PLNT - Earnings call transcript Q4 2017

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Operator

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Planet Fitness Fourth Quarter 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Instructions] [Operator

Brendon Frey

These Lively, joining results. discuss forward-looking that today, Chris presentation remind today’s On Executive Accordingly, at statements. of and would for quarter on you Fitness’ business. Rondeau, I differ press today you Fitness’ Financial statements planetfitness.com. forward-looking are of and expectations judgment Officer; number make we and earnings Chief Planet current affecting on on based XXXX today’s Dorvin reliance Relations release us is may of these you copy statements. to reflect this the in statements Planet should to analysis certain fourth Chief Officer. will results materially available as not Fitness’ Thank A from and Planet Investor undue of factors section President like call a Planet website forward-looking only are Fitness’ actual place

otherwise. SEC thorough of our webcast, associated referenced a not result a we For the and Form in was regarding to and you forward-looking be forward-looking refer call XXXX well statements as forward-looking whether uncertainties to new any the the statements to disclaimer. with quarter is undertake release, in the earnings discussion in update We of on future conference obligation our as furnished as any included that filings X-K, that today to or which events SEC with do disclaimer more made this statements or the fourth risks information, alter

in to Chief turn these With on to metrics non-GAAP the filed earlier I’ll Chris? of today. this Executive Planet Explanation company call the the refer release may metrics addition, adjusted Fitness. of Rondeau, over earnings In can Officer Chris be found that, call. certain

Chris Rondeau

strong year capped an delivered. top store for share am system highlighted fourth last great expectations. the everyone, in wide off XX.X% you, of of of on pleased extremely a year thank outstanding per Planet results of comp XXth adjusted period both with quarter Fitness’s we quarter $X.XX, gain We same exceeded XXXX with our which and fourth us joining business earnings and same Brendon, you, and by in XX.X% year, earnings call. sales for growth the marks Thank I a

their trends looking are real our For pressure at and opened being the giving in net luxury markets from full Fitness Hawaii of presence and more new existing for were expanded favor. new and the same members of million continue and as we locations At reducing shopping the centers approximately and year key online December. end Landlords be in tenants Planet XXXX increasing count Of the XXXX, Panama. estate us XX.X of These in system-wide many members added store XXX our internationally with to and X.X footprint a due X,XXX Planet total system-wide. With in finished bringing to like were [Indiscernible] markets record the selective company and their domestically stores opening approvals. more XXX time with physical million franchise the Fitness retailers locations. to developers the XXX

the all the our With in in Panama market presence and location international states Fitness’s store XX continued Hawaii demonstrating expansion. Planet

brand. individual of more XX% encouraged by number sign-ups the Panama note demand than to its extremely with and the both pleased are And Hawaii are We the and new member important in for to were growing last reinforcing franchisees their their attractive opened of businesses generate commitment year planet demonstrating are new stores that is the the in to used brand. existing returns in by

brand existing real pleased and that highlight New four after [ph] decided half number and increase partnership opportunity advantage Planet York rate is last on celebration, locally drive continues and gym of western aerial our the estate at of to six growth and January the that growth the study market acquisition that locations million are X% marketing to and XXXX, XXXX and Planet only continue Both early that levels growing to in sponsorship of XX advertising future, Fitness environment one the the acquired typical then year goers and resistance. reinforce made casual the market spent increasing category. my of their collective to awareness rank reach versus our run Fitness Starting we great opportunities power report level Times years brand date. judgment and exercises infrastructure Long our Underscoring Island, of confirmed margins. sense some caters currently like franchisee stronger findings to strategic stores and While giving unaided our have opened am New Fitness's with stores confidence long a fund, effectiveness corporate efforts, we as retire Planet Eastern ad health aided [Indiscernible] since year-over-year brand drive year we strategy, national and highest Square’s iconic our XXXX. brand Eve awareness for in each continued like in estimate to high-profile I awareness leverage late approximately to from new in This to continues joining. spent or all expenses January observed by long-standing in the our million marketing opportunities took $XX our franchisees first-time the $XXX campaigns approximately for [Indiscernible] get free in franchise with avid unique growth gyms. corporate gym national to was Year’s to our new attractive we in us

show points Square that people our when and up aware Planet consideration Year’s joining six is higher are findings of for partnership Times year-over-year. addition, Fitness’s In Eve New percentage

competitive size, resources. on enhancing for we are In huge we and leveraging on experience another advantage XX.X members new given hard attracting our million addition members, to our have focused by our the to being [ph] working ledger number us brand, data from skill

new next and the personalized exploring mobile and few our are ways Looking members we equivalent more delivering our to to out app. via connected journey to the advanced years, over

have to entertainment equipment ability to the our immersive, with workout provide is vision experiences. Our and

a For Card Planet have to get the Grand or listen you member, track your Spotify, the Want running and [Indiscernible] elevated essential choose are what app. worked your you run example, your Netflix, to to watching could to on you Canyon. Facebook where Black browse an progress Fitness is treadmill experience the you, to appeals as

having years here day, calories last how data, ran, that data running our come. trial opportunities year. about that to month but experience Black energized to technology next our the I access what the through with scale right an to As last do machine for franchisees and to to itself, so progress. see upgrade, on you in personalized how to last burnt, to equipment have getting opportunity ability upgrade locations. and members the our visit vendors could enhance of most with to develop gym can experience equipment favorite them goal White leave I’m to how and exotic you they to leverage and Card week, Perhaps, on members watching and recommendations the far you your user of you work leveraging our many the enhanced collaborating out described compares and the the size, them excited on card could rather their to serve them programs is By target we exciting and just easily allow based the history what instant during your

of contract next and equipment will of machines in with our about We equipment we about three are to forward our manufacturers dialogue details next currently generation sharing feature. more the look

Looking new achieved day. new Strategically, to up operationally to on opening Financially, reach approximately and and expanded a we it some record same national adjusted our local and and the the confident great EBITDA. continue people’s our Planet team began in improve and I’m Fitness XXXX, momentum value franchisee execution every record we back deliver our poised further And was the had the term support with great double-digit successful the brand and boosted XXX XXX million extremely wide millions increase on awareness increased of executive is teams year system board million. call locations improve we our talent year system. program to for help over long directors and advertising growth and in share to authorized social turn through front. repurchase posted the lives throughout our Dorvin. simultaneously to future, shareholder recently conference over $XXX every of the their We and a each and the With to underscoring XXXX that, I’ll

Dorvin Lively

begin XXXX of the and reviewing from quarter outlook. then discuss Chris fourth by afternoon and good results, everyone. our Thanks, highlights our full year I’ll XXXX details

year balance prior same-store XX.X%. increased X.X%. segment $XXX total member compared the in with XX.X% in put new by combined by October penetration XX.X% of same-store QX revenue XXXX, sales with For increase sales growth, was comp from place Card net being Card Black the in same-store was fourth in for our increased points franchisee sales basis X. Total quarter joins $XXX.X that From XX% million million year, the rate store, pricing our to increase and our Over corporate increase XX XX.X% would increase and pricing growth. with driven increased system-wide driven a the perspective, increased on by to The Black system-wide last of period. $X

same-store pricing drove sales. basis points approximately the the quarter, Card During the of increased increase XX Black

Our was million, from period. $XX revenue million in year $XX.X segment franchise prior XX.X% of the increase an

Royalty break an revenue down of and of year, of to of royalties increase rate. in franchisee million, franchise had fastest-growing mentioned, the compares stores of higher which membership we same last same-store overall XX.X% royalty new the on of $XX.X average drivers; sales segment. third, our revenue last million owned monthly three increased drivers I revenue since XXX fees. dues consists XX.X%. Let the year, royalty increase quarter our by opened second, and fourth annual This year-over-year first, membership $XX.X me then quarter a This was as

period the more rate stores at driven our was agreements. the quarter, For up royalty year, amended including their that fourth franchise in average X.XX% same last stores from X.XX% the rates current by royalty

thereby additional us the purchases As those commissions same agreements we call, as operational of time approximately existing by reducing eliminate the to operating franchise last at to the an of XXX certain their end QX, amended expenses. and X.XX% discussed pay had their our royalty on they existing stores rate increase on

approximately which rate average XXX During for their existing in increase amended will additional XXXX. QX, the agreements further franchise accelerate our royalty stores

by on XXXX later in royalty growth will discuss the our assumptions operational no when rate, guidance. commission these we’ll it outline future corresponding X.XX% However, royalty the we remember receive is change increased a important that the additional in as by offset decline that to income commission being stores. due to I’ll purchases on call income rate revenue our receive expense is longer I royalty for

$X.X as over Next, were franchise of as the the new from X.X% system, year area period. as with of online fees agreements. processing from member us well in transfer on prior through point-of-sale and association fees sign-ups paid These development our or other to received fees $XXX,XXX an new million, our dues as are increase fees existing franchise agreement the well agreements, sale

you related a a Fitness it of years area applies agreements ADA’s existing and development agreements are but all customers for lease time to Planet versus over store for gap XX future many recognize we there post-PSG’s typically effect area to recognizing XXXX. agreements In with at related As the revenue acquisition into apply need not the franchise was the million agreements are $X current development these new which signed is re-establish cannot in and all our back through within now walk entered franchise to on location. we franchise fees These results, XXXX. agreement, FA’s for in recognition into prior prior went contracts our of by was This of certain would $X.X driven date. impacts that agreements changes also only January aware to are a franchise equipment Under both, X, at our our essence, once rules and the change new to segment primarily year our quarter. period, to in an is accounting owned you stores. Similar revenue fees also the the Back placement which franchise XXXX sales for XX.X%. the to revenue component rules, year in prior royalty higher to and the later increase during call. assembly that and store of these million to increase versus revenue, franchise The go acquisition I’ll equipment you of placement receive rate, QX it deferred how life

openings few royalty was year decrease and arrangements are for ago. higher of existing of goods instead franchise attributable preferred new international that vendor have Finally, the expenses compared million a ago. our paying commissions a for $X.X increased that $X.X commission from their their amended incomes of rate million equipment operational third-party is which The store agreements and I commissions moments stores to number cost mentioned with

million corporate in $X.X owned from X.X% revenue increase corporate X.X% revenue. $XX segment the prior driven million increase by driven in store was and fee The Our sales same-store was the of $XX.X million year increased period. owned the increased by annual to increase

Turning to to The equipment higher our increase increased franchisee XX.X% placements year segment, from versus million stores. $XX.X sales to or revenue new higher equipment replacement $X.X million store ago by million. by a was owned and equipment driven existing $XX.X

prior as of equipment revenue total approximate percent a year. For the versus was revenue XXXX, XX% for XX% replacement

new direct amounted ago, an operation with our the four million million which an franchisee, in $XX.X was relates primarily increase are which XX.X% million equipment by which associated by driven compared Store with a and to of $XX.X including $XX.X sales to revenue, preopening quarter. of year corporate driven cost cost in to existing to year million opening sales cost expenses. was $XX expenses ago. quarter, of stores stores equipment stores increase primarily to the the The associated owned during a Our new owned increase compared to increased

a prior expenses, Excluding to year to million not increased third to SG&A prior $XX.X of preopening compared compensation This quarter in these from did was store This slightly $XX.X and new as we expenses the SG&A million compared higher $XX.X compensation store any for XXXX. equity million, to would driver $XX.X new quarter of the have stores compared million also year. was the open increase to adjusted related increase primarily variable in the operation the ago. was period. primary the

write year-over-year payroll capitalized a basis, some our to we expenses support costs. IT on and operations to off incremental non-cash infrastructure related some well addition, the some In as had growing as of

income compared the million million $XX.X operating income for quarter, prior $XX.X increased of Our $XX.X to the million operating to year period. in

margins the higher overall increased growth the in to our we’ve due points basis XX fourth to as of operating While XXXX, infrastructure. revenue cost XX.X% margins primarily approximately and quarter continued to leverage

As are some and be run year-end net a new assets income had result TRA liability of make Act, income as for of are to rates. Reform we were statement those required our affected tax and and the our and taxes adjustments tax to GAAP adjustments to both tax deferred through

XX.X% Our GAAP period. effective to income tax rate prior for the the XX.X% quarter compared was in

an is revaluation $XXX.X tax reflect include gain result results the tax rate, TRA expenses. income tax of a by corporate XXXX due our re-evaluation expense Our offset new deferred of and assets income a Act million in the of Reform other lower liability, from as primarily additional to tax of $XXX.X million our approximately which partially the to included

$XX.X or of on $X.XX a GAAP to result $X.X million for Fitness reported quarter $X.X to Planet of of a attributable XXXX. diluted quarter. prior share diluted fitness per a loss As income planet compared million per to Compared or the Net to million net million this, the basis ago. of attributable $XX.X a income year $X.XX fourth we year Inc. in net was Inc. share

associated adjusted period. appropriate As basis, Fitness per tax non-controlling reform before, the compared if Adjusted was million non-recurring and an been earnings exclude diluted of $X.XX in or to Fitness normalized of tax not of per share deferred income and prior increase tax On Planet income at corporate net Planet Inc. XX.X% for company XXXX Inc. taxed attributable liabilities, rate net level, impact adjusted of an assets the has approximately income the the the the $XX.X rate interest $XX.X a income tax because expenses, reflect or and diluted from XX.X% of to be $X.XX at the year XX.X%. an level. share, our the the adjustments would TRA liabilities, we the adjusted were to all million stated tax

have earnings adjusted of today’s net net release. to We GAAP in a reconciliation income provided income

GAAP last of taxes EBITDA to expect for Net normalized considered approximately Income of year, the With adjusted tax prior which segment stores federal same-store EBITDA certain from driven and be of net rate we period. increase not are received to tax the can XX.X% which non-cash XX% now the included segment, and XX% our to Adjusted year $XX.X $XX.X additional includes owned the our local impact the million and evaluation of be to on late state reform income EBITDA $XX also release. XX.X%. from the as, royalties passage and that adjusted in before same-store reconciliation an found million increased franchise Taxes defined for in increased to in earnings of franchisee other franchise items in is Interest Depreciation performance sales higher By million operating base, by Amortization not sales A in ongoing XXXX. XX%

Corporate by to points Our four with associated corporate higher sales EBITDA a owned $XX.X adjusted in by and that expenses increase up owned EBITDA offset preopening opened store margins X.X% driven X.X% corporate franchise approximately the XX quarter. during basis to by primarily increased same-store the fees segment annual XX.X%. increased stores segment partially million

adjusted approximately by XX.X%. XXX to margins store increased EBITDA basis points corporate Our segment

however, adjusted in margins XX.X% compared EBITDA segment essentially equipment EBITDA were $X.X million year-over-year and $XX flat Our prior to was as EBITDA XX.X% increased at the million, year-over-year adjusted quarter. by

year, year in Revenue sales the sales. same-store summarize me increased XX.X%, straight full XX.X% March the were quickly let XXth XXXX. system-wide positive for to this with same-store Turning highlights the up

store this XX a basis X.X% was increased Equipment our million equipment in a for X.X% end fastest-growing of the to towards time to rate us store the revenue revenue included points unable the XXX on new gain. our to XXX couple by construction grew a XXX due increased that equipment the prior segment revenue comp XX.X%, franchisees to which franchise sales royalty year by $X.X segment were locations Corporate X.XX%. rose of end. year segment range for to place Our few lower driven average complete to

million Our adjusted lastly XX.X%. points adjusted basis to net then EBITDA was increased income XX%. XX.X% our up margins with up to $XXX.X And XXX

stood Total we of $XXX.X our senior Now consisting equivalents turning at $XXX.X balance XXXX of loan. end, deferred cash million financing $XX as was capacity the million. million year at credit cash of costs XX, under borrowing and excluding December and facility solely to sheet, had bank term debt revolving our

As aware XXXX you cash of release, approximately that Chris store Long $XX the stores press acquisition from issued on January we X, earlier. of are to six complete utilized we our year franchisee on mentioned from a million the Island located ending

position, our which borrowings current announced we spend credit total As future has facility. funded flows repurchase portion of corporate program Directors Board new cash $XXX was our authorized our share $XX.X for purchases cash in or increase our today, share an offices. included CapEx, could in our to of million. $X With approximately XXXX be million to under respect the Future by million,

store projects. incurred approximately the for our million base, with equipment $X corporate was for well Additionally, replacement million primarily we associated stores as remaining renovations four and for CapEx IT new $X corporate as store

approximately on an with For XXXX, $XX to we a target CapEx of apples-to-apples corporate XX basis stores. new [ph] anticipate million be

similar equipment CapEx incur year. the replacement to prior will for We

outlook. our onto Now

marketing Prior revenue associated is cash these guidance to and changes, new year. managing December GAAP however, on as of XXXX impact expect beginning rules fund, including the expenses XX, to dues the revenue an our all year XXXX, approximately corporate only SG&A sheet from ended national had restricted we revenue, Due the the our we the by franchisees contributions liability. as ad impact currently X this line. January recognize really of and additional expenses increase must in accounting from the stores of the of the included the X% our recent required Ad in we to National our or as monthly as for NAB contributions collect Fund balance this as For now book with XX%

topline quarterly rate. impact Also compared to a revenue outlook, contributing we from $X expect our XXXX this While it the the recognize year how XXXX. impact with full we change, incorporated is line growth XX% which and our to million line top bottom change in fee about will or there for ADA be no X% will year to the from FA approximately headwind be in is our this

versus As I the fees store mentioned related we the over signed. is period now to recognize need these and lease earlier, a ten-year time

of GAAP agreements since our revenue. balance which the GAAP existing current these rules, If for example, approximately sell, XXXX and store For under were ADA rules that earlier, the $XX,XXX signed FA typically old $XX,XXX need P&L. remaining lease $X sheet $XX,XXX when for I year instalments under we approximately for recognize for under had re-established million deferred headwind we offset location. XXXX of and for and store next of years. recognized to the recognize associated to new and over ADA less million, under $X.X partially under In Helping XXXX, been ADA the in first X.X our rules. nine in the than we XXXX the million in signed. that $XXXX new GAAP, stated fees dropped the for the would related we We portion current million. to is $X.X the would store to each on prior FA FA each franchise fees XXXX, we XXXX, the recognized the have opening as In but in agreement for equal this bottom with fact each we is recognize the the XXXX GAAP line previous remaining $XX,XXX reported the anticipate which have re-recognize approximately as we’ll

percentage state in following range. the rate XX%/ is EBITDA and projected effective includes reform. local approximately increase rate approximately increase by recent In tax we profitability, expect XX% Adjusted and which new tax the federal of adjusted adjusted XX% income net to of an guidance terms to growth the This EPS to assumes mid-teens

rate the adjusted of our to technology $X approximately is enhance comparison the Act industry a grown business year, We the XX%. reinvest are the in in are trends to be to our prior for benefit current already reductions, have infrastructure ensure which the order developing into outlined. addition Fitness adjusted and guidance. in and Reform EPS savings a and in and year tax member business portion tax XXXX, These $X by income primarily As stores following net would on our before to systems to and Planet in well-positioned back used CapEx to range million the The in to experience. to investments spend capitalize the million estimated are the assumptions full plan

in system-wide respect increase with First, the digit single sales, to are percentage range. sales same-store high to expected

We sales XXX future guidance share again include our to total place I to anticipate this to any EPS potential be that are stores sell out of doesn’t equipment in XXX new repurchases. and point in want to equipment also approximately XX% approximately year, replacement expecting sales. equipment also

decrease points with franchise rate estimated I’ll impact approximately increase this the agreement the for questions. now commission back of coupled the operator amended Finally, on opening amending XXX have corresponding a and we their royalty of XXXX, call the as stores increased the increase the in income. their average turn XX, franchise the basis existing agreements to by new being XXX stores royalty XXXX majority expect in based to current of X.XX% of the rate at stores December up that with rate, approximately their

Operator

compile will the Q&A a roster. to We Instructions] moment for pause [Operator

and first from Your question Chen Cowen is Company. Oliver with

Oliver Chen

the Hi. had we of a Congratulations unit quarter new outlook. on great on and economics generally a the question And gyms.

impressive the national of your on As we markets important trending? really with lot then, powerful budget real a some of as marketing economics story. an the are growth. quite that of had you been unit long-term basis ahead are you expect with part to and a the more awareness. in as How building How what's been dollar driving part unit look it’s trend you And would amount a

that? how about Thank should you. curious model Just we

Dorvin Lively

Oliver. Sure,

them new in from terms sales you at new And high stores, the In of our months our same-store look tend percentage we look of we comps. opened. We the that the in about to Class drive way stores, past talked see they them at year. at fairly by the we’ve new stores look

in XX%. They’re of year going a or in first kind comp at it to year call comp The two operation. XX%

kind range. range. similar are And second year tend terms EFT similar we XX%, to is Your the of very going digit same-store XX% and be the you then into stores sales be get fourth older year in once that mid-single from of they Those in that kind year. previous vantage in our of very XXXX. to perspective, still an From perspective, in a opened the

Chris Rondeau

standpoint, for contract. I off. this, Chris, as far it all marketing I two news, a And think you that kick if think of This third years as auto is can the good year. We additional renew from

is as mentioned again that Gold's high. we I budget these is is it time that static, to done of awareness, continue -- grow which member. did so this each that, marketing We all continuing had drive one, with any been on dethroned seeing think is we’re we’ve new brand the number gym, so already that's since course that to comps So ever

implement million all So year. this year new last X.X continues to members dollars marketing added fund is net that

So I that driver’s were dictate we’re driven seeing comps. think the driving. as what data marketing the we’re is our of to formulate Lot using momentum decisions

Oliver Chen

about customer Chris, Okay. changes customer continue we really think And a it the exciting. and lot churn? for What increase do to think or increase impact? plan you How will in impressive universe? your experience traffic, are thoughts decreased Do And how should sounds the of model? the there the to lastly, will satisfaction digital the on digital is you expect innovation what

Chris Rondeau

Yes.

You’re that testing, right? we’re the talking cardio the premium about consoles and

Oliver Chen

Yes.

Chris Rondeau

three data to yet Yes. I’ll the be be quarter, really is – peer portion XX that early say white which they is the will is said clubs with still the construction. in usage early them driving more than put little sites, five a say, so each that, just early more Again, there’s being still but fourth what early, will than we sites, manufacturer read peer their their of peers, and put in cautious I upgrades first of it’s and in one driving card we’re Its delay I are shortly on club.

So through and evidently like Zealand. New running people

to over seen to I figuring to this to years and So of honestly, doing interesting that enhanced it for be we’re what its members increase industry something XX learn, if based habits to able – all be able know actually out. and forefront never and now our to an mean of be able and we the on that experiences has just the we’re see in this

Oliver Chen

Well, regards. Best very you Thank great. much.

Chris Rondeau

Thank you.

Operator

John next Heinbockel Your from is Guggenheim Securties. with question

John Heinbockel

let X million me business. that would is with like million not reinvest that more And looks XX%, little to is you’re the EBITDA go to that close be guess going? detail? Can I to going Where So start into it you for about that right? in the growth we’re X that

Dorvin Lively

Yes.

are to ecosystem about that it that enhance when equipment we down think I the the we which member. with how are the that premium the the talked past and So the of all back in do manufacturers – see in comes consoles industry these side work really experience never complete to the that and members I data it had either of to process to which comes the technology

all them to people the think get attract, and they missing to what get is lot know there there, do apps link to how they started what really and and did that’s So should of need journey fitness what do tomorrow. many algorithms not results. about to variables figure recommend out with and When the tomorrow they you then

that to businesses that getting million What with purposes, employees front that a use And the subscribers doing for are capturing healthier members get they're their What do for experiences companies we data, year purposes. they What say likes in XXX their advertising how their use corporations we or how million over them. them and dislikes What doing? how they on and How like. are. right members, of then get that not have we we workouts So, do based for insurance and out. are and advertising these working and you then show to they’ll other XX like. products

So that XX growing. capture that technology our members as then and that building John, ecosystem, to all million looking whole leverage and we’re to

Dorvin Lively

Yes, adjusted basis year-over-year. think question I grow to a said mid-teens in in John, think of terms I I expected our as we was guidance, EBITDA you’re percentage our the

John Heinbockel

million the Right. $X million to $X investment, That right? includes

Dorvin Lively

to The a is little chunk million to mostly It’s good CapEx. be OpEx, of CapEx. million to be going going it will but bit $X be $X – it’s to be going of a

John Heinbockel

or pick is and because any secondly, go then brand need from and And what's the faster could there or you about grow a back here you if Do that’s estate push right. there hold pace XXX awareness that’s there – to happening idea the the of you is building, real your on who to want boxes any think faster And tension to their All want market. the up exists share. you performance, more not that given franchisees but think so, really? openings, the still do you

Dorvin Lively

a additional big spread REITs down retailers that other we’re club so will going call sites a I that we you franchisees out are a back it's to to are estate approve do it lot that’s we be for the in and given to And and have just is geographically. me developed that And about we mean, availability alluded us see tension. that at that "R" I for front, continue of of that think we club. latest we the see back Toys the that a the that that I One, retailers is that, not out not are There’s is go as we on holding to no favorability others significant extent pulling sites. real mean, Us there’s couple couple And of I to availability. schedule bit anything, and I No. hundred with There’s there. fact, particularly but taking benefit and terms and of not ready the site guess building that think of don't doing there's we’ll way know not still keep address the lot maybe look us number mean, an it are development you a past is little not in them for maybe ahead members site market talked really that we’ve and that reasons; I the to

the little now. are and didn’t some third XXXX Maine in we now be an two Second, their believe there labeled they it them. the we’re available meeting example. to ground-ups that powerful their in But approve XX XXXX and year we Chief about we if we I into will think expiration mean, either that that’s ago that so sites them XX then is portfolio, we in sites more available XX But they more and and sites, lease We we you starting one, existing and then think months franchisees in months we open in go really are and than early Maine did should we've called we’re more doing had doing and those say in kind right and of ground-ups right a time and a is XXX just in as think are of bit the doing it want seeing are probably I still in we an right today out won’t more Maine. of element of will month to And of are become we it number. Maine XXXX available. franchisees the then on kind sites process kind lag, couple But at franchisees that’s now that that would have certainly don't that from to XX will or make with That And push The believe we’re open it's hold if much growth. those call to now now I’d Rob I more XX, do our myself it the taking that Sopkin franchisees. directly or whether today. last that’s Development at tenant the what more point approach next and like in coming bringing Officer angle. or to top-down We with Chris REITs on sites down up that's sites is we

John Heinbockel

you. Thank Okay.

Dorvin Lively

Thanks, John.

Chris Rondeau

Thanks, John.

Operator

question with Jonathan Komp next Baird. from The comes

Jonathan Komp

into you the Thanks to in question on wanted momentum carrying guys. Hi. to broader XXXX. Yes. made And follow-up significant statement over the just release press a want ask in brand you a I so what about that year. far what high year key sign-up single-digit last the periods? And think you've is guided comps little the for then above seen initially to guidance for Chris, I

of about sustainability currently could So talk you just what the you're seeing?

Chris Rondeau

Yes.

everything nicely sites quarter. carry filling for locations couple to the our so everything you’ve the I year, here the seen comps momentum comp still high first see can double-digit sure up for Development low think the I for pipeline, on is last years. from the single momentum as of

Dorvin Lively

will in that, guided I’d full that that the low-low guided be Jon, much we but about double-digit, year, be clearly we Yes. single we we quarter have we to QX, with are comfortable add year the high QX We visibility think single but range. digit for may here, feel the still high on of kind not talking the is, a high that of think end obviously into year. digit full only but that

Jonathan Komp

Is about a included talk bit so know some or potential about terms the of the or for year there? loyalty the updates little And something know then, great. you’ve I app there to some past of Okay, component. component in but be in I that. the in talked it’s digital any drivers, of the over technology you

Chris Rondeau

you able partnerships case companies rewards people could Not be would heavily, to see easily are of technology other The achievement partnered doubt the will program some can sort with for but the to with brands. host, with no the be our and the bundling. how too. tie That doing, we app and

one won about it million its fine-tune of done, an we And I months. how how be over will and a spent evolution its like that experiencing, I the So ahead will that’s years and like in thing different – that why XX as is technology and members XX what with we think it. it very it at we be in we think [ph] look think looks is, and learn six, not it use enhance it we months than something

Dorvin Lively

building I would our that is, Craig Chris a link that if us somebody whereas to take that. is from today we’re the as perspective to talking to is Information easily but Officer, to months an ability just plumbing build of to been has to Digital prior Chief the loyalty to call, that systems then like some with and doing more about something Miller, on think, things this with our have able to into lot we’re a technology add Jon, on even be that it not to things program pretty do infrastructure one be the certainly partnership able as & example years today

that down case with the able to, our point existing We is technology flexibility whatever road evolve may Chris's to with to will and have systems to be. up have its whatever the that the to be the flexibility others and whatever do partner

Jonathan Komp

to the outside re-equipment Okay, you I equipment, potential about technology would about that into incremental existing great. equipment new don't sell to be of And be also I equipment so covered, think console you’re but there were think then last but talking incorporated the cycle? opportunity normal sales, is replenishment the when could think standalone me. new this be or one retrofitted as a from that a obviously was that

Chris Rondeau

may retrofitable but consoles there’s a a franchisee to They’re early I that good did retrofit new is five no, stuff. hold going for continue today going because today would newer so upgrade. have which the equipment is they franchisee, see would in could necessarily be buy not is you waiting Not their years as wait of not and it if want cardio. consoles, today to I continues positive thing. the But the out see we if four, and see to not data to stuff cardio a them push in if would buying they’re these But with the trends to retrofit it

Jonathan Komp

you. Okay, helpful. great. Thank That’s

Chris Rondeau

Jon. Thanks

Dorvin Lively

Jon. Thanks

Operator

comes JPMorgan. with question John from next Ivankoe The

John Ivankoe

Thanks. Hi.

First, placement in the equipment there estimates? sold package your any housekeeping average is for question, XXXX the in to change

Dorvin Lively

sorry, any say I’m in John, change what? again, it

John Ivankoe

average Is there package price in equipment change placement any the apologize. I or…? in sold XXXX per per

Dorvin Lively

No.

John Ivankoe

Okay.

rural, volumes average, that higher So than for the same terms those in urban, profitability maybe to see that of the characteristics, regional, higher whether and you. then characteristics And see levels in doing franchisees its and really whether beginning free you’re sites XXXX. system, is really pursue Are XXXX. in particularly XXXX are any XXXX of to new Thank its type than you Great. seeing of And that anything store have are you certain sub-urban, average types secondly, XXXX? your company what you. top defining standing rise in to a with of stores whether the there

change the words So is opening in what for of of volumes? to other significant trajectory is, opportunity unit an there I’m getting new

Dorvin Lively

over little square that down say monthly always might in did when Yes. bit, basis, a a area. an stores is the of smaller. Ag John, EFT open I be months could footage markets members outliers, rural I little there's or then urban they We on EBITDA metropolitan mean, store not corporate California, to sell and and say example, few and smaller and in a high indexes significantly outside bit. I smaller, would we XX but a smaller a extremes XX the more area say last months the build previous certainly more bit markets

on slam store fill-in little get it's we what it it’s But market. look a of knowing way in call do of knowing John get to the I and terms sometimes because into market. smaller extent a every a they because, is they’re certain one a only bit space grand a the doing, that’s not portfolio at Sometime our might how a can hit kind you maybe to going to of single and franchisees

percentage store X corporate point albeit slightly the being be get on talking Card up from higher there's perspective. $X with you the open might at of that maybe with last might year, stores looking at portfolio, competition price QX might kind Card store. average. our But in the to just new one being it to four be out outliers there, our to want we get a there, there October expect but franchisees, You smaller with it before Black sign-ups started it It even major be not one your Black get higher, our member in no might

four-wall good profitabilities very We see at continue basis. to

Chris Rondeau

which I months is been in promising. the think one XX thing I’ll better uptick add John is seen in a slight the, have past we attrition

John Ivankoe

systems covered, performance great. some That’s of economic certainly, different have That’s geographies. And across that okay. lot you I

volume different can a you seeing lot its this from perform surprises on reasons perspective, expansion? side but you average really, seen that real have profitability different -- an low national the you unit that side not high are So materially continuing perspective, whether fully market the of kind or from any on you of

Chris Rondeau

go reason are Denver that -- the really see these there across might might go you draw weather might Chicago, – not say know a to ends all any. the it. you levels that. John, mean, we in isn't the don't could be for different, different through do. Many really ethnicities might with you rent can But income Dallas, geographies and might might higher the be where there those offset you whether the area the some I you volume high be of market spectrum be John urban say different, Orlando, Phoenix, higher the you're in you're

[ph] always whatsoever. a warriors might the different, outliers said kinds percentages not I in there's that of as Now but perform that ever earlier bit

or you $XX that members, seven. XX%, then instead rent you less maybe more typically may but rents or high-teens markets or is some but you in, paying will five foot see population markets, rural have six we smaller paying and XX% might of you so all what low or have So they very have be your square

have those there’s will a markets higher more market store in that EBITDA dollar And EFT. and members actually more in that wise some a another than so,

see not what or something. the operates to you where and southeast where of differently of a you're particular like referring it's the portfolio So West kind

Our doesn’t work model way. -- that model

Dorvin Lively

time John, Real say, Hawaii I’d bang to club. for start a that of say example I’d off

Chris Rondeau

it the And grabbing Vermont. places corporate up they this, that open use rural very to pulls small frankly to store club to is area and kind a well. And dentist minutes like we in to that town, XX it’s so a exceptional And Berlin, go XX club in a very, from that grocery range. the store of to or -- pulls a people

Dorvin Lively

we're actually, say, inside Walmart.. enclosed the mall, an Let’s

John Ivankoe

That’s great, guys. Thanks.

Chris Rondeau

John. Thanks

Operator

American Rafe The of comes Merrill next Lynch. Bank Jadrosich from with question

Rafe Jadrosich

afternoon. my taking question. Hi. Good for Thanks

Chris Rondeau

Hi, Rafe.

Rafe Jadrosich

historical You you’re about your end range, talk you thinking finished low leverage how the about XXXX? can with in debt of potential for recap a

Chris Rondeau

think as range when always did QX, stated to talked about We QX that been our range. we and release we’ve in this that three kind that know, we did five guys I our you of when Sure. has kind of

sometime that the we down be. of our expect or having low range. the end into right and before that's this we By low be in And so. below still about have end said the are to XXXX would low would We the And option certainly what and -- not that. are year had at the we getting refinancing with do at do conversations towards we we should that board early something

Rafe Jadrosich

that and are year now all question is then seeing And are seeing? you you’re you driving think that comp newer it your in that you driving maybe this change – at same seeing it's are for or mature clubs that accelerating, is uptick. seen Okay. clubs comps was when fasteners you clubs different what’s acceleration than it look what those the in the earlier, What’s ramping that mature. the are the And

Dorvin Lively

is some is backup billing by to for a well have lot driven as and Lot [Indiscernible] across annual reequips stores and board quite all-age model of the method the driving mature it's the some, billing every much is more as pretty fee there that. it is a driving the we It’s in of whether clubs, the members? lot of clubs, doing secondary timing in option there which

Chris Rondeau

in said – putting think bit in that has an lease is came with card than or past across I And or buy expanding in do to teams expanding dialing we estate, than maybe you our they and gotten clubs any one a have lot I the I down of go today some like a larger operations of a it have didn't probably area in they've think this Today groups had their gotten ago sophisticated real of just by and the mean, street better on next team a I marketing shopping a they're thing which are I five the of clubs, frankly that, much expiration, a I that franchisees we've they outside hardly putting four; larger franchisee. clubs CMO, that the have CFO they've to older real they many and our that estate. think operator their as operators years think with been. that talent our an the Things up relocated center. more used to. think ever and more

is the mature much doing better So clubs net too. that are

Rafe Jadrosich

see to pricing. the surprised you in was increase Black I question. the penetration the that last quarter went Card up And

the what talk place points and XX benefit. you what’s expecting think after penetration? expectation quarter for I the about you talk Can in is your quarter basis a like terms seeing forward you going about last you're of a in are having

Dorvin Lively

Yes.

We did of said when Card side pilot in As X, know it that we began point I in said the it negative was QX, members. was January to basis little for the impact a about XX it the acquisition it. we new Black impact saw

wasn’t it basis came as points. of XX kind that unexpected its So about to how but out,

our XXX pricing should I think guidance. have basis XXXX that into the at embedded as look points probably we XXX,

Rafe Jadrosich

Thank Great. you.

Chris Rondeau

Thanks, Rafe.

Operator

Securities. Your comes next with question Hardiman from Wedbush James

James Hardiman

good Hi, evening. of to on for my wanted reform. Thanks I the cash touch impact tax taking here. call

pass-through but benefit you? your through rate if do are don’t And on how result corporate going how little affecting tax tax is a reform curious Maybe you rate, But know schedule bit of I mainly these XX.X And any and know after and any, the You with to to or your to talk the savings ultimately have guess impact. paying tax for non-GAAP guys statement about reform? changes them gave there impact them that’s different that expect lot to maybe maybe of rate before your does us to XX.X. the as of is then franchisees. How that’s the income us going I of a is impact do rates? give TRA I then a those paying walk the they’re us delayed that schedule even tax just change if what cash

Chris Rondeau

Sure.

were at Class reform was And to our upon of Fitness all the tax Planet rate therefore it XX%, we shares adjusted we’re our previous today it XX% our tax it call Inc. A shares B XX% of those all XX% tax is income shares Class was based shares, XX%, taxed So shares. about level. about XX% -- roughly all XX% still of of our our the assuming Inc. Fitness so have to because and call of income are of at Planet call the

So the and taxes the then on that then of that those dollar the reduce of which the of TRA the to of in XX% government, at XX% most holders tax we it a those benefit to rate were sales getting of a were we XX% which And as from went that deduction sold-out. getting the our And dollar. cash the company. savings benefit from $X.XX state call step-up from stock tax to at were XX% TSC on basis they $X.XX

of about we of XX% off always think step-up it was I've that our reduction because tax way the rate that. about the is got -- a So about talked roughly XX%

So the in having the kind for benefit by place. of structure company that was this [Indiscernible]

you So tax estimating XXXX. it now rate rate fast-forward will full our XX% if federal local that rate were state call be our with now tax and XX%, to for

no benefit is XX%, a dollar, But on huge lower about there that’s XX%. $X.XX I essence paying call tax that that then because which why using future we’ll deductions tax cash P&L were it's those expense went in on worth it that talked that be then dollar. which $X.XX the it's we longer the worth re-measured our that Now we deferred only rate through

still pay income to by pay significantly we XX% albeit have get to holders. basis we we’ll taxes savings TRA the the will it in the tax that but pay those that So, about this we a less XX% the of rate at then deduction because way reduced it with IRS, XX% we we those is will tax rate taxable think cash will at to that

of tax rate. it's about XX% So that benefit to Fitness Planet off all XX% again XX% a to Inc,

if pause see is that cash the sense. I tax and So rates in in taxes there that through walk as that kind of way clear the if essence adjusted make let in just me

John Ivankoe

bottom how is free me I affected that does. it It And free the cash flow guess from cash being tax by after for flow line new a rates?

Dorvin Lively

Yes.

rate your because because if XX% in TRA go the tax not our but TRA P&L, So is because you in deduction, the on have and your see a you'll income only tax, call they year. look holders payment tax lower a of it's at the the to to you flow still cash goes to that payment flow at what look albeit you’ll following that it cash statement free

So statement this holders. taxes need taxes. the for on at cash I'll out the $X.XX i.e. when to that's to year, and less arrangement reduce because my taxes example, TRA the free take you'll in XXXX make to go those tax less the cash XX% IRS, tax flow throughout only the TRA. deduction the pay worth under dollar, so in payments, I’ll we quarterly I But you that pay XXXX so a that of pay benefit have to And paid savings will in then essence I'll taxes flow to less cash look the

John Ivankoe

And going that, sounds to At don’t all like but that of dollar you I significant? its us significant. sounds end good. know then of pretty give It it the to a number, day be net if want

Dorvin Lively

XX% we’ll of to year rate XX% XX% get and Well, is about paying in the essence minute we’ll point a the made a -- I the is benefit tax that it the getting about a XX% of in ago I the you're about off next of tax you taxes think basically when be that the in take you of off Because TRA, to essence if lower my and you XX% so get rate. add it. your government down benefit then right when statutory

John Ivankoe

on And there? franchisee the then side, helpful. That’s any thoughts

Dorvin Lively

Yes.

their if of of get and cooperate then there’s the rate limitation or a their entity think that as where a about so passed we’ll LLC then addition, a a assets this placed zero is CapEx that a LLC a basis capital an leasehold. obviously XX% as in income through deduction deduction entity tax a assets a to couple of you will I and are well of their entity, corporate leaseholds at of we’ll franchisee entity XXX% And things on a whether that immediate in get of less get gets they service their subject outside XX% you’ll is if and get that corporate W-X are wages. there

and you what it jobs, essence there, to are if do Act think doing basically and go you what about and Reform incent be the know So assets to generating that’s Trump asset. invest people. of the you you building to Tax they you gotta in -- they you said, But you did, we’re back going write-off that that are is employing believe I saying immediate by an got what this is

if tax in you but of W-X if on so So have employ people, put XX% give wages of that income, wages, and only them XX% to wages, you they your limitation a you’re going so W-X there. your zero of you we’re paying

the I have So know do, of high smaller say I’d fairly particularly why don’t what guys. that’s percentage LLC, percentage these a

net of taxes the save need able are that to to equipment, going replace is be up incentive the coming the to I and to you have know done, stores, they’ll be stores there’s of there day build that be So is to at the by incentive to going end re-equips their it with think to doing.

So a I net our -- from business positive perspective, it’s you franchisee think net to win-win. I

John Ivankoe

I lot Good luck makes of to That appreciate it. a sense, you guys.

Chris Rondeau

thank Thanks, you.

Operator

comes Imperial question next with from George Capital. The Kelly

George Kelly

for Hi you. a of guys, just couple questions

soon, it I that? a own the [ph] important follow talked is to equipment, equipment Chris will how first, the on to question And internally up for of you enhanced you’ve software? is of the develop about wanted you coming the So enhanced parts lot

Chris Rondeau

to in of that that’s proprietary to what’s it’s – or so regardless built of want we be of Yes, the of plumbing future, learn about, has what his five a and years, to to is and in we a we lot important. [Indiscernible] investment what wherever kind that sure which us, the our a can internal on use mention talked from a us Dorvin it’s lot that debt today not we use to manufacturer captured

George Kelly

Okay, that data, but and to relates sort the are you interaction the so stuff media that you and offering else? everything to the of tie also

Chris Rondeau

all duration Netflix using we then how change so are right. accordingly. we and they is, Some the how react That’s and is, we forward have or from of that know what their using, it, cardio what learn age is Netflix, stuff what or can what we the, use, male are and they range doing, they we going experience these female are like their how drive that

that there’s in run it that experience to Netflix. people [Indiscernible] data but So of unlike that the we we we some how not change will New It’s manipulate us, the going naturally that change future, a the our Zealand -- be LA how or remind forward. and

Dorvin Lively

into with that program infrastructure another like if had would the that from perspective you our ability We’d very this know and know so would wanted ability to have speak. a API so into, consuming. having be George we speak ago things do to you to place easily is be a perspective that, If and to link the work that plans loyalty a we would technology just then of not And plug-and-play time from link plumbing an that in it’s it’s company app. up

George Kelly

been competitive know dynamic see to, one you can what on would And you. great? then you that, just think you’re know, going other do Okay, last thanks. in from could in early know it’s is that but into I say like it me, successful. I you’ve be about whatever question gone not expansion if you there, anything Thank seems the you places, Europe? international what your countries where it’s

Chris Rondeau

yes. Sure,

in there over kind basic We’re a price, Europe they focused so for think There’s so there’s in on has and seems are briefly. the forth, you a each own necessarily like [Indiscernible] to point of It model instance, meaning free we’ve country their not time fit, for Canada. low Latin our and on has first more U.K. and gym, And of each mix kind chain. judgment as cost pure fit the I of they are some a cost. We’ve looked as country this done, but low really far mostly low gym their of priced except America that at

if XXX question got to gym, it it’s U.K. know in big probably having pure stores at here XXX in You the like you states. or the look XXX is the a

question go at and there in we we to a or that compete time look is acquire So, one do do the to try way.

of get I think has we each significant a get pretty just player. a Europe in they decision, know You role when of because might more again strategy country be there there they but got

George Kelly

thanks. Okay,

Chris Rondeau

George. Thanks,

Operator

question The Brooks, your last is Macquarie. Brooks is line from Matthew open. Matthew with

Operator

I over presenters. And no the call there questions turn further are this will at the time. to back

Chris Rondeau

Great, fourth and is This everybody thank quarter us for the Chris, today end. thanks you. for joining year call

to able was years thanks a a to you forward years going work this people tune it’s doing a fine doing in granted few brand, technology really the to it’s for I’d great just a in through future me, be a this front, is it’s for actually it times leverage to As XX how lot to look know here something stuff is pretty is call. XXXX, as be club future it’s the in exciting to substantial it we which , but what look good of on this, happening are it this and so and that with the of in some say working

Operator

today’s call. concludes conference This

disconnect. You may now

Planet Fitness (PLNT) 22 Feb 182017 Q4 Earnings call transcript