Q3 2021 Planet Fitness Inc Earnings Call
Thank you for standing by and welcome to the Planet Fitness incorporated third quarter 2021 earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you have.
And they forget assistance. Please press star Zero I would now like to hand, the conference Becky or speaker today Ms. Stacey Caravella. Thank you. Please go ahead ma'am.
Thank you operator, and good morning, 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 here, 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 this call. Our release can be found on our website investor that 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.
Thank you Stacy and thank you everyone for joining US today. This is Q3 earnings call. We are emerging from the COVID-19 pandemic stronger than ever having achieved the highest sequential net member growth of any third quarter in company history with membership levels, reaching 97% of our all time peak, we returned to positive system wide same store sales growth.
In Q3 of seven 2% and 100% of our stores are open that globally.
For the past several decades, we have democratize fitness with our differentiated model breaking down the barriers of intimidation and affordability for the approximately 80% of the population.
Not have a gym membership.
As we look ahead to our 13th anniversary next year. There are four factors driving both near and long term growth opportunities, including.
Our expanded leadership position as we emerge from the pandemic.
Our franchisees enthusiasm to continue to invest in the brand through new stores in equipment replacements ahead of their obligations.
The consolidation from 16 national and local marketing agencies to one servicing our entire system to leverage our size and scale in a number of factors driving a renewed appreciation for improving overall health and wellness let.
Let me address each one first we didn't have a single permanent closure as a result of the pandemic a sign of the power of our brand and our model.
This is a remarkable achievement when you consider that person the fitness club industry group estimates that 22% of all fitness health club locations in the U S have permanently closed due to the pandemic.
Our size and scale advantage combined with the strength of our franchisees.
Put us in a strong financial leadership position entering the pandemic.
So we are recovering quickly we achieved the highest franchise segment revenue in company history in the third quarter. We're now capitalizing on industry consolidation as more people are realizing the broad range of benefits from exercise and looking for an affordable non intimidating workout environment the.
Second reason is franchisee sentiment.
We've always had a strong relationship with our franchisees.
<unk> recently joined our franchisees at their annual meeting, marking the first time that we've all been together since the pandemic began.
The strength of our relationship that I was invited to join them speak about our strategy and exciting opportunities that lie ahead, I believe that working together as closely as we did during the challenging days last year, when we strengthened our already powerful partnership one that I believe is rare and franchisee world.
Our franchisees enthusiasm to continue to grow the brand makes it more affordable and ultimately change People's lives is incredible.
They are seeing strong trends in their businesses, which is driving to look for new sites building locations and actively replenish their development pipelines with prime locations capitalizing on the favorable real estate environment, Tom will address this in more detail, but as a result, we are raising our 2021, new store guidance to 110 to 120 new locations.
Third we are flexing, our marketing muscle and transitioning from 16 marketing agencies to one publicist group.
This transition, which is nearly complete will unlock our full potential as a top tier U S marketed by getting significant efficiencies through the consolidation, enabling us to truly realize this competitive advantage. It will also ensure a consistent advertising strategy on the national and local levels.
We already utilized the buying power of our system and other areas of our business such as equipment and other common items across our clubs, providing a better value to our franchisees not we're doing it with our marketing.
Collectively.
We will be able to purchase on a scale of unrivaled in the U S fitness industry, resulting in lower cost media, which means even more of the 9% advertising contribution will go to acquisition efforts to fuel incremental member growth.
And we are doing it at an important time of year pre pandemic Q1, historically accounted for approximately 50% of net new joins for the full year with January making up a large part of that growth. The agency will be fully onboard for the creative and media placement in advance of our annual New York sale.
Finally, the pandemic has taken a major mental and physical tool, creating a focus on improving overall health and wellness. The American psychological association found that more than half of U S. Adults have been less physically active and they wanted to be since the pandemic started with a majority experiencing undesired weight changes averaging between 30% and 40 pounds gain.
And now there are fewer bricks and mortar options for people, who are looking to start their fitness journey in the eight years preceding the pandemic. We added approximately 11 million members getting people off the couch joined planet fitness and growing industry membership by 87%. We also added approximately 500, new locations representing 13% growth.
In that same period, the rest of the industry added only $1 7 million members, our nearly 10000 locations.
In Q3, 40% of our choice for first time gym members a trend we've seen continue through 2021, which is up slightly from 2019, and there is still tremendous untapped opportunity with $140 million non gym members, who live within 10 miles of a current planet fitness were also believes that the continued evolution of our digital offerings will serve as an import.
<unk> gateway to make initial step to get off the couch easier and less intimidating.
Not just about getting better physical shape. It's also about mental health center for disease control reports that even one biggest to moderate workout can reduce <unk> risk of depression and anxiety, while also improving sleep prior to mental health day in October we commissioned a national study, which showed that close to three and five Americans say they haven't made a mental wellness.
A priority in the past year, while feelings of isolation and loneliness have increased as the world realizes the multiple benefits of exercise the tail winds behind physical and mental well being continued to drive historically unfeasible membership growth in Q3 and.
In 2019 in line with our historical trends remember growth in mature stores declined sequentially from the second quarter to the third quarter. This year. It grew from Q2 to Q3, albeit slightly and we ended the quarter with more than 15 million members. We believe this reflects that Americans are waking up to the fact that they need to prioritize their health.
Members, who are visiting our stores are visiting more frequently than in the past. We believe this demonstrates our commitment to overall wellness. Another potential long term positive is that in 2021. Gen. Z are outpacing other age groups in terms of joys, which is notable as we have of the generation is even the old enough to join us.
In General we began to see the return to pre pandemic seasonality of joined patterns towards the end of Q3. This is encouraging as we can focus on what we do best providing our members a community based judgment free environment and wish to get active and feel better about the overall health.
Tom will address our positive updates to our 2021 outlook in his comments and we would anticipate providing our performance targets for 2022, when we report our fourth quarter earnings next year.
I hope that you can feel the enthusiasm is I truly believe that we're on the verge of a fitness boom I am more excited than ever to leverage the collective passion and strength of our system to help millions of people in the U S and beyond get healthier live better improve their overall physical and mental wellbeing as we've just been doing so for the last 30 years and I believe there is no brand in the.
To be better positioned to do it then planet fitness I'll now turn the call over to Tom.
Thanks, Chris and good morning, everyone over the past 18 months, we demonstrated the resiliency and durability of our asset light financial model and our store level unit economics persevered through a devastating period for the health club industry.
As Chris referenced we would stood temporary store closures some for up to nine months and not a single planet fitness locations permanently closed because of the pandemic.
We're proud of how our franchisees headquarter staff and club staff rallied together to provide a clean and safe fitness experience for our members.
We've been confident in our ability to come out of the pandemic, even stronger but the pace of the rebound is even faster than we expected.
As a result, we are revising our full year 2021 outlook.
First I will cover our Q3 financial results and then I will address our updated guidance for the year.
All of my comments will be comparing Q3 2021 to Q3 of last year unless otherwise noted.
We returned to positive same store sales in the third quarter with system wide same store sales increasing seven 2%.
Franchisee same store sales grew seven 4% and our corporate store same store sales increased three 1%.
Approximately 60% of our Q3 comp increase was driven by net member growth with the balance being rate growth.
The rate growth was driven by a 180 basis point increase in our black card penetration to 62, 5%.
Q3, total revenue increased $49 million or <unk> 46, 4% to $154 3 million from $105 4 million.
The increase was driven by revenue growth across all three segments.
The increase in franchise segment revenue was due in part to temporary store closures last year with growth driven by royalties web join fees and equipment placement fees the.
The increase in revenue in the corporate owned store segment was primarily due to COVID-19 related temporary store closures last year as well as the impact of seven new corporate owned stores since July 2020.
Equipment segment revenue increases were driven by higher equipment sales to existing franchise owned stores for.
For the quarter replacement equipment accounted for 54% of total equipment revenue.
Our cost of revenue, which primarily relates to the direct cost of equipment sales to franchisee owned stores amounted to $27 1 million compared to $15 3 million.
Store operation expenses, which relates to our corporate owned store segment were $27 8 million compared to 21 4 million. The increase was primarily attributable to lower operating and payroll expenses with the COVID-19 related temporary closures last year, along with higher expenses with the new stores we opened.
Since last July.
SG&A for the quarter was 23.0 million compared to $18 3 million. The increase was primarily driven by higher incentive and stock based compensation.
National advertising fund expense was $15 6 million compared to $20 2 million and adjusted EBITDA was $62 2 million compared to $32 million.
By segment franchise, adjusted EBITDA was $52 1 million corporate store adjusted EBITDA was $14 7 million and equipment adjusted EBITDA was $7 9 million.
Adjusted net income was $22 million and adjusted net income per diluted share was <unk> 25.
Now turning to the balance sheet.
As of September 32021, we had total cash cash equivalents and restricted cash of $585 5 million compared to $515 8 million on December 31 2020.
This was comprised of cash and cash equivalents of $527 3 million compared to $439 5 million with $58 1 million and $76 3 million of restricted cash respectively in each period.
Total long term debt, excluding deferred financing cost was $1 78 billion as of September 32021, consisting of our three tranches of securitized debt and $75 million of variable funding notes now as we've said before our securitized debt structure is covenant light, we have two maintenance covenants a debt service coverage ratio and total system wide sales through.
<unk>.
They're tested quarterly calculated on a trailing 12 month basis and reported on roughly two months lag.
And our most recent debt covenant reporting period on September five 2021, we had a 53% and a 143% 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 with Q2 2020, the quarter in which we had our worst financial performance last year now out of the trailing 12 month calculation.
Now to our guidance for the balance of 2021.
Similar to last quarter. Our current view of 2021 assumes there is no major resurgence of Covid that causes member disruptions, whether it be a shutdowns or more stringent mandates that result in a significant change in membership trends.
As Chris noted, we now expect new store development to be between 110, and 120 up from the high end of 75 to 100.
We believe this reflects the continued strengthening of our franchisees' balance sheets. It also reflects the recognition that planet fitness is a premier retail investment.
Even with what we believe is a temporary slight setback and mature store level EBITDA margins caused by the closures last year.
We also continue to expect that replacement equipment will account for approximately 50% of our total equipment revenue this year.
We now believe that our full year revenue will be between 570 and $580 million up from the previous range of $530 million to $540 million draw.
Driven largely by higher equipment placement sales associated with our new store opening outlook.
We now expect that full year SG&A will be in the low to mid $90 million range, primarily reflecting increased incentive compensation.
Just on the higher revenue, we are raising our adjusted EBITDA guidance range by $10 million to $210 million to $220 million for the year with adjusted earnings per share now projected to be between 75 and 80.
Versus our prior range of 65 to 77.
Our investment thesis has only strengthened as we emerge from the pandemic with significant industry consolidation, our franchisees' desire to continue to invest and grow the brand and the increased focus on the importance of health and wellness, we are well positioned for the long term to further expand our leading market share given the strength.
Our value proposition and simple operating model that produces strong economics.
And with that I will turn it over to the operator for Q&A.
At this time, if you would like to ask a question Press Star then the number one on your telephone keypad.
And it's far wanting your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
First question comes from the line up Randy <unk> from Jefferies. Your line is open. Please ask your question.
Hey, guys. Good morning can you hear me.
Yes, Hi, Greg Hi, how are you. So I guess the first question is on store guidance. It was revised it looks like slightly upward for the balance of or for 2021, implying.
You know things are getting back towards normal how should we just I know youre not giving guidance yet on 2022, but just wanted to get some perspective, maybe qualitatively, how we should be thinking about.
Dancing.
Turning towards normalization as we go into 2022 and beyond thanks, guys.
And Randy assortment good morning.
As we indicated in our release and Chris's comments, we are increasing that up from we had said the high end of our previous range.
Would that what that means.
Reflecting the.
The franchisee enthusiasm of the business, where it is today, how it's built back over the year.
When you compare where we were this time last year and the pipeline itself.
I've said on the past was really.
Stopped.
But given what we've seen what our franchisees have seen.
Throughout certainly since say March April may time period.
Which caused them to start looking at sites and start putting sites into the pipeline and some of those are going to open this year, hence the de.
The increase in our guidance I think on a kind of a little bit more of a macro basis.
We continue to see.
A lot of availability in real estate out there.
We obviously didn't have a single closure.
During COVID-19.
And a lot of the other.
Other fitness companies had some issues with respect to closures et cetera.
And as you guys know versus reported I think it's like 22% of the gyms are closed a lot of those are smaller mom and pops et cetera, but when we set back in and we and the franchisees look at where we're at today the opportunities Thats in front of us to continue to take share.
<unk> continue to penetrate markets, where we may have a lot of stores, but there's still a lot of penetration left and you've heard us talk about whether it's in California, or Texas or some of the other markets, where theres a lot of.
Inflation, but we don't have as high a penetration rate. There is maybe we do it in the northeast and so all of those are kind of the factors I think that go into one what's happening and we believe will happen between now and ended the year, hence our guidance.
And to your point, we're not ready to talk about 2022, yet, but we have continued.
Say that we believe we're going to get back into that 200, plus range and it was just a matter of when we could get there versus if.
And this now reflects the fact that franchisees are in the market and starting to generate.
New size of the pipeline.
Super Helpful. And then one last question.
Can you give some perspective on your announced a recent partnership I think with Shell Corporation gas and so on and so forth.
Kind of reminds me of what Costco tried to deal with their membership and give their members a lot of other enhancements or value for their membership. So can you give us an update on what you've been doing there around partnerships because it seems as if the number of partnerships has been increasing and that should potentially.
Lead to some lower churn over time, so just curious on what work you've been doing there and any comments on impact on churn improving churn if that at all as well thanks guys.
Sure. This is Chris Yeah, we launched the App.
Two years ago now leading into Covid.
The idea with the purchase side of things and we really had no central depository that members, new who get routinely.
<unk> guided to go open up this place that they offset rate and to know where to go in to see what the discount or this week or this month or or new partners. So now with the Appian built in that allows us now to not only have that feature but also captured data from that feature and who's clicking through and how to go to partners and suppliers and data on the number of eyeballs and seeing and getting every day.
When you think about weekly we have.
Roughly $8 million or so check ins into the gym.
And we roughly have about today about $66 million of those using the app to check in.
So 6 million people open the App every single week to check in and Theres. Other features there now they have the badges and checkout perks and stuff. So that's allowed us to open doors with like Petco now within shelf for example.
<unk> is definitely probably the best one we've launched so far as far as the take rate. So Brian there's a lot of data to now go to more partners. So more to come on it but there is no doubt that that offering more value to help people live a better license to offer them to save money on other parts of their world and it's a great benefit of being part of the planet fitness family.
And as you know and as we've talked about forever.
50% of our members don't use the store in a 30 day period. So.
<unk> will get busy and <unk> Christmas season comes up and you just can't make it in her kids soccer practice for referred for the spring and maybe if you can provide them some value regardless of the use of facility or.
The content workouts.
It can only drive customer satisfaction and ultimately drive retention.
Very helpful. Thanks, guys.
And again, thanks for joining.
Your next question comes from the lineup Oliver Chen from Cowen. Your line is open. Please ask your question.
Hi.
Our trends are very encouraging what are you seeing in terms of usage and usage in the.
Across regions as well as term.
Would also love your thoughts on the rationale behind the timing of the agency consolidation and what synergies you're most encouraged by that sounds really interesting as well. Thank you.
Yes, the issue side of things we are at about 90% of 2019 workouts, so not quite 100%, but but very close at this point, which is which is great to see.
I'm not seeing any huge material changes from region Ality.
Right now so that's not really affecting anything we have roughly 400 or so clubs that are under some sort of masked our vaccination mandate.
Peppered throughout the system.
But nothing we're not seeing a fairly material in that sense.
And we're seeing about <unk>.
During the 40% of our members using the club in a 30 day period, so not quite that $50 50 that I used to see.
It's made up of the 90% usage rate right now so I think it.
It keeps going the right direction, which is great and the boomers, which are the ones that had lagged the most naturally.
They continue to go in the right direction. So I think it's just a matter of time before the base kind of get back to normal as well.
The agency thing it's something that's.
I've always wanted to do this for many years, if you think about rollover everything else. We do in this business whether it's the <unk>.
Decor and wallpaper, we sell the equipment, we purchased the flooring we use.
We buy in bulk and joint and brand consistency is important but the value of the franchisees get from that is also important.
And here we are today the marketing is should have probably done earlier, but here we are doing it today, which really just streamlines and strengthened our dollar the efficiencies that we get from that not unlike the equipment business. For example is that before you hit 16 agencies in everybody's paying their own independent agency fees and creative fees and everything else.
Now we pay one agency that has a lot less in a big a much bigger company, that's buying media cheaper so.
It's the same dollars, but working dollars acquisition dollars are used more as opposed to just the administration fee. So.
It's almost like a 40% or is it a whole lot of Nash and a lot of ways with a about a 20% savings. So so it really should help member acquisition going forward. We're onboarding now we should be fully on boarded to this one agency.
We're already working on our January promotions in first quarter promotions with them. So that we're ready to ramp up for the first quarter and the January sales. So.
So it's exciting and the other side of it too is you think is the insight. We have is one agency fee. That's that's.
Responsible so we have all the data that we need from best practices throughout the country on a local level because before is very hard for us to capture what each independent franchisee was doing on every DMA across the country and then capture data to figure out best practices. So theres a lot of a lot of good comes out of this.
Going forward for the future work in this way.
Thanks, and last question on the digital experience that the member has in store Whats next whats on the roadmap that we should focus on as well as the key opportunities for Curt and continuing enhancement of your mobile app. Thanks, Chris.
Sure, yes, besides the content exercise stuff, which we continue to fine tune and tweak and moving the paywall around to figure out how much free content, we offer how much pay content and behind the firewall. So we're still working on that part of it.
As I said in the past, but that also the platform here now, we havent, yet, but get into more maybe diet diet and food nutritional guidance meditation type guidance as well, but I think also the app. When you think about friction points proud meters. A Prime example that we launched during COVID-19.
It's something we thought about even pre COVID-19, just so we could help customer experience and people want to avoid crowds are.
Our users because you know.
Move the schedule around without having to come to the club and get frustrated. So that's a huge feature that people love, but other friction points being able to pay their balances before they get to the club if they happen to bounce you check the ft that month.
Being able to bring a friend and invite them through the guests as opposed to walking through we have to sign papers when they come in and it just ways to really.
Reduce the friction points, which also helps with cut with member not only member welcome staff staff satisfaction as well and then having to deal with it as well. It's all it's kind of self help themselves about having that uncomfortable feeling of the franchise and somebody has to be confronted by a balanced so don't want a friction point as we get to alleviate through the through the App.
That's required.
Thank you.
Your next question comes from the lineup John <unk> from JP Morgan. Your line is open. Please ask your question.
Sorry, if I missed this at some multitasking morning.
The total number of members at the end of October did you say that number I mean I know.
In the press release, you said over $15 million $15 million was of course, what you reported in July.
I thought overall pipeline and.
A little bit of an aside but do you put that in the context of you know all of the supply chain challenges you know that we you know that we hear are there any significant or major pieces of equipment or or anything else. I guess, he you know any part of the F F and eat package, that's missing that could potentially affect that rate of unit openings.
Page on it's Tom all started maybe dorm in a lab I think if we step back a second I think as you look at what we've said over the quarters I think the the headline is.
Things of bounce back faster than we expected.
The old V versus you shape and I think our franchisees have seen that their lenders have seen the and it's allowed them to get their balance sheets and they're they're they're covenant cokes back in line faster than they expected.
And talking to them, they're lenders have released some of the development capital that they might have.
Had a bit of a grip on as they were providing waivers so.
So I think it's just that that's really what's happening and I think as we've gone through each quarter we've gotten.
More and more confident about what we're saying and the numbers are going up and I think to your point about.
Inflationary pressures in there and.
We're at the moment, there immaterial, they're not changing decisions from.
Franchisees wanting to build a store to not wanting to build a store categorically not happening.
And so when you look at the new store development and the re equip.
Investments that they are making both of which are ahead of their obligations.
Based on the shifts the development.
Based on the extensions we gave them.
That starts to feel a little bit more like where we were pre COVID-19. When they were ahead of their obligations. So I think that's the headline for me in the supply chain issues as it relates to equipment, we have a bigger saying that given our concentration with our primary vendors there and they they frankly move mountains.
To to make sure that we can.
Open when we say we want to open and real quick when franchisees want to re equip it's not like it's.
There aren't any bumps and there there are bumps, but we're managing through it and any potential drugs have been reflected in our outlook.
Swimming something crazy doesn't happen. So I think the macro view is faster than we thought and that has caused everything to move at an accelerated pace from what we thought earlier in the year and I think the only thing done this.
For for everyone to call to when it comes to supply chain that you see all over the news is that with the 2200 stores that are open.
We're not like a retail or <unk> that that did dependent daily on weekly deliveries in inventory coming through the in order to stay open a new business. We don't require any of that equipment was installed three years ago.
Business as usual so we're not under any kind of constraints when it comes to that stuff.
Okay.
Yeah.
Fair enough.
I guess as I.
Just kind of.
I think a little bit longer term in terms of your your organization in New Hampshire, I mean, as you kind of think about.
Just that the various the the benefits from adding even more functionality to your business versus benefiting from this scale that you've already dealt I mean, where you you know I guess it works your current mindset as you think about the <unk>.
<unk> the organization today relative to what your store count is going to be three years out for example.
I'll add that Tommy.
<unk> I think I think one thing that's where.
Beauty.
Organization is the fact that we have actually shrunk or the number of franchisees in the system Nice and then a lot of consolidation. So we have.
The best of the best we have the dream team of franchisees now of about 125 that run the entire system and we don't continue to bring a new franchisees to build out our stories every year, it's built out with the existing franchisees. So.
It's not the point, where we're back in the old days I was.
I personally with teaching him how to clean the treadmill.
Now they run the playbook they have their own the hazards Chief development officer, So they're very sophisticated groups of franchisees in our system now so it's not like we're holding hands as closely as we had too many years ago. So there should be definitely.
The benefits of that in the future.
The only other thing I would add John is and we've talked about this is that.
With a concentration.
That we've had here over the past several quarters in the digital area.
And it's just part of our everyday life now so we've.
Not only enhanced that area, but we'll continue to enhance out areas. It's it's just a given that we have to be.
Where the where the consumer or members or what they're looking for Chris talked about the partnerships earlier, there's a whole host of things that quite frankly have been accelerated because of the COVID-19.
To be able to reach out and touch our our customers in perspective members as well.
So that's an area that we've invested in and we will continue to invest in but I think on a more broader kind of macro basis of of our.
Franchise or headquarters here.
There is.
There is no area that.
We look at it and we say needs a significant amount of attention. The only one would be international which we've talked about in the past as we continue to grow that footprint, even more that's an area that will also have some investment but outside of those.
Particularly because of the scale that we have and.
His comment on the concentration of.
Really smart franchisee groups built out with their teams in the private equity guys that come in and help supplement those.
It makes our job easier and a lot of ways because of these teams are are.
Running some some really good businesses with scales.
Okay.
And gave.
Your next question comes from the lineup Jonathan comp from Beg. Your line is open please ask a question.
Yeah, Hi, Thank you good morning, I want a follow up and ask about the member trends, especially since we're past.
The Delta Spike here.
Chris I know you mentioned the new joins towards the end of September reverting back more toward normal try and so I want to maybe ask what you're seeing there and then as we think to the fourth quarter typically your members per club decline seasonally in the fourth quarter. So I'm wondering your thoughts on my ability again.
The third quarter to sort of outperformed that typical seasonal pattern.
Mhm.
Yes it.
We didn't cease towards the end of third course, timberland and a little bit at the end of August and decided to come back to normal, which I think is not a bad thing I think it's a good thing in a sense that it's not like we pulled a bunch of people forward during the second.
Second quarter, and it's a clip that we hit so it back to normal which I think is good and the usage thing is at 90% range. So I think in the boomers continue to go in the right direction.
Meanwhile, Jen visa joining it and celebrated rate, which we haven't seen before so that's that's really good news as well, but I believe the fourth quarter will will hold true to price historical trends.
See anything wavering right now that from him making materially change either way.
Okay, Great makes sense and then maybe one follow up to Tom I'm, a I'm a G&A outlook.
Yeah. It looks like the fourth quarter is implied sort of in the mid $25 million range could you maybe to share how much about is the incentive piece that you called out and.
And then as we think forward should rethink more to a baseline and mellowed $20 million range, which you had the first few quarters and I know in 2019, you are under $20 million a quarter or is that mid $20 million range more of the base baseline going forward just trying to understand how to think about the fourth quarter moving part.
Some of them in the baseline.
Yes, John So obviously, we're not providing an outlook on 22, yet that'll be the next fall, but I think.
As I said in my in my remarks earlier.
The Lions share is the.
The increase in G&A is really based on incentives calm.
That that notion of it's more v-shaped, then you shaped and how our business is balanced.
You might expect wasn't fully captured in how we set our targets. So therefore, our incentive comp is higher than we thought.
There's also some inflationary pressures as you might imagine with things like.
Insurance and different things, but I think if you look at our G&A.
19, and sort of forward to know and we always believe we would come out of this stronger.
And thankfully, it's happening sooner and maybe our move might be even wider than we thought at the time.
As awful as all of this has been for the country and our team members.
But if you grew that G&A at a reasonable rate that we had grown historically and assume that our our revenue would grow.
Sort of as it historically you'd see that.
We would be driving significant G&A leverage.
So I think it's really about us looking long term, making sure. We've got the right folks to to really take advantage of what we're trying to do Walter opens point building out and Christmas point building out.
Digital capability, because we wanted as they say skate to where the puck is going not where it is.
And that's not just the digital team right that there is a significant investment behind that so we thank our scale affords us the ability to do that in a way that will differentiate what.
What we offer.
And importantly get more people off the couch, that's really what we're doing it all for.
Is that sort of gateway.
To our bricks and mortar so all of it I think is a bit of a long term view, we did take some short term pain when everything was shut down but that was temporary not not really permanent and we've added back as I think we've said over the over the Ark of our conversation since the pandemic that we would invest.
Where we thought we needed to strategically to widen our moat and that's reflected in what you're saying.
Okay. That's helpful color. Thank you.
Okay. Thank you.
Your next question comes from the lineup John High level from Guggenheim. Your line is open to ask you a question.
Hey, guys wanted to start with the pricing pilot right. So blackboard pricing pilot, where we stand on that because they were testing multiple levels and then long term. When you think about pricing power of the brand right relative to what you are offering competitors are going to go up right. So could you see the black card ultimately.
Closer to 30.
And as the white cards still sacred.
Yeah, I think the white card is still sacred I think that is I've always had a kind of or get you off the couch price.
Back to my early comments affected to the 140 million people within 10 miles of a current plan it that aren't members.
We still have to get them off the country food either I think touch that so I think that's something that we will stick with you and I think the fact, there were 62 <unk> blackheart, even though we only only almost always advertise attending memberships amazing when a customer comes in and pays more than double what they thought they were gonna pay based on the the benefits of it.
I think get it to 30.
I'd never really move it without.
Adding more value so without more perks, whether it's more shall gastight perks that don't really blackheart incentives or more content for.
Exercise or diet.
The one thing we do have which we always talked about is the reciprocity that is still the number one used function of the blackheart.
We have 3000 stores that has a better value than it is today.
So that's something whether or not because the 30.
Can you get there, but I think the Blackhawks primary the pricing power that will utilize to change the average ticket.
That doesn't mean, we could come up with a third tier will be find some great benefit that we decided as a third tier option, but I think the white or black card is easy join scenario rates Arob essentially it's not breaking gives you for a customer I'm going to make a decision and a lot of a lot of our industry is not like that.
The menu of 20.
So we make it very simple in that sense.
But I think that's kind of how we look at it now the pricing test right now we're still in those 100 plus clubs are so.
At 24 99 that includes the Pf plus.
Still fine tuning the the.
The.
How we present the offering how we present the rate sheets and so on how we sell it online but she will continue test at the end of the year and to first quarter and hopefully have some better data here for first quarter to make a decision.
And secondly, given what you what you've done with the AD agencies right. So does this now.
Accelerate the process of.
Right restructuring the marketing spend more national less local and is that it was the southern Tonight right still right. If you. If you are getting a 20% reduction.
In cost on the national side.
Yeah, I think I think almost bolt breakdown I think as we learn more from the data.
And understand more of how the Lastest spent locally in the navicert nationally and how they how they work together and they both I guess row in the right direction.
It could be efficiencies, there, which could change the 9% and then on top of that is the efficiencies of just having one agency that is buying in bulk and.
And not only administration fees that you're paying the 16, so both of those can be working towards what you're asking.
Whether or not it's 200 700 to 206 or.
Three and five and we will have to see when we get there, but I think this is the beginning of of all of that long term.
Okay. Thank you guys.
Hey, John.
Your next question comes from the lineup games argument. Your line is open please ask a question.
Hi, good morning.
So you touched on this I just wanted to clarify.
Visitation trend I think you've got an aggregate you're at 90%.
Of 2019 sort of <unk>.
Presentation levels are are workout levels and a.
I'm prepared remarks, you I think you mentioned that members who are visiting a store gives me more frequently have you got to make sure I understand that.
But.
The people that are there are actually working out more than they were in 19 and then there's some people that just aren't there or or should I think about that a different way.
That's exactly right yeah. The ones that are using are using slightly more than they had in the past.
But we're not quite at the same percentage of members using this facility.
Okay.
I appreciate that and then as I think about.
Where you're sourcing new customers from.
The people basically sourcing from the couch or sourcing from from other change maybe change that have clothes do you have any data numbers on on sort of a mix of new customers.
And how should I think about the difference or I don't even know if you have enough data at this point to understand the difference in behavior is there a difference in in turn ultimately trying to think about sort of a lifetime value of a customer that you get from the couch versus a customer that you get from a from another gym came that close though thanks, yes, we haven't we haven't seen the retention.
Side of of.
A an abandoned remember coming to us from a closed club. So we haven't really seen any impact the or a change there, but we do have the data that shows that.
Two Q3 about 2% of our.
Those competition.
The same trend holds true with the rejoins, which is great one that.
30% of our joints are rejoins to their former planet, but as members that have come back and that run is usually it historically almost forever, 20%. So it's up quite a bit so people coming back faster than they have ever in the past by quite a bit.
And the jerseys are joining way way above what they haven't who ever seen in the past, which is which is excited is almost $80 million diseases is only about $40 million or even of each adjoins. So there's a huge trend. There. That's a tailwind is going to come each year is another buffeted jynges fall into the the age of joining so some great. Some great that is there and also 40% of our joy.
Is still first timers.
So that's also a great point and that's kind of historically been there for forever. So.
Again people are coming back in bricks and mortar faster if they were former members into joining bricks and mortar as it were pre COVID-19. So it's not not a deterrent, it's actually probably a benefit now to make sure you stay in shape I think it's been proven I think it'll be seen this is walter everybody should have been working out who is going to go over it.
Got it and so just to clarify if I think about people coming with previously replacement members.
That have never been gym members and people that are coming from other gym. The biggest opportunity Bill accounts people is that fair yeah, yeah, absolutely absolutely.
Okay.
I got.
Okay.
Your next question comes from the lineup. Please uncle from Stifel. Your line is open please ask a question.
Thanks, Good morning, guys.
Tom.
The new guidance looks like it implies roughly 160 676 million in the fourth quarter well above this quarter's level.
But adjusted EBITDA well below what you generated this third quarter can you help us understand what's built into that expectation and whether you are seeing anything in the business I suggest margin pressure during the fourth quarter.
It's thanks, Chris it's really just a mix the equipment.
Segment really has its strongest quarter and the fourth quarter.
And it was.
And so given its margin differential compared to the franchise in the corporate segment that that's probably what you're seeing there.
But there is nothing by segment if you will.
Across the three that there's any individual margin pressure quarter to quarter. It's just more of a mix of the business.
Okay. That's helpful and then.
It's great to see the acceleration of new store openings can you provide a bit more color around how units open. This year are trending in terms of store maturation and and new member acquisition relative to what you've seen historically.
Yeah sure thing so back in 2020, Chris as we were talking about our sorry stores that opened in 2020.
They weren't on the normal ramp curves for all the reasons you would expect given what was happening across the country and within our business.
Now since then as things have.
Through the earlier part of the year and particularly in the second and third quarters things have improved across our business. Their performance has has improved as well so they're sort of tracking about 80% of where we would expect them to be on a pre COVID-19 new store ramp.
And the stores that have opened more the latter part of Q foreign into this year or 90 plus percent of that normal new store ramp so.
Kind of tracking where our business.
Is if you will in terms of visits and things but.
Very encouraged to see those members those those store ramps returning.
More closer to normal pre COVID-19 levels, and I think that's another confidence sign for our system too.
To accelerate their development efforts as doorbell was alluding to earlier.
Great. Thanks, guys.
Thank you.
Your next question comes from the lineup Brian Harbor for Morgan Stanley. Your line is health and please ask a question.
Hi, good morning, guys.
Just maybe another question on new members sign ups, you mentioned a number of clubs that have still have masking or maybe some vaccine requirements.
I'm curious about how signups trend when some of those restrictions N or obviously in the vaccine case that would kind of stay in place do you think that's good for sign up where it gives people more confidence or you think that's somewhat of a limit to kind of recovering membership.
Yeah, I think the match the mass thing, we don't see being much of an issue. The the fact, the vaccine mandates, which Luckily is only have very very few number of clubs of 50 clubs I think roughly that have actually mandate. So that's not a huge.
Huge amount, which that definitely is a little bit more of a hurdle to get through.
But the masked man that we haven't seen that affects even during COVID-19 with the ones that had it and didn't have we didn't see really affect.
Member joins us.
Okay great.
And then maybe another question just on the digital digital content to I'm curious how usage of that is kind of trend. It is it.
Decreased perhaps those people come more in person or do you see it kind of continuing to grow.
I guess I'm, just curious about kind of how you think about that is more of a revenue generator in the future.
Sure Yeah, we actually even essentially starting to reopen so last even even a year ago. This past summer when we started having stores open we begin to see just even the usage of the friess that we haven't lost the page even the freestyle declined some but I think the trends around the page subscriptions, which is probably the most interesting where we look.
At the pay subscription side of things.
80% of the members who are subscribed.
Visited the club, so even though they're subscribing to actually using the club too. So it's not like they're using it as a replacement I guess, if you will use as a supplement to their bricks and mortar.
Which is great to see cause a lot of people from the industry and think they are going to be going to work out at home not gyms. So we're actually using it as a supplement as opposed to substitute and 40% of the PFS subscriber plus subscribers. So they start off with a digital membership to begin with.
40% have gone on to buy a bricks and mortar after so that kind of goes to that hence to that kind of gateway. If you will where they they kind of get a taste of planet digitally and then we get them to convert to a brick and mortar down the road so I.
I think it's almost almost a lot a as in Apple acquisition tool whether it is on a planet close by or are they want to maybe they want to get a little bit more in shape before they joined the gym and be around other people, but I think it has some good gateway and I think as we as we need to streamline and learn how the members are using different content different trainers and different likes and dislikes, we can only get better with it.
Then down the road like I mentioned is getting into my diet nutrition meditation and so on so we can hit different segments of our member based on getting that today.
Sounds good thank you.
Thank you.
Your next question comes from the lineup Alex Parry from Bank of America Airlines Hilton. Please ask you a question.
Hi, Thanks for taking my question and congrats on the strong party here and I see the recovery trends.
I just wanted to ask on the cost inflation outlook on the equipment side of the business. This change the outlook and also the equipment margins and how would you sort how would you sort of treat that would you pass that through to the franchisees are just just wanting to get more clarity there.
Yeah sure thing, it's Tom So I think.
As I said, we're very important to our two primary vendors matrix and.
And life and.
They have passed along.
After.
A period of months of not passing it along.
Did pass along a.
Slight increase.
To our system, it's viewed as temporary until steel prices pullback.
It varies a little bit based on type of equipment and vendor, but it's sort of low to mid single digit price increases, it's not anything significant and doesn't really affect our margin doesn't really affect as I said earlier, which is really the most important thing franchisees willingness to.
To move forward I mean.
That impact on their overall Roy in store level economics is right of the decimal.
So it is not a gating factor at all and I think back to what I was saying earlier. The fact that they are not only driving that new store activity that allowed us to take up our outlook.
There are also investing in re equipping their stores, which I think is really a testament to how they feel about the brand the customer and remember experienced that they want to have.
And making those investments ahead of when they need to I think is is testament that those those slight inflationary pressures are not affecting.
How they think about the business and how they're investing in it.
Great. That's very helpful. And then just a follow up I wanted to ask about the.
Hire black card pricing and the pilot during their and maybe touched on this a bit earlier, but has there been any decision in terms of maybe rolling that out to the rest of the chain or just sort of how how are you thinking about the cadence of the bipod pricing from here. Thank you.
Yes. This is.
It makes a question and we will continue to tested as I mentioned through the end of the year and plan to first quarter before making any.
Longer term decision are broader rollout decision.
Still watching all of the clubs is a little 100 clubs roughly that are in that test.
Fine tuning the ratio so process.
Shall we get the right Blackcod conversion.
We don't want to diminish a black harbors convergence when the price increase so that's really where we have to watch the data how that fall. So and then retention would takes time to figure out the higher price.
It's only two bucks, but you got to make sure that we're not.
Driving a higher attrition because it's a little higher price point and was using the clubs. So just takes time that's all.
Hopefully more in the first quarter will have some data here to to share and to make a decision that we can.
Move with.
Perfect Best of luck going forward.
Thank you I appreciate it.
Your next question comes from the lineup Simian Seagull from BMO capital markets. Your lines open. Please ask a question.
Thanks.
Good morning, everyone. Congrats on the ongoing progress.
Thanks, Chris just to just to follow up quickly on that and I remember the black or a member of penetration can you distinguish between new members and the existing so is there any differential between the new members you're seeing in terms of our placard penetration does that impact your view.
The ultimate company level Black hard penetration opportunity and then earlier you brought up the bring a friend park that we have I've seen b pretty powerful any update on that or some form of data capture on conversion of those friends to members. Thanks.
Yeah sure. Thanks for the question.
Yes, I'd like our penetration I mean.
It's been great because it eats up little beach year right as you've seen the last few years and with the key generated price slightly over the last four or five years. So.
I don't see anything any reason why it shouldn't be able to be $10 a year after year slightly tweak up as we as I mentioned earlier open more stores reciprocity number one we have 3000 stores, it's a better value than it is today.
So that's always in our back pocket as we build that our system.
And any other new pilots are tests that we do that are out there that that.
That would be fine as a new park for the blackout area or more discounts and our perks button that maybe a black card only park right. So I think more of that stuff that anything we add value I think can drive black card percentage of this kind of looking at that but I think even without that I think it was still slowly slowly tweak up year over year on that side of things.
Bring a friend conversion you right now we have it in the absolute Catherine Zeta on who those friends are.
We have about 60% of our member base has the app, so out of $50 million with 60% do so.
We are captured some of those guest today, but people that are using that but again, it's not our entire member base that has the episodes still capture more of that but that is that is definitely low hanging fruit for us that we didn't have that ability to really market to them. We've done some small test here and there with those guests.
One two as we have the refer a friend button on the App, which if you think about we didn't even have a way to formally.
Have a member invite a friend to join.
And that's been working extremely well and we just started doing a little bit of gamification with it where the member refers up the three friends that could get up to three months free.
They get their friends to join so that way to reward members for for referring so that's all new to US we didn't even really have a formal way to do that so.
And again, but once we get 80, 90% of our members of the App, it's even better for us so.
Let me think about cost per acquisition there we already paid for the first member to join the cost per acquisition for those members has almost nothing except for the three months, we give the current members. So it's it's.
Certainly lucrative.
Sounds great. Thanks.
Best of luck with your head.
Thank you very much.
Your next question comes from the lineup current Southsea from your.
You're lying to open please ask a question.
Hi, Yes, I think the queue and in alphabetical order today, but thanks for taking my question.
So.
I guess I was really intrigued by it 140 million.
People in that you mentioned are within 10 miles and it made me wonder kind of where your brand awareness is at this client I mean is that the number one the opportunity or if it's not I mean, what is the main.
A reason that near research would indicate that you haven't captured I guess, a greater share of that $140 million.
Yeah, I think it's the brand awareness did retracted.
I remember I mentioned that first quarter did retract some when we weren't marketing all all last year, we're still number one by far in the industry, but we didn't retract some some I guess now we're definitely getting back on track and probably got for this new year's will be hopefully back we were.
Yes that is the low hanging fruit and I look at it was interesting we talked about like unit growth and we've talked about this a lot over the last couple of years, where we look at these area development agreements that we sold eight nine years ago that we thought we can fit 10 clubs and we <unk>, we look back at it now and you could probably fit 15 clubs in that same area. It just because we're getting more people off the couch.
And the bigger our marketing flywheel gets the more people would get in front of him and whether it's brand awareness, where it's the right off rewards just another clubs build closer to the population list drive time or more on the way they drive to work. So it's it's.
Definitely the low hanging fruit and more we penetrate that 140 million people that have done him numbers.
And maybe it's messaging maybe it's maybe it's more getting into talking about me a lot of people don't realize that working out can I make you sleep better they don't realise working up and relieve stress or anxiety. They think they think it's all vanity. So there might be other ways to what haven't we said already we're spending $250 million a year, let's say in the current year in marketing there's more messaging we can.
Get in front of him that maybe gets another group of people they'll give it a shot.
Sure I guess.
We've said this in the past and I. Thank you for Chris talk about it but.
Even in say, New Hampshire, where we have the highest.
Penetration rates and one out of every two.
Health Club members are members of planet fitness, but even.
A lot of our oldest clubs are here in new Hampshire, and if you go back over the last three or four or five years, they still cop. So.
The thing about our brand is that because of those people that are on the couch.
Even with the kind of penetration rates, we have here, we can still get more and more off of the couch and grow grow our comps and those older stores in those markets, which.
Then what that tells US and we've said this is that when you go into some of the markets, where we have not had as many stores and that much penetration, we're still able to grow the comps in those markets, which gives US then that that expansion opportunity and then that confidence level of the universe talking about.
To get to that 4000 or even more.
That's really helpful. I guess one other question on there are obviously a lot of Wearables out there right and I felt like every day I hear a a new fitness tracker on some some sort have you explored any kind of partnerships there as a means for building awareness or new member acquisition.
Yes, we definitely machine.
Seeing the Wearables connect into our App.
The apples the gunman's hit business stuff like that we're working you may sure those are a pipe through our app as well heart rate collection and all that.
But also a partnership wouldn't be out of the question I mean, there's always something here. This.
You'd better partner come up with your own is probably the bigger question, probably partnering that might be a better option because someone's brand awareness.
Other companies are already in that space.
But it would be great data capture right I mean, the App is already great data capture but that one more component would just be.
Probably top it off.
Okay, great. Thank you thank.
Sure.
One question at this time you may continue.
Okay.
I think everybody had a great great morning.
As you've heard businesses perform extremely well I couldn't be more pleased we all can be more please.
We never wavered in confidence that that we came out of this that we would come back and come back stronger than than we were before and I strongly believe that our future is going to be in brighter and I look forward to our fourth quarter release, it and going into our first quarter for new year's it could be really spectacular. So thank you have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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