, Although will probably will test some sort of wildcard add on.
On.
Digital on top of that if you want if you. So choose so we'll definitely try a few things out this year and and definitely report more next year, but the beauty of with the digital component as as an add on our end of bundled the blackheart in the clubs now is that.
In the past the franchisees would have to build tanning rooms in Capex would have to go renovate 2100 locations.
Judy with this is flipping a switch so after we tested and a bunch of stores here and see how it works if we decide to roll without an of bundle overnight. All 21, plus 100 stores will have the ability to start so on the option.
Okay. Thank you.
Thanks, John.
Cost of how do we have time from from.
Your line of helping.
Yes. Thank you just I wanted to follow up on the membership trends your scene, which which seem quite encouraging but.
I know you mentioned some of that markets, where usage is coming back faster I don't know if you've taken a look at membership trends in those same markets and if you're seeing any difference there and then.
When you when you look forward kind of of the.
Better than normal seasonality of seen I mean, how how are you thinking about.
The chance of that continues I don't know if you've got there at the puts and takes or.
Following up on the marketing any coactive tactics, you were taken to help encourage that going forward.
Yes sure drugs the.
The usage as I mentioned them at opening remarks of the Sultan in the Midwest, where they were open longer back from May and June they're definitely they're usage now is over 90% from member workouts.
And their cancellations normalized earlier on than the numerous at California openings. So.
We've talked for references of hard happened on the ones that open.
They're open the longest since reopening of act and the most normal so.
So.
There's no reason why the rest of the country as they get further into this reopening resurgence they shouldnt see the same kind of results going forward.
Yes at the seasonality side of things.
It's it's hard to say it's.
March was a great example, and so was in April but I don't think two months, we can better on of trenches yet but.
If we get through May and June here, we start to see the same sort of.
Abnormal seasonality trend that we thought being on power over over Nixing April of.
Of 2019 on those months.
I would definitely lead to leads me to believe that the seasonality changes is probably going to be the first of the year, which then because of the changes to drink change of the marketing scheduled at set today, which time will tell on the way to guarantee that yet, but we'll have to wait and see at John at the top maybe one thing just to build on Christmas first answer there I think to tie it to your membership question.
The stores that reopened the earliest in Q1 of the strongest membership growth.
Which goes back to the longer they reopened of more normal and stronger day.
Great and then a follow up I don't know if you have an updated view on when you could see the system get back to pre COVID-19.
<unk> ship per club I know you've talked at a high level of before.
But related to that assuming that trend continues and you mentioned strong franchisee profitability. How do you think the operators are balancing repairing the balance sheet still in 2021, but.
Not falling behind from a competitive standpoint looking at the 22 in terms of unit growth and and going back on offense.
It's hard to predict exactly we get back to pre COVID-19 levels, but I think it's pretty pretty astonishing that we've gotten back just here at four months, 40% of our peak last year, just four months, we've made it back. So it's it's a great trajectory, let's just keep working on that to keep it going that direction when when and if we get to the point, where we're back to back to.
Free COVID-19.
I think it would be this year, but definitely where head in the right direction, which is which is promising.
Yes, John on on the on the franchisee side I mean, as I said in my opening remarks.
They're all of different places, but.
Talking to the largest ones here in our in the franchise business reviews.
They are bullish on the.
Certainly bolstered our confidence in the range of that we provided of 75% of 100, new store openings. This year plus doing the real quick. So if you think about your question of our competition.
Anecdotally.
We don't see any competitors marketing beyond some social media so the franchisees in their markets and certainly we're seeing it on our markets, they're not taking any real positions and traditional.
Mass media.
We certainly don't expect an effort anecdotally again that they are not re equipping their stores, where our franchisees are which is another sign of their financial wherewithal end strength, because not only do we want to open new stores, we want to make sure that the current stores. We have on the current members we have and those stores.
Have the best experience possible. So our franchisees are aligned with us.
It's not only about the new capital for new stores. It's also about capital for the existing stores.
So.
Again, anecdotally, we've heard that some of the high value low priced players who were going to enter markets or broaden their.
Increase their presence an existing markets have largely pulled back on their store development plan. So we believe.
Our store growth from last year and this year combined.
And more importantly, net store growth since we've closed zero as a result of COVID-19. Unlike others.
Will will Trump end dwarf any other.
Hi value of low price competitor individually unlikely collected.
Alright best of luck. Thank you.
Okay going on.
Most of the question from.
On Gal out from from Raymond James Brown was open.
Hey, guys. Good afternoon. So first question on on the store build you mentioned you open.
Two new stores on queue one.
Still expect queue for to be the heavier from terms of new store openings at that has historically given us at the sixth of nine months of what lead time. It would seem like you guys would have pretty good visibility into that kingdom throughout the year.
Yeah, we got a little door.
Yeah.
We as Tom said in his prepared remarks, we.
We feel confidence on our in our range of at 75 to 100 derived from a sense that.
Historically, a lot of the new store bills.
<unk> and Q4 at about half of the year.
Probably of franchisees you know looking for locations kind of going.
Out of the end of 2020, knowing that some things are opening up certainly some of the states that we referred to that opened up earlier and less risk of those clothes on down obviously other states like.
California on some others, where either we weren't opener certainly a lot of risk or <unk>.
Potentially close them down plenty of a lot less activity out there.
And the market to trying to build a pipeline of that but yeah. We both on some stores in Q1 as as we reported on we expect open some.
Some stores throughout the year as well.
Okay. That's helpful and maybe you're on to membership you mentioned that.
17 per cent of gyms of closed permanently on that number probably goes up how our franchisees marketing both of them.
Members, who seems of.
Of clothes are they buying member list for example from those closed.
Yeah in some instances they are Joe this is Chris.
I think at known ahead of time that there is a struggle of era of that owners not opening they will reach out and try to by the member of lists from them and it's a pretty seamless pretty seamless deal generally how they work from a high level of they basically take the members of the service them and they make it is not financing involved they get basically pay they will pay the whole club owner of portion of of what they collect their.
<unk> at a time and that's their pay out and then they get the membership of 100 per cent of of going forward. So it's a free seamless integrated takeover in essence.
But in most cases, I'd say, probably quite a bit of some of the time is really just a matter of marketing in and around that closing club whether it's.
Billboards and postcards of so on driving them to the planet location.
So that's pretty much how they how they capitalize on that on a lot of the national chain of like a 24 hour fitness for example, when most of those cases those members warrant abandon like of mom-and-pop would be most of the time in those situations that the big national chain or like even like of youth that they would just dump their members at their clothes clubs into their open clubs. So it would be of slower cancel.
Nation transition as people say I don't want to drive that far to the next available club to you. So so it's more of a moment Pops, which is you have no. We've talked about is highly fragmented.
All of the us at all of the Big Big change together, there's still 36, 37000 mom and Pops out there.
Got it okay. Thanks guidance.
Thank you Jason.
Question from John out of them call from J P. Morgan on your line is open.
Hi, Thank you a couple of questions. If I may not I'm, sorry of multitasking with another company that also reported so I apologize if I'm an asset thing that's already been answered.
At first I think I heard something about this that I want you to clarify that clubs that I had been most recently opened California. For example, how have the trends been in those markets. For example, after of the annual fee was charged so I know that was at an issue that we kind of dealt with in 2020 that people didn't cancel immediately is at an issue.
In California, or any other market that you guys have.
Yeah, So the California stores.
So the cancellations in essence, where does that and this is the reason why is because in California, because they were closed essentially until 2021.
We didn't want to build their annual fees upon reopening because then they would essentially of two annual fees on the same calendar year that that makes sense John so.
We thought was the right thing to do for the loss of revenue for the franchisee, but they agreed we wouldn't want to hit of them in January of February once they open and then hit him again in June when they would do so we decided to way of them, which I think is probably helped a little bit on the cancellation side in California.
Is there a wave of of of of.
Annual fees in California that we should be sensitive to or is it going to be evenly distributed throughout the year based on whatever their initial contract was.
Yeah, just say this initial contract is not going to be a big a big balloon there because there wasn't noticed wave at them because of the full period, okay. At the I understand thank you for that.
Covering restaurants, I mean, I've seen a lot of companies at pulled advertising reduce their promotion scene of not done as much on the discounting side much like like grocery stores in other words.
You think you have the demand why advertise like crazy to bring people and they're going to come in any way and it's interesting new juxtapose what is very obviously, an aggressive may promotion.
One month free $10 a month no commitment. What's your belief is located in there is going to be a way of fitness because people of gain weight or don't feel good or mentally or physically what have you.
Can you kind of any kind of.
Explain the thought of having one of your most aggressive promotions ever with your belief of Hey, this is going to be a wave of fitness of people kind of coming back from the gym instead of being together.
Yeah. So I think I would say probably three of of these one of US no market share grab right is 17% of the industries currently clothes and is more clothes, we want to make sure that we are from the center and even though we're number one of brand awareness. We didn't advertise most of last year's of our brand awareness of slipped from from first time in many many years of actually went backwards. Although we are still number one so.
As a board of us would be top of mind. So when they feel comfortable it's not working on again they come to planet don't use of competitor or current members, leaving.
Looking for new gym, because their club close I think it was probably too big points and I think it's really too when you think about the new.
The media has tarnished the industry, a little bit I say with just how they kind of put us on this corner of gyms of dirty and their petri dishes over the last year. So I think the the cleanliness message of what we've been saying.
On the commercial with the sensitization stations that we have in the social distancing I think it's important for people to see real time.
That is safe to come in at breakdown of those barriers so that.
There's really no reason not to try fitness for 10 Bucks a month. The first one is free there is no commitment cancel any time, we visit took every excuse token of out of there out of their pocket to use and we look at this at the time to be bold and we decided to go that way.
I saw the at commercial yesterday for the first time.
By accident quite frankly on television it's awesome. So congratulations on that spot at it definitely gets a lot of attention.
And and the final question.
You mentioned kind of of commitment to your 2021 development is there of thought on 22, I mean, how the pipeline is building higher franchisees are feeling I mean, it's even if it's just how many people are in the field looking for sites, maybe how many.
<unk> for example that of.
That had been fund it's obviously.
Central part of your story kind of longer term of if you can kind of think about we still have not.
Enough time to really make a decision on 22, but on the conversations at you are having with your bigger well capitalised franchisees, how they're feeling about getting stores in the garden of 22.
Yeah, just Oregon.
Obviously, we're not prepared to talk about 22, yet but.
I think that from your your point about conversations with franchisees.
Yeah, a lot of them are of different stages, you want some of an open you know a good chunk of.
Of 20, and now on 21, whereas you know like the guys in California that just just reopened recently.
So they're all at different stages from rebuilding of your balance sheet back to you.
Seeing some growth.
Here on the first the.
The first four months of of the year, we've talked about.
But I would say that the general sense of months is that yeah. They really liked the trends they're singing they're very bullish on the opportunity ahead, you know of a combination of just the trends or capitalizing upon.
We're we're at within the industry are most of these would be the competition.
Knowing that as.
As opposed to maybe at USR, when you Gotta get somebody to come in on the by the Burger We we didn't.
It's not like we lost all of the members of way of to get our by back at first month, we start billing and so yeah. The the store.
<unk> cash flow of positive at the minute of it opens back up the margins are still good that is Tom talked about earlier.
But there is at timeline to the point of made earlier six to nine months really to get something going so at this point here. We are we haven't gotten to the midway point yet of of 21.
But at the time, we get into late summer early fall, we're certainly going to have.
All of a clearer picture into the balance of this year and quite frankly, I think well, we'll see you know what kinds of activities out there at the last Doctor I'd say.
Is that we still don't have a real good thing Oh, we're real estate land is going to be on some markets, there's quite a bit of availability on other markets. There's not as much availability yet landlords are trying to hold on to rinse.
As much as they can generally from what we're hearing.
In some cases, they're putting more T out of money on the table up front then they maybe did pretty COVID-19, there's a little bit of wait and see on that because if you think you can sign of tenure at least with a couple of five of your options of it might be just a little bit cheaper because something comes available here of the month or so I think those there's been some hesitation.
Because of that too, but I guess the net net John it's it's still a little too early at at this point, but all of franchisees very bullish about about the future.
That's great guys. Thanks for all the time.
Thank you you're on extra zone.
Not a question from from one signal from BMO capital markets Siamese open.
Thanks, Hey, guys hope, you're all doing well.
Sorry, if I missed this Chris nice job inflicting members, how do you think about the timing of the market share grab opportunity that you mentioned from Shudder, Jim just as we think further out and do you have a view on what percentage of the members that new recaptured through the recent trough at on new members versus reactivated. Thank you.
Yeah of about 4% of our Julians right now are coming from there clubs at of permanently closed. So again about 4% right now of our current joins at from that and I guess it will continue to grow.
Grow in the future and I think the I think the other important pieces I mean, the average covenant of in the U S. Only has about 1200 location. So.
All of this market share grabbed it's not like we've got of 7000.
Remember gym across the street, that's gonna close that we capture them a bunch of them you know so if there's definitely some upside there, but I think also longer term do you think about a market and we've had this even free COVID-19 world for for 20 years, where we are in a market in this two or three competitors and 10 years later with the last Guy standing.
It's really that month of a month of a month of just increased joins because it just north of the place to shop, right and that's really where a lot of one of the benefit does come from in the future but.
<unk> was smoke free COVID-19 at about 60 million members from the U S.
So if 17% of his clothes that could go as high as 25 per cent of it there's definitely some some members to be had that'd be looking for a new gym, where essentially now in pretty much every neighborhood. In every DMA you can think of.
With our price point, it's pretty hard to be.
Great. Thanks, and then the the furthering of the I fit I mean, that's obviously very exciting. Congrats you guys have done a really nice job going digital. She says you think about what that ultimately looks like does the relationship of I fit stretch further.
Any color there would be helpful.
Yeah, I mean, I think they are they have been in the in their industry and fitness as long as we have I didn't around from of 30 years at this point. So I think it comes back to home fitness of definitely pioneers in that space.
Think it was a great partnership to making into into deepen at just to both of us.
Capitalize on our expertise is throughout the business forward and I think you know outside of the content. They do a lot of other things you know they do have home gym equipment at you have supplements into of meditation on cooking classes. They of a lot of stuff that they do that now as we broaden our our involvement with them just as a lot more opportunities of just strictly a digital company. So time will tell but.
Definitely I think of good partnership too.
Two big with two of the biggest leaders right biggest on the health club for some more space and of the biggest on the essentially in the home fitness space. So because it's great partnership.
Alright, well congrats on that best of luck for the rest of the year.
Thank you.
Next question, we have Sharyn sexier from William they're lying is open.
Hi, good afternoon, I guess too.
Two questions so on the the equipment sales.
Obviously, you know what day. The franchisees are are rebuilding their balance sheets of you alluded to at and you've got that.
On that kind of moratorium or of our extended at.
<unk> on the equipment replacement I'm just curious in 2022 is we think that through is there of some sort of pig on the Python when it comes to equipment replacement sales at that point or is it just everything was deferred so we get back to kind of like $100 million class on replacement, but it's not kind of of bomb that if that makes sense.
And then secondarily at the SG&A line is is you guys referred to it was pretty big of this corner of for a couple of of reasons do you have an underline SG&A number I kind of want the quarterly run rate would be X dot com and on what you were doing the California at the App.
Yes, sure and it's Tom so on the equipment piece.
It is there.
There's no catch up or pig in the Python thing, it's really more all dates for.
For both.
[noise] strength and cardio re equips were pushed at 18 months.
Now in some cases franchisees of done it ahead of time because either.
They thought it was the right thing to do for their customer base in the shape of their equipment or are there might've been of competitor, who was coming in town and they and they wanted to crush equipment to compete at.
But.
So there's no catch up so essentially.
Think maybe to your question 22 starts to look like a pretty normal you're in terms of those obligations because of all day to of moved.
Back from when we originally gave the extension in May.
Of last year.
On the SG&A side, yet. So 2020, there was there was no incentive comp there was just just a lot of sort of kind of.
Things in there we took some pay pay reductions more on queue too, but that's coming up that we're gonna anniversary. So it is hard to compare of which is what we've said 2019 as of better indicator.
Where some of that noise wasn't happening. So if you take 2019 and factor in.
Some of appropriate investments in digital.
<unk> you come pretty close to where we also had some one time and.
Investments in marketing as I mentioned in my opening remarks.
Both for California end to support on mobile App. So.
But we think those of the right thing they were the right things to do strategically in California in an effort to get the get the local authorities to think about Jim's differently. So it was really kind of of.
A very different campaigned in our typical joints messaging.
And then when if and when Jim not yet.
When Jim's reopened at at least get to a higher status of that the maximum occupancy could be it could be higher than it would be otherwise so that was kind of the internet volume.
Can I ask of follow up so the first quarter asine at like $4 million higher than the first quarter of 19 is that the one time investment chug.
Some of that is the the marketing investments and some of that is the incentive comp that didn't exist at.
Great. Thank you.
You bet. Thanks man.
Next question, we have to take you from Barbara Handler. Your line is open.
Hi, Thanks for taking the question and nice work on navigating a difficult environment I had another follow up question on the re equipped so understanding there's an 18 month push out also hearing an argument out there that at.
Not at B.
Be proper to have a one size fits all of approach and so maybe thinking about gyms like in California that just opened haven't been operated for a year are you thinking about staggering some of the re equips based on the timing of of when the gyms opened and therefore pushing out of that further.
Hey, Peter it's Tom.
Good question and the short answer is no.
The 18 month was meant to capture.
Closure periods reduced usage et cetera.
And frankly some of those stores in California are among the highest membership levels. We have so they get a lot of usage. So you could argue on.
Most of our an accelerated real quick cycle under normal circumstances. So.
But the good news is our franchise. These are completely aligned with with what we're doing I think maybe some concepts that we've heard anecdotally are pushing more for new store growth and completely walking away from Marie equipment, and that's just not what we want to do.
Okay.
So maybe kind of of fall on that if if if a franchise. He pushed back at check I can re equip or I could I could bill, but I've got capital is kind of do one or the other.
Is your choice now that pushed with a free equipped and keep those older gyms looking new.
Yeah, I mean I've I've.
I'm pretty clear that the fact I'd rather have 2000.
2000 palaces out there than 4000 pieces of junk, so I'm pretty I'm pretty pretty set on that and the free disease agree we don't want to be out nude and we want to protect our.
Home turf before we go find new turf, but.
But you think about the other side of it too is either of these eerie development agreements that they had at they have to build on the.
Actually they will have to build out so they they do have to do that they're on a loser eight of elven agreement. So.
At all it will shake out on dog grow grow together on there they're happy with the way that is performed of they share our our excitement with how this margin April went sort of deeper.
We're on a good spot.
Yeah, and Peter maybe just one last thing to build on Christmas. So implicit in your question is at an or in our franchisees and we believe it's at in that they're doing both.
Okay, great. Thanks, so much.
Okay. Thanks Theater.
And on my last question of from all of our 10 from Colorado Caroline is open.
Hi, Thank you the usage.
That has been quite encouraging do you expect that to be volatile going forward and and to to regionally uhm continue to be different of our converge.
Uhm and then Chris on the on advertising of marketing at you in the past you had some creative changes are you feeling good about where you are with with positioning in terms of who you're partnering with their.
And the last question is on the mobile App Uhm. Other other investments ahead, just would love your thoughts on the key opportunities to continue to improve that you've done a good job innovating the app quickly. Thank you.
Sure. Thanks, Yeah, I believe the usage I don't think it'll be volatile I think we will continue week to week of month to month, improving for the better I think the because of the.
The longer opening stores will always probably be ahead of the of the older. But eventually I think so I'll be back of of 100% once we get there.
I don't see any reason why it should be volatile I think you should all go go the right direction as of vaccines of more distributed.
Yeah, I think the advertising I think the creative messaging, especially around the claim to standards, which I think for any industry going forward or any public place will be probably important.
For the near future years, where people will want to make sure of their their show that they are.
They're on a safe place at at the cleanliness place in that they can feel okay. So I think that's something that will probably keep on ours forever. You know you have no. It would've been meticulously clean for decades, I don't we didn't really feature of that issue. We always started kind of goes without saying, but we're really highlighting those zone of creative and I believe it's working I think thats, even driving current members of of seen the commercials of haven't yet to use of stores see this.
San physician stations and the increase signage of of putting clubs and social distancing and stuff and I think that's probably driving some of the the work goes along with the vaccine. So we'll continue of that and I think of of.
John <unk>, you sort of the commercial that gives it really catchy commercial I.
I think the break it on the berries that we have on that commercial we'll definitely.
Well force.
Yes, the mobile world of it's exciting it's hard to believe that we rent of this business with our mobile three years ago four years ago, it's kind.
Hard to believe we didn't service of members of give them ways of contact number really engage them outside of for awhile. So as we continue to build out of our library of content and looked at meditation, possibly in nutrition on diet and other things that we can use that platform for it. So it's really not the platform at all.
We'd be two tests, you can drive drive more engagement with our members soda and that's with a partial with isolate allow us to speed that process up as opposed to trying to pull it off ourselves and from studios of zone.
Thank you very much best regards.
Thank you.
There are no further questions at both fine now at a time to call back alright, So most of that Chris wanted to see.
Well, thank everybody for joined the call today, I'm really really happy with our first quarter and the the acceleration of we've talked about from March and April and look forward to this may sale and to see how the trends hopefully continue I.
I think I couldn't be more bullish on the on the brand in the business and the industry I think we're could not be in a better spot coming out of COVID-19 in this post corporate world.
Part of this what does it go through I think we're going to have some experience some serious serious tailwind that we can capitalize on here as of brand and look forward to report on queue too. So <unk> have a good afternoon. Thank you.
This concludes today's conference call. Thank you again for participating you may now disconnect.
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