Q1 2024 Planet Fitness Inc Earnings Call

Krista: Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Planet Fitness first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise.

Thank you for standing by my name is Krista and I will be your conference operator today at this time I would like to welcome everyone to the planet Fitness first quarter 2024 earnings conference call.

Krista: All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw that question again press star one. Thank you I will now.

Krista: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw that question, again, press star one. Thank you. I will now turn the conference over to Stacey Caravella, Vice President of Investor Relations. Stacey, you may begin your presentation.

Krista: Turn the conference over to Stacey Caravella, Vice President of Investor Relations Stacy you May begin your conference.

Stacey Caravella: Thank you, operator, and good morning everyone. Speaking on today's call will be Interim Planet Fitness Chief Executive Officer Craig Benson and Chief Financial Officer Tom Fitzgerald. Both will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. Before I turn the call over to Craig, I'd like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during this call. Our release can be found on our investor website along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Now, I will turn the call over to Craig.

Stacey Caravella: Thank you operator, and good morning, everyone speaking on today's call will be interim planet fitness, Chief Executive Officer, Craig Benson and Chief Financial Officer, Tom Fitzgerald, both will be available for questions. During the Q&A session. Following the prepared remarks.

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

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

Thomas J. Fitzgerald: Our release can be found on our Investor website, along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures.

Thomas J. Fitzgerald: Now I will turn the call over to Craig.

Craig R. Benson: Thank you, Stacey, and thank you, everyone, for joining us for the Planet Fitness Q1 earnings call. We ended the first quarter of 2024 with approximately 19.6 million members, same store sales growth of 6.2% primarily driven by new members, and nearly 18% adjusted EBITDA. Our system opened 25 new units and ended the quarter with 2,599 Planet Fitness locations worldwide.

Craig R. Benson: Thank you Stacy and thank you everyone for joining us for the planet fitness Q1 earnings call.

Craig R. Benson: We ended the first quarter of 2024 with approximately $19 6 million members same store sales growth of six 2%, primarily driven by new member growth and nearly 18% adjusted EBITDA growth.

Craig R. Benson: Our system opened 25, new units and ended the quarter.

Craig R. Benson: 199 planet fitness locations globally.

Craig R. Benson: Today, I'm going to address three things. First, the headwinds that we faced in the first quarter that impacted our results. Second, our decision to raise the classic card price. And third, the exciting announcement about our new CEO, Colleen Keating, who joins us on June 10th.

Speaker Change: Today, I'm going to address three topics.

Speaker Change: First the headwinds that we faced in the first quarter that impacted our results.

Speaker Change: Our decision to raise the classic card price and third the exciting announcement about our new CEO Colleen Keating, who joined US on June 10.

Speaker Change: Yeah.

Craig R. Benson: The increase of approximately 900,000 net new members in the first quarter was below our expectations for what has historically been our highest net growth quarter pre-pandemic. The year began with national media headlines about the rising cases of COVID as well as RSV and other respiratory infections that may have made people hesitant to go to public places, including gyms, especially in the first half of January. In the typical January, fitness or gyms are among the top search internet items; this year, while they were still among the top search items, both flu and savings-related items were even higher.

Speaker Change: The increase of approximately 900000 net new members in the first quarter was below our expectations for what has historically been our highest net growth quarter pre pandemic.

Craig R. Benson: Additionally, an industry source noted that many brands in the fitness industry experienced a similar soft beginning of the year. We also had double-digit decreases in our website traffic. While we continue to see more than 80% of our joins come via online channels during the quarter, we had fewer people visiting our website to potentially join Planet Fitness. Usage, which historically correlates with membership trends, was the same on a quarterly basis year over year.

Speaker Change: The year began with national media headlines about the rising cases of Covid as well as RSV and other respiratory infections.

Speaker Change: That may have made people hesitant to go to public places, including gyms, especially in the first half of January.

Speaker Change: <unk> January fitness or gyms are among the top search internet items.

Speaker Change: This year, while there is still among the top search items, both flu and savings related items for even higher.

Speaker Change: Additionally, an industry source noted that many brands in the fitness industry experienced a similar soft beginning of the year.

Speaker Change: We also had double digit decreases in our website traffic.

Speaker Change: We continue to see more than 80% of our chileans come by online channels. During the quarter, we had fewer people visiting our web site to potentially joined planet fitness.

Speaker Change: Usage, which historically correlates with joined trends.

Speaker Change: Was the same on a quarterly basis year over year. However, it was down significantly in the first couple of weeks of January during the peak of our join fees.

Craig R. Benson: However, it was down significantly in the first couple of weeks of January during the peak of our joint season. We also believe that a contributing factor to our lower neck joint sales in Q1 versus last year was the effectiveness of our advertising campaign. We believe that this is due in part to the messaging not responding as broadly as we anticipated, as well as our strategic decision to not include price-pointed offers as part of our nationally funded portion of the advertising.

Speaker Change: We also believe that a contributing factor to our lower net joints in Q1 versus last year was the effectiveness of our advertising campaign.

Speaker Change: We believe that this was due in part to the messaging not resonating as broadly as we anticipated as well as our strategic decision to not include price pointed offers as part of our nationally funded portion of the advertising.

Craig R. Benson: We made this decision because we were conducting pricing tests in several markets to inform our pricing strategy going forward. In a study that we commissioned to assess our first quarter campaign, consideration of Planet Fitness is trending upward and is the highest it's been in years. However, the lack of a price point in our national funded January sale ads may have created less urgency for consumers to get off the couch and join. To a far lesser degree, the first quarter softness also derived from a reaction to an incident regarding our non-discrimination policy. The isolated incident took place on March 11th in an Alaskan gym.

Speaker Change: We made this decision because we are conducting pricing tests in several markets to inform our pricing strategy going forward.

Speaker Change: In a study that we commissioned to assess our first quarter campaign consideration of planet fitness is trending upwards.

Speaker Change: Is the highest it's been in years however.

Speaker Change: Lack of a price point and our national funded January shale edge may have created less urgency for consumers to get off the couch and joy.

Craig R. Benson: Media mentions relating to the incident peaked in the middle of March, which we believe contributed to some of the softness we saw in joints for the balance of the month as well as some increase in QI. This policy has been in place for more than a decade and is not dissimilar from other industry peers, including longtime brands such as the YMCA. As a result of these headwinds we faced in Q1, we are updating our 2024 guidance targets, which Tom will cover.

Speaker Change: To a far lesser degree in the first quarter softness also derived from a reaction to an incident regarding on nondiscrimination policy.

The isolated incident took place on March 11, and in Alaska Jim.

Speaker Change: Media mentions relating to the incident Pete in the middle of March which.

Speaker Change: Which we believe contributed some of the softness we saw enjoins for the balance of the month as well as some increase in cancels.

Speaker Change: This policy has been in place for more than a decade and is not dissimilar from other industry peers, including longtime brands such as the land.

Speaker Change: As a result of these headwinds we faced in Q1, we are updating our 2024 guidance targets to which Tom will cover.

Craig R. Benson: Now to Operation P. Last fall, we started testing two price points for the Classic Card. $15 and $12.99 in about a hundred stores each. Both reverted back to $10 during the national sale period, and the advertising in those markets communicated a call to action, with an explicit saving in monthly dues to join before the sale expired. We added an additional test in December to include the New York DMA, where we kept the price at $14.99 regardless of a national sale.

Thomas J. Fitzgerald: Now to our pricing tests.

Thomas J. Fitzgerald: Last fall, we started testing two price points for the classic car <unk>.

Thomas J. Fitzgerald: <unk> 15, and a $12 99, and about 100 stores each.

Thomas J. Fitzgerald: Both reverted back to $10 during the national sale periods and the advertising in those markets communicated a call to action.

Thomas J. Fitzgerald: With an explicit saving and monthly dues to join before the sale expires, we add an additional test in December to include the New York DMA, where we kept the price at $14 99, regardless of a national sale.

Craig R. Benson: We continue to run these tests through April. We use a disciplined, data-driven approach to determine the best balance between the higher dues while minimizing loss of membership. Based on our learnings, we decided to change the price of the classic card to $15. It drove the most significant increase to average unit volumes with the least impact to the rate of joint.

Thomas J. Fitzgerald: We continue to run these tests through the April sale.

Thomas J. Fitzgerald: Disciplined data driven approach to determine the best balance between the higher dues, while minimizing loss of membership.

Thomas J. Fitzgerald: Based on our learnings, we decided to change the price of the classic card to $15.

Thomas J. Fitzgerald: It drove the most significant increase to average unit volumes with the least impact to the rate of joins the.

Craig R. Benson: The increase will be effective this summer only for new members. We continue to test different promotional strategies, as I believe a good portion of our focus on innovation includes exploring pricing and amenities. To that end, we'll be starting black card price tests around the time the system migrates to the new classic card price. Tom will address more specifics on the rollout of the classic card price. Finally, we announced in April that Colleen Keating will be joining us as CEO next month.

Thomas J. Fitzgerald: The increase will be effective this summer only for new members.

Thomas J. Fitzgerald: We continue to test different promotional strategies as I believe a good portion of our focus on innovation includes exploring pricing and amenities to that and we'll be starting black card price tests around the time the system migration to the new classic card price.

Thomas J. Fitzgerald: Tom will address more specifics on the rollout of the classic card price increase.

Craig R. Benson: Her appointment follows a thorough, extensive search process conducted by the board, and we could not be more thrilled to welcome her to Planet Fitness. She brings over three decades of experience in hospitality and real estate, as well as expertise in operations, franchise, and brand management, and leading consumer-facing organizations. She's excited to join an industry leader that has a significant runway for even further growth, both domestically and internationally, and she's eager to get started.

Thomas J. Fitzgerald: Finally, we announced in April that calling Keating will be joining us as CEO next month, our appointment follows a thorough extensive search process conducted by the board and we could not be more thrilled to welcome her to planet fitness.

Thomas J. Fitzgerald: She brings over three decades of experience across hospitality and real estate as well as expertise in operations franchise and brand management and leading consumer facing organizations.

Thomas J. Fitzgerald: She is excited to join an industry leader this had significant runway for even further growth.

Thomas J. Fitzgerald: Both domestically and internationally and she is eager to get started.

Craig R. Benson: I will work closely with Colleen and the management team to ensure a seamless transition. Now for a quick update on our CFO search. The search is well underway. We have interviewed and are considering a number of promising candidates. Colleen will become involved with the process once she officially starts with us in June.

Thomas J. Fitzgerald: I will work closely with choline and the management team to ensure a seamless transition.

Thomas J. Fitzgerald: Now for a quick update on our CFO search the search is well underway. We have interviewed and are considering a number of promising candidates Colleen will become involved with the process. Once you officially starts us in June.

Thomas J. Fitzgerald: Finally, last week I had the opportunity to address our franchisee community at their annual conference in New Orleans. We had great conversations around new initiatives, including building clubs for smaller markets, which we kicked off a few months ago. We also discussed how we're ahead of schedule to reduce new unit and remodel build costs by at least 10% before the end of the year. Other aspects of the new growth model were part of the discussions, which led to a real sense of excitement about a greater return on their investment and our long-term store growth opportunity.

Thomas J. Fitzgerald: Finally last week I had the opportunity to address our franchisee community at their annual conference in New Orleans.

Thomas J. Fitzgerald: We had great conversations around new initiatives, including building clubs for smaller markets, which we kicked off a few months ago.

Thomas J. Fitzgerald: We also discussed how we're ahead of schedule to reduce new units and remodel build costs by at least 10% before the end of the year.

Thomas J. Fitzgerald: Other aspects of the new growth model, where part of the discussions with led to a real sense of excitement.

Thomas J. Fitzgerald: About a greater return on their investment.

Thomas J. Fitzgerald: Long term store growth opportunity.

Thomas J. Fitzgerald: I am grateful to have had the opportunity to serve as interim CEO, especially during a period in which we put in place a number of initiatives that we believe will support the company's long-term growth. I also look forward to returning to my role as a board member and a franchisee with an even greater appreciation for the Planet Fitness brand, our members, our franchisees, our leadership team, and our shareholders. Now I'll turn it over to you.

I am grateful to have had the opportunity to serve as interim CEO, especially during a period in which we put in place a number of initiatives that we believe will support the company's long term growth trajectory.

Thomas J. Fitzgerald: I also look forward to returning to my role as.

Speaker Change: As a board member and a franchisee with an even greater appreciation.

Speaker Change: <unk> for the planet fitness brand our members our franchisees our leadership team and our shareholders now.

Speaker Change: Now I'll turn it over to Tom.

Thomas J. Fitzgerald: Thanks, Craig. Before I get to our first quarter results, I'd like to cover our upcoming Classic Card price increase as well as our plans to explore refinancing a portion of our debt this year. As we said previously, we've been working on a number of initiatives to further improve our already strong store economics and new store returns. Our new franchisee growth model, which we unveiled in Q3 of last year, is primarily focused on reducing the capital requirements for opening and operating a Planet Fitness franchise location.

Thomas J. Fitzgerald: Thanks, Craig before I get to our first quarter results I'd like to cover our upcoming classic card price increase as well as our plans to explore refinancing a portion of our debt this year.

Thomas J. Fitzgerald: As we said previously we've been working on a number of initiatives to further improve our already strong store economics and new store returns.

Thomas J. Fitzgerald: Our new franchisee growth model that we unveiled in Q3 of last year is primarily focused on reducing the capital requirements for opening and operating a planet fitness franchise location.

Thomas J. Fitzgerald: For the past several months, we've had three different groups of stores testing three different prices for our Classic Card membership. Based on those test results, we have decided to increase the price from $10 to $15 to further enhance the average unit volumes for our store. Our Classic Card membership has been priced at $10 since 1998, which based on inflation would be about 20 bucks in today's dollars. As Craig noted, the price increase will go into effect this summer. Only new members who join after it goes into effect will pay $15 for a monthly membership fee.

Thomas J. Fitzgerald: For the past several months, we've had three different groups of stores testing three different prices for our classic card membership.

Thomas J. Fitzgerald: Based on those test results, we have decided to increase the price from $10 to $15 to further enhance the average unit volumes for our stores.

Thomas J. Fitzgerald: Our classic card membership has been priced at $10 since 1998.

Thomas J. Fitzgerald: Which based on inflation would be about 20 bucks in today's dollars.

Thomas J. Fitzgerald: As Craig noted the price increase will go into effect. This summer only new members, who joined after it goes into effect will pay $15 for a monthly membership fee.

Thomas J. Fitzgerald: Current Classic Card members will continue to pay $10 for the duration of their membership. It will take some time for the benefit of the price change to expand our store-level margins as the price increase will only be on new Classic Card memberships. Additionally, more than 60% of our members join as Black Card members. Now to our desk.

Thomas J. Fitzgerald: Current classic card members will continue to pay $10 for the duration of their membership.

Thomas J. Fitzgerald: It will take some time for the benefit of the price change to expand our store level margins as the price increase will only be on new classic card memberships. Additionally, more than 60% of our members join as Black card member.

Thomas J. Fitzgerald: Now to our debt.

Thomas J. Fitzgerald: We have a tranche of debt of approximately $600 million that comes due in September of 2025, which we anticipate refinancing in the middle of this year, subject to overall market conditions. Based on forecasted interest rates, we believe our overall weighted average interest rate for all of our debt would still be below 5% when we refinance that tranche. Now to our first quarter results and our revised 2024 outlook. All of my comments regarding our quarter performance will be comparing Q1 2024 to Q1 of last year, unless otherwise noted.

Thomas J. Fitzgerald: We have a tranche of debt of approximately $600 million that comes due in September of 2025, which we anticipate refinancing in the middle of this year subject to overall market conditions.

Thomas J. Fitzgerald: Based on forecasted interest rates, we believe our overall weighted average interest rate for all of our debt would still be below 5% when we refinance that tranche.

Thomas J. Fitzgerald: Now to our first quarter results and our revised 2020 for outlook.

Thomas J. Fitzgerald: All of my comments regarding our quarter performance will be comparing Q1 2024 to Q1 of last year unless otherwise noted.

Thomas J. Fitzgerald: We opened 25 new stores compared to 36. We delivered system-wide same-store sales growth of 6.2% in the first quarter. Franchisee same-store sales growth increased 6.3%, and corporate same-store sales increased 6.2%. Approximately 70% of our Q1 comp increase was driven by net member growth, with the balance being rate growth. Black Card Penetration was 62.1%, an increase of 10 bases.

Thomas J. Fitzgerald: We opened 25, new stores compared to 36.

Thomas J. Fitzgerald: We delivered system wide same store sales growth of six 2% in the first quarter.

Thomas J. Fitzgerald: Franchisee same store sales growth increased six 3% and corporate same store sales increased six 2%.

Thomas J. Fitzgerald: Approximately 70% of our Q1 comp increase was driven by net member growth with the balance being rate growth.

Thomas J. Fitzgerald: Black card penetration was 62, 1% an increase of 10 basis points.

Thomas J. Fitzgerald: For the first quarter, total revenue was $248.0 million compared to $222.2 million. The increase was driven by revenue growth across the franchise and corporate-owned sectors. The 12.2% increase in franchise segment revenue was primarily due to increases in royalties, new stores, and ad fund revenue. For the first quarter, the average royalty rate was 6.6%, up from 6.5%.

Thomas J. Fitzgerald: For the first quarter total revenue was 248.0 million compared to $222 2 million.

Thomas J. Fitzgerald: The increase was driven by revenue growth across the franchise and corporate owned segments.

Thomas J. Fitzgerald: The 12, 2% increase in franchise segment revenue was primarily due to increases in royalties new stores and AD fund revenue.

Thomas J. Fitzgerald: For the first quarter the average royalty rate was six 6% up from six 5%.

Thomas J. Fitzgerald: The 15.6% increase in revenue in the corporate owned store segment was primarily driven by the same store sales growth, as well as new and acquired stores. However, equipment segment revenue decreased 8.6%. The decrease was primarily driven by lower revenue from equipment sales to new and existing franchisee-owned stores, which was driven by fewer new store placements, as well as the shift to more strength equipment versus cardio. As we noted last quarter, the shift in the equipment mix brings down overall sales on a per store basis. We completed 14 new store placements this quarter, compared to 18 last year.

Thomas J. Fitzgerald: The 15, 6% increase in revenue in the corporate owned store segment was primarily driven by the same store sales growth as well as new and acquired stores equipment.

Thomas J. Fitzgerald: Equipment segment revenue decreased eight 6%.

Thomas J. Fitzgerald: Decrease was primarily driven by lower revenue from equipment sales to new and existing franchisee owned stores.

Thomas J. Fitzgerald: Which was driven by fewer new store placements as well as the shift to more strength equipment versus cardio.

Thomas J. Fitzgerald: As we noted last quarter the shift in the equipment mix brings down overall sales on a per store basis.

Thomas J. Fitzgerald: We completed 14, new store placements this quarter compared to <unk> 18 last year for.

Thomas J. Fitzgerald: For the quarter, replacement equipment accounted for 59% of total equipment revenue compared to 58%. Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee-owned stores, amounted to $19.0 million compared to $19.4 million. Store operation expenses, which relate to our corporate-owned store segment, increased to $74.4 million from $66.0 million due primarily to new stores opened or acquired. SG&A for the quarter was $29.2 million compared to $27.8 million.

Thomas J. Fitzgerald: For the quarter replacement equipment accounted for 59% of total equipment revenue compared to 58%.

Thomas J. Fitzgerald: Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee owned stores amounted to 19.0 million compared to $19 4 million.

Thomas J. Fitzgerald: Store operation expenses, which relate to our corporate owned store segment.

Thomas J. Fitzgerald: Increased to $74 4 million from 66.0 million due primarily to new stores opened or acquired.

Thomas J. Fitzgerald: SG&A for the quarter was $29 2 million compared to $27 8 million.

Thomas J. Fitzgerald: Adjusted SG&A was $27.3 million. This includes a $1.6 million adjustment for severance-related expenses incurred in connection with a reduction in force that we mentioned on our last earnings call, as well as a $0.3 million adjustment for CEO transition-related expenses. National advertising fund expense was $19.8 million compared to $17.0 million.

Thomas J. Fitzgerald: Adjusted SG&A was $27 3 million. This includes a $1 6 million adjustment for severance related expenses incurred in connection with a reduction in force that we mentioned on our last earnings call as well as a zero point $3 million adjustment for CEO transition related expenses.

Thomas J. Fitzgerald: National advertising fund expense was $19 8 million compared to 17.0 million.

Thomas J. Fitzgerald: Net income was $35.0 million. Adjusted net income was $47.3 million, and adjusted net income per diluted share was $0.53 per share.

Thomas J. Fitzgerald: Net income was 35.0 million adjusted net income was $47 3 million and adjusted net income per diluted share was <unk> 53 per share.

Thomas J. Fitzgerald: Adjusted EBITDA was $106.3 million, and the adjusted EBITDA margin was 42.9% compared to $90.2 million with an adjusted EBITDA margin of 40.6%. By segment, franchise-adjusted EBITDA was $76.1 million, and the adjusted EBITDA margin was 73.2%. Corporate store adjusted EBITDA was $42.4 million, and the adjusted EBITDA margin was 34.6%. Equipment adjusted EBITDA was $4.89, and the adjusted EBITDA margin was 22.2%. Now turning to the balance sheet. As of March 31st, 2024, we had total cash, cash equivalents, and marketable securities of $486.4 million compared to $447.9 million on December 31st, 2023, which included $46.2 million and $46.3 million of restricted cash, respectively, in each period.

Thomas J. Fitzgerald: Adjusted EBITDA was $106 3 million and adjusted EBITDA margin was 42, 9% compared to $90 2 million with adjusted EBITDA margin of 46%.

By segment franchise, adjusted EBITDA was $76 1 million and adjusted EBITDA margin was 73, 2%.

Thomas J. Fitzgerald: Corporate store adjusted EBITDA was $42 4 million and adjusted EBITDA margin was 34, 6%.

Thomas J. Fitzgerald: Equipment, adjusted EBITDA was $4 8 million and adjusted EBITDA margin was 22, 2%.

Thomas J. Fitzgerald: Now turning to the balance sheet.

Thomas J. Fitzgerald: As of March 31, 2024, we had total cash cash equivalents in marketable securities of $486 4 million compared to $447 9 million on December 31, 2002 phase III, which included $46 2 million and $46 3 million of restricted cash respectively.

Thomas J. Fitzgerald: <unk> in each period.

Thomas J. Fitzgerald: In Q1 2024, we used $20.0 million to purchase slightly more than 300,000 shares. Total long-term debt, excluding deferred financing costs, was approximately $2.0 billion as of March 31, 2024, consisting of our four tranches of fixed-rate securitized debt that carries a blended interest rate of approximately 4.0%.

Thomas J. Fitzgerald: In Q1, 2024, we used 20.0 million purchased slightly more than 300000 shares.

Thomas J. Fitzgerald: Total long term debt, excluding deferred financing costs was approximately 2.01 billion as of March 31, 2024, consisting of our four tranches of fixed rate securitized debt that carries a blended interest rate of approximately 4.0%.

Thomas J. Fitzgerald: Finally, moving on to our updated 2024 outlook, which we provided in our press release this morning. We're providing wider ranges for the targets that we are updating given the current choppy environment in which we're operating. We continue to expect between 140 and 150 new stores, which includes both franchise and corporate locations. We also continue to expect between 120 and 130 equipment placements in new franchise stores. For the full year, we continue to expect that reequipped sales will make up approximately 60% of total equipment segment revenue.

Thomas J. Fitzgerald: Finally, moving on to our updated 2024 outlook, which we provided in our press release. This morning I will.

Thomas J. Fitzgerald: Providing wider ranges for the targets that we are updating given the current choppy environment in which we're operating.

We continue to expect between $140 150, new stores, which includes both franchise and corporate locations. We also continue to expect between 120, and 130 equipment placements and new franchise stores.

Thomas J. Fitzgerald: For the full year, we continue to expect that <unk> sales will make up approximately high 60% of total equipment segment revenue.

Thomas J. Fitzgerald: We also continue to expect that this year will look more similar to 2023 in terms of the quarterly cadence for those sales, as it was a more typical year versus the prior three that were impacted by COVID. As I noted earlier, the shift to more strength equipment versus cardio will bring down overall sales on a per store basis.

Thomas J. Fitzgerald: We also continue to expect that this year will look more similar to 2023 in terms of the quarterly cadence for those sales.

Thomas J. Fitzgerald: It was a more typical year versus the prior through that were impacted by Covid as.

Thomas J. Fitzgerald: As I noted earlier, the shift to more strength equipment versus cardio will bring down overall sales on a per store basis.

Thomas J. Fitzgerald: During Q1, we continue to refine the mix that will result in slightly lower sales per store. We are maintaining our equipment segment profit dollars, so therefore, margin rates will increase. We now expect system-wide same-store sales growth to be between 3% and 5%. Previously, we expected between 5% to 6% growth. This reduction is driven by the factors that Craig noted earlier.

Thomas J. Fitzgerald: During Q1, we continued to refine the mix that will result in slightly lower sales per store.

Thomas J. Fitzgerald: We are maintaining our equipment segment profit dollars. So therefore margin rates will increase.

Thomas J. Fitzgerald: We now expect systemwide same store sales growth to be between 3% and 5%.

Thomas J. Fitzgerald: Previously, we expected between 5% to 6% growth. This reduction is driven by the factors that Craig noted earlier.

Thomas J. Fitzgerald: All of the following targets are updated to reflect the changes I just mentioned and represent growth over fiscal 2023 results. We now expect full-year revenue to grow in the 4% to 6% range. Full-year adjusted EBITDA will grow in the 7% to 9% range, adjusted net income to increase in the 6% to 8% range, and adjusted earnings per diluted share to grow in the 7 to 9 percent range. We continue to expect shares outstanding to be approximately 88 million, which is inclusive of the repurchase of 1 million shares over the course of the year, the amount we shared back at our investor day in November of 2022.

Thomas J. Fitzgerald: All of the following targets are updated to reflect the changes I just mentioned and represent growth over fiscal 2023 results.

Thomas J. Fitzgerald: We now expect.

Thomas J. Fitzgerald: Full year revenue to grow in the 4% to 6% range full.

Thomas J. Fitzgerald: Full year, adjusted EBITDA will grow in the 7% to 9% range.

Thomas J. Fitzgerald: Adjusted net income to increase in the 6% to 8% range.

Thomas J. Fitzgerald: And adjusted earnings per diluted share to grow in the 7% to 9% range.

Thomas J. Fitzgerald: We continue to expect shares outstanding to be approximately $88 million, which is inclusive of the repurchase of 1 million shares over the course of the year. The amount we shared back at our Investor day in November of 2022.

Thomas J. Fitzgerald: And we continue to expect our net interest expense to be approximately $70 million, which assumes we refinance the tranche I mentioned earlier at 6.5%. We will update any applicable guidance targets, if necessary, pending the completion of the anticipated refinancing transaction later this year. Lastly, we continue to expect CapEx to be up approximately 25% and DNA to be up between 11 to 12 percent. Despite a challenging start to the year, we believe that the changes we have made as part of our new franchisee growth model, along with the upcoming price increase, improve our store economics and enhance our differentiated brand and market-leading position.

And we continue to expect our net interest expense to be approximately $70 million, which assumes we refinanced the tranche I mentioned earlier at six 5%.

Thomas J. Fitzgerald: We will update any applicable guidance targets if necessary pending the completion of the anticipated refinancing transaction later this year.

Thomas J. Fitzgerald: Lastly, we continue to expect capex to be up approximately 25% and DNA to be up between 11% to 12%.

Thomas J. Fitzgerald: Despite a challenging start to the year, we believe that the changes we have made as part of our new franchisee growth model along with the upcoming price increase improve our store economics, and enhance our differentiated brand and market leading position.

Thomas J. Fitzgerald: We continue to be a highly attractive franchise system that generates strong and stable free cash flow for long-term sustainable growth and increased shareholder value. I'll now turn the call back to the operator to open it up for Q&A.

Thomas J. Fitzgerald: We continue to be a highly attractive franchise system to generate strong and stable free cash flow for long term sustainable growth and increased shareholder value.

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

Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via the loudspeaker on your device, please pick up your handset and ensure your phone is not on mute when asking your question. Also, please limit yourself to one question and a single follow-up. Your first question comes from the line of Simeon Siegel with BMO. Please go ahead.

Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and Joanne. Thank you.

Speaker Change: To withdraw your question simply press Star one again.

Operator: We are called upon to ask your question and our listening via loud speaker on your device. Please pickup your handset and then sure. Your phone is not on mute when asking your question.

Operator: Please limit yourself to one question with a single follow up your first question comes from the line of Simon Siegel with BMO. Please go ahead.

Simeon Avram Siegel: Thanks. Hey, everyone. Good morning.

Simeon Avram Siegel: Thanks, Hey, everyone hope, you're all doing well.

Simeon Avram Siegel: I was hoping.

Thomas J. Fitzgerald: Hope you're all doing well. I was hoping you guys could elaborate a little bit on the lower guidance, particularly just in light of what looked like a pretty solid quarter for member growth and top line X equipment. So is there anything you've been seeing since the start of the quarter to raise that concern, any uptick in churn or anything like that? I guess I'm just trying to understand your characterization of the disappointment in the quarter.

Simeon Avram Siegel: I was hoping you guys could elaborate a little bit on the lower guidance, particularly.

Simeon Avram Siegel: Just in light of what looked like a pretty solid quarter for member growth in topline ex equipment. So is there anything you can see since the start of the quarter to raise that concern any uptick in churn or anything like that I guess I'm just trying to understand your characterization of the disappointment in the quarter I get that member growth was slightly below the last two years, but still seem pretty solid the comps were encouraging and you had the new members. So.

Thomas J. Fitzgerald: I get that member growth was slightly below the last two years, but it still seemed pretty solid. The comps were encouraging, and you had the new members. So I guess I would have thought this was a pretty good quarter, excluding the equipment miss. So any color you could give there. And then Tom, does the number, does the guidance include any of the lift or assumptions from the price hike?

Simeon Avram Siegel: Just I guess I would have thought this was a pretty good quarter, excluding equipment mess. So any any color you could give there and then Tom does the number does the guidance include any of the lift.

Simeon Avram Siegel: Our assumptions from the price hike to 15. Thank you.

Thomas J. Fitzgerald: Yeah, hey, Simeon. So in terms of the quarter, we did have decent member growth of 900,000. It wasn't where we expected it to be, and some of the things we mentioned on the call were known when we had our earnings call in February, and we provided our outlook. I think what we didn't know is sort of what happened in March. The first part of March was, you know, pretty good, with lots of joins and cancellations. We're pretty good. And then once again.

Speaker Change: Yeah, Hey.

Thomas J. Fitzgerald: So in terms of the quarter.

Speaker Change: We did add we did have decent member growth 900000, it wasn't where we expected it to be in.

Speaker Change: Some of the things we mentioned.

Speaker Change: On the call we knew when we had our earnings call in and.

Speaker Change: In February.

Speaker Change: When we provided our outlook.

Speaker Change: I think what we didn't know.

Speaker Change: Sort of what happened.

Speaker Change: In March.

Speaker Change: The first part of March was pretty good.

Speaker Change: Joins in cancels were pretty good.

Speaker Change: Once.

Thomas J. Fitzgerald: Once social media sort of blew up with our policy issue, we definitely saw a change in the results in the back half of March; joins and cancels were, you know, fairly significantly affected. Now, the good news is, and we're not going to provide a lot of color on Q2, but I, you know, at a high level, just to provide some perspective. The good news is we've seen joins, and we've seen the joins rebound, but cancels have remained elevated.

Speaker Change: Once.

Speaker Change: Social media is sort of blew up with our.

Speaker Change: Over our policy issue, we definitely saw a change in the results in the back half of March.

Speaker Change: Joins in cancels were fairly significantly affected now the good news is and we're not going to provide a lot of color on Q2, but.

Speaker Change: At a high level just to provide some perspective.

Speaker Change: The good news is we've seen joins and we've seen that joins rebound, but cancels have remained elevated.

Thomas J. Fitzgerald: So that's really principally what we have seen and therefore factored into this latest revision in our outlook. You know, there were some things in Q1 early on that we talked about in January. Our business is definitely, probably way more sensitive to what happens in those first couple weeks of January than most others. So, you know, we talked about that, but then things definitely were getting better across the back half of January through February and in the first half of March, as I described. So the good news is that the joins have bounced back. And while we're never totally pleased with what we're seeing, it's, you know, better for sure. It's the cancels that have remained elevated. And then there is the second question.

Speaker Change: So that's really principally.

Speaker Change: What we.

Speaker Change: Have seen and therefore factored into this latest revision in our outlook.

Speaker Change: There were some things in Q1 early on that we talked about in January our business is definitely probably weigh more sensitive to what happens in those first couple of weeks of January than most other ones.

So we talked about that but then things definitely we're getting better across the back half of January through February in the first half of March as I described so the good news is the joins have half bounce back.

Speaker Change: And while we're never.

Speaker Change: We are never totally pleased with what we're seeing it's better for sure.

Speaker Change: The cancels that have remained elevated.

Speaker Change: The second question.

Thomas J. Fitzgerald: Yeah, the price increase, you know, won't have a huge impact. As you know, our business only affects new members. And, you know, with it coming in the back half of the year, it's not going to have a huge impact, but it is factored in.

Speaker Change: Yes, the price increase.

Speaker Change: We won't have a huge impact as you know our business.

Speaker Change: It only is affecting new members in.

Speaker Change: No.

Speaker Change: Whether it's coming in the back half of the year, it's not going to have a huge impact but it is factored in.

Craig R. Benson: Within the price range...oh, sorry, yeah, Craig.

Speaker Change: Within the pricing Oh.

Craig R. Benson: One of the benefits that Planet has for its members is you're priced for life. And we've never made a big deal about that, but as part of this price change, we're going to highlight it much more. And so we ought to get the benefit of a subscription-based business that doesn't change prices on people in the middle of their usage of those services or what have you. So we're going to start to really push that as well.

Speaker Change: Sorry, Yeah correct Sir.

Speaker Change: Just let me add one.

Speaker Change: One of the benefits that plan has for its members as the price for life.

Speaker Change: And we've never made a big deal about that but as part of this price change we're going to highlight it much more.

Speaker Change: And so.

Speaker Change: We got to get the benefit of our subscription based business that doesn't change pricing.

Speaker Change: On people in the middle of their usage of those services or what have you.

Speaker Change: So we're going to start to really triggered that as well.

Speaker Change: Sorry to cut you off.

Craig R. Benson: No, that's great. That's what I was gonna ask. I was gonna ask if you, in the test, saw any of the short bits again where people want to keep their original grandfathered price in there?

Speaker Change: No that's great that's what I'm going to ask I was going to ask a few in the past. If you saw any of that chart that again, where people want to keep air original grandfathered price in there.

Thomas J. Fitzgerald: Yeah, we're not going to get into all the sort of all the different metrics Simeon that we saw in the test, but definitely, as you know, we read it for a long time, read all of the tests for a long time, and feel really good about We're seeing those same results when we roll it out because of how thoroughly it was tested.

Speaker Change: Yes.

Speaker Change: We're not going to get into all the sort of all the different metrics that we saw in the test but definitely.

Speaker Change: As you know we've read it for a long time read all of the tests for a long time and feel really good about.

Speaker Change: Seeing those same results.

Speaker Change: When we roll it out because of how thoroughly test.

Simeon Avram Siegel: Great, thanks so much guys. Best of luck for the rest of the year. Yeah, thank you, Simeon.

Speaker Change: Great. Thanks, So much guys best of luck for the rest of year, yes. Thank you Simeon.

Operator: Yeah, thank you. Your next question comes from the line of Chris Okull with Stiefel. Please go ahead. Chris O'Call from CIFL, your line is open.

Chris: Your next question comes from the line of Chris I'll call with Stifel. Please go ahead.

Chris: Chris <unk> from Stifel. Your line is open.

Christopher J. Rondeau: Craig, the company's had issues with marketing campaigns or media buying during the more important New Year's Eve membership season the past few years. I'm just wondering what the company is doing to ensure a higher probability of success going forward?

Christopher J. Rondeau: Thanks, sorry about that I was on mute.

Christopher J. Rondeau: Greg the companies had issues with marketing campaigns, our media buying during the more important new yours, New year's Eve membership sees in the past few years I'm. Just wondering what is the company doing to ensure a higher probability of success going forward.

Craig R. Benson: Well, as you know, Chris, we are really aggressively chasing a brand identity strategy that we've not had in the past, which will help us with marketing because we will have, as we talked about just a minute ago, Price for Life, an example. We've never talked about that. And then some of the other benefits we offer are membership, whether it's perks or opportunities to use different clubs with the black card and that kind of thing. Bring a friend.

Greg: Well as you know, Chris we are really aggressively chasing a brand identity strategy that we've not had in the past.

Greg: Which will help us with marketing.

Greg: Because we will have as we talked about just a minute ago price per life. As an example, we've never talked about that.

Greg: And then some of the other benefits we offer our membership.

Greg: Its perks or opportunities to use different clubs with the black card and that kind of thing bring a friend.

Craig R. Benson: We don't talk about that stuff, and we don't put it in the context of our brand identity. So we have had issues in the past with different people we work with. That's been pretty much fixed. We're down to two agencies now for the entire LAF system. We used to be as high as 16. For one year, we went down to one, and now it seems to have settled out. So I think we're doing better on that front.

Greg: We don't talk about that stuff and we don't put it in the context of our brand identity.

Greg: So we have had issues in the past with different people, who work with that's been pretty much fixed we're down to two agencies now for the entire left system. We.

Greg: We used to be as high as 16.

Greg: For one year, we went to one.

Greg: And now it seems to have settled out so I think we're doing better on that front.

Craig R. Benson: I think the real challenge is hitting the market with a real branding effort to talk about the benefits of Planet Fitness beyond just price and offer that to our membership for two reasons. One is to get them to join, but the other is to keep them. And so if we could kill both of those birds with one stone, that'd be great.

Greg: The real challenge is.

Greg: Hitting the market.

Greg: A real branding effort to talk about the benefits of planet fitness beyond just price.

Greg: And offering that to our membership for two reasons, one is to get them to join together get them to stay in.

Greg: So if we can kill both of those birds with one stone that'd be great.

Greg: You guys called out a lot of different factors affecting joins during this quarter.

Christopher J. Rondeau: You guys called out a lot of different factors affecting joins during this quarter, everything from, you know, the weather to the situations and the bathroom incident. I mean, I'm just curious, how confident are you that the pricing test did not have an effect on the joins and the new membership trends in the markets where you were testing the higher prices?

Greg: <unk> from.

Greg: The weather to the to the situations.

Greg: With the bathroom incident, I mean, I'm just curious how confident are you that the pricing test.

Greg: Did not have effect on the joints and the new membership trends in the markets that you were testing the higher prices.

Thomas J. Fitzgerald: Hey Chris, it's Tom. It's a good question and... Just to clarify, we did not cite weather as a subscription business. Thankfully, it's never typically a big impact for us. So many other things. And, as you know, it's never just one thing. It's usually a combination of things.

Speaker Change: Well, yes it is.

Speaker Change: Yeah, Hey, Chris It's Tom its a good question.

Just to clarify we did not cite weather as a subscription business thankfully, it's never typically a big.

Thomas J. Fitzgerald: The impact for us so many other things and as you know it's never one thing it's usually a combination of things. So we tried to highlight what we thought were the larger.

Thomas J. Fitzgerald: So we tried to highlight what we thought were the larger things that would impact it. To your question about the price test, we feel very good because of the results that we saw through the decision that we took as a team here to change the price. Those results were sort of consistent with what we had seen in the prior month. So, you know, essentially, what we saw was not an isolated or geographic impact.

Thomas J. Fitzgerald: Things that would impact it to your question about the price tests, we feel very good because the results that we saw through.

Thomas J. Fitzgerald: Through the decision that we took.

Thomas J. Fitzgerald: The team here to change the price.

Thomas J. Fitzgerald: <unk>.

Those results were sort of consistent with what we had seen.

Thomas J. Fitzgerald: In the prior months, so essentially what we saw was not an isolated or geographic.

Thomas J. Fitzgerald: It was more broad, and more comprehensive. So the result of that was that we feel good about the fact that the results moved the way we expected and saw in the previous months' tests. So there should be no concern with this particular incident, which we hope is behind us, affecting the veracity of the test. Of course, the other thing is...

Thomas J. Fitzgerald: Impact there was it was more more broad.

Thomas J. Fitzgerald: More comprehensive so.

Thomas J. Fitzgerald: The result of that was that we feel good about the fact that the.

Thomas J. Fitzgerald: The results moves the way, we expected and saw in the previous months in the tests So no.

Thomas J. Fitzgerald: No concern with this.

Thomas J. Fitzgerald: Particular incident, which we hope is behind us.

Thomas J. Fitzgerald: Affecting the veracity of the test results and Chris. The other thing is as you probably know, but I want to make mention of it.

Craig R. Benson: And of course, the other thing is, as you probably know, but I want to make a point. We always have a control group to match up against the test group, and the control group is very similar to the test group in the types of clubs, locations, that kind of stuff. So we have controls built in to be able to see anomalies between pricing changes and other things, including things like weather, which Tom said we didn't measure, but there may be periods of time where it gets a little busier than others because people can get out or they can't. And so we do a pretty thorough job of controlling the data from the test and with another group that's not involved.

Thomas J. Fitzgerald: You always have a control group to match up against the test group.

Thomas J. Fitzgerald: And the control group is very similar to the test group and the types of clubs location is that kind of stuff. So we have controls.

Thomas J. Fitzgerald: Controls built in to be able to see anomalies between pricing changes and other things, including things like weather, which Tom said, we didnt measure, but there may be periods of time, where it gets busier than others, because people can get out or they can't.

And so.

Thomas J. Fitzgerald: We do a pretty thorough job of controlling the data from the test and with another group that's not involved.

Thomas J. Fitzgerald: Yes.

Christopher J. Rondeau: Okay. Great. Thanks, guys. Thank you, Chris.

Thomas J. Fitzgerald: Okay.

Speaker Change: Thanks, guys. Thank you Chris.

Operator: Your next question comes from the line of John Heinbockel with Guggenheim Partners. Please go ahead.

Speaker Change: Your next question comes from the line of John <unk> with Guggenheim Partners. Please go ahead.

John Heinbockel: Hey, guys. I wanted to start with, I think, Tom, you said, I don't want to paraphrase, but something about having that social media stuff, not behind you, but having seen the worst. So I guess it's not, your assumption is it's not getting worse. I guess built into the guidance is that it will not improve. Correct me if I'm wrong. Your assumption is that it will kind of stay the same. And then how do you address that? Right. You know, how do you address that issue without drawing more attention to it? And it seems like, you know, very difficult to do that.

John: Hey, guys wanted to start with I think Tom you said.

John: Don't want to paraphrase, but something about the having that.

John: That social media stuff not behind you, but.

John: Having seen the worst so I guess, it's not your assumption is it's not getting worse I guess built into the guidance is that it will not improve.

Speaker Change: And correct me if I'm wrong. Your assumption is that it will kind of stay the same and then how do you address that right.

Speaker Change: How do you address that issue without drawing more attention to it and it.

Speaker Change: It seems like very difficult.

Speaker Change: To do that.

Thomas J. Fitzgerald: Yeah, John, just to make sure I'm clear, what I was talking about was really the social media mentions about that. Hopefully, it's kind of dying down.

Speaker Change: Yes, John just to make sure.

Speaker Change: Unclear what I was talking about was really the social media mentions.

Speaker Change: It's kind of died down it was.

Speaker Change: Certainly not broad scale, but.

Speaker Change: I had an impact and.

Thomas J. Fitzgerald: It was certainly not broad in scale, but it definitely had an impact. And what I would say is, you know, and why we talked about providing wider ranges, you know, it is because it is an election year. There are things that swirl around, and it's certainly been a choppier first few months than we expected coming into the year. So I think it's with that in mind that we provided the wider range to ensure that, you know, some of what we're seeing is factored into our outlook, and to the degree that that ramps up or down a little bit is why we broadened the range, in terms of how we're thinking about the rest of your question.

Speaker Change: And what I would say is.

Speaker Change: And why we talked about providing the wider ranges.

Speaker Change: It is an election year. There are there are things that swirl around in.

Speaker Change: It's certainly been a choppy or first few months than we expected coming into the year.

Speaker Change: So I think it's with that in mind that we provided the wider range two to ensure that.

Speaker Change: Some of what we're seeing is factored into our outlook and to the degree that that ramps up or down a little bit as why we broadened the range in terms of how we're thinking about the rest of your question.

Speaker Change: Greg.

Greg: Yes, so I think.

Craig R. Benson: I think we've done a good job of navigating through this whole incident, including involving federal authorities in some of the work that needs to be done, and so I want to take my hats off to all of our franchisees and the employees here for navigating through this difficult period of time and, hopefully, getting to a better side.

Greg: I think we've done a good job of navigating through this whole incident.

Greg: Including involving federal authorities and some of the work that needs to be done.

Greg: And so on.

Greg: Go on and give or take my hats off to all of our franchisees.

Greg: The employees here for them.

Greg: Navigating through this difficult period of time, and hopefully getting to a better side.

John Heinbockel: Okay, and then maybe the other question with regard to pricing, right, so... $15, it is a decision that has been made on, you know, you'll still run promotions. Do you run them at 10, do you run them at 15? 15 becomes the new 10, right? You know, I guess with no money down.

Speaker Change: Okay, and then maybe the other question with regard to <unk>.

Speaker Change: Pricing right so <unk>.

Speaker Change: $15 as of.

Speaker Change: Decision's been made on Youll still run promotions.

Speaker Change: If you run them at 10 do you run them at $15 15 becomes the new 10 right.

Speaker Change: With no money down and then you also referenced black card alright. So I don't think you want to promote that so that's really a study on like you had in the past whether you take that up a buck or two.

John Heinbockel: And then you also reference Black Card, right? So I don't think you wanna promote that. So that's really a study on, like you have in the past, whether you take that up a buck or two, or you're thinking about something different.

Speaker Change: Or are you thinking about something different.

Craig R. Benson: Yeah, we're going to test a couple different versions of the black card with pricing. We're also going to try and... jigger some of the amenity portions of it if possible.

Speaker Change: Yes, we're going to test a couple of different versions of the black card with.

Speaker Change: With pricing.

Speaker Change: We're also going to try and reach.

Speaker Change: <unk> some of the amenity portions of it as possible.

Craig R. Benson: So there may be a few different iterations here of being able to test Blackheart. We do put it on sale from time to time. So it's not that we only put the white card on.

Speaker Change: So there may be a few different iterations here of being able to test Black card, we do put black card on sales from time to time, so it's not that we only.

Speaker Change: Put the white card on sale.

Craig R. Benson: With regard to that, we're still working through it. As you know, we're a promotional brand. I'd like to get away from some of the promotion we've done in the past because it's been a hundred percent promotional based. But there are more levers to pull as far as promotion goes, whether it's free months, other things that we could put into the mix that we haven't thought of doing in the past. And I think you'll see more variety of that, and just how it rolls out and what we do is undefined at this point in time. We know we want the system to shift up to $15 and use that price as the benchmark.

Speaker Change: With regards to that we're still working through as you know we're a promotional brand.

Speaker Change: Like to get away from some of the promotion we've done in the past because it's been 100% promotional based.

Speaker Change: But there's more levers to pull as far as promotion goes whether it's three months or other things that we could put into the mix that we havent thought of doing in the past.

Speaker Change: And I think youll see more variety of that and just how it rolls out and what we do is undefined at this point in time.

Speaker Change: No we want the system to shift up to $15.

Speaker Change: And use.

Speaker Change: Use that price is the price going forward.

Thomas J. Fitzgerald: Yeah, John, I would say, by undefined. It's really, for competitive reasons, we don't want to signal what we're going to be doing promotionally and when we're going to do it. But again, we feel we feel good about it. And as Craig has pushed us on, you know, we want to continue to test and learn our way into finding things that are creative. And as you know, we take the black card price up every couple of years. The last one was May 22. So there's certainly, we think, room to test different options here as we move the classic cart.

Speaker Change: Yes, John I would say undefined.

Speaker Change: Undefined, it's really for competitive reasons, we don't want to signal, what we're going to be doing promotional on when we're going to do it so.

Speaker Change: But again, we feel we feel good about it and as Craig.

Speaker Change: Has pushed we want to continue to.

Speaker Change: Test and learn our way into finding things that are accretive and as you know we take the black card price up every couple of years.

Speaker Change: The last one was may of 'twenty two.

Speaker Change: So there is certainly we think room to test.

Speaker Change: Different options here as we move the classic card.

Speaker Change: Thank you.

Speaker Change: Got it.

Operator: Your next question comes from the line of Megan Alexander with Morgan Stanley. Please go ahead.

Speaker Change: Your next question comes from the line of Megan Alexander with Morgan Stanley. Please go ahead.

Megan Christine Alexander: Hi, good morning. Thanks very much.

Megan Christine Alexander: Hi, good morning, Thanks, very much I wanted to come back to just the.

Megan Christine Alexander: The comments on member growth I guess, you did talk about a consumer looking for savings.

Thomas J. Fitzgerald: I wanted to come back to just the comments on member growth. You know, I guess you did talk about a consumer looking for savings. We've heard from a lot of companies, there are a lot of bad messages about the consumer, particularly the low-end consumer. So, I guess, how do you reconcile what we're hearing a bit in the broader market about the consumer environment with maybe what you've seen from a membership perspective, understanding you've had some noise?

Megan Christine Alexander: Heard from a lot of companies, there's been a lot of bad messages about the consumer, particularly in the low end consumer so I guess, how do you reconcile what we're hearing a bit in the broader market just about the consumer environment with maybe what you've seen from a membership perspective understanding you've had some noise and then.

Thomas J. Fitzgerald: And then, you know, how do you think about raising the price into the summer months when the summer past member typically joins, that high school member typically joins at the white card? And there was an article yesterday in the Journal about how Gen Z seems to have more credit card debt than generations before. So, just trying to understand whether there's, you know, anything there from just a low-end consumer perspective that might be, you know, perhaps pressuring things on them and how you're thinking about it as we head into the high school summer vacation period.

Megan Christine Alexander: How do you think about raising price into the summer months when the summer pass number typically Joanne that high school remember typically joins at the white card in.

Megan Christine Alexander: There was an article yesterday in the journal about how Gen Z seems to have more credit card debt. Then then generations before so just trying to understand whether there is anything there from just a low end consumer perspective that might be.

Megan Christine Alexander: Perhaps pressure on things and how youre thinking about it as we as we head into the high school summer past period. Thanks.

Thomas J. Fitzgerald: Thanks.

Megan Christine Alexander: Yeah, Hey, Mike, It's Tom I'll start that so I think.

Thomas J. Fitzgerald: Yeah, hey Megan, it's Tom. I'll start that. So I think, broadly, we all see the same things. I think the consumer is definitely squeezed with multiple years of heightened inflation and higher interest rates. If you got a mortgage recently, mortgage payments are up about a third from when rates were a little lower, you know. We're lower. When we look at our results from a joins and cancels standpoint across several different income brackets, household income brackets. There's very little deviation.

Thomas J. Fitzgerald: I think broadly we all see the same things I think the consumers is definitely squeezed with multiple years of heightened inflation higher interest rates, if you've got a mortgage read recently in mortgage payments are up about a third from.

Megan Christine Alexander: When rates were a little.

Megan Christine Alexander: Sure.

Megan Christine Alexander: Were lower.

Megan Christine Alexander: When we look at our results from a from a joins in.

Megan Christine Alexander: Cancel standpoint across several different income brackets household income brackets.

Megan Christine Alexander: Theres very little deviation. So it's not like we're losing the low end or gain in the high end. It's you could throw a very small blanket across all those numbers when you index.

Thomas J. Fitzgerald: So it's not like we're losing the low end or gaining the high end. It's you could throw a very small blanket across all those numbers when you index them. They're really quite tight.

Megan Christine Alexander: We're really quite tight.

Thomas J. Fitzgerald: So, we think it's probably a bit broader in that sense. The High School Summer Pass. We love that program. We're doing it again.

Megan Christine Alexander: So we think it's probably a bit a bit broader than that and that Stan.

Megan Christine Alexander: The high school summer paths, we love that program, we're doing it again.

Thomas J. Fitzgerald: You know, it exposes our brand to so many people for free. That's really the benefit. And the fact that we get a few hundred thousand teens to then subsequently join is great. But I think repeatedly, now this will be our third straight year, fourth in total, of running High School Summer Pass.

Megan Christine Alexander: Bose is.

Megan Christine Alexander: Our brand to so many people for free.

Megan Christine Alexander: That's really the benefit and the fact that we get a few.

Megan Christine Alexander: A few hundred thousand teens to then subsequently joined we think is great, but I think repeatedly now this will be our third straight year fourth in total of running high school summer past just is a great thing for our brand and to help kids.

Thomas J. Fitzgerald: This is a great thing for our brand and to help kids, if they're not already doing it, to start, you know, living a healthier life. So we think, you know, the pricing change that we're talking about here, again, we haven't talked specifically about the timing and how that affects the high school summer pass, but we think whether that affects this year's group or next year's group, it's still a heck of a value for $15.

Megan Christine Alexander: If they're not already doing it to start.

Megan Christine Alexander: Living a healthier life.

Megan Christine Alexander: So we think the pricing change that we're that we're talking about here again, we haven't talked specifically about the timing and how that affects high school summer pass, but we think whether that affects this year's group for next year's group. It is still a heck of a value for $15 and to Craig's point.

Thomas J. Fitzgerald: To Craig's point, probably not emphasizing in our 30-second spots, the pricing messages can sometimes drown out all the other benefits or crowd out all the other benefits that we're trying to convey. So by better balancing that message, you know, we think the value will increase, which should drive more demand. But it's not just about price; it's about the rest that we offer.

Megan Christine Alexander: Probably not emphasizing in our 32nd spots the pricing messages can sometimes drown out all the other benefits or crowd out all the other benefits that were trying to convey so by by better balancing that message.

Megan Christine Alexander: We think the value will increase which should drive more demand, but it's not just about price. It's about the rest of that we offer and I'd just add two things Megan.

Craig R. Benson: And I just had two things, Megan. I don't think we've gotten credit for the high school summer pass in the ways we should. This year we're going to give three free months to every member if we get three million like we did last year. That's $90 million worth of value that we're putting into the marketplace to allow teens to feel better physically and mentally. And so, it's important to highlight, I think, for the world that Planet Fitness is putting its money where its mouth is by inviting young people who've been through a difficult period of time, both in their school lives and outside lives, to use exercise as a way to help them deal with mental or physical challenges they may have. And I think the other thing that's important.

Megan Christine Alexander: I don't think we've gotten credit price will some are passed and the ways we should.

Megan Christine Alexander: This year, we're going to get through.

Megan Christine Alexander: Three three months to every member if we get 3 million like we had last year.

Megan Christine Alexander: $90 million worth of value that we're putting into the marketplace to allow teams to feel better physically and mentally.

Megan Christine Alexander: And so it's important to highlight I think for the world that planet fitness is putting its money where its mouth is by inviting young people.

Megan Christine Alexander: <unk> been through a difficult period of time, both in their school lives outside lives.

Megan Christine Alexander: To use exercise as a way to.

Megan Christine Alexander: Help them deal with mental or physical challenges. They may have and I think the other thing thats important.

Craig R. Benson: Rolling out prices, Tom mentioned the last time we did it was May 2022. And the reason we like to do it in the slower summer months is because any price change takes a while to burn in. And so we use the slower months as a burn-in period of time for new pricing. It generally allows us to get through that change period and come back out the other side before we get into the busier times we have.

Megan Christine Alexander: Rolling out price as Tom mentioned last time, we did it was may 2022, and the reason we like to do it in the slower summer months is because any price change takes a while to burn in.

Megan Christine Alexander: And so if we use the slower months is a burn in period of time for new pricing generally allows us to get through that change period.

Megan Christine Alexander: Come back out the other side before we get into the busier time of year for us.

Thomas J. Fitzgerald: Got it. That's helpful.

Speaker Change: Got it that's helpful.

Speaker Change: And then maybe on the on the unit open just as a follow up can you talk a little bit about how the 25 in the quarter came in perhaps relative to your expectations you maintain the year.

Speaker Change: Maybe puts and takes rates are a little bit higher.

Thomas J. Fitzgerald: And then maybe on the unit opens, just as a follow-up, you know, can you talk a little bit about how the 25 and the quarter came in, perhaps relative to your expectations for the year? You maintain the year, you know, I think maybe puts and takes rates are a little bit higher. Maybe you can give us an update on the real estate availability and how that looks and just your overall confidence level in that and that placement outlook, and do you expect that the pricing, you know, perhaps isn't going to have an impact on your top-line or bottom-line results this year, but is that something that, you know, should start to impact? The development outlook for franchisees this year, is that more of a 25 story?

Speaker Change: Maybe you can give us an update on the real estate availability and how that looks and just your overall confidence level in that and that placement outlook and do the do you expect the pricing, perhaps isn't going to have an impact on your.

Speaker Change: Topline or bottom line results this year, but is that something that should start to impact.

Speaker Change: On the development outlook for franchisees this year or is that more of a 25 sorry.

Speaker Change: I think.

Craig R. Benson: story as well. Franchisees, taking into consideration all the different things we've done as to their outlook, I mentioned in my opening remarks that I just came back from the conference in New Orleans. We couldn't talk about price changes there, And so they weren't privy to that.

Speaker Change: Franchisees take in consideration all the different things we've done is to their outlook I mentioned in my opening remarks I just came back from the conference in New Orleans, We Couldnt talk about price changes there.

Craig R. Benson: But clearly, that was one of the things that was top of mind for them. And so we spent a lot of time talking about the new growth model and some of the progress we've made on cost cutting and that kind of stuff. And in fact, smaller clubs and markets that can't sustain a 20,000 square foot box. CBRE came out with a statistic, I think fairly recently, that said the amount of available space is going to be half of what's able to be taken down this year, so it continues to be challenging for us.

Speaker Change: And so they weren't privy to that but clearly that was one of the things that was top of mind for them and so we spent a lot of time talking about the new growth model and some of the progress we've made on cost cutting in that kind of stuff there and in fact smaller clubs in markets that can sustain a 20000 square foot box.

Speaker Change: CBRE came out with a statistic I think fairly recently that said the amount of available space.

Speaker Change: It's going to be half of what's able to be taken down. This year. So it continues to be challenging for us.

Speaker Change: Clearly there has been some retailers that are running through difficult times.

Speaker Change: We're trying to be all over that as ways to sort of mitigate some of those challenges.

Speaker Change: But I think all in all I was very pleased again based on the comments I made in the opening script.

Craig R. Benson: Clearly there's been some retailers that are running through difficult times. We're trying to be all over that as ways to sort of mitigate some of those challenges but I think all in all I was very pleased again based on the comments I made in the opening script with the tone and tenor of New Orleans conference pretty much everybody was there and I got a lot of time to spend with the different franchisees both one-on-one and in a group setting so I feel very good about this company and where it is right now I still think we have work to do for sure but there's really great

Speaker Change: With the tone and tenor of.

Speaker Change: New Orleans conference pretty much everybody was there.

Speaker Change: And I've got a lot of time to spend with.

Speaker Change: The different franchisees, both one on one and in a group setting so.

Speaker Change: I feel very good about this company and where it is right now I still think we have work to do for sure.

Speaker Change: Theres really create opportunities.

Megan Christine Alexander: Awesome. Thank you so much. Best of luck.

Speaker Change: Awesome. Thank you so much best of luck.

Speaker Change: Thanks Megan.

Operator: Your next question comes from the line of Rahul Krotthapalli with JP Morgan. Please go ahead.

Speaker Change: Your next question comes from the line of Roswell crossing Poly with J P. Morgan. Please go ahead.

Rahul Krotthapalli: Good morning, guys. Thanks for taking the time to answer the question. This is on franchise leverage in the system. Certainly, the pricing decision should alleviate a lot of concern here, and the interest rates narrative will continue to be key, but it's something not under your control. How has the sentiment been at the convention specific to the leverage concerns? And Craig or Tom, is your sense that franchise consolidation here, given the transactions we are seeing out there, will help some of these large franchises to compete better for the targeted real estate opportunities? And I have a follow-up on marketing.

Roswell: Good morning, guys. Thanks for taking the question.

Roswell: This is on for Brian <unk> leverage in the system, certainly surprising message should alleviate a lot of concern here.

Roswell: Interest rates continue to be key button, it's something not under your control how does the sentiment being in the convention specific so the leverage concerns on correct. Tom is your sense that.

Roswell: Franchise consolidations yet.

Roswell: Given the transactions we are seeing now that will help some of these large franchises to compete.

Roswell: Baghdad targeted real estate opportunities and I have a follow up on marketing.

Roswell: Sure.

Craig R. Benson: We are so fortunate that we now have under 100 franchisees, and the reason I say that is because, as you know, I'm part of the Duncan group too, and we have 2,000. So you can go to a conference in New Orleans and really get some face time with all these different factions. So we have really sophisticated operators in the system. Clearly, by now, we expected interest rates to at least be headed in the opposite direction of where they have been headed in the last couple of years. That is not what is happening.

Roswell: We are so fortunate that we have now under 100 franchisees.

Roswell: And the reason I say that is because as you know and part of the Dunkin' group too and we have 2000.

Speaker Change: So you can get to a conference in New Orleans, and really get some base time with all of these different factions. So we are really sophisticated operators in the system.

Speaker Change: Clearly.

Speaker Change: By now we expected inter.

Speaker Change: Interest rates to at least be headed in the opposite direction of where they have been added in the last couple of years.

Speaker Change: That is not happening, but most of our operators are sophisticated have sufficient.

Craig R. Benson: But most of our operators are sophisticated, have sufficient capital, and not huge amounts of leverage, so they're able to sustain their business without a lot of problems. And so, again, I feel really good about where we are with price changes as far as taking costs out of clubs and looking at different things that we've done with the new growth model to help them through the difficult times of inflation, which this company has never really had to deal with having been founded in 1992.

Speaker Change: Capital and.

Speaker Change: Not huge amounts of leverage so they're able to sustain their business without a lot of problems.

Speaker Change: So.

Speaker Change: Again, I feel really good about where we are with.

Speaker Change: Price changes as far as taking cost out of clubs and looking at different things that we have.

Speaker Change: Done with the new growth model to help them through.

Speaker Change: The difficult times of inflation, which this company has never really had to deal with having been founded in 1992.

Craig R. Benson: I'm old enough to remember inflation and my 16% home mortgage back in the day, and this company has not had to face that, but I think we've hit square on with pricing changes and changes to CapEx and build outs and remodels and re-equips so that we are really working as a partner with our franchisees to keep this ball rolling.

Speaker Change: I'm old enough to remember inflation in my 16% on mortgage back in the day.

Speaker Change: And.

Speaker Change: This company has not had to face that but I think we've hit square on with now pricing changes and changes to capex and build out and Remodels and re equips.

Speaker Change: That we are really working as a partner with our franchisees to two.

Speaker Change: Keep this ball rolling.

Rahul Krotthapalli: Thanks for the color there. On the marketing mix, would you take this opportunity, based on your prior comments on the call, to revisit the national versus local mix? And also, do you think approaching it with a clean slate, focusing on price point promotions and whatnot would make a lot of sense at this time?

Speaker Change: Thanks for the color there on the marketing mix would you take this opportunity based on your prior comments on the call to revisit the national versus local mix.

Speaker Change: So do you think approaching with a clean clear focusing on the price point promotions and whatnot would make lot of sense at this time.

Craig R. Benson: Yeah, so I, Rahul, I think marketing needs to be addressed in the way that you talked about as well as other ways in the messaging we're putting out. So I think it's a whole different look at things.

Speaker Change: Yes, so well I think.

Speaker Change: Marketing needs to be addressed in the way that you talked about as well as other waste and the messaging, we're putting out so I think it's a whole different look at things.

Thomas J. Fitzgerald: The first time that I met with the franchisees in October, they had a separate conference and talked about rejiggering the NAF and LAF, which is the National Advertising Fund and the Local Advertising Fund. We didn't get into any specifics, but they clearly understand that over time we're probably going to have to re-look at the way we do it and reallocate resources so that we can have a branding campaign nationally that's consistent, concise, and more cost-effective. There's a lot that needs to be done, and I do think that, over time, we will start to shift.

Speaker Change: In the first time that I met with the franchisees in October that in a separate conference talked about rejiggering, the naphtha than last which is national advertising fund and local advertising funds, we didn't get into any specifics, but they clearly understand that over time were probably going to have to re look at the way we do it.

Speaker Change: And and reallocate resources, so that we can have a branding campaign nationally.

Speaker Change: Insistent concise and more cost effective and so on.

Speaker Change: There is a lot that needs to be done and I do think over time, we will start to shift.

Rahul Krotthapalli: And Rahul, I think Colleen coming in as our new CEO with both franchise, multi-unit hospitality, and marketing experience will help, you know, shepherd that journey. Thanks a lot for the color, guys, and good luck with everything.

Speaker Change: And Raul I think Colleen coming in as our new CEO with both franchise.

Speaker Change: Unit hospitality and marketing experience will help shepherd that journey.

Rahul Krotthapalli: Thanks a lot for the color, guys, and good luck with everything.

Speaker Change: Thanks, a lot for the color guys.

Speaker Change: Good luck with everything.

Speaker Change: Thanks Rahul.

Speaker Change: Your next question comes from the line of Sharon Zackfia from William Blair. Please go ahead.

Operator: Hi, good morning. I kind of want to make sure everyone understands the arc of membership. There are a lot of moving parts this year. I guess you talked about, obviously, what happened with the social media noise in March. And it sounds like rebounding members joined subsequently, but elevated attrition. Are you looking at the second quarter having attrition outpace joins? Are we going to see a sequential kind of down quarter in membership?

Sharon Zackfia: Hi, good morning.

Sharon Zackfia: Kind of want to make sure everyone understands the arc of members that Theres a lot of moving parts this year.

Sharon Zackfia: You talked about obviously, what happened Michael social media noise in March.

Sharon Zackfia: And it sounds like rebounding in July and subsequently about elevated attrition.

Sharon Zackfia: Are you looking at the second quarter have initiation outpaced your lines are we going to see a sequential kind of a down quarter in membership.

Thomas J. Fitzgerald: Hey, Sharon, it's Tom. I appreciate the question. As you know, we don't guide on membership. And I think what I would say is all the things that we expect to happen in membership, and again, it's a forecast, right? We don't, we don't know, are factored into our same store sales, which is the primary driver there is, you know, member growth is still typically 70% of our same store sales growth. So while it's still positive, it's definitely called down and also with a wider range because it is a little bit more difficult to predict, and we certainly have seen a fairly consistent trend in cancellations.

Sharon Zackfia: Hey, Sharon it's Tom I. Appreciate the question as you know we don't guide on membership and I think what I would say is all the things that we expect to happen in <unk>.

Thomas J. Fitzgerald: Membership and again, it's a forecast right. We don't we don't know.

Thomas J. Fitzgerald: Are factored into our same store sales, which is the primary driver. There as you know member growth is still typically 70% of our same store sales growth.

Thomas J. Fitzgerald: While it is still positive it's definitely call down and also with a wider range because.

Thomas J. Fitzgerald: It is a little bit more difficult to predict and we certainly have seen a fairly consistent trend and cancellations year on year, we had a number of quarters with year on year improvements in attrition.

Thomas J. Fitzgerald: Year on year, we had, you know, a number of quarters with year-on-year improvements in attrition. More recently, I think in Q4, it was more flat, and in Q1, in the early part, it was kind of, you know, a similar trend, and then it definitely elevated in the back half of March through the more recent days. So, that's factored into how we adjust our outlook for same store sales and the cascading effects, or ripple effects, on all the others.

Thomas J. Fitzgerald: More recently I think in Q4, it was more flat and in Q1 and the early part it was.

Thomas J. Fitzgerald: Kind of a similar trend and then it definitely elevated in the back half of March through.

Thomas J. Fitzgerald: Through more recent days so.

Thomas J. Fitzgerald: That's factored into how we adjusted our outlook for same store sales and the cascading effects.

Thomas J. Fitzgerald: A ripple effects on all the other metrics.

Speaker Change: Okay. Thanks for that and then I just wanted to talk about kind of timing of the classical carbon costs.

Sharon Zackfia: I mean, I think in the press release and in this call, you talked about consumers looking for more value. It does seem like an odd time to take a 50% price increase on the classic card. I understand why the franchisees would want it, but I'm also curious competitively where you ran these tests. There are going to be regions where you're not the lowest.

Speaker Change: I think in the press release and on this call you talked about consumers looking for more value. It does seem like an odd time to take a 50% price increase on the classic aren't I understand why the franchisees would want it.

Thomas J. Fitzgerald: But I'm also I'm curious competitively where you ran these paths there are going to be regions, where youre not the lowest priced anymore. So how do you think about Bob how do you think about the messaging associated with that price increase.

Craig R. Benson: Sharon, I'm not sure what competition may or may not do. There's also a school of thought that if we move, other people will move. They've sort of been waiting for us to do something. We haven't touched the classic card since 1998.

Speaker Change: So Sharon I am not sure that.

Speaker Change: What competition may or may not do.

Speaker Change: There is also a school of thought that if we move other people move but sort of been waiting for us to do something.

Speaker Change: We haven't touched the classic card since 1990 $810 as Tom said in his opening remarks, I think it's worth about 21 box.

Craig R. Benson: Thompson in his opening remarks, I think it's worth about 21 bucks, $10 worth around 21 bucks now. Um, and we've seen in every industry people moving prices. So it is not going to come as a shock to anybody that we are moving a price. That's been in effect for a long, long time, 25 years.

Speaker Change: Fourth line 21 box now.

Speaker Change: And we've seen in every industry people moving price. So it is not going to come as a shock to anybody.

Speaker Change: That we are moving our price has been in effect for a long long time 25 years.

Craig R. Benson: And so, we again tested it pretty rigorously, in multiple markets with good control groups, and again saw positive results. We think that this is the right time to do it. We also think it's the right time to look at different options on the black card, which may or may not change. But we have to be aggressive in testing and innovating amenities and pricing. And so we're going to do that.

Speaker Change: And so.

Speaker Change: We again tested it.

Speaker Change: Rigorously.

Speaker Change: In multiple markets with good control groups.

Speaker Change: And.

Speaker Change: Again saw positive results.

Speaker Change: We think that this is the right time to do it.

Speaker Change: We also think it's the right time to look at.

Speaker Change: Different options on the black card, which may or may not change but.

Speaker Change: We have to be aggressive in testing and innovating.

Speaker Change: These in pricing.

Speaker Change: And so we're going to do that.

Craig R. Benson: OPEX and CAPEX are two ingredients for running a successful club, and some of these price changes do change some of the OPEX. Calculations that are going on, whether it's changes in pay scales, or it's changes in rent, or it's changes in depreciation schedules, they all have changed, and so we need to recognize that. And Sharon, maybe just to add a couple of things to Craig's comments. As you know, about 60...

Speaker Change: Opex and Capex, our two ingredients for running a successful club and some of these price changes do change some of the Opex.

Speaker Change: Escalations that are going on whether it's changes in pay scales and or its changes in rent or its changes in depreciation schedules.

Speaker Change: They all have changed and so we need to recognize that.

Thomas J. Fitzgerald: And Sharon, maybe just to add a couple of things to Craig's comments, as you know, about 60% of the people who join join as black card recipients, so that is an important point for those who aren't familiar. I know you are.

Speaker Change: Sure and maybe just to add a couple of things to Craigs comments as you know about 60% of the people who join join as Black card members.

Speaker Change: So that debt that is.

Speaker Change: An important point for those who aren't familiar I know you are.

Thomas J. Fitzgerald: And I'd say the second point, back to what Craig said, you know, we're a promotional brand. We're trying to get people off the couch. Forty-ish percent of our new members have never belonged to any gym in their life.

Speaker Change: And I'd say the second point back to what Craig said, we're a promotional brand we're trying to get people off the couch 40 ish percent of our new members have never belonged to any gym in their life.

Speaker Change: So I think it's just a question of.

Thomas J. Fitzgerald: So I think it's just a question of the messaging and the types of promotions. But we're not saying, you know, back in the day, we're not doing a JCPenney of walking away from all the promotions and going full price. You know, that's too abrupt. I think it's just a matter of changing the elements, but still not taking our foot off the promotional accelerator.

Speaker Change: The messaging and the types of promotions, but we're not saying back in the day, we're not doing a JC penney of walking away from all the promotions and go into full price.

Speaker Change: That's too abrupt I think it's just a matter of changing the.

Speaker Change: The elements, but still not taking our foot off the promotional accelerator.

Speaker Change: Thank you that's helpful.

Speaker Change: Yes.

Speaker Change: Thank you. Your next question comes from the line of Joe <unk> from Raymond James. Please go ahead.

Sharon Zackfia: Thanks. Hey guys, good morning.

Joe: Thanks, Hey, guys good morning.

Joe: First question on the price change I understand you couldnt share.

Operator: First question on the price change. I understand you couldn't share the $15 level with franchisees ahead of time, but I'm sure you've gotten plenty of feedback during the test. So what does that look like?

Joe: The $15 level, what franchisees ahead of time, but I'm sure you've gotten plenty of feedback during the test so what does that look like and how.

Craig R. Benson: And has it been uniform, or does it vary by market since $15 in one geography is a lot different than $15 in another, for example?

Joe: Has it been uniform or does it vary by markets since $15 in one geography is a lot different than $50 and another for example.

Craig R. Benson: Yeah, but the interesting part is that we looked at the tests across different demographic markets and again with control groups that matched up pretty well, and we were able to say that the price change to this $15 level would work across the board. And so we did take all that into consideration. Again, we spent a long time on this test. You'll recall, Joe, that we started the first set of tests last August, and they progressed through the fall, all the way to almost April.

Joe: The interesting part is that we looked at the test across different demographics markets.

Joe: And again with control groups and matched up pretty well.

Joe: And we were able to say that the price change to.

Joe: This $15 level would work.

Joe: Across the board.

Joe: And so we did take all that into consideration again, we spent a long time on the SaaS, you'll recall Joe that.

Joe: We started the first set of tests last August.

Joe: Progress in the fall.

Joe: All the way to almost April.

Craig R. Benson: And so, we do have a lot of test data by market. It just seemed like the right time to do what we did and the right messaging and again, the feedback from New Orleans, again, we couldn't tell them, but there was a lot of talk about needing some relief on the price.

Joe: And so.

Joe: We do have a lot of test data by markets.

Joe: Just it seems like the right time to do what we did in <unk>.

Joe: The right messaging and again feedback from normal ones again, we can tell them.

Joe: But.

Joe: A lot of talk about needing some relief on the pricing.

Craig R. Benson: Okay, very helpful. Maybe a second question on the advertising campaign. You mentioned it wasn't as effective as you would have hoped. Was the big issue the inability to highlight a uniform price, which I guess now changes going forward?

Speaker Change: Okay very helpful. And then maybe a second question on the advertising.

Speaker Change: Advertising campaign, you mentioned it wasn't as effective that you would've hoped.

Speaker Change: Was the big issue the inability to highlight a uniform price, which I guess now changes going forward.

Speaker Change: Well.

Craig R. Benson: It's a factor, but it's not the only factor. And so...

Speaker Change: It's a factor it's not the factor and so.

Speaker Change: Sure.

Craig R. Benson: The last portion of the advertising in that first quarter is 5X-ish more than the national advertising. So it's a big thing. And the local advertising did have a pricing element, the national advertising did not. But again, I go back to the fact that we have to be more than just about price. Tom's point about promotion is we'll always be a promotional brand. I totally get it. But we need to also talk about all the other benefits we bring to the market.

Speaker Change: The last portion of the advertising in that first quarter is buybacks ish.

Speaker Change: Then the.

Speaker Change: National advertising, so it's a big thing in the local advertising did have a pricing element to national did not.

Speaker Change: So, but again I go back to the fact that we have to be more than just about price Tom's point about promotion as will always be a promotional brand totally get it.

Speaker Change: Sure.

Speaker Change: We need to be also talking about all the other benefits, we bring to the market and I think that creates stickiness.

Craig R. Benson: And I think that creates stickiness. And having a brand allows us to be more targeted towards reinforcing a message that we've found to be successful versus not having a successful brand where you're taking pot shots at what might work and what might not. And it's always anchored around promotion. I think, you know, Colleen's gonna come in and do a great job with this because, as Tom mentioned earlier, she is. She, in her past, has juggled 10 brands simultaneously, and you can't step on one's toes for the benefit of the other, and you have to clearly create market space for each one of them with a differentiated message. She knows way more about this than I do by a long shot, so I'm looking forward to her coming. Got it, okay, thank you. Thanks, Joe.

Joe: Got it. Okay. Thank you.

Speaker Change: And having a brand allows us to be more targeted.

Speaker Change: Towards reinforcing our message that we found to be successful versus not having a successful brand where youre, taking potshots at what might work and what might not and so and it's always anchored around promotion. So.

Speaker Change: I think.

Speaker Change: Choline is going to come in and do a great job with this because as Tom mentioned earlier.

Speaker Change: She's in our past is juggled 10 brands simultaneously and you can't step on one dose for the benefit of the other and you have to.

Speaker Change: It would create market space for each one of them with a differentiated message so.

Speaker Change: She knows more about this and I do by a long shot so I'm looking forward to are coming in.

Speaker Change: Got it okay. Thank you thanks.

Speaker Change: Thanks, Jeff.

Speaker Change: Your next question comes from the line of Max recommend go from TD Cowen. Please go ahead.

Operator: Great, thanks a lot, guys. First, can you remind us how many members gyms are open with these days? And what does the member waterfall look like over the first few years? And you previously noted that the five-point growth plan would contribute about 500 base points to IRRs. So curious, what about this? How does this price compare, and then when you combine the two, does it get franchisees, IRRs, potentially quite close to back in line with pre-pandemic levels?

Max: Great. Thanks, a lot guys.

Max: First can you remind us how many members Gm's open with these days and what does the member waterfall look like over the first first few years and then you previously noted that the five point growth plan would contribute about 500 basis points to Irr's. So curious what about this how does this price increase.

Max: And then when you combine the two does it get franchisees the IRS potentially.

Max: <unk> closed back in line with pre pandemic levels.

Speaker Change: Alright, Max you win the award.

Speaker Change: Hi.

Max: Let me.

Thomas J. Fitzgerald: All right, Maks, you win the award. So the first one is on the ramp. So I think, in terms of how stores open, so you know, we measure it through pre-sale periods, day one, and then subsequently. And I think, you know, the good news is we continue to see, through Q4 and the early part of Q1 here, very similar ramps that we saw pre-COVID. Not quite back to where they were, but definitely much closer than we've seen in previous years.

Thomas J. Fitzgerald: Certainly, in aggregate, the trends that we're talking about that are affecting our outlook will affect some of that ramp a little bit, but hopefully, again, that's temporal in nature. I would say that the... Moves that we made in the new growth model to get it somewhere between a 5% and 10% cost reduction in the cost to build. We're ahead of schedule, as Craig mentioned in his prepared remarks there.

Thomas J. Fitzgerald: And the team is continuing to look at ways to find more savings that do not affect the members' experience. So feel really good about the progress the team has made on that, the and and combine that with the changes we made in the CapEx obligations, both extending the franchise agreement from 10 to 12 years, adjusting the strength and cardio mix, and all the rest that you know, moving re-equipped cycles out on average a year, we believe will definitely get us back to sort of closing more than half of the gap that we've had in our IRRs recently versus pre-COVID.

Max: And the team is continuing to look at ways to find more savings that do not affect the members experience. So feel really good about the progress. The team has made on that <unk>.

Max: The and and combine that with the changes we made in the Capex obligations, both extending the franchise agreement from 10 to 12 years, adjusting the strength and cardio mix and all the rest of that you know moving re equipped cycles out an average of ear, we believe will definitely get back to.

Max: To sort.

Max: Closing more than half of the gap that we've had in our Irr's recently versus pre COVID-19.

Thomas J. Fitzgerald: This pricing test, we believe, you know, it takes a while for the members to feather in at $15. As we model it based on the results we saw over the many months of testing. We believe that after a year or so, when the membership has more mixed in at $15, that there will probably be a low to mid single-digit improvement in AUV, which will certainly help improve the IRR. It may not get it, depending on the circumstance, it may not get it back all the way to pre-COVID, but it further helps chip away at the remaining gap that we talked about.

Max: This pricing tests, we believe you know it takes a while for the members to further and at $15.

Max: As we model it based on the results we saw over the many months of testing.

Max: We believe that after a year or so when the membership has more mixed in at $15 that there's probably a low to mid single digit improvement in a U V, which will certainly help improve the IRR. It may not get it depending on the circumstance. It may not get it back all the way to pre Covid, but further helps chip away at the.

Max: The remaining gap that we talked about so where you know the pre COVID-19 and Unlevered IRR would might be in the low thirties more recently it'd be in the low twenties. The changes in the new growth model get it to the mid plus 20% range. So this would just be even more.

Thomas J. Fitzgerald: So where, you know, the pre-COVID, an unlevered IRR would have been in the low 30s, more recently, it'd been in the low 20s, the changes in the new growth model get it to the mid plus 20% range. So this would just be even more, you know, accretive may not get back to the low 30s, but we're continuing to find ways to reduce the cost, which should continue to close that gap.

Max:

Max: Accretive may not get back to the low thirties, but we're we're continuing to find ways to reduce the cost which should continue to close that gap as well.

Speaker Change: Got it that's helpful. And then just one should be a little more qualitative but can you speak to the competitive environment. Some of your H B O P. P. R's have been seem pretty significant Karl with an opening it seems like they might have had a bit of a better first quarter a lot of those boxes are almost twice the square footage.

Maksim Rakhlenko: Got it. That's helpful.

Maksim Rakhlenko: And then this one should be a little more qualitative. But can you speak to the competitive environment? Some of your HVLP peers have been seeing pretty significant growth in the openings. Seems like they might have had a bit of a better first quarter. A lot of those boxes are almost twice the square footage of your gyms.

Max: Of your jams. So just curious how you're thinking about the competitive sat and whether that may have five cream and part of the weakness.

Maksim Rakhlenko: So just curious how you're thinking about the competitive set and whether that may have driven part of the weakness here in 1Q. And then, just from a bigger picture, the competition today is certainly stronger than before. It's better financed, so it's definitely going to be something to watch going forward. I'd be curious how you think about where the biggest opportunities are for you guys to step up your own execution because this might become a bigger risk going forward.

Max: Here Q1and then just a bigger picture at the competition K is certainly stronger than previously it's better financed so definitely going to be something to watch going forward. So curious how you're thinking about where the biggest opportunities are for you guys to step up your own execution because.

Max: This might become a beta risks going forward.

Maksim Rakhlenko: Yeah Maks, it's a good question and I think you're right. Certainly, in pockets both geographically and competitively, brands, you know, they're there are pockets that are stronger than others. You know, Crunch definitely took down quite a bit of space in 2023.

Speaker Change: Yeah, Max it's a good question and I think you're right certainly in pockets, both geographically and competitively brands you know there there.

Speaker Change: There there are pockets that are stronger than others crunch definitely took down quite a bit of space in 2023.

Speaker Change: And some of that is you know there where they have franchisees that are P. E back in a bit more aggressive kind of like some of our folks there are some other bigger boxes like <unk> that offer or a much bigger box and a whole lot more inside of it whether it's a pool or classes or.

Thomas J. Fitzgerald: And some of that is, you know, they're where they have franchisees that are PE-backed and a bit more aggressive, kind of like some of our folks. There are some other bigger boxes like EOS and VASA that offer a much bigger box and a whole lot more inside of it, whether it's a pool or classes or, you know, the theater, and cycling rooms that some of them have. I'd say what they all don't do is provide a non-intimidating environment.

Speaker Change: You know the theater cycling rooms, some of them have I'd say, what they all don't do is provide a non intimidating environment. We still think that's the thing that that.

Thomas J. Fitzgerald: We still think that's the thing that sets us apart from the rest. Some use the words, but if you go in there, it's kind of loud because people are banging weights and grunting and doing all kinds of things that, if you've never been in a gym, are going to intimidate you.

Speaker Change: Sets us apart from the rest some use the words, but if you go in there it's kinda loud because people are banging weights and grunting and doing all kinds of things that if you've never been in a gym is gonna intimidate you. So we still think that's an important part of what we do that others don't do and really can't do <unk> based on November they attract so.

Thomas J. Fitzgerald: So we still think that's an important part of what we do that others don't do and really can't do based on the member they attract. So I think back to what Craig was saying about the brand, the positioning, the projection, and the messaging, you know, that's gotta come through probably stronger. And to many people, that's way more important than whether we're 10 or 15, based on some of the research we've done. Because if you've never been, you know, we used to say people get to the parking lot, and they're afraid to go in the front door because they're not sure what's on the other side.

Speaker Change: <unk> I think back to what Craig was saying about the brand of positioning the projection and the messaging you know that's gotta come through probably stronger in too. Many people that's way more important than whether we're 10 or 15 based on some of the research we've done because if you've never been you know we used to say people get to the parking lot and they're afraid to.

Speaker Change: Go into front door, because they're not sure what's on the other side. So we to the extent that we can ease that anxiety. We don't think our competitors will will there be more so I think they're still going after the 20 per cent were still going after the 80%.

Thomas J. Fitzgerald: So we, to the extent that we can ease that anxiety, we don't think our competitors will. Will there be more? So I think they're still going after the 20%. We're still going after the 80%.

Maksim Rakhlenko: Got it. That's super helpful. Thanks a lot. Best regards. Thank you, Max. And your next question comes from the line of Korinne Wolfmeyer from Piper Sandal, OK.

Operator: Got it. That's super helpful. Thanks a lot. Best regards.

Speaker Change: Got it that's super helpful. Thanks, a lot and best regards.

Speaker Change: Thank you Max.

Speaker Change: And your next question comes from the line of <unk> from Pakistan Angela. Please go ahead.

Angela: Oh good morning, guys. Thanks for the question Uhm I'd like to talk to a little bit on frankly international expansion I not sleep I'm, telling us more fine you asked today, but if you can provide an update on efforts internationally unexplained at first that'd be great. Thanks.

Craig R. Benson: Yeah, so we are aggressively going after the Spanish market as we speak, and as you know, we made our own investment in Spain to help speed that up. Clearly, we would like to get a partner to come in and help us, but we're learning a lot by being a part of this whole process, and we're learning where we can be successful and what tweaks and so on and so forth we need to make in order to make the club more suitable for the Spanish market.

Angela: Yeah. So we are aggressively going after the Spanish market as we speak.

Speaker Change: And as you know made our own investment in Spain down to speed that up.

Speaker Change: We would like to get a partner to come in and help us, but we're learning a lot by being a part of this whole process and we're learning where where it can be successful and.

Speaker Change: Tweaks and so on and so forth, we need to make in order to make the the club more suitable for the marketplace and the Spanish marketplace and then from there that will allow us to look at other European potentials to be able to leverage what we've done in Spain and the best one we've made so we're we're pretty please.

Craig R. Benson: And then from there, that will allow us to look at other European potentials to be able to leverage what we've done in Spain and the investment we've made. So we're pretty pleased with how it's going and look forward to some short-term learning and benefits, and the betterment of the entire system. Yeah, and we're looking, we're targeting our first door to open in Q3, hopefully, the early part of Q3. And to Craig's point, you know, we'll we'll

Speaker Change: Without what's going and look forward to some short term learning and benefits.

Speaker Change: To <unk>.

Speaker Change: Betterment of the entire system.

Thomas J. Fitzgerald: Yeah, and we're looking, we're targeting our first door to open in Q3, hopefully, the early part of Q3, and to Craig's point, you know, we'll learn a lot, and we'll affect the subsequent openings, but we've been reviewing a lot of sites, and have some in the pipeline at various stages of negotiation, so we feel good about the progress.

Speaker Change: Yeah, and it sounds <unk> were looking we're targeting our first store to open two three hopefully the early part of Q3 and to Craig's point you know, we'll we'll learn a lot and will affect the subsequent openings, but we've we've been reviewing a lot of sites we've.

Speaker Change:

Speaker Change: Have some in the pipeline in various stages of negotiation. So we feel good about the progress there.

Speaker Change: Great. Thank you and then now with a new C. E O hired I know she's still yet to start uhm, but is there any update on progress with this yes, I would search I know you had wanted to get the C. E O for the CFO by any update you can provide on unless you have a search and what kind of criteria. The team is working.

Thomas J. Fitzgerald: The team has already started interviewing. We look forward to calling, coming in, and helping. We've identified some internal candidates as well as external candidates, and we've already started interviewing, so it is moving. Colleen will be and is... hopefully slated to start June 10th when she starts, start in with that process as well. Yeah, maybe just one more. I think we're probably in the third inning or so. And hopefully we'

Speaker Change: For the.

Speaker Change: <unk>. It seems started already interviewing we look forward to calling coming in and helping we've identified some internal candidate.

Speaker Change: As well as external candidates and we've already sorry to interview me. So it is moving.

Speaker Change: Calling will be and is hope.

Speaker Change: Hopefully slated to June 10th and she starts.

Speaker Change: And with that process as well so yeah, maybe just one more I think we're probably in the third inning or so and hopefully we're by the time, calling arrives she's got a shortlist of candidates to interview and make a selection from we feel good about the progress we've made and that will still give some time.

Thomas J. Fitzgerald: Yeah, maybe just one more. I think we're probably in the third inning or so, and hopefully, by the time Colleen arrives, she'll have a short list of candidates to interview and make a selection from. We feel good about the progress we've made.

Thomas J. Fitzgerald: And that will still give some time for transition based. Great, thanks so much. OK.

Speaker Change: <unk> for transition based on that timing.

Speaker Change: Alright, thanks, so much okay. Thank you.

Speaker Change: And that concludes acumen day session for today I would like to tend to call back I have a <unk> pension for closing remarks.

Craig R. Benson: Great. We very much appreciate your time and patience for this today. Again, this company is, I think, well-positioned based on the changes that have been made and the change in leadership that's forthcoming. So I want to thank you again and look forward to talking to you soon.

Speaker Change: Great. We very much appreciate your time and patience for this today again. This company is I think well positioned based on the changes that have been made and change in leadership that's forthcoming.

Speaker Change: Forthcoming so I want to thank you again and look forward to talking to you soon.

Speaker Change: This concludes today's conference call enjoy the rest of your day you may now disconnect.

Operator: Please wait; the conference will begin shortly.

Speaker Change: Please wait the conference will begin shortly.

Speaker Change: [music].

Speaker Change:

Speaker Change:

Speaker Change: Yeah.

Speaker Change:

Speaker Change: Uh-huh.

Speaker Change: [music].