Q3 2022 Planet Fitness Inc Earnings Call

November 8, 2022

The opportunity to ask a question by pressing star followed by the number one on your telephone Keypads I will now turn the call over to Stacey Caravella VP Investor Relations. Please go ahead Stacey.

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.

Both of whom will be available for questions. During the Q&A session. Following the prepared remarks.

<unk> call is being webcast live and recorded for replay before I turn the call over to Chris I'd like to remind everyone that the language on forward looking statements included in our earnings release also applies to our comments made during the call.

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.

I'd also like to invite everyone to listen into our Investor Day on Tuesday November 15, you can find details on timing and the link to the webcast on our Investor Relations website, now I will turn the call over to Chris.

Thank you Steve and thank you everyone for joining us for today's call. We ended the quarter with more than $16 6 million members, an all time high and average remaining.

Locations during the quarter, bringing our total store base to 2353, we continue our steady recovery of the pandemic member trends remained strong with Q3, two is back to historical pre COVID-19 seasonality.

Also the members were busy in the gym continued to visit more frequently and Kansas are lower compared to 2019, which we believe are signs that members are more committed business.

We recently hosted our franchisee conference and the energy was amazing cause Brubeck meeting in person. The first time in three years. The theme of the conference was profitable highlighting our ability to succeed over the past three years through all kinds of economic and political climates, while the industry reported that 25% of the coke facilities have closed due to COVID-19 given the.

Strength of our model is franchise system, we said by the pandemic with OTC products foreclosure emerging even stronger with tremendous opportunity for future growth.

I'll eat generations are nearly back to or above their prepayment with penetration levels a major topic of presentation. During the conference where our efforts to continue to increase our penetration of alterations with a shrunk focus on Gen Z.

We're excited about the potential long term opportunity, we have with trinity's as evidenced by the $3 5 million teens, who signed up for the high school from a pass program. When the program ended in August more than 14% of all high school teams in the U S where high school from the pest business.

They enrolled in the program seems like 17 million workouts, we made the assignment process, even more seamless this year, allowing teams to register online, which enabled us to connect with them and their parents and Guardians.

In fact, our App talk to most downloaded list of apps in the Apple store during the initial days following the launch.

Through targeted acquisition strategy, we began reaching out to the persistence and their parents and guardians throughout the summer via email and messaging in test with an offer of one month free if he joins a paying member once the summer is over.

Today, nearly 300000 team in parents or Guardians of Julian for total conversion rate of 5%, helping to drive member growth in the third quarter. We're already outpacing the conversion rate. We had in 2019 last time, we ran the suitable program and.

We have a much bigger base within three to five times. The participants we experienced in 2019, we continue to market to them and believes that when they are ready to join a gym planet fitness will be top of mind.

Yes.

Along with our franchisees, we're focused on gearing up for our first quarter marketing plans.

Pre pandemic, we would've typically 60% of our full year net membership gains in Q1, we look forward to first quarter of 2023, which we're planning to be our first earned dropped in Q1 to four years without any impact from Covid.

Eight year in a row, we will once again be the presenting sponsor for the times square as near as each celebration with our longest running sponsor as well as the OEM companies.

Ever.

Given our marketing size and scale advantage.

This will also kick off our January National brand campaign focused on reinforcing the benefits of working on besides physical health like mental wellness mental stress can improve sleep.

As well as a post workout positive energy failing in the globe.

As noted on our second quarter call the percent of mature stores that have recovered and surpassed previous dose levels remained stable at around mid 30%, but we added to overall membership counts.

Given our surgical joining seasonality, we don't anticipate this to move significantly until the first quarter. When we typically see high net member growth.

The system wide rollout of the Black card price increase in May from 'twenty 299 to 2409 continues to outperform the test results. While the price increase is only for new joint is driving up our overall average rate.

30% of our eight two Q3 comp growth was driven by rate with the balance coming from net member growth. This helps our franchisees and corporate store segment, partially offset increased operational costs experienced in the last couple of years.

Yesterday, we announced the promotion of the few joined to the Black card member between November 7th of November 15th you receive a free Halo view.

It was on fitness and health wearable tracker. We're excited about this collaboration we will continue to explore possibilities for working with other well known large brands who are in adjacent categories to the fitness industry. We believe that we were attracted brand partner given our size and scale in the diversity of our more than $16 6 million members across gender age income.

Other attributes.

Lastly, I am excited about our recent announcement that we promoted Jim Simmons previously senior Vice President of business strategy and analytics to division President of corporate clubs and that Paul Barbara has joined as our Chief Information Officer.

Jay has been with planet for nine years and has built a business strategy analytics function from the ground up using data and analytics to develop and drive our overall corporate strategy. We look forward to her leadership with corporate store fleet driving performance to insights that will help benefit the entire franchise system.

Paul will lead our technology evolution and strategy to deliver technology solutions that will continue to enhance the member experience.

Optimizing infrastructure data and operators the flexibility and scale.

Our search for President is still underway, but I feel good about our organizational structure and I believe that we have the leaders in place will drive our next phase of growth as we emerge even stronger post pandemic. We also look forward to discussing this in more detail at our Investor Day next week I'll now turn the call over to Tom.

Thanks, Chris and good morning, everyone through the third quarter of this year, we have repurchased one 5 million shares inclusive of a $50 million share repurchase that we executed in Q3 at an average price of $61 68.

Which we believe underscores the strength of our balance sheet two years after having all of our stores temporarily closed due to the pandemic.

We also announced this morning that our board of directors approved a new $500 million share repurchase authorization that replacing existing ones from 2019.

This is another signal of our confidence in the reliability and consistency of our asset light model to generate significant free cash flow.

Yes.

Now I will cover our Q3 results all of my comments regarding our quarter performance will be comparing Q3 2020 to.

Q3 of last year, unless otherwise noted.

We opened 29 stores compared to 24 of last year.

<unk> same store sales growth of eight 2% in the quarter.

Franchisee same store sales grew eight 1%.

Our corporate same store sales increased nine 7%.

As a reminder, same store sales for the Sunshine fitness franchise stores that we acquired in Q1 of this year will not be reflected in our corporate owned same store sales until February of 2023.

They will continue to be reflected in our system wide same store sales consistent with how we've treated prior acquisitions.

Approximately 70% of our Q3 comp increase was driven by net member growth with the balance being driven by rate growth.

The rate growth was primarily driven by a five basis point increase in our black card penetration to 62, 9% as well as our recent price increase in mix in 2290 in A&P $24 99.

97%.

As a reminder, same store sales for the Sunshine fitness franchise stores that we acquired in Q1 of this year will not be reflected in our corporate owned same store sales until February of 2023.

As a reminder, the black card price increase that we took in May was for new joins only so that should slowly begin to drive up average monthly gains over time.

But they will continue to be reflected in our system wide same store sales consistent with how we've treated prior acquisitions.

Yes.

For the third quarter total revenue was $244 4 million compared to $154 3 million. The increase was driven by revenue growth across all three segments with.

Approximately 70% of our Q3 comp increase was driven by net member growth with the balance being driven by rate growth.

With seven 1% increase in franchise segment revenue was primarily due to an increase in royalties from same store sales growth and new stores.

The rate growth was primarily driven by a five basis point increase in our black card penetration to 62, 9% as well as our recent price increase in May from $22 99 to $24 99.

Partially offsetting the increase was a decrease of approximately $2 6 million.

As a reminder, the black card price increase that we took in May was four new joint only so that should slowly begin to drive up average monthly dues over time.

As a result of the stores acquired in the Sunshine fitness transaction moving from the franchise segment to the corporate owned segment.

Higher <unk> expenses, and the higher equipment placements expense.

For the third quarter total revenue was $244 4 million compared to $154 3 million. The increase was driven by revenue growth across all three segments. The.

For the third quarter. The average royalty rate was six 4%, which was flat to the prior year period.

The 131% increase in revenue in our corporate owned store segment was primarily driven by the Sunshine fitness acquisition as well as same store sales growth and the new store openings.

The seven 1% increase in franchise segment revenue was primarily due to an increase in royalties from same store sales growth and new stores.

Partially offsetting the increase was a decrease of approximately $2 6 million as a result of the stores acquired in the Sunshine fitness transaction moving from the franchise segment to the corporate owned segment.

The equipment segment revenue increased 78% driven by higher equipment sales to existing franchisee owned stores.

For the quarter replacement equipment accounted for approximately 75% of total equipment revenue, which was higher than we typically experienced largely due to reoccur.

Higher <unk> expenses and higher equipment placement expense.

For the third quarter. The average royalty rate was six 4%, which was flat to the prior year period.

That shifted from Q2 to Q3 of this year due to COVID-19 related supply chain disruptions in China earlier this year.

The 131% increase in revenue and our corporate owned store segment was primarily driven by the Sunshine fitness acquisition as well as same store sales growth and the new store openings.

We completed 28, new store placements in Q3 flat to last year.

Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee owned stores amounted to $48 5 million compared to $27 1 million.

The equipment segment revenue increased 78% driven by higher equipment sales to existing franchisee owned stores.

For the quarter replacement equipment accounted for approximately 75% of total equipment revenue, which was higher than we typically experienced largely due to <unk> that shifted from Q2 to Q3 of this year due to COVID-19 related supply chain disruptions in China earlier this year.

Store operations expense, which relates to our corporate owned store segment increased to $57 9 million from $27 8 million, primarily due to the additional stores from the Sunshine acquisition.

SG&A for the quarter was $27 1 million compared to $23 million.

Payroll costs, primarily drove this increase with the addition of the Sunshine fitness team as well as increased travel expense and expense related to our franchisee conference.

We completed 28, new store placements in Q3 flat to last year.

Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee owned stores.

National advertising fund expense was $17 million compared to $15 6 million.

To $48 5 million compared to $27 1 million.

Net income was $30 7 million adjusted net income was $38 2 million and adjusted net income per diluted share was <unk> 42.

Store operations expense, which relates to our corporate owned store segment increased to $57 9 million from $27 8 million, primarily due to the additional stores from the Sunshine acquisition.

A reconciliation of adjusted net income to GAAP net income can be found in the earnings release.

SG&A for the quarter was $27 1 million compared to $23 million.

Adjusted EBITDA was $93 9 million and adjusted EBITDA margin was 38, 4% compared to $61 7 million and adjusted EBITDA margin of 40.0%.

Payroll costs, primarily drove this increase with the addition of the Sunshine fitness team as well as increased travel expense and expense related to our franchisee conference.

National advertising fund expense was $17 million compared to $15 6 million.

A reconciliation of adjusted EBITDA to GAAP net income can be found in the earnings release.

Net income was $30 7 million adjusted net income was $38 2 million and adjusted net income per diluted share was <unk> 42.

We are no longer excluding preopening costs from our adjusted EBITDA adjusted net income and adjusted earnings per share.

And the reconciliation youll find the prior year period.

A reconciliation of adjusted net income to GAAP net income can be found in the earnings release.

Restated, reflecting this change.

By segment franchise, adjusted EBITDA was $53 5 million.

Adjusted EBITDA was $93 9 million and adjusted EBITDA margin was 38, 4% compared to $61 7 million and adjusted EBITDA margin of $40 zero percent.

Adjusted EBITDA margin was 66, 3%.

Corporate store adjusted EBITDA was $39 6 million and adjusted EBITDA margin of 38, 4% equipment adjustment adjusted EBITDA was $15 8 million and adjusted EBITDA margin was 25, 4%.

A reconciliation of adjusted EBITDA to GAAP net income can be found in the earnings release.

We are no longer excluding preopening costs from our adjusted EBITDA adjusted net income and adjusted earnings per share.

Now turning to the balance sheet.

As of September 32022, we had total cash and cash equivalents of $467 2 million.

And the reconciliation you will find the prior year period.

Restated, reflecting this change.

Paired to $603 9 million on December 31, 2021, which included $62 7 million and 58 million of restricted cash in each period as I mentioned earlier during the quarter, we used $50 million to repurchase approximately 830000 shares.

By segment franchise, adjusted EBITDA was $53 5 million.

And adjusted EBITDA margin was 66, 3%.

Corporate store adjusted EBITDA was $39 6 million and adjusted EBITDA margin of 38, 4% equipment adjustment adjusted EBITDA was $15 8 million and adjusted EBITDA margin was 25, 4%.

Total long term debt, excluding deferred financing costs was 2.01 billion as of September 32022.

Now turning to the balance sheet.

Consistent with our four tranches of fixed rate securitized debt that carries a blended interest rate of approximately 4%.

As of September 32022, we had total cash and cash equivalents of $467 2 million compared to $603 9 million on December 31, 2021, which included $62 7 million and 58 million of restricted cash in each period.

Finally to our 2022 outlook as a reminder, our view assumes there is no material resurgence of Covid, because it's number of supplier disruptions.

Whether it be a shutdown or more stringent mandates that result in a significant change in membership behaviors.

As I mentioned earlier during the quarter, we used $50 million to repurchase approximately 830000 shares.

In our earnings press release. This morning, we reiterated and updated our growth targets for the year.

Long term debt, excluding deferred financing costs was 2.0 or $1 billion as of September 32022.

We continue to expect system wide same store sales growth in the low double digit percentage range we.

Consistent with our four tranches of fixed rate securitized debt that carries a blended interest rate of approximately 4%.

We decreased our outlook for equipment placements and franchisee owned locations from approximately 170.

To a range of 150 to 160 <unk>.

Finally to our 2022 outlook as a reminder, our view assumes there is no material resurgence of COVID-19 that causes member or supplier disruptions.

Update primarily reflects a worsening of the HVAC supply chain issue.

We're continuing to monitor the situation carefully, but we do expect that some placements that we thought would happen in 2022, we will now take place in early 2023.

Whether it be a shutdown or more stringent mandates that resulted in a significant change in membership behavior.

In our earnings press release. This morning, we reiterated and updated our growth targets for the year.

We now expect revenue to increase in the high 50% range previously we expected it to increase in the mid 50% range.

We continue to expect system wide same store sales growth in the low double digit percentage range we.

We decreased our outlook for equipment placements and franchisee owned locations from approximately 170.

This revision reflects our better insight into inventory availability to meet franchisee demand for re equips.

To a range of 150 to 160.

We now expect adjusted EBITDA to increase approximately 60% adjusted net income to increase in the low 100% range and adjusted earnings per share to increase in the mid 90% range previously we expected adjusted EBITDA growth in the high 50% range.

This update primarily reflects a worsening of the HVAC supply chain issue.

We're continuing to monitor the situation carefully, but we do expect that some placements that we thought would happen in 2022 will now take place in early 2023.

We now expect revenue to increase in the high 50% range previously we expected it to increase in the mid 50% range.

Adjusted net income growth in the low 90% range and adjusted earnings per share in the mid 80% range.

Our adjusted EPS guidance is based on diluted shares outstanding of approximately $95 million inclusive of the issuance of equity as part of the Sunshine acquisition and share repurchases through the third quarter.

This revision reflects our better insight into inventory availability to meet franchisee demand for <unk>.

We now expect adjusted EBITDA to increase approximately 60% adjusted net income to increase in the low 100% range.

We also continue to expect 2022 net interest expense to be approximately $86 million, which reflects our first quarter debt refinancing and upsizing that.

And adjusted earnings per share to increase in the mid 90% range previously we expected adjusted EBITDA growth in the high 50% range.

Chris said, we're looking forward to a solid Q4 and assuming there is no buyers from surgeons. We are optimistic that we will have a strong January in Q1.

Adjusted net income growth in the low 90% range and adjusted earnings per share in the mid 80% range.

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

Thank you if you'd like to ask a question. Please do so now by pressing star followed by the number one on your telephone keypad. If you change your mind I would like to remove yourself from the queue. Please press star and then K when preparing to ask a question. Please ensure that you have a device Andrew microphone on mute.

We also continue to expect 2022 net interest expense to be approximately $86 million, which reflects our first quarter debt refinancing and upsizing.

Okay.

Our first question today comes from the line of Randy <unk> with Jefferies. Please go ahead, Randy Your line is open.

As Chris said, we are looking forward to a solid Q4 and assuming there is no buyers from surgeons. We are optimistic that we will have a strong January in Q1.

Thanks, a lot and good morning, guys I guess, Chris question for you you mentioned in your commentary that change in utilization pattern that you saw it moved up and your cancel rate move down.

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

Thank you if you'd like to ask a question. Please do so now by pressing star followed by the number one on your telephone keypad.

It sounds like it was significant in trend and trends. So just wanted to kind of understand.

So in your mind I would like to remove yourself from Macquarie. Please press star and then K.

How that is changing sequentially. It sounds like an insignificant what you think is driving that change in those two items.

Turning to ask a question. Please ensure that you have.

Andrew microphone on mute.

Okay.

Our first question today comes from the line of Randy <unk> with Jefferies. Please go ahead, Randy Your line is open.

Yes.

This trend has been somewhat consistent almost coming out of Covid, where the people that are working are working out more than they were previously.

Thanks, a lot and good morning, guys I guess, Chris a question for you.

I think in your commentary the change in utilization pattern that you saw it moved up and your cancel rate move down.

You, probably remember back since the IPO. The average person is working on about 5000 now it's north of.

Six times, a month and the.

It sounds like it was.

And so.

<unk> and training and trends so just wanted to kind of understand.

So I think that kind of stay in there, but the cancellation rate is right. What is more committed so it has fallen slightly from the past so.

How that is changing sequentially. It sounds again significant what you think is driving that change in those two items.

Both of them.

Both trends are very good most of them for longer term does it.

As a nutrition gets better.

I'm joined continue to flow like a flowing it is going to add more base.

Okay.

Yes.

This trend has been somewhat consistent and we're coming out of Covid, where the people that are working are working out more than they were previously.

Got it Super helpful. And then I guess, maybe a question for Tom.

I know we haven't disclosed.

You, probably remember back since the IPO. The average person is working on about 500 now it's north of six times a month and the.

How much you think the conversion could occur of the teen summer challenge members to.

Paying members over time, but I guess, what I wanted to try to understand is if you look back to 2019. The last time this program to place and I think 25% of those <unk>.

So I think that kind of staying there, but the cancellation rate is right that is more committed so it has fallen slightly from the past so.

Both of them.

Remember.

25% of those participants converted some members can you give us some perspective on the timeframe of those conversions.

Both trends are very good most of them for longer term.

Attrition gets better.

I'm joined continue to slowly get flowing it just going to add more base.

How long do you expect or how should these conversions start to take place when should we notice them.

Got it Super helpful. And then I guess, maybe a question for Tom.

This time around and in 2022 and 2023.

I know we haven't disclosed.

How much you think the conversion could occur of the teen summer challenge members to paying members over time, but I guess, what I wanted to try to understand is if you look back at 2019. The last time this program to place and I think 25% of those.

Alright, Hey, Ryan this is Chris.

Yes.

The 25% that was from the time of the ending of the program in 2019.

Through the whole couple of years and stuff that was about three years ago now right.

And then we had reported that there's about.

Number.

About 11% skilled members today.

25% of those participants converted some members can you give us some perspective on the timeframe of those conversions.

5% of the parents are still members. So it's three years later.

But by the but right now we are trending ahead of the conversion rate for the remainder of 2019 compared to that year. So if you look at between the end of the program or the program itself through the end of 2019, we are trending higher conversion rate than back then so I think that probably leads to solve one is just the general Gen Z joining trended positive in the right direction.

How long should you expect or how it can be conversions start to take place when should we notice them.

This time around in 2022 and 2023.

Alright, Hi, Randy this is Chris.

Yes.

The 25% that was from the time of the ending of the program in 2019.

Coupled with the fact that we have other text messages and that messaging and e-mails now because it's all digital sign up so I think so I think it's the trending is showing that it's doing better and I can't imagine it's not going to continue.

Through the whole couple years or so is about three years ago now right.

And then we had reported that there's about.

About 11% of skilled members today.

About 5% of the parents Cisco members those three years later.

Over the next couple of years ahead and.

But by the but right now we are trending ahead of the conversion rate for the remainder of 2019 compared to that year. So if you look at between the end of the program or the program itself through the end of 2019, we are trending higher conversion rate than back then so I think that probably lead to solve one is just the general Gen Z joining trended positive in the right direction.

Maybe one thing Randy as Chris said in his prepared remarks.

That conversion rate is not only ahead of where we were in 2019, but it's off a base thats three five times plus larger so the impact on membership is much greater.

Super helpful. Thanks, guys.

Thank you Randy.

Coupled with the fact that we have other text messages and that messaging and e-mails now because it's all digital sign up so I think so I think it is the trending is showing that it's doing better and I can't imagine it's not going to continue.

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

Yes. Thank you maybe just a question on the the.

The replacement equipment revenue, which seems it seems like it's really picking up quite quickly is that something that you kind of expect to continue in the fourth quarter and into next year or any kind of puts and takes there that we should think about.

Over the next couple of years ahead and.

And maybe one thing Randy as Chris said in his prepared remarks.

That conversion rate is not only ahead of where we were in 2019, but it's off a base thats three five times plus larger so the impact on membership is much greater.

Yeah, Hey, Brian It's Tom I'll start that so I think.

Super helpful. Thanks, guys.

Part of the mix shift and it being 75% of the equipment revenue is because of the shifting of Breo scripts from Q2 to Q3 because of the Shanghai shutdowns. So it pushed re equips into Q3.

Thank you Randy.

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

And then some of the supply chain issues moving to new stores around a little bit so for the year. Maybe this is the direct answer to your question for the year with the.

Yes. Thank you maybe just a question on the the replacement equipment revenue, which seems it seems like it's really picking up quite quickly is that something that you kind of expect to continue in the fourth quarter and into next year or any kind of puts and takes there that we should think about.

The change in our placement outlook.

We believe re equips will be closer to 60% of total equipment revenue.

Yeah.

Compared to where we were saying before it be closer to 50 50.

Yeah, Hey, Brian It's Tom I'll start that so I think.

I think part of the mix shift and it being 75% of the equipment revenue is because of the shifting of re equips from Q2 to Q3 because of the Shanghai shutdown. So it pushed re equips into Q3.

That's helpful. Thank you and then maybe just a question on kind of new unit openings.

I mean do you think that.

You cited the HVAC issues do you think those start to kind of.

And then some of the supply chain issues moving to new stores around a little bit so for the year. Maybe this is the direct answer to your question for the year with the.

Come off next year I don't know if the crux at the end of the year is there anything else.

That's at play.

Openings this year.

The change in our placement outlook.

Believe re equips will be closer to 60% of total equipment revenue.

No. The issue this year, primarily as the HVAC issues and from what we hear.

Compared to where we were saying before it be closer to 50 50.

No one yet knows one day.

Abate or go away.

That's helpful. Yes. Thank you.

I think it's a combination of changing standards catching the manufacturers off guard a little bit, but also the Shanghai shutdowns and continuing sort of rolling Lockdowns here and there in China. So.

And then maybe just a question on kind of new unit openings.

I mean do you think that.

You said that the HVAC issues do you think those start to kind of.

Come off next year I don't know if the crux at the end of the year is there anything else that's.

Yes, we were.

In discussions with some larger franchisees here recently and the frustration continue because you sort of don't know until it's too late in the cycle.

Play.

In openings this year.

No. The issue this year, primarily as the HVAC issues and from what we hear.

So we'd love to say, it's going to end in Q1, but we are not in the.

In any position to say, we know when it will end hopefully its sometime in 'twenty three but all manufacturers are big manufacturers are telling us they are.

No one yet knows one day.

Baked or go away.

They don't yet have a firm commitment on one one at all.

Returned to normal so to speak.

Thank you guys.

Yes, we were.

Okay. Thank you.

In discussions with some larger franchisees here recently and the frustration continue because you sort of don't know until it's too late in the cycle.

Our next question comes from Bajo Quarry with Jpmorgan. Please go ahead. Your line is open.

Good morning, guys. Thanks for taking my question.

So we'd love to say, it's going to end in Q1, but we are not in the.

Christa.

You guys talked about the franchise contracts can you just give us some more insight on what kind of conversations did you have in terms of how the franchisees are feeling in terms of store openings are in terms of that financial has got or anything else that kind of stood out but it makes sense to discuss.

In any position to say, we know when it will end hopefully its sometime in 'twenty three but all manufacturers are big manufacturers are telling us they.

They don't yet have a firm commitment on when it will return to normal so to speak.

That would be appreciated.

Thank you guys.

Sure Yes.

Our statement around the fact that the trends we're seeing with all the generations are specifically Gen Z and the increase of their data.

Okay. Thank you.

Our next question comes from Brian <unk> with Jpmorgan. Please go ahead. Your line is open.

Potentially to Julian So that's all really good stuff.

Good morning, guys. Thanks for taking my question.

On top of that you've got some of the conversations works remains about the Buildout cost is definitely some inflationary cost of build out and construction, which.

Chris.

You guys talked about the franchise contracts can you just give us some more insight on what kind of conversations maybe you have in terms of how the franchisees are feeling in terms of store openings are in terms of debt financing has got or anything else that kind of stood out but it makes sense to discuss.

Nothing to model can to weather that storm, it's not exactly what we want for expenses to go up but it is sort of the.

Time being will come down in time, hopefully, but.

Time will tell we don't really have a crystal ball on that one but.

That would be appreciated.

So as long as you buy around that type of stuff, but all in all it was people who are excited to talk about the future than it is now behind us. It seems like everybody is thinking about how to get back on track, but looking at real estate in driving marketing and sales and membership back to where it was and we're well on our way today, which is great. So there.

Sure.

Our statement around the fact that the trends we're seeing with all the generations are specifically Gen Z and the increase of there.

Plenty to Julian so that's already a good stuff.

On top of that you've got some of the conversations works remains above buildout costs definitely some inflationary cost of build out and construction, which.

Bullish and excited to get back to that vector business here to just definitely be greater from the inflationary costs when they build out construction came downward.

Luckily the model can to weather that storm, it's not necessarily one for expenses to go up but it is for the.

Add more fuel to the fire.

Time being will come down in time, hopefully, but.

Got it just to follow up on that.

Time will tell we don't really have a crystal ball on that one but.

Talking about <unk> is there any thing Neely.

In terms of Flagstar farmer, Macs or anything that makes sense to consider given the changing trends in the kind of frequency up visitations have you guys would revisit that.

So as long as you buy around that type of stuff, but all in all it was people who are excited to talk about the future pandemics behind us. It seems like everybody is thinking about how to get back on track, but looking at real estate in driving marketing and sales and membership back to where it was and we're well on our way today, which is great. So there.

Are there any conversations with the franchisees in terms of the REIT space.

Going ahead, when it comes to the farmer Mac off the books.

I think the only thing that we're looking at now.

Bullish and excited to get back to record business here to just definitely be greater from the inflationary costs them to build out construction came down and I think I'd just add more fuel to the fire.

Preliminarily, but looking at a lot of data to look at it is the change in our membership base. If you go back pre Covid Gen Z is where our smallest segment of our member base.

Got it just to follow up on that.

<unk> being the Boomer Boomer plus generation, but youre bloomer in Thailand.

Talking about ILS correctly is there anything.

In terms of complex door farmer, macs or anything that makes sense to consider given the changing trends in the kind of frequency of visit patients have you guys have.

And today they are our second largest part of our member base believe it or not so it's grown substantially over the last three years. So we're paying attention now just to look at.

What's that.

Some of their utilization of what they are using in the facility and is there some retooling slightly of just.

Congratulations with the franchisees in terms of the REIT space going ahead, when it comes to the farmer Mac off the books.

Makeup.

I think the only thing that we're looking at now preliminarily.

Is it elliptical or is it treadmills oriented kettlebells in and different functional training stuff looks functional training different something of the younger generation. So just paying attention to some of that is the makeup of our of our base changes.

Preliminarily, but looking at a lot of data to look at it is the change in our membership base. If you go back pre Covid Gen Z is where our smallest segment of our member base.

The next being the Boomer Boomer plus generation, but youre bloomer and silent.

But as far as size of box no I think that'd be about the same but maybe just route to retooling of inside the four walls.

And today they are our second largest part of our member base believe it or not so it's grown substantially over the last three years. So we're paying attention now just to look at.

Okay.

Thanks, Chris.

Very welcome.

Some of their utilization of what they're using in the facility.

Our next question comes from Joe <unk> with Raymond James.

Is there some retooling slightly of just.

Please go ahead.

Shipment makeup.

Thanks, Hey, guys. Good morning, just wanted to go back to doing Tabak shortage situation. I guess first is there an opportunity to find alternative suppliers outside of China.

Is it elliptical or is it treadmills oriented kettlebells in and different functional training stuff, which functional training different something of the younger generation. So.

Paying attention to some of that is the makeup of our of our base changes.

Doug if I could actually benefit your store openings next year, given the shift in timing for this year and the assumption obviously got it gradually gets better.

But as far as size of box no I think that'd be about the same but maybe just route to retooling of inside the four walls.

Hey, Joe It's Tom I'll take that so we were in contact with the large suppliers carrier training and so on.

Thanks, Chris.

Youre welcome.

And I think we're doing all that we can to get.

Our next question comes from Joe <unk> with Raymond James.

Our fair share more than our fair share of that the.

Please go ahead.

Thanks, Hey, guys. Good morning, just wanted to go back to you in Quebec shortage situation. I guess first is there an opportunity to find alternative suppliers outside of China.

The problem is unlike with equipment, we don't have a real.

Preferred supplier relationship there, it's something we're looking into but.

So we are opening stores.

That's exactly how I could actually benefit your store openings next year, given the shift in timing for this year and the assumption obviously got it gradually gets better.

Like there are none there's just not as many as we need and we've done all that we can to try to secure equipment in advance.

Many of our franchisees as we've talked to them or actually.

Hey, Joe It's Tom I'll take that so we were in contact with the large suppliers carrier trane and so on.

Looking to refurbish keep the equipment there if they can.

Via code and just.

And I think we're doing all we can to get.

Wait until more supplies available and then replace it they tend to like to replace it all at once so they don't have to worry about going back in and doing it a year or two later so.

Our fair share more than our fair share of that the.

The problem is unlike with equipment, we don't have a real.

Preferred supplier relationship there, it's something we're looking into but.

I'd say, we're doing everything possible as the franchisor and working with our franchisees and with the suppliers to secure what.

So we are opening stores.

Like there are none there's just not as many as we need and we've done all that we can to try to secure equipment in advance.

What we can its just the demand exceeds the supply and I know, we're not alone we're hearing it from other.

Many of our franchisees as we've talked to them or actually.

Or from other multi unit folks trying to open up new unit. So.

Looking to refurbish keep the equipment there if they can.

I wish I had a better answer on when it will end if it's not a forever thing for sure. It's just we're not sure exactly when it returns back to normal as I said previously.

Via code and just.

Wait until more supplies available and then replace it they tend to like to replace it all at once so they don't have to worry about going back and doing it a year or two later so.

Okay understood.

Follow up on that I'm curious you guys have a thought on Investor day.

Quite some time, maybe it's kind of a preview for us what we should expect to hear back a week.

I'd say, we're doing everything possible as the franchisor and working with our franchisees and with the suppliers to secure what.

Yes, it would be great to bring bring a team out usually all you really have from me in Tom and previously dormant. So it's great to bring other T Mount and talk about a lot of our different.

What we can its just the demand exceeds the supply and I know, we're not alone we're hearing it from other.

From other multi unit folks trying to open up new unit so.

Strategy and endeavors were honored with each of the departments, whether it's digital and data and the generational trend we'll share a lot of what we're seeing historically, what we've seen other grown.

I wish I had a better answer on when it will end its not its not a forever thing for sure. It's just we're not sure exactly when it returns back to normal as I said previously.

As well as marketing and Jamie so on so it'll be a lot of the team there I'm talking about where we've been you know other than people a lot of it in.

Okay understood.

Follow up on that you guys have any thought on Investor day.

In the current investors haven't really heard the story from back in the IPO days in the last 30 year history, what got US here, what's made us.

Quite some time, maybe it's kind of a preview for us what we should expect to hear back a week.

Be successful and gone through many ups and downs and while we are still here today after COVID-19 with no bruises.

Yes, it would be great to bring bring a team out usually all you really have from me in Tom and previously dormant. So it's great to bring another T Mount and talk about a lot of our different.

But a lot of it will be strategy and future looking.

Plans will be working on and much like the ESR. My my remarks, one of the Amazon Halo partnership where we're in the middle of right now. They just started yesterday just a lot of exciting things that doors that are opening up here with our size and scale and coming out of Covid and the highlight on health and wellness is at an all time high and I think from not only just members, but they also.

Strategy and endeavors were honored with each of the departments, whether it's digital and data and.

And the generational trend, we'll share a lot of what we're seeing historically, what we've seen how they've grown.

12, <unk> marketing and Jamie someone's there'll be a lot of the team there.

Talking about where we've been you know other than people in.

In the current investors haven't really heard the story from back in the IPO days in the last 30 year history, what got US here, what's made us.

Partnerships like this.

Got it thank you guys.

Thank you Brian .

Be successful and gone through many ups and downs and while we are still here today after COVID-19 with no bruises.

Our next question is from Alex Perry with Bank of America.

But a lot of it will be strategy and future looking.

Your line is open.

Hi, Thanks for taking my questions here, just first I just wanted to square away from the membership numbers in the quarter. So you had about 100 K net new joins in the quarter, you said churn was lower than 2019.

300, K new joins from high school summer path compared to about $65 10 to 2019, but you sort of added the same amount of members quarter over quarter compared to 2019, so what would sort of be the delta.

Partnerships like this.

Got it thank you guys.

Thank you Brian .

We sort of compare.

Our next question is from Alex Perry with Bank of America.

Over quarter drawings versus 2019.

Your line is open.

I believe that I think the 300000 is really from the beginning of the program which were due in may.

Yes.

Gotcha.

Oh got you. So you just added.

300, <unk> new joins from high school summer path compared to about 65 K in 2019, but you sort of added the same amount of members quarter over quarter compared to 2019, so what would sort of be the delta.

So you add at the high school somewhere participants earlier this year compared to 2019.

Gotcha and then.

Okay that makes sense and then my second question was can you just talk about the health of the franchisee base and their willingness to open.

We sort of compare.

Over quarter joins versus 2019. Thanks.

The rising rate environment here.

Sort of when should we get back to that sort of 200 plus algorithm is the only thing restraining that each back right now or how are you sort of seeing sort of the overall house.

I believe that I think the 300000 is really from the beginning of the program which were due in may.

Yes.

Gotcha.

Oh got you. So you just added.

You mentioned build out costs, but the rising how are you sort of thinking about the rising rate environment.

So you added the high school summer participants earlier this year compared to 2019.

<unk>.

Gotcha and then.

Sure.

Here on the inflation stuff right, Tom talked about interest rates.

Okay that makes sense and then my second question was can you just talk about the health of the franchisee base and their willingness to open.

Well, we don't really know quite yet Alex is that.

Every year.

The rising rate environment here.

You guys are you required to open a certain number of units contractually under area development agreements.

Sort of when should we get back to that sort of 200 plus algorithm is the only thing restraining that each back right now or how are you sort of seeing sort of the overall house.

But a lot of the developers pre COVID-19 were opening ahead of their schedule right. So what we're not sure of now is with the cost rising costs rising cost of build outs.

You mentioned build out costs, but the rising how are you sort of thinking about the rising rate environment.

Is that where franchisees open up eight.

Two or three units themselves that really aren't required to open until future years or do they want to wait until may to may be cost come down and then open them. So we just don't know if they can open ahead of their schedules.

<unk>.

Sure.

On the inflation stuff right, Tom talked about interest rates.

Well, we don't really know quite yet Alex is that every year franchisees are required to open a certain number of units contractually under area development agreements.

Your go forward until cost come down or maybe they want to wait till the future ones when they do come down. So that's the part we really don't know their appetite for opening opening ones early on that side of thing, but garmin, obviously interest, yes, Alex I think the interest rates going up.

But a lot of the developers pre COVID-19 were opening ahead of their schedule right. So what we're not sure of now is with the cost rising costs rising cost of build outs.

Isn't helpful, but I'd still think on a relative basis. The returns as we talk to our franchisees and we've talked to our largest franchisees here top 30 as we do every year, we've completed almost all of them now.

<unk>.

Is that where franchisees open up eight.

Two or three unit themselves that really aren't required to open and for future years or do they want to wait until may to may be cost come down and then open them. So we just don't know if they can open ahead of their schedules.

No one's really saying rising interest rates are holding them back from building a lot of the stores are funded just from the cash flows of the business.

Can you hear go forward until costs come down or maybe they want to wait till the future ones that when they do come down. So that's the part we really don't know their appetite for opening opening ones early on that side of things, but obviously interest yes, Alex I think the interest rates going up.

And frankly, a lot of the PE folks don't take money out of the business. They plow the money back in.

So.

Theres, a fair amount of momentum for those new store builds and I think what Chris said is right.

Isn't isn't helpful, but I'd still think on a relative basis. The returns as we talk to our franchisees and we've talked to our largest franchisees here top 30 as we do every year, we completed almost all of them now.

The costs are definitely higher but as we've looked at commodity costs and even shipping costs I forget the numbers off top my head but.

The cost of moving it can from Asia was.

A few thousand I don't want to high teen thousands and now it's back even below where it was pre COVID-19. So these things are moving around quite a bit. So we've heard from some franchisees that time is their front I'd say the other thing thats very encouraging on the development side is as we've talked to a number of these larger franchisees and we.

No one's really saying rising interest rates are holding them back from building a lot of the stores are funded just from the cash flows of the business.

And frankly, a lot of the PE folks don't take money out of the business. They plow the money back in.

So that's there is there is.

Talk about their financials, a lot of their mature store.

Theres, a fair amount of momentum for those new store builds and I think what Chris said is right.

Have repaired returned or very close to the pre COVID-19 profit levels. So while membership still may be trailing a little bit here and there depending on their geography.

The costs are definitely higher but as we've looked at commodity costs and even shipping costs I forget the numbers off top my head but.

Cost of moving it can from Asia was.

The continued increase in black card mix and the recent black card pricing will continue to improve margins and I'd say the last thing on the inflation side. There was a lot of talk about wage inflation that has really.

Slowed down quite a bit and as we've talked about even with wage inflation.

In some markets being.

Talk about their financials, a lot of their mature store.

Fairly considerable.

One good year of same store sales growth because of our model and low labor costs really offsets the impact in margins basically returned back to where they were before the wage inflation. After one year of mid single digit same store sale increase so.

Have repaired returned or are very close to the pre COVID-19 profit levels. So.

While membership still may be trailing a little bit here and there depending on their geography.

<unk>.

Anyway, I hope that kind of rounds out the picture for you.

Yes, that's perfect.

Good luck going forward.

Slowed down quite a bit and as we've talked about even with wage inflation.

Thanks, Alex.

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

In some markets being.

Fairly considerable.

Yes.

Hey, good morning.

My first question.

Sort of a seasonal low period for join but do you have data on where your new members are coming from are you seeing any uptick in and numbers coming from other <unk> or higher price jumps.

Alright.

Yes, I mean, what we've seen from closed gives us a little bit less than 1%.

Anyway, I hope that kind of rounds out the picture for you.

Closing, 25% of our jewelry is an hour rejoins skill and almost 40% of our members are still first time gym members. So.

Yes, that's perfect best of luck going forward.

Thanks, Alex.

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

Not too much has changed there, but we don't really we haven't really seen or heard Brooks here, but anything coming from higher price Jim.

Hey, good morning.

Anecdotally insurance happening when people trading down and if I go back to 19.

My first question.

Sort of a seasonal low period for join but do you have data on where your new members are coming from are you seeing any uptick in and numbers coming from other gens are higher priced James.

1999, 2000 Dot com bomb went off.

The only back then we start having from <unk>.

Four clubs back then, but we saw and experienced back then as well, but I'm sure it's happening.

Alright.

Yes from what we've seen from closed <unk> little less than 1%.

And people get more cost conscious of what they're spending money on them.

Conclusion, 25% of our jewelry is an hour rejoins skill and almost 40% of our members are still first time gym members. So.

Many people have longer multipurpose clubs you realize you don't use the rockwall of the pool the way of paying for it so I would probably something that's in our favor and we had some great same store sales back in that era.

Not too much has changed there, but we don't really we haven't really seen or heard of anything coming from higher price Jim.

In the late nineties.

That's very helpful. My second question I, just wanted to ask a about the Amazon Halo collaboration is there any backend integration with the Halo ear on a data sharing basis or integration with your on its benefit and if that.

Anecdotally insurance happening from people trading down and I'll go back to 19.

<unk> hundred 99, 2000 dot com bomb went off.

Anecdotally back then we start having from <unk>.

Four clubs back then, but we saw and experienced back then as well, but I'm sure. It is happening.

Kind of tap into that activity patent data.

Not yet, but that's part of the plan is to have a halo around the wearables also be talking to the app and have the data flow.

People get more cost conscious of what they are spending money on and as many people have longer multipurpose clubs you realize you don't use the rockwall of the pool.

But strictly right now where it's basically just a free halo with any black card purchase.

<unk> paying for it so I would probably something that's in our favor and we had some great things ourselves back in that area.

Zero enrollment 24, 99 a month.

The late nineties.

And the Halo is free for the first year and then after that they want to continue with it couldnt be Amazon there Theyre at 390, 949, who is a free one year membership with the Halo as well.

That's very helpful. My second question I, just wanted to ask a about the Amazon Halo collaboration is there any backend integration with the Halo ear on a data sharing basis or integration risk.

Got it thank you.

Yes. Thank you.

It's been a fitness app.

Yeah.

Happened to that activity patent data.

Our next question is from Matt <unk> with Cowen and time next your line is open.

Not yet but.

Part of the plan as have handle or other wearables also talking to the App and have the data flow.

Great. Thanks, a lot and congrats guys. So first January feels like it's going to be very important season for you are falling somewhat less some of this year's challenges. So just curious how do you feel about your readiness heading into the season and what do you plan to do differently next year compared to both this year as well.

But certainly right now where it's basically just the free halo with any black card purchase.

Zero enrollment 24, 99 a month.

And the Halo is free for the first year and then after that they want to continue with it couldnt be Amazon there were 299 or 49, who is a free one year membership with the Halo as well.

It's odd that pre pandemic yours.

Got it. Thank you good luck.

Yes. This year, we have our annual near.

Yeah. Thank you.

Nearly <unk> of celebration here to kick it off in times square, so their eighth year and longest running sponsor of times square, but the normal integration, you'll see that our stage and enhances such commercial that kicks off our January promotion.

Yeah.

Our next question is from Matt <unk> with Cowen.

Your line is open.

And then we will normally do a an extension towards the end of the month as well for this but and we also push the Cinderella membership is that entry level pricing throughout that commercial.

The branding and messaging will be similar to what we've been doing this year, which is really about that post workout glow the feel good feeling.

As well as the pre pandemic yours.

The metal health benefits of exercise.

Yes. This year, we have our annual.

As opposed to the general.

New year's Eve celebration here to kick it off in times square, which will be our eighth year and longest running sponsor of times square, but the normal integration, you'll see that our stage in and hats and such and the commercial.

General thought if people think about the waistline right. So that will continue with that that theme, one where there might be a little different. This year is when a lead up to some last week of December promo ended the year special before we go into that January pushed so little bit different kind of in that one would normally December is a mid month flash sale. So we'll push at the end as opposed to the.

And that kicks off our January promotion.

And then we will normally do a an extension towards the end of the month as well for this but and we also pushed the general membership is that entry level pricing throughout that commercial.

The middle of the month.

Besides that nothing nothing out of the ordinary but just more of the same.

The branding and messaging will be similar to what we've been doing this year, which is really about that post workout glow the field good feeling the mental health benefits of exercise.

But I think it's going to be.

It's quite amazing to think that would be the first fourth quarter versus the first quarter in four years that hopefully will not be interrupted by anything so.

As opposed to the general.

General product people think about the waistline right. So that will continue with that that theme one.

So I think it should be a real good one for us.

Tom one thing to add there I think our agencies.

There might be a little different this year is going to lead up to some last week of December promo ended the year special before we go into that January pushed so little bit different kind of in that one would normally December is a mid month flash sales so little push at the end as opposed to the middle of the month.

Have transitioned.

Across our franchise system.

Away from <unk> to one of the two existing agencies that we've talked about so in our discussions with franchisees theyre very set.

Besides that nothing nothing out of the ordinary but just more of the same.

Settled and happy about where they are with their agency and very confident looking forward, but the execution will be back to what they were used to so and were also feeling very good about reconnecting with Barclay.

But I think it's going to be.

It's quite amazing to think that would be the first fourth quarter versus the first quarter in four years that hopefully will not be interrupted by anything so.

So I think it should be a real good one for us.

Strategically on the creative and also working with US as our agency of record for Napp, so compared to.

Tom one thing to add there I think our agencies.

Where we were several months ago, we feel like we're on Terra firma here when it comes to agencies and I think the only thing I'd add to is as you know massive marketing flywheel, we have going into this first quarter with once again the largest member base, we've ever had which is it more marketing dollars. So.

Have transitioned.

Across our franchise system.

Away from publicists in to one of the two existing agencies that we've talked about so in our discussions with franchisees theyre very set.

Settled and happy about where they are with their agency and very confident looking forward that the.

And I think if you go back even pre pandemic you can even joining in the plant that is app, so that and our favorite with marketing and have an uninterrupted first quarter.

We will be back to what they were used to so and were also feeling very good about reconnecting with Barclay.

We expect a special first quarter.

Strategically on the creative and also working with US as our agency of record for Napp, so compared to.

Awesome.

Great appreciate all the color on that and then separately.

Congrats on appointing Jennifer.

Where we were several months ago, we feel like we're on Terra firma here when it comes to agency and I think the only thing I'd add to is as you know Max that marketing flywheel, we have going into this first quarter with once again the largest member base, we've ever had which is just more marketing goes so.

Women's to corporate club clubs, President seems very well deserved.

Chris what are the efforts Jennifer as top priorities today.

As the integration of Sunshine going and then what can you share about just some of the best practices that youre seeing that can be translated to the rest of the portfolio.

And I think if you go back even pre pandemic you can even joining in the plant that is app, so that and our favorite with marketing and have an uninterrupted first quarter.

Sure, Yes, she really helped build the both strategic and data analytics here in the business and most and most of all our decisions here with the franchise system.

We expect that our special first quarter.

Awesome, that's great appreciate all the color on that and then separately just.

Marketing size of box demographics, I mean, there are a lot of it will come from data that she's she's put together that it proves out best practices.

Congrats on appointing Jennifer.

So to have her influence our corporate store fleet of 200, plus stores are these now and growing it.

Shipments to corporate club clubs, President seems very well deserved Chris what are the efforts Jennifer as top priorities today.

With her background is going to be.

Kind of a perfect storm as they get a lot of great way, so I'm excited as ever.

As the integration of Sunshine going and then what can you share about just some of the best practices that youre seeing that can be translated to the rest of the portfolio.

Take over that fleet along with them.

Mary.

<unk> of ops down there and Scott who has been the marketing.

Sure, Yes, she really helped build a vital strategic and data analytics here in the business and most of all our decisions here with the franchise system.

Marketing position down there we've been there in the Sunshine gear that we brought onboard and I think it is important to note that with our same store sales of eight 6% system eight 2% system wide that our corporate store legacy fleet is booked when you bring two recall Max our legacy fleet because they are our oldest most mature.

Marketing size of box demographics, I mean, there are a lot of it will come from data that she's she's put together that it proves out best practices.

So to have her influence our corporate store fleet of 200, plus stores are these now and growing with.

Sure markets back from 30 years ago.

With her background is going to be.

Kind of a perfect storm, it's taken a lot of great way, so I'm excited as ever.

We don't have a lot of new store builds on the legacy fleet. The influence same store sales. So this is like the first couple of quarters here with their influence that our corporate fleet. It has has outpaced same store sales of the system, which has never happened.

Take over that fleet along with them.

<unk>, who is the VP of ops down there and Scott who has been the marketing.

Marketing position down there we've been there in the Sunshine gear that we brought onboard and I think it's important to note that with our same store sales of eight 6% system eight 2% system wide that our corporate store legacy fleet rate is when you bring two recall Max our legacy fleet because they are our oldest most mature.

There's no doubt this and best practices from a marketing and operational.

Front that they have already put in place in our legacy fleet.

<unk> influence, so really great news, there and with Jen support now down there as well in Orlando, where their home offices.

Expect some really good things.

Got it that's that's very helpful Best regards and according to the analyst day.

Sure market back from 30 years ago.

Thank you.

Thanks Brooks.

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

Great. Thanks, guys. This is Patrick on for Chris Good morning.

Chris I appreciate it.

Front that they have already put in place in our legacy fleet that are having influence so really great news, there and with Jen support now down there as well in Orlando there with their home offices.

Hey.

I appreciate all the comments around the supply chain constraints and development, but I do want to ask just one follow up if we step back from all of that.

Can you just give us give us a sense of whats in the pipeline today in terms of projects.

I expect some really good things.

Got it that's that's very helpful. Best regards and look forward to the analyst day.

And whether you've seen a number of projects in that pipeline grow over the last six to 12 months or so relative to where it was.

Thank you.

Thanks Brooks.

Hey, Patrick it's Tom I'll take that.

Our next question comes from Christian <unk> with Stifel. Please go ahead Sir.

I think what youre getting at is sort of the outlook for 2023, and we'll talk about that we really don't talk about where things are in the flow.

Great. Thanks, guys. This is Patrick on for Chris Good morning.

Flow and in the pipeline, but.

Chris I appreciate it.

It kind of come back to what Chris was saying franchisees.

Okay.

I appreciate all the comments around the supply chain constraints in development, but I did want to ask just one follow up if we step back from all of that.

Absolutely no with those obligations are they have to build the returns are still.

Very strong we've had new folks come in and invest in some of our larger franchisees here recently.

Can you just give us give us a sense of whats in the pipeline today in terms of projects.

And whether you're seeing the number of projects in that pipeline grow over the last six to 12 months or so relative to where it was.

Knowing that the cost to build are up and who knows how long they stay up.

But still aggressively looking to build because the returns as they tell us are still relatively better than anything they see so while there might be a slight step back because of.

Hey, Patrick it's Tom I'll take that.

I think what youre getting at is sort of the outlook for 2023, and we'll talk about that we really don't talk about where things are in the.

On the ROI because of the higher cost to build.

Flown in the pipeline, but.

We don't see it really diminishing.

I kind of come back to what Chris was saying franchisees.

The appetite nor they know the requirement is there. So we will certainly talk more about where this all looks for 2023 as we normally do when we provide that outlook on our year end call.

Absolutely no with those obligations are they have to build the returns are still.

Very strong we've had new folks come in and invest in some of our larger franchisees here recently.

Got it that's helpful. And then Tom I was hoping you could provide just a little bit more color on the relative contribution to the corporate store margin.

Knowing that the cost to build are up and who knows how long they stay up.

Still aggressively looking to build because the returns as they tell us they are still relatively better than anything they see so while there might be a slight step back because of.

Legacy store portfolio had I know, Chris just mentioned that the comps are really strong in that segment of the corporate store portfolio this quarter, but.

To what extent have you seen.

On the ROI because of the higher cost to build.

Membership levels continue to recover and those Jim sort of excluding the higher margin performance and Sunshine units, how should we be thinking about that heading into <unk> and then into next year in terms of the trajectory of the corporate store margin.

We don't see it really diminishing.

The appetite nor they know the requirement is there. So we'll certainly talk more about where this all looks for 2023 as we normally do when we provide that outlook on our year end call.

Yes, it's a good question and I think the good news is.

Got it that's helpful. And then Tom I was hoping you could provide just a little bit more color on the relative contribution to the corporate store margin.

As Chris said, the stronger same store sales from our legacy markets will certainly.

Given our model.

Legacy store portfolio had I know, Chris just mentioned that the comps are really strong in that segment of the corporate store portfolio this quarter, but.

The largely fixed cost nature of it will flow to the bottom line and continue to enhance those legacy store margins from a four wall standpoint. So all of that is very strong and Sunshine also they they continue to perform and you might have you might remember Patrick we talked about at the time of the acquisition pre Covid the Sun.

To what extent have you seen.

Membership levels continue to recover and those gyms sort of excluding the higher margin performance and Sunshine units and how should we be thinking about that heading into <unk> and then into next year in terms of the trajectory of the corporate store margin.

Shine mature stores, where several hundred basis points higher in four wall EBITDA margin than our legacy stores, primarily because.

Yes, it's a good question and I think the good news is.

As Chris said, the stronger same store sales from our legacy markets will certainly.

Of the of the markets they are at lower cost.

Build lower cost to operate and so thats remaining intact, but as comps continue to.

Given our model.

The largely fixed cost nature of it will flow to the bottom line and continue to enhance those legacy store margins from a four wall standpoint. So all of that is very strong and Sunshine also they they continue to perform and you might you might remember Patrick we talked about at the time of the acquisition of.

Drive higher <unk> in those dollars flow to the bottom line 80, plus.

On the dollar.

Both sets of stores margin should continue to increase and I'd say the other piece that we talked about year on year with Sunshine is that had a full more of a full team, they're leading that unit, where we had more of a hybrid approach from a from a SG&A standpoint for lack of a better term.

Pre COVID-19.

Sunshine mature stores, where several hundred basis points higher in four wall EBITDA margin than our legacy stores, primarily because.

Of the of the markets they are at lower cost.

Now that that is fully incorporated into our run rate.

Build lower cost to operate and so thats remaining intact, but as comps continue to.

That might have been a little bit of a headwind on a on a margin basis, but won't be going forward as we leverage that because sales will grow faster than the SG&A.

Drive higher <unk> in those dollars flow to the bottom line 80, plus.

Got it thanks guys.

On the dollar.

You bet.

Both sets of stores margins should continue to increase and I would say the other piece that we talked about year on year with Sunshine is that had a full more of a full team there leading that unit, where we had more of a hybrid approach from a from an SG&A standpoint for lack of a better term.

Our next question.

Jonathan Your line is open.

Yes, hi, Thank you good morning.

I'll ask one more question on units and I'm sure we'll have more more questions next week too, but I guess big picture.

And now that that is fully incorporated into our run rate.

You don't get back to opening 200 units a year on the franchise side should.

That might've been a little bit of a headwind on a on a margin basis, but won't be going forward as we leverage that because sales will grow faster than the SG&A.

Should that be viewed as any sign that the long term potential is not as large or as good as you thought it was pre COVID-19 and and maybe on the company stores are you planning any slowdown in the company growth just given the inflation challenges with construction.

Got it thanks guys.

You bet.

Our next question.

Yes, I don't see.

Jonathan Your line is open.

We still have over 1000, the pipeline John committed area development agreements with the franchisees.

Yes, hi, Thank you good morning.

Ask one more question on units and I'm sure we'll have more more questions next week too, but I guess big picture. If you don't get back to opening 200 units a year on the franchise side.

Top of the <unk> 300, plus that are open today.

And as we've talked about in the past the franchisees that territory that they have undeveloped as almost as valuable as when they have that are developed and that's where a lot of the value of their business comes from is there no units along with the runway. So they never want to lose their runway from not developing and have it contractually taken away from them, which then would be.

Should that be viewed as any sign that the long term potential is not as large or as good as you thought it was pre COVID-19 and maybe on the company stores are you planning any slowdown in the company growth just given the inflation challenges with construction.

Sell through another franchisee that's willing to build it. So I think I think the big question that I mentioned earlier, we're not sure. If they don't want to open ahead of schedule just because of the cost of opening stores right. Now is they want to wait and see if it comes down in a year or two because they would combine to John open up units that maybe werent committed until right.

Yes, I don't see.

We still have over 1000, the pipeline John committed area development agreements with the franchisees.

Top of the 2300 plus that are open today.

And as we've talked about in the past the franchisees <expletive> territory that they have undeveloped.

Right now is 2022, they might have opened up $2023 $24 25 in the same year right. So they might just kind of slow down slightly so that you're still opening which contractually, but not opened ahead of schedule. So whether we get back to 200 or we get back to 60 like we did in 2019.

As valuable as the ones that have that are developed right and that's where a lot of the value of their business comes from is there. They are units along with the runway. So they never want to lose their runway from not developing and habit contractually taken away from them, which then would resolve to another franchisee that's willing to build it. So I think I think the big question as I mentioned earlier, we're not sure if they didn't want to open ahead.

I think it might be just a little bit of hesitation to go.

Open up <unk>.

3% more units and they required to because of that so.

Schedule, just because of the cost of opening stores right now is they want to wait and see if it comes down on a year or two because they would come back to John open up units that maybe werent committed until.

It's still a lot of units to be opened and a lot of contractual used to be open. So it'll push a lot of openings each year, just hard to say if we go to.

200 to 260 to 300 or are we going to be a slow ramp cost come down.

Right now is 2022, they might have opened up 2023 24 25 in the same year right. So they might just kind of slow down slightly so that your Philippines, which contractually, but not opened ahead of schedule. So whether we get back to 200 or we get back to 60 like we did in 2019.

And John on the corporate side I mean, as you know part of the attraction of the Sunshine acquisition was not only their current portfolio they had in the profitability.

But also.

The pipeline and so.

In addition to the the.

I think it might be just a little bit of hesitation to go.

The opportunities in our legacy markets, we really like the.

Open up <unk>.

Send more units and they required to because of that so.

The ROI opportunities for the new stores.

It's still a lot of units to be opened and a lot of contractually used to be open. So it will push a lot of openings each year. It's just hard to say if we go.

And the Sunshine.

Territory, So we do not.

Anticipate slowing down corporate store development.

200 to 260 to 300 are we going to be a slow ramp up of costs come down.

We want to maintain roughly are 10% penetration. So we would look to grow with the system.

And John on the corporate side I mean, as you know.

The attraction of the Sunshine acquisition was not only their current portfolio they had in the profitability and the timing of.

In any given year it might be a little bit ahead, a little bit behind just based on real estate opportunities and what's happening.

Site by site, but our intent strategically is to stay around 10%.

But also the pipeline and so.

In addition to the.

Yes, that's great and then just wanted to follow up on pricing.

The opportunities in our legacy markets, we really like the.

I think year over year, you saw maybe a little less increase in our black card penetration sorry.

The ROI opportunities for the new stores.

And the Sunshine.

Any drivers behind that and are you seeing any pushback on the higher black card monthly pricing and then.

Territory, So we do not.

Anticipate slowing down corporate store development.

We want to maintain roughly 10% penetration. So we would look to grow with the system.

Any decision on annual pricing and just trying to think about how much pricing benefit you might see for new units going into 2023.

In any given year it might be a little bit ahead, a little bit of behind just based on real estate opportunities and what's happening.

Yes, let's say slight pullback in Blackrock acquisition. This quarter was mostly just from the increase in the $10 month High school summer past teens converting into so just drove the slight decrease in Blackbird acquisition this quarter, but wasn't related to the pricing on the black card itself with the acquisition of just in general.

Site by site, but our intent strategically is to stay around 10%.

Yes, that's great and then just wanted to follow up on pricing.

I think year over year, you saw maybe a little less increase in our black card penetration.

Any drivers behind that and are you seeing any pushback on the higher black card monthly pricing and then.

Office sale periods with normal actually on site, even better believe it or not which is interesting. Because this is the first time, we've raised the black card price, which is the third time, we've done it but it's the first time, we've done it where we didn't see a decrease that initial decrease in black on acquisition for a couple of months before rebounded.

Any decision on annual pricing and just trying to think about how much pricing benefit you might see for new units going into 2023.

So really interesting that even though we're the <unk> increase we saw an increase in acquisition just at the team is actually drove it down this quarter.

Yes, let's say slight.

A slight pullback in Blackrock acquisition. This quarter was mostly just from the increase in the $10 month High school from a past teens converting into.

And John we said in the call that the black card.

Since the rate increase we're still outperforming the test results that we have here.

So just drove the.

Slight decrease in Black card acquisition this quarter, but wasn't related to the pricing on the black card itself for the acquisition.

I don't see as far as I think of your price increase in general I don't see that $10 changing.

General office sale periods with normal actually slightly even better believe it or not which is interesting. Because this is the first time, we raise the black card price, which is the third time. We've done it was the first time, we've done it where we didn't see a decrease that initial decrease in black acquisition for a couple of months before rebounded.

Make that still as we've always talked about that kind of get you off the couch price.

And I think it's just an amazing business model, where we advertise 10, generally speaking and people come in and when they realize the benefits. They ended up taking the black card.

So really interesting that even though we're the two dollar increase we saw an increase in acquisition.

And that 60% range so.

Great curiosity price get people interested in checking it out and then we hope to get them to convert upwards.

The team is actually drove it down this quarter.

And John we said in the call that the black card.

Great. That's helpful. Thanks again.

Since the rate increase we're still outperforming the test results that we have here.

Thanks, Joe Thanks, Joe.

I don't see as far as I think of your price increase in general I don't see that $10 changing.

Our next question comes from the line of Simeon Siegel with BMO capital markets. Please go ahead Simeon your line is open.

I think that's still as we've always talked about for kind of get you off the couch price.

And I think it's just an amazing business model, where we advertise Tien generally speaking and people come in and when they realize the benefits they end up taking the black card.

Thanks, Hey, guys hope, you're all doing well in this quarter.

Thank you so Chris you've had such on for a bit now and Youre seeing the full top line EBITDA recognition, just any learnings or changes how you're thinking about long term corporate versus franchise numbers going forward and then just Tom can you sorry.

And that 60% range. So it's great curiosity price get people interested in checking it out and then hopefully get them to convert upwards.

Sorry, if I missed this can you just remind us how long the NAF expenses should outweigh the Saf revenues and any help on what that discrepancy is during that time.

Great. That's helpful. Thanks again.

Yeah.

Thanks, John Thanks, Joe.

Yes, I think to Tom's earlier comments I made I think we want to stay at that 10% range that we reiterated we bought Sunshine.

Our next question comes from the line of Simeon Siegel with BMO capital markets. Please go ahead Simeon your line is open.

As the fleet grows we continue to build corporate stores in all our markets.

Thanks, Hey, guys hope, you're all doing well in this quarter.

Our legacy markets as well as the Sunshine markets and probably any smaller tuck ins of franchisees that come up for sale in and around our current locations that we're in right. So anything in that southeast part of the country or northeast.

Thank you so Chris you've had sunshine for a bit now and Youre seeing the full top line EBITDA recognition, just any learnings or changes how you're thinking about long term corporate versus franchise numbers going forward and then just Tom can you.

Most of our corporate stores are and as smaller franchisee, let's say come for sale, probably tuck them in.

Sorry, if I missed this can you just remind us how long the NAF expenses should outweigh the <unk> revenues.

But I think it's I think leveraging their their ops in some of their marketing techniques that they've put in place as I. Just said is there are legacy store same store sales are ahead of systems, which has never happened. So great influence there that theyre, having in the system, which is great.

And any help on what that discrepancy is during that time. Thank you.

Yes, I think to Tom's earlier comments I made I think we Werent stated that 10% range that we reiterated we bought Sunshine.

As the fleet grows we continue to build corporate stores and all of our markets.

Now with that Jens leadership down there with the rest of the team I look for really good things are happening and continue to build ground up store as well there so.

Legacy markets as well as the Sunshine markets and probably any smaller tuck ins of franchisees that come up for sale in and around our current locations that we're in right. So anything in that southeast part of the country or northeast.

So the same plan, but I think probably a better outlook I think in the future.

And Simeon on the mass side.

Most of our corporate stores are smaller franchisee, let's say come for sale, probably tuck them in.

Pre COVID-19, we always kind of balanced what we spent with what we've collected.

But I think it's I think leveraging their their ops in some of their marketing techniques that they've put in place as I. Just said is there a legacy store same store sales are ahead of systems, which has never happened. So it's great influence there that theyre, having in the system, which is great.

And then during Covid, we decided to make some unilateral moves where we spent more than we collected in.

And then coming into this year, we were intending to be sort of back to where we were historically, but I think with all the.

Now with that Jens leadership down there with the rest of the team I look for really good things are happening and continue to build up stores as well there. So.

Impact of the Omicron variant in January dry during the peak joined season.

Fits and starts frankly that we had with publicis.

So the same plan, but I think probably a better outlook I think in the future.

And some of the.

Things that we ended up having to pay for that we thought.

And on the <unk> side.

Part of a longer term contract with would have been.

Pre COVID-19, we always kind of balanced what we spent with what we collected.

Three.

Really changed the dynamic there and we Didnt, we felt that was appropriate for us to.

And then during Covid, we decided to make some unilateral moves where we spent more than we collected in.

Absorb.

And then coming into this year, we were intending to be sort of back to where we were historically, but I think with all the.

To where now we will be greater than expense.

<unk> expense will be greater than collections I think it's seven three year to date on track to be right around $10 million full year.

Impact of the Omicron variant in January dry during the peak joined season.

Our intent as Chris said, assuming COVID-19 is behind us and we get back to a more normal Q1 in January which certainly looks like it will be the case compared to what we've seen here in the last couple of years, our intent would be for neff collections and expense to match up as they did pre COVID-19.

Fits and starts frankly that we had with <unk>.

And some of the.

Things that we ended up having to pay for that we thought.

Part of a longer term contract with would have been.

Three.

Really changed the dynamic there and we Didnt, we felt that was appropriate for us to.

Great. Thanks, a lot guys best of luck ahead, and looking forward to seeing next week.

Absorb.

Yes. Thank you.

To where naphtha will be greater than expense.

Yeah.

Our next question is from John <unk> with Guggenheim. Please go ahead John .

<unk> expense will be greater than collections I think it's seven three year to date on track to be right around $10 million full year.

Hey, Chris Let me start with what is your current thought on national versus local.

Yes, I think the idea was maybe eventually you would do more national less local.

But at the local is improved right.

Tweaked.

Do you have more.

Move more into national direction.

Great. Thanks, a lot guys best of luck ahead, and looking forward to the next week.

And then I think.

One and then the other part of that right.

Maybe that would pave the way for a royalty rate increase down the road.

Yes. Thank you. Thank you.

Our next question from John <unk> with Guggenheim. Please go ahead John .

We quite a ways away from that particularly given the cost increases that franchisees are absorbing to get a club open.

Hey, Chris Let me start with what is your current thought on national versus local or I guess I think the idea was maybe eventually you would do more national less local.

Yes, I think that's a good question, Jonathan and I think I've mentioned this in the past, but if it wasn't for if it wasn't for Covid.

Three straight quarters of positive comp leading into it and we were probably at a point where reason royalty probably would have been in the card, but actually now coming out of Covid and we're not 100% of the story around back to where they were in some payroll expense increases from these operational expense. So once EBITDA margins I think return to closer or past, where they were then.

But at the local is improved right.

Tweaked.

Do you have more.

Move more than national direction.

And then I think that's question one and then the other part of that right.

Maybe that would pave the way for a royalty rate increase down the road.

We're quite a ways away from that particularly given the cost increases that franchisees were absorbing to get our club opened.

That definitely is.

A topic of discussion I believe.

So we're not quite there, but I believe we've seen the same store sales and as you know the flow through to the matter of time.

Yes, I think that's a good question, Jonathan and I think I've mentioned this in the past, but if it wasn't for if it wasn't.

As far as the lap I think a couple of more at least a year, maybe two with Zimmerman Moroccan and Berkeley now has our easier record.

The Covid, we have 53 straight quarters of positive comp leading into it and we would probably at a point where reason royalty probably would've been in the card, but naturally now coming out of Covid and we're not 100% of the story around back to where they were in some payroll expense increases. Some reason operational expense. So once EBITDA margins I think return to closer or.

And now collecting the data.

We just had our big annual October sale as I'm sure you saw.

We're going to have a postmortem now every sale and all three agencies are going to get in a room and we're all going to go over.

Most outperforming markets performing markets, and then boiled down exactly reasons, why and what medium mix and spend they did so that we can.

Where they were then and that definitely is a trough.

Have a good discussion I believe so.

We now have that too.

So we're not quite there, but I believe we've seen with same store sales and as you know the flow through to the matter of time.

Teach and show all disease, what to do for the next sale and then and that will be refined every time, we do this right. We'll learn something every time and I think as we get there we ended up.

As far as the lap I think a couple of more at least a year, maybe two with Zimmerman Moroccan and Berkeley now has our easier record.

Understanding the mix better and make them spend more efficient, which then leads to why do we just put more money in national and then paved the way so it's easier and the franchisees have less to worry about on their own and just maybe moving some of that over and our dependency goes better perfect storm would be that the 9% is it has to be 9% anymore.

And now collecting the data.

We just had our big annual October sale as I'm sure you saw.

We're going to have a postmortem now every sale and all three agencies are going to get in a room and we're all going to go over.

Most outperforming markets in Moseley performing markets, and then boiled down exactly reasons, why and what media mix and spend they did so that we can now have that too.

The 3000 to 4000 store reopened does that really needed to be 9%, maybe not so that just gives us more opportunity for our royalty increase as well and it's the same dollars outside the four walls of the franchisee pays which which would really be great. So I think it is a matter of time I believe we get there.

Teach and show all disease, what to do for the next sale.

And that will be refined every time, we do this right. We'll learn something every time and I think as we get there we ended up.

Understanding the mix better and make them spend more efficient, which then leads to why we just put more money in national and then paved the way so it's easier and franchisees have less.

Just a matter of how.

Soon.

And then maybe secondly, whats your thoughts now on.

Pace.

<unk> on their own and just maybe moving some of that over and now the prudency goes better perfect storm would be that the 9% that has to be 9% anymore.

Timing and geography of international expansion.

Right.

I want to step it up and I guess, it would be Greenfield Asia would be.

The 3000 to 4000 store reopen does that really need to be 9%, maybe not so that just gives us more opportunity for royalty increase as well and it's the same dollars outside the four walls of the franchisee pays which which would really be great. So I think it's just a matter of time I believe we get there.

It would be the focus initially.

Okay.

Yes, I think I think.

Have you talked about in the past kind of a hybrid approach we didn't really have any international team per se. It was just development team here in ops team here doing call it a country a year right.

Just a matter of how.

Soon.

We'll get going with it didn't really work Mexico has been phenomenal for us Australia some prominent <unk>.

And then maybe secondly, what's your thought now on.

Pace.

Timing and geography of international expansion.

More members in Mexico, those stores opened with three or four times the members of the U S store.

Right do you.

Do you want to step it up and I guess, it would be Greenfield Asia would be.

Panama has done a great Australia has done great New Zealand it is going to be opened the first store.

It would be the focus initially.

Coming year so.

Okay.

But I think now we're going to look to put an international team together that focuses solely on just international and.

Yes, I think I think.

You talked about in the past kind of a hybrid approach we didn't really have an international team per se. It was just development team here in ops team here doing call it a country a year right.

And begin to build that team out and I don't think it would be abnormal Preston I'll look at doing two or three countries. A year I think some will have to be creative and whether it would be.

We've yet to go anywhere that didn't really work Mexico has been.

An acquisition of a brand.

<unk>, Australia some prominent.

As you know in Europe , there's a lot a big one.

Average most more members in Mexico stores opened with three or four times the members of the U S store.

And it makes sense somebody to go one at a time when do we acquire Asia on the other hand.

Panama has done a great Australia has done great New Zealand. It is going to be opened first store this coming year or so.

<unk>, specifically is not really any large scale low cost provider that therefore, it doesn't make sense to go in planet and set to build out those stores. So I think you'll see more focus and probably see more than probably see more two or three possibly a year as opposed to one.

But I think now we're going to look to put an international team together that focuses solely on just international and.

And begin to build that team out and I don't think it would be abnormal for us to now look at doing two or three countries. A year I think some will have to be creative and whether it would be.

Thank you.

Thanks, Ron Thanks, Jim.

Our final question today comes from Paul <unk> with Macquarie capsule, Paul Your line is open.

The acquisition of a brand.

As you know in Europe , there's not a big one.

Does it make sense and somebody has to go one at a time would we acquire Asia on the other hand.

Yes.

Thanks, so much and congrats on the quarter I wanted to talk a bit more about what part of the past.

<unk>, specifically is not really any large scale low cost providers that therefore, it doesn't makes sense to go in planet in South Dakota those stores. So I think you'll see more focus and probably see more than probably see more two or three possibly a year as opposed to one.

You have noted the reciprocity.

The biggest benefit and I was wondering how that trend has evolved.

Post Covid now and with maybe more hybrid work.

PFS pluses also factoring in given the inclusion of the platform and Black card now and any engagement metrics around that thanks.

Thank you.

Thanks sure. Thanks, John .

All final today comes from Paul Golding with Macquarie capsule, Paul Your line is open.

Yeah.

This is Chris we have.

The reciprocity is still the most used feature by far even with some of the work from home or hybrid approach, we haven't seen a huge falloff at all.

Yes.

Thanks, so much and congrats on the quarter I wanted to talk a bit more about what part of the past.

You've noted that reciprocity is the biggest benefit and I was wondering how that trend has evolved.

Reciprocity type thing.

Second most popular as the guest privileges.

Long seconds see Brad get free to work with you and all of that was a pretty relatively small whether it's hybrid.

Post Covid now.

It would be more hybrid work.

<unk> plus is also factoring in <unk>, given the inclusion of the platform and Black card now.

The hydro massage beds or or training or the digital usage of installed fairly small in that sense.

Other ones.

Engagement metrics around that thanks.

The reciprocity as well.

Black card amenity usage.

Yes.

This is Chris we have.

Reciprocity and guest really because it's definitely the most used by far.

The reciprocity is still the most used feature by far even with some of the work from home or a hybrid approach we haven't seen a huge falloff at all.

Hey, guys, sorry, it's all bundled so it's really hard to see what was driving the black card acquisition sale.

Is it the rest of <unk> digital.

The reciprocity type thing.

We don't think we have very few 599 digital subscribers, but interesting thing is the ones that do.

Second most popular guest privileges.

<unk> <unk> C. Brad guest free to work with you and also has a pretty relatively small whether it's hybrid.

More than half of them end up becoming a bricks and mortar after the fact so.

It was very few of them when they do it they end up being kind of a gateway into the bricks and mortar down the road. So it is converting people over but it's a very small number.

Hydro massage beds or <unk> or the digital usage of installed fairly small in that sense.

The other ones.

<unk>.

Property as well.

Got it and then in terms of the Amazon tailored offering is there any opportunity there that youre, taking advantage of the cross selling or cross marketing or are you getting any sort of media collateral from them.

Black card amenity usage.

Reciprocity and guest really is definitely the most used by far.

Hey, guys, sorry, it's all bundled so it's really hard to see what the what's driving the black card acquisition sale now is it the reciprocity raises the digital.

What are the opportunities there.

We don't think we have very few 599 digital subscribers, but the interesting thing is the ones that do.

Yes.

Last month, we can disclose in the public partnerships working but.

More than half of them end up becoming a bricks and mortar after the fact, so it's very.

They are really great to work with first off.

Very few of them when they do it they end up being kind of a gateway into the bricks and mortar down the road. So it is converting people over but it's a very small number.

And this is the beginning hopefully.

Goes well with the sales probably going to be the beginning of a lot of other stuff, we can do in the future with them.

In that sense.

Got it and then in terms of the Amazon Halo offering is there any opportunity. There that you are taking advantage of the cross selling or cross marketing or are you getting any sort of media collateral from them.

We haven't we haven't no one's really sold gym memberships on Amazon yet. So if there was a way to do that that would be something that would be pretty easy to understand but.

But we havent crossed that bridge at all but I think it's just the beginning of hopefully a long term relationship.

What are the opportunities there.

Granted that all goes well this year, but what's really good about it is if it does for them to work as you probably seen or no. We either do a dollar down or zero down during a promotion.

Yes.

Last month, we can disclose on the how the partnerships working but.

Really great to work with first off.

Where do you go from there right unless we pay interest we pay them to join us.

And this is the beginning hopefully.

Goes well with the sales probably going to be the beginning of a lot of other stuff, we can do in the future with them.

<unk> get any cheaper right at 10 Bucks a month, but I think when you start giving stuff away like this it is like paying them to join so I hope this could be the beginning of understanding and learning ways to drive volume otherwise other than just going to no enrollment fee.

We haven't we haven't no one's really sold gym memberships on Amazon yet. So if there was a way to do that there'll be something that'd be presumed to understand but.

But we havent crossed that bridge at all but I think it's just the beginning of hopefully a long term relationship.

Great Thanks for that Chris.

Thank you.

Granted that all goes well this year, but what's really good about it as it does for them to work as you probably seen or no. We either do a dollar down or zero down during a promotion.

Thanks for all the questions we have for today I'll now turn the call over to CEO , Chris Rondeau for concluding remarks.

Thanks, everybody for joining us today, and hopefully get to join US at the Investor Day next week and really excited to wrap up fourth quarter here at this Amazon Halo promotion goes times square kick off here for New year's Eve and.

Where do you go from there right unless we pay interest we pay them to join it is getting the getting any cheaper right at 10 Bucks a month, but I think when you start giving stuff away like this it is like paying them to join so hopefully it could be the beginning of understanding and learning ways to drive volume otherwise other than just going to no enrollment fee.

An uninterrupted great first quarter, so hope to see all that thank you.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.

Alright, thanks for that Chris.

Thank you.

Cytosorb questions, we have for today I'll now turn the call over to CEO , Chris Rondeau for concluding remarks.

And uninterrupted great first quarter, so hope to see all that thank you.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.

Right.

Yeah.

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