Q4 2022 Planet Fitness Inc Earnings Call

Ladies and gentlemen, welcome to the planet fitness fourth quarter earnings Conference call.

Name is granted now BT moderator for today's call.

You have any.

But a question for the Q&A questions. Please press star one on tackling keeps now.

I'll pass over to Stacey Caravella to begin Stacy. Please go ahead.

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.

Also joining us is Edwards, president and Chief operating officer.

They will all be available for questions during the Q&A session. Following the prepared remarks.

Today's call is being webcast live and recorded for replay.

Before I turn the call over to Chris I'd like to remind everyone that the language on forward looking statements included in our earnings release also applies to our comments made during the call.

Our release can be found on our website investor that planet fitness Dot com along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures.

Now I'll turn the call over to Chris.

Yeah.

Stacey and thank you everyone for joining us for the benefit is Q4 earnings call.

I'm proud of how we've continued to prove our systems resiliency and strength of our model.

<unk> offering and the passion of our franchisees all of which positions us to continue to succeed in an environment of increasing consumer prioritization of health and wellness.

Closing out 2022, we were very pleased with our record membership growth in the fourth quarter, which created great momentum coming into Q1 of this year.

Let me start with the two primary drivers behind this record growth.

First we had our new agency structure in place for the entire quarter with one agency handling our national advertising into agencies and partnering with our franchisees on a local level.

The fourth quarter was the first time, we had access to the ability to leverage our national and local media as we begin to optimize our marketing based on analytical findings and example of this is our newly implemented post the asset sale meeting with all three agencies to analyze results by region and franchise group to share best practices across our system.

Importantly, our franchisees are pleased with the level of service, they're getting from their agency partners and are confident with how our marketing investments are being executed at both national and local levels.

Second we continue to benefit from the increasing commitment to and interest in overall wellness coming out of the pandemic. Our members who originally agenda continue to visit more frequently which we believe is a sign that they are more dedicated to working yet.

We had a successful promotion in November where you received a free halo.

Amazon's fitness and health Tech, if you joined or upgraded to our black card membership. It also required a one year commitment, which should be a tailwind to our average tenure.

It was our most successful upgrade promotion to date with members trading up from our $10 classic membership as well as from our lower price Black card memberships to the new 24, 99, black our price to get the Halo.

We are working on an upcoming similar promotions and continue to explore possibilities to work with other well known brands who are in adjacent categories to the fitness industry. We believe that we are an attractive brand partner, given our size and scale and the diversity of our approximately 17 million members across gender age income and other attributes.

We ended the year with a national promotion letting consumers know that wasn't too late to join a gym in 2022 for those who made a new year's resolution.

Great momentum at the end of the year as we head into the first quarter during which we typically get 50% of our full year net membership gains pre pandemic.

Now to 2022 results.

We ended the year with approximately 17 million members as our brand appeal continues to attract many first time gym goers or people looking to get off the couch and restart their wellness journey with our affordable approachable non intimidating fitness environment.

We are thrilled to have increase our membership by $1 8 million last year. Despite softer mentioned growth in the first quarter due in part to OMA front.

Members did approximately 470 million workouts in our June 2022 up more than 20% over last year.

Nearly 40% of our members use our gyms and the 30 day period in 2022 up from mid 30% in 2021.

Cancellation rates were also slightly lower compared to pre COVID-19.

We also grew our store base to 2410 locations with the addition of 158, new stores, including 58, new stores in Q4.

Against the backdrop of an industry that is struggling to grow coming out of the pandemic.

We upgraded and enhanced our digital ecosystem with our recently relaunched PFF. We also added more perks, providing value to our members outside the four walls of the gym, even when they couldnt make it to the club in 2022, we offered discounts from brands such as cross Grubhub and shell in fact recent data show that 25% of our members who engage with our partners.

Platform hadn't visit the club and over three months.

During 2022, our appeal with younger generations continues to grow more than 9% of all Gen Z over the age of 15 in the U S are members of a planet fitness Mckinsey representing 25% of our total membership we.

We ended the year with all of the generations nearly back to or above pre pandemic penetration levels.

One of the highlights of the year was a successful HIFU surpass program. We ended 2022 with approximately 400000 people participants in their parents and Guardians had joined US paying members recruiting version rate of nearly 7% we continue to significantly outpace 2019 conversion rate.

The last time, we ran this similar program.

And we had a much bigger banks more than three five times of participation we had in 2019.

We believe the high school summer pattern is so important as we are helping teams established healthy habits, and we're building brand loyalty with them in New Hampshire. We've run this program for three years as it was a test market before the 2019 program.

11% of our teams in the state of New Hampshire are now members of planet fitness compared to 4% of all teams nationally.

We look forward to bring the program back in 2023.

Now to the future.

We along with our franchisees are very bullish on our growth prospects.

We are pleased with the recovery coming out of the pandemic. We ended 2022 with two 6 million members more than we had at the end of 2019, and we've opened 420 net new stores during that same period.

We are more than halfway through the first quarter of 2023, and so far is the first time in four years that Q1 has not been interrupted by Covid.

For the eighth year in a row, we were the presenting sponsor for the times square, New year's Eve event, which was back to high energy and so celebratory atmosphere. This kicked off our big fitness energy campaign and the campaign addresses the post workout positive feeling which we feature in our low E ads that have generated great consumer buzz.

Throughout 2022, we met with our top franchise groups and they are very encouraged by the recovery of their store portfolios with each quarter of positive membership growth. The top lines are recovering even more quickly aided by the black card price increase last year in the recent annual fee increase to $39 annually to $49.

We were recently recognized by <unk> magazine with placement as 'twenty overall on its franchise 500 list and number one in the fitness category.

Along with brand strength and growth metrics a primary consideration for the recognition is the relationship with our franchisees. We believe our historically strong relationship was further strengthened by working so closely together during the pandemic. It showed in that we didn't have one permits to a closure as a result of COVID-19.

One year ago, we acquired Sunshine fitness and doubled our corporate store portfolio to approximately 10% ownership of the system a level that we think is appropriate as it allows us to maintain the asset light nature of our business model Importantly, we now have a dedicated team leading our corporate stores that is focused on driving membership growth in black or percent.

We began to see the positive impact in our results in the second half of 2022, when our corporate store same store sales outpaced franchise into sales.

A few weeks ago, we welcome <unk> to our leadership team as our new President and Chief operating Officer. He is leading our primary business segments U S International franchise businesses.

Corporate stores and equipment sales is also overseeing our technology and legal functions. We believe Edwards skillset and franchise leadership will be instrumental in helping to accelerate our growth through existing and new geographies.

One of the stress test is to build a team to lead international ones.

Once that team is in place we believe that we will increase our pace of expansion internationally.

For 30 years, it's been our mission to make them successful and affordable for all and today more than 6% of all Americans will need to <unk>, our planet fitness members.

But we're not stopping there we believe we can double our membership given our historic ability to do so and the increasing penetration of group experience with each successive generation.

We also believe that the 4000 plus store opportunity in the U S is the floor not the ceiling given the significant industry consolidation caused by the pandemic.

We will be reevaluating this target with a third party this year.

We believe our purpose of enhancing People's lives and creating a healthier world sets us our franchisees and our shareholders up for long term success.

I'll now turn the call over to Tom.

Thanks, Chris and good morning, everyone. Overall, we feel good about where our business and our system is particularly given what has happened over the last three years. We believe that we are operating from a position of solid financial and balance sheet strength as we continue to breakdown fitness barriers for first timers and casual gym goers.

Our asset light highly franchised business model drove consistent and reliable growth last year, and we met or exceeded our financial targets.

Notably in 2022, we accomplished four things that I want to call out first.

We completed the acquisition of one of our largest and best performing franchisees second we closed a very successful refinancing and upsizing of our debt in an oversubscribed deal that resulted in a lower overall weighted average interest rate for our total fixed rate debt.

Third we repurchased one 5 million shares at an average price of approximately $62 per share for a total spend of approximately $94 million.

And fourth our board of directors approved a new $500 million share repurchase authorization that replaces the existing one from 2019.

Now I will cover our Q4 financial results and then we will address our operational and financial outlook for 2023.

All of my comments regarding our fourth quarter performance will be comparing the fourth quarter of 2022 to Q4 of 2021.

We opened 58, new stores during the quarter, bringing our full year total new store openings to 158 as Chris noted earlier, we had positive same store sales growth of 9.0% in the fourth quarter franchisee same store sales grew eight 8% and our corporate same store sales increased 11.0 <unk>.

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As a reminder, our same store sales for the Sunshine fitness franchise stores that we acquired in Q1 of 'twenty two will not be reflected in our corporate owned same store sales until we report first quarter results, but they will continue to be reflected in system wide same store sales consistent with how we've treated prior acquisitions.

Approximately 75% of our Q4 comp increase was driven by net member growth with the balance being rate growth.

Card penetration was 62, 5% down slightly from 62, 6% as a reminder, the black card price increase that we took in May was for new joins only so that should slowly began to drive up average monthly dues over time.

For the fourth quarter total revenue was $281 3 million compared to $183 6 million.

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

The 10% increase in franchise segment revenue was primarily due to an increase in royalties from same store sales growth and new stores as well as higher equipment placement and National AD Fund revenue.

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 those franchise segment to the corporate owned segment.

For the fourth quarter. The average royalty rate was six 5%, which was a six basis point increase to the prior year period.

The 123, 9% increase in revenue in the corporate owned store segment was primarily driven by the Sunshine fitness transaction as well as same store sales growth and new store openings.

Equipment segment revenue increased 56, 7% driven by higher equipment sales to existing and new franchisee owned stores for the quarter replacement equipment accounted for approximately 60% of total equipment revenue.

We completed 66, new store placements in Q4, and 153, new store placements for the year.

Our new store placements in franchise location is one less than we reported in early January .

Since that time, one store that received the equipment in late December we will not open as a new store due to an unresolved landlord disputes.

We regret this unforeseen circumstance that resulted in a slight variance to what we previously reported.

Our cost of revenue, which primarily relates to the cost of equipment sales to franchise owned stores amounted to $73 8 million compared to $47 4 million.

Store operations expense, which relates to our corporate owned store segment increased to $57 6 million from $28 6 million, primarily due to the additional stores from the Sunshine acquisition.

SG&A for the quarter was $28 7 million compared to $27 3 million.

Payroll costs, primarily drove this increase with the addition of the Sunshine fitness team as well as increased travel expenses.

National advertising fund expense was $15 7 million compared to $17 6 million.

We are rolling over the production costs associated with our Super Bowl AD last year, which drove the decrease net income was $36 3 million. Adjusted net income was $47 3 million and adjusted net income per diluted share was <unk> 53.

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

Adjusted EBITDA was $106 1 million and adjusted EBITDA margin was 37, 7% compared to $62 2 million with adjusted EBITDA margin of 33, 9% a reconciliation of adjusted EBITDA to GAAP net income can also be found in the earnings release.

As a reminder, as of the third quarter, we are no longer excluding preopening costs from our adjusted EBITDA in.

And the reconciliation youll find the prior year period restated, reflecting this change.

By segment franchise, adjusted EBITDA was $57 5 million and adjusted EBITDA margin was 66, 7%.

Corporate store adjusted EBITDA was $38 9 million and adjusted EBITDA margin was 38, 8%.

Equipment, adjusted EBITDA was $24 4 million and adjusted EBITDA margin was 25, 9%.

Now turning to the balance sheet.

As of December 31, 2022, we had total cash and cash equivalents of $472 5 million compared to $603 9 million on December 31, 2021, which included $62 7 million and $58 million of restricted cash respectively in each period.

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

Consisting of our four tranches of fixed rates securitized debt that carries a blended interest rate of approximately 4.0%.

Now to our 2023 outlook.

Our view for this year assumes there is no material resurgence of Covid that causes member disruptions, whether via shutdowns or more stringent mandates that result in a significant change in membership behaviors or any new significant supply chain disruptions.

First on store growth as I said at our Investor Day in November we expect to average 200, new stores per year over the next three years. However.

However, our 2023, new store openings will be below that as we still face some headwinds both of which had been factored into our 2023 outlook.

First.

HVAC availability and other supply chain issues continue to be a challenge for both corporate and franchise locations.

Second.

We've recently agreed to terms with one of our larger franchisees to defer the majority of their development obligations in the near term and lift their exclusivity from certain markets.

This will allow this franchisee to focus their cash flow on re equips and remodels.

Their existing fleet and service their debt.

While this group stores are profitable they had an aggressive capital structure in place that became tenuous when the pandemic hit.

This will be a drag on placements in 2023, but we are hopeful it will be offset somewhat by other developers in the system stepping up to build new clubs in those markets.

Therefore, we expect new equipment placements of approximately 160.

We expect that <unk> sales will make us between mid to high 50% of total equipment segment revenue.

As a reminder, these placements are only in franchised owned locations are net new stores for the year will include corporate owned stores.

We also expect systemwide same store sales growth to be in the high single digit percentage range.

All of the following targets reflect growth over fiscal 2022 results, we expect our full year revenue to grow in the 13% to 14% range.

We expect our full year adjusted EBITDA will grow in the 17% to 18% range. We expect our adjusted net income to increase in the 30% to 33% range.

And we expect adjusted earnings per share to grow in the 33% to 36% range.

We also expect shares outstanding to be approximately $89 5 million, which is inclusive of the repurchase of 1 million shares over the course of the year.

We repurchased approximately 300000 shares in January .

As we discussed at our Investor Day, We May also opportunistically buy more shares keeping in mind that we want to ensure that the pandemic impact is fully behind us.

We expect our net interest expense to be approximately $75 million.

Lastly, we expect capex to be up in the mid 30% range driven by additional stores in our corporate owned portfolio.

And DNA to be up in the mid teens percent range driven by the increase in Capex and a full year of Sunshine in our results.

As Chris noted earlier during our most recent franchise business reviews. In 2022, there was a lot of enthusiasm across our system to build new stores with each quarter of positive membership growth franchisees are more encouraged by the recovery of their store portfolios.

Additionally, last year's increase and the black card membership to $24 99, and the recent increase in annual fees to $49 will add approximately three to 400 basis points of margin to new stores as the vast majority of members and a new store will pay these higher rates.

With our disruptive brand and disciplined asset like franchise model. We believe that we are capitalizing on the greater importance that people are putting on their overall health and wellness to drive store and membership growth, which we believe translates into among the best franchisee margins and ROI.

We believe the supply will create sustainable long term value for our shareholders.

And with that I'll now turn it over to the operator for Q&A.

Right.

Thank you, ladies and gentlemen, if you would like to ask a question. Please press star followed by one telephone keypad now.

Maybe Pat you ask your question. Please ensure your mute locally.

Our first question comes from Charlotte's account from BMO capital markets. Simon Your line is now open.

Thanks, Hey, guys hope, you're all doing well and nice end to the year.

Thank you Jamie.

Okay.

Tom any more color just on that last point. The franchises you mentioned, maybe just how large they are expected growth from them, maybe have you seen others step in to the areas with lifted exclusivity or interest you've gotten around that.

And maybe just your comfort around this being a one off and then just any thoughts on that.

Broader SG&A dollars for next year as we think through some moving pieces within expenses. Thank you and then Chris I'd Love to.

Right at all on your comment about the opportunity to double members. That's obviously an exciting.

And therein press release, so anything there would be helpful. Thanks, guys.

Sure.

Hey, Simeon so in terms of the franchise E that we're talking about.

We're not disclosing who that is which is our typical practice for any reason.

And we think that.

It's that's the right approach, we think there may be some interest we were at the beginning of the beginning in terms of.

This process where their exclusivity.

Is no longer in place and a few of their markets and existing franchisees may want to take a bite at that and also there is quite a bit of interest from.

Former print a few.

A few former franchisees who are out of the system completely.

And who missed it frankly and want to get back and somehow someway and.

Maybe they are only entre to doing that on a smaller scale compared to maybe what they did previously so.

We've tried to factor all of that.

Into our outlook for the year on placements.

But that's the long and the short of that.

We collect.

Financial information from our franchisees.

A couple of times a year.

And also have discussions with our top franchisees and.

Based on all of that we believe this is an isolated situation.

Just based on a lot of circumstances that we're not going to get into but.

In terms of SG&A.

I think our outlook.

While we're not guiding to it is very consistent with what we talked about at Investor day.

Where we said over the three years, we expect very slight leverage in SG&A, we still have investments we want to make we want to we're in the process of building out an international team.

Drive accelerated growth there we're also making.

Additional investments in it.

So.

As well as the team. So we think this is very much a growth business, we want to support the growth in a prudent way.

And our.

Not looking for large basis point leverage from SG&A, it's more very very slight leverage.

So then Chris over to you I'm sure yes, Thanks, Amit I think when you look at our historical track records from the IPO. We had 1000 location at the IPO of about 7 million members and here. We are eight years later.

Arguably three years of the eight work, where COVID-19 right. So if that wasn't happening probably be faster, but here. We are now with 17 million members in 2000 to 100 locations.

And even if you go back before the IPO, when we partner with PSG to private equity company before.

We had about 600 stores in 2012 over 4 million members. So you can see the cadence of our growth.

And leading into a leading into coma, we had 53 straight quarters of positive comps and vast majority of it the member growth.

This year the same thing 22 full year, 11% same store sales at again vast majority of the member growth. So there is nothing pointing in any other direction other than why wouldn't that happen again.

We are very confident with the Gen Z.

Acceleration, we've been talking about and how they are joining that.

There are there are sign ups have been great the items from our patch tailwind as well as helping that out and then right behind them to Gen Alpha which will come into the mix of about another four five years. So there is no reason why we can't see us doubling once again.

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

Thank you. Thank you very much.

Thank you Simon.

With our next question comes from Marc clean coal from Comex.

<unk> from Cowen <unk> co. Your line is now open.

Hey, Good morning, guys. This is bradley on for Matt This morning.

Great results this quarter first I'd love if you can just discuss quickly.

Any.

Quarter to date learnings with the advertising rolling into January and then perhaps any early results from from January .

Yes, we're not sharing anything really from the current quarter, but I.

I do believe the large promotion we did at the end of December that.

That expired in the third and then we actually kicked off new year's Eve.

With the January sale, but actually on the 31st really I think helps carry the momentum from the December sale. So we're pleased with them.

Pizza hut momentum.

Playing out.

Best of luck.

Great. Thank you Brian .

Thank you Bradley.

We have our next question comes from John I kept <unk> partners, John Nice now open.

Hey, guys I'm Gonna start with Chris how do you think the seasonality has changed.

Versus 19, you know both in terms of you know fitness being more top of mind in highschool past being as important as it is right. Do you think you were a little less reliant on the one Q and that's you know three human particularly for queue will be bigger.

And then it also was part of that right. If you think about highschool pass right to seven per cent penetration.

You would think that would build over time right I'm not sure how it would build.

You know as you get people coming in a second third summer how do you think about that.

Yeah, I think you probably recalls when you're talking about the the.

The you know for for a few years, even before COVID-19 that the summer's weren't quite the drop off they were you know year many years ago right in that it wasn't just first quarter first quarter will will always be the biggest one naturally but.

[noise] ego 10, 15 years ago.

Summers, where we're very different in the yard today, where we still today at some net member growth during the summer months, which typically 10 10 15 years ago, we didn't so there's definitely a little less of that.

So I think that <unk> unusual.

Amusement solution thing is still there, but it's not quite about that as much as it's just about if it's your child to work out your time to work out.

And I think you're right I said from the past is hurting my opening remarks in New Hampshire, we rent is three years three years.

We have 11% of all Highschool League teams are members of planet naturally that's only 4%. So you could if you could.

Think about as we continued to roll this program out some rep to some rest of summer.

You have to imagine that you continue to penetrate Morris paying members of teens and get more members more high school is to give it a shot again, what's interesting too is this coming summer we did in 2019 and by the time, we relaunched this past summer.

Probably two thirds of those teams were already on high school by then so there wasn't a lot of teams that could repeat the the free summer again, so it will be interesting with the $300 million teams that did it last year.

Call. It you know the the 18 19 year olds are off to college Backfilled with the new 14, 15 years old, but there's going to be a big chunk of those.

The freshman sophomore and junior kids that are still going to do for the second time, they're going to speak to speak to different about joining them again, you know so hopefully we'll get more momentum Midsummer.

And then.

Secondly, just want international right when will that team in place how many countries do you think you'd go into this year, maybe next year.

Geographically right will Asia be the focus.

And then lastly, I assume that you have not been interested in Mfa's I assume you're still not.

John Thank thanks for the question. This is actually this is Edward.

And I've actually jumped in a bit on the international side already we're currently.

Definitely taking inventory on opportunities similarly accelerate in that space.

And looked and looked and geographies.

<unk> said in the past though.

Not really going to change that strategy in terms of of entering one to three markets per year, I don't see that changing not.

Not really interested in planning a crack just to do that we really want to grow from a strong foundation.

Established a real disciplined approach around that but just to let you know on that initial.

Initial read on Mexico, and Australia really performed well.

Been really happy also fails.

And.

The model is actually translating very very well in the markets outside the us so in the process of expanding that team working with them now and you'll be hearing more about that.

In the future.

And John Baby. Thank your last point.

We have interest in them.

Okay. Thank you.

And can Sean [noise].

With our next question comes from Brian <unk> moments Danny Bryant.

Elephant.

Yeah. Thank you good morning, guys.

Just doesn't kind of unit openings.

[noise] about this year and when I think about hopefully stepping up to 24 and 25 based on what you've said.

How much of that do you think will come from.

Some other franchisees filling in for this specific issue you called out.

How much of that is more just tied to like equipment availability in such how much of that do you think will be international I guess I'm trying to just kind of parse out.

What you think what kind of drive that step up in the subsequent years.

Yes, Brian it's Tom.

Start that so I think.

We still feel very good about what we said at Investor day that over the three years.

Worldwide, we feel very good about being able to average 200 plus per year across the three years.

And we said this year would have some headwinds.

So we didn't expect it to.

To be at that level.

We're altogether in November .

I think there are some headwinds costs are up that we talked about that they're up about 20%.

And typically franchisees would be ahead of their development obligations before COVID-19 not.

Not all of them, but a handful of them and we talked about.

If you take a couple of years before COVID-19, roughly 15% to 20% of the new new units were built ahead of their obligations.

And now with the situation we've got franchisees.

If they're ahead of their obligations as they sit here today with higher costs and it seems like inflation's coming down that they'll probably wait that out a little bit versus maintain their their.

They are more aggressive posture. Some some will go ahead and build obviously.

It's going into the ground.

But but somebody just take a bit of a wait and see approach and.

We've talked about and probably heard Chris say that if it was clear that the costs were going to remain where they are they probably just go ahead and pull the trigger because the returns are still great and I think there's also still a fair amount of interest outside the system to come in because if you look at multi unit world brands.

We still believe writ large or concept or model is far less impacted by inflation. We don't have all the things that go with incremental growth and you look at some of the some of the.

Food concepts. They may have low single digit same store sales, but they've got a lot of pricing and not a lot of.

Traffic growth our business is quite the opposite we've got 75% number growth driving the same store sales and the flow through there's no additional cost for every new member so the flow through is terrific.

So when you look at the absolute and relative returns the absolute and relative for wall economics.

We think there's still going to be a tremendous appetite within the system and those who want to get into the system to come in and grow the units.

But both of the U S and abroad, because the model works.

And the countries that we've expanded to beyond the us so we feel good about it.

We factored in all of US put some shakes into our outlook, but I think our model still stands as.

One of the best if not the best.

Economic propositions and.

And multi unit.

Opportunities.

Okay that sounds good.

Maybe just.

I know you upgraded the app.

Recently any anything you would say it is just about the new App is it kind of driven improves engagement is.

You have a lot of digital sign ups, but did that continue to go up.

Any comments on that.

Yeah, It's continued.

Continued to get more and more traction is no doubt that the digital furniture stay strong even when now with with.

The gym's open and people walking back and they're still just joining on the app and a lot of them or on the web into joining.

Well ahead of where they were pre COVID-19. So it's not it's not the old ways, where they would take a tour in touch and feel it and joined that actually joining now in the coming in as a as a.

As a member of tissue I think we just due to just.

Improve the flow through of using the App and the ease of use whether it's joining or is simply using perks are referring a friend or were checking the crowd meter. So it's more of that type of stuff referrals continue to get traction. The purse continued to get traction and as you heard him opening remarks, with finally being able to take the dead.

Capture the data, we're finding that out of the perks redemptions the ones that have 25% of them haven't been into the club and three months or more which you have you heard somebody from my last comments from previous call you. The one thing that we're we're thinking is it hoping is that.

The biggest reason for cancellation is just nonuse I am used equipment three months six months and I'm just going to cancel so we can provide value outside the four walls and even if there's not fitness related like crux was a huge huge huge plus for us. They just did like a million dollars approximately three months in the app. So.

And purchases so.

We don't provide value people will hold onto the membership just so they might have a chance to use it and.

We actually just flip the tipping point.

Out of old ones that use the Persian redeemed the savings that just chip turned up $10. So again general membership and you're buying stuff and all of a sudden you're saving amongst dues by by by your discounts. This is starting to add up it's a little bit like the AAA model.

Thank you.

Thank you Brian .

Our next question comes from Onyx Perry from Bank of America, Alex <unk>.

[noise] hi, Thanks for taking my question and congrats on a strong quarter.

Just first can you talk a little bit about how churn is Chinese versus pre COVID-19, especially given members are using the <unk> scene customers that are more sticky and then could you maybe just give us a little color on the rest of their how if customers have been receptive to the annual fee increase that you guys are implemented.

Thanks.

Sure Thank God.

The retention is just slightly better than pre COVID-19. So so it's a little bit more stickiness now.

Hard to really say exactly what's cause I think it's probably just maybe just more or less people pay attention and is more now.

And they were pre COVID-19, probably driving a lot of that which I think is also why they're probably working out more than they were pre COVID-19. So that's that's a good trend hopefully that continues.

Was there a lot of the annual.

Annual annual fee, Yeah, we tested that in about 400 500 clubs prequel cheap.

<unk> earlier earlier last year.

<unk> no change in retention or acquisition, which is why we decided to rule it out the middle of December so.

So it was great to see the see that.

That resolved for sure and then again to build.

Tom's point it certainly helps.

Helps profitability new stores as well I'll store does that convert over because you're getting new members going forward, but on a new bill that has cost a couple hundred thousand more of this just makes up for a pretty quickly.

That's really helpful. And then just my second question, maybe give us a little more color on the have a halo commercial impacted member growth in Black heart penetration and you mentioned you know maybe a similar upcoming promotion to just maybe give us some more color there and.

Hi, you're thinking about utilizing these promotions to drive remember garden this year.

Yeah, Yeah. It was it was a good promotion.

I think that.

Tricky thing with with our pricing is once we typically during a normal non promo you might have an enrollment fee, but we're happy right.

And during the promo will drop the enrollment fee.

But other than that there's no there's not many other places to go unless you pay somebody to join right. So.

If you don't run with the 1924, 9900, non-roman fee or a dollar down and 10 Bucks a month, but having a giveaway like this definitely creates a little bit more buzz, but also a little bit more.

Send them to want to join as opposed to just saving enrollment fee. So you're you're getting Ah you're getting two different things you get it wrong with being a a free $70 Halo.

For joining which is great and and the promo for new joins was good but it was really interesting and would never seen as with anything we've tried in the past is that people that we're upgrading their current membership dues to the new 24 99 to get the Halo. So 10 dollar memberships were doing it even even old black our members that were paying 1999 for for many many years where.

We're upgrading to the 2499 just for the Halo and signing any 12 month contract, which was really really something to see so.

Never really been able to influence upgrades, you've probably heard us talking about in the past where.

People come in they joined as a black I really joined as a white card and that's pretty much. It we very very seldom have any volume of people upgrading once you've already committed to join so it's interesting to see is finding something where tool that would get old members to to pay a higher price in the future.

Perfect. That's really helpful Best luck going forward.

Thanks, Thanks, Alex.

Thank goodness.

Our next question comes from Jonathan called some Jonathan Nice now open.

Yeah. Thank you good morning.

To ask about the membership trends, how you're thinking about the year.

I feel like the 20th [noise] excuse me 2022, and you added 1.8 million members for the year $1 million in Q1 O 22, that's despite.

On the crowd and then also not having your marketing in place for the full year or so just thinking through twenty-three is there any reason that you wouldn't.

Exceed those targets and then.

Could you just comment on the map expectations, where do you expect the revenue to more closely track expense for the year.

Yeah, Hey, John I'll start that in.

In terms of membership as you know we don't guide on membership.

But I think.

Just on what and we also stopped kind of our pandemic practice of talking about the current month. When we're doing the earnings cause we've sort of reverted back to our prepaid demick, but I think as Chris said, we felt really good about the record growth that we saw in queue for the momentum coming in the new year's Eve and carrying forward. So.

More to come on that on the next call in terms of nap.

Yeah, we expect.

Again, assuming there's no resurgence or something that goes haywire here, but we expect collections to equal.

Or spend here this year and actually nap in 22 was slightly favorable than what we had been projecting so.

But but we thought that those were the right investments to make from across the last three years, but.

As I said expect the expense of equal collection going forward.

Yeah, Great and then just one follow up thinking about the the margin benefit you outline for new units from the pricing.

Assuming that also benefits all stores.

2000, 2003, and 2024 is the pricing role then over time just.

How are you thinking about the right royalty rate. The next few years, given the the margin benefits and the membership recovery that you're seeing.

Sure drawbacks as Chris Yeah, I I think as.

As I said in the past you.

You know I I think it's COVID-19 never happened and our track record of same store sales was continuing to to just layer on top of it.

Three straight quarters of positive comps most of that member growth and as you know the flow through is about 84 cents to the bottom line because once you add an extra couple of hundred members doesn't change.

Plus I'm running that store that never happened we priority would've.

I think we as we still coming back from getting calls back to where they are pre pandemic margins and profitability.

Today about about reptile as degree we put a lesson about 30% of our clubs were at or above pre COVID-19 membership and now worried about 43 per cent. So we're in the right direction.

But the pricing is getting ahead of that so so as as they recover then it's probably a topic of conversation not just yet but again.

Coming year or two I think it's something that will probably have to consider.

Yeah, that's really helpful. Thank you.

Thank you Sir.

Thank you John .

We have our next question comes from <unk> from Raymond James Joey on my account.

Hey, guys. Good morning, I guess, the first question on the placement guidance.

What sort of Bacon in terms of the exact supply. Thank you wasting are you guys, assuming it gets better by midyear.

The comedic replacement can be similar to what we saw.

22.

Yeah, Hey, Joe It's Tom.

We have factored in what we think is the.

Is our best thinking on HVAC.

We still are not hearing anything.

Concrete from the large manufacturers we deal with.

In terms of when things get back to normal.

Or any closer to what we experienced before in terms of the lead times.

We have worked to try to secure more production for us.

So, but I think overall, we're we're assuming it's more of the same and I think our cadence in terms of the quarterly.

Italy openings is not dissimilar to what we have historically.

Got it and maybe just to follow up on that.

The Black car penetration you mentioned it was down slightly what's been the historical experience what you do raise black quite pricey.

Take a step back and then maybe a couple of months later start to grow again.

Yes, historically, yes, it would come back slightly and then later you wouldn't even know it happened and it's getting traction again.

We see this pullback we tested this and who few hundred stores with no pullback. This one this pullback is really mostly driven from two things one is the high school summer pass and the teams that are joining.

Generally join not black card, which is putting pressure on it as well as such a strong.

Record fourth quarter growth, which is all promotional driven definitely.

Pushes her down as well, although one was a black car, but the December .

December was a white.

Remember growth is great, but it definitely was a little bit of pressure on that but.

But that's the only reason I think it wasn't necessarily the pricing that drove it down as more just the volume with members.

Got it okay. Thanks.

Thank you.

Thank you Joe.

With our next question comes from <unk> from J P. Morgan, who was the ninth Olson.

Hi, guys. Thanks for taking my question.

There's a small diet.

Towards your.

It's good seeing you at ICR.

Giving me are like two months into the automatically just under 12 months entry level on clearly our wedding multiple hearts, leading most of the segments out there what do you see other current priorities are there do you want to focus on the medium.

To get more comfortable integral on where do you think you'll see the most opportunity.

Okay. Thank thanks for the question and then great great to talk to you again.

[noise] like I'm I'm.

In the role.

A little bit over 30 days now right and very happy that I joined the planet fitness team I mean, the the business model Christian and the team put together.

Credible and the more I learned about it the more excited I got about it.

I'm really excited about the future because although we're an industry leader of course I believe we're just getting kind of warmed up and that's one of my main priorities as in the growth side and I mentioned earlier taken inventory around what are those opportunities are to really grow both domestically and internationally.

As well so is Chris explaining I'm responsible for the primary business segments, and including U S and international franchise business as a corporate stores and equipment sales as well as technology and and legal functions as well. So I really spent my first few weeks.

And listening mode, and engaging with as many stakeholders as possible, including franchisees and that's that's really helped me to kind of take that inventory and.

Putting that plan together really focus on on the growth space, which I'm really excited about.

Thanks for that Tom This is probably better for you in terms of thinking about franchise <unk> I mean pre COVID-19 betrayed like closer to I think mid eighties, almost like how how should I think about like going forward.

Given all the changes to the systems within franchisees and then also as we move towards like building more international store. So what time, probably more of a medium to longer range. How do you see this is checking out.

Yeah, well I think you're talking about for the franchise segment and I think where we see the margin today is kind of where we think there'll be given the.

The investments, we're making an in the segment and the Resourcing.

And I think the Christmas point over time, as we see that there may be opportunities to raise the royalty rate that will certainly help but.

I think I think what you've seen here in the last little while is especially on and adjusted basis is more indicative of where we see it going forward.

Once you adjust out the naff.

The nap discrepancy there. So if you if you equalize the nap to be.

Not not an investment, but we're collections and.

Spend equalize then that's a more predictable margin going forward. That's the one big adjustment you have to make their role.

That sense of time, thank you.

Mmm.

Thank you.

Our next question comes from Crystal Cove from Steve <unk>.

Crystalize now.

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

I wanted to touch on the mix of company development for this year. I mean, you are obviously planning to increase capex spend and that would seem to imply company store openings would accelerate relative to history, but I was hoping you could frame that out a little bit more so we just think through what that.

That additional investment could look like in terms of corporate store unit growth relative to maybe the pace you've held in the past.

Yeah, Hey, Patrick it's Tom So I think we opened 14, new corporate stores this year.

And I think.

You could.

We don't typically guide on that I think we expect to be in the same range.

May be up a little bit from that for 2003, and I think now with Jen we had.

We had some transition there and I think now with Jen Simmons.

Who ran strategy working with Chris for a number of years now and the role and.

Really focused on that growth we are.

We're very bullish on the on the opportunities that we've seen so far and want to enhance the pipeline to really crank that up.

The margins that we've talked about that were that were very attractive or.

The territory's that Sunshine operated mostly in the southeast.

We're seeing that come through on the new opportunities that we see but also as Chris alluded to with with the.

On previous calls with the practices that the marketing team in the broader team that Sunshine had.

Get cascaded into our legacy markets, we're seeing accelerated growth and for the first time as you know where.

Those stores are leading the system versus they typically trail the system given they were a higher mix. It more mature store. So we think the opportunities are out there both in the legacy markets for new opportunities as well as the newly acquired territory. So it's a matter of.

Putting the reasons, putting additional resources, which we are against that.

Against.

Against the development opportunities that we see so we expect that number will likely be higher in the future.

Great. That's helpful and that was actually a great segue and then my second question, which is you guys had mentioned the.

The focus of the team a couple of times in terms of driving the corporate store same store sales performance I was curious what are the things that are happening today that it may be weren't happening previously and what's really driving that result, and then on the margin side for the company stores can you give us a sense of.

What percent of the corporate store portfolio has recaptured their pre COVID-19 membership levels may be relative to that overall system average and how should we be thinking about the opportunity for corporate store margin performance and twenty-three may be fully recapture at some point in the year 2019 margin levels are you still see that being.

A slower build that maybe pushes out even into 2024.

Hey, Chris. This is pretzel started then all handled with Tom the.

A lot of the same store sales.

Benefit I think we're seeing that is really much more disciplined approach.

And cadence to the marketing of the legacy stores that wasn't flight in place and you may recall like our our corporate stores.

He didn't really have a dedicated team they were tapping into our marketing team who also services. The franchisees was tapping into the development team who was also working for the franchisee. So now they have their own development people their own marketing people I think it just more disciplined approach, which is helping and also some operational and and I guess, some gamification or <unk>.

A petition amongst staff in different club locations outperform whether it's blackheart upgrades or we're closing percentages or or things like that so I think it just got in the team more.

I guess jazz about.

Service in the customer and the joins coming through to get them to to choose better membership. So it's I think it's a little bit of that from an option also disciplined marketing approach.

And so the margin question.

Yes, Patrick.

We don't guide on segment margins, but I think you might be just to talk about it more generally.

The corporate store portfolio isn't too far off from where the system is in terms of recovery to pre COVID-19 levels, and it's a little bit different between the legacy markets in the Sunshine markets.

Given the legacy markets were hit harder during some of the mandates temporary closures, but.

I think the way to think about it as if you are looking at the 2019 March and that was for corporate stores. Those those were all legacy stores and now we're mixing in the Sunshine stores.

Which had more store growth and more ramping store, so there's a bit of a nick on that but overall as you say.

At the time of the transaction when we when we were talking about it the mature stores that Sunshine had generally where.

6% to 700 basis points higher formal margin then.

Mature market sorry, the mature.

Stores in our legacy market, so there's kind of an averaging effect there.

We don't want to really predict the timing of when.

When we cross that threshold, so to speak but I think that mix impact will be important as well as the pricing impacts both on the black card and the.

And the annual fees as more of those new members further into the mix that will certainly boost the margin, but I think what we don't want to lose sight of either as we are predicting high single digit same store sales growth 75.

Q for like history.

Splayed out historically three quarters of that growth is number growth and we expect that to continue back to the opportunity to over time to double membership. So it's very healthy growth and the flow through is just incredible which.

Remember growth from the same store sales and even.

Accelerated by the pricing actions, we've taken so I think good news ahead for corporate store margins as well as our franchisees obviously.

Great. Thanks, guys.

Okay. Thank you. Thank you.

Thank you.

We have our next question comes from Ryan I'm Jeffrey <unk> now.

Hi, Yeah. Thanks for taking my question. This is Ryan on for Randy. This morning, given the strong growth in the in the millennium penetration just curious if you could provide your thoughts around how consumers.

Shifting our focus towards strength training to impact performance and retention.

Really are you thinking about maybe re maxine.

The equipment proportions at franchises.

Yeah. It's a good question and it's actually something we have already begun to do we have seen ever since COVID-19 in the increase in our member base of <unk> and the millennials commuting to grow as they have been in the past, but James.

<unk> and our our second largest part of a member base and it was.

One of our smallest pre COVID-19 so.

What we have witnessed that is less minutes spent on cardio to pre COVID-19 and most of it says they're doing weight training and it's more functional stuff and that type of Trs medicine ball stuff. So we have begun and we've worked with a couple of universities too.

See the workout habits of college age.

Kids and then also what we've witnessed in our own stores and begun to fine tune some of that so it's a slight decrease in cardio and more Jim space for functional training and some kettlebells type stuff things like that so we already have begun to do that.

To adapt to the growing population of our clubs that are the younger.

Great. Thank you [laughter].

[laughter].

So that's very welcome.

Thank you Brian .

With our last question comes from Linda posted a link sent from Davidson into your life now open.

Hi, Uhm I was curious just about the comment you made about increase and I think it was opening cost.

Now versus pre Covid I think you said 20 per cent higher is that primarily equipment cost or or something else or can you just give a little more color around like that number and what goes into that.

Yeah, Hey, Linda it's Tom Yeah, I think it's consistent with what we've talked about on prior calls an it investor day, that's roughly 20% and.

And we did we also talked about we had passed along some price increases from our equipment vendors.

Low double digit price increases.

Based on the inflation they were seeing and had not changed the price for awhile.

And we pass that along and maintained our margin rates on that.

So.

That's a part of the increase.

But I think we're also seeing it of course it depends on the market.

There was also inflationary pressure on some of the materials rate the steel in the concrete and whatnot and Thats ebbed and flowed depending on the on the commodity.

But I think also the general contractor.

Expenses again, depending on the market and the tightness of of their labor and supply and demand as also caused an increase in when you roll it all together.

That's been the 20% or so increase when I was referring to earlier about.

Our model has lots of of inflationary impact, we're not serving food, we're not selling apparel, we're not doing things that that that has seen price increases it's really the price increases that we've seen or the inflationary pressures has been in the cost and.

And the wages, which are largely behind us they spiked.

Quite a bit in 2021 and part of 22, but we've seen that moderate so it goes back to.

The margins and returns compared to other concepts.

Our motto is far less impacted by some of those things, but definitely the cost of construction stuff about 20 per cent. So hopefully that answers your question.

Yes, thank you very much.

Okay. Thanks.

Thank you Linda.

<unk> <unk> <unk> <unk> <unk> <unk>.

Oh closing remarks.

Thank you <unk>.

Really really pleased with our strong wrap up for 2022 of the record fourth quarter. It was great I was actually at the time square event in years, even to see a few times square back to normal and and a kick off our January Sierra won't carry the momentum forward really excited to this year with the new continue with the blackout price 2049, and the annual fee income.

<unk>, which I think is really gonna be beneficial in great to see the price elasticity that we have and continue to have an.

Re re kicking off slices from a past few months so.

I'm good all the news and good trends ahead. So thanks for joining the call today and look forward to speaking again.

Thank you.

Okay and what this concludes today's call. Thank you for Toning you may now disconnect your lines.

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