Q2 2021 Planet Fitness Inc Earnings Call
Okay.
Good day, Thank you for standing by and welcome to the Planet Fitness, Inc. Second quarter of trying to China..1 earnings conference call. At this time all the participants are in a listen only mode.
For the speaker's presentation, there will be a question and answer session to ask the question during that session. The real needs are passed our 1 on your telephone keypad piece of that's why you started the call is being recorded your for your.
Any progress distance at least breasts are Israel. Thank you.
I would now like to hand, the conference over at 2 years speaker of today Ms. Stacey Caravella the floor is yours.
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 Darvin 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 would like to remind everyone that the language on forward looking statements included in our earnings release also applies to our comments made during this call.
Our release can be found on our website investor Dot planet fitness Dot com, along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures.
Now I will turn the call over to Chris.
Thank you Stacy and thank you everyone for joining us today for planet Fitness is Q2 earnings call at.
As a testament to the strength of our brand more than 13 million people remain committed members of the planet fitness in the depths of the global pandemic when most of our Jim for temporarily closed our membership momentum continues to defy of historical seasonal patterns and through July we had more than 15 million members.
We have regained approximately 75% of the members we lost from the peak in Q1.2022 are low in Q4.2020 I have never seen this type of unseasonable membership growth in my nearly 30 years of equipment.
And some of our larger franchisees, who have been with us for a good portion of that time are also amazed at the positive trends that you're seeing across the portfolios.
And today with nearly all of our stores reopened existing members of re engaging with us in new members are joining at unprecedented rates at.
They all realize the importance of fitness to the overall wellness. We're in the business of helping people feel better and get healthy and Thats, where they are seeking right now the community based support system and he doesn't free environment combined with the incredible membership value proposition.
Covid hit the U S heart of the country came into the pandemic with more than 70% of adults over the age of 20 considered overweight or obese.
1 of the top risk factors for severe illness from Covid in fact life expectancy at America fell by 1.5 years in 2022 of the pandemic and other residual impacts the largest single year decline since World War II.
At Kaiser Health Studies show that people, who regularly exercise at the best chance of beating Covid for people, who are enacted did much worse and most importantly, physical activity makes people feel better not only physically but also of mentally we believe the on seasonal momentum and our membership gains is fueled by people recognizing the importance of self care, our messaging to consumers at.
At about taking the first step of getting off the couch and getting into of fitness routine our national new sale of 1 month free and no commitment remove all of the barriers to doing so.
As a result total net member growth in May was 3 times our growth in May 2019 in June we ran a black card flash sale and for the month net member growth was nearly 20 times, what we saw in June 2019, during which we ran similar offer.
For the quarter net member growth in Q2, not only exceeded Q1 net growth at double what we saw in Q2.2019, we ended Q2 with more than $14.8 million members.
Exceeding 15 million members with our July National sales is truly remarkable for our brand when you consider the state of our business for the second quarter of 2020, we had approximately 30% of our stores temporarily closed and negative net membership growth in just 12 months our business has rebounded and importantly, our franchisees are very excited about the trends in the future.
It's hard to predict whether these recruits usable joins will continue for the rest of the year, but we believe that people are recognizing the importance of taking better care of themselves.
The trends in our business of test of this in addition to the strength of our joins the June attrition and usage are normalizing in some cases exceeding our 2019 levels, both on a regional and age demographic basis.
During June we began to see certain key metrics in our business returning to nearly pre COVID-19 levels natural usage trending up during the quarter ending June at nearly 90% of 2019 levels usage in June for all demographics was nearly back to typical pre COVID-19 months with only bloom is trailing however, it is still trending upward for that age group.
Our last group of reopening are returning to pre pandemic performance levels faster than those that reopened back in 2020 as people begin to return to more normal activities.
While COVID-19 had a temporary impact on our business there are areas of the pandemic accelerates such as our digital strategy. When we shut down our stores last year, we quickly shifted to keeping our members engage digitally with free workouts offered via the web in our mobile App and as we announced last quarter, we strengthened our partnership with <unk> to unlock future opportunities to further accelerate our digital.
Content strategy App adoption by our members of nearly 60% having grown from 40% in Q4 of 2020. During Q3, we plan to rollout the refer a friend of incentive programs through the App.
During the second quarter, we hired a chief digital officer, Cheryl capital to lead our bricks with quick strategy, we believe that the future of the fitness industry is about providing people with the high quality in person experience coupled with the ability to engage the servicing outside of our 4 walls.
We're providing them with many other benefits as well as differentiated premium content to make it even easier to get the most of the membership.
We believe that there may be an opportunity for us to aggregate other wellness category into our app at a disruptive value all geared towards casual first timers.
We continue the pilot Pf plus in a limited number of stores to test price elasticity included as a bundled offering with our black card membership we expect to run this test for the balance of 2021 and look forward to share more on possible offerings at early 2022.
In June nearly 40% of PS plus subscribers joined our bricks and mortar location underscoring the consumers want a more omni channel fitness experience.
I am proud of the efforts of our franchisees headquarter staff and club staff, who persevere during the pandemic to keep our system strong and I'm very excited to now have nearly all the stores reopen.
A dislocation of the fitness industry with 22% of the gym at permanently closed due to the financial impact from Covid through the second quarter. While at the same time more Americans are realizing the fitness is essentially to physical mental and emotional well being after shutdowns and quarantines in isolation, they're seeking sense of community.
We believe we are a place that fills that need with our affordable non intimidating workout of environment that gets people moving and confidence as the go on vacations again head back to the office or see family of friends, who haven't seen it all at 1 time importantly, our franchisee believes as well as a result, we now expect to be at the high end of our 75 to 100 new store openings.
Range for 2021, reflecting the growing confidence in the strength of our business in near term growth prospects, Tom will get into more specifics on our outlook for the balance of the year at his remarks.
We also announced today that we signed an agreement to accelerate growth in Mexico with a joint venture made up of a prominent local retail services company and 1 of our largest U S. Developers. The agreement is for a minimum of 80 new stores over the next 5 years. In addition to the 5 stores. We currently have in Mexico.
I am extremely pleased that we have added $1.5 million members for the first 7 months of this year with nearly 1 quarter of all gyms closed due to Covid I believe that the opportunity in front of us the significant with so much potential given the changing market dynamics and the tailwind behind the health and wellness. The 4000, plus long term domestic store.
Period looks better and better I always knew that we would come out of the pandemic, even stronger but the pace is even faster than I expected I always come back to the fact that we are a purpose led brand on a mission to change People's lives better, which is what the U S and the world needs more than ever.
I'll now turn the call over to Tom.
Thanks, Chris and good afternoon, everyone before I get into the review of our financials I want to touch on a couple of key topics starting with store expansion.
During the quarter, we opened 24, new stores, bringing our total count to 2170 as Chris said, we now expect to be at the top end of the 75 to 100, new store range for the year, reflecting the growing confidence of our franchisees to accelerate their development plans. It also reflects the strengthening of their balance sheets.
Several of franchisee groups are taking advantage of the increased supply of real estate. As a reminder, we're not typically go after the real estate from gyms that of close we look for big box retailers that occupy a 20000 square foot space.
We believe we're even more attractive to landlords given the no planet fitness locations permanently closed because of the pandemic, which strengthened our position as a tenant of choice.
We're not necessarily seeing rents come down yet, but we are hearing from franchisees that landlords are sometimes offering more tenant improvement dollars.
In general we are seeing a more favorable real estate market and historically unseasonable membership trends, which had been the catalyst for some of our franchisees to accelerate their development pipelines I would categorize franchisee sentiment as bullish as membership levels continue to decline.
Next I want to elaborate on Christmas comments about the state of our business last year in the second quarter. As previously mentioned on last quarters call. We are not reporting of Q2 system wide same store sales growth number due to the fact that the majority of our stores, we're not billing in the prior year period.
We assume we will resume reporting system wide same store sales in the third quarter. As a reminder, our same store sales results are a function of the change of membership trends over the trailing 12 months compared to the year ago period at.
As of the end of Q2, we had 6 consecutive months of sequential net member growth, but our membership levels were still below prior year.
Black card penetration increased to 62, 6% up of 191 basis points to last year contributing to continued growth in average monthly rate.
Now I will turn to our Q2 financial results total revenue increased $97 million or 241, 1% 2 of $137.3 million from $40.2.
$2 million in the prior year period the.
The increase was driven by revenue growth across all 3 segments the.
The increase in franchise segment revenue was primarily due to growth in royalties NAV and franchise and other fees, primarily attributable to COVID-19 related temporary store closures in Q2 last year.
The increase in revenue in the corporate store segment was also primarily due to COVID-19 related temporary store closures as well as the impact of 7 new corporate stores opened compared to Q2.2020.
Equipment segment revenue increases were driven by higher equipment sales to new and existing franchise owned stores due in part to temporary store closures related to Covid last year.
Our cost of revenue, which primarily relates to the direct cost of equipment sales to new and existing franchise owned stores amounted to $18.5 million compared to $8.5 million a year ago.
Store operation expenses, which relate to our corporate owned store segment were $28.4 million compared to $14.7 million in Q2 last year. The increase was primarily attributable to lower operating and payroll expenses last year with the COVID-19 related temporary closures along with higher expenses with the new stores, we opened at in the <unk>.
Last 12 months <unk>.
SG&A for the quarter was $21.8 million compared to $15.9 million a year ago. The increase was driven by higher incentive and stock based compensation travel expenses and expenses associated with our mobile app compared with the prior year period net.
National advertising fund expense was $13.5 million compared to the $10.9 million in the prior year period.
Adjusted EBITDA was $55.6 million compared to a loss of $9.3 million in the prior year period, a reconciliation of adjusted EBITDA at a GAAP net income or loss can be found in the earnings release.
By segment franchise, adjusted EBITDA was $51.8 million corporate store adjusted EBITDA was $10.4 million in equipment adjusted EBITDA was $5.6 million.
Adjusted net income was $18.2 million and adjusted net income per diluted share was <unk> 21.
Now turning to the balance sheet as of June 32021, we had total cash of $527.4 million compared to $515.8 million on December 31.2020.
This was comprised of cash and cash equivalents of $469.1 million.
Compared to $439.5 million and $58.2 million at $76.3 million of restricted cash respectively in each period.
Total long term debt, excluding financing cost was $1.78 billion as of June 30, consisting of our 3 tranches of securitized debt and $75 million of variable funding notes.
Our securitized debt structure is covenant light, we have 2 maintenance covenants a debt service coverage ratio and a total system wide sales thresholds. These are both tests at quarterly calculated on a trailing 12 month basis and reported on a roughly 2 month lag.
In our most recent debt covenant reporting period of June 2021, we had a 13% and an 81% cushion for the first triggering event for our debt service coverage ratio and systemwide sales covenant, respectively. We believe we have sufficient headroom for our 2 maintenance covenants, especially not with nearly all of our stores opened.
Additionally, I would like to point out that this was the final reporting period with Q2.2020 included in our trailing 12 month calculation.
This was our toughest quarter financially last year and as a result, we believe it was a trough from a <unk> standpoint, now to our outlook for the balance of 2021.
With vaccines readily available across the nation strong membership growth trends and just under 5 months remaining in this year.
Better insight into what we believe our performance will be across key metrics. However, I'd like to note that our current view for 2021 assumes there is no major resurgence of Covid. The causes member disruptions, whether via shutdowns or more stringent masked mandates. The result in a significant change in membership trends.
Particularly as the Delta Varian is causing case accounts to spike across the U S.
We have already discussed that we expect to be at the high end of our 75 to 100, new store opening range.
As a reminder, last quarter, we noted that we expect equipment replacement to be approximately 50% of our total equipment revenue. This year. We continue to believe this will be the case.
With respect to our corporate store segment, it's important to note that our corporate clubs are primarily end markets that were most impacted by temporary shutdowns from Covid and we're in the group of stores that were temporarily closed the longest which as we've said is the biggest factor impacting of stores recovery to pre COVID-19 levels.
Additionally, the vast majority of our corporate stores are mature stores.
Therefore, we expect lower revenue and profit for the balance of this year and into next year for our corporate store segment compared to 2019 levels.
We still believe in the strategic importance and viability of our corporate store portfolio. It will just take a longer period of time for those stores to return to the previous financial performance levels.
Now, let's turn to SG&A. There are 2 drivers for increased SG&A spend versus 2019 first our investments into the future growth engines for the business, including our bricks with the click strategy at <unk>.
Infrastructure and franchise marketing.
For example, as Chris mentioned on digital we have a new Chief Digital officer, who is leading our efforts for an omnichannel experience for our members.
From a marketing perspective, we have invested to promote our app support, California store reopening and participate and lobbying efforts for the fitness industry. The.
The second driver is compensation, including having additional leadership positions as well as typical compensation growth.
So when you take all of this together, we believe that our full year revenue will be between 530 and $540 million.
We expect SG&A to be in the low $90 million range.
We believe adjusted EBITDA will be between 202 hundred $10 million.
And we expect that adjusted earnings per share will be between 65 and.
70.
Finally, our pace of recovery has been faster than we expected in our membership growth is highly encouraging.
As I mentioned earlier, our same store sales results are a function of the change in membership levels over the trailing 12 months compared to the prior year period, we cycle. The most significant member declines in Q3.
We expect that our same store sales will become positive given our expectation that Q3 membership growth and membership levels will exceed that of last year.
However, I want to reiterate that this outlook assumes there is not another prolonged operational setbacks, whether through mass mandates temporary shutdowns of our other less tangible ways that COVID-19 can affect the American psyche and in turn our business.
But we know that our business model is resilient and while the near term is somewhat difficult to predict we believe that we are well positioned financially and strategically to capitalize on the value creating opportunities emerging as the country comes out of the pandemic.
And with that I'll turn it over to the operator for Q&A.
As a reminder to ask the question you May press fire 1 on your telephone keypad again that is for 1 on your telephone keypad. So regarding the question you May press the pound key.
The standby, while we compile the Q&A roster.
Your first question comes from the line of John <unk> from Guggenheim. Your line is now open.
Hey, Chris.
It's happening with membership.
What do you think about promotional activity that you are going to run between now and year end.
You are more inclined to be more promotional because members would respond or can it be less because of the naturally coming back.
At a good question, yes, right now we have nothing outside of the norm from a marketing standpoint of scheduling it looks pretty pretty similar to last job not last year years in the past so.
The regular cadence, but what's what is interesting entity you kind of mentioned on your on your question is that what's.
What's more intriguing actually is the kind of of the natural organic demand, we're seeing on off promo days.
It's quite remarkable something we've never seen before at some ease.
Even at promo days of the demand is just.
Is there regardless so it's.
So we'll do a normal cadence of marketing, but for the membership is extremely strong right now.
All of generations.
And maybe secondly, right when you when you think about.
The black card pricing test.
At about that pretty deliberately and.
Compared to the last 2 increases right right I think you've tested it for a couple of months and then went with it.
Is that is that because of COVID-19 or is that because we're trying to figure out whether people will pay for the digital content.
And whether you want at included in the Black card pricing or do it separately.
I'd say a little bit of both for me. It's in pilot for that reason, so we could test whether it's.
Of the 24.99 of the right number is at <unk>.
More as at less as digital driving some acquisition higher acquisition or not.
Or at least maintaining the same black card percentage.
Through the higher increase in rate, so I'm, a little bit of all of that John but I think we'll always have the pf plus the digital separate and apart from the Black card bundle I think for a few reasons I think 1 we've seen that people are doing Pf plus and then migrating into bricks and mortar and about 40% of the the non bricks and mortar members of who have subscribe.
To the Pf plus have gone onto joined bricks and motor after so it's definitely kind of they're dipping the toe in the water and then the converting 2 of bricks and mortar. After the fact, which is encouraging is really 1 of the marketing vehicle for us, but it also sets of a bar of perceived value. So that when you get the bundle it looks like of even a better a better deal was bundled because you see the the off the street price. So I think we'll always have.
I always have both.
Okay. Thank you.
So all of them. Thank you.
Next question is from the line of Randy <unk> from Jefferies. Your line is now open.
Hi, yes, thanks, a lot. So I have a question 1 for Christian 1 for Tom.
I guess, Chris in the in the.
Press release, you talk about having confidence.
In meeting and possibly exceeding your long term.
At 4000 locations in the United States. So can you elaborate a little bit more because I think youre getting more kind of bullish about the long term unit potential, especially as your.
Competitors of closings. So just more color there would be super helpful and I guess Tom.
When I look at the EBITDA dollar guidance at the high end for the year at implies an EBITDA margin of about 39% I believe and your prior peak in EBITDA margin I believe was in 2017 at 43%. So just wanted to get some color on how we should be thinking about.
A little bit more into the medium term around where the operating and EBITDA margins for really for the business.
No it <unk>.
Elevated SG&A in 2021.
Will subside in growth our growth rate in 2022, I E. We should see some EBITDA margin expansion next year, just curious on that thanks guys.
Sure. Thanks, Randy This is Chris yes, that's what out of the potential you probably have heard of US talk in the past even pre COVID-19, where we were most of our new unit sales for franchise development were in existing territories that we had already sold call. It years ago. When we might've slowed at for 10 stores and accounting and we know a lot of a lot more now than we did back then.
And the franchisees of coming to us and we thought of whole tenant of our holds 14 based on what we know today. So we were always already thinking that at 4000 might be on the lower side of what the potential is now coming out of Covid I think we quite of few things going on on top of the 22% of the industry was shut down which is which is which is amazing out of the.
<unk> 41000 stores, I think 22% of shut down and that does skew.
Higher in the boutique arena as opposed to full service Jim It's.
It's about it's.
It's about 14% of Jim's of closed at about 27% of boutiques of close so it does skew higher boutiques, but nonetheless is 22% of of Jim's of no longer in business. So you have that on top of I think what we're seeing here with the organic growth I mentioned is just.
It's just the demand I think coming out of Covid of people realizing.
Everything you see points to the fact through Covid that being.
Being overweight or out of shape of on taking care of your health is 1 of the contributing factors of the hospitalization and unfortunate deaths. So I think people are really pay attention to their health and wellness more so coming out of this so I think the industry is a huge tailwind coming out of this price for many years ahead I think it's I think we're going to see some of the probably the industry hasn't seen before so I think for your question I think there's no doubt.
With Jim's closed down.
The strength of our model the vacuum of going after the casual first timers and 40% of our join is still today have no blanca of gym in their life and that holds true for the second quarter. So we're really getting people off the couch for the first time.
And the deals with people that need the most help.
And also.
As we all know and less fortunate enabled woods, they're also more affected by Covid and 25% of our gyms are enablers that the government classified as low income. So we're definitely feeling of need here.
I believe the 4000, probably is on the lifestyle. So I think once all of the dust settles as price something we're going to have 2 of them study up on the C, where we think the potential of <unk>.
Once the dust settles out of us.
Hey, Randy on the on the P&L question I think.
I think as we come through this with the different puts and takes by segment, we talked about the corporate store segment.
And the markets that were affected longer so that certainly has an impact there and also of the franchise segment, our membership levels while rebounding.
Still.
Have been rebounding more recently, where in 2019, there were kind of pretty strong right from the start so that's a bit of of timing based on the subscription model, but we don't see anything.
You kind of.
In the near term longer term that structurally inhibits us from getting back to our 2019 EBITDA margin levels of 43.
It is a little bit of kind of the depressed revenues in the near term and some of the some of the changes across our 3 segments.
I think when you think about SG&A, though we do.
As Chris mentioned, we have made some incremental investments both in terms of the people.
Systems and marketing to support our App back to our Brexit click strategy I think in the main we run that we run the business with a pretty frugal mindset, but where we think theres an opportunity to invest and we're going to do that so I think it's it's a balance of being frugal ware.
Where we should and also being thoughtful about the investments we need to make to really power up what we see as the big opportunity.
Thanks, guys.
Thank you Jim.
Next question is from Oliver Chen from Cowen. Your line is now open.
Alright, Thank you Christopher Tom It sounded like the membership trends, we're running better than you expected given your prepared remarks, what drove that upside relative to your expectations.
And then second on the bricks and clicks strategy. What are you. Most excited about why was now the right time for a chief digital officer, and how might this impact the models and membership vendor churn.
What generally is on the roadmap. Thank you.
Sure. Thanks, Oliver on the sharing.
On the on the growth in the membership.
What's really driving this today and what we typically see.
<unk>.
After we really go after the month of April honestly of mature stores mature store with typically not grow at all pretty much the rest of the year. After the winter growth months and in a lot of cases Oliver of the mature stores is actually declined slightly throughout the rest of the year. So what we're seeing now which is something we've never seen before is that the mature stores are growing at a time of year that typically.
Don't rarely the so the add a lot of the new members of the first quarter call at even through April and then the either maintain of retract some more of the rest of the year, but for the year Theyre ahead, but the.
The loose some throughout the rest of the year, we're not seeing that right now we're actually seeing that even the mature stores is to continue to grow and months at they typically don't grow so thats really whats driving that.
So that organic demand in the sale of periods are extremely strong.
Which is something you'll see in the month of June or July to grow like that is just something we've never heard of a had usually this industry. We hold number of your life in the summertime honestly and it's.
It's amazing to see something this time of year I think at the bricks and clicks.
And it's really still emphases trace age here, but I think as many years to follow but it.
And I've said this in the previous calls at if you think about this industry. We we opened our doors and we turn the lights on and unless somebody use of the facility. We don't offer them anything right. They pay at every month, we don't give many service outside of the 4 walls. So I think in any way, we can provide them some level of service and.
And engagement outside our 4 walls as well as inside but outside of the whole walls can only help of customer satisfaction and ultimately only help with retention and stickiness. So.
And that's why it's a great platform as it is now but it's really just the beginning of the platform that is built to be able to add more and more chu at and now it's strictly just exercise, but theres nutrition I've always mentioned in the meditation is our self help as the help of sleeping and it goes on and on with the platform, but even just way people are engaging with us I mean, the way theyre, joining now at 65% to 30% of our <unk>.
<unk> are digitally either through the website at through the App and 2019 that number was 30% to 35%. So even just the way people are joining at much much higher than than we've seen.
In the years passed by double so.
People are just the world's changed I think this is something kind of stick around with us. So.
Now we're offering of the upgrades in the App and we're offering refer of friends in the App, which of the nationwide promotion going with that of formal way that of member can refer somebody through the app and get credit for that referral and the reward them for that referral, which is something that never existed before until we had this app and launched this platform. So.
It's just the way I think of for us to be able to engage our member and provide the more.
And get more so it can only help I think with the satisfaction of the customer goes and the only drive stickiness of longer term.
Thank you, Chris and lastly usage, how has <unk> trended and what are your expectations, there and what youre seeing.
National end or regionally. Thank you.
Yes, we ended the June with about 90% of 2019 levels, so almost back to normal.
Many of the generations of our back to pre Covid. The boomers are still lagging some.
But they are trending in the right direction now which is great. So we're almost back to what we normally see.
And usage is about at the same 2 usage at about the same thing about the average members used at about 6 times per month.
Okay perfect. Thank you very much best regards.
Thanks Oliver.
Next is from the line of Joe answer Birla from Raymond James You May ask your question.
Hey, guys. This is actually Adam on for Joe.
I know you mentioned that the guidance assumes.
Nothing unexpected in the form of like shutdowns of mass mandates et cetera, all of that being quite unpredictable and dynamic.
That said have you seen any impact on membership so far and I know it's early for Delta in recent weeks either the pace of new joins our cancels the may or may be too recent to even be able to pick up on those trends, but have you guys seen anything on that regard.
Yes, no we haven't been watching it closely we did see some of that reaction back of the member for your call last summer when some of the things of spiking in August and so we saw some of the market react to that but we're not seeing that with the delta virus.
Nationally or regionally.
Okay, that's encouraging end and 1 more of I could I believe at New York City imposed the rule requiring proof of vaccination of answer James do.
Do you think that prospect.
Like slow membership of store growth in any way in the near term.
Okay.
I mean, it could we haven't seen it yet, but it is definitely a little bit of a hurdle here for people to work out but.
Good question is how long it goes on for you now.
But we haven't seen at affect things yet.
Out of the entire portfolio.
We are only of about 95 of clubs that are sort of masks all the time and about 31 clubs that are masks, while not while ex cited about while walking around so it's not it's not as broad as you might think.
Especially in the northeast of while you're here.
Got it thanks, Chris and congrats on the encouraging membership trends. Thank you.
Yes.
Next is from Jonathan the Com. Please also state for the company name. Your line is now open.
Yes, hi, Thanks, Jon Komp from Baird I wanted to follow up maybe a little bit of a bigger picture question, but as you look at the momentum in the membership youre seen in the bullish tone that you cited.
How do you think about whether youre doing enough to stay ahead of some of your competition.
Site at some of the metrics for Jim that of closed but.
Theres other of your peers that are seeing similar trends so maybe just.
Do you think you're doing enough to stay ahead of it.
You'd think about plans to stay ahead, how should you share those costs of those investments between planet and your franchisees.
Yes. Good question you may recall last.
Tail end of last year, we actually put in some but $10 million of corporate marketing dollars just to reinforce the knapp and the kind of supercharge that get of going we don't see the need to do that just yet right now not that we wouldn't.
We keep the Optionality opened there, but I don't see right now with the way the members of a trend as is heading in to how fast it's growing and as you know John the the.
<unk> in the last spend the national advertising fund the local advertising at <unk>.
9% of the membership dollar so the fastest at the membership increases the quicker those dollars replenishing the largest so right now we see no reason to do that just yet and there is no doubt that our or our excitement about the membership growth is definitely shared with the franchisees and the amount of text messages I get in the fields about people, saying they couldnt do.
What they're seeing in the month of July or June. So that's really what we've said at all along and Thats really what the franchisees need to see the get.
Replace their balance sheets, but also feel confident enough that it's time to the time to stop moving here, it's not decide negotiating leases and get clubs opened so which hence why we went to the high range of our 75 to 100, which.
As this holds true.
Delta virus side of us for a minute because who knows what happens at I don't feel that it will go.
Go Crazy on this but the.
The ones that holds true there is no reason why we shouldnt side of the season really good growth year of unit wise for the next couple of next few years here now that franchisees are out looking at real estate.
Yeah, that's great and maybe 1 follow up then as we think about it.
Trying to model out the equipment revenue in the years ahead, just thinking 2019, I think it was close to $250 million in any broad strokes thoughts about how we should think about next year for that.
Yes, John it's Tom we're really not commenting on 2.
2022 at this point.
We'll do that on our year end call.
But I think.
Once all of these extensions have.
The kind of run their course.
We expect that at some time in 2022, we'll be back on kind of a normal rhythm assuming there is no disruption with the COVID-19.
But sometime in 2022 back on a normal rhythm in terms of both store development and re equipment cycles.
Okay. Thank you very much you.
You bet. Thanks, John.
Next is from John <unk> of Banco from Jpmorgan. Your line is now open.
Hi, Thank you maybe the increase.
At the top end of the unit development range to some extent is the answer but can you comment on how year..1 volumes are doing I mean, if you were to look at for example, the stores that are opened and the.
Last 12 months, how they've been doing relative to previous years.
Especially interested on the 2021 openings, specifically, how those those of comps relative to years past.
Yeah, Hey, John It's Tom I'll start and maybe others will add so I think in terms of if we wind the clock back the stores that opened last year were clearly soft any historical norms.
For the stores that opened more in Q4 started to get closer to what we would normally expect in the stores that we opened this year are above expectations. When it comes to the first year first months in the first year of ramp so very encouraging and again, it's it's yet another kind of green signal that our franchisee.
We're seeing that gets them very bullish.
And above expectations, I mean would that mean that you are for example, higher than your 2019 class or Theres still.
Some drag in the new unit volume.
Higher.
Okay.
That's fantastic. Thank you.
Yes.
Next is from Simeon Siegel from BMO capital markets. Your line is now open.
Thank you everyone. Congrats on the ongoing progress Chris sorry, if I nice day. Thank you touched on it but can you speak to the composition of the new members of <unk>.
<unk> versus pre Covid I think you mentioned, 40% first timers, but can you maybe speak to the percent coming from competitor closures of reactivation from maybe around Covid lapsed customers and then.
Tom can you guys give the average royalty rate I think you normally give that so sorry, if I missed that thanks.
Yes, Ah rejoins are still running they were in first quarter of about 30% of our joins of rejoins sort of the members of us in the pattern of coming back and that typically runs about 20%. So it's quite a bit higher than what we've seen in the years past well at.
3% of the joins are coming from the closed competition today.
And Youre right about 40% of first timers coming to us from the couch essentially.
And the Gen Z population is definitely still joining at a rate that we haven't seen ever in the past part of that elevated the.
The Gen X and millennials are about the same boomers of slightly behind.
And the estimate the royalty rate for the quarter was 6.3%.
Versus 6 for last year, and Thats really just mix of stores that were opened in billing last year compared to the sheer no no fundamental structural change racing.
Perfect. Thank you and then any just any notable difference in economics for Mexico versus the U S. As you roll that out.
No not really know that the royalty rates and all of that the developments of the 80 stores over 5 years.
It's a good group out of Mexico, and they partnered with 1 of our largest here U S franchisees, who is almost 100 locations.
The you might have in the press release, but the.
The group there has that brought the forever 21 old Navy as well to the Mexico. So I think it'll be of great partnership the has the lay of the land there.
Great, let's talk for the rest of the year guys. Thanks, Thank you and thanks again.
Next question is from Peter Keith from Piper.
Piper Sandler your line is now open.
Hi, Thanks for everyone in my congratulations as well on the continued progress.
Quick question I guess for the revenue guide that you've provided of $5.3 to $5.40.
What would you have.
Roughly for a year end member count to get to that range.
Hey, Peter it's Tom.
We actually don't provide guidance on the on the member outlook and as you know.
Things are still kind of fluid, but in a typical year, we've seen very unseasonable.
Trends in membership this year as Chris alluded to.
On our last call. It was a couple of data points now it's more data points as we've gone through the quarter end into July.
And typically of store would lose some members.
The members in the back half of the year.
So we try to put our best thinking and taking an atypical year versus what typically happens in.
Store all of that together to come up with.
How we guided revenue, but unfortunately, we don't provide membership.
Folks.
Okay fair enough.
And my follow up question is just on the the.
The pace of the.
Jim New gym openings, you've guided us to the height of the range for 2021.
No you are not guiding for 2022, but I guess im interested in how the conversations with franchisees are evolving.
I think in the past you've talked about franchisees, maybe wanted to get through that January selling season, before making a go or no go decisions on the 22 openings.
Is that changing based on this faster member of recovery path that you are seeing could we see gyms opened up sooner in 'twenty 2 based on the comments you are getting.
Yes.
Please go ahead.
Yes, Peter I think the the way we look at it is.
When when things shut down.
Back early last year.
And when it became apparent this is not the last for a while.
As we've mentioned on previous calls the franchisees really shut down all of the development activities.
The furloughing.
Even some of the real estate folks on the team.
Because it really warrant they didn't know when they would get back into the kind of building new stores.
And then as you.
We progressed throughout the 2.
2021.
And quite frankly coming into 2020, and then coming into 2021.
With all of the concerns around what would happen after the holidays.
With respect to <unk>.
So the 19 and then the vaccination rates.
Starting the vaccines were just becoming available.
And it's obviously, it's still continuing to increase some states motor of than others in terms of the vaccination rates in the people more likely the kind of get out and try to get about their daily lives are not quite frankly, as Chris said earlier I think it's the reasons we're seeing.
Some of the trends we are having today. So when you take all of that into consideration, obviously, the franchisees with our own portfolio of stores. They see whats going on with their business and we obviously give them updates in terms of the system.
We encourage you not that.
Not only we have at corporate but they have and their own individual market the markets.
These trends are.
The real time as well.
And that's why as Tom indicated in our guidance that we believe will be at the high end of the.
At range of we had previously put out so.
So the franchisees are currently out there starting to do the deals again.
The issue obviously is the timeframe.
Beginning the end and kind of a normal.
The timeline circumstance. So it's about 9 months from the time that you say, okay I want to try to find the location on this particular market.
And you start working with your real estate team internally your commercial real estate brokers.
With our team our corporate team that we have the.
Try to put a number of sites out there for consideration and then start negotiating LOI.
How much tenant improvement allowances, they'll give you et cetera, it's about a 9 month process to ultimately get it open.
So here we are now.
In the back half of the year.
Franchisees clearly are out in the markets now.
The starting to new deal certainly starting to get alloys going.
At this point, we're we're clearly not back at that run rate. We were when this all kind of came down last year of March.
And a lot of that is just frankly of the timeline to get there I think you've heard of say before we certainly youre, saying it again as the.
We've got at a ton of confidence in the model and what has happened in terms of the recovery at this point.
And it gives us a lot of confidence so we can get back end to the kind of growth that we had before it's just a matter of of.
When and not if.
So at this point, it's Tom So we're not commenting on 2022, but we can say that clearly the the franchisees' willingness to get out there and start surfacing site.
Is certainly better than it was even.
60, 90 days ago.
Alright, thats, great very helpful. Thanks, so much guys.
Thank you thanks for thanks.
Next question is from Paul Golding from Macquarie. Your line is now open.
Yes. Thanks for taking the question. My first question is if you of any update on Australia, and the rollout there given the prolonged snap lockdowns that we've seen over the last several weeks.
Yes sure.
So I think we just have a few stores there, but we get an update from our franchisees and it is sort of on again off again, it's tough, but I think overall when they're when they're opened the trends that they see are still encouraging them and theyre forging ahead with our development plans for the future.
So the 35 new unit.
Estimate over the next several years is still the target for now.
Yes, I think the great.
Thanks for the 5 is closed right now and it should be opening maybe by the end of the month, but its moving target yes.
Got it and then on Pf plus were there any other engagement stats you could give us with respect to <unk>.
Number of work outside of a particular month of of unique might be doing just to get a sense of of the uptake there and any sense I guess as a follow on the Oliver's question around this.
Of this.
Intended to be top of funnel do you see at evolving into more of a stand alone maybe with.
Its own its own branding and marketing.
Should we think about that in the model.
Yes, sure, yes, so still so a lot of testing to be had here. We haven't released any subscription numbers, yet, but I think there's a couple of ways to look at at 2 is that Theres also.
A lot of App holders that arent, even pf plus subscribers. So to your to your comment about being top of funnel youre exactly right. So the lumpy with at engage with the App is unpaid members at converter bricks and mortar end, sometimes convert the Pf plus first so it's kind of a tough the funnel and at really the home of the marketing vehicle for us.
But we have seen out of the people out of the people that were subscribers. The Pf plus that were non book bricks and mortar members.
It was 40% now have converted the bricks and mortar first quarter was 30% in the fourth quarter was 20% COC how people are engaging with Pf plus and then becoming bricks and mortar members. After the fact.
So 70% of the members who have Pf plus of also used bricks and mortar at the same time, so the definitely engaged.
And about 80% of the subscribers are actually current planet fitness members who've gone onto the pay more for more than the majority of those of the Black card members, which is hence why we're doing the test for the bundle as well see if we can get more price out of just all black card members not just people who opt in for it so a lot of learnings to be had.
But I think it's just how we look at the top of funnel of out of the out of all of the App holders of about 90 of about 12 million downloads of $9 million of the members of the other $3 million or our non members of lapsed members that still have the app that we're able to engage with our engage with the app. So.
A lot more to be had there been learned from but but we do have a lot of people that just have the app at not even paid subscribers that we can convert as well so.
Just a lot more engagement to be had end to learn from.
Great. Thanks, so much for that Chris I appreciate it.
Yes go ahead.
The next question is from Chris <unk> from Stifel. Your line is now open.
Thanks, Good afternoon, guys, Tom I apologize if I missed this but how much of the equipment revenue. This quarter was re equip and how should we think about the ramp in replacement equipment revenue for the balance of the year.
Yeah, Hey, Chris sure thing so in Q2, it was 60% of revenue brings.
<unk> the first half to about 45% of total equipment revenue.
And so we said that for the full year.
We're staying with what we said on the last call which is.
The re equips would constitute about 50% of our full year equipment revenue.
Okay. That's helpful. And then is the net off season growth Youre seeing from either is it from higher gross sign ups or lower cancellations or both.
And I'm just curious if you've seen retained retention change at all from the May June promos. After the initial month compared to maybe similar type of promos that you ran prior to Covid.
Yes, it is both actually in.
And we're just seeing some of the year is not going with upside down or May June was 20 times at June of 2019 in our May or May exploration on our sale was the highest net member.
The growth day, even outside of January of this year. So there's definitely demand is upside down and people are coming in higher now than they did in the in the first quarter certainly last year. That's for sure. So so yes, I think at just people are out and about in researching the the business is just a totally different than we've ever seen before so they used a lot of factors can closings people pay more attention.
For the health of wellness.
And I think at.
Time will tell on go up at the anything happens crazy in the world.
Douglas variant, but.
I think at it could be of long term trend that we see for the years ahead.
Okay. Thanks, guys.
Thanks Bill.
Last question is from Alex <unk> from Bank of America. Your line is now open.
Hi, Thanks for taking my question Chris.
Chris I think in the prepared remarks, you made a comment that it's hard to see whether there's unseasonal joins will continue maybe could you talk to the cancellation rate of new joins within the first few months versus normalized levels, especially with.
Some of the no commitment per.
Most of you guys had been running.
Yes, we havent see any any changes in any kind of retention or attrition of our increased attrition with not without any kind of commitments or anything like that so nothing there has changed so that's all good news.
And 1 of the things we're at we've seen and 1 of the consumer studies of the no commitment of messaging.
At.
It's almost more important than the actual enrollment fee discount at <unk>.
Just want to know that.
If they can get out the can and a lot of our members you know 40% of the language in their life. They are already thinking about how do I cancel the thing before I joined.
It's unfortunate, but that's kind of the industry has kind of been notoriously bad for cancellation policies and we want to make it the break down all of those barriers so where the.
The good news is we haven't seen any increased attrition with those sort of offers.
Perfect Thats very helpful Best of luck going forward.
Thank you for your thanks, Alex.
That ends all of our question and answer session I will turn the call back over to the presenters for closing remarks.
Thank you operator thank.
Thank you again for joining us today at <unk>.
As you can tell in our tone of where we could be more excited with the momentum of the business has something that I had never seen of my almost 30 years here.
And excited as well that not only of our staff here, but our franchisees.
Feels the same sentiment and I think this is what we're all hoping that was going to happen and quite frankly higher than we expected it would be even though we knew was going to come back that.
The psyche of the customer they just want to get back and get back to health and fitness and now more than ever so all good news and.
I look forward to the bushes of the franchisees and getting back to the development growth and getting more people off the couch. So thank you all.
That concludes today's conference call. Thank you all for participating you may now disconnect.
Okay.
Okay.
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