Q1 2022 Planet Fitness Inc Earnings Call

One, bringing our total worldwide club count to 2291 locations.

Like many businesses, we were impacted by the ups and downs of consumer sentiment around COVID-19 during the first quarter. The omicron variant led to a softness in our January during trends compared to pre pandemic levels. This is not surprising given that the U S census Bureau estimated that approximately 14 million Americans, who are directly or indirectly impacted by the virus at some point.

During the month, one point also impacted usage in January it slipped below the 90% index of 2019 that we had most of last year higher member usage, historically corresponds with higher drilling activity.

But as the quarter progressed bolt joined and usage rebounded while our net membership growth in February and March this year outpaced 2019, it wasn't enough to make up for January softness.

However by the end of the quarter, approximately 30% of our mature stores hit their pre pandemic membership levels and the final week of Q1 usage was back above 90% index 2019.

We continue to see that people are working out are doing so more frequently the regions that are the hardest hit by Covid restrictions mid Atlantic northeast and West all achieved visit frequency high since the start of the pandemic both Gen Z and millennials also get postponed eminent visit frequency highs and baby boomers, who have been slower than the other generations had the highest usage of.

March since Covid.

As we mentioned on our fourth quarter call, we experienced some challenges with our national and local marketing and advertising agency consolidation efforts.

Our franchisees now have three agencies to choose from to handle their local advertising.

They include publicists in two of our previous profitable local agencies, we believe that the long term benefits from the consolidation of agencies outweighs some near term disruption.

We announced yesterday that Chief marketing Officer, Jeremy Tucker are no longer with planet fitness. We appreciate his contributions to the branch and wish him. The best in his future endeavors. We are beginning the search for his replacement.

Throughout the past two years of the pandemic, we've learned to be nimble and resilient. This resulted in our single permanent closure of a planet fitness stores due to the pandemic, which is very different than how the industry fare where more than 25% of the U S are now permanently closed and hopefully the worst of the pandemic is behind us as the world begins to learn to live with the virus.

Looking to the future I'm confident that we will continue to be a differentiated and disruptive force in health and wellness industry, we offer what people need now more than ever for both physical and mental wellness a high quality affordable fitness experience.

Welcoming non intimidating environment.

We are focused on two main growth strategies first driving system wide same store sales in both membership growth and pricing.

And second continue store expansion in a broad range of markets, Let me start with driving same store sales.

Gen Z, we're the fastest growing demographic group of our membership in 2021, bringing our total share of that generation, who are over the age of 15 to nearly 8%, which is exciting is only half of gen Z or even though enough to join our gems in the research shows that Gen Z like millennials prioritize and active lifestyle more subtle than previous generation.

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We are focused on building lifelong brand loyalty with both generations and capitalize on our appeal to the groups.

Which is why we are excited about the upcoming launch of the high school summer path. It's a.

Rebranded version of the Teen Summer Challenge program rebrand in 2019 were high school age teens could work out for free in all of our stores all summer long. The program resulted in nearly 1 million participants and more than 11% of those teams are members today and goodbye.

Bringing it back after a two year hiatus.

Making the sign up process, even more seamless plc Register online as they are under the age of <unk> parents and Guardians can what's currently give their consent.

We believe high school from a past is extremely timely and incredibly important given the alarming teen mental health crisis in the U S. Okay.

According to the journal of American Medical Association less than 50% of <unk> met the recommended daily physical activity guidance during the pandemic while.

While teen screen time doubled from pre Covid estimates not including virtual learning.

We recently commissioned a national study and found that a majority of teens, where exercise also agree that physical fitness mixing feel healthier stronger and happier.

Most have the teams and made that a struggled with mental health for the first time since the pandemic.

To help address this issue we're operating teams the chance to stay active during the summer free and perhaps introduced until license commitments of their overall health.

It's also an opportunity to introduce their parents to our brand and are already members, we want to be the fitness brand people think of first when they are ready to which were healthy active lifestyle. We understand the fitness can be intimating and we're focused to break down the barriers for all ages in fact more than 5% of the parents who joined during teen Summer Challenge program are still members today.

Our pricing model is another way that we are disruptive force in the fitness industry and is a key driver of our 53 straight quarters of positive comps prior to the pandemic.

Just $10 per month, our standard membership offers access to high quality cardio straight equipment in our judgement free environment and while we predominantly advertise our standard membership six out of 10 people, who joined plant that its purchase of the black card membership, which is more than twice the price.

We launched a black card pricing tests in summer of 2021, and about 100 stores. The test was successful across key metrics such as acquisition rate retention average monthly dues per member and margin.

This month, the new price to the Black card is $2 99 for all new joins.

I've always said, we wont raise price without adding value for our members since the last price increase in 2019 and new Black card membership now includes.

Access to an additional 400 plus stores with reciprocity being our number one use black card amenity.

Access to premium digital content via our <unk> platform, and our App and always.

Banning perks program.

We believe there is tremendous untapped opportunity for our brand long term in the U S to get people off the couch within 10 miles of the current plan for the store. There are approximately 140 million people old enough to join a gym, but do not want to any Jim.

With fewer competitors due to significant industry consolidation, we believe that perhaps our 1000 store potential in the U S. Maybe the floor and not assuming for store growth.

We're also laying the groundwork for expansion outside the U S where the majority of the countries have much lower gym membership penetration to this end we announced this morning that we signed an agreement to bring the planet fitness brand to New Zealand, where 80% of the population doesn't want to adjust the agreement is for a minimum of 25 locations over the next several years, we believe we have the right low.

The team in place to replicate the success, we're seeing in Australia, where a growing fleet of clubs are performing very well since they reopened last year.

We recently opened our first stores in Mexico under the New development agreement, we signed last summer for at least 80, new stores over the next five years nearly 97% of the Mexican population doesn't have a gym membership in a country, where more than 70% of the people considered overweight.

Our high quality affordable and welcoming fitness experiences appears to be resonating. The first new stores membership competent day, one far exceeded that of a typical U S store an opening day.

It's hard to believe that this year marks the 13th anniversary for the planet fitness brand.

This milestone was very personally for me I joined the company one year. After it was founded working the first store in Dover, New Hampshire.

As our brand has grown so too is our ability and opportunity to help people be healthier physically which leads to be healthier mentally.

With Covid, we have seen firsthand the repercussions of not prioritizing our mental and physical wellness.

Highlighting the importance of access to fitness centers. Once overall health, we believe the fitness is essential and that our industry is a key part to today's health care delivery system I'll now turn the call over to Tom.

Thanks, Chris and good morning, everyone.

During the first quarter, we completed the acquisition of one of our best performing franchisees Sunshine fitness as well as a successful refinancing and upsizing of a portion of our debt.

We believe that the acquisition strengthens our powerful business model by enhancing our corporate store team and diversifying the geographic profile of our corporate owned stores and with the refinancing we locked in low fixed rates on a significant portion of our debt before the inflationary environment began in earnest.

Now I will cover our Q1 results and then I'll discuss more details on the Sunshine State and this acquisition.

All of my comments regarding our first quarter performance will be comparing Q1 2022 to Q1 of last year unless otherwise noted.

It is important to note that we completed the Sunshine deal in mid February .

Therefore, our first quarter results only reflect one five months of the financial impact from the acquisition.

We opened 37, new stores compared to 22 last year, we had positive same store sales growth of 15, 9% in the first quarter franchise.

Franchisee same store sales.

15, 8% and our corporate same store sales increased $17 zero percent.

Same store sales growth from the Sunshine stores is included in our system wide same store sales and partially affected franchisee same store sales in the quarter.

Sunshine stores were only included in franchisee same store sales for January .

And we will not be reflected in corporate owned same store sales until February of 2023, but they will continue to be reflected in system wide same store sales.

This is consistent with how we have treated prior acquisitions.

Proximately, 80% of our Q1 comp increase was driven by net member growth with the balance being rate growth.

At the end of the quarter, approximately 30% of our mature stores have fully rebounded to their pre COVID-19 membership levels and in aggregate.

Membership per mature store is only down 6% from pre COVID-19 levels.

Member growth contributed more to system wide same store sales this quarter than it has historically as we were comping over depressed membership count from Covid.

Rate growth was driven by a 180 basis point increase in our black card penetration to 63%.

For the first quarter total revenue was $186 7 million compared to $111 9 million.

The increase was driven by revenue growth across all three segments.

A 26% increase in franchise segment revenue was due to same store sales growth new stores and stores that were opened this year that were temporarily closed last year, partially offsetting the royalty revenue increase with a decrease of approximately $1 6 million as a result of the 114 stores acquired in the Sunshine fitness chains.

Action moving from the franchise segment to the corporate owned segment.

For the first quarter the average royalty rate was six 4% up from six 3%.

The 100% increase in revenue in our corporate owned store segment was driven by the Sunshine fitness transaction as well as new store openings the cycling of temporary store closures in the prior year period and same store sales growth.

The equipment segment revenue increase of 206% was driven by higher equipment sales to new and existing franchisee owned stores.

For the quarter replacement equipment accounted for about 40% of total equivalent revenue.

And we completed 33, new store placements in the quarter versus 18 last year.

Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee owned stores amounted to $22 4 million compared to $8 million.

Store operation expenses, which relate to our corporate owned store segment increased to $47 5 million from $25 9 million, primarily due to the additional stores from the Sunshine acquisition.

SG&A for the quarter was $30 8 million compared to $22 5 million about half of the increase in SG&A in the quarter was non recurrent expenses related directly to the transaction.

I will address the ongoing impact to SG&A from the deal later on.

National advertising fund expense was $14 5 million compared to $12 8 million.

Net income was $18 4 million adjusted net income was $29.0 million and adjusted net income per diluted share was <unk> 32.

Adjusted EBITDA was $77 3 million compared to $43 7 million a reconciliation of adjusted EBITDA to GAAP net income can be found in the earnings release.

Segment franchise, adjusted EBITDA was $58 1 million corporate store adjusted EBITDA was $25 4 million in equipment adjusted EBITDA was $8 7 million.

Now turning to the balance sheet.

As of March 31, 2022, we had total cash and cash equivalents of $536 7 million compared to $603 9 million on December 31 2021.

This was comprised of cash and cash equivalents of $471 2 million compared to $545 9 million.

With $65 5 million and 58.0 million of restricted cash respectively in each period.

Total long term debt, excluding deferred financing costs was 2.0 or $1 billion as of March 31 2022.

Consisting of our four tranches of fixed rate securitized debt that carries a blended interest rate of 4.0% and given the increase in interest rates yesterday, we paid off the $75 million variable funding notes.

Now to the financial impacts from the Sunshine State and this acquisition on April 26 as required by the SEC, We filed an 8-K with pro forma financial statements showing our fiscal year 2021 results as if we acquired the Sunshine fitness stores as of January one 2021.

Walk through the changes on our income statement using the pro forma results in the 8-K to explain the shifts in our financials as a result of the transaction.

Starting with the changes to 2021 revenue first there was a decrease of approximately $14 6 million to franchise revenue.

The majority of which was driven by the royalties at Sunshine stores generated along with some web join fees and equipment placement fees.

<unk> revenue decreased approximately $3 million in equipment revenue decreased approximately $10 million inclusive of the margin we make in that segment.

Conversely, we benefited from an approximately $172 million increased two corporate owned store revenue.

The end result of all these changes was an approximately $145 million increase to our 2021 net revenue.

On the expense side, our cost of revenue decreased without the Sunshine equipment purchases.

Store operations expense increased approximately $80 million, which is fairly close to what our historical store Opex was in 2021, given they had a similar number of stores.

SG&A increased approximately $12 million, reflecting our assumption of there support center expenses, including the management team staff to support critical functions like marketing and store development, along with the president of our corporate storage Shane Mcginnis.

Additionally, there was an increase of approximately $60 million to depreciation and amortization.

The increase was due to depreciation which is primarily related to the doubling of our corporate store fleet.

As we are also doubling our historical corporate store Capex spend.

The other half is amortization expense from Sunshine for intangible assets.

<unk> increased significantly given the size of this acquisition compared to the ones. We've done in the past and the pro forma DNA expenses in line with our 2022 guidance that it would double.

Finally to our 2022 outlook.

Reiterated our guidance for 2022 in our press release this morning.

As a reminder, our view for 2022 assumes there is no material resurgence of Covid that causes member disruptions, whether via shutdowns or more stringent mandates that resulted in a significant change in membership behaviors.

The two things to note on our outlook.

Our system wide same store sales growth will likely be higher in Q1 with the depressed membership levels in Q1 last year combined with the unseasonable membership joined trends last year, where Q2 had more net member growth than Q1 for the first time in our history.

This will make the compares for same store sales more difficult in the coming quarters.

Second regarding expenses as.

As I outlined in the 2021 pro forma results. The addition of shame Mcginnis and his team added approximately $12 million.

G&A last year for.

For 2022 Sunshine support center cost impacted our SG&A in Q1 for only six of the 12 weeks.

And therefore, we will have an increased impact in the subsequent quarters.

The near term continues to be fluid with the pandemic ongoing impact on consumer sentiment. However, we believe we are well positioned for the long term to further expand our leading market share given the strength of our value proposition in the fitness industry as well as the resilience of our asset light business model.

I'll now turn the call back to the operator to open it up for Q&A.

Thank you as a reminder to ask a question. Please press star one on your telephone keypad or have you changed your mind on which to withdraw your question. Please press star two.

The first question today comes from Randy <unk> from Jefferies. Please go ahead.

Hey, Good morning, I guess this question is more for Chris to start here, Chris I just wanted to a lot of the data we track around traffic trends web traffic searches et cetera.

I need to point towards in person fitness coming back peloton results are out. This morning, they look kind of sub par. So just wanted to get your thoughts on where we continue to see things or what you expect to head for at home versus in person and then getting an update from you on what youre seeing around the mom and pop competitor.

<unk> are those store closures in the gym side, continuing or are they stabilizing just wanted to get your thoughts on the <unk>.

<unk> environment and the moat that you guys have in continuing to build going forward.

Sure Thanks, and good morning.

Yes, I think.

What we're seeing happen here today, Randy and you probably remember last year and a half unfortunately going through this pandemic and I haven't wavered from it is that in person fitness has always been already been the key driver of health and wellness and confidence is always really paid second fiddle to it maybe third fiddle and a lot of ways we've seen today.

Honestly, we even saw that in our own content consumption. We were all closed down our gyms or content consumption in our App was used as an all time high in and we're seeing it today not back to pre COVID-19, but it certainly isn't anything close to where the consumption was when we are closed.

And what we're so you are saying that I'd say is the gen Z population enjoying quite a bit higher than we've ever seen pre COVID-19.

They are joining just astronomical rate, which is which is great to see.

There. They are active in study show that they are equally as active as millennials have and as you know millennials have always been a big part of our member base, which is great. So I think.

In home fitness is we will continue to be the second we settled and people who are driving back to Jim's.

And the beauty of that is now with 25% of our industry is permanently closed we didn't lose a single store.

There's just less less competitors with less opportunities except for us.

And I think with with recession here.

And that in light here, and we saw a little bit over <unk> and even back as far as the dotcom boom in 2000, we only have four stores, but I think as a whole maybe there's less people move them to join Jim is what the issue is that the ones that are only looking at planet fitness, because they can afford it right or that they're being more smart with their money. So we.

Evidently windows than it was in those times in some of our highest same store sales in history, where during the <unk> 910 area. So I think it's people aren't going to not be healthier I think they're going to continue to assure that they are going to be more cost conscious I think at the end of the day.

Super helpful and I guess, one more question is I wanted to kind of explore what youre doing around the <unk> side of the business added the crocs perk in the quarter or just thereafter, and I just wanted to understand kind of what's the strategy around that around there you are adding more and more parks. They are more compelling it would.

Seem as if the member at some point realizes that the parks kind of pay for the membership themselves.

Just wanted to understand kind of what the strategy is around the park side of what Youre doing there. Thanks.

Yes, Brian I think as you.

As you know since even since the IPO about half our members don't use the store in a 30 day period, right and I think any way, we can add value for members, even if they're not using the store is a good thing because they are paying us every month and I think it's we should be offer them value in and out of the store. So the content is one part of that the other part of it is can we offer benefits for being a member that is.

Even outside of fitness in some ways that can help them live a better life.

Discounts on gas, which in todays world is real meaningful naturally.

Crocs is theyre back I didn't really going with this much but theres been a great launch and Gen Z are all over it so that's good.

Good to see that one is now in place, we did good or sunglasses and new recently as well so.

I think now with the App built in with the perks button and the platform. That's been built its April for us to track a lot of click throughs and redemption rates, which previous to the App launch which was in the summer of 2019, we really didn't have a depository with with all our perks in it and a way to track. It. So now it allows us to go to our other companies out there that would be.

We want to do a partnership with <unk> Sheng true data, which is which is hugely impressive when you think about US right now we have about 70% of all our members around the app.

All new members about 90% of our new members have downloaded the app and we're doing about roughly 8 million chickens, a week and about 666 million of those members are opening the app and open and that happened to check into the gym, because that's their barcode and we see these parks so mount of eyeballs that they get in front of US is quite large so now that we have that data.

The doors to a lot of vendors and I think there'll be a lot more to come here and I think back to your question again, we can get value when people have entered the club in two to three months of their life's busy, but they're getting discounts on gas and crops what have you.

Page $10 membership in some ways.

Yes Super helpful. Thanks, guys.

Thank you.

Our next question comes from Brian <unk> Morgan Stanley . Please go ahead.

Hey, good morning, guys. Thank you.

In the second quarter.

Understand kind of your comment on same store sales within the second quarter or do you think there will still be somewhat atypical seasonality in terms of membership joins are you still seeing.

Pent up demand given that the first part of <unk> was a little bit slower just from a membership sign up perspective.

Sure Brian This is Christian and I'll have Tom jump in as well what we're seeing now is more typical of historical years, where the seasonality I think is more on trend as opposed to.

What we saw last year, where all of a sudden the second quarter was a regular first quarter. So I don't think we'll see that necessarily this year, but Tom good morning.

Yes, Brian I think in terms of same store sales and we kind of hinted at this on the last call.

But given what we're anniversarying in terms of membership levels of 2021, and then as Youre pointing out last year.

We really had.

Very atypical growth across the quarters where growth.

We had more member growth in Q2 than we did in Q1 for the first time in our history.

So the comps compare will get tougher.

And so despite the 59 were still sticking with our outlook of low double digit comps for the year still.

Still very strong it just gets a little tougher.

As the comparator last year gets gets more difficult across the rest of this year.

Okay, great. Thanks.

Maybe just.

More detailed margin question.

I noticed that equipment segment EBITA margins were kind of above history in the first quarter.

Just curious if there are any kind of onetime drivers of that do you think they'll kind of remain at that level or will they come back down to a more normal level.

I think they are fairly in line with the history, we've passed along our margin or the price increase that we've gotten from vendors. So we're maintaining our margin some of that is a little bit of a mix between the vendors that moves around a little bit, but it's fairly in line.

Sure.

Okay. Thank you.

Our next question comes from Max <unk>, Banco from Cowen and company. Please go ahead.

Great. Thanks, a lot so first with the increase in Black card pricing what is your outlook of what the lift to comps will be do you think it's going to look similar to the previous time that you raised.

The pricing by $2.

Yes, so I think what's happened historically as you know Max we raised the price.

Back in 2017 by $2 and then a dollar in 2019.

And in those times, what we've seen is the emission of what we saw in the test by the way is initially the black card acquisition will.

We will.

Be relatively flat sequentially, but the black card member penetration or the black card mix of membership still grows year on still grew year on year and that's what we expect will happen this year and we talked about.

Last quarter, we had 180 basis point improvement in black card penetration to 63.

So we expect the same kind of results now it is a little different in terms of.

The impact to same store sales because as you know it's only on the new joins <unk> and given the rest of the year.

And the size of our membership base.

That impact will be muted, but certainly will be accretive in the subsequent years.

A more significant way.

Great. That's helpful. And then just a quick follow up what is your sense of when we could see the members per GM returned to 2019 levels. I think you said, 30% of your mature gyms have already come back. So just curious your thoughts on the rest of the fleet.

Okay, Yeah, I'll start maybe I think if you look at.

When we look at mature stores really the best barometer as we think about it is.

If we take the calendar year 2018 and prior.

Stores and those stores in the aggregate are that's the group that has <unk>.

30% of their membership is back to pre COVID-19 levels.

And theyre down about 6% overall, so I think as we think about the same store sales growth number growth.

It's just a matter of time for each and every quarter each subsequent quarter for more and more stores to get back to that pre COVID-19 the membership level.

And again, it's a one question on another question in our mind.

Our next question comes from Sharon Zackfia from William Blair Sharon. Please go ahead.

Hi, Good morning, I guess a question on the marketing so.

Now out of the fourth quarter call you kind of thought on micron and the marketing shifts both contributed to.

January I mean as you have gone throughout the last three months subsequent to January I mean, how.

A big of a factor was the marketing shift that you did I know you kind of expand that to the three agencies that you mentioned, but trying to get some color. There and then on attrition are you seeing any difference in attrition at this point.

Element that pre pandemic I'm wondering if maybe it's even a bit better.

Because you've got.

Yes.

I guess that Darwinian element, where the folks who maybe weren't using the clubs that much have dropped out over the past few years.

Yeah, right now, we're still about where typically pre COVID-19 of about 50% of our members would use the store in a 30 day period today that number sounds about 40%. So that's still about the same as it was most of last year.

One is using it they are using it more than than previous pre COVID-19. So the ones that are using are using more and our attrition. Our attrition is slightly better just slightly but slightly better to pre COVID-19 right now.

Which is which is a great sign as far as the marketing question I think most of it was omicron related because even when you look at the February and March numbers that net member growth was even better than that.

In March of 2019, so and we had the same agency going on at that point too right. So I think it was more probably more omicron related although quite some some marketing impact as well, but omicron really the first two weeks of January .

Really was impacted those changes even if by end of January it changed pretty drastically believe it or not.

That's really helpful. And then I guess the market is very concerned obviously about a recession.

Can you talk about your franchise, the enthusiasm and whether any of those macros Hopkins starting to kind of concern franchisees.

In a potentially dampen their appetite to accelerate expansion.

No I think.

Many of them look we have been with us for since the beginning here moves out of franchising in 2003, so they've been through the whole 910 areas as well, which probably doesn't look like as severe as this might be but.

And they saw their same store sales even in that period. So I think they are there.

Watching it naturally as we all are I think they realize that the businesses side, it's probably more of the.

Increase in build out costs, and so on but even within the buildup costs. We're seeing today. The unit is still quite so so profitable that it's at.

The data still can weather that storm and continue to make it.

Exciting to build stores, even under that environment I don't know, Tom Lance Hey, Sharon ill, just maybe build on Christmas the answer I think the other piece that's happening in our businesses. There is a fair amount of.

Franchise larger franchisees, who were taking some chips off the table in the either the prior private equity firm is rolling out and the new ones rolling in but Theres a lot of appetite from outside the system to come in and Theres, a fair amount of activity. So when those businesses change hands as we've talked about.

The owners and operators stay in role and there is new money coming in who is looking to develop pretty aggressively and typically more so than the prior group would so.

That bodes well, but I think to Chris's point. There is there's been no I think no hesitation and if anything maybe more money coming in and looking to put it to work.

Okay, great. Thank you.

Thank you Sir.

Our next question is from Simeon Siegel from BMO capital markets. Please go ahead.

Thanks, Hey, guys hope Youre, all doing well.

I think you grew franchise EBITDA dollars more than you grew the franchise sales. This quarter. So just any changed how youre thinking about underlying franchise segment EBITDA rates, just basically I guess speaking to what the right margin level should be as we normalize from the pandemic costs and then.

Could you elaborate a little bit more on that congrats on New Zealand could you just elaborate a little bit more on how we should think about your broader international growth opportunity and focus.

Further up and then if there is any different as we expected international economics. Thanks a lot.

Yeah, Hey, Tom on the on the margin question for franchise last year, we had a fair amount of.

Fair amount of marketing we were doing.

To help certain franchisees in certain states get reopened or.

PON reopening to put a little bit more money in their marketing.

Activity. So we didn't repeat that this year. So it's a cost last year that depressed margins. This year, we didn't repeat so this is.

I would say more typical of where we see franchise margins going forward.

I think on the international front.

And as you know we had Australia, we launched just before.

COVID-19 hit us, but now they're all reopened in that market performs very well in that groups up and running.

New Zealand next door. So they can actually help them a little bit for some support for us as well to get them off the ground and I think going forward you know Asia is definitely something that's on our radar.

Theres not any large low cost competitor to speak of for that much over there compared to Europe as many of them were.

In Europe , I think going there might be more of an acquisition strategy.

When we went there just because it's got many many changed over there they have north of 500 locations each and a couple of one or more of a 1000 and so I'm not sure. If you go there and open them one at a time to compete with that or not but.

But yes, we're excited about New Zealand, Mexico that new Ada re signed last summer that group is.

Often running very strong they've opened their first couple of stores here with with opening numbers, well well exceeding our U S.

Opening.

Much like the original clubs in Monterrey to be opened and also the Panama stores, which have always opened ahead of what U S stores open.

South America is very different in the sense that there just is like two or 3% of the population in those countries have a gym membership. So it's a huge untapped potential in South America.

Making you a little bit different when it comes to the FTE standpoint, and how to build members thats a little bit tricky down there because we do the FTE subdued in the U S. Although we do take credit cards down there.

All of these markets seem to act very similar to the U S as far as the model as far as the judgement free zone came to casual first timers.

And yellows and all of that.

Great. Thanks, a lot best of luck for the rest of year.

Thank you thanks.

Our next question is from John Evanko from J P. Morgan. Please go ahead.

Yeah.

Hi, John could you. Please check your line is muted.

I don't know what happened in <unk> will trade on speaker.

And then just looking back on the on the Black card.

I understand and thank you for reminding us.

That customers that were black card members 2017, and prior is still paying $19 99.

You've obviously added a lot of functionality of black card a lot more of the network of gems, which I think is the number one reason why they join and the benefit that they use the most up I guess, what is the thought and I guess.

Why haven't you basically normalize the pricing across the system do you think there would be any resistance.

To that to that customer, that's obviously gotten a great price for a long time, if it's possible for me to ask what percentage of your Black card members still resided at 1999 price point.

Yes, I don't have that number off top of my head is about how many are still at the 1999, but we've always looked at it as though yes.

Yes, there are a long time paying loyal member.

A hard time justifying that I should raise their rates more it'd probably reward the right if anything so.

And hopefully longer term it continues to drive some retention.

And we have some members nationally with around 30 years. This year, we have members that have no annual fees, even on their memberships had been around for 20 something years. So.

So if somebody is looking at some loyal member I wouldn't want to.

I guess penalize them that way I'd, rather rewarding, but let them have it and keep it for as long as they want to be with us.

But normal normal attrition over time gets people in that average rate to continue to grow with people adopting the newer rate in opening more stores at the new rate as well. So so yes, we wouldn't have any agreement we don't have the right to raise them either so thats illegal part of that side.

But.

I guess, that's kind of how we look at it John when it comes to the long standing members.

Thank you and then separate topic.

Obviously, the marketing function of planets.

Undergone probably more teams and what you would have thought in the last six months when we seem to be making some really good progress on the management of local so a couple of questions.

Does it still make sense for the brand to consider a shift from local to national Mi.

Think that the local national mix and I understand there is a contract. They are clearly, but do you think that is being optimized.

0.1, and point to the net CMO that youll have I mean, what types of functionality or what types of execution where process. What have you do you think the next CMO just marketing department can do better.

As we look for obviously a high profile for replacement.

Hello, John Good question, I think on the marketing side of things.

This first quarter with publicists as now we've gone to three but.

This is the first time that we began to see data.

True like marketing mix that the locals where being the local money was being spent on before that we knew we knew what dollars are being spent but we really didn't know what tactics. We didn't know how much cable how much how much network what channels. They were on how much FM radio satellite.

Satellite radio how much Hulu, we didn't have all that data, which is the first quarter was the first time, we have a solid so.

So as we get best practices nail down and as we learn more in the even in the upcoming months and years here from having three nailed down and supply and that data that now then gets us to figure out what is the true right next to your question.

It is it is it 7% to as it is at three and six or is it really does it get to the point now that its five in one right.

We really don't know where it goes but that's what the data is going to help us determine longer term. There then.

Get the franchisees onboard to maybe look at that very differently. So this is the beginning of that conversation hopefully as we get smarter at how our marketing mix goes.

Hard to see most concern.

2200 clubs strong here unit potential here domestically for 4000, which I think is on the light side of that thing and now and then as you've seen we've gone much.

More international here in the last couple of years Evens enrollment cross. So I think we tend to look look further down the road here on what we need out of a CMO in.

His background around those 4000 units in five more countries on the road. So I think it's more in franchising I think is hugely important as well from his franchise background.

Working with franchisees.

Understood. Thank you.

Thanks, Sean.

Our next question is from Jonathan Komp.

Please go ahead.

Okay.

Yes, hi, Thank you I wanted to follow up on the member trends Youre seeing I know you mentioned February and March above 2019, joining levels.

Do you think there was any sort of pent up or delayed demand effect from omicron.

Trying to think through.

They are not looking back to 2019 joined trends would be the right way to think about membership trends going forward and maybe within that are you seeing any signs at all of their populations are starting to pick up the activity in terms of that joins I know you mentioned the usage, but what are you what are you seeing and expect.

We expect joins for the older population.

Yes, even the boomers as John described even the Boomer population, we started to see them.

Turn the right direction here, even in Q4, and we continue to see that even though the first part of the first quarter was was definitely lower with omicron and the boomers through the entire Covid thing has definitely been the ones that had been more skittish along the way so but we are seeing like I said in my opening remarks. So he ended up March they had their highest usage says colby.

Started so when usage is definitely.

Definitely.

Preceding indicator of join Us down the road, so hopefully the more what people get into work out here as we saw in first quarter towards the tail end of it hitting all time highs since COVID-19 that joined it begin to follow ups here I don't think I think last year.

Isn't even just the January was really almost all of the first quarter was.

Was suppressed so.

And Theres a lot of pent up demand that we saw in second quarter, where I think in this scenario was really probably the first two weeks.

Was suppressed so I don't think we will have <unk>.

Quite the pent up demand that we saw last year, just because it wasn't as long I guess.

But I still think I think the trends are all in the right direction, I think bricks and mortar I think the health and wellness. The Gen Z population hasn't let up one.

Covid has started in there.

Coming in droves.

I think there they're going to continue to do that even with schools open. They are still doing the same thing and I think this team the headwinds in the past getting relaunches coming Monday.

Get more brand awareness around even the younger Gen Z for more of that tailwind as well, which I think it's hard to say exactly how much of of the agenda.

Gen Z that we see today, how much of that is.

<unk> centre challenges related to the 2019, but it certainly has helped us and brand awareness for that younger population.

Yes, that's really helpful. And then maybe just one follow up on the franchisee economics with the pricing that you recently took any comment on your thoughts about sort of franchisee economics and cash flow relative to pre pandemic. Once the pricing is in place and maybe related to that are there any impediments.

Today to getting back to that normal sort of pre pandemic opening rate still at some point in 2022.

Yeah, Hey, John It's Tom I'll start that.

I think in terms of franchisee economics, given the as I was saying to the earlier question the new Black card price will feather in as new members join so it won't have a huge impact in the near term certainly help in the longer term.

<unk>.

And the reason for the price increase was not necessarily to help franchisee economics. It was really because we are providing so much more value that.

That's really the driver of our pricing changes not.

Not looking to necessarily go the other way as we think about it.

I think the.

Economics will definitely improve.

But the economics are pretty strong as I said before.

On average any store opened before 2018 and 2018 and prior.

The average membership in those stores is.

In aggregate only down about 6%.

The economics of our business.

Membership in those stores continues to rebound the flow through was pretty terrific. It's essentially 84 cents on the dollar.

So we don't see anything standing in the way of.

Our franchisees or frankly, our own corporate stores that are still not yet recouped there.

Pre COVID-19 membership levels and pre Covid economic margins, our financial margins to get there. It's just a matter of time.

And in terms of the outlook.

We've said we've moved away from the practice during the pandemic is talking about new store.

New store openings for the year, and we're really back to what we used to do before which is the franchisee placement.

And.

Excuse me our outlook on that as you know, it's $1 70 for the year.

And if you take and as you know Thats only franchisee placements were new stores is the whole system, including corporate owned stores.

And if you take.

The 170, and you add what we would typically open up and our corporate stores pre the Sunshine acquisition and Sunshine added about 14 stores in 2021, so combined the two.

Now the broader large.

Larger corporate store groups.

Add that to the 170, you kind of get to where the new store outlook is.

If you were doing that math would get you pretty close to the 200 level were not saying thats the number.

If you do the math you can kind of get in that ballpark and we've said all along that we think that sometime during 2022 will be on a run rate where.

We'll be at that 200.

Plus new store units for the year.

For the.

Subsequent 12 months its just a matter when we get on that pace.

All signs seem to be pointing to that continuing to strengthen across the year last year, we think it will strengthen across the year this year.

That's really encouraging thanks again best of luck.

Thank you thanks John .

Our next question comes from John Hind Buckle from Guggenheim. Please go ahead.

If you guys wanted to start with.

Corporate segment.

When you look at the pipeline that Sunshine has right. So I guess, they may have grown units 13 or 14% last year.

Do you think that segment can grow fast food franchise segment over the next several years.

One because of the sunshine's growth, but also to.

I assume you think Sunshine can get legacy margins, where they are so do you agree with that.

Can that segment grow faster for a while.

Yes, John it's Tom I'll start that one so I think one of the.

On a on a pretty solid robust list of what made the Sunshine franchise.

Fitness.

Purchased so attractive.

Their economics, and the economics of their new units.

<unk>.

Does it need to grow faster than.

The.

The broader franchise segment growth.

I don't know I think we will.

We don't want to sort of put the proverbial gun to our head on how many units we want to open a new year, we want to open great sites that have great returns.

But we think that that sort of 10% growth is probably in line.

And maintaining the 10% penetration in our system is kind of the goal.

That if that in any given year is up a little bit or down a little bit from 10% I think we're fine with that.

But it is the pipeline is very robust across all of the states they operate in.

The margins that they produce historically have been very consistent across those states and to your point if you look at pre Covid.

The mature stores that Sunshine operated versus mature stores that were prior in our corporate portfolio. There was about a 700 basis point gap.

Between what Sunshine stores produced in our corporate clubs. So we think some of that.

Some of that management talent some of the practices they have.

We'll certainly benefit.

The what.

Prior to the 100 plus prior corporate stores that were operated mostly in the northeast. So we think that's another reason why it was such an attractive acquisition opportunity for us is to spread some of those practices.

Are they completely close the gap time will tell.

But there are some structural differences between cost of labor cost.

Cost of occupancy in the northeast versus the southeast as you know so it may not close it all the way, but certainly we'll move it.

In the right direction.

Great.

Chris.

Philosophically on the royalty rate.

Right.

No.

What do you think the franchisee appetite would be for higher rates.

Is there a ceiling in your mind.

And what does it take to get there right is it a is it a restructuring.

The marketing spend that gets you there.

Yes, I'd say it's.

In the past I think.

Until until our mature store base, which at the time. It says 30% of them are at or above pre COVID-19 I think until we get back to pre COVID-19 membership.

And profitability.

I wouldn't look to have that conversation just yet I think I want to make sure that they are all back to where they are accustomed to being and then at that point as you know same store sales are back in.

They should be continuing like we were pre COVID-19 with 53 straight quarters of positive comps and.

Most of US remember growth in its 80% to the bottom line in the very new members above that so.

He used to drive margin, which then I think it gives the ability to raise royalties right.

Longer term too I think the advertising piece could be the extra.

Bonus that makes it even more palatable right because if it's if we begin to get more.

More efficient with the marketing dollars.

The next 2000 stores need to spend as much money as the first 2000 stores marketing wise right.

Does it get to a point, where there's just the the coffers to slowly because back to spend the dollars we have 1000 stores. So.

As that changes if we can get more efficient if we can lower the overall marketing spend from 9% call it 8% and we share a little bit in that savings back into royalty.

That's another another bonus for both of US. So those two levers are something that I think we'll watch pretty closely.

Before we make any determination.

Thank you.

Thanks, Sean.

Our next question is from Warren Cheng from Evercore. Please go ahead.

Hey, good morning, guys.

It sounds like some of the age cohorts.

Hey, good morning, and regions that underperformed the last few quarters are catching up.

The company averages, especially the boomers is there still a significant gap first pre pandemic membership levels for some of these underperforming age groups because it just seems like Gen Z has outperformed the.

Numbers.

Per location are still down I'm, just curious the breadth and depth.

How depressed we are for this other age groups.

Well I think first of all I think boomers first off although they are still not back to pre COVID-19.

It makes my opening remarks that have now hit.

All time usage high since since Covid, so they're not back to pre COVID-19, but they are actually starting hit highs now which should drive more booms in the join but theres still a pretty small part of our member base. Overall, if you think about the millennials and Gen. Z for example, they make up about <unk>.

60% plus of our membership base as a whole so the boomers are a small piece in <unk> <unk> is number three so the boomers, although they ended up back it's not a big rally.

About roughly 13% of our member base so.

Although we won't have them back, but not a huge huge driver of our growth is really the younger generations.

Got you, Okay and I also wanted to ask a follow up to your answer to John's question. The black card pricing. So it sounds like youre pretty committed to maintaining that 1999 for the pre COVID-19 black card cohorts and I think you've said in the past the $999 entry price points pretty much off limits. So does that mean.

<unk> are likely to just maintain this pricing architecture kind of regardless of what's going on internally externally other than of course, the new black card joins.

Yes, I think it is.

Pretty pretty amazing business model when you.

<unk> seen we almost always advertise 10 Bucks a month.

And when people walk in the door or go online to see the benefits of the black card that 60% of them and are choosing our black card membership, which is more than twice the price of 150 <unk> have more of the price.

If we can get the people off the couch is you've talked about 40% of our joining them go on for Jim in their entire life right. So.

And to get more people off the couch.

Counterintuitive to raise the price right. There they are already thinking about how am I going to do this how do I cancel membership they're already asking before they joined so I think lowering the barrier of entry to keep at 10 Bucks gives.

It gives everybody the opportunity to give fitness try.

Had no commitment right and and really drive the value into the black card by perks in more stores in reciprocity in.

You might have heard my last call. We're now testing we're putting in.

Meditation pods in our black card spa areas. So we add more value to the Blackhawk aspire in the clubs and use that really is the lever to drive overall average ticket.

And it's worked for for many many years and I think it's it continues to allow us to drive member growth.

What they've done over the past years.

Thanks very helpful. Good luck.

Thanks Laurent.

Our next question comes from Chris <unk> from Stifel. Please go ahead.

Great. Thanks, guys. Good morning. This is Patrick on for Chris I had a quick clarification and a question to Tom can you just remind us if the program you put into place during the pandemic that allows franchisees to defer equipment replacement. So is that fully expired and then are you guys seeing any new supply chain issues on the horizon that might affect.

The ability to re equip or half franchisees opened new locations.

Yeah, Hey, Patrick Thanks, So, yes, so I think what you're referring to is during the pandemic we granted.

Ultimately 18 months on.

The re equip obligation.

That's all past so it'll all dates were shifted there's no catch up here.

Just whatever date somebody's obligation wasn't the system moved out.

Accordingly, and all new stores are back on the five year and seven year re equip cycles or cardio and strength respectively.

And we currently do not see any issues.

With equipment availability, we're in constant contact with our primary suppliers.

We don't see anything.

That would be.

Any cause of concern for equipment availability too.

To support the <unk> for the rest of the year for the new store growth for the rest of the year like everybody were.

Probably the primary issue that folks are dealing with opening new stores as HVAC availability.

We we are not immune to that.

But certainly working with primary suppliers there to see if there are ways that we can position ourselves to make sure that our needs are secured.

We don't yet have any concerns to cause us to alter our outlook, but.

That's the only.

Potential.

Issue and so far it looks like our team's been able to navigate.

To position ourselves to where there is no risk.

Great. That's really helpful. And then lastly, I just wanted to ask on the effectiveness of the Super Bowl campaign did you guys have any other insights there other than maybe what you shared last quarter and then just more broadly I mean.

What does that what does that talk to you about the potential to have more premium AD placements and the ability to go after a bigger audience.

How much of an impact can you drive the new member sign up trends with sort of those bigger stages that you are now able to access.

Yes, I think.

With so much larger than any of our competitors I think doing big Big brand moments like the new year's Eve and again like the Super Bowl is something that sets us apart from our peers for sure and definitely puts us in a day.

World with other companies that typically less I'm, sorry, Jim and a suitable commercial was just never.

Definitely it was 112 million viewers. It was it was definitely a good spot to be in.

With good company for sure.

About 40% of people survey said they will likely join PFS in the next 12 months. So it's I think that's a good tailwind from it.

And we're doing a brand health study to hopefully to come off of that which is off of the new year's eve as well, which.

It can only help us from that and people would like the commercials at the 69% positive what they liked about the commercials. So I think there are memorable I think because we had.

Celebrities and now might think of it maybe better recall.

We continue to use here through the first half of the year, So I think that as well as setting us apart from our peers is having celebrities in our commercials that definitely causes our recall so it's something we'll probably look to do in the future as well.

Great. Thanks, guys.

Thank you thanks Todd.

Our last question today comes from Joe <unk> from Raymond James. Please go ahead.

Good morning, Martin a telephone Gol to Belo I, just wonder if we can get an update on your unit economics.

Alex, especially when it comes to labor and equipment costs and commercial real estate as well.

Yeah, I'll start that one.

So I think in terms of the.

The wage inflation and the good news is as you probably heard us talk about we.

Really have a pretty low labor model typically theirs.

A dozen 15 people on the roster for any given store and on the Florida anytime there is two three.

Rich people on the floor so.

Wage inflation isn't isn't great for anybody that certainly affects our franchisees as well I would say compared to other places where people.

Like our store associates can work its a pretty good place to work Youre not youre not going home smelling like a French fry or slipping on grease youre working in a very cool place music.

And clearly there is a membership.

Servicing involved and cleanliness standards that we have but other than that it's a pretty good gig and.

So I think we fare better than most on some of the surveys about where would you like to work.

And I think in terms of the financial impact the good news is it's.

As we've modeled it and talked about it with our franchisees, it's pretty temporary because once you.

Assuming wages don't continue to climb at a rate that we've never seen but if there is a bit of a onetime reset and then gradual wage inflation. After that our same store sales growth that we've had historically pre COVID-19 53 straight quarters of positive same store sales that averaged across those quarters, 12% most of that being <unk>.

<unk> growth and as we've talked about there's not really any cost that gets added if your store increases its membership from 6500 7500 members.

You don't really add any more costs. So it all flows to the bottom line.

And in pretty short order would offset the margin impact certainly dollars faster than it's been margin percentage, but both would be offset in a relatively short period of time.

Equipment costs are higher for sure.

Low double digit depending on the supplier and whether its strengths are cardio versus pre COVID-19.

And we've talked about typically the cost of putting in new equipment in a club would be around 600000 pre COVID-19.

Bump that up.

Plus percent.

It doesn't take a decision to build a store from a yes to it now it may take the.

Pretty pretty strong returns down.

A couple of hundred basis points, but it's not it's not a meaningful change to cause somebody to decide not to build a store that they wanted to build.

And again as we've said our franchisees are typically on or ahead of their development schedules, which is a real.

A real testament to the returns that they get.

From building new stores and lastly in terms of occupancy rates, we haven't heard that those are changing dramatically. They are pretty sticky I think even through COVID-19. They didn't really go down much maybe landlords got a little bit more aggressive with tenant allowances to ease the initial cost of opening a new location and we continue to hear that and see that in our own corporate clubs.

But haven't really seen or heard any dramatic change in occupancy rates on a per foot basis across the markets.

Great. Thank you guys, particularly helpful. Just one last follow up question.

It's about 25% of Gms all across the U S is permanently closed are you seeing a significant number of those members migrate to planet and also are you seeing sort of the.

The workers there migrate over to <unk>, as well and you're getting a little bit more experienced workers there.

I haven't seen any of this Chris I haven't seen any of the employee side of things.

First quarter about 1% of our joins were coming from closed competition.

Typically with the close competition just to put a little bit.

Enter into context is that.

5% of Jim that permanently closed it's made up of about 30% of boutiques, which is yoga studios as fitting studios, which typically have plus 200 members of store. So not it's not like we have a 5000 member store across Street closing right and then at the gym population of a 14% of gyms are closed.

And the typical Jim in the U S outside of planning for examples about 1200, 14, remember so and if they're closing they probably have less than that because of that successful. So it's not like we have a bunch of these 5000 member gyms around the country closing. So yes, there is a market share grab for sure, but not quite as large as you would probably see it when you're looking at about 25% I really look at it though is.

The longer term benefit of month over month over month of people looking to join join our club for the first time, where join our club period.

Less places to shop is less advertising from competitors is less everything except for planet. So it's more I think longer term game than a onetime shot in the arm that that you would that you would think of.

Okay. Thank you very much.

Great. Thank you Mark.

Since the last catch your question I will hand, the floor back to the teams completed.

Great. Thank you everyone and thank you for joining us today.

Exciting quarter for us I'm happy to see that people are driving back to bricks and mortar as we expected and really proud of our $1 billion net member growth for the first quarter I'm actually on my way to Boca for Tomorrow to speak as our independent franchise console was invited to speak to the franchisees are excited that all get together and talk about our future together.

Next Monday want you in the past, giving all of our teams throughout the U S and Canada places of work out for free blow off some steam and hopefully introduce them to fitness for the first time so.

Good stuff to come and have a good summer. Thank you.

Okay.

Yeah.

This concludes today's conference call. Thank you very much for joining you may now disconnect your lines.