Q3 2024 Planet Fitness Inc Earnings Call
Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 Planet Fitness Earnings Call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press the star and 1.
I would now like to turn the call over to Stacey Caravella, Vice President of Investor Relations. You may begin.
Stacey Caravella: Thank you, operator, and good morning, everyone. Speaking on today's call will be Planet Fitness Chief Executive Officer Colleen Keating and Chief Financial Officer Tom Fitzgerald.
Stacey Caravella: Also joining us is Jay Stasz, our newly appointed CFO, effective on November 15th.
Stacey Caravella: They will all be available for questions during the Q&A session following the prepared remarks.
Today's call is being webcast live and recorded for replay.
Before I turn the call over to Colleen, I'd like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during the call.
Stacey Caravella: 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 Colleen.
Speaker Change: Thank you Stacey and thank you everyone for joining us for the Planet Fitness Q3 earnings call. I'm thrilled to be here speaking with you this morning to talk about our quarterly results and the strength of our business.
Speaker Change: During the third quarter, we grew same club sales by 4.3 percent, delivered 5.3 percent revenue growth, and increased adjusted EBITDA by 10 percent. We ended the quarter with approximately 19.6 million members.
Stacey Caravella: I'm proud of our performance and of the important work our team has done to execute on our near-term focus areas while laying the foundation for our longer-term ambitions.
Stacey Caravella: We also announced last week that we appointed Jay Stasz as Chief Financial Officer, effective November 15th.
Stacey Caravella: Jay joined us on Monday and is working with Tom to ensure a smooth transition. Tom will be staying with us through the end of December and will remain as a consultant until the end of the first quarter.
Stacey Caravella: Jay brings more than 25 years of experience developing high-performing collaborative finance teams and supporting meaningful growth and value creation.
Stacey Caravella: I'm eager to work closely with Jay to support our team members and franchisees as we provide high quality and accessible fitness experiences for our members and to ultimately increase value for shareholders.
Speaker Change: Before I address our Q3 performance, I'd like to give Jay a chance to introduce himself. Jay?
Jay Stasz: Thanks, Colleen. I'm very excited to be a part of the Planet Fitness team.
Jay Stasz: It's a strong brand with a clear mission and value proposition for its members, as well as a compelling business model.
Jay Stasz: I look forward to leveraging my skills and experience to support the company and its franchisees as it enters a new phase of growth. I'm also eager to partner with all our stakeholders, including our investors and analyst community.
Now back to Colleen.
Colleen Keating: Thanks, Jay. I want to take a step back and share a few of my thoughts and observations from my first few months as CEO.
Colleen Keating: During the quarter, we held our franchisee conference. It was my first opportunity to address our franchise system in person and share my strategic imperatives with them to align our goals as they assess their capital deployment plans for 2025 and beyond.
Colleen Keating: In my first 100 days, I visited more than 50 Planet Fitness clubs, putting into action one of my core principles of Feet on the Street. I heard from our franchisees, managers, and team members, and gathered my own observations about how our members are experiencing our clubs.
Speaker Change: I've seen a lot of gyms in my day, and when you're in one of our clubs, you know you're in a Planet Fitness.
Speaker Change: They're bright, clean, and energizing, with a friendly, welcoming, and approachable feel.
Speaker Change: And yet, what really excites me is that we have an opportunity to build on our quality and modernize our experience to ensure our equipment, layout, and floor plan consistently deliver for our members today and keep us relevant for tomorrow.
Early consumer data and testing validates this opportunity.
Speaker Change: Another thing that continues to stand out to me is that our members made the important decision to join a Planet Fitness club, which is very different than a store that has transactions with customers.
Speaker Change: This is where our members feel a sense of belonging and support, which is why we're putting renewed emphasis on the club and our members. And importantly, we are all committed to delivering a high-value member experience, including our corporate team.
Speaker Change: This renewed focus informed a few changes we've implemented to communicate our culture of shared accountability.
Speaker Change: renaming our corporate headquarters to the Club Support Center, transitioning our corporate email addresses, and using clubs instead of stores when referring to a Planet Fitness location.
Speaker Change: A notable milestone during the quarter is that we raised the price of our classic card membership for all new members to $15.
Speaker Change: Adjusted for inflation, the $10 price in 1998 when we introduced it would be about $20 today. In other words, the $15 classic card price is an even better value than $10 was when it was established more than 25 years ago.
Speaker Change: We felt it was prudent to implement the price increase ahead of Q3 to leave time for the market to absorb it before Q1, which has historically been our highest quarter for member growth.
Speaker Change: We believe the long-term benefits from the new price will outweigh any near-term softness in net member growth.
Speaker Change: Based on what we saw during our tests, we expect that existing clubs will see a low-to-mid single-digit percentage increase to their top line after approximately a year of the price increase being in place.
Speaker Change: Our price increase applies to new joins only, and Classic Card members who joined prior to the increase maintain the legacy $10 pricing, which could have favorability on our churn rate.
Speaker Change: At the same time, we believe the price increase will have an even greater impact for new clubs as most of their classic card members will be paying $15 per month.
Speaker Change: Tom will address the impact of the increase on Q3 later in his remarks.
Speaker Change: Additionally, we wrapped up our annual high school summer pass program during Q3. Nearly 3 million high school students participated, collectively logging more than 12 million workouts.
Speaker Change: We've invested more than $300 million in waived membership dues to promote youth health and wellness during the four years that we've run the program.
Speaker Change: We're incredibly proud to have had a meaningful impact on the lives of millions of teens as we introduce them to positive health and fitness habits and build brand loyalty with this important generation.
Speaker Change: Let me now turn to a recap of our four strategic imperatives that will guide us during our next phase of growth. We're making several important pivots to evolve our brand to focus on what matters most to our members and to ensure that we maintain our industry leadership.
Speaker Change: First is to redefine our brand strategy and pull it through our marketing.
Second is enhancing our member experience.
Speaker Change: Third is refining our product and optimizing our format. And fourth is accelerating new club growth.
Speaker Change: I'll start with redefining our brand strategy. We're evolving our strategy to go beyond getting people off the couch. We're broadening our audience to include current and previous members, non-members, and competitive members.
Speaker Change: We continue to see a significant percentage of our joins who are former Fitness members, so we want to convey that we welcome beginners and returning gym goers.
Speaker Change: In a recent consumer survey that we conducted, including both members and non-members, there was a proportion of respondents who did not see Planet Fitness as a place where they can progress or advance on their fitness journey, presenting a clear area of opportunity for us.
Speaker Change: We are doubling down on our efforts to establish Planet Fitness as the club that welcomes all fitness levels from beginners to more advanced, whether they're starting a fitness journey or running another marathon.
Speaker Change: We're the club for anyone who is seeking a fitness community with no gym timidation. Where members support each other to fulfill the promise of growing stronger together.
Speaker Change: We believe this is the right evolution at the right time for our brand.
Speaker Change: This focus was part of our marketing messaging for our Strong Choice October sale.
Speaker Change: We ran a social media campaign in late summer that compared our 75-pound dumbbell to a higher-priced gym's dumbbell of equal weight, which demonstrated value while evolving our humor to convey that we take fitness seriously, but we don't take ourselves too seriously.
Speaker Change: We're beginning the shift to communicating the high value of a Planet Fitness membership versus primarily focusing on our low price, and using our marketing to demonstrate the breadth of high-quality, top-tier equipment in our clubs.
Speaker Change: Looking ahead, our first quarter marketing plans are well underway, and we're actively working on new creative assets with our agency partners. We're also excited to be returning for our 10th year as the presenting sponsor of the Times Square New Year's Eve celebration.
Speaker Change: Lastly, on brand strategy, we're encouraged by the progress we're making in our ongoing search for a Chief Marketing Officer, and we look forward to providing an update in the future.
Now to our second imperative, enhancing member experience.
Speaker Change: We want members to know that the value of their Planet Fitness membership goes beyond the four walls of the club. We're using technology to enhance the member experience and drive value and engagement.
Speaker Change: Planet Fitness is the most downloaded fitness app on the App Store.
Speaker Change: This gives us a great opportunity to deliver content to support our members on their wellness and fitness journey, even when they're not in one of our clubs, whether that's doing workouts on the PF app or taking advantage of discounts through our PF Perks program.
Speaker Change: Deals and discounts with relevant partners can enhance the member value proposition beyond the club experience and potentially help to reduce churn.
Speaker Change: Year-to-date, our members have saved a total of approximately $7 million, with an average of more than $50 per redemption through our perks program. So we know there's significant potential as we continue to grow the offerings in the PF app.
Speaker Change: We're also rolling out a more uniform way to collect member feedback on a system-wide basis.
Speaker Change: Many of our franchisees have consumer feedback systems in place, but now we're implementing a standardized system to analyze this information across our estate.
Speaker Change: This will give us better line of sight and enable us to be faster to respond to member feedback about their experiences in our clubs.
Speaker Change: We're also confident that enhancing our member experience will further improve AUVs.
Speaker Change: This leads to our third strategic imperative, refining our product and optimizing our format.
Speaker Change: This is about updating our experience to meet the needs of today's consumer. We're not putting something in a club just because we've always done it that way. We're modernizing our offering based on what consumers value today, while being mindful of our franchisees' P&Ls and capital obligations.
Speaker Change: Preserving our efficient operating model remains an important aspect of our business.
Speaker Change: For example, we've moved from a large span of cardio equipment to a more balanced footprint of cardio and strength.
Speaker Change: Two years ago, the standard was roughly 100 pieces of cardio, and today it's about 70. We did this based on industry trends that showed consumer preference for strength, as well as how we observed members using the equipment in our clubs.
Speaker Change: This saves our franchisees money on new builds and re-equips while making our clubs more relevant for today's member So they don't feel like they need to graduate to another gym
Speaker Change: In collaboration with our franchisees, we rolled out a program to add additional pieces of strength equipment in existing clubs before it becomes the standard for new builds and re-equips in 2025.
Speaker Change: More than 60% of our clubs, or more than 1,700, will have the additional pieces of strength equipment in place by the end of this year through voluntary opt-in by our franchisees.
Speaker Change: The uptake greatly exceeded our expectations, which will drive equipment sales up in Q4 beyond what was included in our outlook. Tom will address how this impacts our full year guidance.
Speaker Change: We're also working to optimize the space within existing clubs. Removing some of the less-utilized cardio equipment frees up floor space, allowing franchisees to move the equipment from the 30-minute workout area to other places on the club floor.
Speaker Change: This provides additional floor space for members to grab a mat and weights and do their workout in an open area in the club. A need we observed when visiting our clubs and speaking with our club managers.
Speaker Change: This is a great example of a format optimization pivot we were able to make quickly that does not add any cost to our franchisees.
Speaker Change: Finally, our fourth imperative is accelerating new club growth. We have a responsibility to put club economics in the sightline of everything we do. Our goal is to drive the top line while enhancing the bottom line and reduce capital costs to enable our system to turn up the afterburners on growth.
Speaker Change: Before I joined Planet Fitness, two critical pieces were in place to enhance what were already strong club-level returns, the new growth model and the decision to increase the classic card price.
Speaker Change: While we've been discussing the new growth model for several quarters now, it's important to note that clubs that were built or underwent an equipment replacement cycle in Q2 and Q3 were the first to see the cost benefits from this initiative.
Speaker Change: While these are meaningful changes, we are continuing to look for ways to reduce the new club build cost to further enhance the economics for our franchisees.
Speaker Change: Looking ahead, we have a tremendous opportunity to grow domestically in both new and existing markets across the country. Our long-term target of 5,000 clubs in the U.S. is based primarily on our 20,000-square-foot traditional Planet Fitness.
Speaker Change: At the same time, we continue to work on smaller footprint clubs for infill locations and for less populated areas which would further our domestic opportunity.
Speaker Change: We also have plans to grow internationally in strategic markets where we can achieve scale, density, and market leadership. We will continue to build our presence in newer markets such as Mexico, Spain, and Australia.
Speaker Change: We're also excited about the progress we're making in our search for a Chief Development Officer, and we'll provide updates when appropriate.
Speaker Change: In closing, during our recent Franchisee Conference, there was palpable enthusiasm for continued growth with Planet Fitness. We laid out our plans to redefine our brand positioning and brand promise, and showed an early peek at some of the marketing in the works to drive joins.
Speaker Change: We also shared tools and initiatives to enhance our member experience and reduce churn.
Speaker Change: including some cool tech enhancements on the horizon. And we reiterated our commitment to refining our product offering to stay relevant for today's member while being mindful of build costs.
Speaker Change: We are invigorated by the spirit of excitement across our system and look forward to discussing updates on our progress and our 2025 outlook on our call in February.
Now I will turn it over to Tom.
Tom Fitzgerald: Thanks, Colleen. Before I get to our third quarter results, I'd like to address the power of our asset-light franchise model and its ability to generate significant free cash flow.
Tom Fitzgerald: Our model enables us to continuously assess the best use of our cash and how we can leverage our balance sheet to enhance shareholder value. Since 2017, we have returned more than $1.3 billion to shareholders via share repurchases.
Speaker Change: Most recently during the quarter we completed a 280 million dollar accelerated share repurchase agreement that we entered into following our 800 million dollar securitized debt transaction in Q2.
Speaker Change: At the conclusion of the ASR agreement, a new $500 million share repurchase authorization went into place.
Speaker Change: Today we have five tranches of fixed rate securitized debt of 2.2 billion at a blended rate of approximately four and a half percent. And our net leverage ratio of 3.7 times is about where it was last year despite the debt upsize.
Speaker Change: We believe the combination of our asset-light franchise model and strong club economics
Speaker Change: Sets us up to take advantage of our long-term growth opportunities and continue to enhance shareholder value.
Speaker Change: Now to our third quarter results. All of my comments regarding our quarter performance will be comparing Q3 2024 to Q3 of last year, unless otherwise noted.
We opened 21 new clubs compared to 26.
Speaker Change: We delivered system-wide same-club sales growth of 4.3% in the third quarter. Franchisee same-club sales increased 4.5%, and corporate same-club sales increased 3.4%.
Speaker Change: Approximately 50% of our Q3 comp increase was driven by net member growth, with the balance being rate growth.
Speaker Change: 63.1% of our membership are Black Card members compared to 62.1%.
Jay Stasz: As Colleen noted earlier, the results in Q3 are consistent with and slightly better than what we expected after increasing the price of our Classic card from $10 to $15 in late June.
Jay Stasz: Our expectations were based on our extensive testing of the price increase across several markets.
Jay Stasz: Now typically, there's not a lot of net member growth in the third quarter of any given year.
Jay Stasz: With the Classic Card price increase in June, we expected a slight decline in membership in Q3, which was more than offset by the rate improvement on Classic Card and higher Black Card mix.
Jay Stasz: For the third quarter, total revenue was $292.2 million compared to $277.6 million. The increase was driven by revenue growth across the franchise and corporate-owned segments.
Jay Stasz: The 4.3% increase in franchise segment revenue was primarily due to increases in royalties, new clubs, and national ad fund revenue.
Jay Stasz: For the third quarter, the average royalty rate was 6.7%, up from 6.6%.
Jay Stasz: The 13.1% increase in revenue in corporate owned club segment was primarily driven by same club sales growth, annual and other fees, as well as new clubs.
Jay Stasz: Equipment segment revenue decreased 6.7%. The decrease was primarily driven by lower revenue from equipment sales to new franchise e-owned clubs, which was due to fewer new club placements.
Jay Stasz: as well as the shift to more strength equipment versus cardio.
Jay Stasz: As we noted last quarter, the shift in the equipment mix brings down the overall equipment sales on a per club basis.
Jay Stasz: Now, as a reminder, we are keeping our profit dollars neutral. We completed 15 new club placements this quarter compared to 22 last year.
Jay Stasz: For the quarter, replacement equipment accounted for 85% of total equipment revenue compared to 79.
Jay Stasz: Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee-owned clubs, was $45.7 million compared to $53.8 million, a decrease of 15 percent.
Jay Stasz: Cost of revenue decreased at a higher rate than revenue, primarily due to the equipment mix shift I just described.
Jay Stasz: Club operation expenses, which relate to our corporate owned club segment, increased to $71.6 million from $63.1 million.
Jay Stasz: SG&A for the quarter was $32.6 million, compared to $33.3 million. Adjusted SG&A was $31.3 million, which includes
Jay Stasz: A $1.3 million adjustment for CEO transition-related expenses compared to $30.7 million, which included $2.5 million for CEO transition-related expenses.
Jay Stasz: National advertising fund expense was $19.7 million compared to $17.6 million.
Jay Stasz: Net income was $42.4 million, adjusted net income was $54.7 million, and adjusted net income per diluted share was $0.64.
Jay Stasz: Adjusted EBITDA was $123.1 million and adjusted EBITDA margin was 42.1 percent compared to $111.9 million with adjusted EBITDA margin of 40.3 percent.
Jay Stasz: By segment, Franchise Adjusted EBITDA was $72.8 million and Adjusted EBITDA Margin was 71.1%.
Jay Stasz: Corporate club adjusted EBITDA was $50.4 million and adjusted EBITDA margin was 39.3%.
Jay Stasz: Equipment adjusted EBITDA was $18.5 million and adjusted EBITDA margin was 30%.
Now turning to the balance sheet.
Jay Stasz: As of September 30th, 2024, we had total cash, cash equivalents, and marketable securities of $530.7 million compared to $447.9 million on December 31st, 2023, which included $67.8 million.
and $46.3 million of restricted cash, respectively, in each period.
Jay Stasz: In Q3 2024, we retired approximately 700,000 shares of the approximately 4 million retired in total year-to-date upon final settlement of the ASR.
Finally, our outlook for 2024.
Jay Stasz: We're reiterating our new club growth targets and continue to expect between 140 and 150 new clubs, which includes both franchise and corporate locations, as well as between 120 and 130 equipment placements in new franchise clubs.
Jay Stasz: Now, I'll discuss our outlook revisions. With only two months remaining in the year, we're tightening our range for same club sales growth to 4% to 5% from 3% to 5%.
Speaker Change: Now as Colleen noted our franchisees purchased additional pieces of strength equipment that we are placing in clubs during Q4.
Jay Stasz: We expect an additional approximately $20 million to our equipment segment revenue in the fourth quarter as a result.
Jay Stasz: Additionally, this drives up the percentage of equipment segment revenue from re-equipped sales to approximately 70% for the full year.
Jay Stasz: We've also made the decision to make a couple of investments in Q4 to set ourselves up for a successful 2025, which will flow through our SG&A.
Jay Stasz: Therefore, we now expect the following targets that represent growth over fiscal year 2023 results.
Jay Stasz: Revenue to grow in the 8 to 9 percent range up from 4 to 6 percent.
Jay Stasz: Adjusted EBITDA will grow in the eight to nine percent range which was previously seven to nine percent.
Jay Stasz: Adjusted net income to increase in the 8 to 9 percent range up from 4 to 6 percent.
Jay Stasz: An adjusted earnings per diluted share to grow in the 11-12% range, up from 7-9%, based on adjusted diluted weighted average shares outstanding of approximately $86.5 million inclusive of the shares repurchased as part of the ASR agreement.
Jay Stasz: We also continue to expect 2024 net interest expense of approximately 75 million excluding the write-off of deferred financing costs associated with our debt refinancing transaction.
Jay Stasz: Lastly, we now expect CAPEX to be up approximately 20% and DNA to be up approximately 10%.
Jay Stasz: Finally, I'd like to thank all of the investors and analysts whom I've interacted with over my five years here. It has been a privilege to serve as your CFO at Planet Fitness.
and work alongside such a dedicated and passionate team.
Jay Stasz: I will miss these calls and the interactions with our analysts and shareholders.
Jay Stasz: But I can't think of a better way to end my career than working for a brand that does so well, but also does so much good.
Jay Stasz: I'm proud of the work we've done here as a team to deliver value for our franchisees and our shareholders, and I'm excited to see the results from the growth initiatives that Colleen and the team are working on, which I believe will create even more value for all stakeholders for the years to come.
I'll now turn the call back to Colleen.
Colleen Keating: On behalf of the entire Planet Fitness team, I want to thank Tom for his contributions and dedication to Planet Fitness since joining the company in 2020.
Colleen Keating: I am incredibly appreciative of Tom extending his retirement date and remaining as CFO throughout the search process, and for working with Jay to ensure a smooth transition.
Colleen Keating: Tom has been a great partner to me since I joined the company, and we wish him all the best as he joins the Every Day is Saturday Club.
Colleen Keating: I'll now turn the call back to the operator to open it up for Q&A.
Speaker Change: At this time, I would like to remind everyone, in order to ask a question, press star then the number 1 on your telephone keypad. Our first question comes from the line of Simeon Siegel with BMO Capital Markets. Your line is open.
Simeon Siegel: Thanks. Hey, everyone. Congrats on the ongoing momentum. Really nice to see. Welcome, Jay. Looking forward to working with you. And then, Tom, thanks again for everything. Just sending best wishes on your next chapter. Hope you don't miss us too much.
could
Simeon Siegel: Great to hear about the returning gym members, Colleen. Any color you can share on what percentage of gross ads maybe are reactivated members? Maybe can you speak to the broader opportunity you might see there as you look at the currently lapsed members? And then just any further color you'd be willing to share on customer, and then also perhaps the franchisee response to the higher classic card price, and then maybe the impact on potential opportunity in black card. Thank you.
Speaker Change: Yeah, I'll start with with kind of the returning members. We typically see about a third of our joins are returning members.
Speaker Change: This past quarter was a bit higher. We had about 38 percent.
of our joints this past quarter. We're returning members.
Speaker Change: And then I think the second, the build on that was, you know, do we see more opportunity? Again, we continue to market to former members and invite them back and
Speaker Change: I think that the welcoming experience that we provide at Planet and our unique and differentiated offering is why we see such a such a high proportion of members rejoining.
Speaker Change: And I touched in my remarks, we're quite focused on member experience.
Speaker Change: and making sure that we're evolving our format so that we're attractive to returning gym goers and also to folks who have, you know, who have who've been members of our clubs or other clubs in the past.
So again, not just a beginner gym.
and then you think you the the next part was
Speaker Change: response to the to the to the price increase from our members and our franchisees. You know again I think as I mentioned we we thought the timing was right to kind of seed the new pricing in front of a quarter that that's not our highest joint quarter and give our market an opportunity to kind of adjust to the new pricing before we get into Q1. Yet we see strong momentum and as I mentioned in my remarks.
Speaker Change: The $15 price point today represents an even greater value than $10 was when we established that price point 25 years ago, more than 25 years ago. And the response from our franchisees has been, you know, has been quite supportive and we see it accretive to AUVs, you know, at the 12-month mark for existing clubs.
Speaker Change: and quite favorable for new clubs, new club openings as they'll have a majority of their joins at that minimum threshold.
Speaker Change: Great. Thank you so much. Best of luck for the rest of the year and into the new year. Thank you.
Thanks, Simeon.
Speaker Change: And your next question comes from the line of Sharon Zackfia with William Blair. Your line is open.
Hi, good morning.
Sharon Zackfia: I guess I wanted to follow up, Tom, and by the way, I can't wait to join the never-ending vacation club or whatever it was referred to. Every day is a Saturday. Every day is a Saturday. I can't wait to put that on LinkedIn. So on SG&A, I think you talked about some investments in the fourth quarter, obviously to get to the new guidance.
Speaker Change: on that revenue jump. There's got to be a really big increase in SG&A kind of year over year. Can you quantify that for the fourth quarter and what those investments are as you're looking towards feeding more growth in 2025?
Tom Fitzgerald: Yeah, I'll start and maybe Colleen will add. So, you know, as you know, Sharon, we don't give a lot of quarterly guidance. But what I would say is, as we looked at the strategic initiatives that Colleen has had the team focused on here since she arrived,
Speaker Change: and some of the marketing activity that she's discussed in evolving the brand.
Thank you for watching. Bye. Bye.
Speaker Change: the branch position coming into Q1. We wanted to make sure that we were
Speaker Change: investing behind that as well as some IT investments to really set up 2025 to be a strong year. So I think we thought it was prudent given where we were, you know might be a touch conservative as well in terms of how we thought about it but wanted to make sure we were thinking about the near term and the long term.
Speaker Change: And is there anything there for incremental efforts to stimulate franchise development, or is that not an element of the SG&A spend?
Speaker Change: No, other than member growth always helps, you know, with that aspect of it, as you know.
Great, thank you. Super, you bet.
Speaker Change: And your next question comes from the line of Jonathan Komp with Baird. Your line is open.
Jonathan Komp: shift of the equipment and the strength equipment you mentioned. Just if you think about the other strategic priorities you laid out, could you maybe talk a little bit more about phasing or timeline or what we should expect? Especially coming up on the all-important Q1 period around marketing. Just any more?
context around your phasing of some of the other initiatives.
Speaker Change: Yeah, I think as it relates to the brand positioning and marketing, we're coming down the homestretch on the brand work and our brand positioning.
Speaker Change: We've already started a bit of testing with some of our new marketing messaging and we're developing the creative that will launch for Q1. We've used a lot of consumer data and a lot of customer insights to help inform that messaging.
Speaker Change: And I think, you know, important to know that we will strike the balance of bringing through the brand positioning, which we're calling YPF.
Speaker Change: and also marrying that with marketing messaging that is compelling and drives joints. So we call that YPF Now. So we'll use both the brand positioning and the communication of our evolution.
Speaker Change: from Strength in our mix and format, while also highlighting the price value that we offer and making sure that that's also well communicated in the marketing messaging. So I'd say that's an urgency. I'd say underpinning all of it, I touched on a couple of the new roles.
Speaker Change: Making sure that we've got the right team, and I call it the Blue Ribbon Team, making sure we're building our Blue Ribbon Team. I'm leaning in very heavily on the recruitment of the CMO and the CDO. We're making excellent progress there and have really strong slates of candidates. So that's the focus between now and year end. And you heard me talk about the execution already on the things that are affecting member experience.
Speaker Change: So, you know, getting the format optimization, floor plan optimization, right.
Speaker Change: The support that we've received from our franchisees in that endeavor has been really quite encouraging. And I think, again, as I mentioned in my remarks,
Speaker Change: It's about delivering that in a way that's also that's accretive to the member experience and and also favorable from a unit economics standpoint and an operating cost standpoint for our franchisees.
Speaker Change: As it relates to accelerating growth, driving joins, increasing membership, enhancing the member experience, and being mindful of franchisee economics, those are the things that culminate in our ability to accelerate growth.
Speaker Change: You know, I know it's too early to understand the economics
Speaker Change: Just given the initiatives, given morale in the system, given international, should we think that 2024 is a floor on the pace of openings or any other directional color as we look forward? Thanks again.
Tom Fitzgerald: Hey John, it's Tom. I'll take that. So, in terms of Q4, you know, you're right, it is more weighted than it was last year to Q4, but still, you know, well below what we've done historically. You know, we've done more than 100.
Tom Fitzgerald: I think it was back in 2019, we were north of a hundred, so the implied openings that we have for this year is still below that, but to your point it's up a little bit from last year. So we feel confident the team tracks that rigorously with our franchisees and
Speaker Change: That's why we felt good about reaffirming where we said we would be.
Speaker Change: And, you know, appreciate your wanting to understand where 2024 lands and what that means in terms of it being a floor.
Speaker Change: You know, I think Colleen, we'll get to 2025, Colleen and Jay will on our next call, but
Speaker Change: in terms of the strategic initiatives as well as the new growth model and the classic hard pricing that we put in place here in the last 12 months to, you know, create the right momentum around new unit growth, you know, whether
Speaker Change: What that number ends up being in 2025 and beyond, we'll come to that, but we certainly feel good about all the activity that we've put in place to accelerate the growth of new units, both domestically and internationally.
Speaker Change: All right. Thank you, and thank you, Tom. Oh, thank you, John. It's been a pleasure.
Stacey Caravella: And your next question comes from the line of Rahul Krotthapalli with J.P. Morgan. Your line is open.
Rahul Krotthapalli: And will this supply directionally give us more confidence for the system's ability to accelerate store openings next year? And I have a follow-up.
Speaker Change: I'll start and maybe Tom can build on that. I think you're right. I read a recent study that said there were about 5,300 closures last year and they'll be north of 6,000 closures this year.
Speaker Change: And we do see that as an opportunity for Planet Fitness and to work in partnership with our franchisees. Our real estate team is engaged with brokers on a very regular basis to have line of sight to where space may be becoming available, and then partnering with our franchisees on that availability where there's an opportunity to develop a new club. So I think you're spot on, and we're seeing the same trends.
Speaker Change: We know that's market-specific. It's not in every market, but there's a lot of space coming online. I think the other thing, and we've talked about it a little bit, but have an opportunity to talk about it more, is really the resilience of our business and the durability of our cash flows.
when you think about, you know, even coming through.
Speaker Change: a once-in-a-lifetime global pandemic where our clubs were closed for, in some municipalities, for extended periods of time. We did not have one club permanent closure during COVID for financial reasons. I think, you know, that absolutely speaks to the resilience of our business.
Speaker Change: and should make us very attractive to developers and landlords when space becomes available because of their confidence in our ability to fulfill lease terms. So we see that as certainly a potential tailwind.
Bye. Bye. Bye.
Speaker Change: Thanks for that. And the follow-up is on the FTCs, the new click-to-cancel ruling update we saw recently. Can you remind us what percentage of clubs today have this feature activated across the franchises, and how should we think about the churn trends given some of the trends we have seen in the past with Tennessee and California and some other states you guys rolled out before?
Speaker Change: I'll start and then if Tom maybe can build on it. So today, all of our corporate clubs have Click to Cancel available and have had it in place for roughly a year. And across the estate, about 35% of our membership
Speaker Change: is in clubs or geographies where Click2Cancel is available to them.
Speaker Change: What we've seen generally is that in some cases there's a
Speaker Change: There's a small initial spike in churn, however, that churn rate moderates, and then, particularly in our corporate clubs, we've returned to normal churn rate.
Speaker Change: click-to-cancel in place for about a year. There is one exception to that. That's the state of Tennessee where the churn rate has remained elevated. But again, that's, you know, that's one state out of ten. And again, it's really moderated back to normal and across most of the estate.
Speaker Change: Tom, do you want to add anything? No, I think that's right.
Perfect. Thanks, guys. Thanks, Rahul.
Speaker Change: And your next question comes from the line of Megan Clapp with Morgan Stanley. Your line is open.
Megan Clapp: Hi, thanks. Good morning. Thanks for taking our questions. And Tom, thanks again, as everyone said, for everything. And maybe a question for you, Tom, you know, I think you said the change in the revenue guide does seem to be mostly driven by this
Megan Clapp: extra equipment that you're seeing franchisees, you know, maybe pull forward here, but you also did take up that comp guide. So wanted to see if you could just talk more about the drivers there and what's driving the better outlook for the comp.
Megan Clapp: Is it churn? Is it better elasticity following the price increase? What you're seeing as it relates to block card penetration? I understand there's kind of a lot of puts and takes and there's been a lot going on this year, so I was just hoping you could maybe give a finer point as to...
Speaker Change: that our franchisees made and will become part of the standard package, you know, going forward. So we're quite encouraged, as Colleen said, that they saw that they are aligned with the strategic move to have more strength equipment as part of our mix.
Speaker Change: and to put some of these pieces in pretty quickly to signal that for the all-important Q1. So we, and you're right, that is the lion's share of the revenue uptick in terms of the outlook.
Speaker Change: In terms of our same club sales, you know, we tighten that range to the high end for the reasons that we discussed in the prepared remarks, but, you know, and I think we don't get too specific when we talk about the elements of what we saw in the testing and what we
Speaker Change: have experienced here now in Q3, but I think suffice it to say that the acquisition side was a little stronger than what we saw in our testing in, you know, in that first quarter of testing, so to speak, compared to what we saw in Q3, and the black card mix was also, you know,
Speaker Change: favorable as we saw in the testing so but but the lion's share was really on the acquisition side to allow us to tighten the guide and that's a component of the revenue improvement for the full year but the the bigger piece was the equipment piece
Speaker Change: Okay, and maybe a bigger picture, you know, what you're seeing is obviously...
Speaker Change: Great that you're seeing a better uptick in block card penetration, obviously drives, you know, better flow through for the franchisees, but
Speaker Change: I think, you know, historically you've talked about that turn on black card penetration or black card members is higher than white cards, so...
Speaker Change: I guess when you think about, you know, going forward and, you know, the model and that low to mid single digit uptick you're talking about, like, how does the, you know, higher churn on black card members, you know, play into that? And I guess, how are you thinking about maybe
initiatives to drive better black card retention related to that.
Yes, so I...
Speaker Change: In our history, you know, recent history, last few years that I've been here, the the black card
Speaker Change: Attrition rate is very in line with our classic heart attrition rate. There's virtually no difference.
Speaker Change: So, you know, and I think that speaks to despite the price increases that we've taken The attrition has remained, you know in line with the classic card back when the classic card was $10 and
Speaker Change: So it's it's quite a testament to the value that people get with the black card, you know And we've talked about you've probably heard us talk about this Megan that
Speaker Change: When we advertise, the lion's share, I keep using lion's share, I'll use a different phrase, but the vast majority of our marketing dollars go to support the classic card price at $10 and now still a heck of a value at $15. But when people sign up, now more online, way more online than we had seen historically,
Speaker Change: Elements of the black card create such a value that it retains its membership very much in line with the classic card.
Okay, great. That's helpful. Thank you so much. My pleasure.
Speaker Change: And your next question comes from the line of John Heidenbockel with Guggenheim Partners. Your line is open.
John Heidenbockel: Hey Colleen, I wanted to start with sort of bridging the brand message right between new joins off the couch and experienced people. Maybe talk about that. Were you guys seeing churn rates increase?
Speaker Change: of more serious fitness members, I don't know, maybe to go to somewhere else. And then, you know, if you're gonna get more engagement, right, sort of more visits per person, how do you think about capacity in the clubs, particularly in the busiest times?
Colleen Keating: Yeah so I think I'll talk to the marketing messaging first and then I'll speak to kind of capacity in the club. You know I think we
Colleen Keating: In our consumer testing that we've been doing over the last several months to help inform kind of the brand messaging brand promise
Colleen Keating: We still see a tremendous opportunity to welcome a first-time gym goer, a first-time club goer,
Speaker Change: in our environment of, you know, no gymtimidation. At the same time, some of the consumer testing told us that we had an opportunity to shift the mix.
Speaker Change: So again it's you know we're still we're not we're not endeavoring to be a club for lunks.
Speaker Change: We are endeavoring to meet the needs of a broad base of members wherever they're at on their fitness journey.
the largest proportion of our joins.
Speaker Change: And they've kind of grown up seeing their parents go to the gym and have fitness as part of their lifestyle. So the 80% is a bit more educated about fitness and wellness today, and we want to make sure that the format in the club and the mix of equipment is enabling us to be attractive to that broader consumer base.
Speaker Change: And then as it relates to capacity, you know, I think one of the things we're looking at in our format optimization, and one of the things I've experienced even in spending time in our clubs, talking with our club managers,
and better understanding how our members are utilizing our clubs.
is that we build capacity.
Speaker Change: with increasing the complement of strength and with opening up floor space with the shift in, you know, for instance, in the 30-minute circuit that I spoke to. That's enabling today's member to achieve the workout that they're looking to achieve inside our club.
Speaker Change: We think we're building capacity with our format optimization. Yeah, and I might just add to that, John, you know, today we have, pre-COVID, we had
Speaker Change: over 7,000 members per club. And in any given 30-day period, about 50% of the members used the club and those that did came in about.
Speaker Change: you know, five times or so. Now we have 40% of the folks who use it in a 30-day period. They're coming in a little more often, six times, six plus times. But as you know, you know, we have quite a few clubs across the country, including some of our corporate clubs.
that have well over 10,000 members in them.
Speaker Change: Once it gets to about 12,000, a franchisee or a corporate club needs to build another club to alleviate
Speaker Change: the capacity issue. So there's still, on average, a lot of room, you know, even during the peak periods of the early part of the week and particularly in Q1 where there's, for the most part, capacity is not a macro issue across our system.
Speaker Change: I think there was a study done and it was really around high school summer pass but it was peak utilization month is March and even in the peak utilization month of March most clubs don't approach
Speaker Change: 75% of available capacity. So generally you know we see we've got headroom on capacity.
Thanks Joe. Yeah and then the quick follow-up was...
Speaker Change: The black card pricing test, right? I think it's still in test mode. Is it fair to say you want to keep it there until the white card increase has kind of worked its way through the system or now?
Speaker Change: Yeah, John, what we've told the franchisees in that test is we'd like to...
Speaker Change: run that based on where we sit today. We'd like to run that through Q1 to see how it plays out in the important period of membership growth with the classic card price now at 15.
Speaker Change: So I think, as you know, with our tests, they run longer, and it is important to factor in, or to let it run through Q1 often. So that's what we're doing.
Thank you. Got it.
Speaker Change: Your next question comes from the line of Joe Altobello with Raymond James. Your line is open.
Speaker Change: Thanks. Good morning. So most of them might have been asked and answered, but I did want to ask about the economic model for franchisees. Are you guys contemplating any additional changes to that? I think, Colleen, you mentioned that you're looking for other ways to reduce club build costs, and I wasn't sure how impactful those might be.
Speaker Change: equipment, both strength and cardio equipment, and the fact that the life cycle is longer.
on strength.
Speaker Change: You know, all of those are accretive to the unit economics. At the same time, we're continuing to look at ways we can reduce the front-end cost, the build cost of the club, without any, you know, denigration in member experience. So, you know, we're continuing to look at front-desk format, for example. We've got a smaller front-desk format now that most of our joins are online. You know, we don't need a big front-desk to accommodate people signing up at the front-desk. More than 80% of our joins are online today, so that reduces cost.
Speaker Change: but it you know is no denigration to the to the member experience that's but but one example so continuing to look at build out costs
Speaker Change: to find ways to to enhance the economics for our for our franchisees.
Speaker Change: And Joe, I think the other testament to the model is we still have transactions in our system where people are coming in from the outside to invest in franchisees because the returns are attractive.
So we'll get right to it.
Speaker Change: Absolutely. Just to follow up on that, you mentioned the October sale. Could you give us a little bit of insight into how that went versus expectations and maybe versus other sales you've done around this time of year given the higher class of card?
Speaker Change: Yeah, I'll take that, Joe. You know, it's because it is in the quarter. A, we typically don't go into a lot of detail on our sales, but given it's in the quarter, you know, we're just keeping our comments confined to Q3.
Okay, understood. Thank you.
Thank you. Bye. Bye.
Speaker Change: And your next question comes from the line of Max Recklenko with TD Cohen. Your line is open.
Thank you.
Speaker Change: Great, thanks a lot and congrats on the nice quarter. And Tom, you're always welcome at ICR if you want to come join us in January.
All right. Thank you, Max.
Speaker Change: I can't let you go without one last modeling question, but when you talk about the low-to-mid single-digit lift from the classic hard price increase, just how should we think about that mix in terms of the split between price and members?
Speaker Change: And just how conservative do you think that outlook is for now? And then separately, can you just remind us what the new gym waterfall looks like as well?
Yeah, so, Max, the...
Speaker Change: Based on the testing we ran, we called the ball low to mid-single digits.
Speaker Change: is impacted by the actual mix of the existing club in terms of classic card and black card. You know, if you're coming from a higher place in black card mix,
Speaker Change: It's going to be different than if you have a relatively low mix in black card. So it does sort of vary there.
Speaker Change: And I think, you know, the the the ramps that we see in our new clubs is.
Speaker Change: You know, as we've said, through the years of COVID, it has continued to improve as COVID is, you know, further in there, or the worst of COVID is in the rearview mirror.
Speaker Change: So we're sort of back in that the first year of comps it's in the you know 40 plus percent range and then so we put it in comp in the comp base after 12 months.
Speaker Change: Then after that it's in low to mid-teens, and then it's sort of mid-single digits, and then low to mid-single digits after that. So, you know, very similar to what we had seen before, not quite all the way back to where it was, but pretty darn close.
Speaker Change: Got it, that's helpful. And then just quickly, how are you guys thinking about the mix between corporate and franchise gyms? Is 10% still the right mix that we should think about or is there a preference to gravitate lower or potentially higher?
Speaker Change: Yeah, I think our thinking on that, Max, hasn't changed. You know, we like the 10%, and you've probably heard us say, you know, based on our development and franchisee development, if that...
Speaker Change: One gets ahead of the other in any given year and it's 9% or 11% or we do a small tuck in acquisition or get rid of a few clubs here or there. Yeah, that may move, but 10% plus or minus is still the sweet spot for how we see it.
Speaker Change: Got it. Thanks a lot. I appreciate the invite to ICR and I would like an OC bag if I could get one, but that's another matter. We'll do our best. Okay, thanks again.
Speaker Change: We will do our best.
Speaker Change: Okay.
Speaker Change: Thanks again.
Speaker Change: And your next question comes from the line of Randy <unk> with Jefferies. Your line is open.
Speaker Change: And your next question comes from the line of Randy Konik with Jeffries. Your line is open.
Speaker Change: Yeah. Thanks, guys I got on the call late here, so I apologize.
Speaker Change: Yeah, thanks guys. I got on the call late here, so I apologize. We had a lot of earnings this morning.
Speaker Change: Good morning.
Speaker Change: You guys contemplated.
Speaker Change: Thought about any type of taking the white card price to 15 across the board like Netflix does have you thought about that at all I mean, you did have a little bit of a membership reduction, but it's not all that much.
Speaker Change: any type of taking the white card price to 15 across the board like a Netflix does? Have you thought of that about that at all? I mean you did have a little bit of a membership reduction, but it's not all that much and I just want to get your thoughts on that kind of pricing policy. Have you contemplated that? Thanks. Okay, hey Randy, I'll start that and
Speaker Change: I just wanted to get your thoughts on that kind of pricing policy had you contemplated that thanks.
Speaker Change: Hey, Randy I'll start that and.
Speaker Change: Okay.
Speaker Change: We've always thought that that's an important element for us if somebody has decided and we get it's different and we think thats a positive.
Speaker Change: and we've always thought that that's an important element for us if somebody has decided to join and we get it's different and we think that's a positive
Speaker Change: And we think if somebody joins us and has been with us for a few years.
Speaker Change: And we think if somebody joins us and has been with us for a few years, and in the case of the classic card is paying $10, we still have people with the black card who are paying $19.99.
Speaker Change: In the case of the classic card is paying $10, we still have people with the black card who are paying $19 99.
Speaker Change: We think that we want them to remain as members and therefore, we don't want to take the price up we are in the volume game not not the rate game. When it comes to growth. That's how we think about same club sales and the sustainability of that over time so.
Speaker Change: You know, we think that we want them to remain as members, and therefore we don't want to take their price up. We're in the volume game, not the rate game, when it comes to growth. That's how we think about same-club sales and the sustainability of that over time.
Speaker Change: It doesn't mean.
Speaker Change: And some of our agreements do have the flexibility more recently to take the price up.
Speaker Change: On members, but we have yet to exit to two.
Speaker Change: To do that because we think our past practice is more is more Important, you know to have that lifelong and I think that's another element where we can get more credit for the value that we provide
Speaker Change: But it is something that we think has been an important component for our growth over the last, you know, 20 years.
Speaker Change: Got it. And I guess just the last follow-up here is just expanding again upon international kind of aspirations. I think you spoke about Mexico, Spain, Australia. You know, why those markets, of those markets,
Speaker Change: Is there one or two that kind of would be more pressing than the others to kind of expand more quickly? Just how do we think about the global story here beyond, you know, what's already been built out in Canada and etc? Like what can be more?
Speaker Change: What could be like a third biggest country in your opinion, fourth biggest country in the next few years as you look at it? Thanks.
Speaker Change: Yeah, I'll start that, Randy. So I think, you know, you've probably heard us say we feel good about how the model translates.
Speaker Change: It's done well in Canada. The membership levels when we open a new club in Mexico are orders of magnitude greater than they are in the U.S.